<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1996
REGISTRATION NO. 333-04117
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
AMENDMENT NO. 1
to
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
________________________
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1308796
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
765 ASP AVENUE
NORMAN, OKLAHOMA 73069
(405) 329-4045
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
H. RAINEY POWELL
PRESIDENT AND CHIEF FINANCIAL OFFICER
HAROLD'S STORES, INC.
765 ASP AVENUE
NORMAN, OKLAHOMA 73069
(405) 329-4045
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPY TO:
LON FOSTER, III LATHAN M. EWERS, JR.
CROWE & DUNLEVY, A PROFESSIONAL CORPORATION HUNTON & WILLIAMS
500 KENNEDY BUILDING RIVERFRONT PLAZA
321 SOUTH BOSTON 951 EAST BYRD STREET
TULSA, OKLAHOMA 74103-3313 RICHMOND, VIRGINIA 23219-4074
(918) 592-9800 (804) 788-8200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If the Registrant elects to deliver its annual report to security holders, or
a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this
Form, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=====================================================================================================
Title of Each Class Proposed Maximum Proposed Minimum Amount of
of Securities to Amount to be Offering Price Aggregate Offering Registration
be Registered Registered(1) Per Share(2) Price(2) Fee
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value
Previously filed............. 672,750 shares $15.875 $10,679,907 $3,683(3)
To be registered pursuant to
this Amendment............... 69,000 shares $17.000 $1,173,000 $ 405
- -----------------------------------------------------------------------------------------------------
Total......................... 741,750 shares $4,088
=====================================================================================================
</TABLE>
(1) Includes shares that may be sold by the Company and the Selling Shareholders
upon exercise of the Underwriter's over-allotment option.
(2) Pursuant to Rule 457(c), estimated solely for purposes of calculating the
registration fee. The filing fee for the additional 69,000 shares being
registered has been calculated based on the average of the high and low
sales prices of the Common Stock on the American Stock Exchange on June 6,
1996 of $17.00 per share.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
HAROLD'S STORES, INC.
CROSS REFERENCE SHEET
Pursuant to Item 1 of Form S-2, the following sets forth the location in the
Prospectus of the information called for in Part I of Form S-2.
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-2 CAPTION IN PROSPECTUS
- ----------------------------------- ---------------------
<S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of Prospectus................ Cover Page of Registration Statement;
Cross Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page of Prospectus.... Inside Front Cover Page; Available Information
Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of Earnings
to Fixed Charges.......................................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price........................... Not Applicable
6. Dilution.................................................. Not Applicable
7. Selling Security Holders.................................. Selling Shareholders
8. Plan of Distribution...................................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered................ Description of Capital Stock
10. Interests of Named Experts and Counsel.................... Underwriting and Legal Matters
11. Information with Respect to the Registrant................ Prospectus Summary; Capitalization; Price
Range of Common Stock and Dividend
Policy; Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management and
Directors; Selling Shareholders; Description
of Capital Stock; Consolidated Financial
Statements
12. Incorporation of Certain Information by Reference......... Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................ Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED , 1996
PROSPECTUS
645,000 SHARES
HAROLD'S
[LOGO]
COMMON STOCK
__________
Of the 645,000 shares of Common Stock offered hereby (the "Shares"),
400,000 shares are being sold by Harold's Stores, Inc. ("Harold's" or the
"Company") and 245,000 shares are being sold by certain shareholders of the
Company (the "Selling Shareholders"). See "Selling Shareholders." The Company
will not receive any of the proceeds from the sale of the shares of Common Stock
by the Selling Shareholders.
The Common Stock is listed on the American Stock Exchange ("AMEX") under
the trading symbol HLD. On , 1996, the last reported sale price of the Common
Stock on the AMEX was $ per share. See "Price Range of Common Stock and Dividend
Policy."
__________
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
INVESTORS BEFORE PURCHASING ANY OF THE SHARES OFFERED HEREBY.
___________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
PROCEEDS TO
UNDERWRITING PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNTS(1) COMPANY(2) SHAREHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share... $ $ $ $
- --------------------------------------------------------------------------------
Total (3)... $ $ $ $
================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated to be $110,000, all of which will be
paid by the Company.
(3) The Company and the Selling Shareholders have granted the Underwriter a
30-day option to purchase up to 96,750 additional shares of Common Stock
on the same terms as set forth above solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to Public,
Underwriting Discounts, Proceeds to Company, and Proceeds to Selling
Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
The Shares being offered by this Prospectus are offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to certain conditions. It is expected that
certificates for the shares of Common Stock will be available for delivery
against payment therefor on or about , 1996, at the offices of Scott &
Stringfellow, Inc., Richmond, Virginia.
____________
SCOTT & STRINGFELLOW, INC.
____________
The date of this Prospectus is , 1996
The following legend will appear in the left margin of the immediately
preceding cover page of the Prospectus:
Information contained herein is subject to completion to amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement become
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Room 1024, Washington, D.C. 20549 and at its Regional Offices at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at Citicorp Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies of
such materials also may be obtained at prescribed rates from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The Common Stock is listed on the American Stock
Exchange, and such reports, proxy statements and other information concerning
the Company may be inspected and copied at the offices of the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
The Company has filed with the SEC a Registration Statement on Form S-2
(the "Registration Statement"), of which this Prospectus constitutes a part,
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares. This Prospectus does not contain all the information set
forth in or incorporated by reference in the Registration Statement and the
exhibits and schedules thereto in accordance with the rules and regulations of
the SEC. For further information with respect to the Company and the Shares,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the SEC and may be obtained upon payment of a prescribed
fee or may be examined without charge at the Public Reference Section of the
SEC, Washington, D.C. Statements contained in this Prospectus concerning the
provisions of documents filed with the Registration Statement as exhibits are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus as of the date of its filing,
and subject in such case to information contained in this Prospectus, are the
Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1996
and the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May
4, 1996, which have been filed by the Company with the SEC pursuant to the 1934
Act.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated by reference in this Prospectus
(other than exhibits and schedules thereto, unless such exhibits or schedules
are specifically incorporated by reference into the information that this
Prospectus incorporates). Written or telephonic requests for such copies should
be directed to H. Rainey Powell, Harold's Stores, Inc., 765 Asp Avenue, Norman,
Oklahoma 73069, telephone (405) 329-4045.
____________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements (including the Notes thereto) appearing elsewhere in this Prospectus.
All share and per share information set forth herein has been adjusted to
reflect the 5% stock dividend paid in fiscal 1996 and the 10% stock dividends
paid in fiscal 1995, fiscal 1994 and fiscal 1993. Unless otherwise indicated,
all information contained herein assumes no exercise of the Underwriter's over-
allotment option or of options granted pursuant to the Company's stock option
and equity incentive plan. See "Underwriting" and "Selling Shareholders."
THE COMPANY
Harold's Stores, Inc., through a 31-location store chain of women's and
men's specialty apparel stores in 15 states, offers high-quality, classically
inspired apparel to the upscale, quality-conscious consumer primarily in the 20
to 50 year old age group. The stores typically are strategically located in
shopping centers and malls with other top-of-the-line specialty retailers and
are enhanced by an eclectic mix of antiques, together with specially designed
fixtures and visual props, to create an appealing stage for presentation of the
Company's distinctive women's and men's apparel and accessories. More than 85%
of sales consists of the Company's designs controlled by Harold's own stylists
and designers and resourced by Harold's buyers from domestic, European and Asian
manufacturers. See "Business - Product Development and Sourcing Programs." The
remainder consists of branded merchandise selected to complement Harold's
merchandise presentation.
The Company's 31 stores are comprised of 12 full-line women's and men's
apparel stores, nine women's apparel stores which include a presentation of
men's sportwear featuring the Company's Old School Clothing brand, eight stores
featuring women's apparel only and two outlet stores to clear markdowns and
slow-moving merchandise. Retail stores range in size from about 2,100 to 14,000
square feet, with the typical store ranging from 4,000 to 6,000 square feet. The
Company's store occupancy costs were 7.3% of store sales in fiscal 1996 and 7.2%
of store sales in fiscal 1995. Store occupancy costs include base and percentage
rent, common area maintenance expense, utilities and depreciation of leasehold
improvements.
The Company achieved comparable store sales growth of 8.7% in fiscal 1996
and 10.7% in fiscal 1995. The Company believes that this increase in comparable
store sales is attributable to Harold's product development and merchandising
and Harold's commitment to customer service through its sales associates. The
Company's average sales per square foot for stores open during the entire fiscal
year were $628 and $599 for fiscal 1996 and fiscal 1995, respectively, on a 52-
week basis. The Company believes its sales per square foot are higher than
industry averages.
The Company believes that its future success will be achieved by expanding
the number of its women's and men's apparel stores, maintaining sales momentum
at existing stores, and increasing circulation of its direct response catalog.
The Company recently embarked on an aggressive expansion program, adding in the
aggregate eight retail stores during fiscal 1995 and fiscal 1996 and thereby
increasing the chain store count by approximately 40%.
The Company's expansion plan has focused and will continue to focus
primarily on markets currently served by the Company and in new markets that
represent a geographical progression from existing markets. Thus far during
fiscal 1997, the Company has opened stores in Greenville, South Carolina and
Leawood, Kansas (Kansas City metro) and plans to open four additional stores.
These four stores are planned for opening during the balance of fiscal 1997 in
regional shopping malls in Raleigh, North Carolina, Tyson's Corner (Northern
Virginia), Houston and Denver. All six stores will feature a full line of
women's merchandise, while four will include a full line of men's merchandise
and two will offer men's sportwear.
Beginning in 1990, the Company created a direct response catalog that, in
addition to contributing to sales, has provided market research and initial
promotion of new store openings. Catalog sales have increased from $620,000 in
fiscal 1992 to $9,384,000 in fiscal 1996. In fiscal 1996, the Company mailed six
issues of the catalog, averaging 48 pages, with aggregate circulation of
approximately 6.5 million issues.
The mailing address and telephone number of the Company's principal
executive offices are 765 Asp Avenue, Norman, Oklahoma 73069, (405) 329-4045.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by(1)
The Company............................ 400,000 shares
The Selling Shareholders............... 245,000 shares
Shares Outstanding
After this Offering(1)(2).............. 5,365,245 shares
Use of Proceeds........................... To reduce indebtedness, to finance expansion
of the Company's chain of stores and its credit
card receivables and for working capital.
AMEX Symbol............................... HLD
</TABLE>
________________________
(1) Assumes that the Underwriter's over-allotment option to purchase up to
96,750 shares will not be exercised. See "Underwriting."
(2) Excludes 376,276 shares of Common Stock reserved for issuance pursuant to
outstanding stock options as of May 1, 1996.
FISCAL YEARS
The Company operates on a 52-53 week fiscal year which ends on the Saturday
closest to January 31. References herein to fiscal 1997, fiscal 1996, fiscal
1995, fiscal 1994, fiscal 1993 and fiscal 1992 refer to the years ended February
1, 1997, February 3, 1996, January 28, 1995, January 29, 1994, January 30, 1993
and February 1, 1992.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary financial information is derived from the
consolidated financial statements of the Company for the fiscal years 1992
through 1996 and the first quarters of fiscal 1996 and fiscal 1997.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER ENDED
---------------------------------------------------------------------- -----------------------
APRIL 29, MAY 4,
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(Dollar amounts in thousands, except per share data)
STATEMENTS OF EARNINGS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $40,553 $49,279 $60,940 $75,795 $94,264 $21,316 $24,522
Gross profit on sales(1) 12,990 16,303 20,349 26,407 34,433 7,448 8,631
Earnings before income taxes 1,148 1,875 2,783 3,539 4,645 811 1,010
Net earnings 647 1,052 1,612 2,088 2,787 486 606
Earnings per common share(2) $ 0.15 $ 0.25 $ 0.35 $ 0.42 $ 0.56 $ 0.10 $ 0.12
BALANCE SHEET DATA:
Working capital $ 8,732 $ 9,985 $12,540 $12,524 $21,829 $12,272 $22,170
Total assets 20,085 21,947 26,441 34,661 42,609 35,759 42,936
Long-term debt(3) - 1,177 669 594 9,540 575 9,418
Stockholders' equity 14,302 15,366 19,996 22,260 25,299 22,819 26,006
Net book value per share(4) $ 3.36 $ 3.61 $ 4.07 $ 4.51 $ 5.10 $ 4.62 $ 5.24
OTHER OPERATING DATA:
Stores open at end of period(5) 15 18 21 25 29 26 31
Growth in comparable store 1.1% 8.1% 7.4% 10.7% 8.7% 7.8% 3.8%
sales (52-53 week basis)
</TABLE>
_________________________
(1) In accordance with retail industry practice, gross profit on sales is
calculated by subtracting cost of goods sold (including occupancy and
central buying expenses) from sales.
(2) Net earnings per common share are based on the weighted average number of
common shares outstanding during each period restated for the 5% stock
dividend in fiscal 1996 and the 10% stock dividends in fiscal 1995, fiscal
1994 and fiscal 1993, and include Common Stock equivalents of 53,181 shares
in fiscal 1996 and 47,135 shares and 136,643 shares in the fiscal quarters
ended April 29, 1995 and May 4, 1996, respectively.
(3) In fiscal 1996, the Company renewed its line of credit to be payable at a
fixed maturity rather than on demand which required the loan to be
reclassified as long-term debt.
(4) Net book value per share is based on the number of common shares
outstanding at the end of each fiscal year restated for the 5% stock
dividend in fiscal 1996 and the 10% stock dividends in fiscal 1995, fiscal
1994 and fiscal 1993.
(5) The number of stores open at the end of the period has been restated to
reflect the consolidation of the stand alone "Old School Clothing Company"
into the 50 Penn Place Store in Oklahoma City.
- --------------------------------------------------------------------------------
5
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following factors as
well as the other information contained in this Prospectus before purchasing any
of the Shares offered hereby:
PRODUCT DEVELOPMENT; MERCHANDISE INVENTORIES. As a consequence of the
Company's product development programs, a substantial portion of the Company's
merchandise purchases are concentrated among a small number of vendors. The
Company believes that fewer vendor relationships advance the Company's product
development objectives of increasing control over design and manufacturing
processes, providing the Company enhanced control over the quality and cost of
the Company's inventory purchases. However, since the Company works with a
limited number of vendors, non-delivery or late delivery by any one of the
Company's principal vendors could adversely affect the Company's operations. In
the event of the termination of the relationship with the Company's principal
vendor, the Company believes that more than one new vendor would be required to
replace the loss of that vendor. Although management believes that replacement
vendors could be located if any buying relationship is terminated, until
replacement vendors are located, the operating results of the Company could be
materially adversely affected.
The Company's product development programs also require it to be involved
earlier in the process of creating merchandise and to make financial commitments
sooner than would otherwise be necessary were it relying solely on outside
vendor developed merchandise. The Company's investment in piece goods (fabric)
and work in process has increased significantly during the last fiscal year.
Since the Company, in most instances, purchases piece goods to be used in its
products direct from various mills, there is a relatively long lead time
involved in the manufacturing process and investment in piece goods before these
goods are cut and sewn. As a result, the Company is vulnerable to demand and
pricing shifts and to errors in selection and timing of merchandise purchases.
See "Business - Product Development and Sourcing Programs."
EXPANSION PLANS. The Company has grown from 21 stores in 1994 to 31 stores
as of May 1, 1996 and its sales have grown significantly in the past several
years. The Company intends to continue to pursue its aggressive store opening
strategy. The continued growth of the Company is dependent, in large part, upon
the Company's ability to open new stores on a timely basis and to operate them
profitably. The Company plans to open approximately six new stores in fiscal
1997, two of which are already open. As of May 1, 1996, the Company had signed
leases with respect to three new stores and had reached an agreement in
principle with respect to one additional new store to open in fiscal 1997.
Successful expansion is subject to various contingencies, some of which are
beyond the Company's control. These contingencies include, among others, (i) the
Company's ability to hire, train and retain qualified managers and other
personnel, and to maintain good relations with all of its employees, (ii) the
availability of adequate inventory, capital resources and external financing,
(iii) the Company's ability to identify and secure suitable store sites on a
timely basis and on satisfactory terms and to complete any necessary
construction or refurbishment of these sites, (iv) the successful integration of
new stores into existing operations and (v) the Company's ability to adjust its
merchandise mix to accommodate various consumer preferences and climates in
markets where the Company has not previously operated. There can be no assurance
that the Company will be able to achieve its targets for opening new stores,
that its new stores will be profitable or achieve sales and profitability
comparable to the Company's existing stores, or that comparable store sales
increases will continue. Furthermore, there can be no assurance that the Company
will anticipate all of the changing demands which its expanding operations will
impose on its systems and personnel. The Company's failure to expand internal
systems or to hire, train and retain qualified personnel as required by its
growth could adversely affect its future operating results. See "Business -
General."
REGULATIONS AND FOREIGN CURRENCY EXCHANGE. The Company purchased
approximately 13.4% of its merchandise based on cost in fiscal 1996 directly
from vendors located abroad, primarily in the United Kingdom, Italy, France, and
the Far East. In addition, the Company believes that a substantial portion of
the goods the Company purchases from domestic vendors are manufactured abroad.
These arrangements are subject to the risks of relying on products manufactured
abroad, including import duties and quotas, loss of "most favored nation"
trading status and currency risk associated with the purchase of merchandise.
The Company must continuously seek out buying opportunities from both its
existing suppliers and new sources, for which it competes with other apparel
retailers.
6
<PAGE>
Although the Company believes that its management has long standing and
excellent relationships with its suppliers, there can be no assurance that the
Company will be successful in maintaining a continuing and, in light of the
anticipated addition of new stores, an increasing supply of quality merchandise
at attractive prices. See "Business - Retail Merchandising." Substantially all
of the Company's purchases from the Far East, including Hong Kong, are priced in
U.S. dollars. However, its European purchases are denominated in local currency
and, therefore, are subject to fluctuating currency exchange rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
The United States has recently proposed trade sanctions against the
People's Republic of China, including tariffs on certain imported goods. Due to
the limited categories and quantities of merchandise imported by the Company
from the People's Republic of China, the Company does not believe that the
effects of the proposed sanctions will be significant to the Company. However,
due to uncertainties concerning whether, and to what extent, the sanctions will
be adopted, there can be no assurances concerning the effect of the proposed
sanctions on the Company.
DEPENDENCE UPON KEY PERSONNEL. The Company's success depends to a
significant extent upon the leadership and performance of its senior management
team, particularly Harold G. Powell, Chairman of the Board, Rebecca Powell
Casey, Vice Chairman of the Board and Chief Executive Officer, H. Rainey Powell,
President and Chief Operating and Financial Officer, and Kenneth C. Row,
Executive Vice President. While the Company believes that its senior management
team has significant depth, the loss of services of any of the executive
officers of the Company could have a material adverse impact on the Company. See
"Management and Directors."
CONTROL OF THE COMPANY. Harold G. Powell, Chairman of the Board of the
Company, members of his family (including Rebecca Powell Casey and H. Rainey
Powell, officers of the Company) and certain trusts, the beneficiaries of which
are Powell family members, currently own beneficially approximately 54.1% of the
outstanding shares of Common Stock. After giving effect to this offering, the
aggregate beneficial ownership of members of the Powell family and certain
trusts will be reduced to approximately 45.5% of the outstanding shares of
Common Stock. Members of the Powell family may continue to effectively control
the business and affairs of the Company following completion of this offering.
See "Description of Capital Stock."
In the ordinary course of business, the Company engages in transactions
with entities owned by the Powell family. During fiscal 1996, payments by the
Company to these entities totaled approximately $362,000, representing lease
payments with respect to the Company's distribution and receiving facility in
Norman, Oklahoma, its Dallas, Texas buying and administrative offices, and its
Norman, Oklahoma retail store and related facilities. See "Business -Merchandise
Buying Office and Distribution Center" and Notes to Consolidated Financial
Statements - Note 8.
COMPETITION AND OTHER BUSINESS FACTORS. All aspects of the retail apparel
business are highly competitive. The Company competes primarily with better
department stores, specialty retailers and boutiques engaged in the retail sale
of better quality women's and men's apparel, many of which are larger and have
greater resources than the Company. Although the Company believes its emphasis
on classically inspired styles makes it less vulnerable to changes in fashion
trends than many other apparel retailers, the Company's sales and earnings
nevertheless depend to a significant extent upon its ability to respond to
changes in fashion. See "Business - Competition." The Company's future
performance will be subject to a number of factors beyond its control, including
economic downturns, cyclical variations in the retail market for better quality
apparel and rapid changes in fashion preferences. In addition, in order to
continue to grow at the rates achieved in recent years, the Company will have to
continue to open new stores. Such growth will be dependent upon general economic
and business conditions affecting consumer spending, the availability of
desirable locations and the negotiation of acceptable lease terms for new
locations. See "Business - General."
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company has historically
experienced and expects to continue to experience seasonal fluctuations in its
sales, operating income and net income. The highest sales periods for the
Company are the early autumn and Christmas seasons falling in the third and
fourth fiscal quarters, respectively. A disproportionate amount of the
Company's sales, operating income and net income are generally realized during
the fourth quarter. In anticipation of increased sales activity during these
months, the Company purchases substantial
7
<PAGE>
amounts of inventory and hires a significant number of temporary employees to
bolster its permanent store staff. If, for any reason, the Company's sales were
below seasonal norms during the third and fourth fiscal quarters, including as a
result of merchandise delivery delays due to receiving or distribution problems,
the Company's annual operating results, particularly operating income and net
income, could be adversely affected. Historically, sales, operating income and
net income have been weakest during the first fiscal quarter, and the Company
expects this trend to continue. The Company's quarterly results of operations
may also fluctuate significantly as a result of a variety of factors, including
the timing of new store openings, the sales contributed by new stores, shifts in
the timing of certain holidays and the merchandise mix. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Seasonality."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Shares are estimated
to be approximately $ (approximately $ if the Underwriter's over-
allotment option is exercised in full). Substantially all of the net proceeds to
the Company will be used to reduce indebtedness, to finance the expansion of the
Company's chain of retail stores, to finance the Company's credit card
receivables and for working capital. Pending any such uses, the Company intends
to reduce borrowing under its working capital lines. See "Business - Catalog
Publication and Order Fulfillment and - Merchandise Inventory Replenishment and
Distribution," and Notes to Consolidated Financial Statements - Note 4.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed on the American Stock Exchange under
the symbol "HLD." The table below presents the range of high and low sale prices
of the Common Stock for the periods indicated. The price per share information
contained in the following table is restated to reflect a 5% stock dividend paid
in fiscal 1996 and a 10% stock dividend paid in fiscal 1995.
<TABLE>
<CAPTION>
FISCAL 1997 HIGH LOW
- ----------- ---- ---
<S> <C> <C>
1st Quarter $18.00 $11.75
2nd Quarter (through) 16.75 15.63
, 1996
FISCAL 1996 HIGH LOW
- ----------- ---- ---
1st Quarter $10.60 $ 9.40
2nd Quarter 10.60 9.52
3rd Quarter 10.36 9.17
4th Quarter 11.79 9.40
FISCAL 1995 HIGH LOW
- ----------- ---- ---
1st Quarter $ 8.66 $ 6.39
2nd Quarter 12.34 8.01
3rd Quarter 10.71 7.58
4th Quarter 10.17 8.66
</TABLE>
8
<PAGE>
The last sale price of the Common Stock as reported on the American
Stock Exchange on , 1996, was $ . As of May 1, 1996,
there were 595 record holders of the Company's Common Stock. The Company has
never declared or paid cash dividends on its capital stock and presently intends
to retain all earnings for the operation and expansion of its business for the
foreseeable future. Any future determination as to the payment of cash
dividends will depend on the Company's earnings, capital requirements, financial
condition and other factors as the Company's Board of Directors may deem
relevant.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of the end of the Company's fiscal quarter on May 4, 1996, and as
adjusted to give effect to the sale by the Company of 400,000 shares of Common
Stock offered hereby (excluding 60,000 shares issuable upon exercise of the
Underwriter's over-allotment option). This table should be read in conjunction
with the consolidated financial statements of the Company and the notes thereto
appearing elsewhere, or incorporated by reference, in this Prospectus.
<TABLE>
<CAPTION>
AS OF MAY 4, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(In thousands)
<S> <C> <C>
Short-term obligations (includes current portion
of long-term debt) $ 75 $
-------
Long-term obligations (excludes current portion
of long-term debt)(1) 9,418
-------
Stockholders' equity:
Preferred Stock; $0.01 par value; 1,000,000
shares authorized; none issued -
Common Stock: $0.01 par value; 7,500,000
shares authorized; 4,965,245 shares issued
(5,365,245 shares as adjusted)(2)(3) 50
Additional paid-in capital 20,673
Retained earnings 5,283 _______
-------
Total stockholders' equity 26,006 _______
-------
Total capitalization $35,499 $
======= =======
</TABLE>
_____________________
(1) See Notes to Consolidated Financial Statements - Note 4 for information
concerning long-term indebtedness of the Company.
(2) 5,425,245 shares if the Underwriter's over-allotment option is exercised in
full.
(3) See Notes to Consolidated Financial Statements - Note 6. Excludes
approximately 376,276 shares of Common Stock reserved for issuance pursuant
to outstanding awards under the Company's stock option and equity incentive
plan as of May 4, 1996.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information is derived from
the audited consolidated financial statements of the Company and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes thereto, appearing elsewhere or incorporated by reference in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER ENDED
---------------------------------------------------------------- --------------------
APRIL 29, MAY 4,
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(Unaudited)
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Sales $40,553 $49,279 $60,940 $75,795 $94,264 $21,316 $24,522
Percentage increase 6.8% 21.5% 23.7% 24.4% 24.4% 27.2% 15.0%
Gross profit on sales (1) $12,990 $16,303 $20,349 $26,407 $34,433 $ 7,448 $ 8,631
Percentage of sales 32.0% 33.1% 33.4% 34.8% 36.5% 34.9% 35.2%
Earnings before income
taxes $ 1,148 $ 1,875 $ 2,783 $ 3,539 $ 4,645 $ 811 $ 1,010
Percentage of sales 2.8% 3.8% 4.5% 4.7% 4.9% 3.8% 4.1%
Net earnings $ 647 $ 1,052 $ 1,612 $ 2,088 $ 2,787 $ 486 $ 606
Percentage of sales 1.6% 2.1% 2.6% 2.8% 3.0% 2.3% 2.5%
Earnings per common
share(2) $ 0.15 $ 0.25 $ 0.35 $ 0.42 $ 0.56 $ 0.10 $ 0.12
OTHER OPERATING DATA:
Stores open at end of
period(3) 15 18 21 25 29 26 31
Growth in comparable store
sales 1.1% 8.1% 7.4% 10.7% 8.7% 7.8% 3.8%
(52-53 week basis)
BALANCE SHEET DATA:
Working capital $ 8,732 $ 9,985 $12,540 $12,524 $21,829 $12,272 $22,170
Total Assets 20,085 21,947 26,441 34,661 42,609 35,759 42,936
Long-term debt(4) - 1,177 669 594 9,540 575 9,418
Stockholders' equity 14,302 15,366 19,996 22,260 25,299 22,819 26,006
Net book value per share(5) $ 3.36 $ 3.61 $ 4.07 $ 4.51 $ 5.10 $ 4.62 $ 5.24
</TABLE>
_________________________
(1) In accordance with retail industry practice, gross profit on sales is
calculated by subtracting cost of goods sold (including occupancy and
central buying expenses) from sales.
(2) Net earnings per common share are based on the weighted average number of
shares of Common Stock outstanding during each period restated for the 5%
percent stock dividend in fiscal 1996 and the 10% stock dividends in fiscal
1995, fiscal 1994 and fiscal 1993, and include Common Stock equivalents of
53,181 shares in fiscal 1996 and 47,135 shares and 136,643 shares in the
fiscal quarters ended April 29, 1995 and May 4, 1996, respectively.
(3) The number of stores open at the end of the period has been restated to
reflect the consolidation of the stand alone "Old School Clothing Company"
into the 50 Penn Place Store in Oklahoma City.
(4) In fiscal 1996, the Company renewed its line of credit to be payable at a
fixed maturity rather than on demand which required the loan to be
reclassified as long-term debt.
(5) Net book value per share is based on the number of shares of Common Stock
outstanding at the end of each fiscal year restated for the 5% stock
dividend in fiscal 1996 and the 10% stock dividends in fiscal 1995, fiscal
1994 and fiscal 1993.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table reflects items in the Company's statement of earnings
as a percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER ENDED
--------------------------- ----------------------
APRIL 29, MAY 4,
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (66.6) (65.2) (63.5) (65.1) (64.8)
Selling, general and administrative expenses (19.8) (19.7) (20.5) (20.1) (19.8)
Advertising expense (6.5) (7.8) (8.3) (7.8) (8.1)
Depreciation and amortization (2.3) (2.3) (2.3) (2.4) (2.7)
Interest expense (0.3) 0.3) (0.5) (0.8) (0.5)
----- ----- ----- ----- -----
Earnings before income taxes 4.5 4.7 4.9 3.8 4.1
Provision for income taxes (1.9) (1.9) (1.9) (1.5) (1.6)
----- ----- ----- ----- -----
Net earnings 2.6% 2.8% 3.0% 2.3% 2.5%
===== ===== ===== ===== =====
</TABLE>
The following table reflects the sources of the increases in Company
sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER ENDED
--------------------------- --------------------
APRIL 29, MAY 4,
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Store sales (000's) $55,504 $68,901 $84,880 $18,783 $21,990
Catalog sales (000's) 5,436 6,894 9,384 2,533 2,532
------- ------- ------- ------- -------
Sales (000's) $60,940 $75,795 $94,264 $21,316 $24,522
======= ======= ======= ======= =======
Total sales growth 23.5% 24.4% 24.4% 27.2% 15.0%
Growth in comparable store sales 7.4 10.7 8.7 7.8 3.8
(52-53 week basis)
Growth in catalog sales 68.6 26.8 36.1 34.6 0.0
Store locations:
Existing stores beginning of period 18 21 25 25 29
New stores opened during period 3 4 4 1 2
------- ------- ------- ------- -------
Total stores at end of period 21 25 29 26 31
======= ======= ======= ======= =======
</TABLE>
FISCAL YEARS ENDED JANUARY 29, 1994, JANUARY 28, 1995 AND FEBRUARY 3, 1996.
The opening of new stores, the expansion of existing stores, as well as the
increase in comparable store sales and the growth in catalog sales, contributed
to total sales growth for fiscal years 1994, 1995, and 1996. New stores opened
during fiscal 1996 included a 4,221 square foot men's and women's store in St.
Louis, Missouri opened in March 1995 (first quarter); a 4,292 square foot
women's and "Old School" store opened in Louisville, Kentucky in September 1995
(third quarter); a 5,200 square foot full-line men's and women's store opened in
Baton Rouge, Louisiana in November 1995 (third quarter); and Harold's second
outlet center, a 5,160 square foot store in Hillsboro, Texas in December 1995
(fourth quarter).
11
<PAGE>
New stores opened during fiscal year 1995 included a 4,000 square foot
women's and "Old School" store in Charlotte, North Carolina opened in July 1994
(second quarter); a 3,300 square foot women's store opened in Austin, Texas in
September 1994 (third quarter); a 5,500 square foot full-line men's and women's
store opened in Plano, Texas in October 1994 (third quarter); and a 5,000 square
foot women's and "Old School" store opened in Phoenix, Arizona in November 1994
(fourth quarter).
Significant increases in mail order catalog sales are the direct result of
the Company's expansion of this segment of the business. Since the 1989 test
market of Harold's first catalog, the Company has expanded its regular catalog
to include six seasonal issues each year. For fiscal 1996, the Company's catalog
averaged 48 pages per issue with an aggregate mailing (including abridged
issues) of approximately 6.5 million catalogs.
The Company's gross margin increased for fiscal 1996 compared to fiscal
1995 and fiscal 1994. This increase is the result of a combination of several
factors. Increased sales volume has enabled the Company to more easily meet the
minimums required in the purchase of piece goods and the manufacturing of
garments. This has resulted in a reduction of overbuys and markdowns.
Verticalization in product development has created opportunities for increases
in initial markups. Improved control of downflow of merchandise to the outlet
stores has contributed to the reduction in ultimate markdowns. Any increase in
net earnings as a percentage of sales will be the result of increasing sales
while controlling selling, general and administrative expenses and improvement
in gross profit on sales.
Selling, general and administrative expenses have continued to increase as
sales have increased in fiscal 1994, fiscal 1995, and fiscal 1996. Catalog
production cost increased 38% and 51% in fiscal years 1996 and 1995,
respectively. These increases in costs were due to the expansion of catalog
operations. In fiscal 1997, the Company plans to decrease the rate of sales
growth in the catalog division and decrease catalog expenses as a percentage of
sales. Additionally, an increase of approximately 29% in sales salaries during
fiscal 1996 compared to fiscal 1995 is associated with the Company's efforts to
improve the quality of customer service in all stores. The Company anticipates a
leveling of this expense category as a percentage of sales.
The average balance on total outstanding debt was $7,633,000 in fiscal 1996
compared to $3,668,000 for fiscal 1995. Average interest rates on the Company's
line of credit were higher in fiscal 1996, resulting in an increase in the
Company's cost of borrowed capital. As the Company's growth continues, cash flow
may require additional borrowed funds which may cause an increase in interest
expense.
The Company's purchases denominated in foreign currency are of a short term
nature. The Company does not hedge these foreign currency transactions and it
has not been adversely affected in the past. The Company has no assurances that
the impact in the future may not be material.
The Company's income tax rate of 42% in fiscal 1994 and 41% in fiscal 1995
decreased to 40% in fiscal 1996. This decreased tax rate is attributable to the
Company's estimation of higher tax rates on temporary differences in fiscal 1994
and fiscal 1995 compared to the tax rates currently estimated.
FISCAL QUARTERS ENDED APRIL 29, 1995 AND MAY 4, 1996. New stores opened
during the quarter ended May 4, 1996 include a 5,076 square foot women's and
"Old School" store in Greenville, South Carolina and a 5,000 square foot
full-line men's and women's store in Leawood, Kansas (Kansas City Metro).
The Company's gross margin increased during the quarter ended May 4, 1996
compared to the Company's gross margin for the comparable period in the prior
fiscal year. Among the principal factors contributing to the increase was
reduction in aggregate merchandise markdowns due to increased sales volumes in
the Company's stores.
Selling, general and administrative expenses decreased as a percentage of
sales during the quarter ended May 4, 1996 compared to the comparable period in
the prior fiscal year. This decrease resulted primarily from the leveling of
catalog expenses and sales salaries as a percentage of sales during such quarter
compared to prior periods. However, selling, general and administrative
expenses may increase as a percentage of sales during the remainder of fiscal
1997 as the Company pursues its expansion plans to open four more stores in
fiscal 1997 in addition to the two new stores opened during the first quarter of
fiscal 1997.
The average balance on total outstanding debt was $9,942,000 for the
quarter ended May 4, 1996 compared to $6,040,000 for the comparable period in
the prior fiscal year. This increase in outstanding debt was due primarily to
borrowings under the Company's line of credit to finance inventory purchases,
store expansion, remodeling and equipment purchases. Average interest rates on
the Company's line of credit were approximately the same for the quarter ended
May 4, 1996 and the comparable quarter in the prior fiscal year. As the
COmpany's growth continues, cash flow may require additional borrowed funds
which may cause an increase in interest expense.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
CASH FLOWS FROM OPERATING ACTIVITIES. For fiscal 1996, net cash provided
by operating activities was $709,000 as compared to $569,000 for fiscal 1995.
The significant increase in cash flows from operating activities is partially
attributable to the difference in timing of cash disbursements as reflected in
an increase in accounts payable of $242,000 for fiscal 1996, as compared to an
increase in accounts payable of $1,326,000 for fiscal 1995. In addition, the
difference in cash flows from operating activities between the two fiscal
periods is partially due to an increase of
12
<PAGE>
$3,800,000 in the Company's merchandise inventories for fiscal 1996, as compared
to fiscal 1995, during which inventories increased by $5,200,000, primarily as a
result of the change in the relationship with CMT Enterprises, Inc. (see
"Liquidity"). Management expects that the dollar amount of its merchandise
inventories will continue to increase as it expands its product development
programs and private label merchandise and expands its chain of retail stores
and catalog operations, with related increases in trade accounts receivable and
accounts payable. Period-to-period differences in timing of inventory purchases
and deliveries will affect comparability of cash flows from operating
activities.
In addition, the increased net earnings from fiscal 1996 and fiscal 1995 of
$2,787,000 and $2,088,000, respectively, resulted in an increase in accrued
expenses of $642,000 as compared to $656,000 for fiscal 1996 and 1995,
respectively.
For the quarter ended May 4, 1996, net cash provided by operating
activities was $1,508,000 as compared to $917,000 for the same period in fiscal
1996. The increase is partially attributable to the timing of cash receipts and
dis bursements. Significant changes in the timing of cash receipts and
disbursements between the first quarters ended May 4, 1996 and April 29, 1995,
included an increase of $449,000 and $916,000, respectively, in trade and other
accounts receivable. The increase in trade and other accounts receivable is the
result of management's decision to promote sales using the Company's credit
card. These promotions are in conjunction with new store openings, as well as
existing stores, and are designed to provide a convenient source of credit for
the Company's customers at all Harold's locations and to increase the Company's
finance charge revenues.
In addition, the difference in cash flows from operating activities between
the two fiscal periods is partially due to a decrease of $1,016,000 in the
Company's merchandise inventories for the quarter ended May 4, 1996, as compared
to the first quarter of fiscal 1996, during which inventories decreased by
$1,260,000, and a decrease of $221,000 in the Company's accounts payable during
the quarter ended May 4, 1996, compared to a decrease in payables of $80,000 for
the first quarter of fiscal 1996. Management expects that the dollar size of its
merchandise inventories will increase as it expands its chain of retail stores
and catalog operation, with related increases in trade accounts payable, and
that period-to-period differences in timing of inventory purchases and
deliveries will affect comparability of cash flows from operating
activities.
CASH FLOWS FROM INVESTING ACTIVITIES. For fiscal 1996 net cash used in
investing activities was $4,857,000 as compared to $3,952,000 for fiscal 1995.
For the quarter ended May 4, 1996, net cash used in investing activities was
$1,139,000 as compared to $1,205,000 for the quarter ended April 29, 1995.
Capital expenditures totaled $5,159,000 for fiscal 1996 compared to $3,994,000
for fiscal 1995, and $1,224,000 for the quarter ended May 4, 1996 compared to
$1,135,000 for the quarter ended April 29, 1995. Capital expenditures during
such periods were invested principally in new stores and in remodeling and
equipment expenditures at existing facilities.
CASH FLOWS FROM FINANCING ACTIVITIES. The Company has available a long-
term line of credit with its bank (see "Liquidity"). During fiscal 1996 and the
quarter ended May 4, 1996, the Company made periodic borrowings under its
revolving credit facility to finance its inventory purchases, store expansion,
remodeling and equipment purchases.
The line of credit had an average balance of $7,000,000 and $2,961,000
for the fiscal years 1996 and 1995, respectively. During fiscal 1996, the line
of credit had a high balance of $10,337,000 and a $9,021,000 balance as of
February 3, 1996. During the quarters ended May 4, 1996 and April 29, 1995, the
line of credit had an average balance of $9,259,000 and $5,390,00, respectively.
During the quarter ended May 4, 1996, the line of credit had a high balance of
$10,473,000 and a balance of $8,918,000 as of the end of such quarter. The
balance at June 6, 1996 was $8,926,000.
LIQUIDITY. The Company considers the following as measures of
liquidity and capital resources as of the dates indicated:
13
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL QUARTER ENDED
-------------------------------- ----------------------
APRIL 29, MAY 4,
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Unaudited)
Working capital (000's) $12,540 $12,524 $21,829 $12,272 $22,170
Current ratio 3.23:1 2.08:1 3.89:1 2.01:1 4.04:1
Ratio of working capital to total assets .47:1 .36:1 .51:1 .34:1 .52:1
Ratio of long-term debt (including current
maturities) to stockholders' equity .11:1 .25:1 .38:1 .28:1 .37:1
</TABLE>
In fiscal 1996, the Company renewed its line of credit to be payable at a
fixed maturity rather than on demand. As a result the loan was reclassified as
long-term debt rather than as a current liability.
As a result of the change in fiscal 1995 in the relationship with CMT
Enterprises, Inc., the Company was required to increase its borrowings
approximately $5,200,000 to finance the purchase of raw materials and manu
facturing of finished goods. Previously, CMT sold finished goods to the Company.
Under the new arrangement, CMT acts as the Company's agent in the purchase of
raw materials (i.e. fabrics, linings, buttons, etc.) and supervises the
manufacturing process of the Company's merchandise with manufacturing
contractors. Increases in inventory because of the Company's expansion have
required increased borrowings under the Company's credit line.
The Company's primary needs for liquidity are to finance its inventories
and revolving charge accounts and to invest in new stores, remodeling , fixtures
and equipment.
Management believes cash flow from operations and its existing banking
arrangements should be sufficient to meet its operating needs and capital
expenditures through fiscal 1997. The Company's capital expenditures budget for
fiscal 1997 is approximately $3,700,000. Effective February 20, 1996, the
Company increased the above line of credit to $15,000,000. Additionally, a
$3,000,000 line of credit was obtained from a separate banking institution for
the purpose of issuing letters of credit.
Management believes that cash flow from operations and its existing banking
arrangements should be sufficient to meet its operating needs and capital
requirements through the fiscal year ending February 1, 1997. However, in order
to take advantage of opportunities to finance the Company's growth, management
believes it prudent to increase the equity capitalization of the Company rather
than finance this expansion through additional borrowings.
SEASONALITY
The Company's business is subject to seasonal influences, with the major
portion of sales realized during the fall season (third and fourth quarters) of
each fiscal year, which includes the back-to-school and the holiday selling
seasons. In light of this pattern, selling, general and administrative expenses
were typically higher as a percentage of sales during the spring seasons (first
and second quarters) of each fiscal year.
INFLATION
Inflation affects the costs incurred by the Company in its purchase of
merchandise and in certain components of its selling, general and administrative
expenses. The Company attempts to offset the effects of inflation through price
increases and control of expenses, although the Company's ability to increase
prices is limited by competitive factors in its markets. Inflation has had no
meaningful effect on sales, or net earnings of the Company.
IMPACT OF PENDING ACCOUNTING ANNOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
121, "Accounting for the Impairment of Long-Lived Assets to be Disposed of"
("Statement 121"). Statement 121 is required to be adopted for
14
<PAGE>
fiscal years beginning after December 15, 1995. Statement 121 establishes
accounting standards for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
In October 1995, the Financial Accounting Standards Board issued Statement
123, "Accounting for Stock-Based Compensation" ("Statement 123"). Statement 123
is required to be adopted for fiscal years beginning after December 15, 1995.
Statement 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company does not intend to adopt
the value-based accounting measurements recommended by Statement 123.
Management believes that the adoption of Statements 121 and 123 will not
have a significant impact on the financial condition or the results of
operations of the Company.
15
<PAGE>
BUSINESS
GENERAL
Harold's Stores, Inc., through a 31-location store chain of women's and
men's specialty apparel stores in 15 states, offers high-quality, classically
inspired apparel to the upscale, quality-conscious consumer primarily in the 20
to 50 year old age group. The stores typically are strategically located in
shopping centers and malls with other top-of-the-line specialty retailers and
are enhanced by an eclectic mix of antiques, together with specially designed
fixtures and visual props, to create an appealing stage for presentation of the
Company's distinctive women's and men's apparel and accessories. More than 85%
of sales consists of the Company's designs controlled by Harold's own stylists
and designers and resourced by Harold's buyers from domestic, European and Asian
manufacturers. The remainder consists of branded merchandise selected to
complement Harold's merchandise presentation. See "Business - Product
Development and Sourcing Programs."
The Company's 31 stores are comprised of 12 full-line women's and men's
apparel stores, nine women's apparel stores which include a presentation of
men's sportswear featuring the Company's Old School Clothing brand, eight stores
featuring women's apparel only and two outlet stores to clear markdowns and
slow-moving merchandise. Retail stores range in size from about 2,100 to 14,000
square feet, with the typical store ranging from 4,000 to 6,000 square feet. The
Company's store occupancy costs were 7.3% of store sales in fiscal 1996 and 7.2%
of store sales in fiscal 1995. Store occupancy costs include base and percentage
rent, common area maintenance expense, utilities and depreciation of leasehold
improvements.
The Company achieved comparable store sales growth of 8.7% in fiscal 1996
and 10.7% in fiscal 1995. The Company believes that this increase in comparable
store sales is attributable to Harold's product development and merchandising
and Harold's commitment to customer service through its sales associates. The
Company's average sales per square foot for stores open during the entire fiscal
year were $628 and $599 for fiscal 1996 and fiscal 1995, respectively, on a 52-
week basis. The Company believes its sales per square foot are higher than
industry averages.
The Company believes that its future success will be achieved by expanding
the number of its women's and men's apparel stores, maintaining sales momentum
at existing stores, and increasing circulation of its direct response catalog.
The Company recently embarked on an aggressive expansion program, adding in the
aggregate eight retail stores during fiscal 1995 and fiscal 1996 and thereby
increasing the chain store count by approximately 40%.
The Company's expansion plan has focused and will continue to focus
primarily on markets currently served by the Company and in new markets that
represent a geographical progression from existing markets. Thus far during
fiscal 1997, the Company has opened stores in Greenville, South Carolina and
Leawood, Kansas (Kansas City metro) and plans to open four additional stores.
These four stores are planned for opening during the balance of fiscal 1997 in
regional shopping malls in Raleigh, North Carolina, Tyson's Corner (North
Virginia), Houston and Denver. All six stores will feature a full line of
women's merchandise while four will include a full line of men's merchandise and
two will offer men's sportswear.
RETAIL MERCHANDISING
The Company's merchandise mix in women's apparel includes coordinated
sportswear, dresses, coats, outerwear, shoes and accessories, all in updated
classic styles. A fundamental feature of the Company's marketing strategy is the
development of original exclusive and semi-exclusive apparel items. The Company
estimates that approximately 90% of its women's apparel sales are attributable
to the Company's product development and proprietary label programs. In fiscal
1996, women's apparel accounted for approximately 80% of sales.
The men's apparel product line includes tailored clothing, suits,
sportcoats, furnishings, sportswear, and shoes. The style is what is known in
the apparel trade as "updated traditional," classic styling with a contemporary
influence. The young executive and college markets account for a substantial
portion of the Company's men's store sales. Branded
16
<PAGE>
lines include Polo, Corbin, Alden, and Kenneth Gordon. In fiscal 1996, the
Company's proprietary label apparel accounted for more than 80% of total men's
sales. The majority of the men's proprietary label sales are in the Company's
Old School Clothing line. In fiscal 1996, men's apparel accounted for
approximately 20% of sales.
The following table sets forth the approximate percentage of sales
attributable to the various merchandise categories offered by the Company in the
past three fiscal years:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1995 FISCAL 1996
------------------ -------------------- ------------------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Women's Merchandise
Sportswear $38,943 63.9% $50,464 66.6% $65,009 69.0%
Shoes 3,270 5.4 3,914 5.2 5,196 5.5
Handbags, Belts and Accessories 3,608 5.9 4,438 5.9 4,962 5.3
Men's Merchandise
Suits, Sportcoats, Slacks and
Furnishings 4,904 8.0 5,338 7.0 6,493 6.9
Shoes 728 1.2 845 1.1 991 1.0
Sportswear and Accessories 9,001 14.8 10,337 13.6 11,256 11.9
Other 486 0.8 459 0.6 357 0.4
------- ------ ------- ------ ------- ------
Total $60,940 100.0% $75,795 100.0% $94,264 100.0%
======= ====== ======= ====== ======= ======
</TABLE>
COMPANY STORES
The Company's 31 stores range in size from 2,100 to 14,000 square feet,
with the typical store ranging from 4,000 to 6,000 square feet. The following
table lists Harold's store locations with selected information for each
location. Product lines in the table are defined as follows:
W/M Stores with the Company's full-line women's and men's
apparel.
W/OS Stores with the Company's full-line women's apparel and
also featuring the Company's
"Old School Clothing Company" concept.
W Stores featuring women's apparel only.
<TABLE>
<CAPTION>
METROPOLITAN PRODUCT SQUARE
AREA LOCATION TYPE OF LOCATION LINES FOOTAGE
---- -------- ---------------- ----- -------
<S> <C> <C> <C> <C>
Atlanta, GA Lenox Square Regional Shopping Center W 2,446
Atlanta, GA Park Place Specialty Center W 3,413
Austin, TX Arboretum Market Place Specialty Center W 3,300
Austin, TX 8611 N. Mopac Expressway Free Standing* W/M 13,200
Baton Rouge, LA CitiPlace Market Center Specialty Center W/M 5,200
Birmingham, AL Riverchase Galleria Regional Shopping Center W/OS 2,713
Charlotte, NC Shops on the Park Specialty Center W/OS 4,000
Dallas, TX Dallas Galleria Regional Shopping Center W 4,974
Dallas, TX Highland Park Village Specialty Center W/M 7,503
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
METROPOLITAN PRODUCT SQUARE
AREA LOCATION TYPE OF LOCATION LINES FOOTAGE
---- -------- ---------------- ----- -------
<S> <C> <C> <C> <C>
Ft. Worth, TX University Park Village Specialty Center W/M 4,863
Germantown, TN Saddle Creek South Specialty Center W/OS 3,909
(Memphis metro)
Greenville, SC Greenville Mall Regional Shopping Center W/OS 5,076
Hillsboro, TX Hillsboro Outlet Mall Outlet Mall* W/M 5,160
Houston, TX Highland Village Specialty Center W/M 6,189
Jackson, MS The Rogue Compound Free Standing W 2,100
Leawood, KS Town Center Plaza Regional Shopping Center W/M 5,000
(Kansas City
metro)
Kansas City, MO Country Club Plaza Regional Shopping Center W 4,155
Kensington, MD White Flint Mall Regional Shopping Center W/OS 4,605
(Washington, DC
metro)
Louisville, KY Mall St. Matthews Regional Shopping Center W/OS 4,292
Lubbock, TX 8201 Quaker Avenue Specialty Center W/OS 3,897
Nashville, TN The Mall at Greenhills Regional Shopping Center W/M 5,975
Norman, OK Campus Corner Center Specialty Center W/M 5,350
Oklahoma City, OK 106 Park Avenue Street Location W/M 3,760
Oklahoma City, OK 50 Penn Place Specialty Center W/M 14,240
Omaha, NE One Pacific Place Specialty Center W 3,272
Phoenix, AZ Biltmore Fashion Park Regional Shopping Center W/OS 5,033
Plano, TX Park and Preston Free Standing W/M 5,525
(Dallas metro)
San Antonio, TX Broadway and Austin Free Standing W 3,312
Highway
St. Louis, MO Plaza Frontenac Regional Shopping Center W/OS 4,221
Tulsa, OK Farm Shopping Center Specialty Center W/M 3,888
Tulsa, OK Utica Square Regional Shopping Center W/M 4,625
</TABLE>
_____________________________
*Outlet Store
The employee population of a typical full-line Harold's store consists of a
store manager, two assistant managers (women's and men's), one or two desk
associates, and five to seven sales associates most of whom work on a flex-time
basis (20-25 hours per week). Sales associates are paid a commission against a
draw. Commissions range from 7% to 10% based on the type of product sold and the
scale of the associate. Store managers are paid on a salary plus a performance
bonus based on attainment of sales goals and expense control.
The Company's stores generally are open seven days per week and evenings.
In addition to the Company's own "Harold's" credit card, the Company accepts
VISA, MasterCard and American Express cards.
18
<PAGE>
PRODUCT DEVELOPMENT AND SOURCING PROGRAMS
The Company's product development and sourcing programs enable it to offer
exclusive and semi-exclusive items not available in competing stores or
catalogs. More than 85% of sales is merchandise where the Company has created or
controlled the design, demonstrating the Company's commitment to a unique
product mix. The Company believes that this unique product mix enables it to
compete with, and differentiates it from, larger apparel chains by offering
customers an exclusive garment at a price below designers and similar open
market merchandise. Direct creation and control of merchandise also enables the
Company to improve its initial mark up.
The Company's private label merchandise consists of (i) items developed by
the Company and manufactured exclusively for the Company and individual
contractors, (ii) items developed by the Company and manufactured on a semi-
exclusive basis for the Company, and (iii) vendor-developed, non-exclusive items
to which the Company's private labels are affixed.
An important component of the Company's product development programs is
market research of styles and fabrics. The Company's buyers shop European and
domestic markets for emerging fashion trends, for new vendors, and for fabric,
artwork and samples for new garment designs. Through sophisticated, computer-
aided design technologies, the product development staff adapts and develops
fabric designs and garment models. These design models assist the Company in
sourcing and in negotiations with mills and vendors. The Company's product
development programs allow it to participate directly in the design and
manufacturing of an exclusive product without investing in costly manufacturing
equipment. The Company's development program is complemented by association with
independent buying offices in New York and Florence.
The Company's product development programs enable it to offer new styles,
often before similar merchandise is available at other specialty or department
stores or catalogs. The Company imports a significant portion of its merchandise
directly from the United Kingdom, Italy, France and through domestic importers
from the Far East.
The Company's merchandisers travel to Europe, including popular fashion
meccas such as Paris and Milan, three to four times each year, searching out new
styles and collecting vintage fabrics and antique wallpaper, and original art
for pattern development. In addition to purchasing original art work created for
pattern development, merchandisers have ongoing contact with several art studios
in Europe where artists hand paint intricate patterns and prints exclusively for
the Company. The European development work helps the Company spot emerging
trends among fashion forward Europeans for development into the Company's
classically-inspired merchandise.
The Company's merchandisers review the collected material, analyze fashion
directions and select the best pieces to convert into prints and patterns for
the next season. Once the new patterns are selected, the team then "specs" out
various styles - detailing a garment's cut, fit, fabric, color and trim. An
advanced textile computer-aided design system makes designing new pieces much
easier by providing color "proofs" which allow the Company to correct
inaccuracies in a design before a working sample is made. This process reduces
costs and contributes to the inherent value of each item. After the specs have
been finalized, the piece goods - materials for making the product -are ordered
from domestic and international fabric mills. The finished fabric is then
shipped to manufacturers who cut, sew and trim the completed design.
The Company's line of leather goods is made by European craftsmen,
primarily in Italy. Shoes, belts, handbags, wallets and other leather products
are co-designed by the Company's merchandisers and Italian artisans. Italian-
made leather goods are marketed under a variety of Company-owned labels and are
featured in all of the Company's stores and in its catalog.
Reflecting the Company's product development programs, a substantial
portion of the Company's merchandise purchases are concentrated among a small
number of vendors. The Company believes that fewer vendor relationships advance
the Company's product development objectives by increasing control over the
design and manufacturing process. During fiscal 1995, the Company entered into a
new arrangement with its largest apparel vendor, CMT
19
<PAGE>
Enterprises, Inc. ("CMT"). Previously, Harold's controlled the design process
and paid CMT for finished goods when produced and manufactured. Under the new
arrangement, the process has become more verticalized. CMT acts as the Company's
agent in the purchase of raw materials (i.e. fabrics, linings, buttons, etc.)
and supervises the manufacturing process of the Company's merchandise with
manufacturing contractors. The Company purchases raw materials directly from
suppliers and pays for the manufacturing process as costs are incurred. CMT is
paid a commission based on actual cost of the finished goods. This change has
resulted in a cost savings, but has also resulted in an increase in the
Company's inventory of piece goods and work in process. The Company believes its
new relationship with CMT permits the Company to control the quality and cost of
the Company's inventory purchases. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -Results of Operations and -
Capital Resources, Capital Expenditures and Liquidity" and "Risk Factors."
CATALOG PUBLICATION AND ORDER FULFILLMENT
In March 1990, using an in-house data base, the Company mailed its first
direct response catalog to over 100,000 addresses. In addition to contributing
to sales, the catalog has become an increasingly important market research and
new store promotion tool. During fiscal 1996, the Company used its mail order
buyer list (currently con taining approximately 120,000 names), its retail
customer list (currently containing approximately 220,000 names) and a variety
of rental lists to mail six issues with an average of 48 pages, and an aggregate
circulation of approximately 6.5 million copies (including abridged issues). The
catalogs are designed and produced in-house with photography, prepress and
printing services being outsourced. On-line computerized inventory systems and
order processing programs offer control of fulfillment and shipping times and
record the purchase history of catalog buyers and the performance of each
individual mailing list. Orders are processed daily and inventory adjustments
are managed accordingly.
The direct response catalog has experienced sales increases from
$620,000 in fiscal 1992 to $9,384,000 in fiscal 1996. As a stand-alone venture
and as costs are currently accounted, the catalog has recorded a loss from
operations each year. There are several principal reasons for the losses: (i)
absence of critical mass is partially to blame for the catalog losses as
industry norms consider at least $10 million to be the threshold for successful
catalog operations; (ii) in addition to its primary merchandising role, the
catalog is employed as an advertising vehicle to stimulate customer traffic in
the existing Harold's stores, and also as a market research and development tool
in connection with expanding the chain into new markets; and (iii) at the end of
a specific catalog's run the unsold merchandise that was allocated to the
catalog center is marked down sufficiently to allow it to be sold at a profit in
the Company's stores. Any profit is booked in the store, and is not passed back
to the catalog center as an offset. The Company has not undertaken to account
for the advertising and traffic-building benefits of mailing the catalog to its
known retail customers, for the profits earned from catalog close-outs sold in
the outlet stores, or for the catalog's contribution to developing potential new
store locations. To the extent that these attributes of the catalog are a
benefit to the Company, they are not credited from an accounting point of view
to the catalog operations.
Management continues to emphasize further expansion of catalog operations
and to the extent that the financial results of the catalog operations improve,
principally as a consequence of increased sales and associated absorption of
fixed overhead, net earnings of the Company will improve as a percentage of
sales.
MERCHANDISE INVENTORY REPLENISHMENT AND DISTRIBUTION
The specialty retail apparel business fluctuates according to changes in
customer preferences dictated by fashion and season. These fluctuations affect
the inventory owned by apparel retailers, since merchandise usually must be
ordered well in advance of the season and sometimes before fashion trends are
evidenced by customer purchases. The Company's policy of carrying basic
merchandise items in full assortments of sizes and colors requires it to carry a
significant amount of inventory. The Company must enter into contracts for the
purchase and manufacture of proprietary label apparel well in advance of its
selling seasons.
The Company continually reviews its inventory level in order to identify
slow-moving merchandise and broken assortments (items no longer in stock in a
sufficient range of styles, colors and sizes) and may use markdowns to clear
20
<PAGE>
this merchandise. Markdowns also may be used if inventory exceeds customer
demand for reasons of style, seasonal adaptation, changes in customer preference
or if it is determined that the inventory in stock will not sell at its
currently marked price. Such markdowns may have an adverse impact on earnings,
depending on their extent and the amount of inventory affected. The Company
utilizes its two outlet stores to dispose of slow-moving merchandise. In
addition, slow-moving merchandise is cleared through regional off-site discount
sales held in January, June and August and which are promoted under the name
"Harold's Warehouse Sale".
The Company operates a 22,000 square foot distribution facility in Norman,
Oklahoma. All of the Company's merchandise, over three million units projected
for fiscal 1997, will route through the distribution center from various
manufacturers. Each item is examined, sorted and tagged with bar coded tickets
which track the merchandise for analysis by multiple parameters, including,
vendor lot number, color and size. The merchandise is then boxed for shipment to
the Company's 31 stores and catalog operation. This process is done in a time
sensitive manner in a substantially paperless environment, utilizing computers,
bar codes and scanners.
A 64,000 square foot expansion of the existing distribution center is
scheduled for completion during the summer of 1996. When the expansion is
completed, the facility will have the capability of processing merchandise for
64 stores and increasing to 128 stores with a modest additional investment.
SEASONALITY
The Company's business follows a seasonal pattern, peaking twice a year
during the late summer back to school (August through early September) and
holiday (Thanksgiving through Christmas) periods. In fiscal 1996, approximately
57% of the Company's sales occurred and 64% of net income was earned during the
third and fourth fiscal quarters.
COMPETITION
The Company's business is highly competitive. The Company's stores compete
with national and local department stores, specialty and discount store chains,
catalogers and independent retail stores which offer similar lines of specialty
apparel. Many of these competitors have significantly larger sales volumes and
assets than the Company.
Depth of selection in sizes, colors and styles of merchandise, merchandise
procurement and pricing, ability to anticipate fashion trends and customer
preferences, inventory control, reputation, quality of private-label
merchandise, store design and location, advertising and customer service are all
important factors in competing successfully in the retail industry. Given the
large number of companies in the retail industry, the Company cannot estimate
the number of its competitors or its relative competitive position.
In addition, the success of the Company's operations depends upon a number
of factors relating to economic conditions and general consumer spending. If
current economic conditions worsen and consumer spending is restricted, the
Company's growth and profitability will be negatively impacted.
CUSTOMER CREDIT
The Company's stores accept the proprietary "Harold's" credit card, and
VISA, MasterCard, and American Express credit cards. The Company's catalog
operation accepts VISA, MasterCard and the Company's credit card. Credit card
sales were 69.6% of sales in fiscal 1994, 70.2% in fiscal 1995, and 73.4% in
fiscal 1996. In fiscal 1996, 12.8% of sales were made with the Harold's credit
card and 60.6% were made with third party credit cards. The Company maintains a
credit department for customer service, credit authorizations, credit
investigation, billing and collections. As of February 3, 1996, the allowance
for bad debts from Company credit cards sales was approximately 1.3% of the
Harold's credit card sales for fiscal 1996.
21
<PAGE>
Harold's has offered customers its proprietary credit card since 1974. The
Company believes that providing its own credit card enhances customer loyalty
while providing customers with additional credit. At February 3, 1996, the
Company had approximately 32,000 credit accounts, 40.2% which had been used at
least once during the prior 12 months, and the average card holder had a line of
$1,200 and an outstanding balance of $365. Charges by holders of the Company's
credit card during fiscal 1996 totalled approximately $15,900,000.
ADVERTISING
The Company maintains an in-house advertising department which has won
numerous Addy awards at the local, district and national levels. The advertising
department staff produces in-house print advertising for daily and weekly
newspapers and other print media, and designs the Company's direct response
catalogs and other direct mail pieces. In fiscal 1996, the Company spent
$7,807,000 (8.3% of sales) on advertising as compared to $5,912,000 in fiscal
1995 (7.8% of sales). The advertising department is also involved in the
production of quarterly and annual reports to the Company's stockholders, sales
training materials, internal marketing materials, and all corporate logos and
labeling.
MANAGEMENT INFORMATION SYSTEMS
The Company has placed great emphasis on upgrading and integrating its
management information systems ("MIS"). The Company believes these upgrades will
enable it to maintain more efficient control of its operations and facilitate
faster and more informed responses to potential opportunities and problems. The
Company maintains a MIS team to oversee these information management systems,
which include credit, sales reporting, accounts payable and merchandise control,
reporting and distribution.
The Company uses an integrated point-of-sale ("POS") inventory and
management system to control merchandising and sales activities. This system
automatically polls each location every 24 hours and provides a detailed report
by merchandise category the next morning. Management evaluates this information
daily and implements merchandising controls and strategies as needed. The
Company's POS system has been updated to allow additional functions to be
programmed into the system. Recently, the Company added new personnel scheduling
and timekeeping capabilities, and is currently in the process of implementing a
new customer profile function to better identify and track consumer
demographics.
The Company continues to implement newer and better inventory control
systems. The Company routinely conducts its own inventory using a sophisticated
scanning system. POS scanning devices record and track SKU bar codes which are
assigned to every piece of merchandise. This information is downloaded into the
Company's IBM AS400 computer which generates a detailed report within 24 hours
of the physical inventory.
The Company has also implemented ARTHUR(R), a computerized merchandise
planning system which interacts with the Company's AS400 and Island Pacific
software. ARTHUR(R) facilitates seasonal planning by department and store, and
provides certain data for financial planning.
The Company plans to continue implementing upgrades and improving its
management information system to keep abreast of the retail industry's
increasing technological advances.
TRADEMARKS, SERVICE MARKS, AND COPYRIGHTS
"Harold's", "Harold Powell", "Old School Clothing Company", "OSCC Bespoke"
and other trademarks either have been registered, or have trademark applications
pending, with the United States Patent and Trademark Office and with the
registries of various foreign countries. The Company files U.S. copyright
registrations on the original design and artwork purchased or developed by the
Company.
22
<PAGE>
The Company's Houston store is called "Harold Powell" rather than
"Harold's" to avoid confusion with a local men's apparel store which operates in
Houston under the name "Harold's" with prior usage in this market predating the
Company's federal registration.
EMPLOYEES
At May 1, 1996, the Company had approximately 480 full-time and 626 part-
time employees. Additionally, the Company hires temporary employees during the
peak late summer and holiday seasons. None of the Company's employees belongs to
any labor union and the Company believes that it has good relations with its
employees.
STORE LEASES
At May 1, 1996, the Company had 30 leased stores. The Company believes rent
payable under its store leases is a key factor in determining the sales volume
at which a store can be profitably operated. The leases typically provide for an
initial term of 12 years. In most cases, the Company pays a base rent plus a
contingent rent based on the store's net sales in excess of a certain threshold,
typically four to five percent of net sales in excess of the applicable
threshold. Among current store leases, one store lease has fixed rent with no
percentage rent. One store lease has percentage rent only. All other store
leases provide for a base rent with percentage rent payable above specified
minimum sales. All stores open during all of fiscal 1996 except four operated at
sales volumes above the breakpoint (the sales volume below which only rent is
payable). Based on the Company's current level of sales per square foot, some of
the risk from any decline in future sales volume in these stores is reduced
because a corresponding decline in occupancy expense would occur.
Substantially all of the leases require the Company to pay property taxes,
insurance, utilities and common area maintenance charges. The current terms of
the Company's leases, including automatic renewal options, expire as follows:
<TABLE>
<CAPTION>
YEARS LEASES NUMBER OF
EXPIRE STORES
------ -------
<S> <C>
1996-1997 3
1998-1999 3
2000-2002 7
2003 and later 17
</TABLE>
The Company generally has been successful in renewing its store leases as
they expire.
During fiscal 1996, the Company entered into new leases for stores in St.
Louis, Louisville, Hillsboro, Texas, Baton Rouge, Houston, Leawood, Kansas and
Greenville, South Carolina. Management believes the terms of these leases are
comparable with other similar national retailers in these locations. Base rent
(minimum rent under terms of lease) in current leases ranges from $6 per square
foot to $41 per square foot over the terms of the leases. Total base rent has
continued to increase based on new store leases. Occupancy cost has increased
slightly as the Company has entered new markets. The following table sets forth
the fixed and variable components of the Company's rent expenses for the fiscal
years indicated:
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Base Rent $1,461,000 $1,791,000 $2,222,000
Additional amounts computed as a
percentage of sales 666,000 922,000 1,112,000
------- ------- ---------
Total $2,127,000 $2,713,000 $3,334,000
========== ========== ==========
</TABLE>
23
<PAGE>
CORPORATE HEADQUARTERS AND CATALOG FULFILLMENT CENTER
The Company owns a complex of contiguous buildings in Norman, Oklahoma
comprised of approximately 36,500 square feet, with 22,000 square feet of this
space being utilized by the Company for its executive offices, administrative
functions and catalog fulfillment center. Data processing, accounting, credit,
and marketing departments are housed together with the catalog telephone center,
inventory and shipping facilities. The remainder of this complex is currently
rented and can be used for expansion of the catalog fulfillment center and other
Company needs.
MERCHANDISE BUYING OFFICE AND DISTRIBUTION CENTER
The Company leases a 10,000 square foot building in Dallas used as a buying
office and a 22,000 square foot distribution center in Norman. The distribution
center is equipped with automated systems for receiving, processing and
distributing merchandise. Substantially all merchandise is shipped from vendors
directly to the distribution center, where it is received, inspected and
ticketed for inventory control. The merchandise is then shipped by Company
trucks or common carrier to the stores.
The lessor of the Dallas buying office and the distribution center is a
limited partnership whose partners include Rebecca Powell Casey, Michael T.
Casey, H. Rainey Powell and Lisa Powell Hunt, all of whom are shareholders and
directors of the Company. The term of the buying office lease expires in March
2012, with annual rent payments of $158,000 plus insurance, utilities and
property taxes until April, 2000, at which time the rent will become $180,000,
plus insurance, utilities and property taxes, increasing $2,500 each year
thereafter until expiration of the lease. The term of the distribution center
lease expires in June 2012, with annual rent payments of $338,348 plus
insurance, utilities and property taxes until July 2001, at which time the rent
will increase annually on a fixed scale up to a maximum of $419,551 during the
final year of the lease.
MANAGEMENT AND DIRECTORS
The following persons serve as executive officers and directors of the
Company. Unless otherwise noted, the executive officers serve in the following
capacities at the pleasure of the Board of Directors of the Company:
<TABLE>
<CAPTION>
OFFICER OR
NAME AGE DIRECTOR SINCE POSITION
---- --- -------------- --------
<S> <C> <C> <C>
Harold G. Powell 72 1948 Chairman of the Board of Directors
Rebecca Powell Casey 44 1977 Chief Executive Officer and Director
H. Rainey Powell 42 1978 President, Chief Operating and
Financial Officer, Treasurer, Secretary
and Director
Kenneth C. Row 31 1986 Executive Vice President and Director
Janet F. Firth 39 1984 Vice President - Ladies' Merchandise
Manager
Jeffrey T. Morrell 37 1993 Vice President - Stores
Linda L. Daugherty 41 1994 Vice President and Controller
James R. Agar 64 1987 Director
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
OFFICER OR
NAME AGE DIRECTOR SINCE POSITION
---- --- -------------- --------
<S> <C> <C> <C>
Michael T. Casey 47 1988 Director
Robert B. Cullum, Jr. 47 1993 Director
Lisa Powell Hunt 40 1987 Director
W. Howard Lester 60 1995 Director
Gary C. Rawlinson 54 1987 Director
William F. Weitzel, PhD 59 1989 Director
</TABLE>
Harold G. Powell, the founder of the Company, has been Chairman of the
Board of the Company since its organization in 1987, and was Chief Executive
Officer from 1987 to 1992. Prior to 1987, he was chief executive officer and/or
chairman of the board of directors of each of the predecessor corporations
through which the Company's business was conducted. Mr. Powell opened the first
clothing store at the Company's Norman, Oklahoma location in 1948. Mr. Powell is
employed pursuant to an employment agreement which expires January 31, 1998.
Rebecca Powell Casey was appointed Chief Executive Officer of the Company
in 1992, and prior to that time had been the President from 1987 to 1988, and
Executive Vice President - Merchandise and Product Development from 1989 to
1991. Ms. Casey has been employed by the Company and its predecessors in various
managerial positions since 1977. Ms. Casey is employed pursuant to an employment
agreement which expires January 31, 1998.
H. Rainey Powell has been Chief Financial Officer, Treasurer, Secretary and
a Director of the Company since 1987. Mr. Powell was elected President and Chief
Operating Officer in 1992. Mr. Powell has been employed by the Company and its
predecessors in various managerial positions since 1978. Mr. Powell is employed
pursuant to an employment agreement which expires January 31, 1998.
Kenneth C. Row has served as Executive Vice President and a Director of the
Company since 1992. Prior to that time and since 1988, Mr. Row was Vice
President - Marketing. Mr. Row has been employed by the Company and its
predecessors in various managerial positions since 1986.
Janet F. Firth has served as Vice President - Ladies' Merchandise Manager
of the Company since 1987. Prior to that time, Ms. Firth was employed by the
Company and its predecessors in various managerial capacities since 1984.
Jeffrey T. Morrell has served as Vice President - Stores of the Company
since 1993. Prior to that time, Mr. Morrell was employed in various managerial
capacities since 1990.
Linda L. Daugherty has served as Vice President and Controller of the
Company since 1994. Prior to that time, Ms. Daugherty was employed by the
Company and its predecessors in various managerial capacities since 1980.
James R. Agar is President of Agar, Inc. and Advisory Director of Agar,
Ford, Jarmon and Muldrow Insurance Agency.
Michael T. Casey has served as Chairman of the Board of Grand Prairie State
Bank, Texas, a privately held bank, since 1989, and is President of Casey
Bancorp, Inc. Prior to and since that time, Mr. Casey has been engaged in
investments and banking. He previously served as a Senior Vice President of the
Company from 1989 until 1991.
25
<PAGE>
Robert B. Cullum, Jr. is a partner of Fairway Capital Partners, Ltd and
Wayfair Capital Partners, Ltd, both of which are privately held real estate
investment partnerships based in Dallas, Texas. Mr. Cullum was involved for 30
years in the supermarket industry with Cullum Co., Inc.
Lisa Powell Hunt is engaged in investments and was formerly employed by the
First Boston Corporation as a registered institutional sales executive from 1980
to 1984.
W. Howard Lester has been Chairman and Chief Executive Officer of Williams-
Sonoma, Inc. since 1978.
Gary C. Rawlinson is a shareholder-director of the law firm of Crowe &
Dunlevy, A Professional Corporation, which firm serves as general counsel to the
Company.
William F. Weitzel, PhD has served as Professor of Business Administration
at the University of Oklahoma since 1983 and as a Director of the College of
Business Administration's Skills Enhancement Program since 1986. Mr. Weitzel is
President of William Weitzel, Inc., a management consulting organization.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 7,500,000 shares of Common Stock, par
value $0.01 per share, and 1,000,000 shares of Preferred Stock, par value $0.01
per share. As of May 1, 1996, there were 4,965,245 shares of Common Stock
outstanding. No shares of Preferred Stock have been issued.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Certificate of Incorporation and Bylaws, copies of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part. See "Capitalization" and "Selling Shareholders."
COMMON STOCK
Holders of Common Stock are entitled, among other things, to one vote per
share on each matter submitted to a vote of shareholders and, in the event of
liquidation, to share ratably in the distribution of assets remaining after
payment of liabilities. At a meeting of shareholders at which a quorum is
present, a majority of the votes cast decides all questions, unless the matter
is one upon which a different vote is required by express provisions of law or
the Company's Certificate of Incorporation or Bylaws. Holders of Common Stock
have no cumulative voting rights, and, accordingly, the holders of a majority of
the outstanding shares have the ability to elect all of the directors. Holders
of Common Stock have no preemptive or other rights to subscribe for shares.
Holders of Common Stock are entitled to such dividends as may be declared by the
Board of Directors out of funds legally available therefor, when and if so
declared. See "Price Range of Common Stock and Dividend Policy." All outstanding
shares are, and the shares issuable pursuant to the offering will be, when
issued and paid, fully paid and non-assessable.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. The Company's Certificate of
Incorporation authorizes the Board of Directors to issue Preferred Stock from
time to time in one or more series. The Board of Directors, without shareholder
approval, is authorized to determine the rights, preferences, privileges and
restrictions granted to, and imposed upon, each series of Preferred Stock and to
fix the number of shares of any series of Preferred Stock and the designation of
any such series. The issuance of Preferred Stock could be used, under certain
circumstances, as a method of preventing a takeover of the Company and could
permit the Board of Directors, without any action by holders of the Common
Stock, to issue Preferred Stock which could adversely affect the rights of
holders of the Common Stock, including loss of voting control. The issuance of
any series of Preferred Stock and the relative powers, preferences, rights,
qualifications, limitations and restrictions of such series, if and when
established, will depend upon, among other things, the future capital needs of
the Company, the then-existing market conditions and other facts that, in the
judgment
26
<PAGE>
of the Board of Directors, might warrant the issuance of Preferred Stock. The
Company has no present plans, agreements or understandings to issue any shares
of Preferred Stock.
OKLAHOMA LAW AND CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the Oklahoma General Corporation Act, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its shareholders. The provision in the Certificate of
Incorporation does not eliminate the duty of care and in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Oklahoma law. However, such remedies
may not be effective in all cases. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company, as well as for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Oklahoma
law. The provision also does not affect a director's responsibilities under any
other law, such as the state or federal securities laws.
Under the Oklahoma General Corporation Act, the Company has broad powers to
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act. The Company's
Certificate of Incorporation provides that the Company shall indemnify its
directors and officers to the fullest extent permitted by the Oklahoma General
Corporation Act, except as to any action, suit or proceeding brought by or on
behalf of such persons without prior approval of the Board of Directors. The
Certificate of Incorporation requires the Company to indemnify such persons
against expenses, judgments, fines, settlements and other amounts incurred in
connection with any proceedings, except for certain proceedings brought by or on
behalf of such persons as indicated above, whether actual or threatened, to
which any such person may be made a party by reason of the fact that such person
is or was a director or an officer of the Company, or is or was serving at the
request of the Company as a director or officer of another enterprise, provided
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Company, and with respect
to any criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. However, in the case of a derivative action, an officer or director
will not be entitled to indemnification in respect of any claim, issue or matter
as to which such person is adjudged to be liable to the Company, unless and only
to the extent that the court in which the action was brought determines that
such person is fairly and reasonably entitled to indemnity for expenses.
In addition, the Company has entered into Indemnity Agreements with each
director of the Company which require the Company to indemnify such persons
against certain liabilities and expenses incurred by any such persons by reason
of their status or service as directors or officers of the Company and which set
forth procedures that will apply in the event of a claim for indemnification
under such agreements. The Company believes that these agreements enhance its
ability to attract and retain highly qualified directors.
As of the date of this Prospectus, there is no pending litigation or
proceeding involving a director or officer of the Company as to which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any officer or
director.
TRANSFER AGENT
Liberty Bank and Trust Company of Oklahoma City, N.A. is the transfer agent
and registrar for the Common Stock.
27
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 1, 1996 by each of
the Selling Shareholders. Except as otherwise indicated in the footnotes to this
table, the Company believes that each Selling Shareholder has sole voting and
investment power with respect to the shares indicated as beneficially owned,
subject to applicable community property laws. For a description of related
party transactions, see "Business - Merchandise Buying Office and Distribution
Center."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES OWNED BENEFICIALLY
OWNED PRIOR TO OFFERING AFTER OFFERING(1)
----------------------- -----------------
SELLING SHAREHOLDERS NUMBER PERCENT OFFERED(1) NUMBER PERCENT
-------------------- ------ ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Harold G. Powell(2)(6) 513,003 10.3% 92,500 328,003 6.1%
The Security National Bank 638,943 12.9% 92,500 546,443 10.2%
and Trust Company of
Norman, as Trustee (3)(6)
Rebecca Powell Casey(4)(6) 750,678 15.0% 45,000 705,678 13.1%
Lisa Powell Hunt(5)(6) 364,813 7.3% 15,000 349,813 6.5%
</TABLE>
____________________
(1) Except as otherwise indicated, assumes the Underwriters' over-allotment
option is not exercised. See "Under writing." If the Underwriters' over-
allotment option is exercised in full, the Selling Shareholders intend to
sell additional shares as follows: Harold G. Powell - 22,875 additional
shares; and The Security National Bank and Trust Company of Norman, as
Trustee ("Security") - 13,875 additional shares. Sale of such additional
shares will result in beneficial ownership after the offering as follows:
Harold G. Powell - 291,253 shares (5.4%); and Security - 532,568 shares
(9.9%).
(2) Harold G. Powell is Chairman of the Board of Directors of the Company. The
shares indicated as beneficially owned by Mr. Powell include (i) 21,318
shares that Mr. Powell has the right to acquire upon exercise of currently
exercisable stock options granted under the Company's 1993 Performance and
Equity Incentive Plan and (ii) 273,865 shares held by Security, as Trustee
of the Elizabeth M. Powell Trust A, over which Mr. Powell possesses a
general power of appointment exercisable at his death. The shares indicated
as beneficially owned by Mr. Powell do not include 365,078 shares held by
Security, as Trustee of the Elizabeth M. Powell Trust B, over which Mr.
Powell may be deemed to have shared voting power.
(3) Consists of 273,865 shares held by Security, as Trustee of the Elizabeth M.
Powell Trust A, and 365,078 shares held by Security, as Trustee of the
Elizabeth M. Powell Trust B. All of the shares being sold by Security are
held by Security in its capacity as Trustee of the Elizabeth M. Powell Trust
A. The shares held by Security, as Trustee of the Elizabeth M. Powell Trust
A, are also included in the shares indicated as beneficially owned by Mr.
Powell. See footnote (2) above.
(4) Rebecca Powell Casey is Chief Executive Officer and Vice Chairman of the
Board of Directors of the Company. The shares indicated as beneficially
owned by Ms. Casey include (i) 23,028 shares that Ms. Powell has the right
to acquire upon exercise of currently exercisable stock options granted
under the Company's 1993 Performance and Equity Incentive Plan and (ii)
91,068 shares held by Ms. Casey as custodian for the benefit of her minor
children. The shares indicated as beneficially owned by Ms. Casey do not
include 294,846 shares held by Michael T. Casey, a director of the Company
and the spouse of Ms. Casey, as to which shares Ms. Casey disclaims
beneficial ownership. Ms. Casey is the daughter of Harold G. Powell.
28
<PAGE>
(5) Lisa Powell Hunt is a director of the Company. The shares indicated as
beneficially owned by Ms. Hunt include (i) 4,725 shares that Ms. Hunt has
the right to acquire upon exercise of currently exercisable stock options
granted under the Company's 1993 Performance and Equity Incentive Plan and
(ii) 73,411 shares held by Ms. Hunt as custodian for the benefit of her
minor children. The shares indicated as beneficially owned by Ms. Hunt do
not include 30,356 shares held by the spouse of Ms. Hunt, as to which shares
Ms. Hunt disclaims beneficial ownership. Ms. Hunt is the daughter of Harold
G. Powell.
(6) Pursuant to a Shareholders Agreement, effective August 18, 1987, Harold G.
Powell, Rebecca Powell Casey, Lisa Powell Hunt, Security and certain other
shareholders have agreed to vote the Common Stock held by them in accordance
with the decision of those holding a majority of the shares of Common Stock
subject to the Shareholders Agreement. Such group of shareholders may be
treated as the beneficial owners of 2,756,478 shares, or approximately 54.7%
of the outstanding Common Stock of the Company. Except as otherwise
indicated above, the shares indicated as beneficially owned by each Selling
Shareholder do not include shares held by other members of the group.
UNDERWRITING
Under the terms and subject to the conditions set forth in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), Scott &
Stringfellow, Inc. (the "Underwriter") has agreed to purchase, and the Company
and the Selling Shareholders have agreed to sell to the Underwriter, the number
of shares of Common Stock set forth opposite the Underwriter's name below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
Scott & Stringfellow, Inc.
-------
Total 645,000
=======
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriter
to purchase shares of Common Stock is subject to the approval of certain legal
matters by counsel and certain other conditions. The Underwriter is obligated to
take and pay for all such shares of Common Stock, if any are taken.
The Underwriter proposes initially to offer such shares of Common Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriter may allow, and such dealers may
allow, a concession not in excess of $ per share to certain other dealers.
After the shares of Common Stock are released for sale to the public, the
offering price and such concessions may be changed.
The Company and the Selling Shareholders have granted to the Underwriter an
option, expiring at the close of business on the 30th day after the date of this
Prospectus, to purchase up to 96,750 additional shares of Common Stock at the
public offering price, less the underwriting discount. The Underwriter may
exercise such option solely for the purpose of covering over-allotments, if any.
The Company and certain of its shareholders have agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for shares of Common
Stock, for a period of 120 days after the date hereof, without the prior written
consent of Scott & Stringfellow, Inc., with certain limited exceptions.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act.
29
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Crowe & Dunlevy, A Professional
Corporation, Tulsa, Oklahoma. Gary C. Rawlinson, a shareholder and director of
Crowe & Dunlevy, is a director of the Company and is the beneficial owner of
9,962 shares of Common Stock, including 4,725 shares issuable upon exercise of
outstanding options to purchase Common Stock granted to Mr. Rawlinson in
connection with his service as a director. Certain legal matters in connection
with the offering will be passed upon for the Underwriter by Hunton & Williams,
Richmond, Virginia.
EXPERTS
The consolidated balance sheets of the Company and subsidiaries as of
February 3, 1996 and January 28, 1995, and the related consolidated statements
of earnings, shareholders' equity, and cash flows for the 53-week period ended
February 3, 1996 and 52-week periods ended January 28, 1995 and January 29,
1994, have been included and incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere and incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report .........................................................................F-3
Consolidated Financial Statements:
Consolidated Balance Sheets
February 3, 1996, and January 28, 1995....................................................F-4
Consolidated Statements of Earnings
53 Weeks Ended February 3, 1996, 52 Weeks Ended January 28, 1995,
and January 29, 1994......................................................................F-5
Consolidated Statements of Stockholders' Equity
53 Weeks Ended February 3, 1996, 52 Weeks Ended January 28, 1995,
and January 29, 1994......................................................................F-7
Consolidated Statements of Cash Flows
53 Weeks Ended February 3, 1996, 52 Weeks Ended January 28, 1995,
and January 29, 1994......................................................................F-8
Notes to Consolidated Financial Statements............................................................F-9
Interim Consolidated Financial Statements:
Consolidated Balance Sheets
May 4, 1996 (unaudited) and February 3, 1996.............................................F-18
Consolidated Statements of Earnings
Thirteen Weeks Ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited)...............................................................F-20
Consolidated Statements of Stockholders' Equity
Thirteen Weeks Ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited)...............................................................F-21
Consolidated Statements of Cash Flows
Thirteen Weeks Ended May 4, 1996 (unaudited) and
April 29, 1995 (unaudited)...............................................................F-22
Notes to Interim Consolidated Financial Statements (unaudited).......................................F-23
</TABLE>
F-1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Harold's Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Harold's
Stores, Inc. and subsidiaries (the Company) as of February 3, 1996 and January
28, 1995, and the related consolidated statements of earnings, stockholders'
equity and cash flows for the 53 week period ended February 3, 1996, and the 52
week periods ended January 28, 1995 and January 29, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harold's
Stores, Inc. and subsidiaries as of February 3, 1996, and January 28, 1995, and
the results of their operations and their cash flows for the 53 week period
ended February 3, 1996, and the 52 week periods ended January 28, 1995, and
January 29, 1994, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
March 29, 1996
F-3
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
<TABLE>
<CAPTION>
February 3, 1996 January 28, 1995
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2 109
Trade accounts receivable, less allowance
for doubtful accounts of $200 and $175, respectively 4,687 4,238
Other accounts receivable 568 671
Merchandise inventories 21,647 17,847
Prepaid expenses 1,759 646
Deferred income taxes 710 622
------- ------
Total current assets 29,373 24,133
------- ------
Property and equipment, at cost 18,999 15,186
Less accumulated depreciation and amortization (6,097) (4,955)
------- ------
Net property and equipment 12,902 10,231
------- ------
Other assets 334 297
------- ------
Total assets $42,609 34,661
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
February 3, 1996 January 28, 1995
---------------- ----------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 75 4,977
Accounts payable 4,396 4,154
Redeemable gift certificates 672 509
Accrued bonuses and payroll expenses 1,624 1,129
Accrued rent expense 241 257
Income taxes payable 536 583
------- ------
Total current liabilities 7,544 11,609
------- ------
Long-term debt, net of current maturities 9,540 594
Deferred income taxes 226 198
Commitments and contingent liabilities (notes 8, 9 and 11)
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; none issued - -
Common stock of $.01 par value
Authorized 7,500,000 shares; issued and
outstanding 4,958,181 in 1996, 4,698,174 in 1995 50 47
Additional paid-in capital 20,572 17,491
Retained earnings 4,677 4,722
------- ------
Total stockholders' equity
25,299 22,260
Total liabilities and stockholders' equity ------- ------
$42,609 34,661
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
February 3, 1996 January 28, 1995 January 29, 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Sales $ 94,264 75,795 60,940
Costs and expenses:
Costs of goods sold (including occupancy
and central buying expenses, exclusive of
items shown separately below) 59,831 49,388 40,591
Selling, general and administrative expenses 19,344 14,972 12,072
Advertising expense 7,807 5,912 3,968
Depreciation and amortization 2,185 1,710 1,409
Interest expense 452 274 117
---------- --------- ---------
89,619 72,256 58,157
---------- --------- ---------
Earnings before income taxes 4,645 3,539 2,783
Provision for income taxes 1,858 1,451 1,171
---------- --------- ---------
Net earnings $ 2,787 2,088 1,612
========== ========= =========
Earnings per common share $ .56 .42 .35
Weighted average number of common shares ========== ========= =========
outstanding
5,000,033 4,923,951 4,598,846
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
February 3, 1996 January 28, 1995 January 29, 1994
----------------- ---------------- ----------------
<S> <C> <C> <C>
Common stock:
Balance, beginning of year $ 47 43 33
Stock dividend (5 percent) in 1996 of
235,868 shares, and (10 percent), 426,970
shares in 1995, and 386, 549 shares in 1994 3 4 4
Stock bonuses, 1,301 shares in 1996, 645
shares in 1995, and 1,315 shares in 1994 - - 1
Employee Stock Purchase Plan 22,838
shares in 1996, and 17,712 shares in 1995 - - -
Sale of 516,000 shares - - 5
------- ------ ------
Balance, end of year $ 50 47 43
======= ====== ======
Additional paid-in capital:
Balance, beginning of year $17,491 13,047 6,945
Stock dividend (5 percent) in 1996 and (10
percent) in 1995 and 1994 2,827 4,265 3,090
Stock bonuses 13 6 8
Sale of 516,000 shares, net of issuance cost
of $474,000 - - 3,004
Employee stock purchase plan 241 173 -
------- ------ ------
Balance, end of year $20,572 17,491 13,047
======= ====== ======
Retained earnings:
Balance, beginning of year $ 4,722 6,906 8,388
Net earnings 2,787 2,088 1,612
Stock dividend (5 percent) in 1996 and (10
percent) in 1995 and 1994 (2,832) (4,272 ) (3,094)
------- ------ ------
Balance, end of year $ 4,677 4,722 6,906
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
February 3, 1996 January 28, 1995 January 29, 1994
------------------ ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,787 $ 2,088 1,612
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,185 1,710 1,409
Loss (gain) on sale of assets 1 (4) (6)
Shares issued under employee incentive plans 255 179 9
Changes in assets and liabilities:
Increase in trade and other accounts receivable (346) (419) (999)
Increase in merchandise inventories (3,800) (5,200) (1,891)
Increase in income taxes receivable - 9 37
Deferred income taxes (benefits) (60) (95) 29
Decrease (increase) in other assets (37) 2 (222)
Increase in prepaid expenses (1,113) (266) (35)
Increase (decrease) in accounts payable 242 1,326 (393)
Increase (decrease) in income taxes payable (47) 583 -
Increase (decrease) in accrued expenses 642 656 (59)
-------- -------- -------
Net cash provided by (used in) operating 709 569 (509)
activities -------- -------- -------
Cash flows from investing activities:
Acquisition of property and equipment (5,159) (3,994) (2,909)
Proceeds from disposal of property and
equipment 302 42 105
-------- -------- -------
Net cash used in investing activities (4,857) (3,952) (2,804)
-------- -------- --------
Cash flows from financing activities:
Advances on debt 32,652 26,357 18,325
Payments of debt (28,608) (23,005) (18,065)
Proceeds of common stock offering - - 3,009
Payments of fractional shares issued with stock
dividend (3) (3) -
-------- -------- -------
Net cash provided by financing activities 4,041 3,349 3,269
-------- -------- -------
Net decrease in cash and cash equivalents (107) (34) (44)
Cash and cash equivalents at beginning of year 109 143 187
-------- -------- -------
Cash and cash equivalents at end of year $ 2 109 143
======== ======== =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for: $ 1,965 954 1,025
======== ======== =======
Income taxes $ 452 291 139
======== ======== =======
Interest
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 3, 1996, JANUARY 28, 1995, AND JANUARY 29, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Entity
- ----------------
Harold's Stores, Inc., an Oklahoma corporation (the "Company"), operates a
chain of "updated traditional", classic styled ladies' and men's specialty
apparel stores. The Company offers its merchandise in 29 stores primarily
across the South and Southwest, with 10 stores located in Texas, and through its
mail order catalog. The product development and private label programs provide
an exclusive selection of upscale merchandise to the consumer. In addition, the
in-house advertising and catalog production capabilities create opportunities
for vertical integration.
Basis of Presentation
- ---------------------
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
Definition of Fiscal Year
- -------------------------
The Company has a 52-53 week fiscal year which ends on the Saturday closest
to January 31. Fiscal years 1996, 1995 and 1994 ended February 3, 1996, January
28, 1995, and January 29, 1994, respectively.
Accounts Receivable and Finance Charges
- ---------------------------------------
Trade accounts receivable primarily represent the Company's credit card
receivables from customers. These customers are primarily residents of Oklahoma
and Texas. Finance charges on these revolving receivables are imposed at
various annual rates in accordance with the state laws in which the Company
operates, and are recognized in income when billed to the customers. Minimum
monthly payments are required generally equal to ten percent of the out
standing balance. The average liquidation rate at February 3, 1996, was
approximately 4 months. Finance charge revenue is netted against selling,
general and administrative expenses and was approximately $705,000, $578,000,
and $480,000, in fiscal 1996, fiscal 1995, and fiscal 1994, respectively.
Merchandise Inventories
- -----------------------
Merchandise inventories are valued at the lower of cost or market using the
retail method of accounting. Inventories of raw materials are valued at the
lower of cost or market, and approximate $5,600,000 and $3,600,000 in fiscal
1996, and fiscal 1995, respectively.
Depreciation, Amortization, and Maintenance and Repairs
- -------------------------------------------------------
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the shorter of the life of the respective leases or the expected life of the
improvements. The following are the estimated useful lives used to compute
depreciation and amortization:
<TABLE>
<S> <C>
Buildings 30 years
Leasehold improvements 5-10 years
Furniture and equipment 4-7 years
</TABLE>
F-9
<PAGE>
Maintenance and repairs are charged directly to expense as incurred, while
betterments and renewals are generally capitalized in the property accounts.
When an item is retired or otherwise disposed of, the cost and applicable
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recognized.
Preopening Expenses and Catalog Costs
- -------------------------------------
Costs associated with the opening of new stores are expensed during the
first full month of operations. The costs are carried as prepaid expenses prior
to the store opening. Such costs included approximately $535,000 at February 3,
1996, and $67,000 at January 28, 1995.
The Company expenses all non-direct advertising as incurred and defers the
direct costs of producing its mail order catalogs. These costs are amortized
over the estimated sales period of the catalogs, generally three to four months.
At February 3, 1996 and January 28, 1995 approximately $257,000 and $220,000 of
deferred catalog costs are included in other assets, respectively. The Company
incurred approximately $7,807,000, $5,912,000, and $3,968,000 in adver tising
expenses of which approximately $4,818,000, $3,678,000, and $2,157,000 were
related to the mail order catalogs during fiscal years 1996, 1995 and 1994,
respectively.
Income Taxes
- ------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net Earnings Per Common Share
- -----------------------------
Net earnings per common share are based upon the weighted average number of
common shares outstanding during the periods restated for the five percent stock
dividend in fiscal 1996, and the ten percent stock dividends in fiscal 1995, and
fiscal 1994 and includes common stock equivalents of 53,181 in fiscal 1996.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Reclassifications
- -----------------
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year presentation.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts for cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these financial instruments. The Company's debt is at a
variable interest rate; therefore, book value approximates fair value.
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment at February 3, 1996 and January 28, 1995 consisted
of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $ 665 590
Buildings 2,796 1,987
Leasehold improvements 4,934 4,310
Furniture and equipment 10,604 8,299
--------- ------
$ 18,999 15,186
========= ======
</TABLE>
4. NOTE PAYABLE AND LONG-TERM DEBT
Borrowings under short-term agreements were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at end of fiscal year $ - 4,902 1,475
Weighted average interest rate at end of fiscal year - 8.5% 6.0%
Maximum balance outstanding during the year $7,558 5,298 2,950
Average balance outstanding during the year $5,552 2,961 1,051
Weighted average interest rate during the year 8.6% 7.4% 6.1%
</TABLE>
Average outstanding balances in the above table are based on the number of days
outstanding. Weighted average interest rates are the result of dividing the
related interest expense by average borrowings outstanding.
Long-term debt at February 3, 1996, and January 28, 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Borrowings under line of credit, bearing interest at a variable rate
(7.8% at February 3, 1996) payable monthly, principal due June
30, 1997. $9,021 -
Note payable to bank, secured by building and land with net book
value of $335 at February 3, 1996, bearing interest at a variable
rate (8.0% at February 3, 1996), due in monthly installments of
principal of $6 plus accrued interest, with final payment due
September 2002. 594 669
------ ------
Total long-term debt 9,615 669
Less current maturities of long-term debt 75 75
------ ------
Long-term debt, net of current maturities $9,540 594
====== ======
</TABLE>
F-11
<PAGE>
The annual maturities of the above long-term debt as of February 3, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
Fiscal year ending
1997 $ 75
1998 9,096
1999 75
2000 75
2001 75
2002 and subsequent 219
------
Total $9,615
======
</TABLE>
During fiscal 1995, the Company's line of credit was classified as short-
term. On August 22, 1995, the line of credit available was renewed with a two-
year maturity and increased to a $12,000,000 credit facility. Subsequent to
February 3, 1996, the Company increased the above line of credit to $15,000,000.
Additionally, a $3,000,000 line of credit was obtained from a separate banking
institution for the purpose of issuing letters of credit.
5. INCOME TAXES
Income tax expense (benefit) for the years ended February 3, 1996, January
28, 1995, and January 29, 1994, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ------
<S> <C> <C> <C>
Current:
Federal $1,569 1,265 925
State 349 281 217
------ ----- -----
1,918 1,546 1,142
Deferred: ------ ----- -----
Federal
State (50) (79) 23
(10) (16) 6
------- ------ -----
(60) (95) 29
------- ------ -----
Total $1,858 1,451 1,171
====== ===== =====
</TABLE>
Income tax expense differs from the normal tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate 34% 34% 34%
Increase in income taxes caused by:
State income taxes 6 6 6
Other, net - 1 2
------ ----- -----
Effective tax rate 40% 41% 42%
====== ===== =====
</TABLE>
F-12
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at February 3,
1996 and January 28, 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets - current:
Allowance for doubtful accounts $ 85 74
Merchandise inventories 534 528
Deferred compensation 91 20
----- ----
Deferred tax liability - noncurrent:
$ 710 622
Property and equipment ===== ====
$ 226 198
===== ====
</TABLE>
The net deferred tax asset relates solely to future deductible temporary
differences and there is no valuation allowance. Management believes that it is
more likely than not that the Company will fully realize the gross deferred tax
assets; however, there can be no assurances that the Company will generate the
necessary adjusted taxable income in any future periods.
6. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Company has authorized 1,000,000 shares of preferred stock, par value
$.01 per share. This preferred stock may be issued in one or more series and
the terms and rights of such stock will be determined by the Board of Directors.
No preferred shares were issued and outstanding at either February 3, 1996, or
January 28, 1995.
The Company has reserved 1,000,000 shares of its common stock for issuance
to key employees under its current stock option and equity incentive plan which
was adopted in April 1993 and amended June 1995. The plan has a term of ten
years. The Board of Directors may grant incentive or non-qualified stock
options, restricted stock, stock appreciation rights and other stock-based and
cash awards under the provisions of the plan. The exercise price of incentive
stock options is the fair market value of the stock at the date of the grant,
plus ten percent if the employee possesses more than ten percent of the total
combined voting power of all classes of the Company's stock. Options granted
may have a term of up to ten years, except that incentive stock options granted
to stockholders who have more than ten percent of the Company's voting stock at
the time of the grant may have a term of up to five years. Any unexercised
portion of the options will automatically and without notice terminate upon the
applicable anniversary of the issuance date or termination of employment. The
following table summarizes the stock option activity for the periods indicated:
F-13
<PAGE>
<TABLE>
<CAPTION>
Range of
Shares Exercise Prices
-------- ---------------
<S> <C> <C>
Options outstanding, fiscal 1993 33,033 $6.30
Granted - -
Exercised - -
Terminated (3,809) 6.30
Options outstanding, fiscal 1994 29,224 6.30
Granted 303,074 8.42-9.29
Exercised -
Terminated (21,484) 6.30-9.29
Options outstanding, fiscal 1995 310,814 6.30-9.29
Granted 33,075 10.48
Exercised (304) 10.48
Terminated (12,309) 6.30-9.29
Options outstanding, fiscal 1996 331,276 6.30-10.48
Options exercisable, fiscal 1996 141,736 6.30-10.48
</TABLE>
The number of shares and exercise prices have been restated to reflect the
five percent stock dividend in fiscal 1996, and the ten percent stock dividends
in fiscal 1995, fiscal 1994, and fiscal 1993.
Additionally, as of February 3, 1996, restricted stock awards for up to
$32,700 in market value of common stock were outstanding under the plan. These
awards may be exercised over the remaining four-year vesting period in equal
annual installments at the fair market value of common stock on such installment
vesting date. After giving effect to the outstanding and exercised awards, and
based upon the price of common stock on February 3, 1996, the Company may award
666,027 shares or options under the plan.
7. RETIREMENT AND BENEFIT PLANS
The Company has a profit sharing retirement plan with a 401(k) provision
that allows participants to contribute up to 15 percent of their compensation
before income taxes. Eligible participants are employees at least 21 years of
age with one year of service. The Company's Board of Directors will designate
annually the amount of the profit sharing contribution as well as the percentage
of participants' compensation that it will match as 401(k) contributions. For
the years ended February 3, 1996, January 28, 1995, and January 29, 1994, the
Company contributed approximately $81,000, $43,000, and $24,000, respectively,
to the 401(k) plan.
The Company has reserved 200,000 shares of common stock for employees under
its stock purchase plan which covers all employees who meet minimum age and
service requirements. The Company's Board of Directors will determine from time
to time the amount of any matching contribution as well as the percentage of
participants' compensation that it will match as purchase contributions. The
purchase price of shares covered under the plan is fair market value as of the
date of purchase in the case of newly issued shares and the actual price paid in
the case of open market purchases. The plan was implemented in January 1994 and
there was no matching contribution in fiscal year 1994. For the years ended
February 3, 1996, and January 28, 1995 the Company's matching contributions were
approximately $48,000 and $35,000, and approximately 23,000 and 18,000 shares
were issued, respectively.
F-14
<PAGE>
8. RELATED PARTY TRANSACTIONS
Rent on the Norman, Oklahoma store and certain related facilities is paid
to parties related to the Company's Chairman. The store lease terms in 1996,
1995, and 1994 provided for payment of percentage rent equal to four percent of
sales plus certain ancillary costs. During the years ended February 3, 1996,
January 28, 1995, and January 29, 1994, the total of such rent for the store and
certain related facilities was approximately $140,000, $133,000, and $136,000,
respectively.
The Company leases certain office space and a distribution center facility
from a limited partnership whose partners are stockholders and directors of the
Company. The term of the office space lease is sixteen years commencing April 1,
1996, with annual rent payments of $158,000 plus insurance, utilities, and
property taxes until April, 2000, at which time the rent will be $180,000 plus
insurance, utilities and property taxes, increasing $2,500 per year until
expiration of the lease. The term of the distribution center lease is ten (10)
years commencing December 1, 1992. Rent payments are approximately $64,000 per
year payable in monthly installments plus utilities, insurance, and property
taxes.
The Company has an option to purchase the distribution center for a
purchase price equal to the greater of the adjusted cost basis of the lessor at
the time of closing or 90% of appraised value, exercisable through the fifth
year of the lease. At the end of the third lease year on November 30, 1995, the
lessor's adjusted cost of the distribution center was approximately $798,000.
See note 11 for information concerning the employment contracts with the
Company's Chairman of the Board, Chief Executive Officer and President.
9. FACILITY LEASES
The Company conducts substantially all of its retail operations from leased
store premises under leases that will expire within the next ten years. Several
of such leases contain renewal options exercisable at the option of the Company.
In addition to minimum rental payments, certain leases provide for payment of
taxes, maintenance, and percentage rentals based upon sales in excess of
stipulated amounts.
Minimum rental commitments for store and distribution premises and office
space (excluding renewal options) under noncancelable operating leases having a
term of more than one year as of February 3, 1996, were as follows (in
thousands):
<TABLE>
<S> <C>
Fiscal year ending:
1997 $ 2,827
1998 2,851
1999 2,523
2000 2,491
2001 2,314
2002 and subsequent 9,815
-------
Total $22,821
=======
</TABLE>
F-15
<PAGE>
Total rental expense for the years ended February 3, 1996, January 28, 1995, and
January 29, 1994, was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Base rent $2,222 1,791 1,461
Additional amounts computed
as percentage of sales 1,112 922 666
------ ----- -----
Total $3,334 2,713 2,127
====== ===== =====
</TABLE>
10. BUSINESS CONCENTRATIONS
During fiscal 1996 and fiscal 1995, more than 90% and 80%, respectively, of
the ladies' apparel sales were attributable to the Company's product development
and private label programs. The breakdown of total sales between ladies' and
men's apparel was approximately 80% and 20% for fiscal 1996, and 78% and 22% for
fiscal 1995, respectively.
The product development programs result in a substantial portion of the
Company's purchases of raw materials being concentrated among a small group of
vendors, of which some are located outside of the United States. CMT
Enterprises, Inc. acts as the Company's agent in the purchase of the raw
materials, including fabrics, linings, buttons, etc., and supervises the
manufacturing process of the Company's merchandise with manufacturing
contractors. In the event of the termination of the CMT relationship or other of
the Company's vendors, management believes that in most instances more than one
new vendor would be required to replace the loss of a principal vendor. Although
management believes that replacement vendors could be located, if any buying
relationship is terminated and until replacement vendors are located, the
operating results of the Company could be materially adversely affected.
The Company's sales are directly impacted by regional and local economics
and consumer confidence. The amount of disposable income available to consumers,
as well as their perception of the current and future direction of the economy,
impact their level of purchases. The consumer demand for the Company's apparel
fluctuates according to changes in customer preferences dictated by fashion and
season. In addition, the Company's sales are subject to seasonal influences,
with the major portion of sales being realized during the fall season, which
includes the back-to-school and the holiday selling seasons. Such fluctuations
could affect sales and the valuation of inventory, since the merchandise is
placed in the production process, or ordered, well in advance of the season and
sometimes before fashion trends are evidenced by consumer purchases.
11. COMMITMENTS AND CONTINGENT LIABILITIES
The Company issues letters of credit which are used principally in overseas
buying, cooperative buying programs, and for other contract purchases. At
February 3, 1996, the Company had outstanding, pursuant to such facility,
approximately $225,000 in letters of credit to secure orders of merchandise from
various domestic and international vendors. Subsequent to year-end the Company
renegotiated the line of credit as discussed in Note 4.
The Company currently has an employment agreement with the Chairman of the
Board which continues until January 31, 1998. Pursuant to this agreement, dated
January 31, 1993, he is paid an annual salary of $180,000 plus an annual
performance bonus and deferred annual compensation of $25,000. Subject to
certain terms, at the end of the agreement, the Chairman's employment will be
converted to that of a part-time consultant for a period of ten years at an
annual salary of $50,000.
The Company also has employment agreements with the Chief Executive Officer
and the President which terminate on January 31, 1998. The Chief Executive
Officer's agreement, dated January 31, 1993, and amended
F-16
<PAGE>
January 31, 1995, provides for annual compensation of $220,000 plus an annual
performance bonus. The President's agreement, dated January 31, 1993 and
amended January 31, 1995, provides for annual compensation of $160,000 plus an
annual performance bonus. Neither of these contracts provides for deferred
compensation or part-time consultant positions after the termination dates of
such contracts.
The Company is involved in various claims, administrative agency
proceedings and litigation arising out of the normal conduct of its business.
Although the ultimate outcome of such litigation cannot be predicted, the
management of the Company, after discussions with counsel, believes that
resulting liability, if any, will not have a material effect upon the Company's
financial position or results of operations.
12. QUARTERLY FINANCIAL DATA (Unaudited - in thousands, except per share data)
Summarized quarterly financial results are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
53 Weeks Ended February 3, 1996
- -------------------------------
Sales $21,316 19,069 25,415 28,464
Gross profit on sales 7,448 7,251 9,245 10,489
Net earnings 486 508 796 997
Net earnings per common share .10 .10 .16 .20
52 Weeks Ended January 28, 1995
- -------------------------------
Sales $16,753 15,415 21,031 22,596
Gross profit on sales 5,656 5,403 7,494 7,854
Net earnings 222 449 632 785
Net earnings per common share .04 .09 .13 .16
</TABLE>
F-17
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
<TABLE>
<CAPTION>
May 4, 1996 February 3, 1996
------------ -----------------
(unaudited)
<S> <C> <C>
Current assets:
Cash $ 249 2
Trade accounts receivable, less allowance
for doubtful accounts of $200 5,170 4,687
Other accounts receivable 534 568
Merchandise inventories 20,631 21,647
Prepaid expenses 2,162 1,759
Deferred income taxes 710 710
------- ------
Total current assets 29,456 29,373
------- ------
Property and equipment, at cost 20,061 18,999
Less accumulated depreciation and amortization (6,684) (6,097)
------- ------
Net property and equipment 13,377 12,902
------- ------
Other assets 103 334
------- ------
Total assets $42,936 42,609
======= ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-18
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
May 4, 1996 February 3, 1996
------------ ----------------
(unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 75 75
Accounts payable 4,175 4,396
Redeemable gift certificates 488 672
Accrued bonuses and payroll expenses 1,728 1,624
Accrued rent expense 180 241
Income taxes payable 640 536
------- ------
Total current liabilities 7,286 7,544
------- ------
Long-term debt, net of current maturities 9,418 9,540
Deferred income taxes 226 226
Stockholders' equity:
Preferred stock of $.01 par value
Authorized 1,000,000 shares; none issued - -
Common stock of $.01 par value
Authorized 7,500,000 shares; issued and
outstanding 4,965,245 in May, 4,958,181 in February 50 50
Additional paid-in capital 20,673 20,572
Retained earnings 5,283 4,677
------- ------
Total stockholders' equity 26,006 25,299
------- ------
Total liabilities and stockholders' equity $42,936 42,609
======= ======
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-19
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
-------------- --------------
(Unaudited)
<S> <C> <C>
Sales $24,522 21,316
Costs and expenses:
Costs of goods sold (including occupancy and
central buying expenses, exclusive of items shown
separately below) 15,891 13,868
Selling, general and administrative expenses 4,854 4,298
Advertising 1,976 1,667
Depreciation and amortization 665 512
Interest expense 126 160
------ ------
23,512 20,505
------ ------
Earnings before income taxes 1,010 811
Provision for income taxes 404 325
------ ------
Net earnings $ 606 486
======= ======
Net earnings per common share $ .12 .10
======= ======
Weighted average number of common shares
outstanding 5,097,483 4,984,616
========== =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-20
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
----------- --------------
(Unaudited)
Common stock:
<S> <C> <C>
Balance, beginning and end of period $ 50 $ 47
======= =======
Additional paid-in capital:
Balance, beginning of period $20,572 17,491
Employee Stock Purchase Plan 101 73
------- -------
Balance, end of period
$20,673 17,564
======= =======
Retained earnings:
Balance, beginning of period $ 4,677 4,722
Net earnings 606 486
------- -------
Balance, end of period $ 5,283 5,208
======= =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-21
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
13 Weeks Ended 13 Weeks Ended
May 4, 1996 April 29, 1995
------------ --------------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net earnings $ 606 486
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 665 512
Loss (gain) on sale of assets (1) -
Shares issued under employee incentive plans 101 73
Changes in assets and liabilities:
Increase in trade and other accounts receivable (449) (916)
Decrease (increase) in merchandise inventories 1,016 1,260
Decrease (increase) in other assets 231 (99)
Increase in prepaid expenses (403) (199)
Increase (decrease) in accounts payable (221) (80)
Increase (decrease) in income taxes payable 104 (238)
Increase (decrease) in accrued expenses (141) 118
-------- -------
Net cash provided by operating activities
1,508 917
Cash flows from investing activities: -------- -------
Acquisition of property and equipment
Proceeds from disposal of property and equipment
(1,224) (1,135)
Net cash used in investing activities 85 (70)
-------- -------
Cash flows from financing activities:
Advances on note payable (1,139) (1,205)
Payments of note payable -------- -------
Payments of long-term debt
Net cash provided by (used in) financing activities 6,537 5,790
(6,640) (5,032)
Net increase in cash (19) (19)
Cash at beginning of year -------- -------
Cash at end of period (122) 739
-------- -------
247 451
2 109
-------- -------
$ 249 560
======== =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-22
<PAGE>
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 1996 AND APRIL 29, 1995
(Unaudited)
1. Unaudited Interim Periods
-------------------------
In the opinion of the Company's management, all adjustments (all of which
are normal and recurring) have been made which are necessary to fairly state the
financial position of the Company as of May 4, 1996 and the results of its
operations and cash flows for the thirteen-week periods ended May 4, 1996 and
April 29, 1995. The results of operations for the thirteen weeks ended May 4,
1996 and April 29, 1995 are not necessarily indicative of the results of
operations that may be achieved for the entire fiscal year.
2. Definition of Fiscal Year
-------------------------
The Company has a 52-53 week fiscal year which ends on the Saturday closest
to January 31. The period from February 4, 1996 through February 1, 1997, has
been designated as fiscal 1997.
3. Reclassifications
-----------------
Certain comparative prior year amounts in the consolidated financial
statements have been reclassified to conform with the current year presentation.
4. Net Earnings Per Common Share
-----------------------------
Net earnings per common share are based upon the weighted average number of
common shares outstanding during the period restated for the five percent stock
dividend in fiscal 1996 and includes common stock equivalents of 136,643 and
47,135 in fiscal 1997 and fiscal 1996, respectively.
F-23
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, any Selling Shareholder or the
Underwriter. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
herein is correct as of any time subsequent to the date hereof or that there has
been no change in the affairs of the Company since such date. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy such securities under any circumstances in which such offer or solicitation
would be unlawful.
___________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................ 2
Incorporation of Certain
Documents by Reference............................ 2
Prospectus Summary................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 8
Price Range of Common Stock
and Dividend Policy............................... 8
Capitalization....................................... 9
Selected Consolidated Financial Data................. 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 11
Business............................................. 16
Management and Directors............................. 24
Description of Capital Stock......................... 26
Selling Shareholders................................. 28
Underwriting......................................... 29
Legal Matters........................................ 30
Experts.............................................. 30
Index to Consolidated Financial Statements...........F-1
========================================================
</TABLE>
================================================================================
645,000 SHARES
[LOGO]
COMMON STOCK
_____________________________
PROSPECTUS
_____________________________
SCOTT & STRINGFELLOW, INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an itemization of the estimated costs, other than
underwriting discounts and commissions, expected to be incurred in connection
with the offer and sale of the securities registered hereby.
<TABLE>
<CAPTION>
SELLING
COMPANY SHAREHOLDERS TOTAL
-------- ------------ --------
<S> <C> <C> <C>
Securities Registration Fee $ 2,518 $1,570 $ 4,088
NASD Filing Fee 1,568 - 1,568
American Stock Exchange Listing Fee 9,200 - 9,200
Blue Sky Fees 2,500 - 2,500
Printing Expenses 18,000 - 18,000
Legal Fees and Expenses 60,000 - 60,000
Accounting Fees and Expenses 10,000 - 10,000
Transfer Agent and Registrar Fees 1,000 - 1,000
Miscellaneous 4,049 - 3,644
-------- ------ --------
Total $108,835 $1,570 $110,000
======== ====== ========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation provides that, to the fullest
extent permitted by the Oklahoma General Corporation Act, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Registrant and its shareholders. The provision in the Certificate
of Incorporation does not eliminate the duty of care and in appropriate
circumstances, equitable remedies such as injunctive or other forms of non-
monetary relief will remain available under Oklahoma law. However, such remedies
may not be effective in all cases. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, as well as for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Oklahoma
law. The provision also does not affect a director's responsibilities under any
other law, such as the state or federal securities laws.
Under the Oklahoma General Corporation Act, the Registrant has broad powers
to indemnity its directors and officers against liabilities they may incur in
such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Registrant's Certificate of Incorporation
provides that the Registrant shall indemnify its directors and officers to the
fullest extent permitted by the Oklahoma General Corporation Act, except as to
any action, suit or proceeding brought by or on behalf of such persons without
prior approval of the Board of Directors. The Certificate of Incorporation
requires the Registrant to indemnify such persons against expenses, judgments,
fines, settlements and other amounts incurred in connection with any proceeding,
except for certain proceedings brought by or on behalf of such persons as
indicated above, whether actual or threatened, to which any such person may be
made a party by reason of the fact that such person is or was a director or an
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another enterprise, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant, and with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. However, in the case of a derivative action, an officer or director
will not be entitled to indemnification in respect of any claim, issue or matter
as to which such person is adjudged to be liable to the Registrant, unless and
only to the extent that the court in which the action was brought determines
that such person is fairly and reasonable entitled to indemnity for expenses.
II-1
<PAGE>
The Registrant has entered into Indemnity Agreements with each director of
the Registrant which require the Registrant to indemnify such persons against
certain liabilities and expenses incurred by any such persons by reason of their
status or service as directors or officers of the Registrant and which set forth
procedures that will apply in the event of a claim for indemnification under
such agreements. The form of such Indemnity Agreement is contained as an exhibit
to the registration statement.
As of the date of this registration statement, there is no pending
litigation or proceeding involving a director or officer of the Registrant as to
which indemnification is being sought nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification by any
officer or director.
The Underwriting Agreement filed as an exhibit to this registration
statement provides for indemnification by the Underwriter of the Registrant and
its officers, directors and controlling persons, and by the Registrant of the
Underwriter for certain liabilities arising under the Securities Act or
otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant understands that the
Securities and Exchange Commission is of the opinion that such indemnification
may contravene public policy as expressed in the Securities Act and is,
therefore, unenforceable.
ITEM 16. EXHIBITS
See Index to Exhibits immediately following the Signature Page.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
persons of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Norman, State of Oklahoma, on June 7,
1996.
HAROLD'S STORES, INC.
By: /s/ H. Rainey Powell
---------------------------------
H. Rainey Powell, President,
Chief Financial Officer, Treasurer
and Secretary
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Harold G. Powell * Chairman of the Board of Directors June 7, 1996
- ----------------
Harold G. Powell
Rebecca P. Casey * Chief Executive Officers and June 7, 1996
- ---------------- Director (principal executive
Rebecca P. Casey officer)
/s/ H. Rainey Powell President, Chief Financial Officer, June 7, 1996
- -------------------- Treasurer, Secretary and Director
H. Rainey Powell (principal financial officer)
Linda L. Daugherty * Vice President and Controller June 7, 1996
- ------------------ (principal accounting officer)
Linda L. Daugherty
James R. Agar* Director June 7, 1996
- -------------
James R. Agar
Michael T. Casey * Director June 7, 1996
- ----------------
Michael T. Casey
Robert B. Cullum, Jr.* Director June 7, 1996
- ---------------------
Robert B. Cullum, Jr.
Lisa Powell Hunt* Director June 7, 1996
- ----------------
Lisa Powell Hunt
W. Howard Lester* Director June 7, 1996
- ----------------
W. Howard Lester
Gary C. Rawlinson* Director June 7, 1996
- -----------------
Gary C. Rawlinson
Kenneth C. Row* Director June 7, 1996
- --------------
Kenneth C. Row
* By /s/ H. Rainey Powell
--------------------
H. Rainey Powell
Attorney-in-fact
</TABLE>
II-3
<PAGE>
HAROLD'S STORES, INC.
FORM S-2 REGISTRATION STATEMENT
INDEX TO EXHIBITS
NO. DESCRIPTION
- --- -----------
1.1 Form of Underwriting Agreement between Scott & Stringfellow, Inc. and
Registrant.
3.1 Certificate of Incorporation of Registrant (Incorporated by reference
to Exhibit 3.1 to Form 8-B Registration Statement, Registration No. 1-
10892).
3.2 By-laws of Registrant (Incorporated by reference to Exhibit 3.2 to
Form 8-B Registration Statement, Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by reference to
Exhibit 4.1 to Form S-1 Registration Statement, Registration No. 33-
15753).
5.1 Opinion of Crowe & Dunlevy, A Professional Corporation, regarding
legality of securities to be issued.
9.1 Stockholders' Agreement Among Certain Stockholders of Registrant dated
August 20, 1987 (Incorporated by reference to Exhibit 9.1 to Form S-1
Registration Statement, Registration No. 33-15753).
10.1 Lease Agreement dated May 1, 1987 by and between Harold's of Norman,
Inc. and Powell Properties, Inc. (Incorporated by reference to
Exhibit 10.1 to Form S-1 Registration Statement, Registration No. 33-
15753).
10.2 Lease Agreement dated May 1, 1987 by and between Harold's of Norman,
Inc. and Ruby K. Powell (Incorporated by reference to Exhibit 10.2 to
Form S-1 Registration Statement, Registration No. 33-15753).
10.3 Lease Agreement dated October 31, 1985 by and between Harold's Men's
Apparel, Inc. predecessor to Harold's of Norman, Inc. and Highland
Park Shopping Village (Incorporated by reference to Exhibit 10.9 to
Form S-1 Registration Statement, Registration No. 33-15753) and
Amendment to Lease Dated June 15, 1988 (Incorporated by reference to
Exhibit 10.8 to Form 10-K for the year ended January 31, 1989).
10.4 Lease Agreement dated November 1, 1990 by and between Registrant and
Michael T. Casey, Trustee (329 Partners-I Limited Partnership).
(Incorporated by reference to Exhibit 10.29 to Form 10-K for the year
ended February 2, 1991).
10.5 Amended and Restated Lease Agreement dated April 1, 1996 by and
between Registrant and 329 Partners II Limited Partnership. (Dallas
Buying Office). (Incorporated by reference to Exhibit 10.5 to Form 10-
K for fiscal year ended February 3, 1996).
10.6 Lease Agreement dated October 4, 1991 by and between Registrant and
329 Partners II Limited Partnership. (East Lindsey Warehouse Facility,
Norman, Oklahoma ) (Incorporated by reference to Exhibit 10.22 to Form
10-K for the year ended February 1, 1992).
10.7* Lease Agreement effective May 1, 1996 between Registrant and Carousel
Properties, Inc. (Campus Corner Store, Norman, Oklahoma).
II-4
<PAGE>
NO. DESCRIPTION
- --- -----------
10.8* Agreement effective June 1, 1994 between Registrant and CMT
Enterprises, Inc.
10.9 Employment and Deferred Compensation Agreement dated January 31, 1993
between Registrant and Harold G. Powell (Incorporated by reference to
Exhibit 10.21 to Form 10-K for year ended January 30, 1993).
10.10 Employment and Deferred Compensation Agreement dated January 31, 1993
between Registrant and Rebecca Powell Casey, as amended by Amendment
No. 1 dated as of April 28, 1995.
10.11 Employment and Deferred Compensation Agreement dated January 31, 1993
between Registrant and H. Rainey Powell, as amended by Amendment No. 1
dated as of April 28, 1995.
10.12* Form of Indemnification Agreement between Registrant and members
of its Board of Directors.
10.13 Amended and Restated Lease Agreement dated as of June 3, 1996 between
Registrant and 329 Partners II Limited Partnership (East Lindsey
Warehouse Facility, Norman, Oklahoma).
10.14 Lease Agreement dated as of May 31, 1996 between Registrant and 329
Partners II Limited Partnership (Proposed Outlet Store, Norman,
Oklahoma).
10.15 Second Amended and Restated Credit Agreement dated February 28, 1996
between Registrant and Boatmen's First National Bank of Oklahoma.
22.1 Subsidiaries of the Registrant (Incorporated by reference to Exhibit
22.1 to Form 8-B Registration Statement, Registration No. 1-10892).
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Crowe & Dunlevy, A Professional Corporation (Contained in
Exhibit 5.1).
24.1* Powers of Attorney.
_________________________
* Previously filed.
II-5
<PAGE>
HAROLD'S STORES, INC.
APPENDIX TO AMENDMENT NO. 1 TO
REGISTRATION STATEMENT OF FORM S-2 (FILE NO. 333-04117)
Pursuant to Rule 304 of Regulation S-T, the following is a good faith
description of photographic image material not included in Amendment No. 1 to
the Registration Statement on Form S-2 of Harold's Stores, Inc. (File No. 333-
04117) filed with the Securities and Exchange Commission via EDGAR:
Photo No. 1 (upper left on gatefold): Exterior of Store No. 30, a full-line
ladies' and men's Old School Clothing Co. store located in CitiPlace Shopping
Center, Baton Rouge, Louisiana.
Photo No. 2 (upper right on gatefold): Ladies' interior of Store No. 06, a full-
line ladies' and men's store located in Highland Park Village, Dallas, Texas.
Photo No. 3 (bottom of gatefold): Exterior of Store No. 18, a full-line ladies'
store located on Broadway and Austin Highway, San Antonio.
Photo No. 4 (top of inside front cover): Interior of Store No. 28, a full-line
ladies' and men's Old School Clothing Co. store located in Mall St. Matthews,
Louisville, Kentucky.
Illustration 1 (lower left of inside front cover): Map showing locations of
Harold's existing and proposed stores, outlets, distribution center,
merchandising office and corporate headquarters, as of fiscal year ending
February 3, 1996.
Photo No. 5 (upper left of inside back cover): Exterior of Store No. 29, the
Company's second men's and ladies' outlet facility, located in Southwest Outlet
Center, Hillsboro, Texas.
Photo No. 6 (upper right of inside back cover): Interior Harold's Outlet -
located in Southwest Outlet Center, Hillsboro, Texas.
Photo No. 7 (lower right of inside back cover): Exterior of Store No. 16, the
Company's first men's and ladies' outlet facility, located on Mopac Expressway,
Austin, Texas.
Photo No. 8 (lower left of inside back cover): Interior of the Company's 22,000
square foot distribution center, located in Norman, Oklahoma.
II-6
<PAGE>
Exhibit 1.1
RI-CS\t:\harold's\underwr.1
Hunton & Williams Draft
June 6, 1996
585,000 Shares
HAROLD'S STORES, INC.
COMMON STOCK, $.01 PAR VALUE
----------------
Underwriting Agreement
----------------------
[June ] 1996
Scott & Stringfellow, Inc.
909 East Main Street
Richmond, VA 23219
Dear Sirs:
Harold's Stores, Inc., an Oklahoma corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriter named in Schedule I hereto (the "Underwriter") an aggregate of
400,000 shares (the "Firm Shares") and, at the election of the Underwriter, up
to 60,000 additional shares (together with such shares to be sold by the Selling
Stockholders, the "Optional Shares") and the selling stockholders of the Company
named in Schedule II hereto (the "Selling Stockholders"), propose, subject to
-----------
the terms and conditions stated herein, to sell to the Underwriter an aggregate
of 185,000 shares (the "Secondary Shares") and, at the election of the
Underwriter, up to 27,750 Optional Shares, of Common Stock, $.01 par value
("Stock"), of the Company (the Firm Shares, the Optional Shares which the
Underwriter elect to purchase pursuant to Section 2, hereof and the Secondary
Shares are herein collectively called the "Shares").
1. Representations and Warranties. (a) The Company represents and
------------------------------
warrants to, and agrees with, the Underwriter that:
(i) A registration statement on Form S-2 (File No. 333-04117) in
respect of the Firm Shares and the Optional Shares has been filed with the
Securities and Exchange Commission (the "Commission"); such registration
statement and any post-effective amendment thereto, each in the form
heretofore delivered to you, has been declared effective by the Commission
in such form; no other document with respect to such registration statement
or document incorporated by reference therein has heretofore been filed
with the Commission; no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission
<PAGE>
under the Securities Act of 1933, as amended (the "Act"), being hereinafter
called a "Preliminary Prospectus"); the various parts of such registration
statement, including (A) all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with Section
5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of
the registration statement at the time it was declared effective and (B)
the documents incorporated by reference in the prospectus contained in the
registration statement at the time such part of the registration statement
became effective, each as amended at the time such part of the registration
statement became effective, are hereinafter called the "Registration
Statement", and such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, are hereinafter called the "Prospectus"; any
reference herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-2 under the Act, as of the date of
such Preliminary Prospectus or Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be deemed to
refer to and include any annual report of the Company filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date of the
Registration Statement that is incorporated by reference in the
Registration Statement);
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you expressly for use therein;
(iii) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements of the Act or
the Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and any further documents
2
<PAGE>
so filed and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective or
are filed with the Commission, as the case may be, will conform in all
material respects to the requirements of the Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission thereunder, and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through you expressly for use
therein;
(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through you expressly for use therein;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(vi) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the
3
<PAGE>
laws of the State of Oklahoma, with power and authority (corporate and
other) to own its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties, or conducts any
business, so as to require such qualification, or is subject to no material
liability or disability by reason of the failure to be so qualified in any
such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth in
the Prospectus, and all the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable and conform to the description of the Stock contained in the
Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or claims;
(viii) The Shares to be issued and sold by the Company to the
Underwriter hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Firm Shares and Optional Shares by the
Company and the compliance by the Company with all of the provisions of
this Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is subject, nor will
such action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of
4
<PAGE>
the Firm Shares and Optional Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriter;
(x) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any of
its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others; and
(xi) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder.
(xii) All employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
established, maintained or contributed to by the Company or its
subsidiaries (except any such plan for which the principal sponsor or plan
administrator is an affiliate other than the Company or its subsidiaries)
comply in all material respects with the requirements of ERISA and no
employee pension benefit plan (as defined in Section 3(2) of ERISA) has
incurred or assumed an "accumulated funding deficiency" within the meaning
of Section 302 of ERISA or has incurred or assumed any material liability
(other than for the payment of premiums) to the Pension Benefit Guaranty
Corporation;
(xiii) The consolidated financial statements of the Company and its
subsidiaries, together with related notes, as set forth in the Prospectus
present fairly the consolidated financial position and the results of
operations of the Company and its subsidiaries at the indicated dates and
for the indicated periods; such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied throughout the periods presented except as noted in the
accountants' notes thereon, and all adjustments necessary for a fair
presentation of results for such periods have been made; and the selected
financial information included in the Prospectus presents fairly the
information shown therein and has been compiled on
5
<PAGE>
a basis consistent with the financial statements presented therein;
(xiv) The Company and its subsidiaries have filed all federal, state
and foreign income tax returns, which have been required to be filed (or
have received an extension with respect thereto), and have paid, or made
adequate reserves for, all taxes indicated by said returns and all
assessments received by them to the extent that such taxes have become due
and are not being contested in good faith;
(xv) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Act or by the
rules and regulations thereunder to be described in the Registration
Statement and the Prospectus and that is not described therein;
(xvi) Neither the Company nor any of its subsidiaries has taken and
none of such entities will take, directly or indirectly, any action which
is designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities;
(xvii) The Stock is, and the Firm Shares and Optional Shares, upon
official notice and issuance will be, listed on the American Stock
Exchange;
(xiii) The Company is not an "investment company" or an "affiliated
person" of, or "promotor" or "principal underwriter" for, an "investing
company," as each such term is defined in the Investment Company Act of
1940, as amended ("Investment Company Act");
(xix) Except as disclosed in the Prospectus, the Company and its
subsidiaries have complied with and are not in violation of any federal,
state or local law, regulation, permit, provision or ordinance relating to
the protection of the environment ("Environmental Laws") (except for such
violations or noncompliance that would not have a material adverse effect
on, or cause material changes to, the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
subsidiaries, taken as a whole); and neither the Company nor any of its
subsidiaries are subject to any consent decree or compliance or
administrative order issued pursuant to, or are the subject of any pending
administrative or judicial action or
6
<PAGE>
investigation or litigation under, applicable Environmental Laws; and
(xx) This Agreement has been duly authorized, executed and delivered
by the Company.
(b) Each Selling Stockholder, severally and not jointly, represents and
warrants to, and agrees with, the Underwriter and the Company with respect to
only itself that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by the Selling Stockholder of this Agreement and
the Custody Agreement (the "Custody Agreement") and the Power of Attorney
(the "Power of Attorney") hereinafter referred to, and for the sale and
delivery of the Securities to be sold by the Selling Stockholder hereunder,
have been obtained, except such as may be required under the Act or state
securities or Blue Sky laws in connection with the purchase and
distribution of the Securities by the Underwriter; and the Selling
Stockholder has full right, power and authority to enter into this
Agreement and the Power of Attorney and to sell, assign, transfer and
deliver the Securities to be sold by the Selling Stockholder hereunder;
(ii) The Selling Stockholder has duly executed and delivered a Power
of Attorney, in the form heretofore furnished to you, appointing the
persons named therein as the Selling Stockholder's attorney-in-fact (the
"Attorney-in-Fact") with authority to execute and deliver this Agreement on
behalf of the Selling Stockholder, to determine the purchase price to be
paid by the Underwriter to the Selling Stockholder as provided therein and
in Section 2 hereof, to authorize the delivery of the Securities to be sold
---------
by the Selling Stockholder hereunder, and otherwise to act on behalf of the
Selling Stockholder in connection with the transactions contemplated by
this Agreement;
(iii) The Selling Stockholder agrees that the Securities to be sold
by the Selling Stockholder hereunder are subject to the interests of the
Underwriter, and that the appointment by the Selling Stockholder of the
Attorney-in-Fact by the Power of Attorney is to that extent irrevocable;
the Selling Stockholder agrees that its obligations hereunder shall not be
terminated by operation of law;
(iv) The sale of the Securities to be sold by the Selling Stockholder
hereunder and the performance of this Agreement, the Custody Agreement and
the Power of Attorney and the consummation by the Selling Stockholder of
the transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or
7
<PAGE>
provisions of, or constitute a default under, any loan agreement, guarantee
or other agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder is subject;
(v) The Selling Stockholder has good and valid title to the
Securities, free and clear of all liens, encumbrances, options,
restrictions or adverse claims, and at the Time of Delivery (as hereinafter
defined) the Selling Stockholder will have good and valid title to the
Securities to be sold by the Selling Stockholder hereunder, free and clear
of all liens, encumbrances, equities or claims; and, upon delivery of such
Securities and payment therefor pursuant hereto, good and valid title to
all of such Securities, free and clear of all liens, encumbrances, equities
or claims, will pass to the Underwriter;
(vi) No offering, sale or other disposition of any Common Stock (or
any securities convertible into or exercisable for Common Stock) will be
made within 120 days after the date of the Prospectus, directly or
indirectly, by the Selling Stockholder, otherwise than hereunder or with
your written consent, which consent shall not be unreasonably withheld;
(vii) The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities;
(viii) The Selling Stockholder is familiar with the Registration
Statement and the Prospectus and verifies that the information set forth
therein respecting the Selling Stockholder is true and complete;
(ix) In order to document the Underwriter' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982, as amended, with respect to the transactions
herein contemplated, the Selling Stockholder agrees to deliver to you prior
to or at the Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof); and
(x) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Stockholder.
8
<PAGE>
2. Purchase and Sale. Subject to the terms and conditions herein set
-----------------
forth, (a) the Company and the Selling Stockholders agree to sell to the
Underwriter, and the Underwriter agrees, to purchase from the Company and the
Selling Stockholders, at a purchase price per share of $___________, the number
of Firm Shares and Optional Shares set forth opposite the name of the
Underwriter in Schedule I and set forth opposite the names of the Company and
the Selling Stockholders in Schedule II, and (b) in the event and to the extent
that the Underwriter shall exercise the election to purchase Optional Shares as
provided below, the Company and each Selling Stockholder agrees to sell to the
Underwriter, and the Underwriter agrees, to purchase from the Company and each
Selling Stockholder, at the purchase price per share set forth in clause (a) of
this paragraph, that number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional
shares).
The Company and each Selling Stockholder hereby grants to the Underwriter
the right to purchase at its election that number of Optional Shares set
opposite the names of the Company and each Selling Stockholder in Schedule II
hereto, at the purchase price per share set forth in the paragraph above, for
the sole purpose of covering overallotments in the sale of the Firm Shares. Any
such election to purchase Optional Shares may be exercised by written notice
from you to the Company, given within a period of 30 calendar days after the
date of this Agreement and setting forth the aggregate number of Optional Shares
to be purchased and the date on which such Optional Shares are to be delivered,
as determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree in
writing, earlier than two or later than 10 business days after the date of such
notice.
As compensation to the Underwriter for its commitments hereunder, the
Company and the Selling Stockholders at the Time of Delivery (as defined in
Section 4 hereof) will pay to Scott & Stringfellow, Inc., for its account, an
amount equal to $__________ per share for the Shares to be delivered by the
Company and the Selling Stockholders hereunder at the Time of Delivery.
3. Offering by the Underwriter. Upon the authorization by you of the
---------------------------
release of the Shares, the Underwriter proposes to offer the Shares for sale
upon the terms and conditions set forth in the Prospectus.
4. Delivery and Payment. Certificates in definitive form for the Shares
--------------------
to be purchased by the Underwriter, and in such denominations and registered in
such names as Scott & Stringfellow, Inc., may request upon at least 48 hours'
prior notice to the Company and the Selling Stockholders, shall be delivered by
or on behalf of the Company and the Selling Stockholders, to you for the account
of the Underwriter, against payment by such Underwriter or
9
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on its behalf of the purchase price therefor by certified or official bank check
or checks, payable to the order of the Company, in next day funds (unless the
Company or any Selling Stockholder desires settlement in same day funds, in
which case the Company or the Selling Stockholder shall pay the Underwriter for
any costs associated with settlement in same day funds), all at the office of
Scott & Stringfellow, 909 East Main Street, Richmond, Virginia, 23219, at 10:00
a.m., Richmond time, on [June ] 1996, or at such other time and date as you
and the Company may agree upon in writing, such time and date being herein
called the "Time of Delivery." The time and date of such delivery and payment
shall be, with respect to the Firm Shares and Secondary Shares, 10:00 a.m.,
Richmond time, on [ ] 1996 or such other time and date as you and the
Company may agree upon in writing, and, with respect to the Optional Shares,
10:00 a.m., Richmond time, on the date specified by you in the written notice
given by you of the Underwriter' election to purchase such Optional Shares, or
at such other time and date as you and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares and the Secondary Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery." Such certificates will be made available for
checking and packaging at least 24 hours prior to each Time of Delivery at the
office of [NAME AND ADDRESS OF BANK].
At each Time of Delivery, the Company will pay, or cause to be paid, the
commission payable at such Time of Delivery to the Underwriter under Section 2
hereof by certified or official bank check or checks, payable to the order of
Scott & Stringfellow, Inc., in next day funds.
5. Agreements of the Company. The Company agrees with the Underwriter:
-------------------------
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved by
you promptly after reasonable notice thereof; to advise you, promptly after
it receives notice thereof, of the time when the Registration Statement, or
any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you copies thereof; to file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to
10
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Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date of the Prospectus and for so long as the delivery of a prospectus is
required in connection with the offering or sale of the Shares; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) To furnish the Underwriter with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of
nine months after the time of issue of the Prospectus in connection with
the offering or sale of the Shares and if at such time any events shall
have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such same period to amend or supplement the
Prospectus or to file under the Exchange Act any document incorporated by
reference in the Prospectus in order to comply with the Act or the Exchange
Act, to notify you and upon your request to file such document and to
prepare and furnish without charge to the Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request
of an amended Prospectus or a supplement to the Prospectus which will
correct such statement or omission or effect such compliance, and in case
the Underwriter is required to deliver a prospectus in connection
11
<PAGE>
with sales of any of the Shares at any time nine months or more after the
time of issue of the Prospectus, upon your request but at the expense of
the Underwriter, to prepare and deliver to the Underwriter as many copies
as you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than 18 months after the effective
date of the Registration Statement (as defined in Rule 158(c)), an earning
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Act and the rules and regulations of
the Commission thereunder (including at the option of the Company Rule
158);
(e) For the 120-day period beginning from the date hereof not to
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option plans or pursuant to
options, warrants or rights outstanding on the date of this Agreement)
which are substantially similar to the Shares, without your prior written
consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flow of the Company and
its consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three
quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and deliver
to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission).
12
<PAGE>
6. Payment of Expenses. The Company covenants and agrees with the
-------------------
Underwriter that the Company will pay the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriter and dealers; (ii) the cost of printing or producing
any Agreement among Underwriter, this Agreement, the Blue Sky Memorandum and any
other documents in connection with the offering, purchase, sale and delivery of
the Shares; (iii) all expenses in connection with the qualification of the
Shares for offering and sale under state securities laws as provided in Section
5(b) hereof, including the reasonable fees and disbursements of counsel for the
Underwriter in connection with such qualification and in connection with the
Blue Sky survey; (iv) the filing fees incident to securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the sale
of the Shares; (v) the cost of preparing stock certificates; (vi) the cost and
charges of any transfer agent or registrar; (vii) all expenses incident to the
sale and delivery of the Secondary Shares to be sold by the Selling Stockholders
to the Underwriter, including the fees and expenses of counsel to the Selling
Stockholders; and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that the Company shall
bear the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as provided
in this Section, Section 8 and Section 11 hereof, the Underwriter will pay all
of its own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any travel,
marketing, "road show" and advertising expenses of the Underwriter connected
with any offers it may make.
7. Conditions to Obligations of Underwriter. The obligations of the
----------------------------------------
Underwriter hereunder, as to the Shares to be delivered at each Time of
Delivery, shall be subject, in their discretion, to the condition that all
representations and warranties and other statements of the Company and the
Selling Stockholders herein are, at and as of such Time of Delivery, true and
correct, the condition that the Company and the Selling Stockholders shall have
performed all of their respective obligations hereunder theretofore to be
performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
13
<PAGE>
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Hunton & Williams, counsel for the Underwriter, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the Registration
Statement, the Prospectus, and other related matters as you may reasonably
request, and such counsel shall have received such papers and information
as they may reasonably request to enable them to pass upon such matters;
(c) Crowe & Dunlevy, a Professional Corporation, counsel for the
Company, shall have furnished to you their written opinion, dated such Time
of Delivery, in form and substance satisfactory to you, to the effect that:
(i) The Company is a validly existing corporation in good
standing under the laws of the State of Oklahoma, with power and
authority (corporate and other) to own and lease its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus to such counsel's
knowledge, (A) there are no preemptive or similar rights to subscribe
for or to purchase any securities of the Company and (B) except as
described in the Prospectus, there are no warrants or options to
purchase any securities of the Company; to such counsel's knowledge,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any rights for or relating to the registration of any securities of
the Company with respect to such filing, offering or sale, except such
rights as have been waived; and the form of the certificates
evidencing the Securities complies with all formal requirements of
Oklahoma law;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties, or
14
<PAGE>
conducts any business, so as to require such qualification, or is
subject to no material liability or disability by reason of failure to
be so qualified in any such jurisdiction (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions of
local counsel and in respect of matters of fact upon certificates of
officers of the Company, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(iv) Each material subsidiary of the Company is a validly
existing corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized
and issued, are fully paid and non-assessable, and (except for
directors' qualifying shares and except as otherwise set forth in the
Prospectus) are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Company or its subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
and, to such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated (other than the performance of the
Company's indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed)
15
<PAGE>
will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company or any statute or any order,
rule or regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriter; and
(ix) The documents incorporated by reference in the Prospectus or
any further amendment or supplement thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), when they or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery became effective or
were filed with the Commission, as the case may be, complied as to
form in all material respects with the requirements of the Act or the
Exchange Act, as applicable and the rules and regulations of the
Commission thereunder; and based on our participation in the
preparation of the Registration Statement and the Prospectus but
without independent investigation and verification of the accuracy,
completeness or fairness thereof, they have no reason to believe that
any of such documents, when such documents were so filed, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made
when such documents were so filed, not misleading; and
16
<PAGE>
(x) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
based on our participation in the preparation of the Registration
Statement and the Prospectus, but without independent investigation
and verification of the accuracy, completeness or fairness thereof,
they have no reason to believe (A) that, as of its effective date, the
Registration Statement or any further amendment thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or (B)
that, as of its date, the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as
to which such counsel need express no opinion) contained an untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or that, as
of such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contains an untrue statement of a material
fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; and they do not know of any amendment to
the Registration Statement required to be filed or of any contracts or
other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be incorporated by reference
into the Prospectus or required to be described in the Registration
Statement or the Prospectus which are not filed or incorporated by
reference or described as required;
(d) Crowe & Dunlevy, a Professional Corporation, may rely as to
questions of law not involving the laws of the United States or the State of
Oklahoma on opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a
17
<PAGE>
natural person), and of governmental officials, in which case their opinions
shall so state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in such opinions, representations, or
certificate.
(e) Crowe & Dunlevy, a Professional Corporation, counsel for the
Selling Stockholders, shall have furnished to you its written opinion with
respect to each Selling Stockholder, dated such Delivery Date, in form and
substance satisfactory to you, to the effect that:
(i) A Custody Agreement and a Power of Attorney have been duly
executed and delivered by the Selling Stockholder and constitute the valid
and binding agreements of the Selling Stockholder enforceable in accordance
with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, moratorium or other laws affecting creditors'
rights generally and by general equity principles;
(ii) This Agreement has been duly executed and delivered by or on
behalf of the Selling Stockholder; and the sale of the Shares to be sold by
the Selling Stockholder hereunder and the performance of this Agreement,
the Custody Agreement and the Power of Attorney and the consummation of the
transactions herein and therein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any loan agreement or other agreement or
instrument known to such counsel to which the Selling Stockholder is a
party or by which the Selling Stockholder is bound, or, to such counsel's
knowledge, any statute, order, rule or regulation known to such counsel of
any court or governmental agency or body having jurisdiction over the
Selling Stockholder or the property of the Selling Stockholder;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by the Selling Stockholder hereunder, except such as have been
obtained under the Act and such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of such
Securities by the Underwriter;
(iv) At such Delivery Date the Selling Stockholder had good and valid
title to the Shares to be sold at such Delivery Date by the Selling
Stockholder under this Agreement, free and clear of all liens,
encumbrances, options, restrictions or adverse claims; and
18
<PAGE>
(v) Upon delivery to the Underwriter, the Underwriter will receive
good and valid title to the Shares, free and clear of all liens,
encumbrances, equities or claims.
In rendering the opinion in subparagraph (iv) such counsel may rely upon a
certificate of the Selling Stockholder in respect of matters of fact, provided
that such counsel shall state that they believe that both you and they are
justified in relying upon such certificate.
(f) At 10:00 a.m., Richmond time, on the effective date of the
Registration Statement and the effective date of the most recently filed
post-effective amendment to the Registration Statement and also at each
Time of Delivery, KPMG Peat Marwick LLP shall have furnished to you a
letter or letters, dated the respective date of delivery thereof, in form
and substance satisfactory to you, to the effect set forth in Annex I
hereto;
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in your judgment so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; or (iii) the outbreak or escalation
of hostilities involving the United States or the declaration of war or
national emergency if the effect of any such event specified in this Clause
(iii) in your judgment makes it impracticable or inadvisable to proceed
with the
19
<PAGE>
public offering or the delivery of the Shares on the terms and in the
manner contemplated in the Prospectus; and
(i) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, and as to such other
matters as you may reasonably request and the Company shall have furnished
or caused to be furnished certificates as to the matters set forth in
subsections (a) and (e) of this Section, and as to such other matters as
you may reasonably request.
8. Indemnification and Contribution.
--------------------------------
(a) The Company will indemnify and hold harmless the Underwriter
against any losses, claims, damages or liabilities to which the Underwriter
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Underwriter
for any legal or other expenses reasonably incurred by the Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter through you
expressly for use therein.
(b) Subject to subsection (f) of this Section 8, the Selling
-------------- ---------
Stockholders, severally and not jointly, will indemnify and hold harmless
the Underwriter against any losses, claims, damages or liabilities, to
which the Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration
20
<PAGE>
Statement or the Prospectus, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will promptly reimburse the
Underwriter for any legal or other expenses reasonably incurred by the
Underwriter in connection with investigating, preparing to defend or
defending, or appearing as a third party witness in connection with, any
such action or claim; provided, however, that the Selling Stockholders
shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in any Preliminary Prospectus, the Registration Statement or Prospectus or
any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by the Underwriter through you
expressly for use therein.
(c) The Underwriter will indemnify and hold harmless the Company and
the Selling Stockholders against any losses, claims, damages or
liabilities, severally and not jointly, to which the Company or the Selling
Stockholders may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter through you
expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company or the Selling
Stockholders in connection with investigating or defending any such action
or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise
21
<PAGE>
than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of
the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not
be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof
other than reasonable costs of investigation.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Underwriter on the other
from the offering of the Shares. If, however, the allocation provided by
the immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under subsection
(c) above, then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriter on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriter or the Selling
Stockholders on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses)
received by the Company and the Selling Stockholders bears to the total
underwriting discounts and commissions received by the Underwriter, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or the Selling
22
<PAGE>
Stockholders on the one hand or the Underwriter on the other and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined
by pro rata allocation (even if the Underwriter were treated as one entity
for such purpose) or by any other method of allocation which does not take
account the equitable considerations referred to above in this subsection
(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11 (f) of
the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(f) The liability of each Selling Stockholder under this Section 8
---------
shall be limited to an amount equal to the initial public offering price
less the underwriting discount of the Securities sold by the Selling
Stockholders to the Underwriter.
(g) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and
the Selling Stockholders may otherwise have and shall extend, upon the same
terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriter under
this Section 8 shall be in addition to any liability which the Underwriter
may otherwise have and shall extend, upon the same terms and conditions, to
each officer and director of the Company and the Selling Stockholders and
to each person, if any, who controls the Company or the Selling
Stockholders within the meaning of the Act.
9. Representations and Indemnities to Survive. The respective
------------------------------------------
indemnities, agreements, representations, warranties and other statements of the
Company, the Selling Stockholders and the several Underwriter, as set forth in
this Agreement or made by or
23
<PAGE>
on behalf of them, respectively, pursuant to this Agreement, shall remain in
full force and effect, regardless of any investigation (or any statement as to
the results thereof) made by or on behalf of the Underwriter or any controlling
person of the Underwriter, or the Company or any of the officers or directors or
controlling persons of the Company or the Selling Stockholders, and shall
survive delivery of and payment for the Shares.
10. Termination and Payment of Expenses. If this Agreement shall be
-----------------------------------
terminated pursuant to Section 9 hereof, the Company and the Selling
Stockholders shall not then be under any liability to the Underwriter except as
provided in Section 6 and Section 8 hereof; but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriter for all out-of-pocket expenses, including
fees and disbursements of counsel, reasonably incurred by the Underwriter in
making preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Section 6 and Section 8 hereof.
11. Notices. All statements, requests, notices and agreements hereunder
-------
shall be in writing, and if to the Underwriter shall be delivered or sent by
mail, telex or facsimile transmission to you as the representative in care of
Scott & Stringfellow, Inc., at 909 East Main Street, Richmond, Virginia, 23219,
Attention: Corporate Finance Department; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: President; if to
the Selling Stockholders shall be sufficient in all respects if delivered or
sent by mail, telex or facsimile transmission to Crowe & Dunlevy, counsel for
the Selling Stockholders at 500 Kennedy Building, 321 South Boston, Tulsa,
Oklahoma, 74103-3313, Attention: Lon Foster, III.
12. Successors. This Agreement shall be binding upon, and inure solely to
----------
the benefit of, the Underwriter, the Company and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Company and each
person who controls the Company or the Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from the Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
13. Time of the Essence. Time shall be of the essence of this Agreement.
-------------------
As used herein, the term "business day" shall mean any day when the Commission's
office in Washington, D.C. is open for business.
24
<PAGE>
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be executed by any one or more of
------------
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriter, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriter and the Company. It
is understood that your acceptance of this letter on behalf of each of the
Underwriter is pursuant to the authority set forth in a form of Agreement among
Underwriter, the form of which shall be submitted to the Company for
examination, upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
HAROLD'S STORES, INC.
By:________________________________
H. Rainey Powell
President
SELLING STOCKHOLDERS:
By:________________________________
Harold G. Powell
The Security National Bank and
Trust Company of Norman, as
Trustee of the Elizabeth M.
Powell Trust A
By:________________________________
Name:
Title:
25
<PAGE>
Rebecca Powell Casey
Lisa Powell Hunt
By:___________________________
H. Rainey Powell,
as Attorney-in-Fact
Accepted as of the date
hereof at Richmond, Virginia
[June ] 1996
SCOTT & STRINGFELLOW, INC.
By: ____________________________
Name:
Title:
26
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Total Total Optional
Number Number Shares to be
of Firm of Purchased if
Shares Secondary Maximum
to be Shares to be Option
Underwriter Purchased Purchased Exercised
----------- --------- --------- ---------
<S> <C> <C> <C>
Scott & Stringfellow, Inc. 400,000 185,000 87,500(1)
</TABLE>
(1) The number of optional shares to be purchased from the Company and each of
the Selling Stockholders is set forth in Schedule II.
27
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Firm Number of Optional
Name Shares Being Sold Shares Being Sold
---- ----------------- ------------------
<S> <C> <C>
Harold's Stores, Inc. 400,000 60,000
Harold G. Powell 62,500
The Security National Bank
and Trust Company of Norman,
as Trustee 62,500
Rebecca Powell Casey 45,000
Lisa Powell Hunt 15,000
------- ----------
TOTALS 585,000 87,500
</TABLE>
28
<PAGE>
ANNEX I
DESCRIPTION OF ACCOUNTANTS' COMFORT LETTER
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriter to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
prospective financial statements and/or pro forma financial information)
examined by them and included or incorporated by reference in the
Registration Statement or the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act or the
Exchange Act, as applicable, and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the consolidated interim financial
statements, selected financial data, pro forma financial information,
prospective financial statements and/or condensed financial statements
derived from audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been furnished to the representatives of the Underwriter (the
"Representatives");
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
and included or incorporated by reference in Item 6 of the Company's Annual
Report on Form 10-K for the most recent fiscal year agrees with the
corresponding amounts (after restatement where applicable) in the audited
consolidated financial statements for such five fiscal years which were
included or incorporated by reference in the Company's Annual Reports on
Form 10-K for such fiscal years;
(iv) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the
29
<PAGE>
Company and its subsidiaries, inspection of the minute books of the Company
and its subsidiaries since the date of the latest audited financial
statements included or incorporated by reference in the Prospectus,
inquiries of officials of the Company and its subsidiaries responsible for
financial and accounting matters and such other inquiries and procedures as
may be specified in such letter, nothing came to their attention that
caused them to believe that:
(A) the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included or incorporated by reference in the Company's Quarterly
Reports on Form 10-Q incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Exchange Act as it applies to Form 10-Q
and the related published rules and regulations thereunder or are not
in conformity with generally accepted accounting principles applied on
a basis substantially consistent with the basis for the audited
consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included or incorporated by
reference in the Company's Annual Report on Form 10-K for the most
recent fiscal year;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal year;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived the unaudited condensed
financial statements referred to in Clause (A) and any unaudited
income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
financial statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent fiscal year;
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do
not comply as to form in all material respects with the applicable
accounting
30
<PAGE>
requirements of the Act and the published rules and regulations
thereunder or the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest balance sheet
included or incorporated by reference in the Prospectus) or any
increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
net assets or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included or
incorporated by reference in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to
the specified date referred to in Clause (E) there were any decreases
in consolidated net revenues or operating profit or the total or per
share amounts of consolidated net income or other items specified by
the Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
increases or decreases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(v) In addition to the examination referred to in their report(s)
included or incorporated by reference in the Prospectus and the limited
procedures, inspection of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (iv) above, they have carried out
certain specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus (excluding
documents incorporated by reference) or in Part II thereof, or
31
<PAGE>
in exhibits and schedules to, the Registration Statement specified by the
Representatives or in documents incorporated by reference in the Prospectus
specified by the Representatives, and have compared certain of such
amounts, percentages and financial information with the accounting records
of the Company and its subsidiaries and have found them to be in agreement.
32
<PAGE>
EXHIBIT 5.1
June 7, 1996
Harold's Stores, Inc.
765 Asp Avenue
Norman, Oklahoma 73069
Re: Offering of Common Stock of Harold's Stores, Inc.
Gentlemen:
We have acted as counsel to Harold's Stores, Inc., an Oklahoma corporation
("Company"), in connection with the registration under the Securities Act of
1933, as amended ("Act"), of 460,000 shares of common stock, $0.01 par value per
share ("Common Stock"), of the Company to be offered to the public by the
Company and 212,750 shares of Common Stock of the Company to be offered to the
public by certain selling shareholders (the "Selling Shareholders").
A Registration Statement on Form S-2 (SEC File No. 333-04117) was filed
with the Securities and Exchange Commission on May 20, 1996 ("Registration
Statement").
In connection with rendering this opinion, we have examined and relied upon
the original or copies, certified to our satisfaction, of all such documents and
instruments as we have deemed necessary for the expression of the opinion herein
contained, including, the Certificate of Incorporation and the Bylaws of the
Company, copies of resolutions and consents of the Board of Directors of the
Company authorizing the offering and the issuance of the Common Stock to be sold
by the Company and related matters and the Registration Statement, as amended,
and all exhibits thereto. In making the foregoing examinations, we have assumed
the genuineness of all signatures and authenticity of all documents submitted to
us as originals, and the conformity to the original documents of all documents
submitted to us as certified or photostatic copies. As to various questions of
fact material to this opinion, we have relied, to the extent we deemed
reasonably appropriate, upon representations or certificates of officers or
directors of the Company and upon documents, records and instruments furnished
to us by the Company, without independent check or verification of their
accuracy.
Based upon the foregoing examination, we are of the opinion that:
1. The shares of Common Stock to be issued by the Company in the offering
as described in the Registration Statement have been duly and validly
<PAGE>
Harold's Stores, Inc.
June 7, 1996
Page 2
authorized for issuance and sale and the Common Stock, when issued by
the Company, will be validly issued, fully paid and nonassessable; and
2. The shares of Common Stock to be sold by the Selling Shareholders in
the offering as described in the Registration Statement are validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we come within the category of persons
whose consent is required by Section 7 of the Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
Very truly yours,
Crowe & Dunlevy,
A Professional Corporation
By: /s/ Lon Foster, III
----------------------------------------
Lon Foster, III
<PAGE>
EXHIBIT 10.10
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
This First Amendment to Employment Agreement is made and entered into
this 28th day of April, 1995, by and between HAROLD'S STORES, INC. ("Harold's")
and REBECCA POWELL CASEY ("Casey"),
W I T N E S S E T H:
For and in consideration of the mutual covenants hereinafter
contained, the parties agree as follows:
1. Recitations. On or about January 31, 1993, the parties entered
-----------
into an Employment Agreement, a true and correct copy of which is attached
hereto marked Exhibit A and made a part hereof by this reference. The parties
have agreed to amend the terms of the Employment Agreement effective January 31,
1995, as hereinafter set forth.
2. Amendment. Section 2.01(a) of the Employment Agreement is hereby
---------
deleted and there is inserted in its stead the following:
"2.01(a) Base Salary. Commencing January 31, 1995, Casey
-----------
shall receive a base salary of Two Hundred Twenty Thousand Dollars
($220,000.00) per year which shall be paid to her bi-weekly."
3. Other Provisions. All other provisions of the Employment
----------------
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the
day and year first above written to be effective January 31, 1995.
HAROLD'S STORES, INC.
By: /s/ Rebecca Powell Casey
------------------------
Title: Chief Executive Officer
/s/ Rebecca Powell Casey
------------------------
REBECCA POWELL CASEY
<PAGE>
REBECCA POWELL CASEY
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and effective as of the 31st day of January,
1993, between HAROLD'S STORES, INC. ("Harold's"), and REBECCA POWELL CASEY
("Casey").
WHEREAS, Harold's desires to secure the services of Casey, and Casey
desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Harold's and Casey agree as follows:
1.01 Employment of Casey. Casey will render full time professional
-------------------
services to Harold's in the capacity of Chief Executive Officer of Harold's and
such other affiliates and subsidiaries as may be designated by the Board of
Directors of Harold's from time to time. She will at all times, faithfully,
industriously and to the best of her ability, perform all duties that may be
required of her and as set forth in the Bylaws of Harold's by virtue of her
position as Chief Executive Officer to the reasonable satisfaction of the Board
of Directors of Harold's. Her duties shall specifically include product and
development supervision, marketing and merchandising, attendance at meetings of
the Board and the making of reports to the Board. Casey is hereby vested with
authority to act on behalf of the Board in keeping with policies adopted by the
Board, as amended from time to time. In addition, she shall perform in the same
manner any special duties assigned or delegated to her by the Board.
2.01 Compensation. In consideration for the services which Casey
------------
performs as Chief Executive Officer, Harold's agrees to pay her as follows:
2.01(a) Base Salary. Casey shall receive a base salary of
-----------
One Hundred Eighty Thousand Dollars ($180,000.00) per year, which
shall be paid to her bi-weekly.
2.02(b) Cash Bonus. Annually, Casey shall be entitled to a
----------
cash bonus computed in accordance with the following three (3) step
formula:
First, add stockholders' equity to long-term debt, and
multiply by one percent (1%) to arrive at "X"
Second, subtract "X" from net earnings before taxes, and
multiply the difference by ten percent (10%) to arrive at
the Bonus Pool.
<PAGE>
Third, the Board of Directors shall allocate the Bonus Pool
into three (3) separate pools for (i) the executive
officers, i.e., Chairman of the Board, Chief Executive
Officer, and President; (ii) the vice presidents; and (iii)
the managers. The amount allocated among these groups may
vary from year to year in the discretion of the Board. For
the previous year, the allocation was thirty percent (30%)
to the executive officers, twenty- four percent (24%) to the
vice presidents, and forty-six percent (46%) to the
managers. The Board of Directors shall allocate the
executive officers' portion of the Bonus Pool among the
three executive officer positions, based upon seventy
percent (70%) for profitability and thirty percent (30%) for
achievement of the annual goals established each year by
management and approved by the Board (at its first meeting
during the fiscal year). The Board's decision in this regard
shall be final.
2.02(c) Stock Bonuses. Casey shall be entitled to
-------------
participate in any stock bonus program adopted by the Board of
Directors for the benefit of the executive officers, upon such terms
as shall be established by the Board of Directors.
3.01 Fringe Benefits. Except as specified below to indicate
---------------
minimums, Casey shall receive such fringe benefits, including life, health,
dental, disability and other forms of insurance, sick leave, vacation,
automobile, professional duties, community, civic and country club memberships
as other executive officers of Harold's receive from time to time.
3.01(a) Vacation. Casey shall be entitled to three (3)
--------
weeks of compensated vacation time annually. Unused vacation time may
not be accumulated.
3.01(b) Meetings. Casey will be permitted to be absent
--------
from Harold's during working days to attend meetings and to attend to
such outside professional duties in the retailing field as she deems
appropriate. Attendance at such meetings and accomplishment of such
duties shall be fully compensated service time and shall not be
considered vacation time. Harold's shall reimburse Casey for all
expenses incurred by her incident to attendance at such meetings, and
such entertainment incurred by Casey in furtherance of the interests
of Harold's; provided, however, that such reimbursement shall be
approved by the Board.
3.01(c) Dues and Fees. Harold's agrees to pay dues and
-------------
fees to professional associations and societies and to such community
organizations, civic clubs, country clubs, service organizations and
other organizations of which Casey is, or becomes, a member.
3.01(d) Insurance and Automobile. Harold's also agrees to:
------------------------
-2-
<PAGE>
(i) Insure Casey under its general liability insurance
policy for all acts done by her in good faith as Chief
Executive Officer throughout the term of this contract;
(ii) Provide, throughout the term of this contract, a group life
insurance policy, payable to the beneficiary of her choice;
(iii) Provide disability insurance for Casey, payable to the
beneficiary of her choice;
(iv) Provide comprehensive health, major medical and dental
insurance for Casey and her family; and
(v) Continue furnishing for Casey, for the first three (3)
years of the term of this Agreement, the vehicle which
Harold's currently furnishes to her, and pay or
reimburse her for expenses of its operation, including,
but not limited to, insurance. After three (3) years,
Casey shall be entitled to a new vehicle, in accordance
with the Board of Directors' guidelines governing the
purchase of vehicles for officers which are in effect
at that time.
4.01 Duration. The Agreement shall extend from the date first above
--------
written until January 31, 1998, unless mutually extended by Casey and Harold's.
4.02 Termination. This Agreement shall terminate upon the death of
-----------
Casey, and may be terminated by either party upon the showing of "good cause."
In the event there is a dispute as to the existence of good cause, the dispute
shall be referred to arbitration in accordance with the rules of the American
Arbitration Association. The cost of arbitration shall be divided equally
between the parties.
5.01 Entire Agreement. This contract constitutes the entire
----------------
agreement between the parties, and contains all the agreements between them with
respect to the subject matter hereof. It also supersedes any and all other
agreements or contracts, either oral or written, between the parties with
respect to the subject matter hereof.
5.02 Amendment. Except as otherwise specifically provided, the terms
---------
and conditions of this contract may be amended at any time by mutual agreement
of the parties, provided that before any amendment shall be valid or effective,
it shall have been reduced to writing and signed by the Chairman of the Board
and Casey.
5.03 Separability. The invalidity or unenforceability of any
------------
particular provision of this contract shall not affect its other provisions, and
this contract shall be construed in all respects as if such invalid or
unenforceable provision had been omitted.
-3-
<PAGE>
5.04 Successors. This Agreement shall be binding upon and inure to
----------
the benefit of Harold's, its successors and assigns, and shall be binding upon
Casey, her administrators, executors, legatees, heirs and assigns.
5.05 Applicable Law. This Agreement shall be construed and enforced
--------------
under and in accordance with the laws of the State of Oklahoma, without giving
effect to its conflicts of law provisions.
THIS CONTRACT SIGNED this 3rd day of April, 1993.
HAROLD'S STORES, INC.
By: /s/ Harold G. Powell
--------------------
Chairman of the Board
Witness: /s/ LeVan Archer
----------------
/s/ Rebecca Powell Casey
------------------------
REBECCA POWELL CASEY
Witness: /s/ Wendy W. Hawkins
--------------------
-4-
<PAGE>
EXHIBIT 10.11
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
--------------------
This First Amendment to Employment Agreement is made and entered into
this 28th day of April, 1995, by and between HAROLD'S STORES, INC. ("Harold's")
and H. RAINEY POWELL ("Powell").
W I T N E S S E T H:
For and in consideration of the mutual covenants hereinafter
contained, the parties agree as follows:
1. Recitations. On or about January 31, 1993, the parties entered
-----------
into an Employment Agreement, a true and correct copy of which is attached
hereto marked Exhibit A and made a part hereof by this reference. The parties
have agreed to amend the terms of the Employment Agreement effective January 31,
1995, as hereinafter set forth.
2. Amendment. Section 2.01(a) of the Employment Agreement is hereby
---------
deleted and there is inserted in its stead the following:
"2.01(a) Base Salary. Commencing January 31, 1995, Powell
-----------
shall receive a base salary of One Hundred Sixty Thousand Dollars
($160,000.00) per year which shall be paid to him bi-weekly."
3. Other Provisions. All other provisions of the Employment
----------------
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF the parties hereto have executed this Agreement the
day and year first above written to be effective January 31, 1995.
HAROLD'S STORES, INC.
By: /s/ Harold G. Powell
------------------------
Title: Chairman of the Board
/s/ H. Rainey Powell
------------------------
H. RAINEY POWELL
<PAGE>
H. RAINEY POWELL
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made and effective as of the 31st day of January,
1993, between HAROLD'S STORES, INC. ("Harold's"), and H. RAINEY POWELL
("Powell").
WHEREAS, Harold's desires to secure the services of Powell, and Powell
desires to accept such employment.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Harold's and Powell agree as follows:
1.01 Employment of Powell. Powell will render full time professional
--------------------
services to Harold's in the capacity of President, Chief Operating Officer and
Chief Financial Officer of Harold's and such other affiliates and subsidiaries
as may be designated by the Board of Directors of Harold's from time to time.
He will at all times, faithfully, industriously and to the best of his ability,
perform all duties that may be required of him and as set forth in the Bylaws of
Harold's by virtue of his position as President, Chief Operating Officer and
Chief Financial Officer to the reasonable satisfaction of the Board of Directors
of Harold's. His duties shall specifically include supervision of personnel and
financial matters, attendance at meetings of the Board and the making of reports
to the Board. Powell is hereby vested with authority to act on behalf of the
Board in keeping with policies adopted by the Board, as amended from time to
time. In addition, he shall perform in the same manner any special duties
assigned or delegated to him by the Board.
2.01 Compensation. In consideration for the services which Powell
------------
performs as President and Chief Operating Officer, Harold's agrees to pay him as
follows:
2.01(a) Base Salary. Powell shall receive a base salary of One
-----------
Hundred Forty Thousand Dollars ($140,000.00) per year, which shall be
paid to him bi-weekly.
2.02(b) Cash Bonus. Annually, Powell shall be entitled to a
----------
cash bonus computed in accordance with the following three (3) step
formula:
First, add stockholders' equity to long-term debt, and multiply
by one percent (1%) to arrive at "X"
Second, subtract "X" from net earnings before taxes, and multiply
the difference by ten percent (10%) to arrive at the Bonus Pool.
<PAGE>
Third, the Board of Directors shall allocate the Bonus Pool into
three (3) separate pools for (i) the executive officers, i.e.,
Chairman of the Board, Chief Executive Officer, and President;
(ii) the vice presidents; and (iii) the managers. The amount
allocated among these groups may vary from year to year in the
discretion of the Board. For the previous year, the allocation
was thirty percent (30%) to the executive officers, twenty-four
percent (24%) to the vice presidents, and forty-six percent (46%)
to the managers. The Board of Directors shall allocate the
executive officers' portion of the Bonus Pool among the three
executive officer positions, based upon seventy percent (70%) for
profitability and thirty percent (30%) for achievement of the
annual goals established each year by management and approved by
the Board (at its first meeting during the fiscal year). The
Board's decision in this regard shall be final.
2.02(c) Stock Bonuses. Powell shall be entitled to participate
-------------
in any stock bonus program adopted by the Board of Directors for the
benefit of the executive officers, upon such terms as shall be
established by the Board of Directors.
3.01 Fringe Benefits. Except as specified below to indicate minimums,
---------------
Powell shall receive such fringe benefits, including life, health, dental,
disability and other forms of insurance, sick leave, vacation, automobile,
professional dues, community, civic and country club memberships as other
executive officers of Harold's receive from time to time.
3.01(a) Vacation. Powell shall be entitled to three (3) weeks
--------
of compensated vacation time annually. Unused vacation may not be
accumulated.
3.01(b) Meetings. Powell will be permitted to be absent from
--------
Harold's during working days to attend meetings and to attend to such
outside professional duties in the retailing field as he deems
appropriate. Attendance at such meetings and accomplishment of such
duties shall be fully compensated service time and shall not be
considered vacation time. Harold's shall reimburse Powell for all
expenses incurred by him incident to attendance at such meetings, and
such entertainment incurred by Powell in furtherance of the interests
of Harold's; provided, however, that such reimbursement shall be
approved by the Board.
3.01(c) Dues and Fees. Harold's agrees to pay dues and fees to
-------------
professional associations and societies and to such community organizations,
civic clubs, country clubs, service organizations and other organizations of
which Powell is, or becomes, a member.
3.01(d) Insurance and Automobile. Harold's also agrees to:
------------------------
-2-
<PAGE>
(i) Insure Powell under its general liability insurance policy
for all acts done by him in good faith as President and
Chief Operating Officer throughout the term of this
contract;
(ii) Provide, throughout the term of this contract, a group life
insurance policy, payable to the beneficiary of his choice;
(iii) Provide disability insurance for Powell, payable to the
beneficiary of his choice;
(iv) Provide comprehensive health, major medical and dental
insurance for Powell and his family; and
(v) Continue furnishing for Powell, for the first three (3)
years of the term of this Agreement, the vehicle which
Harold's currently furnishes to him, and pay or reimburse
him for expenses of its operation, including, but not
limited to, insurance. After three (3) years, Powell shall
be entitled to a new vehicle, in accordance with the Board
of Directors' guidelines governing the purchase of vehicles
for officers which are in effect at that time.
4.01 Duration. This Agreement shall extend from the date first above
--------
written until January 31, 1998, unless mutually extended by Powell and Harold's.
4.02 Termination. This Agreement shall terminate upon the death of
-----------
Powell, and may be terminated by either party upon the showing of "good cause."
In the event there is a dispute as to the existence of good cause, the dispute
shall be referred to arbitration in accordance with the rules of the American
Arbitration Association. The cost of arbitration shall be divided equally
between the parties.
5.01 Entire Agreement. This contract constitutes the entire agreement
----------------
between the parties and contains all the agreements between them with respect to
the subject matter hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with respect to the
subject matter hereof.
5.02 Amendment. Except as otherwise specifically provided, the terms
---------
and conditions of this contract may be amended at any time by mutual agreement
of the parties, provided that before any amendment shall be valid or effective,
it shall have been reduced to writing and signed by an executive officer and
Powell.
5.03 Separability. The invalidity or unenforceability of any
------------
particular provision of this contract shall not affect its other provisions, and
this contract shall be construed in all respects as if such invalid or
unenforceable provision had been omitted.
-3-
<PAGE>
5.04 Successors. This Agreement shall be binding upon and inure to the
----------
benefit of Harold's, its successors and assigns, and shall be binding upon
Powell, his administrators, executors, legatees, heirs and assigns.
5.05 Applicable Law. This Agreement shall be construed and enforced
--------------
under and in accordance with the laws of the State of Oklahoma without giving
effect to its conflicts of laws provisions.
THIS CONTRACT SIGNED this 23rd day of March, 1993.
HAROLD'S STORES, INC.
By: /s/ Harold G. Powell
--------------------
Chairman of the Board
Witness: /s/ LeVan Archer
----------------
/s/ H. Rainey Powell
--------------------
H. RAINEY POWELL
Witness: /s/ Melanie Hardwick
--------------------
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<PAGE>
EXHIBIT 10.13
AMENDED AND RESTATED
LEASE AGREEMENT
---------------
(Norman Warehouse)
THIS LEASE AGREEMENT is made and entered into this 3rd day of June,
1996, by and between 329 PARTNERS-II LIMITED PARTNERSHIP, an Oklahoma Limited
Partnership, hereinafter called "Landlord," and HAROLD'S STORES, INC., an
Oklahoma corporation, hereinafter called "Tenant," which amends and restates in
full that certain lease agreement of October 4, 1991, between Landlord and
Tenant.
ARTICLE I
PREMISES
--------
1.1 Agreement to Lease. In consideration of the rents, covenants and
------------------
agreements hereinafter reserved and contained on the part of Tenant to be
observed and performed, the Landlord demises and leases to the Tenant, and
Tenant rents from Landlord, the real property situated in Cleveland County,
Oklahoma, described on Exhibit A (the "Premises").
1.2 Construction of Additional Improvements. At the request of
---------------------------------------
Tenant, Landlord has agreed to renovate the Premises in accordance with plans
and specifications (the "Plans and Specifications") approved by Tenant to add
approximately 62,000 square feet, which will increase the size of the Premises
to 84,587 square feet. Landlord has agreed that the addition will be completed
by July 1, 1996, so as to permit Tenant's occupancy by that date.
ARTICLE II
TERM
----
2.1 Term of Lease. The term of this lease shall be for sixteen (16)
-------------
years, beginning on July 1, 1996 (the "Commencement Date"), and terminating on
June 30, 2012 (the "Expiration Date"), unless sooner terminated as herein
provided.
ARTICLE III
RENT
----
3.1 Base Rent. Tenant shall pay Landlord as base rent ("Base Rent")
---------
for the Premises annually, without setoff or deduction, and without any prior
demand therefor, the sums set forth on Exhibit B hereto. These sums shall be
payable in advance, in equal monthly installments, on the first day of each and
every month during the Lease term, the first of such monthly installments to be
due and payable on the Commencement Date.
<PAGE>
3.2 Late Charges. If Tenant fails to make any installment of Base
------------
Rent, or any other sum due Landlord hereunder, within ten (10) days after such
amount is due, then the Landlord may make or assess a late charge of fifteen
percent (15%) of the amount of each delinquent payment. Any assessment of late
charges by Landlord shall be considered for all purposes as Additional Rent
under the terms of this Lease, and shall be added to and payable with the next
maturing monthly rental installment following such assessment. Assessment by
Landlord of a late charge as herein provided shall be without prejudice to any
remedies provided by law or under the provisions hereof. No assessment, payment
or acceptance of a late charge shall operate as a waiver or estoppel of the
right of Landlord to declare a default hereunder, or to pursue any default
remedies provided by this Lease or by law. Such late charge shall be earned
from the day after the due date to the date paid.
ARTICLE IV
CONDITION OF PREMISES
---------------------
4.1 Tenant's Acceptance of Premises. Neither Landlord nor Landlord's
-------------------------------
agents have made any representations with respect to the Premises or the land
upon which it is erected, except as expressly set forth herein, and no rights,
easements or licenses are acquired by Tenant by implication or otherwise, except
as expressly set forth in the provisions of this agreement. The taking of
possession of the Premises by Tenant shall be conclusive evidence that Tenant
accepts the Premises and that the Premises were in good condition at the time
possession was taken. In no event shall Landlord be liable for any defects in
the Premises or for any limitation on its use. Landlord shall not be
responsible for any latent defect in the Premises, and the rent hereunder shall
in no case be withheld or diminished on account of any defect in the Premises,
any change in the condition thereof, any damage occurring thereto, or the
existence with respect thereto of any violations of laws or regulations of any
governmental authority.
4.2 Warranties. Notwithstanding the provisions of Section 4.1,
----------
Landlord agrees that it will enforce or assign to Tenant for enforcement (i) all
warranties on the newly constructed Premises and the equipment installed
therein, and (ii) all claims against contractors or vendors for faulty
construction or installation of the improvements on the Premises.
4.3 Landlord's Title. Landlord is leasing the Premises and has the
----------------
right to enter into this Lease, and the Premises are accepted by Tenant subject
to, and Tenant agrees to abide by, all and singular, the easements,
restrictions, covenants, reservations, mineral reservations and other matters
affecting title to the Premises.
ARTICLE V
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
---------------------------------------
5.1 Improvements by Tenant. Tenant shall not make or allow to be
----------------------
made any alterations or physical additions in or to the Premises without first
having the written consent of
-2-
<PAGE>
Landlord. At such time as Tenant requests such consent of Landlord, Tenant
shall submit plans and specifications for such alterations or additions, and
comply with any and all reasonable requirements of Landlord. Subject to the
Landlord's lien, Tenant may remove "removable trade fixtures," provided (1) any
such removal is made prior to the termination of this agreement; (2) Tenant is
not in default of any of the obligations or covenants hereunder; and (3) such
removal may be effected without substantial damages to the Premises, and Tenant
promptly repairs all damage caused by such removal at its sole expense. All
trade fixtures, merchandise, equipment and signs of every description which are
not removable or not removed in accordance with the preceding, and any
alterations or additions to the Premises shall become the property of Landlord,
and shall remain upon and be surrendered with the Premises as part thereof at
the termination of this Lease. Tenant hereby waives all rights to any payment
or compensation therefor. Removable trade fixtures shall include signs, tables,
cases, chairs, desks, wall brackets, shelves, mirrors and all items of equipment
paid for by Tenant in connection with the renovation of the Premises described
in Section 1.2 hereof (provided same are not permanently attached), but shall
not include ducts, conduits, wiring, pipes, paneling, wall covering or floor
covering or permanently attached fixtures which cannot be removed without
substantial damage to the Premises. Upon termination of this agreement, Tenant
will, at its sole cost and expense, if requested by Landlord, remove any and all
alterations, additions, fixtures, equipment and property installed by Tenant in
the Premises and restore the Premises to the condition thereof at the time of
tender of possession of the Premises, ordinary wear and tear excepted.
5.2 Signs. Tenant will not place or suffer to be placed or
-----
maintained on any exterior door, wall or window of the Premises any sign, awning
or canopy, or advertising matter, or other thing of any kind, and will not place
or maintain any decoration, lettering or advertising matter on the glass of any
window or door of the Premises without first obtaining Landlord's written
approval and consent. Tenant further agrees to maintain such sign, awning,
canopy, decoration, lettering, advertising matter or other thing as may be
approved in good condition and repair at all times. Tenant, upon vacation of the
Premises or the removal or alteration of its sign, for any reason, shall be
responsible for the repair, painting and/or replacement of the building surface
where the sign is attached.
ARTICLE VI
REPAIR AND MAINTENANCE
----------------------
6.1 Tenant's Maintenance. Tenant shall at all times keep the
--------------------
Premises and all plate glass, partitions, doors, fixtures, plumbing, electrical,
and the heating and air conditioning systems, in good order, condition and
repair (including repair of damage from burglary or attempted burglary of the
Premises and reasonably periodic painting and maintenance of the air
conditioning system as required by Landlord). Tenant shall be responsible for
all utility repairs in ducts, conduits, pipes and wiring located in, under and
above the Premises. Tenant's maintenance responsibilities shall also include
maintenance of the parking lot, and Tenant shall keep the sidewalks and parking
areas adjoining the Premises free from rubbish, dirt, garbage, snow and ice.
-3-
<PAGE>
6.2 Landlord's Option to Make Tenant Repairs. If Tenant refuses or
----------------------------------------
neglects to repair the Premises within thirty (30) days after receipt of
Landlord's written demand, Landlord may make such repairs without liability to
Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures
or other property, or to Tenant's business by reason thereof, and upon
completion thereof, Tenant shall pay Landlord's cost for making such repairs,
plus twenty percent (20%) for overhead, upon presentation of bills therefor, as
Additional Rent.
6.3 Landlord's Maintenance. Landlord shall keep the roof, exterior
----------------------
walls, foundations and building structure of the Premises in a good state of
repair; provided, however, if Landlord is required to make repairs to structural
portions by reason of Tenant's negligent act or omission to act, Landlord shall
add the cost of such repairs, plus twenty percent (20%) for overhead, to the
rent which shall thereafter become due.
6.4 Waste and Surrender. Tenant shall not commit or allow any waste
-------------------
or damage to be committed on any portion of the Premises, and upon expiration or
sooner termination of the term hereof, Tenant agrees to deliver up the Premises
to Landlord in the condition set out above, ordinary wear and tear excepted, and
Landlord shall have the right to re-enter and resume possession of the Premises.
6.5 Surrender of Key. At the expiration of the tenancy hereby
----------------
created, Tenant shall surrender all keys for the Premises to Landlord at the
place then fixed for the payment of rent, and shall inform Landlord of all
combinations on locks, safes and vaults, if any, in the Premises. Tenant shall
not change locks on the Premises without the prior written consent of the
Landlord.
ARTICLE VII
UTILITIES
---------
7.1 Tenant Pays All Bills. Tenant shall pay all bills for water,
---------------------
gas, electricity, fuel, light, heat and power furnished to or used by Tenant on
or about the Premises, and all disposal or sewage service charges for the
Premises, and all telephone bills and other bills incurred by Tenant. Landlord
shall have no responsibility for such payments.
ARTICLE VIII
TAXES
-----
8.1 Tenant's Responsibility. Tenant shall pay, in addition to the
-----------------------
rent specified above, all real estate taxes and special assessments levied upon
the Premises by any state, city, school district or federal governmental
authority. The payment for real estate taxes shall be made to Landlord on or
before December 15 of each year during the lease term, commencing December 15,
1996. For the first and final years of the lease term, the amount of the taxes
shall be prorated. All other taxes shall be paid directly to the taxing
authority on or before their due date.
-4-
<PAGE>
ARTICLE IX
INSURANCE AND INDEMNITY
-----------------------
9.1 Tenant's Liability Insurance Requirements. During the entire
-----------------------------------------
lease term, the Tenant shall, at its own expense, maintain adequate liability
insurance with a reputable insurance company or companies, with minimum amounts
of $1,000,000.00 combined single limit for personal injuries and property
damage, to indemnify both Landlord and Tenant against any such claims, demands,
losses, damages, liabilities and expenses. Landlord shall be named as an
additional insured, and shall be furnished with a certificate of such insurance,
which shall bear an endorsement that the same shall not be canceled except upon
not less than thirty (30) days prior written notice to Landlord. Tenant shall
also, at its own expense, maintain, during the lease term, insurance covering
its furniture, fixtures, equipment, all leasehold improvements, and merchandise
in an amount equal to not less than one hundred percent (100%) of the full
replacement value thereof, and insuring against fire and all risk perils
coverage as provided by a standard all risk coverage endorsement, and the plate
glass and all other glass which is the responsibility of the Tenant in the event
of breakage from any cause. Tenant shall provide Landlord with copies of the
policies of insurance or certificates thereof. If Tenant fails to maintain such
insurance, Landlord may maintain the same on behalf of Tenant. Any premiums paid
by Landlord shall be deemed Additional Rent and shall be due on the payment date
of the next installment of Rent hereunder.
9.2 Tenant's Fire and Extended Coverage Insurance. During the entire
---------------------------------------------
lease term, the Tenant shall, at its own expense, maintain a fire and extended
coverage insurance policy on the Premises, in an amount and with endorsements
required by Landlord's first mortgage lender; provided, however, if there be no
first mortgage lender, the coverage shall, at a minimum, insure all structures
and improvements for not less than eighty percent (80%) of the full insurable
replacement cost value thereof, and shall contain such other endorsements as
Landlord may from time to time require.
9.3 Indemnity. Tenant agrees to indemnify Landlord and save Landlord
---------
harmless from and against any and all claims, actions, damages, liability and
expense in connection with loss of life, personal injury and/or damage to
property arising from or out of any occurrence in, upon or at the Premises, or
the occupancy or use by Tenant of the Premises, or any part thereof, if
occasioned wholly or in part by any act or omission of Tenant, Tenant's agents,
contractors, employees, servants, lessees or concessionaires. In case Landlord
shall, without fault on Landlord's part, be made a party to any litigation
commenced by or against Tenant, then Tenant shall protect and hold Landlord
harmless, and shall pay all costs, expenses and reasonable attorney's fees
incurred or paid by Landlord in connection with such litigation.
9.4 Waiver of Subrogation. As long as their respective insurers so
---------------------
permit, Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss insured by fire, extended coverage and
other property insurance policies existing for the benefit of the respective
parties. Each party shall apply to their insurers to obtain such waivers. Each
party
-5-
<PAGE>
shall obtain any special endorsements, if required by their insurer to evidence
compliance with the aforementioned waiver.
ARTICLE X
CASUALTY LOSS
-------------
10.1 Damage to Premises. If the Premises shall be damaged by fire,
------------------
the elements, unavoidable accident or other casualty, but are not thereby
rendered untenantable in whole or in part, Landlord shall, at Landlord's
expense, cause such damage to be repaired, and the Rent shall not be abated. If
by reason of such occurrence, the Premises shall be rendered untenantable only
in part, Landlord shall, at Landlord's expense, cause the damage to be repaired,
and the Rent shall not be abated, since it is percentage rent only. If the
Premises shall be rendered wholly untenantable by reason of such occurrence, the
Landlord shall, at Landlord's expense, cause such damage to be repaired, or
Landlord may, at Landlord's election, terminate this Lease and the tenancy
hereby created by giving to Tenant, within the sixty (60) days following the
date of said occurrence, written notice of Landlord's election to do so.
ARTICLE XI
SUBORDINATION
-------------
11.1 Subordination. This Lease shall be subordinate to any mortgage
-------------
that is now or may hereafter be placed upon the Premises, and to any and all
advances to be made thereunder, and to the interest thereon, and to all
renewals, replacements and extensions thereof; provided that Tenant receives a
non-disturbance agreement from the mortgagee on a form satisfactory to Tenant.
Tenant shall, upon written demand by Landlord, execute and deliver such
instruments as may be required at any time and from time to time to subordinate
the rights and interests of Tenant under this Lease to the lien of any mortgage
placed upon the Premises, or upon the real property of which the Premises are a
part at any time and from time to time, whether before or after the commencement
of this Lease or during the term thereof; provided that such a non-disturbance
agreement is in effect.
ARTICLE XII
ASSIGNMENT OR SUBLETTING
------------------------
12.1 Prohibitions. Tenant will not assign this Lease, in whole or in
------------
part, nor sublet all or any part of the Premises, without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld. The consent of Landlord to any assignment or subletting shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment or subletting. Tenant shall not mortgage, pledge or otherwise
encumber its interest in this Lease or the Premises without the prior written
consent of Landlord. If this Lease be assigned, or if the Premises or any part
thereof be sublet or occupied by anybody other than Tenant, Landlord
-6-
<PAGE>
may collect rent from the assignee, subtenant or occupant, and apply the net
amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, subtenant or occupant as tenant, or a release
of Tenant from the further performance by Tenant of covenants on the part of
Tenant herein contained. Notwithstanding any assignment or sublease, Tenant
shall remain fully liable on this Lease, and shall not be released from
performing any of the terms, covenants and conditions of this Lease.
12.2 Landlord's Right to Transfer. Landlord shall have the right to
----------------------------
transfer and assign, in whole or in part, Landlord's rights hereunder and in the
Premises. In the event of the sale, assignment or transfer by Landlord of
Landlord's interest in the Premises, Landlord shall thereupon be released or
discharged from all covenants and obligations of Landlord, and Tenant agrees to
look solely to such successor in interest of Landlord for performance of such
obligations. All covenants and obligations of the Landlord shall run with the
land and be binding upon each new owner or successor of the Premises during
their period of ownership.
ARTICLE XIII
CONDEMNATION
------------
13.1 Award of Damages. If the whole or any part of the Premises shall
----------------
be taken for any public or quasi-public purpose by any lawful power or authority
by the exercise of the right of condemnation or eminent domain, Landlord shall
be entitled to and shall receive all awards that may be made in any such
proceeding for the Premises, and Tenant hereby assigns and transfers to Landlord
any and all such awards.
13.2 Taking of All of Premises. If such proceedings shall result in
-------------------------
taking of the whole or substantially all of the Premises, this Lease shall
terminate from the date of such taking, and all rent and other sums or charges
provided herein to be paid by Tenant shall be apportioned and paid to the date
of such taking. If less than substantially all of the Premises shall be taken
in such proceedings, this Lease shall terminate only as to the portion of the
Premises so taken, and this Lease shall continue for the balance of its term as
to the part of the Premises remaining. In the event of a partial taking, the
Rent to be paid by Tenant after such taking shall be reduced pro rata in
proportion to which the space so taken bears to the entire space in the Premises
originally demised.
13.3 Taking of Less Than All of Premises. If less than substantially
-----------------------------------
all of the Premises shall be taken, Landlord shall repair the remaining portion
of the Premises so as to restore same as a building complete in itself, but
Landlord shall not be obligated to expend thereon more than the sum allowed to
Landlord in such condemnation proceeding for damage to the Premises, less
expenses incurred by Landlord for such proceeding. Notwithstanding the
foregoing, if the expense of such restoration would be greater than the sum
allowed Landlord, less expenses in the condemnation proceeding, then Landlord
shall have the option, for a period of thirty (30) days after such partial
payment, within which to terminate this Lease.
-7-
<PAGE>
13.4 Tenant's Damages. Although all damages in the event of any
----------------
condemnation are to belong to Landlord, whether such damages are awarded as
compensation for diminution in value of the leasehold or to the fee of the
Premises, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any and all damages
to Tenant's business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment.
ARTICLE XIV
ACCESS AND EASEMENTS
--------------------
14.1 Access. Landlord or Landlord's agents shall have the right to
------
enter the Premises at all times to examine the same, and to show them to
prospective purchasers or tenants of the Premises, and to make such repairs,
alterations, improvements or additions as Landlord may deem necessary or
desirable, and Landlord shall be allowed to take all material into and upon the
Premises that may be required therefor, without the same constituting an
eviction of Tenant in whole or in part, and the rent reserved shall in no way
abate while said repairs, alterations, improvements or additions are being made,
by reason of loss or interruption of business of Tenant, or otherwise. During
the six (6) months prior to the expiration of the term of this Lease, Landlord
may exhibit the Premises to prospective tenants or purchasers, and place upon
the Premises the usual notices "For Lease" or "For Sale," which notices Tenant
shall permit to remain thereon without molestation. If Tenant shall not be
personally present to open and permit an entry into the Premises, at any time,
when for any reason an entry therein shall be deemed necessary or permissible,
Landlord or Landlord's agents may enter the same by a master key, or may
forcibly enter the same, without rendering Landlord or such agents liable
therefor, and without in any manner affecting the obligations and covenants of
this lease. Nothing herein contained, however, shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever, for
the care, maintenance or repair of the Premises, or any part thereof, except as
otherwise herein specifically provided.
14.2 Structural Repairs. If an excavation or construction shall be
------------------
made upon land adjacent to the Premises, or shall be authorized to be made,
Tenant grants to the person causing or authorized to cause such excavation or
construction, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem necessary to preserve the wall or the building of
which the Premises form a part from injury or damage, and to support the same by
proper foundations, without any claim for damages or indemnification against
Landlord, or diminution or abatement of rent.
-8-
<PAGE>
ARTICLE XV
TENANT'S PROPERTY
-----------------
15.1 Tenant's Personal Property Taxes. Tenant shall be responsible
--------------------------------
for and shall pay before delinquency all municipal, county or state taxes
assessed during the term of this Lease against any leasehold interest or
personal property of any kind, owned by or placed in, upon or about the Premises
by the Tenant.
15.2 Responsibility of Landlord. Landlord shall not be liable for any
--------------------------
damage to property of Tenant or of others located on the Premises, nor for the
loss of or damage to any property of Tenant or of others by theft or otherwise.
Landlord shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow, or leaks from any part of the Premises, or from the pipes,
appliances or plumbing works, or from the roof, street or sub-surface, or from
any other place, or by dampness, or by any other cause of whatsoever nature.
Landlord shall not be liable for any such damage caused by occupants of adjacent
property, or the public, or caused by operations in construction of any private,
public or quasi-public work. All property of Tenant kept or stored on the
Premises shall be so kept or stored at the risk of Tenant only, and Tenant shall
hold Landlord harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carrier, unless such damage
shall be caused by the willful act or gross negligence of Landlord.
ARTICLE XVI
USE OF PREMISES
---------------
16.1 Tenant's Usage. The Premises are to be used and occupied by
--------------
Tenant solely for the purposes of a warehouse and related office, continuously
during the term. Tenant shall not occupy or use, or permit any portion of the
Premises to be occupied or used for any business or purpose which, in Landlord's
opinion, is unlawful, disreputable or deemed to be extra hazardous on account of
fire, or permit anything to be done which would in any way increase the rate of
fire insurance coverage on the Premises and/or its contents.
16.2 Compliance with Laws, Covenants and Regulations. Tenant shall at
-----------------------------------------------
all times comply with all laws, ordinances, orders, rules and regulations of
governmental agencies having jurisdiction of the Premises, and of all
restrictive covenants relating to the use, condition or occupancy of the
Premises. In the event such laws mandate alterations to the Premises, Tenant
agrees to promptly make such alterations at its sole cost and expense.
16.3 Concessionaires. Tenant shall not permit any business to be
---------------
operated in or from the Premises by any concessionaire or licensee without prior
written consent of Landlord, which consent will not be unreasonably withheld.
-9-
<PAGE>
ARTICLE XVII
PEACEFUL ENJOYMENT
------------------
17.1 Covenant of Landlord. Tenant shall, and may peacefully have,
--------------------
hold and enjoy the Premises, subject to the other terms hereof, providing Tenant
pays the rentals herein recited and performs Tenant's covenants and agreements
herein contained.
ARTICLE XVIII
DEFAULT AND REMEDIES
--------------------
18.1 Tenant's Default. Any of the following, if not cured by Tenant
----------------
within ten (10) days after written notice to Tenant of their occurrence, shall
constitute events of default on the part of Tenant:
A. Failure of Tenant to pay Base Rent, Additional Rent, or any other
rent or other payment when due;
B. Failure of Tenant to comply with any covenant or obligation of
Tenant hereunder;
C. Abandonment or vacation of the Premises by Tenant;
D. The filing of a voluntary or involuntary petition in bankruptcy
by or against Tenant, or any guarantor hereof, under the National
Bankruptcy Act, or should Tenant, or any guarantor, make an
assignment for the benefit of their creditors, or should a
trustee, receiver or liquidator of Tenant, or any guarantor
hereof, of Tenant's or any guarantor's property hereof, be
appointed, or should any governmental authority institute any
proceeding for the dissolution of Tenant, or any guarantor
hereof, or should Tenant's interest hereunder pass by operation
of law or otherwise;
E. Failure to provide estoppel certificates as requested by
Landlord.
18.2 Remedies. In addition to any other rights and remedies provided
--------
in this Lease or by applicable law or equity, on the occurrence of any event of
default and after expiration of any cure period, Landlord will have the
following remedies, all of which may be exercised without any further notice or
demand on Tenant:
(A) Past Due Rent. Landlord may collect from Tenant all past due
-------------
rent, including interest thereon at twelve percent (12%) per
annum and late charges, and all other reasonable damages caused
by Tenant's default.
-10-
<PAGE>
(B) Termination. Landlord may terminate this Lease, in which event
-----------
Tenant will immediately surrender the Premises to Landlord, but
if Tenant fails to do so, Landlord may, without notice and
without prejudice to any other remedy Landlord might have, enter
and take possession of the Premises and remove Tenant, anyone
claiming under Tenant, and any property therefrom without being
subject to any claim for damages therefor. Tenant shall be
obligated to pay to Landlord all costs reasonably incurred by
Landlord in any such action, including the costs of taking
possession of and repairing any damage to the Premises, and all
other reasonable damages caused by Tenant's default. After
default, this Lease may be terminated only by written notice from
Landlord, and no other action or inaction by Landlord after
default shall constitute a termination of this Lease.
(C) Reletting. If Landlord does not terminate this Lease, then
---------
Landlord may, at its option, reenter and remove any persons or
property therein, forcibly if necessary, without being guilty of
trespass and without the same constituting a termination of this
Lease, and may relet the Premises or any part thereof for the
benefit of Tenant, in which event Tenant shall pay Landlord all
reasonable costs incurred by Landlord in taking such action,
including, without limitation, the costs of taking possession of
and repairing the Premises, the reasonable cost of preparing the
same for reletting, attorneys' fees, brokerage commissions, and
all other damages caused by Tenant's default. Tenant shall remain
obligated to Landlord for the difference between any rent
received by Landlord as a result of such reletting and the rent
(computed on the average of Rent paid by Tenant prior to the date
of Tenant's default) and other sums for which Lessee is obligated
hereunder. In the event any such reletting results in payment of
rent thereunder to Landlord in excess of the rent for which
Tenant is obligated hereunder, Landlord shall be entitled to
retain such excess.
18.3 Landlord's Right to Cure. Should Tenant be in default hereunder,
------------------------
Landlord may cure any such default on behalf of Tenant, in which event Tenant
shall reimburse Landlord for all sums paid to effect compliance, together with
interest at the rate of eighteen percent (18%) per annum, from and after the
date of such expenditure, which shall be Additional Rent due hereunder.
18.4 Landlord's Default. If Landlord fails to perform any of
------------------
Landlord's covenants hereunder, Landlord shall not be in default unless: (1)
Tenant gives Landlord written notice thereof, setting forth in reasonable detail
the nature and extent of such failure, and (2) if such failure by Landlord is
not cured or attempted to be cured within thirty (30) days following the
delivery of such notice. If such failure cannot be reasonably cured within
thirty (30) days, the length of such period shall be extended for a period
reasonably required therefor if Landlord commences curing such failure within
the thirty (30) day period and continues the curing thereof with reasonable
diligence and continuity.
-11-
<PAGE>
ARTICLE XIX
MISCELLANEOUS PROVISIONS
------------------------
19.1 Amendment. This agreement may not be altered, changed or
---------
amended, except by instrument in writing, signed by all parties hereto.
19.2 Non-Waiver. Failure of Landlord to declare any default
----------
immediately upon the occurrence thereof, or delay in taking any action in
connection therewith, or acceptance of rental after same is due, shall not waive
such default, but Landlord shall have the right to declare any such default at
any time, and to take such action as may be lawful or authorized hereunder,
either at law or in equity.
19.3 Force Majeure. Neither Landlord nor tenant shall be required to
-------------
perform any term, condition or covenant in this Lease so long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, strikes, lock outs, material or labor shortages, or restrictions by
government authorities and other causes which are not reasonably within the
control of either Landlord or Tenant, and which, by the exercise of due
diligence, Landlord or Tenant would be unable, wholly or in part, to prevent or
overcome. Provided, however, this provision shall not apply to Tenant's
obligation to pay Base Rent and Additional Rent.
19.4 Interpretation. As used herein, the masculine or neuter genders
--------------
shall be deemed to include all genders and singular, the plural, and vice versa,
except where any such construction would be unreasonable. This Lease shall be
construed under and in accordance with the laws of the State of Oklahoma, and
all obligations of the parties hereunder are performable in Cleveland County,
Oklahoma. The paragraph headings are inserted for convenience only, and shall
not in any way vary the provisions they identify. If any provision of this
Lease or any application thereof shall be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions hereof and other applications thereof, shall not in any way be
affected or impaired thereby.
19.5 Covenants. All agreements, obligations and undertakings of the
---------
parties shall be deemed to be covenants, whether or not so denominated.
19.6 Notices. Except as may be otherwise specifically provided
-------
herein, all notices required or permitted hereunder shall be in writing, and
shall be deemed to be delivered when delivered personally, or when deposited
with the United States Postal Service, postage prepaid, registered or certified
mail, return receipt requested, addressed to the parties at the respective
addresses set forth hereunder, or at such other address as may have been
theretofore specified by written notice delivered in accordance herewith.
19.7 Limitation of Landlord Liability. Any provisions hereof to the
--------------------------------
contrary notwithstanding, Tenant hereby agrees that no personal or partnership
liability of any kind or
-12-
<PAGE>
character whatsoever now attaches or at any time hereafter, under any condition,
shall attach to Landlord for payment of any amounts payable under this
agreement, or for the performance of any obligations hereunder. The exclusive
remedies of Tenant for the failure of Landlord to perform any of its obligations
under this Lease shall be to proceed against the interest of Landlord in and to
the Premises.
19.8 Attorney's Fees. In the event Tenant defaults in the performance
---------------
of any of the terms, covenants, agreements or conditions contained in this Lease
and Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any rent due, or which may become due hereunder, or recovery of
the possession of the Premises, in the hands of an attorney, or files suit upon
same, Tenant agrees to pay to Landlord a reasonable attorney's fee which is
incurred by Landlord in such enforcement, collection or recovery of possession.
19.9 Holding Over. In the event of holding over by Tenant after the
------------
expiration or termination of this agreement without the express written consent
of Landlord, the Base Rent shall be doubled for the entire holdover period. No
holding over by Tenant after the term of this Lease shall operate to extend this
Lease; and in the event of any unauthorized holding over, Tenant shall indemnify
Landlord from and against all claims for damages by any other tenant to whom
Landlord may have leased all or any portion of the Premises, effective upon the
termination of this Lease. Any holding over with the consent of Landlord in
writing shall thereafter constitute this Lease a lease from month to month.
19.10 Entire Agreement. This instrument constitutes the entire
----------------
agreement of the parties. It supersedes any and all other agreements, either
oral or in writing, between the parties hereto. Each party to this Lease
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement or
promise not contained in this Lease shall be valid or binding. This Lease may
not be modified or amended by oral agreement, but only by an agreement in
writing, signed by the parties hereto.
19.11 Recording. This Lease may not be recorded by either party, but
---------
at the request of either party, Landlord and Tenant shall execute a short form
memorandum of this Lease, which may be recorded for all purposes.
19.12 Indemnity. Tenant shall indemnify Landlord against all
---------
liabilities, expenses and losses incurred by Landlord as a result of: (1)
failure by Tenant to perform any covenant required hereunder; (2) any accident,
injury or damage which shall happen in or about the Premises; (3) failure to
comply with any requirement of any governmental authority; and (4) any
mechanic's lien or security agreement filed against the Premises, any equipment
therein, or any materials used in the construction or alteration of the
Premises. Landlord shall not be liable for injury or damage to any person or
property occurring on the Premises unless caused by or resulting from the gross
negligence of Landlord.
-13-
<PAGE>
19.13 Estoppel Certificates. At any time and from time to time
---------------------
within twenty (20) days after Landlord shall request the same, Tenant will
execute, acknowledge and deliver to Landlord or any party as may be designated
by Landlord, a certificate in a reasonably acceptable form, with respect to the
matters required by such party, and such other matters relating to this Lease or
the status or performance of obligations of the parties hereunder as may be
reasonably requested by Landlord. If Tenant fails to provide such certificate
within twenty (20) days after request by Landlord, Tenant shall be deemed to
have approved the contents of any such certificate submitted to Tenant by
Landlord, and Landlord is hereby authorized to so certify.
19.14 Binding Effect. This Lease shall be binding upon and inure to
--------------
the benefit of the parties hereto, their respective successors, permitted
assigns, heirs and legal representatives, as the case may be.
19.15 Termination of Existing Lease. The existing lease on the
-----------------------------
Premises between the parties dated October 4, 1991, is terminated effective June
30, 1996.
EXECUTED as of the day and year first above written.
"LANDLORD" 329 PARTNERS-II LIMITED PARTNERSHIP, an
Oklahoma Limited Partnership
By: 329 HOLDING LLC, an Oklahoma Limited
Liability Company, General Partner
By: /s/ H. Rainey Powell
--------------------
Title: H. Rainey Powell, Manager
Address: 765 Asp Avenue
Norman, OK 73069
"TENANT" HAROLD'S STORES, INC., an Oklahoma Corporation
By: /s/ H. Rainey Powell
--------------------
Title: Manager
-----------------------
Address: P.O. Drawer 2970
Norman, OK 73070-2970
-14-
<PAGE>
EXHIBIT A
---------
to
LEASE AGREEMENT
LEGAL DESCRIPTION
-----------------
TRACT 1
Part of the South Half of the South Half of the Northwest Quarter of the
Southwest Quarter of the Southeast Quarter of Section 32, Township 9 North,
Range 2 West of the Indian Meridian, Cleveland County, Oklahoma, described as
follows: BEGINNING 372.84 feet East of the Northwest Corner of said South Half
of the South Half of the Northwest Quarter of the Southwest Quarter of the
Southeast Quarter; thence South 03'05" West 165.24 feet; thence East to the
Southeast Corner of the Northwest Quarter of the Southwest Quarter of the
Southeast Quarter of said Section; thence North 165 feet; thence West to the
point of beginning. Being more particularly described as: Part of the South
Half of the South Half of the Northwest Quarter of the Southwest Quarter of the
Southeast Quarter of Section 32, Township 9 North, Range 2 West of the Indian
Meridian, Cleveland County, Oklahoma, and more particular described as follows:
COMMENCING at the Northwest Corner of said South Half of the South Half of the
Northwest Quarter of the Southwest Quarter of the Southeast Quarter; thence
South 89"59'00" East a distance of 372.84 feet to the Point of Beginning; thence
South 03"05'00" West a distance of 165.24 feet; thence South 89"59'00" East a
distance of 291.90 feet to the Southeast Corner of the Northwest Quarter of the
Southwest Quarter of the Southeast Quarter of said Section, thence North
00"04'24" East a distance of 165.00 feet; thence North 89"59'00" West a distance
of 283.22 feet to the Point of Beginning.
AND
TRACT II
A part of the Southwest Quarter of the Southwest Quarter of the Southeast
Quarter of Section 32, Township 9 North, Range 2 West of the Indian Meridian,
Cleveland County, Oklahoma, described as follows: BEGINNING at a point 328.4
feet of the Southwest Corner of the Southeast Quarter of said Section, thence
East 331.6 feet; thence North 660.00 feet; thence West 307.00 to center of
Creek; thence South along center of said Creek approximately 860.00 feet to
place of beginning; except Highway #77 as now located. Being more particularly
described as: Part of the Southwest Quarter of the Southwest Quarter of the
Southeast Quarter of Section 32, Township 9 North, Range 2 West of the Indian
Meridian, Cleveland County, Oklahoma, and more particularly described as
follows: COMMENCING at the Southwest Corner of said Southwest Quarter of the
Southwest Quarter of the Southeast Quarter; thence South 89"59'00" East a
distance of 450.40 feet to a point on the East Right-of-Way Line of Old U.S.
Highway #77 and the Point of Beginning; thence South 89"59'00" East a distance
of 199.60 feet; thence North 00"04'24" East a distance of 650.00 feet; thence
North 89"59'00" West a distance of 307.00 feet; thence South 02"07'00" West a
distance of 535.54 feet to a point on said Right-of-Way Line; thence South
43"12'00" East along said Right-of-Way Line a distance of 33.01 feet; thence
Southeasterly along said Right-of-Way Line on a curve to the right having a
radius of 1178.92 feet a distance of 144.75 feet to the Point of Beginning.
<PAGE>
and all improvements, structures and fixtures now or hereafter constructed
thereon, and all equipment and tangible personal property located on the
Property which is owned by Lessor and used in the ownership, operation and
maintenance of the office and warehouse project upon the Property, including,
without limitation, furniture, furnishings, maintenance equipment, signs,
draperies and carpeting.
<PAGE>
EXHIBIT B
---------
to
AMENDED AND RESTATED
LEASE AGREEMENT
(Norman Warehouse)
<TABLE>
<CAPTION>
Year Annual Base Rent Per Square Foot
- ---- ---------------- ---------------
<S> <C> <C>
1 $ 338,348.00 $ 4.00
2 338,348.00 4.00
3 338,348.00 4.00
4 338,348.00 4.00
5 338,348.00 4.00
6 345,114.96 4.08
7 351,881.92 4.16
8 358,648.88 4.24
9 365,415.84 4.32
10 373,028.67 4.41
11 380,641.50 4.50
12 388,254.33 4.59
13 395,867.16 4.68
14 403,479.99 4.77
15 411,092.82 4.86
16 419,551.52 4.96
</TABLE>
-17-
<PAGE>
EXHIBIT 10.14
LEASE AGREEMENT
---------------
(Ratcliffe's)
THIS LEASE AGREEMENT is made and entered into effective this 31st day of
May, 1996, by and between 329 PARTNERS-II LIMITED PARTNERSHIP, an Oklahoma
Limited Partnership, hereinafter called "Landlord," and HAROLD'S STORES, INC.,
an Oklahoma corporation, hereinafter called "Tenant."
ARTICLE I
PREMISES
--------
1.1 Agreement to Lease. In consideration of the rents, covenants and
------------------
agreements hereinafter reserved and contained on the part of Tenant to be
observed and performed, the Landlord demises and leases to the Tenant, and
Tenant rents from Landlord, the real property situated in Cleveland County,
Oklahoma, described on Exhibit A (the "Premises").
ARTICLE II
TERM
----
2.1 Term of Lease. The term of this lease shall be for twelve (12)
-------------
years, beginning on June 4, 1996 (the "Commencement Date"), and terminating on
June 3, 2008 (the "Expiration Date"), unless sooner terminated as herein
provided.
ARTICLE III
RENT
----
<PAGE>
3.1 Percentage Rent. This is a percentage rent lease. There shall be
---------------
no minimum rent payable by Tenant. As consideration for the leasing of the
Premises, Tenant agrees to pay Landlord four percent (4%) of the annual gross
sales from the Premises (the "Rent"). Such rental shall be paid monthly, on or
before the 20th day of each month, commencing on the month following the month
when Tenant opens for business, based upon the gross sales for the previous
month.
The term "gross sales," as used herein, shall mean the gross amount
received by Tenant from all sales made from the Premises (not including sales
filled from other stores). The following items shall be excluded from gross
sales: (i) exchange of merchandise between stores; (ii) returned goods; (iii)
cash or credit refunds to customers; (iv) sale of fixtures; (v) gift
certificates until redeemed; (vi) sale of inventory not in the ordinary course
of business; (vii) sales to employees at a discount (not to exceed three percent
[3%] of annual gross sales); (viii) sales tax; (ix) interest on sales; (x)
credit card fees; and (xi) insurance proceeds.
At the time Tenant makes its rental payment, it shall provide Landlord
with a statement certified by an officer of Tenant to be correct, certifying the
amount of gross sales from the Premises. Landlord shall be entitled to audit the
records of Tenant annually, and if the gross sales of Tenant are determined to
be in error, the amount of the error shall be adjusted between the parties. If
the audit determines greater than a three percent (3%) shortage in reporting
gross sales, Tenant shall pay for the audit.
3.2 Continuous Operation. The Tenant will conduct and operate the
--------------------
Tenant's business, for the uses and purposes set forth in Section 16.1 of this
Lease, for at least the hours of 10:00 a.m. to 6:00 p.m., Monday through
Saturday. The Tenant will keep the Premises reasonably stocked with merchandise
and reasonably staffed to serve the patrons thereof in a manner comparable to
similar businesses in Norman, Oklahoma; provided, however, the Tenant will not
be required to operate its business on legal holidays nor during any period when
operations must be suspended because of casualty loss to the Premises, labor
disturbances, or other similar causes beyond the control of the Tenant.
-2-
<PAGE>
ARTICLE IV
CONDITION OF PREMISES
---------------------
4.1 Tenant's Acceptance of Premises. Neither Landlord nor Landlord's
-------------------------------
agents have made any representations with respect to the Premises or the land
upon which it is erected, except as expressly set forth herein, and no rights,
easements or licenses are acquired by Tenant by implication or otherwise, except
as expressly set forth in the provisions of this agreement. The taking of
possession of the Premises by Tenant shall be conclusive evidence that Tenant
accepts the Premises and that the Premises were in good condition at the time
possession was taken. In no event shall Landlord be liable for any defects in
the Premises or for any limitation on its use. Landlord shall not be responsible
for any latent defect in the Premises, and the rent hereunder shall in no case
be withheld or diminished on account of any defect in the Premises, any change
in the condition thereof, any damage occurring thereto, or the existence with
respect thereto of any violations of laws or regulations of any governmental
authority.
4.2 Landlord's Title. Landlord is leasing the Premises and has the
----------------
right to enter into this Lease, and the Premises are accepted by Tenant subject
to, and Tenant agrees to abide by, all and singular, the easements,
restrictions, covenants, reservations, mineral reservations and other matters
affecting title to the Premises.
ARTICLE V
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
---------------------------------------
5.1 Improvements by Tenant. Landlord has approved an initial
----------------------
renovation project proposed by Tenant, and Tenant agrees to complete that
renovation and be open for business no later than September 4, 1996. Tenant
shall not make or allow to be made any further alterations or physical additions
in or to the Premises without first having the written consent of Landlord. At
-3-
<PAGE>
such time as Tenant requests such consent of Landlord, Tenant shall submit plans
and specifications for such alterations or additions, and comply with any and
all reasonable requirements of Landlord. Subject to the Landlord's lien, Tenant
may remove "removable trade fixtures," provided (1) any such removal is made
prior to the termination of this agreement; (2) Tenant is not in default of any
of the obligations or covenants hereunder; and (3) such removal may be effected
without substantial damages to the Premises, and Tenant promptly repairs all
damage caused by such removal at its sole expense. All trade fixtures,
merchandise, equipment and signs of every description which are not removable or
not removed in accordance with the preceding, and any alterations or additions
to the Premises shall become the property of Landlord, and shall remain upon and
be surrendered with the Premises as part thereof at the termination of this
Lease. Tenant hereby waives all rights to any payment or compensation therefor.
Removable trade fixtures shall include signs, tables, cases, chairs, desks, wall
brackets, shelves, mirrors and business machines (provided same are not
permanently attached), but shall not include ducts, conduits, wiring, pipes,
paneling, wall covering or floor covering or permanently attached fixtures which
cannot be removed without substantial damage to the Premises. Upon termination
of this agreement, Tenant will, at its sole cost and expense, if requested by
Landlord, remove any and all alterations, additions, fixtures, equipment and
property installed by Tenant in the Premises and restore the Premises to the
condition thereof at the time of tender of possession of the Premises, ordinary
wear and tear excepted.
5.2 Signs. Tenant will not place or suffer to be placed or
-----
maintained on any exterior door, wall or window of the Premises any sign, awning
or canopy, or advertising matter, or other thing of any kind, and will not place
or maintain any decoration, lettering or advertising matter on the glass of any
window or door of the Premises without first obtaining Landlord's written
approval and consent. Tenant further agrees to maintain such sign, awning,
canopy, decoration, lettering, advertising matter or other thing as may be
approved in good condition and repair at all times. Tenant, upon vacation of the
Premises or the removal or alteration of its sign, for any reason, shall be
responsible for the repair, painting and/or replacement of the building surface
where the sign is attached.
-4-
<PAGE>
ARTICLE VI
REPAIR AND MAINTENANCE
----------------------
6.1 Tenant's Maintenance. Tenant shall at all times keep the
--------------------
Premises (including maintenance of exterior entrances, all glass and show window
moldings) and all plate glass, partitions, doors, fixtures, plumbing,
electrical, and the heating and air conditioning systems, in good order,
condition and repair (including repair of damage from burglary or attempted
burglary of the Premises and reasonably periodic painting and maintenance of the
air conditioning system as required by Landlord). Tenant shall be responsible
for all utility repairs in ducts, conduits, pipes and wiring located in, under
and above the Premises. Tenant's maintenance responsibilities shall also include
maintenance of the parking lot, and Tenant shall keep the sidewalks and parking
areas adjoining the Premises free from rubbish, dirt, garbage, snow and ice.
6.2 Landlord's Option to Make Tenant Repairs. If Tenant refuses or
----------------------------------------
neglects to repair the Premises within thirty (30) days after receipt of
Landlord's written demand, Landlord may make such repairs without liability to
Tenant for any loss or damage that may accrue to Tenant's merchandise, fixtures
or other property, or to Tenant's business by reason thereof, and upon
completion thereof, Tenant shall pay Landlord's cost for making such repairs,
plus twenty percent (20%) for overhead, upon presentation of bills therefor, as
Additional Rent.
6.3 Landlord's Maintenance. Landlord shall keep the roof, exterior
----------------------
walls, foundations and building structure of the Premises in a good state of
repair; provided, however, if Landlord is required to make repairs to structural
portions by reason of Tenant's negligent act or omission to act, Landlord shall
add the cost of such repairs, plus twenty percent (20%) for overhead, to the
rent which shall thereafter become due.
6.4 Waste and Surrender. Tenant shall not commit or allow any
-------------------
waste or damage to be committed on any portion of the Premises, and upon
expiration or sooner termination of the term
-5-
<PAGE>
hereof, Tenant agrees to deliver up the Premises to Landlord in the condition
set out above, ordinary wear and tear excepted, and Landlord shall have the
right to re-enter and resume possession of the Premises.
6.5 Surrender of Key. At the expiration of the tenancy hereby
----------------
created, Tenant shall surrender all keys for the Premises to Landlord at the
place then fixed for the payment of rent, and shall inform Landlord of all
combinations on locks, safes and vaults, if any, in the Premises. Tenant shall
not change locks on the Premises without the prior written consent of the
Landlord.
ARTICLE VII
UTILITIES
---------
7.1 Tenant Pays All Bills. Tenant shall pay all bills for water,
---------------------
gas, electricity, fuel, light, heat and power furnished to or used by Tenant on
or about the Premises, and all disposal or sewage service charges for the
Premises, and all telephone bills and other bills incurred by Tenant. Landlord
shall have no responsibility for such payments.
ARTICLE VIII
TAXES
-----
8.1 Tenant's Responsibility. Tenant shall pay, in addition to the
-----------------------
rent specified above, all real estate taxes and special assessments levied upon
the Premises by any state, city, school district or federal governmental
authority. The payment for real estate taxes shall be made to Landlord on or
before December 15 of each year during the lease term, commencing December 15,
1996. For the first and final years of the lease term, the amount of the taxes
shall be prorated. All other taxes shall be paid directly to the taxing
authority on or before their due date.
-6-
<PAGE>
ARTICLE IX
INSURANCE AND INDEMNITY
-----------------------
9.1 Tenant's Liability Insurance Requirements. During the entire
-----------------------------------------
lease term, the Tenant shall, at its own expense, maintain adequate liability
insurance with a reputable insurance company or companies, with minimum amounts
of $1,000,000.00 combined single limit for personal injuries and property
damage, to indemnify both Landlord and Tenant against any such claims, demands,
losses, damages, liabilities and expenses. Landlord shall be named as an
additional insured, and shall be furnished with a certificate of such insurance,
which shall bear an endorsement that the same shall not be canceled except upon
not less than thirty (30) days prior written notice to Landlord. Tenant shall
also, at its own expense, maintain, during the lease term, insurance covering
its furniture, fixtures, equipment, all leasehold improvements, and merchandise
in an amount equal to not less than one hundred percent (100%) of the full
replacement value thereof, and insuring against fire and all risk perils
coverage as provided by a standard all risk coverage endorsement, and the plate
glass and all other glass which is the responsibility of the Tenant in the event
of breakage from any cause. Tenant shall provide Landlord with copies of the
policies of insurance or certificates thereof. If Tenant fails to maintain such
insurance, Landlord may maintain the same on behalf of Tenant. Any premiums paid
by Landlord shall be deemed Additional Rent and shall be due on the payment date
of the next installment of Rent hereunder.
9.2 Tenant's Fire and Extended Coverage Insurance. During the entire
---------------------------------------------
lease term, the Tenant shall, at its own expense, maintain a fire and extended
coverage insurance policy on the Premises, in an amount and with endorsements
required by Landlord's first mortgage lender; provided, however, if there be no
first mortgage lender, the coverage shall, at a minimum, insure all structures
and improvements for not less than eighty percent (80%) of the full insurable
replacement cost value thereof, and shall contain such other endorsements as
Landlord may from time to time require.
-7-
<PAGE>
9.3 Indemnity. Tenant agrees to indemnify Landlord and save Landlord
---------
harmless from and against any and all claims, actions, damages, liability and
expense in connection with loss of life, personal injury and/or damage to
property arising from or out of any occurrence in, upon or at the Premises, or
the occupancy or use by Tenant of the Premises, or any part thereof, if
occasioned wholly or in part by any act or omission of Tenant, Tenant's agents,
contractors, employees, servants, lessees or concessionaires. In case Landlord
shall, without fault on Landlord's part, be made a party to any litigation
commenced by or against Tenant, then Tenant shall protect and hold Landlord
harmless, and shall pay all costs, expenses and reasonable attorney's fees
incurred or paid by Landlord in connection with such litigation.
9.4 Waiver of Subrogation. As long as their respective insurers so
---------------------
permit, Landlord and Tenant hereby mutually waive their respective rights of
recovery against each other for any loss insured by fire, extended coverage and
other property insurance policies existing for the benefit of the respective
parties. Each party shall apply to their insurers to obtain such waivers. Each
party shall obtain any special endorsements, if required by their insurer to
evidence compliance with the aforementioned waiver.
ARTICLE X
CASUALTY LOSS
-------------
10.1 Damage to Premises. If the Premises shall be damaged by fire,
------------------
the elements, unavoidable accident or other casualty, but are not thereby
rendered untenantable in whole or in part, Landlord shall, at Landlord's
expense, cause such damage to be repaired, and the Rent shall not be abated. If
by reason of such occurrence, the Premises shall be rendered untenantable only
in part, Landlord shall, at Landlord's expense, cause the damage to be repaired,
and the Rent shall not be abated, since it is percentage rent only. If the
Premises shall be rendered wholly untenantable by reason of such occurrence, the
Landlord shall, at Landlord's expense, cause such damage to be repaired, or
Landlord may, at Landlord's election, terminate this Lease and the tenancy
hereby
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<PAGE>
created by giving to Tenant, within the sixty (60) days following the date of
said occurrence, written notice of Landlord's election to do so.
ARTICLE XI
SUBORDINATION
-------------
11.1 Subordination. This Lease shall be subordinate to any mortgage
-------------
that is now or may hereafter be placed upon the Premises, and to any and all
advances to be made thereunder, and to the interest thereon, and to all
renewals, replacements and extensions thereof; provided that Tenant receives a
non-disturbance agreement from the mortgagee on a form satisfactory to Tenant.
Tenant shall, upon written demand by Landlord, execute and deliver such
instruments as may be required at any time and from time to time to subordinate
the rights and interests of Tenant under this Lease to the lien of any mortgage
placed upon the Premises, or upon the real property of which the Premises are a
part at any time and from time to time, whether before or after the commencement
of this Lease or during the term thereof; provided that such a non-disturbance
agreement is in effect.
ARTICLE XII
ASSIGNMENT OR SUBLETTING
------------------------
12.1 Prohibitions. Tenant will not assign this Lease, in whole or in
------------
part, nor sublet all or any part of the Premises, without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld. The consent of Landlord to any assignment or subletting shall not
constitute a waiver of the necessity for such consent to any subsequent
assignment or subletting. Tenant shall not mortgage, pledge or otherwise
encumber its interest in this Lease or the Premises without the prior written
consent of Landlord. If this Lease be assigned, or if the Premises or any part
thereof be sublet or occupied by anybody other than Tenant, Landlord may collect
rent from the assignee, subtenant or occupant, and apply the net amount
collected to the
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<PAGE>
rent herein reserved, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, subtenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. Notwithstanding any assignment or sublease, Tenant shall remain fully
liable on this Lease, and shall not be released from performing any of the
terms, covenants and conditions of this Lease.
12.2 Landlord's Right to Transfer. Landlord shall have the right to
----------------------------
transfer and assign, in whole or in part, Landlord's rights hereunder and in the
Premises. In the event of the sale, assignment or transfer by Landlord of
Landlord's interest in the Premises, Landlord shall thereupon be released or
discharged from all covenants and obligations of Landlord, and Tenant agrees to
look solely to such successor in interest of Landlord for performance of such
obligations. All covenants and obligations of the Landlord shall run with the
land and be binding upon each new owner or successor of the Premises during
their period of ownership.
ARTICLE XIII
CONDEMNATION
------------
13.1 Award of Damages. If the whole or any part of the Premises shall
----------------
be taken for any public or quasi-public purpose by any lawful power or authority
by the exercise of the right of condemnation or eminent domain, Landlord shall
be entitled to and shall receive all awards that may be made in any such
proceeding for the Premises, and Tenant hereby assigns and transfers to Landlord
any and all such awards.
13.2 Taking of All of Premises. If such proceedings shall result in
-------------------------
taking of the whole or substantially all of the Premises, this Lease shall
terminate from the date of such taking, and all rent and other sums or charges
provided herein to be paid by Tenant shall be apportioned and paid to the date
of such taking. If less than substantially all of the Premises shall be taken in
such
-10-
<PAGE>
proceedings, this Lease shall terminate only as to the portion of the Premises
so taken, and this Lease shall continue for the balance of its term as to the
part of the Premises remaining. In the event of a partial taking, the Rent to be
paid by Tenant after such taking shall be reduced pro rata in proportion to
which the space so taken bears to the entire space in the Premises originally
demised.
13.3 Taking of Less Than All of Premises. If less than substantially
-----------------------------------
all of the Premises shall be taken, Landlord shall repair the remaining portion
of the Premises so as to restore same as a building complete in itself, but
Landlord shall not be obligated to expend thereon more than the sum allowed to
Landlord in such condemnation proceeding for damage to the Premises, less
expenses incurred by Landlord for such proceeding. Notwithstanding the
foregoing, if the expense of such restoration would be greater than the sum
allowed Landlord, less expenses in the condemnation proceeding, then Landlord
shall have the option, for a period of thirty (30) days after such partial
payment, within which to terminate this Lease. In the event of the taking of the
parking lot, the remaining Premises will be rendered practically valueless, and
Tenant shall be permitted to terminate this Lease unless the Landlord provides
suitable replacement parking.
13.4 Tenant's Damages. Although all damages in the event of any
----------------
condemnation are to belong to Landlord, whether such damages are awarded as
compensation for diminution in value of the leasehold or to the fee of the
Premises, Tenant shall have the right to claim and recover from the condemning
authority, but not from Landlord, such compensation as may be separately awarded
or recoverable by Tenant in Tenant's own right on account of any and all damages
to Tenant's business by reason of the condemnation and for or on account of any
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, leasehold improvements and equipment.
ARTICLE XIV
ACCESS AND EASEMENTS
--------------------
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<PAGE>
14.1 Access. Landlord or Landlord's agents shall have the right to
------
enter the Premises at all times to examine the same, and to show them to
prospective purchasers or tenants of the Premises, and to make such repairs,
alterations, improvements or additions as Landlord may deem necessary or
desirable, and Landlord shall be allowed to take all material into and upon the
Premises that may be required therefor, without the same constituting an
eviction of Tenant in whole or in part, and the rent reserved shall in no way
abate while said repairs, alterations, improvements or additions are being made,
by reason of loss or interruption of business of Tenant, or otherwise. During
the six (6) months prior to the expiration of the term of this Lease, Landlord
may exhibit the Premises to prospective tenants or purchasers, and place upon
the Premises the usual notices "For Lease" or "For Sale," which notices Tenant
shall permit to remain thereon without molestation. If Tenant shall not be
personally present to open and permit an entry into the Premises, at any time,
when for any reason an entry therein shall be deemed necessary or permissible,
Landlord or Landlord's agents may enter the same by a master key, or may
forcibly enter the same, without rendering Landlord or such agents liable
therefor, and without in any manner affecting the obligations and covenants of
this lease. Nothing herein contained, however, shall be deemed or construed to
impose upon Landlord any obligation, responsibility or liability whatsoever, for
the care, maintenance or repair of the Premises, or any part thereof, except as
otherwise herein specifically provided.
14.2 Structural Repairs. If an excavation or construction shall be
------------------
made upon land adjacent to the Premises, or shall be authorized to be made,
Tenant grants to the person causing or authorized to cause such excavation or
construction, license to enter upon the Premises for the purpose of doing such
work as Landlord shall deem necessary to preserve the wall or the building of
which the Premises form a part from injury or damage, and to support the same by
proper foundations, without any claim for damages or indemnification against
Landlord, or diminution or abatement of rent.
-12-
<PAGE>
ARTICLE XV
TENANT'S PROPERTY
-----------------
15.1 Tenant's Personal Property Taxes. Tenant shall be responsible
--------------------------------
for and shall pay before delinquency all municipal, county or state taxes
assessed during the term of this Lease against any leasehold interest or
personal property of any kind, owned by or placed in, upon or about the Premises
by the Tenant.
15.2 Responsibility of Landlord. Landlord shall not be liable for any
--------------------------
damage to property of Tenant or of others located on the Premises, nor for the
loss of or damage to any property of Tenant or of others by theft or otherwise.
Landlord shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, steam, gas, electricity, water,
rain or snow, or leaks from any part of the Premises, or from the pipes,
appliances or plumbing works, or from the roof, street or sub-surface, or from
any other place, or by dampness, or by any other cause of whatsoever nature.
Landlord shall not be liable for any such damage caused by occupants of adjacent
property, or the public, or caused by operations in construction of any private,
public or quasi-public work. All property of Tenant kept or stored on the
Premises shall be so kept or stored at the risk of Tenant only, and Tenant shall
hold Landlord harmless from any claims arising out of damage to the same,
including subrogation claims by Tenant's insurance carrier, unless such damage
shall be caused by the willful act or gross negligence of Landlord.
ARTICLE XVI
USE OF PREMISES
---------------
16.1 Tenant's Usage. The Premises are to be used and occupied by
--------------
Tenant solely for the purposes of the retail sale of clothing and accessories,
including jewelry and shoes, and for a restaurant, continuously during the term.
Tenant shall not occupy or use, or permit any portion of
-13-
<PAGE>
the Premises to be occupied or used for any business or purpose which, in
Landlord's opinion, is unlawful, disreputable or deemed to be extra hazardous on
account of fire, or permit anything to be done which would in any way increase
the rate of fire insurance coverage on the Premises and/or its contents.
16.2 Compliance with Laws, Covenants and Regulations. Tenant shall at
-----------------------------------------------
all times comply with all laws, ordinances, orders, rules and regulations of
governmental agencies having jurisdiction of the Premises, and of all
restrictive covenants relating to the use, condition or occupancy of the
Premises. In the event such laws mandate alterations to the Premises, Tenant
agrees to promptly make such alterations at its sole cost and expense.
16.3 Concessionaires. Tenant shall not permit any business to be
---------------
operated in or from the Premises by any concessionaire or licensee without prior
written consent of Landlord, which consent will not be unreasonably withheld.
ARTICLE XVII
PEACEFUL ENJOYMENT
------------------
17.1 Covenant of Landlord. Tenant shall, and may peacefully have,
--------------------
hold and enjoy the Premises, subject to the other terms hereof, providing Tenant
pays the rentals herein recited and performs Tenant's covenants and agreements
herein contained.
-14-
<PAGE>
ARTICLE XVIII
DEFAULT AND REMEDIES
--------------------
18.1 Tenant's Default. Any of the following, if not cured by Tenant
----------------
within ten (10) days after written notice to Tenant of their occurrence, shall
constitute events of default on the part of Tenant:
A. Failure of Tenant to pay Rent, Additional Rent, or any other rent
or other payment when due;
B. Failure of Tenant to comply with any covenant or obligation of
Tenant hereunder;
C. Abandonment or vacation of the Premises by Tenant;
D. The filing of a voluntary or involuntary petition in bankruptcy
by or against Tenant, or any guarantor hereof, under the National
Bankruptcy Act, or should Tenant, or any guarantor, make an
assignment for the benefit of their creditors, or should a
trustee, receiver or liquidator of Tenant, or any guarantor
hereof, of Tenant's or any guarantor's property hereof, be
appointed, or should any governmental authority institute any
proceeding for the dissolution of Tenant, or any guarantor
hereof, or should Tenant's interest hereunder pass by operation
of law or otherwise;
E. Failure to provide estoppel certificates as requested by
Landlord.
18.2 Remedies. In addition to any other rights and remedies provided
--------
in this Lease or by applicable law or equity, on the occurrence of any event of
default and after expiration of any cure
-15-
<PAGE>
period, Landlord will have the following remedies, all of which may be exercised
without any further notice or demand on Tenant:
(A) Past Due Rent. Landlord may collect from Tenant all past due
-------------
rent, including interest thereon at twelve percent (12%) per
annum and late charges, and all other reasonable damages caused
by Tenant's default.
(B) Termination. Landlord may terminate this Lease, in which event
-----------
Tenant will immediately surrender the Premises to Landlord, but
if Tenant fails to do so, Landlord may, without notice and
without prejudice to any other remedy Landlord might have, enter
and take possession of the Premises and remove Tenant, anyone
claiming under Tenant, and any property therefrom without being
subject to any claim for damages therefor. Tenant shall be
obligated to pay to Landlord all costs reasonably incurred by
Landlord in any such action, including the costs of taking
possession of and repairing any damage to the Premises, and all
other reasonable damages caused by Tenant's default. After
default, this Lease may be terminated only by written notice from
Landlord, and no other action or inaction by Landlord after
default shall constitute a termination of this Lease.
(C) Reletting. If Landlord does not terminate this Lease, then
---------
Landlord may, at its option, reenter and remove any persons or
property therein, forcibly if necessary, without being guilty of
trespass and without the same constituting a termination of this
Lease, and may relet the Premises or any part thereof for the
benefit of Tenant, in which event Tenant shall pay Landlord all
reasonable costs incurred by Landlord in taking such action,
including, without limitation, the costs of taking possession of
and repairing the Premises, the reasonable cost of preparing the
same for reletting, attorneys' fees, brokerage commissions, and
all other damages caused by Tenant's default. Tenant shall remain
obligated to Landlord
-16-
<PAGE>
for the difference between any rent received by Landlord as a
result of such reletting and the rent (computed on the average of
Rent paid by Tenant prior to the date of Tenant's default) and
other sums for which Lessee is obligated hereunder. In the event
any such reletting results in payment of rent thereunder to
Landlord in excess of the rent for which Tenant is obligated
hereunder, Landlord shall be entitled to retain such excess.
18.3 Landlord's Right to Cure. Should Tenant be in default hereunder,
------------------------
Landlord may cure any such default on behalf of Tenant, in which event Tenant
shall reimburse Landlord for all sums paid to effect compliance, together with
interest at the rate of eighteen percent (18%) per annum, from and after the
date of such expenditure, which shall be Additional Rent due hereunder.
18.4 Landlord's Default. If Landlord fails to perform any of
------------------
Landlord's covenants hereunder, Landlord shall not be in default unless: (1)
Tenant gives Landlord written notice thereof, setting forth in reasonable detail
the nature and extent of such failure, and (2) if such failure by Landlord is
not cured or attempted to be cured within thirty (30) days following the
delivery of such notice. If such failure cannot be reasonably cured within
thirty (30) days, the length of such period shall be extended for a period
reasonably required therefor if Landlord commences curing such failure within
the thirty (30) day period and continues the curing thereof with reasonable
diligence and continuity.
ARTICLE XIX
MISCELLANEOUS PROVISIONS
------------------------
19.1 Amendment. This agreement may not be altered, changed or
---------
amended, except by instrument in writing, signed by all parties hereto.
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<PAGE>
19.2 Non-Waiver. Failure of Landlord to declare any default
----------
immediately upon the occurrence thereof, or delay in taking any action in
connection therewith, or acceptance of rental after same is due, shall not waive
such default, but Landlord shall have the right to declare any such default at
any time, and to take such action as may be lawful or authorized hereunder,
either at law or in equity.
19.3 Force Majeure. Neither Landlord nor tenant shall be required to
-------------
perform any term, condition or covenant in this Lease so long as such
performance is delayed or prevented by force majeure, which shall mean acts of
God, strikes, lock outs, material or labor shortages, or restrictions by
government authorities and other causes which are not reasonably within the
control of either Landlord or Tenant, and which, by the exercise of due
diligence, Landlord or Tenant would be unable, wholly or in part, to prevent or
overcome. Provided, however, this provision shall not apply to Tenant's
obligation to pay Rent and Additional Rent.
19.4 Interpretation. As used herein, the masculine or neuter genders
--------------
shall be deemed to include all genders and singular, the plural, and vice versa,
except where any such construction would be unreasonable. This Lease shall be
construed under and in accordance with the laws of the State of Oklahoma, and
all obligations of the parties hereunder are performable in Cleveland County,
Oklahoma. The paragraph headings are inserted for convenience only, and shall
not in any way vary the provisions they identify. If any provision of this Lease
or any application thereof shall be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions
hereof and other applications thereof, shall not in any way be affected or
impaired thereby.
19.5 Covenants. All agreements, obligations and undertakings of the
---------
parties shall be deemed to be covenants, whether or not so denominated.
19.6 Notices. Except as may be otherwise specifically provided
-------
herein, all notices required or permitted hereunder shall be in writing, and
shall be deemed to be delivered when
-18-
<PAGE>
delivered personally, or when deposited with the United States Postal Service,
postage prepaid, registered or certified mail, return receipt requested,
addressed to the parties at the respective addresses set forth hereunder, or at
such other address as may have been theretofore specified by written notice
delivered in accordance herewith.
19.7 Limitation of Landlord Liability. Any provisions hereof to the
--------------------------------
contrary notwithstanding, Tenant hereby agrees that no personal or partnership
liability of any kind or character whatsoever now attaches or at any time
hereafter, under any condition, shall attach to Landlord for payment of any
amounts payable under this agreement, or for the performance of any obligations
hereunder. The exclusive remedies of Tenant for the failure of Landlord to
perform any of its obligations under this Lease shall be to proceed against the
interest of Landlord in and to the Premises.
19.8 Attorney's Fees. In the event Tenant defaults in the performance
---------------
of any of the terms, covenants, agreements or conditions contained in this Lease
and Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any rent due, or which may become due hereunder, or recovery of
the possession of the Premises, in the hands of an attorney, or files suit upon
same, Tenant agrees to pay to Landlord a reasonable attorney's fee which is
incurred by Landlord in such enforcement, collection or recovery of possession.
19.9 Holding Over. In the event of holding over by Tenant after the
------------
expiration or termination of this agreement without the express written consent
of Landlord, the Base Rent shall be doubled for the entire holdover period. No
holding over by Tenant after the term of this Lease shall operate to extend this
Lease; and in the event of any unauthorized holding over, Tenant shall indemnify
Landlord from and against all claims for damages by any other tenant to whom
Landlord may have leased all or any portion of the Premises, effective upon the
termination of this Lease. Any holding over with the consent of Landlord in
writing shall thereafter constitute this Lease a lease from month to month.
-19-
<PAGE>
19.10 Entire Agreement. This instrument constitutes the entire
----------------
agreement of the parties. It supersedes any and all other agreements, either
oral or in writing, between the parties hereto. Each party to this Lease
acknowledges that no representations, inducements, promises or agreements, oral
or otherwise, have been made by any party or anyone acting on behalf of any
party, which are not embodied herein, and that no other agreement, statement or
promise not contained in this Lease shall be valid or binding. This Lease may
not be modified or amended by oral agreement, but only by an agreement in
writing, signed by the parties hereto.
19.11 Recording. This Lease may not be recorded by either party, but
---------
at the request of either party, Landlord and Tenant shall execute a short form
memorandum of this Lease, which may be recorded for all purposes.
19.12 Indemnity. Tenant shall indemnify Landlord against all
---------
liabilities, expenses and losses incurred by Landlord as a result of: (1)
failure by Tenant to perform any covenant required hereunder; (2) any accident,
injury or damage which shall happen in or about the Premises; (3) failure to
comply with any requirement of any governmental authority; and (4) any
mechanic's lien or security agreement filed against the Premises, any equipment
therein, or any materials used in the construction or alteration of the
Premises. Landlord shall not be liable for injury or damage to any person or
property occurring on the Premises unless caused by or resulting from the gross
negligence of Landlord.
19.13 Estoppel Certificates. At any time and from time to time within
---------------------
twenty (20) days after Landlord shall request the same, Tenant will execute,
acknowledge and deliver to Landlord or any party as may be designated by
Landlord, a certificate in a reasonably acceptable form, with respect to the
matters required by such party, and such other matters relating to this Lease or
the status or performance of obligations of the parties hereunder as may be
reasonably requested by Landlord. If Tenant fails to provide such certificate
within twenty (20) days after request by Landlord, Tenant shall be deemed to
have approved the contents of any such certificate submitted to Tenant by
Landlord, and Landlord is hereby authorized to so certify.
-20-
<PAGE>
19.14 Binding Effect. This Lease shall be binding upon and inure to
--------------
the benefit of the parties hereto, their respective successors, permitted
assigns, heirs and legal representatives, as the case may be.
19.5 Condition. This Lease is executed by the parties conditional
---------
upon the approval, within thirty (30) days from this date, by the Special Real
Estate Committee of Tenant and the disinterested members of the Board of
Directors of Tenant. In the event that this Lease is not approved by either the
Special Real Estate Committee or the Board of Directors, it shall be null and
void, and each party shall be released from any obligation hereunder.
EXECUTED as of the day and year first above written.
"LANDLORD" 329 PARTNERS-II LIMITED
PARTNERSHIP, an Oklahoma Limited
Partnership
By: 329 HOLDING LLC, an Oklahoma Limited
Liability Company, General Partner
By: /s/ H. Rainey Powell
--------------------
Title: H. Rainey Powell, Manager
-------------------------
Address: 765 Asp Avenue
Norman, OK 73069
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<PAGE>
"TENANT" HAROLD'S STORES, INC., an Oklahoma
Corporation
By: /s/ H. Rainey Powell
--------------------
Title: President
--------------------
Address: P.O. Drawer 2970
Norman, OK 73070-2970
ACKNOWLEDGMENTS
---------------
STATE OF OKLAHOMA )
) ss:
COUNTY OF CLEVELAND )
The foregoing instrument was acknowledged before me this 31st day of
May, 1996, by H. RAINEY POWELL, Manager of 329 HOLDING LLC, an Oklahoma Limited
Liability Company, on behalf of its General Partner, 329 PARTNERS-II LIMITED
PARTNERSHIP, an Oklahoma Limited Partnership.
/s/ Jamie Murphy
----------------------------
Notary Public
My commission expires:
April 14, 1999
-22-
<PAGE>
STATE OF OKLAHOMA )
) ss:
COUNTY OF CLEVELAND )
The foregoing instrument was acknowledged before me this 31st day of
May, 1996, by H. RAINEY POWELL, President of HAROLD'S STORES, INC., an Oklahoma
Corporation, on behalf of said corporation.
/s/ Jamie Murphy
----------------------------
Notary Public
My commission expires:
April 14, 1999
-23-
<PAGE>
EXHIBIT A
to
LEASE AGREEMENT
---------------
LEGAL DESCRIPTION OF PREMISES
-----------------------------
TRACT ONE:
---------
The East 195 feet of the South 3/4 of Lot Eleven (11), in ELMWOOD
ADDITION to Norman, Cleveland County, Oklahoma, according to the
recorded plat thereof.
TRACT TWO:
---------
The West 115 feet of Lots Thirty-One (31) and Thirty-Two (32) and the
South 3.8 feet of the West 115 feet of Lot Thirty-Three (33) in Block
One (1) of LARSH'S UNIVERSITY ADDITION to the City of Norman,
Cleveland County, Oklahoma, according to the recorded plat thereof.
including all improvements, structures and fixtures thereon, and all easements
appurtenant thereto, and all right, title and interest of the Seller in and to
all land lying in the bed of any street or easement adjoining the Property.
<PAGE>
EXHIBIT 10.15
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement") is entered
into effective the 28th day of February, 1996, by HAROLD'S STORES, INC. an
Oklahoma corporation ("Borrower") and BOATMEN'S FIRST NATIONAL BANK OF OKLAHOMA
("Lender").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the terms and conditions of that certain First Amended
and Restated Credit Agreement by and among the Borrower, Lender and certain
guarantors dated August 22, 1995 (the "Prior Agreement"), the Borrower agreed to
borrow up to the aggregate principal amount of Twelve Million and No/100 Dollars
($12,000,000.00) from Lender on a revolving loan basis and the ability to issue
letters of credit under the revolving loan;
WHEREAS, Borrower has requested an increase in the revolving loan to
$15,000,000.00 and the release of the guarantors under the Prior Agreement; and
WHEREAS, Lender is willing to make increase the revolving loan to the
Borrower and to release the guarantors under the Prior Agreement upon the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of the Borrower by Lender, the parties hereto hereby
agree as follows:
1. DEFINITIONS.
-----------
1.1 General Terms. When used herein, the following terms shall have
-------------
the following meanings:
"Accounts" shall mean all present and future rights of the Borrower
--------
and each of the Harold's Subsidiaries to payment for retail services
rendered or retail Goods sold, purchased or leased, which are not evidenced
by Instruments or Chattel Paper, and whether or not they have been earned
by performance, including Accounts owned by Borrower or any of the Harold's
Subsidiaries doing business under any other name.
"Account Debtor" shall mean the party who is obligated on or under an
--------------
Account.
"Accounts Trial Balance" shall have the meaning assigned to that term
----------------------
in Section 3.1.
--------------
<PAGE>
"Affiliate" shall mean any Person (a) that directly or indirectly,
---------
through one or more intermediaries, controls or is controlled by, or is
under common control of the Borrower, (b) that directly or beneficially
owns or holds 5% or more of any class of the voting stock of the Borrower,
or (c) 5% or more of whose voting stock (or in the case of a person which
is not a corporation, 5% or more of the equity interest) is owned directly
or beneficially or held by the Borrower.
"Borrowing Base" shall mean an amount equal to the sum of (i) eighty
--------------
percent (80%) of Eligible Accounts, and (ii) fifty percent (50%) of
Eligible Inventory not to exceed $15,000,000.00 as reflected in the most
current Monthly Report less all Letters of Credit.
"Business Day" shall mean any day of the year on which banks are not
------------
required or authorized to close in Oklahoma City, Oklahoma.
"Cash Equivalent Investments" shall mean (i) short-term direct
--------------
obligations of the United States Government, (ii) readily marketable
commercial paper rated A1 or better by Standard & Poor's Corporation (or a
similar rating by a similar organization which rates commercial paper),
(iii) federally insured negotiable certificates of deposit or bankers
acceptances, payable to the order of the Borrower or to bearer, issued by
one or more commercial banks or trust companies operating in the United
States and (iv) cash deposits maintained by the Borrower at Lender.
"Chattel Paper" shall mean a writing or writings which evidence both a
-------------
monetary obligation and a security interest in or a lease of specific
goods. The transaction is evidenced by both such a security agreement or a
lease and by an Instrument or series of Instruments, a group of writings
taken together constitutes Chattel Paper.
"Code" shall have the meaning assigned to that term in Section 1.3.
---- -----------
"Corporate Base Rate" shall mean that fluctuating annual rate of
-------------------
interest formally designated by Lender from time to time (whether or not
charged or published) as its "Corporate Base Rate." Each change in the per
annum interest rate charged hereunder shall become effective, without
notice (which notice is hereby waived), on the date of each change in the
Corporate Base Rate (or any component thereof). As of February 15, 1996,
the Corporate Base Rate was eight and one-quarter of one percent (8.25%)
per annum. Lender may, from time to time, extend credit to anyone at rates
of interest varying from, and having no relation to, the Corporate Base
Rate.
"Default" shall mean the occurrence or existence of any one or more of
-------
the following events: (a) the Borrower fails to pay any of the Liabilities
within five (5) calendar days following the date such Liabilities are due
or are declared due; (b) the Borrower fails or neglects to perform, keep or
observe any of the covenants, conditions or agreements contained in this
Agreement or in any of the other Financing Agreements and such failure or
neglect
-2-
<PAGE>
continues for more than thirty (30) days after written notice from the
Lender of such failure or neglect; provided that such grace period shall
not apply, and a Default shall exist upon the occurrence of such failure or
neglect, if (i) such Default may not, in the Lender's reasonable
determination, be cured by the Borrower during such thirty (30) day grace
period (such failure or neglect incapable of cure shall not include the
failure to comply with the financial covenants set forth in Section 6.10
------------
for which the thirty (30) day grace period shall continue to apply but
shall include, without further limitation, the failure to obtain the
written consent of Lender prior to taking any action described in this
Agreement which requires such prior written consent) or (ii) the covenant
to have been performed was the delivery to Lender of a Monthly Report;
provided, further, that with respect to any Financing Agreement other than
this Agreement, the grace period provided under this clause (b) shall be
concurrent with, and not in addition to, any grace period that may be
provided under such Financing Agreement; (c) any warranty or representation
now or hereafter made by the Borrower of the Liabilities in connection with
this Agreement or any of the other Financing Agreements is untrue or
incorrect in any material respect, or any schedule, certificate, statement,
report, financial data, notice, or writing furnished at any time by the
Borrower to the Lender is untrue or incorrect in any material respect on
the date as of which the facts set forth therein are stated or certified;
(d) a judgment or order requiring payment in excess of $10,000.00 shall be
rendered against the Borrower, and such judgment or order shall remain
unsatisfied or undischarged and in effect for thirty (30) consecutive days;
provided that this clause (d) shall not apply to any judgment with respect
to which (i) a stay of enforcement has been entered within such thirty (30)
day period; (ii) an appeal, properly bonded, has been taken within such
thirty (30) day period; or (iii) the Borrower is fully insured, and with
respect to which the insurer has admitted in writing its liability for the
full amount thereof; (e) a notice of lien, levy, or assessment is filed or
recorded with respect to all or a substantial part of the assets of the
Borrower or any of the Harold's Subsidiaries by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency or any taxes or debts owing at
any time or times hereafter to any one or more of them, provided that this
clause (e) shall not apply to any liens, levies, or assessments which
relate to current taxes not yet due and payable or any liens, levies or
assessments which are being contested and properly bonded; (f) all or any
part of the assets of the Borrower is attached, seized, subjected to a writ
or distress warrant, or is levied upon, or comes within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors
and on or before the tenth (10th) day thereafter such assets are not
returned to the Borrower and/or such writ, distress warrant or levy is not
dismissed, stayed or lifted; (g) a proceeding under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt or
receivership law or statute is filed by or against the Borrower, or the
Borrower makes an assignment for the benefit of creditors or the Borrower
takes any corporate action to authorize any of the foregoing; (h) the
Borrower voluntarily or involuntarily dissolves or is dissolved, terminates
or is terminated; (i) the Borrower becomes insolvent or fails generally to
pay its debts as they become due; (j) the Borrower is enjoined, restrained,
or in any way prevented (whether by affirmative order, by the suspension of
any license, permit or approval to conduct business, or otherwise) by the
order of any court or any administrative or regulatory agency
-3-
<PAGE>
from conducting all or any material part of its business affairs; (k) a
breach by the Borrower shall occur under any material agreement, document
or instrument (other than an agreement, document or instrument evidencing
the lending of money), whether heretofore, now or hereafter existing
between the Borrower and any other Person, and such breach continues for
more than thirty (30) days after such breach first occurs (or thirty (30)
days after any notice with respect to such breach if such notice is
required to be given to Borrower thereunder), provided that such grace
period shall not apply, and the Borrower shall be in Default upon the
occurrence of such breach, if such breach may not, in the Lender's
reasonable determination, be cured by the Borrower, during such thirty (30)
day grace period; (l) the Borrower shall fail to make any payment due on
any other obligation for borrowed money or for the deferred purchase price
of property or services; (m) a material and adverse change shall occur in
the Borrower or any of its operations or financial conditions; and (n) a
material change shall occur in the Lender's sole determination in the
management or management structure of the Borrower.
"Documents" shall mean a bill of lading, dock warrant, dock receipt,
---------
warehouse receipt or other order of delivery of goods, and also any other
documents which in the regular course of business financing is treated as
adequately evidencing that the Person in possession of it is entitled to
receive, hold and dispose of the document and the goods it covers.
"Eligible Accounts" shall mean an amount which shall be calculated by
-----------------
the Borrower and submitted for the approval of the Lender, from time to
time, which shall equal the sum of Borrower's Accounts generated by
Borrower's billings or invoices to retail Account Debtors in respect of
goods actually delivered or services actually performed for Borrower's and
the Harold's Subsidiaries' customers and which Accounts shall represent a
sum of money unconditionally due and owing to Borrower from a retail
Account Debtor, but excluding: (i) Accounts totaling more than 3% of the
total of Borrower's Accounts and which are or may be subject to any
dispute, set-off, recoupment, counterclaim or other claim which would
reduce the amount to be paid by the Account Debtor to the Borrower, (ii)
each Account in respect of which either Borrower or the Lender believes
that complete and timely collection thereof may be doubtful, (iii) the
entirety of each Account if the required minimum payment shall be unpaid
for a period of time in excess of sixty (60) days from the date of first
invoice, (iv) each Account due from an Affiliate (inter company or inter
store) of Borrower, including the Harold's Subsidiaries. In making such a
determination, the Lender shall be generally guided by the following
minimum requirements:
(a) the required minimum payment on the Account has not remained
unpaid for a period of more than sixty (60) days after the date of
Borrower's credit billing:
(b) the account is not owing from an Account Debtor who has
failed to make the required minimum payment owing within sixty (60)
days of the invoice date;
-4-
<PAGE>
(c) the Account is a valid, legally enforceable obligation of
the Account Debtor thereunder and is not, to the extent it is
considered eligible, subject to any offset or other known defense on
the part of such retail Account Debtor provided, however, that (i)
reasonable and customary discounts for prompt payment will be allowed,
or (ii) if it is subject to any other offset, defense or claim, it
shall be ineligible to the extent of such offset, defense or claim;
and
(d) the Account is not subject to any consensual lien or
security interest whatsoever.
"Eligible Inventory" shall mean an amount which shall be calculated by
------------------
the Borrower and submitted for approval of the Lender from time to time
(separated into categories of raw materials, work in process and finished
goods on a quarterly basis until such time as Borrower has the capability
of generating such categories on a monthly basis), which shall equal the
sum of all Inventory actually owned by the Borrower and the Harold's
Subsidiaries located at any of Borrower's or Harold's Subsidiaries'
principal places of business for which all costs of acquisition and
purchase of such Inventory have been satisfied or will be satisfied by an
advance on the Revolving Loan or any Letter of Credit Agreement made by the
Lender directly to the seller of such Inventory and which Inventory should
properly, under generally accepted accounting principles, be listed as an
asset on Borrower's consolidated balance sheet with no corresponding entry
of a liability to any Person other than the Lender.
"Execution Date" shall mean February 28, 1996.
--------------
"ERISA" shall have the meaning assigned to that term in Section 5.14.
----- ------------
"Event of Default" shall mean an event which through the passage of
----------------
time, or the service or giving of notice, or both would (assuming the
action necessary to cure the same is not taken by the Borrower) mature into
a Default.
"Financing Agreements" shall mean all agreements, instruments and
--------------------
documents, including without limitation, this Agreement, the Revolving Loan
Note, the Letter of Credit Agreements and all other loan agreements, notes,
guaranties, consents, assignments, contracts, notices, leases and all other
written matters whether heretofore, now, or hereafter executed by or on
behalf of the Borrower and delivered to the Lender, together with all
agreements and documents referred to therein or contemplated thereby,
including all amendments, extensions and renewals thereof.
"General Intangibles" shall mean all choses in action, causes of
-------------------
action and all other intangible personal property of the Borrower of every
kind and nature (other than Accounts) including, without limitation,
corporate or other business records, liens, inventions, designs, patents,
patent applications, service marks, trademarks, tradenames, trade secrets,
goodwill,
-5-
<PAGE>
registrations, copyrights, licenses, permits, franchises, customer lists,
tax refund claims and the like, wherever located.
"Goods" shall mean all things which are movable at the time a security
-----
interest attaches or which are fixtures, but does not include money,
Documents, Instruments, Accounts, Chattel Paper and General Intangibles.
"Harold's Subsidiaries" shall mean Harold's of Norman, Inc., an
---------------------
Oklahoma corporation, Harold's Financial Corporation, an Oklahoma
corporation, Harold's Service Corporation, Inc., an Oklahoma corporation,
Harold's of Oklahoma City, Inc., an Oklahoma corporation, Harold's of
Tulsa, Inc., an Oklahoma corporation, Harold's of Utica Square, Inc., an
Oklahoma corporation, Harold's of Penn Place, Inc., an Oklahoma
corporation, Harold's Clothing, Inc., a Texas corporation, Harold's of
Texas, Inc., a Texas corporation, Harold's of Fort Worth, Inc., a Texas
corporation, Harold's of Dallas, Inc., a Texas corporation, Harold's of the
Galleria, Inc., a Texas corporation, Harold's of White Flint, Inc., a
Maryland corporation, and Harold's of Jackson, Inc., a Mississippi
corporation.
"Instruments" shall mean a negotiable instrument, as defined in 12A
-----------
O.S. (S)3-104, or a security, as defined in 12A O.S. (S)8-102, or any other
writing which evidences a right to the payment of money and is not itself a
security agreement or lease and is of a type which is in ordinary course of
business transferred by delivery with any necessary endorsement or
assignment.
"Inventory" shall mean any and all Goods, wheresoever located, whether
---------
now owned or hereafter acquired by the Borrower or any of the Harold's
Subsidiaries, which are held for sale.
"Letters of Credit" shall mean the commercial and standby letters of
-----------------
credit hereafter issued by the Lender pursuant to Section 2.8 and all
-----------
reimbursement obligations pertaining to such letters of credit, and "Letter
of Credit" shall mean any one of the Letters of Credit and the
reimbursement obligations pertaining thereto.
"Letter of Credit Agreements" shall mean the written agreements with
---------------------------
the Lender executed or hereafter executed in connection with the issuance
by the Lender of the Letters of Credit, such agreements to be on the
Lender's customary form for commercial or standby letters of credit of
comparable amount and purpose, as from time to time in effect.
"Liabilities" shall mean all of the Borrower's liabilities,
-----------
obligations, and indebtedness to Lender of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether
primary, secondary, direct, indirect, contingent, fixed or otherwise
(including obligations of performance) and whether arising or existing
under written agreement, oral agreement or operation of law, including
without limitation, all of Borrower's indebtedness
-6-
<PAGE>
and obligations to Lender under this Agreement, the other Financing
Agreements, the Revolving Loan Note and the Letter of Credit Agreements.
"LIBOR Rate" shall mean the London Interbank Offered Rates for either
----------
(i) one (1) month or (ii) three (3) months, as published in the Wall Street
-----------
Journal indicating the average of interbank offered rates for dollar
-------
deposits in the London market based on the quotation at five major banks.
If the date of the rate change falls on a date when the Wall Street Journal
-------------------
is not published, then the one (1) month or three (3) month LIBOR Rate
published in the following issue of the Wall Street Journal shall be the
-------------------
applicable LIBOR Rate used.
"Maximum Revolving Facility" shall mean the maximum aggregate amount
--------------------------
which Lender has agreed to consider as a ceiling on the outstanding
principal balance of loans to be made to the Borrower and Letters of Credit
issued pursuant to Section 2. The Maximum Revolving Facility shall be
---------
Fifteen Million and no/100 Dollars ($15,000,000.00).
"Monthly Report" shall have the meaning assigned to that term in
--------------
Section 3.1.
-----------
"Pension Plan" shall have the meaning assigned to that term in Section
------------ -------
5.14.
----
"Person" shall mean any individual, sole proprietorship, partnership,
------
joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, provincial, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body
or department thereof).
"Quarterly Report" shall have the meaning assigned to that term in
----------------
Section 3.2.
-----------
"Revolving Loan" shall have the meaning assigned to that term in
--------------
Section 2.
---------
"Revolving Loan Note" shall mean that certain Eighth Amended and
-------------------
Restated Revolving Note executed by the Borrower substantially in the form
of Exhibit "A" attached to this Agreement, dated the effective date of this
Agreement, as same may be extended, renewed, amended or modified from time
to time pursuant to the terms of this Agreement.
"Subsidiary" shall mean any corporation of which more than fifty
----------
percent (50%) of the outstanding capital stock having ordinary voting power
to elect a majority of the board of directors of such corporation
(irrespective of whether at the time stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
by the Borrower.
"Tangible Net Worth" shall mean stockholder's equity in the Borrower,
------------------
plus debt expressly subordinated to Lender, determined in accordance with
generally accepted accounting principles consistent with those applied in
the preparation of the financial statements referred to in Section 6.1,
-----------
less: (i) General Intangibles, (ii) receivables from any
-7-
<PAGE>
shareholders of the Borrower or any of the Harold's Subsidiaries, and (iii)
notes or amounts received or receivable from any other Affiliate or
Subsidiary.
"Total Liabilities" shall mean with respect to any Person (i) all
-----------------
obligations of such Person which, in accordance with generally accepted
accounting principles, would be shown on the balance sheet of such Person
as a liability (including, without limitation, obligations for borrowed
money and for the deferred purchase price of property or services, and
obligations evidenced by bonds, debentures, notes or other similar
instruments); (ii) all rental obligations under leases required to be
capitalized under generally accepted accounting principles; (iii) all
guarantees (direct or indirect) and other contingent obligations of such
Person in respect of, or obligations to purchase or otherwise acquire or to
assure payment of, liabilities of others; and (iv) liabilities of others
secured by a lien, security interest or other encumbrance upon property
owned by such Person, whether or not assumed; (v) less debt expressly
subordinated to Lender.
1.2 Accounting Terms. Any accounting terms used in this Agreement
----------------
which are not specifically defined herein shall have the meanings
customarily given them in accordance with generally accepted accounting
principles.
1.3 Others Defined in Oklahoma Uniform Commercial Code. All other
--------------------------------------------------
terms contained in this Agreement (and which are not otherwise specifically
defined herein) shall have the meanings provided by the Uniform Commercial
Code of the State of Oklahoma (the "Code") to the extent the same are used
or defined therein.
2. THE LOAN. Subject to the terms and conditions, and relying upon the
--------
representations and conditions hereinafter set forth, Lender agrees to lend and
the Borrower agrees to borrow, up to and not exceeding the Maximum Revolving
Facility, on a revolving basis as follows:
2.1 Borrowing Base. The Borrower may borrow, repay, without penalty
--------------
or premium, and re-borrow hereunder, the lesser of (i) the Maximum
Revolving Facility, or (ii) the Borrowing Base.
2.2 Advances. Each request for advance hereunder may be made by
--------
telephone by the authorized representative of Borrower no later than 2:00
p.m. on the date on which an advance is requested to be made. Each advance
to the Borrower shall be in immediately available funds and deposited in
the Borrower's demand deposit accounts with Lender.
2.3 Maximum Principal Balance of Revolving Loan. The Borrower agrees
-------------------------------------------
that if at any time the aggregate outstanding principal balance of the
Revolving Loan shall exceed an amount equal to the lesser of (i) the
Maximum Revolving Facility or (ii) the Borrowing Base, the Borrower shall
promptly pay to Lender the amount necessary to eliminate such excess.
-8-
<PAGE>
2.4 Interest. The Borrower shall pay to Lender interest on the
--------
average daily outstanding balance of the Liabilities at a rate per annum
equal to, at the option of the Borrower, (i) the Corporate Base Rate, or
(ii) two and one-eighth of one percent (2.125%) plus either the one (1) or
three (3) month LIBOR Rate as designated in writing by the Borrower. The
Borrower may make this selection at any time during the term of this
Agreement, provided, however, if a LIBOR Rate is selected no changes may be
made until the applicable LIBOR Rate time period has expired. If the
Borrower fails to make a written selection, the Corporate Base Rate shall
apply.
2.5 Interest Payments. Interest shall be payable monthly in arrears
-----------------
beginning February 29, 1996 and on the last day of each month thereafter,
upon the date of any prepayment and at maturity. All interest accrued shall
be computed on the basis of a year of 360 days, and the actual number of
days elapsed in the period in which it accrues. Following the occurrence of
a Default, the Borrower shall pay to Lender interest from the date of such
Default at the per annum rate of five percent (5%) in excess of the then
applicable annual rate on the outstanding principal balance of the
Liabilities.
2.6 Repayment. Unless otherwise agreed in writing from time to time
---------
hereafter, all payments which the Borrower is required to make to Lender
under this Agreement or under any of the other Financing Agreements shall
be made without defense, set-off and counterclaim and in same day funds and
delivered to Lender not later than 2:30 p.m. (Oklahoma City, Oklahoma time)
on the date due at Lender's offices located at 211 North Robinson, Oklahoma
City, Oklahoma, 73102, for the account of Lender; funds received by Lender
after that time shall be deemed to have been paid by the Borrower on the
next succeeding Business Day. The Borrower hereby authorizes Lender to
charge its account with Lender in order to cause timely payment to be made
to Lender of all principal, interest and fees due hereunder (subject to
sufficient funds being available in the Borrower's accounts for that
purpose).
2.7 Term of this Agreement. This Agreement shall terminate on June
----------------------
30, 1998, at which time all principal and accrued interest shall be
immediately due and payable. All of Lender's rights and remedies under this
Agreement shall survive such termination until all of the Liabilities under
this Agreement and the other Financing Agreements have been paid in full.
In addition, this Agreement may be terminated as set forth in Section 7.
---------
Upon the effective date of termination of the Revolving Loan, all of the
Liabilities shall become immediately due and payable without notice or
demand; provided, however, that if such termination is by reason of an
event specified in Section 8, all of the Liabilities shall become
---------
immediately due and payable at such time without notice or demand.
2.8 Letters of Credit. (i) Lender agrees to extend credit to
-----------------
Borrower at any time and from time to time by issuing, extending,
reissuing or amending Letters of Credit pursuant to the executed Letter of
Credit Agreements. (ii) Each of the Letters of Credit shall (a) be issued
by Lender, (b) contain such terms and provisions as required by Lender,
including payment
-9-
<PAGE>
of customary fees, (c) be for the account of Borrower in favor of a
beneficiary reasonably acceptable to Lender, (d) expire not later than the
expiration date set forth respectively in each Letter of Credit, which in
the case of commercial Letters of Credit shall not be more than one hundred
eighty (180) days from the date of issuance, unless prior approval of
Lender is obtained for a longer period, but in no event shall any
commercial Letter of Credit have an expiration date beyond September 30,
1998.
3. REPORTING AND ELIGIBILITY REQUIREMENTS. The following are reporting
--------------------------------------
and eligibility requirements:
3.1 Monthly Reports. The Borrower shall submit to the Lender, not
---------------
later than the twenty-fifth (25th) day following the end of each month, a
monthly report ("Monthly Report"), accompanied by a Borrowing Base
certificate in the form attached hereto as Exhibit "B", which shall be
-----------
signed by the President, chief financial officer or other authorized
officer of the Borrower. Each Monthly Report shall include, as of the
closing day for the preceding month: (i) a summary aged trial balance of
Accounts for the Borrower ("Accounts Trial Balance"); (ii) calculations of
the current Borrowing Base; (iii) the amount of the outstanding principal
balance of the Liabilities; and (iv) a representation by the Borrower that
no Default or Event of Default occurred during such month or, if a Default
or Event of Default has occurred during such month, a description of such
Default or Event of Default and of the actions the Borrower has taken or
intends to take to cure the same. Upon Lender's request therefor, the
Borrower shall furnish with such specificity as is satisfactory to Lender,
concerning matters included, described or referred to in the Monthly
Reports and any other documents in connection therewith requested by Lender
including, without limitation, but only if specifically requested by
Lender, copies of all invoices prepared in connection with the Accounts.
The Monthly Reports shall contain such additional information as Lender may
reasonably require.
3.2 Quarterly Reports. The Borrower shall submit to the Lender not
-----------------
later than the forty-fifth (45th) day following the end of each fiscal
quarter and shall be accompanied by the Quarterly Borrowing Base and
Compliance Certificate (the "Quarterly Report") in the form attached hereto
as Exhibit "C". Each Quarterly Report shall include, as of the closing day
-----------
of the preceding fiscal quarter: (i) calculations of the current Borrowing
Base; (ii) the quarterly itemization of Inventory described in Section 3.7;
-----------
and (iii) evidence satisfactory to Lender that each of the covenants set
forth in Section 6.9 has been complied with during such quarter.
-----------
3.3 Account Representations and Warranties. With respect to Accounts
--------------------------------------
scheduled, listed or referred to on the initial Accounts Trial Balance or
on any subsequent Accounts Trial Balance, the Borrower warrants and
represents to Lender that: (i) they are genuine, are in all respects what
they purport to be, and are not evidenced by a judgment; (ii) they
represent undisputed, bona fide transactions completed in accordance with
the terms and provisions contained in the documents entered into between
the Borrower and its respective Account Debtors with respect thereto; (iii)
the amounts shown on the respective Accounts Trial
-10-
<PAGE>
Balance, Borrower's books and records and all invoices and statements which
may be delivered to Lender with respect thereto are actually and absolutely
owing to the Borrower and are not in any way contingent; (iv) no payments
have been or shall be made thereon to any person other than the Borrower or
to Lender; (v) there are no set-offs, counterclaims or disputes existing or
asserted with respect thereto and the Borrower has not made any agreement
with any of the Account Debtors for any deduction therefrom except a
purchase discount for prompt payment or return allowance allowed by the
Borrower in the ordinary course of their businesses; (vi) there are no
facts, events or occurrences which in any way impair the validity or
enforcement thereof or tend to reduce the amount payable thereunder as
shown on the respective Accounts Trial Balance, Borrower's books and
records and all invoices and statements delivered to Lender with respect
thereto; (vii) to the best of the Borrower's knowledge, all Account Debtors
have the capacity to contract and are solvent; (viii) the services
furnished and/or goods sold giving rise thereto are not subject to any
lien, claim, encumbrance or security interest except that of the Lender and
except as specifically permitted below; (ix) the Borrower has no knowledge
of any fact or circumstance which would impair the validity or
collectibility thereof; and (x) to the best of the Borrower's knowledge,
there are no proceedings or actions which are threatened or pending against
any of its respective Account Debtors which might result in any material
adverse change in such Account Debtor's financial condition, results of
operations or business.
3.4 Verification of Accounts. The Lender shall have the right, at
------------------------
any time or times hereafter, within its reasonable judgment with respect to
the frequency thereof, after prior notice to Borrower, to verify by mail,
telephone, telegraph or otherwise the validity, amount or any other matter
relating to any Accounts.
3.5 Collections and Payments. The Borrower hereby agrees that in the
------------------------
event any payments are received by Lender whether from the Borrower or from
any other Person, all such payments will be the sole and exclusive property
of Lender and will be applied on account of the Liabilities as follows: (i)
after allowing two (2) Business Days for collection of checks and other
instruments received by Lender at its offices in Oklahoma City, Oklahoma,
Lender will credit (conditional upon final collection) all such payments
against the Borrower's outstanding loan balance, with the exception of
checks drawn on accounts with Lender with immediately available funds for
which Borrower shall receive immediate credit upon receipt, (ii) all cash
payments received by the Lender prior to 2:30 p.m. (Oklahoma City, Oklahoma
time) at its offices in Oklahoma City, Oklahoma including, without
limitation, payments made by wire transfer of immediately available funds,
will be credited against the Borrower's outstanding loan balance
immediately upon receipt and (iii) all cash payments received by Lender at
a time later than that specified in clause (ii) of this Section 3.5 will be
-----------
credited against the Borrower's outstanding loan balance on the first
Business Day following Lender's receipt thereof.
3.6 Inventory Representations and Warranties. With respect to
----------------------------------------
Inventory, Borrower represents and warrants to Lender that (i) it is not
subject to any lien or security interest
-11-
<PAGE>
whatsoever except for the security interest granted to Lender hereunder and
except as specifi cally permitted herein and (ii) it is of good and
merchantable quality, free from any defects which would affect the market
value of such Inventory.
3.7 Inventory Records. The Borrower shall at all times hereafter
-----------------
maintain correct and accurate records with respect to Inventory, in
reasonably sufficient detail as may be satis factory to Lender including,
without limitation, the quarterly itemization of raw materials, work-in-
process and finished goods, all of which records shall be available during
the Borrower's usual business hours at the request of any of Lender's
officers, employees or agents. As soon as Borrower has installed the
computer capability of generating detailed reports on a monthly basis,
Borrower will provide a monthly itemization or raw materials, work-in-
process and finished goods.
4. CONDITIONS OF ADVANCES. Notwithstanding any other provision contained
----------------------
in this Agreement or in any of the other Financing Agreements to the contrary,
the obligation of Lender to make advances hereunder is subject to the
satisfaction of all the following:
4.1 Insurance programs and coverage thereunder determined by Lender
to be adequate shall have been instituted by the Borrower;
4.2 The Borrower shall have implemented reporting and monitoring
systems satisfactory to Lender capable of providing the Borrower with the
information necessary to compile and deliver the reports required under
this Agreement, including without limitation, the Monthly Reports and the
Quarterly Reports;
4.3 No Default or Event of Default under this Agreement shall exist
or be continuing as of the date of the advance;
4.4 Good standing certificates, as of the most recent date
practicable, for the Borrower from the Secretaries of State or other
appropriate governmental authority, of each state in which the Borrower is
qualified to do business, if any, shall have been delivered to Lender;
4.5 A copy of the Bylaws of the Borrower certified as of the
Execution Date by the corporate secretary or an assistant secretary of the
Borrower shall have been delivered to Lender;
4.6 A resolution of the Board of Directors of the Borrower approving
and authorizing the execution, delivery and performance of each of the
Financing Agreements, certified as of the Execution Date by the corporate
secretary or an assistant secretary of the Borrower shall have been
delivered to Lender;
4.7 A signature and incumbency certificate of the officers of the
Borrower;
-12-
<PAGE>
4.8 Certificates of public officials, bonded abstracters or title
search companies satisfactory to Lender relating to the nonexistence of UCC
financing statement filings, liens, charges and other encumbrances on the
Accounts and Inventory of the Borrower, except as may exist in favor of
Lender or as described on Exhibit "D";
-----------
4.9 Financial statements for the Borrower and such other financial
information as required by this Agreement and the other Financing
Agreements or as otherwise reasonably may be required by Lender, all in
form satisfactory to Lender;
4.10 Duly executed initial Monthly Report dated the Execution Date.
4.11 The Borrower shall have executed, or caused to be executed, and
delivered to Lender on or before the Execution Date, the Financing
Agreements, including, without limitation, this Agreement, together with
such consents, certificates, endorsements, opinions, guarantees and
assurances as Lender and Lender's counsel may reasonably request.
4.12 Lender shall have received (a) with respect to any advance under
the Revolving Loan, a request for an advance in a specific amount, in the
manner described in Section 2.1, from the appropriate officer of the
-----------
Borrower, (b) a Monthly Report from the Borrower dated no more than
thirty-one (31) days prior to the date of such advance, provided that with
respect to the initial advance hereunder, Lender shall have received a pro
forma Monthly Report dated the date of such advance, and (c) copies of all
other documents required to be delivered to Lender under Section 6.1;
-----------
4.13 No material adverse change, as determined by Lender in its sole
discretion, in the financial condition or operation of the Borrower shall
have occurred at any time or times subsequent to the most recent annual
financial statement provided pursuant to Section 6.1;
-----------
4.14 Lender shall have received, in form and substance satisfactory to
Lender, all additional certificates, order, authorities, consents,
affidavits, schedules, instruments, security agreements, financing
statements, mortgages and other documents which Lender may at any time
reasonably request;
4.15 The representations and warranties contained in this Agreement
shall be true, correct and complete in all material respects as of the date
of a request for advance; and
4.16 There shall not be pending or, to the knowledge of the Borrower,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Borrower or any Harold's Subsidiary or
any property of the Borrower or any Harold's Subsidiary which has not been
disclosed by the Borrower to Lender prior to the making of the last
preceding advance and there shall have occurred no development not so
disclosed in any such action, suit, proceeding, governmental investigation
or arbitration so disclosed, which, in either event, in the opinion of
Lender, would reasonably be expected to materially and
-13-
<PAGE>
adversely affect the business, operations, properties, assets or condition
(financial or otherwise) of the Borrower or to impair the ability of the
Borrower to perform its obligations under the Financing Agreements.
5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
------------------------------
that as of the Execution Date, and continuing so long as any Liabilities remain
outstanding, and (even if there shall be no Liabilities outstanding) so long as
this Agreement remains in effect:
5.1 Corporate Existence. The Borrower is a corporation duly
-------------------
organized, validly existing and in good standing under the laws of the
State of Oklahoma and is duly qualified as a foreign corporation and in
good standing in all states where the nature and extent of the business
transacted by it or the ownership of its assets makes such qualification
necessary, except for those jurisdictions in which the failure so to
qualify would not, in the aggregate, have a material adverse effect on the
Borrower's financial condition, results of operations or business.
5.1.1 Each Harold's Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation and is duly qualified as a foreign corporation and
in good standing in all states where the nature and extent of the
business transacted by it or the ownership of its assets makes such
qualification necessary, except for those jurisdictions in which the
failure so to qualify would not, in the aggregate, have a material
adverse effect on such Harold's Subsidiary's financial condition,
results of operations or business.
5.2 Corporate Authority. The execution and delivery by the Borrower
-------------------
of this Agreement and all of the other Financing Agreements, and the
performance of the Borrower's obligations hereunder and thereunder: (i) are
within the Borrower's corporate powers; (ii) are duly authorized by the
Borrower's Board of Directors and, if necessary, the Borrower's stock
holders; (iii) are not in contravention of the terms of the Borrower's
Certificate of Incorporation or Bylaws, or of any indenture, agreement or
undertaking to which the Borrower is a party or by which the Borrower or
any of its property is bound; (iv) do not, as of the execution hereof,
require any governmental consent, registration or approval; (v) do not
contravene any contractual or governmental restriction binding upon the
Borrower; and (vi) will not, except as contemplated herein, result in the
imposition of any lien, claim, charge, security interest or other
encumbrance upon any property of the Borrower under any existing indenture,
mortgage, deed of trust, loan or credit agreement or other material
agreement or instrument to which the Borrower is a party or by which it or
any of its property may be bound or affected.
5.3 Binding Effect. This Agreement and all of the other Financing
--------------
Agreements are the legal, valid and binding, obligation of the Borrower and
are enforceable against the Borrower in accordance with their respective
terms.
-14-
<PAGE>
5.4 Financial Data. The Borrower has delivered to Lender that
--------------
certain consolidated Financial Statement dated October 28, 1995. Such
statement was prepared in accordance with generally accepted accounting
principles and fairly presents the financial position of the Borrower as of
the date thereof. The Borrower does not have any material contingent
liability, or contingent liability or liability for taxes, long-term lease
or long-term commitment, which is not reflected in the foregoing financial
statement, the notes thereto or otherwise in writing to the Lender.
5.5 Solvency. The Borrower is solvent, is able to pay its debts as
--------
they become due and has capital sufficient to carry on its business as the
same is now being conducted and all businesses in which it is about to
engage, and now owns property having a value both at fair valuation and at
present fair saleable value greater than the amount required to pay
Borrower's debts. The Borrower will not be rendered insolvent by the
execution and delivery of this Agreement or any of the other Financing
Agreements or by the transactions contemplated hereunder or thereunder.
5.6 Chief Place of Business. As of the Execution Date, the principal
-----------------------
offices of the Borrower are located at 765 Asp, Norman, Oklahoma 73070. If
any change is to occur, the Borrower shall notify the Lender thereof at
least sixty (60) days prior to such change. As of the Execution Date, the
books and records of the Borrower and all chattel paper and all records of
account are located at the principal offices of the Borrower.
5.7 Tax Liabilities. The Borrower has filed all federal, state and
---------------
local tax reports and returns required by any law, rule, or regulation to
be filed by these except for extensions duly obtained, and has either duly
paid all taxes, duties and charges indicated due on the basis of such
returns and reports, or made adequate provision for the payment thereof,
and the assessment of any material amount of additional taxes in excess of
those paid and reported is not reasonably expected. The reserves for taxes
reflected on the balance sheets of the Borrower submitted to Lender in
accordance with the terms of Section 6.1 will be adequate in amount for the
-----------
payment of all liabilities for all taxes (whether or not disputed) of the
Borrower accrued through the date of each such balance sheet. There are no
material unresolved questions or claims concerning any tax liability of the
Borrower.
5.8 Loans. Except as disclosed on the financial statements
-----
specifically identified in Section 5.4, and except for trade payables
-----------
arising in the ordinary course of the Borrower's business, there are
currently no loans or other indebtedness for borrowed money.
5.9 Margin Security. The Borrower does not own any margin securities
---------------
and none of the loans advanced hereunder will be used for the purpose of
purchasing or carrying any margin securities or for the purpose of reducing
or retiring any indebtedness which was originally incurred to purchase any
margin securities or for any other purpose not permitted by Regulation G of
the Board of Governors of the Federal Reserve System.
-15-
<PAGE>
5.10 Litigation and Proceedings. Except as disclosed on Exhibit "E"
-------------------------- -----------
attached hereto, no judgments are outstanding against the Borrower or any
Harold's Subsidiary, nor is there now pending or, to the best of the
Borrower's knowledge after diligent inquiry, threatened any litigation,
contested claim, or governmental proceeding by or against the Borrower or
any Harold's Subsidiary.
5.11 Other Agreements. The Borrower is not in default under any
----------------
contract, lease, commitment or other agreement in excess of $10,000.00
which it is a party or by which it is bound. The Borrower knows of no
dispute regarding any contract, lease, commitment or other agreement.
5.12 Employee Controversies. There are no controversies pending or,
----------------------
to the best of the Borrower's knowledge, threatened between the Borrower or
any Harold's Subsidiary and any of its employees, other than employee
grievances arising in the ordinary course of business which are not, in the
aggregate, material to the continued financial success and well-being of
the Borrower.
5.13 Compliance with Laws and Regulations. The execution and delivery
------------------------------------
by the Borrower of this Agreement and all of the other Financing Agreements
and the performance of the Borrower's obligations hereunder and thereunder
are not, to the best of Borrower's knowledge, in contravention of any law,
order, rule or regulation. The Borrower is in compliance with all laws,
orders, rules, regulations and ordinances of all federal, foreign, state
and local governmental authorities relating to the business operations and
the assets of the Borrower except for laws, orders, rules, regulations and
ordinances the violation of which would not, in the aggregate, have a
material adverse effect on the Borrower's financial condition, results of
operations or businesses.
5.14 Pension Reform Act. No events, including, without limitation,
------------------
any "Reportable Event" or "Prohibited Transactions", as those terms are
defined in the Employee Retirement Income Security Act of 1974, as the same
may be amended from time to time (herein, including any and all such
amendments, called "ERISA"), have occurred in connection with any "Employee
Benefit Plan" (herein called "Pension Plan") of the Borrower which might
reasonably be expected to constitute grounds for the termination of any
such Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a trustee to
administer any such Pension Plan. The Borrower's Pension Plan, if any, meet
the minimum funding standards of Section 302 of ERISA.
5.15 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained in this Agreement or any of the other Financing
Agreements shall survive the execution and delivery of this Agreement.
-16-
<PAGE>
6. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, so
---------------------
long as any Liabilities remain outstanding, and (even if there shall be no
Liabilities outstanding) so long as this Agreement remains in effect:
6.1 Financial Statements. Except as otherwise expressly provided for
--------------------
herein, the Borrower shall keep property books of record and account in
which full and true entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Borrower, in accordance
with generally accepted accounting principles consistently applied. The
Borrower shall cause to be furnished to the Lender:
(i) as soon as practicable and in any event within sixty (60)
days after the end of each of the first three (3) fiscal quarters, a
copy of the Form 10-Q most recently filed by the Borrower with the
Securities and Exchange Commission;
(ii) as soon as practicable and in any event within one hundred
twenty (120) days after the end of each fiscal year, (a) consolidated
statements of income, retained earnings and changes in financial
condition of the Borrower for such year, and a consolidated balance
sheet of the Borrower as of the end of such year, in reasonable detail
and satisfactory in scope to the Lender and examined by independent
certified public accounts of recognized national standing selected by
the Borrower and satisfactory to Lender, whose opinion shall be in
scope and substance satisfactory to Lender and shall be accompanied by
such accountants' "Management Letter" to Borrower, and (b) a copy of
the Form 10-K filed for the previous fiscal year by the Borrower with
the Securities and Exchange Commission;
(iii) as soon as practicable and in any event within ten (10)
calendar days of delivery to the Borrower, a copy of any letter issued
by the Borrower's independent certified public accountants or other
management consultants with respect to Borrower's financial or
accounting systems or controls;
(iv) as soon as practicable (but in any event not more than ten
(10) days after the President or chief financial officer of the
Borrower obtains knowledge of the occurrence of an event or the
existence of a circumstance giving rise to an Event of Default or a
Default), notice of any and all Events of Default or Defaults
hereunder;
(v) Monthly Reports for the Borrower and the Harold's
Subsidiaries as required pursuant to Section 3.1;
-----------
(vi) Quarterly Reports for the Borrower and the Harold's
Subsidiaries as required pursuant to Section 3.2; and
-----------
(vii) with reasonable promptness, such other business or
financial data as the Lender may request.
-17-
<PAGE>
All financial statements delivered to the Lender pursuant to the
requirements of this Section 6.1 (except where otherwise expressly
-----------
indicated) shall be prepared in accordance with generally accepted
accounting principles consistently applied. Together with each delivery of
financial statements required by Section 6.1(i), the Borrower shall deliver
--------------
to the Lender an officer's certificate (the "Compliance Certificate")
stating that there exists no Default or Event of Default, or, if any
Default or Event of Default exists, specifying the nature thereof, the
period of existence thereof and what action the Borrower proposes to take
to cure the same. Together with each delivery of financial statements
required by Section 6.1(ii)(b), the Borrower shall deliver to the Lender a
------------------
certificate of the accountants who performed the audit in connection with
such statements stating that in making the audit necessary to the issuance
of a report on such financial statements, they have obtained no knowledge
of any Default or Event of Default, or, if such accountants have obtained
knowledge of a Default or Event of Default, specifying the nature and
period of existence thereof. Such accountants shall not be liable by reason
of any failure to obtain knowledge of any Default or Event of Default which
would not be disclosed in the ordinary course of an audit. The Lender shall
exercise reasonable efforts to keep such information, and all information
acquired by a result of any inspection conducted in accordance with Section
-------
6.2, confidential, provided that the Lender may communicate such
---
information (a) to any other Person in accordance with the customary
practices of commercial banks relating to routine trade inquiries, (b) to
any court or regulatory authority having jurisdiction over Lender, (c) to
any other Person in connection with Lender's sale of any participation in
the Liabilities, or (d) to any other Person in connection with the exercise
of the Lender's rights hereunder or under any of the other Financing
Agreements. The Borrower authorizes Lender to discuss the financial
condition of the Borrower with the Borrower's independent public
accountants and agrees that such discussion or communication shall be
without liability to either the Lender or Borrower's independent public
accountants.
6.2 Inspection. Lender, or any Person designated by Lender in
----------
writing, shall have the right, from time to time hereafter, to call at the
Borrower's place or places of business during reasonable business hours,
and, without hindrance or delay, (i) to inspect, audit, check and make
copies of and extracts from the Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to the
Borrower's business or to any transactions between the parties hereto, (ii)
to discuss the affairs, finances and business of the Borrower with any
officers, employees or directors of the Borrower.
6.3 Conduct of Business. Except as contemplated herein, the Borrower
-------------------
shall maintain its corporate existence, shall maintain in full force and
effect all licenses, permits, bonds, franchises, leases, patents, contracts
and other rights necessary or desirable to the profitable conduct of its
business, shall continue in, and limit its operations to, the same general
line of business as that presently conducted by it and shall comply with
all applicable laws, rules and regulations of any federal, state or local
governmental authority, except for such laws, rules and regulations the
violation of which would not, in the aggregate, have a material adverse
effect on the Borrower's financial condition, results of operations or
business.
-18-
<PAGE>
6.4 Claims and Taxes. The Borrower agrees to indemnify and hold the
----------------
Lender harmless from and against any and all claims, demands, liabilities,
losses, damages, penalties, costs, and expenses (including reasonable
attorneys' fees) relating to or in any way arising out of the possession,
use, operation or control of any of the Borrower's assets. The Borrower
shall pay or cause to be paid all bonding premiums and related taxes and
charges, and shall pay or cause to be paid all of the Borrower's real and
personal property taxes, assessments and charges and all of the Borrower's
franchise, income, unemployment, use, excise, old age benefit, withholding,
sales and other taxes and other governmental charges assessed against the
Borrower, or payable by the Borrower, at such times and in such manner as
to prevent any penalty from accruing or any lien or charge from attaching
to its property, provided that the Borrower shall have the right to contest
in good faith, by an appropriate proceeding promptly initiated and
diligently conducted, the validity, amount or imposition of any such tax,
assessment or charge, and upon such good faith contest to delay or refuse
payment thereof, if (i) the Borrower establishes adequate reserves to cover
such contested taxes, assessment or charges, and (ii) such contest does not
have a material adverse effect on the financial condition of the Borrower,
the ability of the Borrower to pay any of the Liabilities.
6.5 Borrower's Liability Insurance. The Borrower shall maintain, at
------------------------------
its expense, such public liability and third party property damage
insurance in such amounts, with such deductibles and with such coverage as
is consistent with the practice of other companies engaged in the same or
similar industry as that of the Borrower and otherwise acceptable to
Lender.
6.6 Borrower's Property Insurance. The Borrower shall provide the
-----------------------------
following insurance coverage:
(A) At its sole expense, keep and maintain its assets insured
against loss or damage by fire, theft, explosion, spoilage and all
other hazards and risks ordinarily insured against by other owners or
users of such properties in similar businesses in an amount at least
equal to the lesser of (i) the outstanding maximum revolving facility
of the Liabilities or (ii) the full insurable value of all such
property.
(B) All such policies of insurance shall be in form and
substance satisfactory to Lender. On or prior to the Execution Date,
the Borrower shall deliver to Lender a certificate evidencing each
policy of insurance and evidence of payment of all premiums therefor
(and, promptly thereafter, shall deliver to Lender the original (or a
certified) copy of each such policy of insurance) and, thereafter, the
original (or a certified) copy of each substitution therefor or
renewal or amendment thereof promptly following each such
substitution, renewal or amendment. If the Borrower, at any time or
times hereafter, shall fail to obtain or maintain any of the policies
of insurance required above or to pay any premium in whole or in part
relating thereto, then the Lender, without waiving or releasing any
obligation or default by the Borrower hereunder, may at any time or
times thereafter (but shall be under no obligation to do
-19-
<PAGE>
so) obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which the
Lender deems advisable.
(C) (i) in the event insurance proceeds with respect to loss of
or damage to any Goods or other material assets of the Borrower are
received by Lender as required herein, such proceeds shall be remitted
to the Borrower promptly if (a) no Default of Event or Default exists
at the time of receipt by Lender of such proceeds and (b) Lender shall
have received from the Borrower evidence satisfactory to Lender that
the Borrower shall apply such proceeds to the repair or replacement of
the assets of the Borrower, the loss of or damage to which gave rise
to the proceeds, (ii) all insurance proceeds received by Lender shall,
unless remitted to Borrower pursuant to clause (C)(i) of this Section
-------
6.6, be applied to the outstanding Liabilities, in the inverse order
---
of their maturity.
6.7 Pension Plans. The Borrower shall (i) keep in full force and
-------------
effect any a and all Pension Plans which are presently in existence or may,
from time to time, come into existence under ERISA, unless such Pension
Plans can be terminated without material liability to the Borrower in
connection with such termination (as distinguished from any continuing
funding obligation); (ii) make contributions to all of the Borrower's
Pension Plan in a timely manner and in a sufficient amount to comply with
the requirements of ERISA; (iii) comply with all material requirements of
ERISA which relate to such plans; and (iv) notify the Lender immediately
upon receipt by the Borrower of any notice of the institution of any
proceeding or other action which may result in the termination of any
Pension Plan.
6.8 Notice of Suit or Adverse Change in Business. The Borrower shall,
--------------------------------------------
as soon as possible, and in any event within thirty (30) days after the
Borrower learns of the following, give written notice to the Lender of (i)
any proceeding in excess of $500,000.00 being instituted or threatened in
writing to be instituted by or against the Borrower or its respective
Subsidiaries, including the Harold's Subsidiaries, if any, in any federal,
state, local or foreign court or before any commission or other regulatory
body (federal, state, local or foreign), and (ii) any material adverse
change in the Borrower's financial condition, results of operation or
businesses.
6.9 Financial Covenants. The Borrower shall maintain the following:
-------------------
(A) Total Liabilities to Tangible Net Worth Ratio. The Borrower
---------------------------------------------
shall maintain a Total Liabilities to Tangible Net Worth ratio of no
greater than 1.25 to 1. The Total Liabilities to Tangible Net Worth
Ratio shall be tested within forty-five (45) calendar days of the end
of each fiscal quarter.
(B) Minimum Tangible Net Worth. The Borrower shall maintain a
--------------------------
minimum consolidated Tangible Net Worth of $22,000,000.00. The Minimum
Tangible Net
-20-
<PAGE>
Worth shall be tested within forty-five (45) calendar days of the end
of each fiscal quarter.
6.10 Management and Ownership of Borrower. At all times during the
------------------------------------
term of this Agreement, at least three of the following individuals shall
hold the offices reflected in this Section 6.10: (i) Harold G. Powell,
------------
Chairman of the Board of the Borrower; (ii) Rebecca Powell Casey, Chief
Executive Officer of the Borrower; (iii) H. Rainey Powell, President of the
Borrower; and (iv) Kenneth C. Row, Executive Vice President. Additionally,
Harold G. Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa Powell Hunt,
Michael T. Casey, the Trustee(s) of The Elizabeth M. Powell Trust A and
Trustee(s) of The Elizabeth M. Powell Trust B will in the aggregate
maintain either (i) control no less than forty-five percent (45%) of the
voting common stock of the Borrower, or (ii) control such number of shares
and hold options for additional shares to be able to obtain no less than
forty-five percent (45%) of the voting common stock of Borrower.
7. NEGATIVE COVENANTS. The Borrower covenants and agrees that so long as
------------------
any Liabilities remain outstanding, and (even if there shall be no Liabilities
outstanding) so long as this Agreement remains in effect (unless the Lender
shall give its prior written consent thereto):
7.1 Encumbrances. Except as set forth on Exhibit "D" attached hereto,
------------ -----------
or as otherwise contemplated herein, the Borrower will not create, incur,
grant, assume or suffer to exist any security interest, mortgage, pledge,
lien or other encumbrance of any nature whatsoever on any of its Accounts
or Inventory other than (i) liens securing the payment of taxes, either not
yet due or the validity of which is being contested in good faith and with
due diligence by appropriate proceedings, and as to which the Borrower
shall, if appropriate under generally accepted accounting principles, have
set aside on its books and records adequate reserves; (ii) deposits under
workmen's compensation, unemployment insurance, social security and other
similar laws, or to secure the performance of bids, tenders or contracts
(other than for the repayment of borrowed money) or to secure indemnity,
performance or other similar bonds for the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business; and
(iii) liens which arise by operation of law; and (iv) zoning restrictions,
easements, licenses, covenants and other restrictions affecting the use of
real property.
7.2 Sale or Other Disposition of Assets. The Borrower will not sell,
-----------------------------------
transfer or otherwise dispose of any assets except in the ordinary course
of business.
7.3 Consolidations, Mergers or Acquisitions. The Borrower shall not
---------------------------------------
recapitalize or consolidate with, merge with, or otherwise acquire all or
substantially all of the assets or properties of any other Person.
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<PAGE>
7.4 Investments or Loans. The Borrower shall not make or permit to
--------------------
exist investments or loans in or to any other Person, except investments in
Cash Equivalent Investments.
7.5 Guarantees. The Borrower shall not guarantee, endorse or
----------
otherwise in any way become or be responsible for obligations of any other
Person, whether by agreement to purchase the indebtedness of any other
Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or
loan for the purpose of paying or discharging any indebtedness or
obligation of such other person or otherwise, except endorsements of
negotiable instruments for collection in the ordinary course of business.
7.6 Loans to Others. The Borrower will not loan funds to any Person
---------------
except: (a) temporary financing for the creation of new Harold's stores,
(b) loans to employees or stockholders of the Borrower which at any time
are less than $450,000.00 in the aggregate, or (c) loans to Corner
Properties, an Affiliate of the Borrower, in connection with Cafe Plaid, a
restaurant adjacent to the Harold's store located in Campus Corner in
Norman, Oklahoma.
7.7 Amendment of Certificate of Incorporation or Bylaws. The
---------------------------------------------------
Borrower shall not amend its Certificate of Incorporation or Bylaws.
7.8 Transactions with Subsidiaries and Affiliates. The Borrower
---------------------------------------------
shall not enter into any transaction including, without limitation, the
purchase, sale or exchange of property or the rendering of any service to
any Subsidiary, including the Harold's Subsidiaries, or Affiliate except in
the ordinary course of and pursuant to the reasonable requirements of
Borrower's business and upon fair and reasonable terms no less favorable to
the Borrower than would be obtained in a comparable arm's length
transaction with an unaffiliated person or corporation.
7.9 New Locations. The Borrower covenants and agrees that it will
-------------
not open, or permit any of the Harold's Subsidiaries to open, any new
retail outlets or Harold's stores without first notifying the Bank in
writing prior to the opening of such location. The Person which owns and/or
operates such new location, whether a corporation or otherwise, will, if
requested by the Lender, become a party to this Agreement, become a
guarantor, execute and deliver to the Lender a guaranty agreement and
deliver such documents and do any and all such other things as reasonably
required by the Lender.
8. DEFAULT, RIGHTS AND REMEDIES OF THE LENDER.
------------------------------------------
8.1 Liabilities. In the event a Default described in clause (g) of
-----------
the definition of "Default" shall exist or occur, all of the Liabilities
shall automatically, without notice of any kind, be immediately due and
payable; and in the event any other Default shall exist or occur, any or
all of the Liabilities may, at the option of the Lender, and after
applicable grace period
-22-
<PAGE>
and without demand or notice of any kind, be declared, and thereupon shall
become, immediately due and payable.
8.2 Rights and Remedies Generally. In the event of a Default, the
-----------------------------
Lender shall have, in addition to any other rights and remedies contained
in this Agreement or in any of the other Financing Agreements, all of the
rights and remedies of a secured party under the Code or other applicable
laws, all of which rights and remedies shall be cumulative, and none
exclusive, to the extent permitted by law.
8.3 Waiver of Demand. Demand, presentment, protest, notice of
----------------
protest, and notice of nonpayment are hereby waived by the Borrower.
9. MISCELLANEOUS.
-------------
9.1 Waiver. The Lender's failure, at any time or times hereafter, to
------
require strict performance by the Borrower of any provision of this
Agreement shall not constitute a waiver, or affect or diminish any right of
the Lender thereafter to demand strict compliance and performance
therewith. Any suspension or waiver by the Lender of a Default by the
Borrower on any occasion under this Agreement or any of the other Financing
Agreements shall not suspend, constitute a waiver or affect any other
Default by the Borrower under this Agreement or any of the other Financing
Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. None of the undertakings,
agreements, warranties, covenants and representations of the Borrower
contained in this Agreement or any of the other Financing Agreements and no
Default by the Borrower under this Agreement or any of the other Financing
Agreements shall be deemed to have been suspended or waived by the Lender
unless such suspension or waiver is in writing signed by an officer of the
Lender, and directed to the Borrower specifying such suspension or waiver.
9.2 Costs and Attorneys' Fees. If at any time or times after the
-------------------------
Execution Date, Lender employs counsel in connection with collecting the
Liabilities or in connection with any matters contemplated by or arising
out of this Agreement or any of the Financing Agreements, then the Borrower
shall pay all of the reasonable attorneys' fees, expenses, charges and
costs arising pursuant thereto and such fees, expenses, charges and costs,
together with interest at the rate prescribed in Section 2.4, shall be part
-----------
of the Liabilities, payable on demand.
9.3 Expenditures by the Lender. In the event the Borrower shall fail
--------------------------
to pay taxes, insurance, assessments, costs or expenses which the Borrower
is are, under any of the terms hereof, required to pay the Lender may, in
its sole discretion, make expenditures for any or all of such purposes, and
the amount so expended, together with interest thereon at the rate
prescribed in Section 2.4, shall be part of the Liabilities, payable on
-----------
demand.
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<PAGE>
9.4 Reliance by the Lender. All covenants, agreements,
----------------------
representations and warranties made herein by the Borrower shall,
notwithstanding any investigation by the Lender, be deemed to be material
to and to have been relied upon by the Lender.
9.5 Parties. Whenever in this Agreement there is reference made to
-------
any of the parties hereto, such reference shall be deemed to include,
wherever applicable, a reference to the successors and assigns of the
Borrower and the successors and assigns of the Lender. The Borrower shall
not, without the prior written consent of Lender, assign or delegate any of
its rights or obligations hereunder or any part of the Liabilities to any
other Person.
9.6 Applicable Law; Severability. This Agreement shall be construed
----------------------------
in all respects in accordance with, and governed by, all of the provisions
of the Code and by the other internal laws (as opposed to conflicts of law
provisions) of the State of Oklahoma. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions
of this Agreement.
9.7 Submission to Jurisdiction. The Borrower hereby consents to the
--------------------------
jurisdiction of any local, state or federal court located within the
Western District of the State of Oklahoma and waives any objection which
the Borrower may have based on improper venue or forum non conveniens to
--------------------
the conduct of any proceeding in any such court.
9.8 Application of Payments. From and after the occurrence of a
-----------------------
Default, notwithstanding any contrary provision contained in this Agreement
or in any of the other Financing Agreements, the Borrower irrevocably
waives the right to direct the application of any and all payments at any
time or times thereafter received by the Lender from the Borrower and the
Borrower hereby irrevocably agrees that the Lender shall have the
continuing exclusive right to apply and reapply any and all payments
received at any time or times hereafter against the Liabilities in such
manner as the Lender may deem advisable, notwithstanding any entry by the
Lender upon any of its books and records.
9.9 Marshalling; Payments Set Aside. The Lender shall be under no
-------------------------------
obligation to marshall any assets in favor of the Borrower or any other
party or against or in payment of any or all of the Liabilities. To the
extent that the Borrower makes a payment or payments to the Lender and such
payment or payments or set-off or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then
to the extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such set-off had not
occurred.
-24-
<PAGE>
9.10 Section Titles. The section titles contained in this Agreement
--------------
shall be without substantive meaning or content of any kind whatsoever and
are not a part of the agreement between the parties.
9.11 Continuing Effect. This Agreement and all of the other Financing
-----------------
Agreements shall continue in full force and effect so long as any
Liabilities shall be owed to the Lender, and (even if there shall be no
Liabilities outstanding) so long as this Agreement has not been terminated
as provided in Section 2.7.
-----------
9.12 Notices. Except as otherwise expressly provided herein, any
-------
notice required or desired to be served, given or delivered hereunder shall
be in writing, shall be addressed to the Person to be notified as follows
(or to such other address or addresses as may hereafter be furnished in
writing by the Person to be notified):
(i) If to the Lender at:
Boatmen's First National Bank of Oklahoma, N.A.
211 North Robinson Avenue
P. O. Box 25189
Oklahoma City, Oklahoma 73102-0189
Attention: K. Randy Roper, Senior Vice President
with a copy to
Phillips McFall McCaffrey McVay & Murrah
12th Floor, One Leadership Square
211 North Robinson
Oklahoma City, Oklahoma 73102
Attention: D. Keith McFall
(ii) If to the Borrower at:
Harold's Stores, Inc.
765 Asp
P. O. Box 2970
Norman, Oklahoma 73070
Attention: H. Rainey Powell, President
and Chief Operating Officer
and notice shall be deemed to have been validly served, given or delivered
on (i) the date of delivery, if delivered in person. (ii) the third
Business Day after deposit in the United States mails, if delivered by
certified mail, return receipt requested, (iii) the first Business Day
after
-25-
<PAGE>
delivery to the courier, if delivered by private overnight courier service,
or (iv) upon actual receipt thereof, if delivered in any other manner.
9.13 Participations. Lender may sell participations in all or in
--------------
part of the Revolving Loan or the Revolving Loan Note or any part thereof,
to another bank or other entity. All amounts payable by the Borrower
hereunder shall be made as if Lender had not sold such participation.
Lender may furnish any information in possession of Lender and concerning
the Borrower from time to time to participants or prospective participants.
9.14 Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties with respect to the matters
contained in this Agreement, and supersedes all other agreements among and
representations by the parties with respect to such matters.
9.15 Effect of Amendment. This Agreement is, in part, a renewal,
-------------------
extension and restatement of, and an amendment to, the Prior Agreement. The
Liabilities of the Borrower originally evidenced by the Prior Agreement and
the other Financing Agreements are continuing and nothing contained herein
shall be construed to be paid any portion of the outstanding balance of the
Liabilities or the releasing or terminating of any mortgage, lien, pledge,
assignment, security interest or encumbrances securing payment of the
Liabilities.
9.16 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
"LENDER": BOATMEN'S FIRST NATIONAL BANK OF
OKLAHOMA, N.A.
By: /s/ K. Randy Roper
-------------------
K. Randy Roper, Senior Vice President
"BORROWER": HAROLD'S STORES, INC.
By: /s/ H. Rainey Powell
--------------------
H. Rainey Powell, President and Chief
Operating Officer
-26-
<PAGE>
EXHIBIT A
---------
EIGHTH AMENDED AND RESTATED REVOLVING NOTE
------------------------------------------
$15,000,000.00 February 28, 1996
Oklahoma City, Oklahoma
For value received, HAROLD'S STORES, INC., an Oklahoma corporation (the
"Maker"), promises to pay to the order of BOATMEN'S FIRST NATIONAL BANK OF
OKLAHOMA, P. O. Box 25189, 211 North Robinson Avenue, Oklahoma City, Oklahoma,
73125-0189 (the "Lender"), on or before June 30, 1998, the principal sum of
Fifteen Million and No/100 Dollars ($15,000,000.00), together with interest
thereon from the date of funding at the rates hereinafter specified, payable as
follows:
The unpaid principal amount from time to time outstanding under this
Note shall bear interest from the date hereof at the following rates per
annum: (a) prior to maturity, at the option of the Maker in accordance with
the Credit Agreement, as hereinafter defined, at a rate equal to either the
Corporate Base Rate, as hereinafter defined, from time to time in effect,
or (ii) two and one-eighth of one percent (2.125%) plus either the one (1)
month or three (3) month LIBOR Rate, as hereinafter defined, from time to
time in effect; and (b) after maturity of any installment, whether by
acceleration or otherwise, until paid at a rate equal to the sum of (i)
five percent (5%) plus (ii) the then applicable annual rate then in effect.
Accrued interest shall be payable monthly beginning February 29, 1996 and
on the last day of each month thereafter until maturity, at which time all
principal and accrued interest shall become due and payable.
"Corporate Base Rate" shall mean that fluctuating annual rate of
interest formally designated by Lender from time to time (whether or not
charged or published) as its "Corporate Base Rate." Each change in the per
annum interest rate charged hereunder shall become effective, without
notice (which notice is hereby waived), on the date of each change in the
Corporate Base Rate (or any component thereof). "LIBOR Rate" shall mean the
London Interbank Offered Rates for either (i) one (1) month or (ii) three
(3) months, as published in the Wall Street Journal indicating the average
-------------------
of interbank offered rates for dollar deposits in the London market based
on the quotation at five major banks. If the date of the rate change falls
on a date when the Wall Street Journal is not published, then the one (1)
-------------------
month or three (3) month LIBOR Rate published in the following issue of the
Wall Street Journal shall be the applicable LIBOR Rate used. Each change in
-------------------
the per annum interest rate charged hereunder shall become effective
without notice (which notice is hereby waived) on the date of each change
in the Corporate Base Rate or LIBOR Rate (or any component thereof). As of
February 20, 1996, the Corporate Base Rate was eight and one quarter of one
percent (8.25%) per annum. If more than one rate is quoted for a given
LIBOR period, the interest rate shall be the highest rate quoted for such
period. The Lender may, from time to time, extend credit to anyone at rates
of interest varying from, and having no relation to, the Corporate Base
Rate or the applicable LIBOR Rate.
<PAGE>
Interest shall be computed on the actual number of days elapsed on the
basis of a 360 day year.
Payments of both principal and interest are to be made in the lawful money
of the United States of America.
This Note is subject to the terms and provisions of that certain Second
Amended and Restated Credit Agreement dated February 28, 1996 (the "Credit
Agreement") by and between Maker and Lender, to which reference is made for a
statement of such terms and provisions, including those under which the
indebtedness evidenced by this Note may be declared to be immediately due and
payable. Unless otherwise defined, the terms used herein have the meanings
provided in the Credit Agreement.
This Note is an amendment and restatement of, and substitute and
replacement for, that certain Seventh Amended and Restated Revolving Note dated
August 22, 1995, in the original principal amount of $12,000,000.00, payable to
the order of the Lender (the "Prior Note"). The indebtedness of the Maker
originally evidenced by the Prior Note is a continuing indebtedness all of which
is now evidenced by this Note and nothing herein contained shall be construed to
deem paid the Prior Note.
The Maker shall have the right to prepay this Note in whole or in part at
any time and from time to time without premium or penalty, but with interest to
the date of payment on the amount prepaid. All payments under this Note shall
be applied first to any accrued interest and then to principal.
The Maker agrees that if, and as often as, this Note is placed in the hands
of an attorney for collection or to defend or enforce any of the holder's rights
hereunder, the Maker shall pay to the holder hereof its reasonable attorney's
fees, together with all court costs and other expenses incurred and paid by such
holder.
The Maker, endorsers, sureties and all other persons who may become liable
for all or any part of this obligation severally waive presentment for payment,
protest and notice of nonpayment. Said parties consent to any extension of time
(whether one or more) of payment hereof, any renewal (whether one or more)
hereof, and any release of any party liable for payment of this obligation. Any
such extension, renewal or release may be made without notice to such party and
without discharging said party's liability hereunder.
The failure of the holder of this Note to exercise any of the remedies or
options set forth in this Note or in any instrument securing payment hereof,
upon the occurrence of one or more events of default, shall not constitute a
waiver of the right to exercise the same or any other remedy at any subsequent
time in respect to the same or any other event of default. The acceptance of
the holder hereof of any payment which is less than the total of all amounts due
and payable at the time of such payment shall not constitute a waiver of the
right to exercise any of the foregoing remedies or options at that time or any
subsequent time, or nullify any prior exercise of any such remedy or
-2-
<PAGE>
option, without the express consent of the holder hereof, except as and to the
extent otherwise provided by law.
It is the intention of the Maker and Lender to comply strictly with all
applicable usury laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Note, or in any of the documents securing
payment hereof or otherwise relating hereto, in no event shall this Note or
other documents require the payment or permit the collection of an aggregate
amount of interest in excess of the maximum amount permitted by any laws which
may apply to this transaction, including the laws of the State of Oklahoma.
If any such excess of interest is contracted for, charged or received under
this Note or under the terms of any of the documents securing payment hereof or
otherwise relating hereto, or if the maturity of the indebtedness evidenced by
this Note is accelerated in whole or in part, or if all or part of the principal
or interest of this Note shall be prepaid, so that under any of such
circumstances the amount of interest (including all amounts payable hereunder or
in connection with the loan evidenced hereby which are not denominated as
interest but which constitute interest under applicable laws) contracted for,
charged or received under this Note shall exceed the maximum amount of interest
permitted by the applicable usury laws, as now or hereafter enacted, then in any
such event (a) the provisions of this paragraph shall govern and control, (b)
neither the Maker hereof nor any other person or entity now or hereafter liable
for the payment hereof shall be obligated to pay the amount of such interest to
the extent that it is in excess of the maximum amount of interest permitted by
the applicable usury laws, as now or hereafter enacted, (c) any such excess
interest which may have been collected shall be either applied as a credit
against the then unpaid principal amount hereof or, if this Note shall have been
paid in full, refunded to Maker, and (d) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Note or under such other documents which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable usury laws, by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the loan evidenced hereby, all interest at any time
contracted for, charged or received from Maker or otherwise by the holder or
holders hereof in connection with such loan.
The Maker and Lender intend and believe that each provision in this Note
comports with all applicable local, state and federal laws and judicial
decisions. However, if any provision or provisions, or if any portion of any
provision or provisions, in this Note is found by a court of law to be in
violation of any applicable local, state or federal ordinance, statute, law,
administrative or judicial decision, or public policy, and if such court should
declare such portion, provision or provisions of this Note to be illegal,
invalid, unlawful, void or unenforceable as written, then it is the intent of
all parties hereto that such portion, provision or provisions shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the remainder of this Note shall be construed as if such illegal, invalid,
unlawful, void or unenforceable portion, provision or
-3-
<PAGE>
provisions were not contained therein, and that the rights, obligations and
interest of Maker and Lender under the remainder of this Note shall continue in
full force and effect.
The records of the holder of this Note shall be prima facie evidence of the
amount owing on this Note. This Note may be assigned by holder without the
prior consent of Maker.
This Note is made under and governed by the laws of the State of Oklahoma.
IN WITNESS WHEREOF, the undersigned Maker have executed this instrument
effective the 28th day of February, 1996.
"MAKER": HAROLD'S STORES, INC., an Oklahoma
corporation
By:________________________________________
H. Rainey Powell, President and
Chief Operating Officer
STATE OF OKLAHOMA )
) SS
COUNTY OF CLEVELAND )
This instrument was acknowledged before me this ______ day of March, 1996,
by H. Rainey Powell, as President and Chief Operating Officer of Harold's
Stores, Inc., an Oklahoma corporation.
__________________________________________
Notary Public
My Commission Expires:
________________________
[SEAL]
-4-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Harold's Stores, Inc.
We consent to the use of our report included and incorporated by reference
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
KPMG PEAT MARWICK LLP
Oklahoma City, Oklahoma
June 7, 1996
