When you learn that Lanmyr Greyfen, whose farm sits on the outskirts of Hawklor, has recently begun to report wolf attacks on his renowned flock of sheep -- and that he's offering a generous reward to anyone bold enough to eradicate the menace -- you take the opportunity to approach him and inquire further.
The old hag tries to curse you. If you flee from her you can encounter her again later
If you choose to attack her (9+ at MR45) you must first attempt to resist her spell (Mind, Body and Spirit help; you need 100+). If you fail to resist you lose some Stamina (seems to be between 10 and 20 points). +8-33 combat experience for the Wicked Hag and you find an Unidentified Garnet Ring, which turns out to be Ring Of Souls.
If you refuse the man's offer or flee from him after a failed thievery attempt you just continue on your way. If you refuse to buy (or steal) an item he will turn up again. Trying other options presumably means he goes home and cannot be seen again.