<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X
______ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: MARCH 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number: 0-19848
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FOSSILL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2018505
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2280 N. GREENVILLE AVE., DALLAS, TEXAS 75082
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (214) 234-2525
--------------
Indicate by check mark whether registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares of Registrant's common stock, outstanding as of
May 14, 1996:
13,182,333
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31,
1996 DECEMBER 31,
(UNAUDITED) 1995
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,616,087 $ 5,980,535
Accounts receivable - net 26,285,294 24,932,467
Inventories 40,307,285 42,515,468
Deferred income tax benefits 3,103,857 3,290,419
Prepaid expenses and other current assets 1,351,613 1,428,273
------------ ------------
Total current assets 77,664,136 78,147,162
Property, plant and equipment - net 15,623,964 15,464,559
Intangible and other assets 3,306,282 3,381,806
------------ ------------
$ 96,594,382 $ 96,993,527
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 4,767,234 $ 7,173,036
Accounts payable 6,678,559 5,173,792
Accrued expenses:
Co-op advertising 5,314,385 6,181,063
Compensation 2,181,245 2,711,800
Other 2,784,673 4,835,474
Income taxes payable 4,678,399 2,820,890
------------ ------------
Total current liabilities 26,404,495 28,896,055
Long-term debt 4,751,316 4,811,298
Minority interests in subsidiaries 2,074,286 2,016,716
Stockholders' equity:
Common stock, shares issued and outstanding,
13,182,333 in 1996 and 1995 131,823 131,823
Additional paid-in capital 22,219,692 22,219,692
Retained earnings 41,063,926 38,723,962
Cumulative translation adjustment (51,156) 193,981
------------ ------------
Total stockholders' equity 63,364,285 61,269,458
------------ ------------
$ 96,594,382 $ 96,993,527
------------ ------------
------------ ------------
See notes to condensed consolidated financial statements.
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<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
THREE MONTHS ENDED
MARCH 31,
--------
1996 1995
---- ----
Net sales $42,909,068 $35,496,825
Cost of sales 23,873,281 18,822,363
----------- -----------
Gross Profit 19,035,787 16,674,462
Operating expenses:
Selling and distribution 9,495,149 7,873,650
General and administrative 5,291,847 4,446,631
----------- -----------
Total operating expenses 14,786,996 12,320,281
----------- -----------
Operating income 4,248,791 4,354,181
Interest expense (176,010) (241,585)
Other inc. (exp.) - net (170,817) (185,061)
----------- -----------
Income before income taxes 3,901,964 3,927,535
Provision for income taxes 1,562,000 1,512,000
----------- -----------
Net income $ 2,339,964 $ 2,415,535
----------- -----------
----------- -----------
Earnings per share $0.18 $0.18
----- -----
----- -----
Weighted average common and
common equivalent shares
outstanding 13,248,347 13,312,125
----------- -----------
----------- -----------
See notes to condensed consolidated financial statements.
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<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 2,339,964 $ 2,415,535
Noncash items affecting net income:
Minority interests in subsidiaries 145,230 195,763
Depreciation and amortization 710,712 562,715
Increase in allowance for doubtful accounts 180,829 171,086
Increase (decrease) in allowance for returns -
net of related inventory in transit 124,541 (1,127,619)
Deferred income tax benefits 186,562 157,720
Cumulative translation adjustment (245,137) 117,193
Cash from (used for) changes in assets and liabilities:
Accounts receivable 119,412 6,129,192
Inventories 430,573 (3,540,172)
Prepaid expenses and other current assets 76,660 (465,742)
Accounts payable 1,504,767 813,800
Accrued expenses (3,448,034) (2,923,280)
Income taxes payable 1,857,508 1,161,251
----------- -----------
Net cash from operations 3,983,587 3,667,442
Investing Activities:
Additions to property, plant and equipment (813,666) (1,938,140)
Decrease in intangible and other assets 19,075 27,784
----------- -----------
Net cash used in investing activities (794,591) (1,910,356)
Financing activities:
Issuance of common stock - 32,487
Decrease in minority interests in subsidiaries (87,660) (14,076)
Increase (decrease) in notes payable (2,465,784) 408,364
----------- -----------
Net cash from (used in) financing activities (2,553,444) 426,775
----------- -----------
Net increase in cash and cash equivalents 635,552 2,183,861
Cash and cash equivalents:
Beginning of period 5,980,535 2,316,822
----------- -----------
End of period $ 6,616,087 $ 4,500,683
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENT POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of Fossil, Inc., a Delaware corporation, and its majority owned
subsidiaries (the "Company" or "Fossil"). The consolidated financial
statements reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the Company's financial position as
of March 31, 1996, and the results of operations for the three-month periods
ended March 31, 1996 and 1995. All adjustments are of a normal, recurring
nature.
These interim financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in Form 10-K
filed by the Company pursuant to the Securities Exchange Act of 1934 for the
year ended December 31, 1995. Operating results for the three-month period
ended March 31, 1996, are not necessarily indicative of the results to be
achieved for the full year.
BUSINESS. The Company designs, develops, markets and distributes fashion
watches and other accessories, principally under the "FOSSIL", "FSL" and "RELIC"
brand names. The Company's products are sold primarily through department
stores and other major retailers, both domestically and internationally.
2. INVENTORIES
Inventories consist of the following:
MARCH 31, DECEMBER 31,
1996 1995
---- ----
Components and parts $ 2,235,753 $ 1,929,100
Work-in-process 530,989 546,917
Finished merchandise on hand 31,471,534 33,462,443
Outlet Stores 2,371,384 1,750,008
Merchandise in transit from estimated
customers' returns 3,697,625 4,827,000
----------- -----------
$40,307,285 $42,515,468
----------- -----------
----------- -----------
The Company periodically enters into forward contracts principally to hedge
the expected payment of intercompany inventory transactions with its non-U.S.
subsidiaries. Currency exchange gains or losses resulting from the translation
of the related accounts, along with the offsetting gains or losses from the
hedge, are deferred until the inventory is sold or the forward contract is
completed. At March 31, 1996, the Company had no hedge contracts outstanding.
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<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. ACQUISITIONS
Effective April 1, 1996, the Company invested approximately $700,000 in
cash for an 81% partnership interest in Kabushiki Kaisha Fossil Japan, a
Japanese partnership ("Fossil Japan"). Fossil Japan is the sole distributor
of Fossil products within Japan and was previously 100% owned by a
foreign-based entity. The acquisition will be accounted for as a purchase,
and in connection therewith, the Company will record goodwill of approximately
$300,000.
4. DEBT
BANK. In March 1996, the Company amended its short-term revolving credit
facility ("Short-term revolver") with its primary bank to additionally allow
for Japanese Yen currency borrowings ("Yen borrowings") not to exceed
$5,000,000. All outstanding Yen borrowings under the amended facility bear
interest at the bank's prime rate less 0.5% or the Euroyen base rate plus
1.00% (1.50% at March 31, 1996), at the option of the Company. The credit
facility is collateralized by substantially all the Company's assets and
requires the maintenance of specified levels of tangible net worth, working
capital and financial ratios. As of March 31, 1996 borrowings outstanding
under the Short-term revolver were $3,500,000.
-5-
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three-month periods ended March 31, 1996
and 1995. This discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and the related Notes attached
hereto.
GENERAL
Fossil, established in 1984, began operations as a designer, developer,
marketer and distributor of fashion watches sold under the FOSSIL brand
name. Since the Company's initial success in designing and marketing its
FOSSIL brand watches, mainly through major department stores in the United
States, the Company has increased its market share of the fashion watch
market, diversified its product offerings and expanded its distribution
channels. This has been accomplished by diversification into other watch
brand names which often target different distribution channels, expansion
of the scope of the Company's product offerings to include men's and
women's small leather goods and belts, development and marketing of
private label watch programs for several internationally recognized
companies and distributing FOSSIL watches to a growing number of
international markets.
Fossil's product sales into the international market place have increased
substantially over the past several years, from 8% of net sales in 1992 to
32% in 1995. Contributing significantly to the increase were sales in
Germany generated through Fossil Europe GmbH ("Fossil GmbH") formed in
1993 and in Italy through Fossil Italia, S.r.l. formed in 1994. During
1995, the Company also commenced operations in France and the United
Kingdom. The Company maintains an 88% equity interest in these
European-based subsidiaries with the exception of Fossil Italia, S.r.l.,
in which the Company holds a 53% equity investment. Each of these
subsidiaries is generally responsible for the sales and operations within
their respective countries with the exception of Fossil GmbH which also
acts as the Company's main marketing and distribution point in Europe.
Fossil also currently distributes its products to more than 50 additional
countries through licensed distributors.
The Company also maintains international operations through Fossil
(East) Limited ("Fossil East") which the Company acquired in 1992. Fossil
East has acted as the Company's trading, quality and production control
agent in Hong Kong since Fossil's origination. Since 1992, Fossil East has
acquired equity interests in several assembly facilities in the Far East,
which for the year 1995, accounted for 37.5% of Fossil's watch purchases.
During April 1996, the Company acquired an 81% partnership interest in
Kabushiki Kaisha Fossil Japan, a Japanese partnership ("Fossil Japan").
Fossil Japan is responsible for the sales, marketing and distribution of
Fossil products within Japan.
Since February 1995, the Company has opened twenty outlet stores in certain
prime outlet centers in the United States. The Company currently plans on
increasing the number of outlet store locations to a total of twenty-six
stores in 1996. These stores provide the Company a retail distribution
channel through which to sell discontinued products at higher gross profit
margins than it presently receives for the sale of such product through
traditional discounters. These retail locations also provide the
Company a site to test possible new product offerings.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (I) the
percentages of the Company's net sales represented by certain line items from
the Company's condensed consolidated statements of income and (ii) the
percentage changes in these line items between the current period and the
comparable period for the prior year.
PERCENTAGE OF PERCENTAGE
NET SALES CHANGE FROM
------------------ --------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31 ENDED MARCH 31
------------------ --------------
1996 1995 1995 TO 1996
------ ------ --------------
Net sales 100.0% 100.0% 20.9%
Cost of sales 55.6 53.0 26.8
------ ------
Gross profit margin 44.4 47.0 14.2
Selling and distribution
expenses 22.1 22.2 20.6
General and administrative
expenses 12.4 12.5 19.0
------ ------
Operating income 9.9 12.3 (2.4)
Interest expense (0.4) (0.7) (27.1)
Other inc (exp) - net (0.4) (0.5) (7.7)
------ ------
Income before income taxes 9.1 11.1 (0.7)
Income taxes 3.6 4.3 3.3
------ ------
Net income 5.5% 6.8% (3.1)
------ ------
------ ------
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<PAGE>
NET SALES. The following table sets forth certain components of the
Company's consolidated net sales and the percentage relationship of the
components to consolidated net sales for the periods indicated (in millions,
except percentage data):
AMOUNTS % OF TOTAL
----------------- -------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
----------------- -------------
1996 1995 1996 1995
------ ------ ---- ----
International:
Europe $ 11.5 $ 7.9 27% 22%
Other 4.1 2.8 9 8
------ ------ ---- ----
Total International 15.6 10.7 36 30
------ ------ ---- ----
Domestic:
Watch products 16.6 19.4 39 55
Other products 9.2 5.3 21 15
------ ------ ---- ----
Total 25.8 24.7 60 70
Outlet Stores 1.5 0.1 4 -
------ ------ ---- ----
Total Domestic 27.3 24.8 64 70
------ ------ ---- ----
Total Net Sales $ 42.9 $ 35.5 100% 100%
------ ------ ---- ----
------ ------ ---- ----
Net sales increased 21% for the three-month period in comparison to the
comparable period in the prior year. Sales volume increases were principally
derived from the Company's European-based operations, sales from FOSSIL
sunglass product line which was first introduced in the summer of 1995, sales
from FOSSIL Leather product lines and from the operations of twenty outlet
stores as compared to just four outlet stores as of March 31, 1995. These
sales were partially offset by a decrease in domestic sales of the Company's
FOSSIL branded and Private Label watches as compared to sales for these
products for the same period last year.
GROSS PROFIT. Gross profit on sales for the three-month period ended March
31, 1996 was 44.4% as compared to 47.0% for the comparable period in the
prior year. The decrease in gross profit margin for the three-month period
is primarily attributable to Fossil's European-based companies, which had a
decrease of over 4% in their consolidated gross profit margin in the first
quarter as compared to the previous year. Items which negatively influenced
the gross profit margin in Fossil's European-based companies included the
weakening of the German deutsche mark compared to the United States dollar,
an increase in sales within France and the United Kingdom (new territories
entered in 1995) where lower gross profit margins occurred as the Company
attempted to gain market share and increased sales of FSL branded watches,
which historically produce a lower gross profit margin than the consolidated
average. Domestically during the first quarter of 1996, the incremental gross
profit margin contributed by the FOSSIL outlet stores offset the negative
influence on gross profit margins resulting from an increase in sales of the
Company's Leather products which generally produce lower gross profit margins
than the consolidated average. Management believes that the Company's gross
profit margins for the remainder of the year will slightly exceed the levels
achieved during the first quarter.
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<PAGE>
OPERATING EXPENSES. Selling, general and administrative expenses decreased
as a percentage of net sales for the three-month period ended March 31, 1996,
to 34.5% from 34.7% for 1995. The aggregate increase in operating expenses
was due to increased sales volumes in Fossil's European-based operations as
well as from the operations of the Company's twenty outlet stores. The
Company's international operations historically operate at a higher operating
expense ratio to sales than domestically due to generally higher advertising
and sales-related expenses in distributing the products and in building the
FOSSIL brand name recognition. In addition, the operating expense ratio
derived from the FOSSIL outlet stores is historically substantially higher
than the consolidated average. During the first quarter of 1996, increases in
the operating expense ratio to net sales resulting from both the increase in
the Company's international and outlet store sales in relation to the overall
Company's net sales mix was more than offset by a reduction in certain
advertising and merchandising expenses and an increase in net sales, as
compared to the prior year same period, which permitted the Company to more
fully leverage its operating expenses.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased from
38.5% to 40.0% for the three-month period ended March 31, 1996 as compared to
the respective 1995 period. This increase resulted primarily from an increase
in the percentage of profits derived from the Company's European-based
operations, which generally are subjected to higher tax rates than the
consolidated group on average. The effective tax rate was also negatively
impacted by losses incurred in countries where the Company recently commenced
operations. The Company will not recognize any tax benefits in these
countries until realization is assured.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had working capital in excess of $51
million and $6 million in cash. As of May 8, 1996, the Company had
approximately $16 million borrowed against its combined $38 million bank
credit facilities. The current bank borrowings are primarily related to the
construction and furnishing costs of the Company's main U.S. facility, as
well as financing the growth of international operations. In addition, the
Company historically has required additional financing to accumulate
inventory and finance the build-up in accounts receivable beginning in the
second quarter. These financing needs have historically peaked during the
months of September and October.
The Company believes that its cash flow from operations and its existing bank
credit facilities will be sufficient to satisfy its working capital and
capital expenditures requirements for at least the next twelve months.
-9-
<PAGE>
INDEX TO EXHIBITS
Exhibit 10.1 - Stock Purchase Agreement between Kabushiki Kaisha,
Hattori Seiko and Fossil, Inc., dated March 29, 1996.
Exhibit 10.2 - First Amendment to Second Amended and Restated Loan Agreement,
dated March 27, 1996.
Exhibit 27 - FDS
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT made and entered into as of this 29th day of
March, 1996 to be effective as of the First day of April, 1996, by and
between KABUSHIKI KAISHA HATTORI SEIKO doing business as SEIKO CORPORATION, a
corporation duly organized and existing under the laws of Japan and having
its principal place of business at 5-11, Ginza 4-chome, Chuo-ku, Tokyo, Japan
(hereinafter referred to as "SEIKO") and FOSSIL INC., a corporation duly
organized and existing under the laws of the State of Delaware, the United
States of America, and having its principal place of business at 2280 N.
Greenville Ave., Richardson, Texas 75082-4412 U.S.A. (hereinafter referred to
as "FOSSIL").
WITNESSETH THAT:
WHEREAS, SEIKO is the sole shareholder, owning 100% of the issued and
outstanding common stock, of the Company hereinbelow defined; and
WHEREAS, SEIKO desires to sell to FOSSIL, and FOSSIL desires to purchase
from SEIKO, certain shares of the Company upon the terms and conditions
hereinafter described.
NOW, THEREFORE, SEIKO and FOSSIL, in consideration of mutual premises and
covenants contained herein, do hereby agree as follows:
Article 1 -- DEFINITIONS
1.1 "COMPANY" shall mean Kabushiki Kaisha Fostim doing business as
Fostim Inc., a Japanese corporation having its principal place of business at
7-16, Kyobashi 2-chome, Chuoku, Tokyo, Japan.
1.2 "DEFINITIVE AGREEMENTS" shall mean this Agreement, the Shareholders
Agreement (to be concluded between SEIKO and FOSSIL), the International
Marketing and Distribution Agreement (to be concluded between FOSSIL and the
Company), the Partnership Agreement (to be concluded between Fossil
Intermediate, Inc. and the Company), and the Consulting Agreement (to be
concluded between FOSSIL and SEIKO).
1.3 "CLOSING" shall mean the completion of the sale and purchase
transactions comtemplated by this Agreement upon satisfaction of the
conditions set forth in Article 4.1.
1.4 "CLOSING DATE" shall mean the date on which the Closing shall take
place, which shall be April 1, 1996.
<PAGE>
1.5 "CONFIDENTIAL INFORMATION" shall mean any information each of SEIKO
and FOSSIL may exchange with, or acquire from, the other party in the course
of the negotiations of the Definitive Agreements, including but not limited
to the Company's procedures, product specifications, methods, technology,
suppliers, customers, trade secrets, marketing and business research and
plans, that relates to or affects the Company's assets, but excluding any
information to the extent that such information becomes publicly known,
through no fault of the party receiving such information from the other party.
1.6 "SHARES" shall mean Eight Hundred Ten (810) shares, representing
Eighty-One percent (81%) of the issued and outstanding shares of the
Company's Common Stock.
Article 2 -- PURCHASE AND SALE
2.1 TRANSFER OF THE SHARES. Subject to the terms and conditions
contained in this Agreement, SEIKO shall transfer, assign and sell to FOSSIL,
free and clear of all liens and encumbrances, the Shares at the Closing.
2.2 RIGHTS ATTACHED. The transfer of the Shares shall include all
rights attached or accruing to the Shares, including all dividends and
distributions declared or made after the Closing.
Article 3 -- CONSIDERATION
3.1 PURCHASE PRICE. In consideration of the transfer of the Shares,
FOSSIL shall pay SEIKO (i) the sum of Forty Million Five Hundred Thousand yen
(Y40,500,000) as consideration for the transfer of the Shares (the "Purchase
Price"); and (ii) carry out the obligations herein specified.
3.2 PAYMENT. The Purchase Price shall be payable at the Closing by wire
transfer in Japanese Yen at the following bank account of SEIKO.
The Dai-Ichi Kangyo Bank, Limited
Head Office
Current Account No. 0106869
Article 4 -- CLOSING
4.1 CONDITIONS TO CLOSING. The transaction stipulated in Article 2 is
subject to the fulfillment, prior to or at the Closing, of each of the
following conditions unless otherwise waived in writing by the party for
whose benefit the conditions exist:
<PAGE>
4.1.1 The representations and warranties made by each of SEIKO and
FOSSIL in this Agreement or any certificates or documents delivered
pursuant to the provisions hereof or in connection with the transactions
contemplated herein shall be true and correct in all material respects
when made, and shall be true and correct in all material respects on the
Closing Date as though such representations and warranties were made on
and as of such date.
4.1.2 SEIKO shall have forgiven any account receivables from the
Company, or waived any loan balances due by the Company, which, in
SEIKO's own estimates and according to the United States GAAP, would
cause the net shareholders equity of the Company to be Eighteen Million
Five Hundred Thousand yen (Y18,500,000) as of the close of business of
March 31, 1996.
4.1.3 The Definitive Agreements shall have been executed or
substantially agreed between the respective parties among SEIKO, FOSSIL
and the Company.
4.2 Closing Time, Date and Place. The Closing shall occur in Tokyo on
April 1, 1996, at SEIKO's head office in Tokyo, Japan.
4.3 Closing Document and Materials to be delivered by SEIKO. At the
Closing, SEIKO will deliver to FOSSIL:
(a) Share certificates along with all duly executed instruments effecting
the transfer to be effective as of April 1, 1996 and such other document
as reasonably required by FOSSIL to perfect FOSSIL's rights in the
Shares.
(b) All consents and approvals of government agencies and/or third parties
to effect the transfer of the Shares, if necessary.
(c) An opinion of SEIKO's General Manager of Legal & Intellectual Property
Department in a form satisfactory to FOSSIL which shall include the
following.
i) SEIKO and the Company have full power and authority to enter into
the Definitive Agreements and to transfer the Shares.
ii) All legal actions necessary or appropriate to be taken by SEIKO
and the Company in connection with the transfer of the Shares
have been taken.
<PAGE>
iii) The Definitive Agreements and associated instruments to be
executed at the Closing have been duly authorized and constitute
valid and legally binding and enforceable obligations of SEIKO
and the Company.
iv) The execution, delivery and performance of the Definitive Agreements
by SEIKO and the Company does not require the consent or approval
of any person or public authority; does not result in the
creation of any lien on the Shares or other assets of SEIKO or
the Company; does not violate any provision of any law applicable
to SEIKO or the Company or the Bylaws or Articles of
Incorporation of SEIKO or the Company; does not conflict with, or
result in a breach or termination of any agreement to which SEIKO
or the Company is a party of by which it is bound.
v) The Shares have been validly issued to SEIKO and are fully paid and
nonassessable and the instrument of transfer to be executed by
SEIKO at the Closing, to be effective April 1, 1996, is
sufficient to vest good and marketable title to the Shares in
FOSSIL free and clear of any lien or encumbrance.
4.4 Closing Document and Materials to be delivered by FOSSIL. At the
Closing, FOSSIL will deliver to SEIKO:
(a) The Purchase Price.
(b) An opinion of FOSSIL's General Counsel in a form satisfactory to SEIKO
which shall include the following:
i) FOSSIL has full power and authority to enter into and execute the
Definitive Agreements.
ii) All corporate proceedings and actions necessary to give effect to
the transaction have been taken.
iii) The execution and delivery of the Definitive Agreements to which
FOSSIL is a party does not violate the bylaws or certificate of
incorporation of FOSSIL and does not constitute a breach of any
agreement to which FOSSIL is bound; and the execution and
delivery of the Definitive Agreement to which FOSSIL PARTNERS,
L.P. is a party does not violate the Agreement of Limited
Partnership and does not constitute a breach of any agreement to
which FOSSIL PARTNERS, L.P. is bound.
<PAGE>
Article 5 -- POST CLOSING COVENANTS
5.1 COVENANTS OF FOSSIL. FOSSIL shall cause the Company to pay in cash
denominated in Yen to SEIKO, within one week of Closing, all indebtedness
owing to SEIKO, as agreed by FOSSIL and SEIKO, as of March 31, 1996. SEIKO
shall provide FOSSIL with the pay-off amount at, or prior to Closing, in
order for FOSSIL to be able to meet the above one-week deadline.
5.2 COVENANTS OF SEIKO. SEIKO shall execute the instruments
transferring the Shares to FOSSIL effective April 1, 1996. SEIKO shall take
all actions necessary to more fully perfect title in the Shares to FOSSIL.
5.3 ADDITIONAL COVENANTS. In addition to the covenants set forth in
Article 5.1 and 5.2 hereof, SEIKO and FOSSIL agree as follows:
5.3.1 If the net shareholders equity amount of the Company as of the
close of business on March 31, 1996 as finally determined upon
compilation of the financial reports to the shareholders (in accordance
with Article 4.1.3) is less than the predetermined net shareholders
equity of the Company (i.e. Y18,500,000), SEIKO will pay in cash, or will
forgive any receivables, to the Company as soon as the specific amount in
question is fixed, but in no event later than June 30, 1996, an amount
denominated in Yen, equal to the said shortfall plus interest costs
accrued from April 1, 1996 until the final payment is received, on the
amount determined to be payable. For the purposes of this Article 5.3.1,
interest costs shall be calculated based upon the average bank borrowing
rate of the Company, including any bank guarantee points as of April 1,
1996 through one week prior to the final payment day.
5.3.2 If the said net shareholders equity amount of the Company as
of the close of business on March 31, 1996 as finally determined and
reported to the shareholders (in accordance with Article 4.1.3) is
greater than Y18,500,000, the Company will pay in cash to SEIKO as soon
as the specific amount in question is fixed, but in no event later than
June 30, 1996, an amount denominated in Yen, equal to the difference
between the net shareholders equity amount of the Company at the close of
business on March 31, 1996 as reported to the shareholders and
Y18,500,000, plus interest costs, to be calculated in the manner set
forth in Article 5.3.1.
Article 6 -- REPRESENTATIONS, WARRANTIES AND COVENANTS
6.1 Representations, Warranties and Covenants of SEIKO. SEIKO hereby
represents and warrants to FOSSIL that, as of the date of this Agreement and
as of the Closing Date:
6.1.1 SEIKO is a corporation duly organized, validly existing and in
good standing under the laws of Japan;
6.1.2 The Company is a corporation duly organized, validly existing
and in good standing under the laws of Japan and is duly empowered or
licensed under the
<PAGE>
relevant laws in Japan to conduct the business as stipulated in its
Articles of Incorporation;
6.1.3 The Company does not have any subsidiaries, and does not own
any minority interests in any other business entities;
6.1.4 Each of SEIKO and the Company has full power and authority to
enter into the Definitive Agreements to which it is a party, and has
taken all requisite actions in connection therewith required by law or
otherwise duly to authorize the execution and delivery of such agreements
and the consummation of the transactions contemplated thereby;
6.1.5 Execution, delivery and performance by SEIKO of the Definitive
Agreements to which it is a party will not conflict with or violate
(i)any provision of the Company's or SEIKO's charter, bylaws or other
similar documents; (ii)any law, rule, regulation or order effective in
Japan and binding on SEIKO or the Company; and (iii)result in any lien,
claim or encumbrance on any property owned by SEIKO or the Company.
6.1.6 Each of the Definitive Agreements constitutes a legal, valid
and binding agreement of SEIKO or the Company, as applicable, and is duly
enforceable against SEIKO or the Company in accordance with its terms;
6.1.7 The Shares are valid and fully paid, and said Shares
constitute 81% of the issued and outstanding capital stock of the Company;
6.1.8 There are no options, warrants or other rights of any person
to acquire additional shares of capital stock of the Company;
6.1.9 The Company has no preemptive rights and all of the issued and
outstanding shares of capital stock of the Company have been duly
authorized, validly issued and are fully paid and non-assessable;
6.1.10 The Shares sold by SEIKO to FOSSIL are owned (both
beneficially and of record) by SEIKO, free and clear of any liens, claims
or encumbrances and, the execution of the Stock Purchase Agreement and
instrument of transfer of the Shares to FOSSIL to be executed by SEIKO
will vest good and absolute title to the Shares in FOSSIL free and clear
of any lien, charge or encumbrance;
6.1.11 The Company has delivered to FOSSIL copies of the Company's
balance sheet as of March 31, 1995 and the related documents describing
the Company's financial status (the "Financial Statement"). The
Financial Statement has been duly approved by the Company's board of
directors and at the general meeting of the shareholders as being in
conformity with the generally accepted accounting principles in Japan.
The Financial Statements fairly present the financial condition and
results of operations of the Company.
6.1.12 The Company has no liabilities or obligations (where
known, absolute,
<PAGE>
contingent, etc.) that were not fully and appropriately reflected in the
Financial Statements;
6.1.13 The Company has timely paid all of its taxes including all
cost and expenses associated with the preparation and filing of those
taxes, even if incurred post Closing;
6.1.14 There has been no audit by any governmental authority of any
tax return of the Company;
6.1.15 Since the date of the Financial Statements, there has been no
material adverse change in the business, prospects, or financial
conditions of the Company;
6.1.16 The Company has not violated any statutes, rules, ordinances
and other applicable Japanese laws, including but not limited to
environmental laws in Japan;
6.1.17 There has been no litigations, pending or threatened
including but not limited to labor-related disputes; and
6.1.18 The Company does not own any intellectual property rights,
nor, to be best of SEIKO's knowledge, the Company, there is any cause
which is likely to give rise to a claim that the Company has infringed
intellectual property of a third party.
6.1.19 In making the representations, warranties and covenants of
this Article, SEIKO and the Company have not made any untrue statements
of material fact or omitted to state a material fact necessary in order
to make the representation made, in light of the circumstances under
which they were made, not misleading.
6.2 Representations, Warranties and Covenants of FOSSIL. FOSSIL hereby
represents and warrants to SEIKO that, as of the date of this Agreement and
as of the Closing Date:
6.2.1 FOSSIL is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware;
6.2.2 Each of the Definitive Agreements to which FOSSIL and/or
FOSSIL PARTNERS L.P. is a party constitutes a legal, valid and binding
agreement of such party;
6.2.3 Execution, delivery and performance by FOSSIL and/or FOSSIL
PARTNERS L.P. of the Definitive Agreements to which it is party will not
conflict with or violate (i)any provisions of FOSSIL's charter, bylaws or
other similar documents or FOSSIL PARTNERS Agreement of Limited
Partnership; (ii)any United States law, rule, regulation or order binding
on FOSSIL or FOSSIL PARTNERS L.P.; and (iii)under United States law,
result in any lien, claim or encumbrance on any property owned by FOSSIL
or FOSSIL PARTNERS L.P.; and
<PAGE>
6.2.4 FOSSIL has received and carefully reviewed with its
professional advisors, the financial and other document and records of
the Company to the extent necessary for FOSSIL to evaluate the
suitability of its purchase of the Shares hereunder, and therefore has
not relied upon any information provided by, or representations or
warranties made by SEIKO (except as stipulated in Article 6.1) in making
its decision to purchase the Shares in accordance with this Agreement.
Article 7 -- INDEMNIFICATION
7.1 Indemnification by SEIKO. SEIKO shall indemnify and hold FOSSIL,
its employees, officers, directors, affiliates, representatives, agents, and
other control persons harmless from, against and in respect of the following:
7.1.1 Any and all loss, liability or damage suffered or incurred by
FOSSIL (including interest, penalties and attorney fees) by reason of any
untrue written representation, breach of warranty or non-fulfillment of
any covenant or agreement by SEIKO contained herein or in any exhibit,
schedule, certificate, document or instrument delivered to FOSSIL by
SEIKO hereunder;
7.1.2 Any and all loss, liability or damage suffered or incurred by
FOSSIL (including interest, penalties and attorney fees) by reason of or
in connection with any claim for any finder's or brokerage free or other
commission resulting from any services alleged to have been rendered to,
or at the insistence of, or on behalf of or for SEIKO with respect to
this Agreement or any of the transactions contemplated hereby;
7.1.3 Any and all liabilities of SEIKO which relate to the ownership
of the Shares or the operation of the Company prior to the Closing Date
that are not expressly assumed or waived by FOSSIL under this Agreement,
including but not limited to liabilities arising from or related to any
tax, due, or to be due, and penalties and interest related thereto,
imposed on FOSSIL or on the Company with respect to any period prior to
the Closing Date; and
<PAGE>
7.1.4 Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, damages, costs and expenses, including but not
limited to, legal fees and expenses as shall be determined by a court of
competent jurisdiction, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity. Notwithstanding
anything contrary herein, FOSSIL expressly acknowledges that SEIKO does
not assume any liabilities arising from the Company's sale of defective
products supplied by FOSSIL to the Company prior to the Closing Date.
7.2 INDEMNIFICATION BY FOSSIL. FOSSIL shall indemnify and hold SEIKO,
its employees, officers, directors, affiliates, representatives, agents, and
other control persons harmless from, against and in respect of the following:
7.2.1 Any and all loss, liability or damage suffered or incurred by
SEIKO (including interest, penalties and attorney fees) by reason of any
untrue written representation, breach of warranty or non-fulfillment of
any covenant or agreement by FOSSIL contained herein or in any
certificate, document or instrument delivered by FOSSIL to SEIKO
hereunder;
7.2.2 Any and all loss, liability or damage suffered or incurred by
SEIKO (including interest, penalties and attorney fees) by reason of or
in connection with any claim for any finder's or brokerage fee or other
commission resulting from any services alleged to have been rendered to,
or at the insistence of, or on behalf of or for FOSSIL with respect to
this Agreement or any of the transactions contemplated hereby;
7.2.3 Any and all actions, suits, proceedings, claims, demands,
assessments, judgments, damages, costs and expenses, including but not
limited to, legal fees and expenses as shall be determined by a court of
competent jurisdiction, incident to any of the foregoing or incurred in
investigating or attempting to avoid the same or to oppose the
imposition thereof, or in enforcing this indemnity.
7.3 INDEMNIFICATION PROCEDURES. In seeking indemnification under this
Article 7.1 or 7.2, SEIKO and FOSSIL agree to abide by the following
procedure:
7.3.1 For the purposes of this Article 7.3, the term "Indemnitee"
shall mean the person(s) entitled, or claiming to be entitled, to be
indemnified, pursuant to the provisions of Article 7.1 or 7.2 hereof.
The term "Indemnitor" shall mean the person(s) having the obligation to
indemnity pursuant to such provisions.
<PAGE>
7.3.2 An Indemnitee shall promptly give the Indemnitor written
notice of any matter which an Indemnitee has determined has given or
could give rise to a right of indemnification under this Agreement,
stating the amount of the loss, if known, and method of computation
thereof, all with reasonable particularity and containing a reference to
the provisions of this Agreement in respect of which such right of
indemnification is claimed or arises. If an Indemnitee shall receive
notice of any claim by a third party which is or may be subject to
indemnification (a "Third Party Claim"), the Indemnitee shall give the
Indemnitor prompt written notice of such Third Party Claim and shall
permit the Indemnitor, at its option, to participate in the defense of
such Third Party Claim by counsel of its own choice and at its expense.
If, however, the Indemnitor acknowledges in writing its obligation to
indemnify the Indemnitee hereunder against all losses that may result
from such Third Party Claim (subject to the limitations set forth
herein), then the Indemnitor shall be entitled, at its option, to assume
and control the defense of such Third Party Claim at its expense and
through counsel of its choice. In the event the Indemnitor exercises
its rights to undertake the defense of any such Third Party Claim, the
Indemnitee shall co-operate with the Indemnitor in such defense and make
available to the Indemnitor, at the Indemnitor's expense, all witnesses,
pertinent records, materials and information in its possession or under
its control relating thereto as is reasonably required by the
Indemnitor. Similarly, in the event the Indemnitor is, directly or
indirectly, conducting the defense against any such Third Party Claim,
the Indemnitor shall cooperate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and
information in its possession or under its control relating thereto as
is reasonably required by the Indemnitee. No such Third Party Claim may
be settled by the Indemnitor without the written consent of the
Indemnitee, unless the settlement involves only the payment of money by
the Indemnitor. No Third Party Claim which is being defended in good
faith by the Indemnitor shall be settled by the Indemnitee without the
written consent of the Indemnitor.
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITY. All
representations and warranties made by the parties in this Agreement or in
any certificate, document or instrument furnished in connection herewith, and
the indemnification obligations contained in this Agreement, shall survive
the Closing and any investigation at any time made by or on behalf of the
parties hereto and shall expire on the first anniversary of the Closing Date,
except as to any matter as to which a claim is submitted in writing to the
indemnifying party prior to such first anniversary.
<PAGE>
Article 8 -- CONFIDENTIALITY
SEIKO and FOSSIL agree to preserve the confidential nature of the
Confidential Information which is disclosed by either party (the "Disclosing
Party") to the other (the "Receiving Party") and to take any and all
necessary steps to insure that such information is not revealed to third
parties or to any persons unauthorized in writing by the Disclosing Party.
The responsibilities set forth herein shall survive the termination of this
Agreement, unless the prior written consent of the Disclosing Party has been
obtained or unless any such information has previously been publicly
disclosed. Should the Receiving Party be ordered by a competent judicial or
administrative authority to disclose this Agreement or confidential
information disclosed by the Disclosing Party to the Receiving Party, it
shall give written notice to the Disclosing Party before making any
disclosure not permitted by this Article, shall use its best efforts to
either resist disclosure or disclose solely subject to an attorneys-eyes-only
protective order or such other protective order as the Disclosing Party shall
approve. This Article shall survive the termination of this Agreement.
Article 9 -- TERMINATION
9.1 This Agreement may be terminated, and the transactions contemplated
hereby may be abandoned at any time prior to Closing:
(a) by the mutual consent of SEIKO and FOSSIL;
(b) by either SEIKO or FOSSIL if any of the conditions to the Closing as
set forth in Article 4.1 is not fulfilled or waived by the party for
whose benefit the conditions exist on or prior to the Closing Date; or
(c) by either SEIKO or FOSSIL if the Closing has not occurred on or prior
to April 1, 1996.
9.2 A right of termination if this Agreement as provided for under
Article 9.1 hereof may be exercised at any time after the occurrence of an
event or the discovery of circumstances which gives rise to a right of
termination. However, failure to exercise a right of termination upon the
occurrence of an event or the discovery of circumstances which give rise to a
right of termination shall not be, or be deemed, a waiver of such right.
<PAGE>
9.3 A termination under Article 9.1 hereof shall not relieve either
party of any liability for a breach of this Agreement or for any intentional
misrepresentation or intentional failure to comply with any agreement or
covenant hereunder, and any such termination shall not be deemed to be a
waiver of any available remedy for any such breach, intentional
misrepresentation or intentional failure to comply with any agreement or
covenant, and in the event of any such breach, intentional misrepresentation
or intentional failure to comply with any agreement or covenant, the
prevailing party shall also be entitled to its reasonable attorneys' fees and
expenses.
Article 10 -- EXPENSES
SEIKO and FOSSIL shall each pay their own expenses incident to the
negotiation, preparation and execution of this Agreement and the consummation
of the transactions contemplated hereunder, including all fees and
disbursements of their respective counsel.
Article 11 -- ASSIGNMENT
Unless specifically consented to in writing by the other party, neither party
may assign or transfer this Agreement or any of its rights hereunder, and any
attempted assignment thereof shall be void and of no force and effect. It is
expressly understood and agreed that either party is under no obligation to
consent to any proposed assignment on the part of the other party and that
each of SEIKO and FOSSIL, in its sole discretion, shall have absolute
authority to decide whether or not a consent to assignment shall be given.
Article 12 -- NOTICE
12.1 Notices to be given to any party under this Agreement shall not be
effective unless in writing and hand delivered or mailed by registered mail,
or via overseas courier, or sent by cable, telex or facsimile to said party
at the following addresses. Any party may change its address by giving
notice of such change in the manner above provided.
For SEIKO:
SEIKO CORPORATION
6-21, Kyobashi, 2-chome
Chuo-ku, Tokyo 104, JAPAN
Attention: General Manager
Legal & Intellectual Property Dept.
Telephone: (81)3-3563-2111
Telecopier: (81)3-3563-8492
<PAGE>
For FOSSIL:
FOSSIL INC.
2280 N. Greenville
Richardson, Texas 75082 U.S.A
Attention: General Counsel
Telephone: (1)214-699-2115
Telecopier: (1)214-699-6846
12.2 Notices sent via certified or registered mail or overseas courier
shall be deemed to have been received as of the date indicated by the postal
or courier's receipt as having been received by the intended recipient.
Notices sent via cable, telex or facsimile shall be deemed to have been
received two (2) business days after the date on which they were transmitted,
provided the party transmitting any such notice mails a copy of the notice on
the next business day to the party to be notified via certified or registered
mail or via overseas courier.
Article 13 -- GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws
of Japan.
Article 14 -- JURISDICTION
If any disputes, controversies or differences arise between the parties
hereto in connection with any provision of this Agreement or any breach
thereof, the parties shall first attempt to settle same through friendly
consultation carried out in good faith and with sincerity. In the event the
dispute, controversy or difference is not so settled in the above manner,
then competent for the judgement of disputes is the Tokyo District Court
which shall have an exclusive jurisdiction over such dispute.
Article 15 -- GOVERNING LANGUAGE
This Agreement has been prepared in the English language only. Any
translation hereof into any other language is for convenience only and will
not be relevant for the intent of the parties or the construction of the
provisions hereof.
<PAGE>
Article 16 -- BINDING EFFECT; ENTIRE AGREEMENT
All the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and to their respective
successors, including, without limitation, a Chapter 7 or Chapter 11 trustee
in case of FOSSIL and a trustee appointed under the Bankruptcy Law in case of
SEIKO, and permitted assigns. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all previous and contemporaneous negotiations, commitments, and
undertakings, whether written or oral. No waiver or amendment to this
Agreement will be effective unless it is in writing and is signed by a duly
authorized representative of the party sought to be bound thereby.
Article 17 -- COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Article 18 -- PUBLICITY
Except as either SEIKO or FOSSIL may otherwise be required by law, neither
party may make any announcement, including any announcement to employees,
customers, or suppliers, or otherwise make publicly available any statement
or release concerning this Agreement or the transactions contemplated
hereunder without first obtaining the other party's written approval of any
proposed statement or release. If either party is required by law to make
any statement or other disclosure concerning this Agreement or the transac
tions contemplated hereby (the "Disclosing Party"), the Disclosing Party
shall provide the other party the opportunity to review and comment upon such
statement or disclosure prior to its filing or release and shall make any
revisions thereto that the other party may reasonably request.
Notwithstanding the foregoing, the parties specifically agree that upon
Closing FOSSIL may issue a press release substantially in the form attached
hereto as Exhibit A. In addition, FOSSIL may make all necessary disclosures
according to United States securities law, provided that FOSSIL notifies
SEIKO in writing the extent of such disclosure.
<PAGE>
Article 19 -- NO THIRD-PARTY BENEFICIARIES
Except as expressly permitted by this Agreement, nothing herein shall confer
any rights upon any person or entity that is not a party or permitted
assignee of a party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of March 29, 1996 to be
effective as of April 1, 1996.
WITNESS: SEIKO CORPORATION
- - -------------------------- ----------------------------
By: Ichiro Inomata By: Hideo Matsukawa
Title: Director Title: Senior Executive Director
WITNESS: FOSSIL INC.
- - -------------------------- ----------------------------
By: T. R. Tunnell By: Michael W. Barnes
Title: General Counsel Title: Executive Vice President
<PAGE>
FIRST AMENDMENT TO SECOND
AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"AMENDMENT") is made and entered into this 27th day of March, 1996, by and among
FIRST INTERSTATE BANK OF TEXAS, N.A., (the "BANK"), Fossil Partners, L.P. (the
"BORROWER"), Fossil, Inc. (the "COMPANY"), Fossil Intermediate, Inc. ("FOSSIL
INTERMEDIATE"), Fossil Trust ("FOSSIL TRUST"), Fossil New York, Inc. ("FOSSIL
NEW YORK"), Fossil Stores I, Inc. ("FOSSIL I").
RECITALS
WHEREAS, the Bank, the Borrower, the Company, Fossil Intermediate, Fossil
Trust and Fossil New York are parties to that certain Second Amended and
Restated Loan Agreement, dated effective April 30, 1995 (as amended, the "LOAN
AGREEMENT");
WHEREAS, the Bank, the Borrower, the Company, Fossil Intermediate, Fossil
Trust, Fossil New York and Fossil I desire to amend the Loan Agreement and the
other Loan Documents as herein set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS
2.01 AMENDMENT TO SECTION 1. Effective as of the date hereof, the second
sentence of SECTION 1 of the Loan Agreement is hereby amended by deleting
therefrom in their entirety the words reading "Third Amended and Restated Master
Revolving Credit Note" and substituting therefor the words reading "Fourth
Amended and Restated Master Revolving Credit Note".
2.02 AMENDMENT TO SECTION 6(a). Effective as of the date hereof, SECTION
6(A) of the Loan Agreement is hereby deleted in its entirety and the following
substituted therefor:
"(a) REVOLVING NOTE. The aggregate principal amount at any time
outstanding under the Revolving Note for loans made in a currency
other than in lawful money of Japan ("YEN"), PLUS one hundred twenty
percent (120%) of the
1
<PAGE>
aggregate principal amount at any time outstanding under the Revolving
Note for loans made in Yen (calculated by reference to the amount of
United States of America dollars into which Bank determines it could, in
accordance with its practice from time to time in the interbank foreign
exchange market, convert such amount of Yen at its spot rate of exchange
in effect at approximately 8:00 a.m. (Dallas, Texas time) on the day on
which such loan is made), PLUS the face amount of all outstanding
Documentary and Stand-by Letters of Credit issued for the account of the
Borrower, PLUS twenty percent (20%) of the aggregate amount of all
foreign currency future contracts issued by the Bank for the account of
the Borrower (said sum being herein referred to as the "OUTSTANDING
REVOLVING CREDIT") shall not at any time exceed the LESSER of (a)
$25,000,000.00, or (b) the "BORROWING BASE", as hereinafter defined."
2.03 ADDITION OF NEW SECTION 31. Effective as of the date hereof, the Loan
Agreement is hereby amended by adding a new SECTION 31, which shall read in its
entirety as follows:
"31. JUDGMENT CURRENCY.
(a) If, for the purposes of obtaining judgment in any court, it is
necessary to convert a sum due hereunder or under the Revolving Note from a
currency (the "ORIGINAL CURRENCY") into another currency (the "OTHER
CURRENCY"), the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate of
exchange prevailing on the business day immediately preceding the day on
which final judgment is given.
(b) The obligation of Borrower in respect of any sum due in the
Original Currency from it to Bank hereunder or under the Revolving Note
shall, notwithstanding any judgment in any Other Currency, be discharged
only if and to the extent that on the business day following receipt by
Bank of any sum adjudged to be so due in such Other Currency Bank may in
accordance with normal banking procedures purchase such amount of the
Original Currency with such Other Currency at the rate of exchange
prevailing on the business day preceding the day on which the final
judgment referred to in SECTION 31(a) is given; if the amount of the
Original Currency so purchased is less than the amount of the Original
Currency which the Bank could have purchased at the rate of exchange
prevailing on the business day preceding the day on which such final
judgment is given, Borrower agrees, as a separate obligation of Borrower to
Bank and notwithstanding any such judgment, to indemnify Bank against such
difference, and if the amount of the Original Currency so purchased exceeds
the amount of the Original Currency which the Bank could have purchased at
the rate of exchange prevailing on the business day preceding the day on
which such final judgment is given, Bank agrees to remit to Borrower such
excess."
2
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT
3.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by the Bank:
(a) The Bank shall have received the following documents, each in
form and substance satisfactory to the Bank and its counsel:
(i) This Amendment, duly executed by the Borrower, the
Company, Fossil Intermediate, Fossil Trust, Fossil New York and Fossil
I; and
(ii) A Revolving Note in the form of EXHIBIT A to this
Amendment, duly executed by Borrower.
(b) There shall have been no material adverse change in the financial
condition of the Borrower or any Guarantor;
(c) There shall be no material adverse litigation, either pending or
threatened, against the Borrower or any Guarantor that could reasonably be
expected to have a material adverse effect on the Borrower or such
Guarantor;
(d) The representations and warranties contained herein and in the
Loan Agreement and the other Loan Documents, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date
hereof;
(e) No default or Event of Default shall have occurred and be
continuing, unless such default or Event of Default has been specifically
waived in writing by the Bank;
(f) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments
and other legal matters incident thereto shall be satisfactory to the Bank
and its legal counsel; and
(g) The Bank shall have received from the Company or the Borrower, as
appropriate, all fees and expenses required to be paid to the Bank pursuant
to the Loan Agreement;
ARTICLE IV
NO WAIVER
4.01 Except as specifically provided in the preceding sentence, nothing
contained herein shall be construed as a waiver by the Bank of any covenant or
provision of the Loan Agreement, the other Loan Documents, this Amendment, or of
any other contract or instrument
3
<PAGE>
between the Borrower or the Guarantors and the Bank, and the failure of the
Bank at any time or times hereafter to require strict performance by the
Borrower or any Guarantor of any provision thereof shall not waive, affect or
diminish any right of the Bank to thereafter demand strict compliance
therewith. The Bank hereby reserves all rights granted under the Loan
Agreement, the other Loan Documents, this Amendment and any other contract or
instrument between the Borrower, the Guarantors and the Bank.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the other Loan Documents are ratified and confirmed and shall
continue in full force and effect. The parties hereto agree that the Loan
Agreement and the other Loan Documents, as amended hereby, shall continue to be
legal, valid, binding and enforceable in accordance with their respective terms.
5.02 REPRESENTATIONS AND WARRANTIES. The Borrower, the Company, Fossil
Intermediate, Fossil Trust, Fossil New York and Fossil I hereby represent and
warrant to the Bank that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been duly authorized by all requisite corporate,
partnership or trust proceedings, as appropriate, and will not contravene, or
constitute a default under, any provision of applicable law or regulation or of
the Agreement of Limited Partnership, Articles of Incorporation, By-Laws or
Trust Agreement, as applicable, of the Borrower or any Guarantor, or of any
mortgage, indenture, contract, agreement or other instrument, or any judgment,
order or decree, binding upon the Borrower or any Guarantor; (b) the
representations and warranties contained in the Loan Agreement, as amended
hereby, and the other Loan Documents are true and correct on and as of the date
hereof and on and as of the date of execution hereof as though made on and as of
each such date; (c) no default or Event of Default under the Loan Agreement, as
amended hereby, has occurred and is continuing, unless such default or Event of
Default has been specifically waived in writing by the Bank; and (d) the
Borrower and the Guarantors are in full compliance with all covenants and
agreements contained in the Loan Agreement and the other Loan Documents, as
amended hereby.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in the Loan Agreement or any other Loan Documents, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Bank or any closing shall affect the
representations and warranties or the right of the Bank to rely upon them.
4
<PAGE>
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the other
Loan Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Loan Agreement, as amended hereby, are hereby amended so that
any reference in the Loan Agreement and such other Loan Documents to the Loan
Agreement shall mean a reference to the Loan Agreement as amended hereby.
6.03 EXPENSES OF THE BANK. As provided in the Loan Agreement, the Borrower
agrees to pay on demand all reasonable costs and expenses incurred by the Bank
in connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of the Bank's legal counsel, and all costs and
expenses incurred by the Bank in connection with the enforcement or preservation
of any rights under the Loan Agreement, as amended hereby, or any other Loan
Documents, including, without, limitation, the costs and fees of the Bank's
legal counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of the Borrower, the Guarantors and the Bank and their
respective successors and assigns.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by the
Bank to or for any breach of or deviation from any covenant or condition by the
Borrower or any Guarantor shall be deemed a consent to or waiver of any other
breach of the same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED.
THE LOAN AGREEMENT AND THE OTHER LOAN
5
<PAGE>
DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO MODIFICATION, RESCISSION,
WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS AMENDMENT SHALL BE
MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY THE BORROWER, THE GUARANTORS
AND THE BANK.
6.11 AGREEMENT FOR BINDING ARBITRATION. Each party to this Amendment
hereby acknowledges that it has agreed to be bound by the terms and provisions
of the Arbitration Program (dated 9/1/92), which is incorporated by reference
herein and is acknowledged as received by the parties pursuant to which any and
all disputes shall be resolved by mandatory binding arbitration upon the request
of any party.
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"BANK"
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
----------------------------------
Jeffrey S.A. Cook,
Vice President
"BORROWER"
FOSSIL PARTNERS, L.P.
By: Fossil, Inc., its general partner
By:
----------------------------------
Randy S. Kercho,
Senior Vice President and
Chief Financial Officer
6
<PAGE>
"GUARANTORS"
FOSSIL, INC.
By:
----------------------------------
Randy S. Kercho,
Senior Vice President and
Chief Financial Officer
FOSSIL INTERMEDIATE, INC.
By:
----------------------------------
Kosta N. Kartsotis
President
FOSSIL TRUST
By:
----------------------------------
Randy S. Kercho, Trustee
FOSSIL NEW YORK, INC.
By:
----------------------------------
Kosta N. Kartsotis,
Chief Executive Officer
FOSSIL STORES I, INC.
By:
----------------------------------
Tom Olt, President
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Part I,
Item I, financial statements of Fossil, Inc. and subsidiaries as of and
for the three month period ended March 31, 1996 filed on Form 10Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,616,087
<SECURITIES> 0
<RECEIVABLES> 29,753,769
<ALLOWANCES> 3,468,475
<INVENTORY> 40,307,285
<CURRENT-ASSETS> 77,664,136
<PP&E> 21,022,437
<DEPRECIATION> 5,398,473
<TOTAL-ASSETS> 96,594,382
<CURRENT-LIABILITIES> 26,404,495
<BONDS> 0
0
0
<COMMON> 131,823
<OTHER-SE> 63,232,462
<TOTAL-LIABILITY-AND-EQUITY> 96,594,382
<SALES> 42,909,068
<TOTAL-REVENUES> 42,909,068
<CGS> 23,873,281
<TOTAL-COSTS> 38,660,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 217,371
<INTEREST-EXPENSE> 176,010
<INCOME-PRETAX> 3,901,964
<INCOME-TAX> 1,562,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,339,964
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
</TABLE>
