FOSSIL INC, 10-K, 1997-03-31

FOSSIL INC
10-K, 1997-03-31
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
----- EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

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

FOSSIL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2018505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

2280 N. GREENVILLE AVENUE
RICHARDSON, TEXAS 75082
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (972) 234-2525

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.01 PAR VALUE
(Title of Class)

----------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required 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
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
----

The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the sale trade price of the Common Stock as reported by
the Nasdaq National Market on March 26, 1997, was $59,544,861. For
purposes of this computation, all officers, directors and 10% beneficial
owners of the registrant are deemed to be affiliates. Such determination
should not be deemed an admission that such officers, directors or 10%
beneficial owners are, in fact, affiliates of the registrant. As of March
26, 1997, 13,245,136 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of Stockholders to be held May 22, 1997, to be filed with the
Commission pursuant to Regulation 14A, and the Company's Annual Report to
Stockholders are incorporated by reference into Part III of this report.

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PART I

ITEM 1. BUSINESS

GENERAL

Fossil, Inc. (the "Company") is a Delaware corporation formed in
December 1991 and is the successor to a Texas corporation formed in 1984. In
1993, the Company completed an initial public offering (the "Offering") of
2,760,000 shares of common stock, par value $.01 (the "Common Stock").

The Company's principal executive offices are located at 2280 N.
Greenville Avenue, Richardson, Texas 75082, and its telephone number at such
address is (972) 234-2525.

The Company designs, develops, markets and distributes fashion watches
and accessories, including sunglasses, small leather goods, belts and
handbags, principally under the FOSSIL-Registered Trademark-,
RELIC-Registered Trademark- and FSL-TM- brand names. The Company designs,
manufactures and markets a line of limited edition watches bearing the
trademarks and logos of various entities, as well as contracts with retailers
and other customers for the manufacture of watches for sale under private
label.

The Company conducts substantially all of its United States operations
through Fossil Partners, L.P. ("Partners"), a Texas limited partnership
formed in August 1994, of which the Company is the sole general partner. The
sole limited partner of Partners is Fossil Trust, a Delaware business trust,
an indirect wholly owned subsidiary of the Company, formed in August 1994.
The Company's operations in the state of New York are conducted by Fossil New
York, Inc., a Delaware corporation, a wholly owned subsidiary of the Company.
The Company's outlet stores are leased and operated by Fossil Stores I,
Inc., a Delaware corporation, a wholly owned subsidiary of the Company formed
in November 1994. The Company's retail stores are leased and operated by
Fossil Stores II, Inc., a Delaware corporation, a wholly owned subsidiary of
Fossil Stores I, Inc., formed in November 1994. In addition, certain
merchandising activities of the Company are conducted through Arrow
Merchandising, Inc., a Texas corporation, a wholly owned subsidiary of the
Company formed in August 1992.

The Company's operations in Hong Kong relating to the procurement of
watches from various manufacturing sources are conducted by Fossil (East)
Limited ("Fossil East"), a wholly owned subsidiary of the Company organized
under the laws of Hong Kong and acquired by the Company in 1992. Fossil
Europe B.V. ("Fossil B.V.") a Netherlands holding company established in May
1993, is a wholly owned subsidiary of the Company. Fossil Europe GmbH
("Fossil GmbH") is a wholly owned German subsidiary of Fossil B.V., which
markets and resells the Company's products throughout Europe. Fossil Italia,
S.r.l. ("Fossil Italy"), an Italian subsidiary in which Fossil B.V. owns 60%
of the issued and outstanding stock, was formed in June 1994 and markets and
sells the Company's products in Italy. Fossil France EURL, S.a.r.l. ("Fossil
France"), a wholly owned French subsidiary of Fossil B.V., was formed in
1995 and markets and sells the Company's products in France. Fossil U.K.
Ltd. ("Fossil UK"), a wholly owned British subsidiary of Fossil B.V., was
formed in 1995 and markets and sells the Company's products in the United
Kingdom. Fossil Spain, S. A. ("Fossil Spain"), a wholly owned subsidiary of
Fossil B.V., was formed in 1996 and markets and sells the Company's products
in Spain.

Effective as of April 1, 1988, the Company elected to operate as an S
Corporation under Subchapter S of the Internal Revenue Code and comparable
provisions of certain state income tax laws. Effective as of the close of
the Offering, the Company terminated its S Corporation status (the

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"Termination Date"). For additional information regarding the termination of
the Company's S Corporation status and the payment of cash dividends and
other distributions to the stockholders of the Company prior the Termination
Date, see "Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters."

FORWARD-LOOKING INFORMATION

The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in this Item 1. Business and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, are
forward-looking statements and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in the Annual Report could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: general economic conditions, competition,
government regulation and possible future litigation, as well as the risks
and uncertainties discussed in this Annual Report, including, without
limitation, the portions referenced above, and the risks and uncertainties
set forth on the Company's Current Report on Form 8-K dated March 31, 1997.

INDUSTRY OVERVIEW

WATCH PRODUCTS

The Company believes that the current market for watches in the United
States can be divided into three segments. One segment of the market consists
of fine watches characterized by high fashion and internationally known brand
names, such as Concord, Piaget and Rolex. Watches offered in this segment are
often manufactured in Switzerland and are sold by trade jewelers and in the
fine jewelry departments of better department stores and other purveyors of
luxury goods at retail prices ranging from $150 to $20,000. A second segment
of the market consists of watches sold by mass marketers, which include
certain watches sold under the Timex brand name as well as certain watches
sold by Armitron under various brand names and labels. Retail prices in this
segment range from $5 to $40.

The third segment of the market consists of moderately priced watches
characterized by contemporary fashion and well known brand names. Moderately
priced watches are typically manufactured in Japan or Hong Kong and are sold
by department stores and specialty stores at retail prices ranging from $40
to $150. The Company believes that this segment in turn can be divided into
two discrete sectors that are competitive with each other only to a limited
extent. One sector of the moderately priced market segment is targeted by
companies that generally offer conservatively styled time pieces under well
known brand names such as Seiko and Citizen. The second sector of this market
segment is targeted by the Company and its principal competitors, including
the companies that market watches under the Anne Klein II, Guess? and Swatch
brand names, whose products attempt to reflect emerging fashion trends in
accessories and apparel. Some of the watches in this sector are manufactured
under license agreements with companies that market watches under various
brand names, including Guess?, Joe Boxer and Nautica. The Company believes
that one reason for the growth of this sector has been that fashion-conscious
consumers have increasingly come to regard branded fashion watches not only
as time pieces but also as fashion accessories. This trend has resulted in
consumers owning multiple watches that may differ significantly in terms of
style, features and cost.

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FASHION ACCESSORIES

The Company believes that the fashion accessories market in the United
States includes products such as small leather goods, handbags, belts,
eyewear, neckwear, underwear, lounge wear, costume jewelry, gloves, hats,
hosiery and socks. These fashion accessory products are generally marketed
through mass merchandisers, department stores and speciality shops. Fashion
accessories for both men and women are sold at low, moderate and higher price
points. Lower price point items are typically retailed through mass
merchandisers. Higher price point items are typically sold in moderate and
better department stores and speciality shops and include products offered by
Coach, Dooney & Burke, Ralph Lauren and Donna Karan.

Moderately priced fashion accessories are typically marketed in
department stores and are characterized by contemporary fashion and well
known brand names. Fossil currently offers small leather goods, belts and
eyewear for both men and women, as well as handbags, through department
stores and specialty retailers in the moderate to upper-moderate price range.
Companies such as Calvin Klein, Tommy Hilfiger, Swank, Guess, Nine West,
Kenneth Cole, and Liz Claiborne currently operate in this market. The
Company believes that one reason for the growth in this line of business is
that consumers are becoming more aware of accessories as fashion statements,
and as a result, are purchasing brand name, quality items that complement
other fashion items. The Company emphasizes its fashion accessories as a
natural complement to the core watch business by offering consumers the same
high quality and value that are associated with other FOSSIL brand products.
The Company generally markets its fashion accessory lines through the same
distribution channels as its watch business, using similar in-store
presentations, graphics and packaging.

BUSINESS STRATEGY

The Company's business strategy is designed to achieve further growth in
its watch and fashion accessories businesses and to capitalize on growing
consumer awareness of the FOSSIL, RELIC and FSL brand names by expanding the
scope of its product offerings to include additional categories of fashion
accessories. The Company intends to seek further growth in its watch business
by increasing consumer awareness of, and sales of the products marketed
under, the FOSSIL, RELIC and FSL brand names, expanding the scope of its
product offerings through the introduction or licensing of new categories of
fashion accessories that would complement its existing products, and placing
increased emphasis on growth in selected international markets. The Company
also intends to seek further growth in its accessories business by broadening
its domestic distribution channels and by introducing accessories in selected
international markets. In order to expand the scope of its product offerings,
the Company may in the future introduce additional categories of fashion
accessories that would complement its existing products.

The following are the principal elements of the Company's business
strategy:

- BRAND DEVELOPMENT. The Company has established the FOSSIL and RELIC
brand names and images to reflect a theme of fun, fashion and humor, and
believes that both the FOSSIL and RELIC brand names have achieved growing
acceptance among fashion-conscious consumers in their target markets. The
Company has recently introduced a brand of extremely durable and radically
designed sports watches under the FSL brand name.

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- PRODUCT VALUE. The Company's products provide value to the consumer
by offering high quality components and features at moderate prices. The
Company's products offer a variety of distinctive details and treatments that
provide value to the customer at suggested retail prices generally below
competitive products of comparable quality.

- FASHION ORIENTATION. The Company attempts to stay abreast of emerging
lifestyle and fashion trends affecting accessories and apparel, and it
responds to those trends by making adjustments in its product lines as
frequently as five times each year.

- INNOVATIVE PRODUCT DESIGN. The Company differentiates its products
from those of its competitors principally through innovations in fashion
details, including variations in the treatment of watch dials, crystals,
cases and straps for the Company's watches and innovative treatments and
details in its other accessories.

- EXPANSION OF INTERNATIONAL BUSINESS. The Company is seeking to
achieve further growth in its international business through its
international subsidiaries as well as by expanding the Company's network of
distributors in selected international markets.

- INTRODUCTION OF NEW PRODUCT CATEGORIES. The Company may leverage its
design and marketing expertise to expand the scope of its product offerings
through the introduction or licensing of new categories of fashion
accessories that would complement its existing products.

- ACTIVE MANAGEMENT OF RETAIL SALES. The Company manages the retail
sales process by monitoring its customers' sales and inventories by product
category and style and by assisting in the conception, development and
implementation of their marketing programs. As a result, the Company believes
it enjoys close relationships with its principal customers, often allowing it
to influence the mix, quantity and timing of their purchasing decisions.

- CLOSE RELATIONSHIPS WITH MANUFACTURING SOURCES. The Company has
established and maintains close relationships with a number of watch
manufacturers located in Hong Kong and Japan. The Company believes that these
relationships allow it to quickly and efficiently introduce innovative
product designs and alter production in response to the retail performance of
its products.

- COORDINATED PRODUCT PROMOTION. The Company coordinates product
design, packaging and advertising functions in order to communicate in a
cohesive manner to its target markets the themes and images that it
associates with its products.

- PERSONNEL DEVELOPMENT. The Company actively seeks to recruit and
train its design, advertising, sales and marketing personnel to assist it in
achieving further growth in its existing businesses and in expanding the
scope of its product offerings.

- COST ADVANTAGES. Because the Company does not pay royalties on the
watch, leather goods or sunglass products sold under the FOSSIL, RELIC and
FSL brand names, and because of cost savings associated with the location of
its headquarters and warehousing and distribution center in Richardson,
Texas, the Company believes that it enjoys certain cost advantages that
enhance its ability to provide better value yet achieve attractive profit
margins.

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- CENTRALIZED DISTRIBUTION. Substantially all of the Company's products
sold in the United States are distributed from its warehouse and distribution
center located in Richardson, Texas. The Company's products sold in Europe
generally are distributed from the Company's warehouse and distribution
center located in Germany and Italy, and in Japan from the Company's
warehouse and distribution center in Tokyo. The Company believes that its
distribution capabilities enable it to reduce inventory risk and increase its
flexibility in meeting the delivery requirements of its customers.

PRODUCTS

WATCH PRODUCTS

In 1986, the Company introduced FOSSIL watches, its flagship product.
The Company commenced its FOSSIL watch strap program in 1989, introduced its
RELIC watches in 1990 and introduced its FSL watches in 1995. Since 1986,
the Company has also contracted with retailers and other customers for the
manufacture of watches primarily for sale under private labels. Sales of the
Company's watches for the years ended December 31, 1996, 1995 and 1994
accounted for approximately 71.9% , 83.6% and 87.2% respectively, of the
Company's gross sales.

FOSSIL WATCHES. The Company's FOSSIL watches are targeted at middle and
upper income consumers between the ages of 16 and 40 and are sold at retail
prices generally ranging from $45 to $120, with an average price of
approximately $70. The Company currently offers various categories of FOSSIL
watches, including Casual, Defender, Dress, Fossil Blue, Limited Edition,
Pyramid Crystal, Skeleton, StarMaster and Vintage watches. The Company
believes that its strategy of offering various categories of FOSSIL watches
enables it to market its watches to a wide range of consumers with differing
tastes and lifestyles. New lines of FOSSIL watches are introduced five times
each year in -January, March, May, August and November. FOSSIL watches are
sold through a diversified distribution system which includes major
department stores, such as Federated/Macy's Department Stores, Dillard's, May
Department Stores, Mercantile Stores, Dayton Hudson and Nordstroms, as well
as specialty retail stores and independent distributors.

RELIC WATCHES. RELIC watches incorporate a number of the features found
in FOSSIL watches into a format suitable for lower priced fashion watches.
RELIC watches are targeted at mid-level income consumers and are sold at
retail prices generally ranging from $25 to $60, with an average price of
approximately $45. The Company currently offers various categories of RELIC
watches, including Dressy, Metal Sport, Moon, Novelty, Pendant, Pocket,
Skeleton and Sport watches. New lines of RELIC watches are introduced three
times each year - in February, July and September. RELIC watches are sold
principally through major retailers, such as Ames Department Stores, Bealls,
JCPenney, Kohl's, Montgomery Ward, Sears, Service Merchandise, SRI and Uptons.

FSL WATCHES. FSL watches are sold at retail prices generally ranging
from $30 to $110, with an average price of approximately $65. The Company
offers both analog and digital watches under the FSL brand which combine high
quality engineering and fashion. New lines of FSL watches are introduced
three times each year - in January, May and August and are sold through
better department stores, specialty gift and apparel stores and sports
specialty stores.

FOSSIL WATCH STRAPS. The Company markets a line of FOSSIL watch straps,
which are generally targeted at the same customers as are its FOSSIL watches.
These watch straps are individually packaged and displayed in counter-top
cases and are sold in a variety of sizes, colors and styles. Because

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they are designed to fit a wide range of different watches, sales of FOSSIL
watch straps are not limited to persons who own FOSSIL watches. Retail prices
for FOSSIL watch straps generally range from $10 to $18. FOSSIL watch straps
are sold principally through a number of major department stores that offer
FOSSIL watches.

PRIVATE LABEL AND PREMIUM PRODUCTS. The Company designs, markets and
arranges for the manufacture of watches on behalf of certain retailers,
entertainment companies, theme restaurants and other corporate customers as
private label products or as premium and incentive items for use in various
corporate events. Under this arrangement, the Company performs design and
product development functions as well as acts as a sourcing agent for its
customers by contracting for the manufacture of watches, managing the
manufacturing process, inspecting the finished watches, purchasing the
watches and arranging for their shipment to the United States. Certain of
these services are provided for the Company through Fossil East. The Company
has recently expanded the scope of its private label business to include
other categories of accessories such as sunglasses, small leather goods,
gifts and clocks. The Company's private label products are currently sold to
certain retail chains and other customers. The Company's premium and
incentive products are sold to many Fortune 500 companies. Participation in
the private label and premium businesses provide the Company with certain
advantages, including increased manufacturing volume (which may reduce the
costs of manufacturing the Company's other watch products) and the
strengthening of business relationships with its manufacturing sources. These
lines provide income to the Company with reduced inventory risks and certain
other carrying costs.

LICENSED PRODUCTS. The Company has entered into a number of licensing
agreements for the sale of collectible watches under both the FOSSIL and
RELIC brands. Under these agreements, the Company designs, manufactures and
markets the goods bearing the trademarks, trade names and logos of various
entities through major department stores within the Company's channels of
distribution. Sales of collectible watches under the FOSSIL brand in 1996
included Mickey & Co., Toy Story, The Beatles, Star Trek as well as NBA and
NFL licensed series. The RELIC line has also developed special licensed
limited edition sets including classic American cars and the NFL.

FASHION ACCESSORIES

In order to leverage the Company's design and marketing expertise and
its close relationships with its principal retail customers, the Company has
developed a line of sunglasses, men's and women's small leather goods, men's
and women's belts, and handbags under the FOSSIL brand. The Company
currently sells its sunglasses, small leather goods, belts and handbags
through a number of its existing major department store and specialty retail
store customers. These fashion accessories are typically sold in locations
adjacent to watch departments, which may lead to purchases by persons who are
familiar with the Company's FOSSIL watches. Sales of the Company's accessory
lines for the year ended December 31, 1996, 1995 and 1994 accounted for
26.5%, 15.2% and 7.9%, respectively of the Company's total sales.

SUNGLASSES. In 1995, the Company introduced a line of sunglasses sold
under the FOSSIL brand name. The FOSSIL Sunwear collection offers designs for
both men and women. The sunglass line features optical quality lenses in
both plastic and metal frames, with classic and fashion retro styling as
found with other FOSSIL products. Suggested retail prices for the Company's
sunglasses generally range from $30 to $75 with an average price of $40.

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SMALL LEATHER GOODS AND BELTS. In 1992, the Company introduced a line
of small leather goods and belts for ladies sold under the FOSSIL brand name.
In July 1993, the Company introduced a line of small leather goods for men
under the FOSSIL brand name and expanded the men's line to include belts in
April 1994. These small leather goods are made of fine leathers and include
items such as mini-bags, coin purses, key chains, personal organizers and
wallets. Retail prices for the Company's small leather goods generally range
from $20 to $45, with an average price of $40. Retail prices for the
Company's men's and women's belts generally range from $20 to $40 with an
average price of $30.

HANDBAGS. In 1996, the Company introduced a new line of FOSSIL
handbags. The Company's handbags are made of a variety of fine leathers and
other materials. These products emphasize classic styles and incorporate a
variety of creative designs. Suggested retail prices for the Company's
handbags generally range from $65 to $160. with an average price of $108.

FUTURE PRODUCTS

In 1996, the Company entered into a multi-year license agreement for the
manufacture, marketing and sale of men's neckwear under the FOSSIL brand.
The Company anticipates introducing the line of neckwear in early 1997. The
Company has also entered into a multi-year license agreement for the
manufacture, marketing and sale of men's underwear, sleepwear and lounge wear
under the FOSSIL brand. This product line is scheduled to be introduced in
the later part of 1997. These license agreements provide for the payment of
royalties based on a percentage of net sales, as defined, and are subject to
certain guaranteed minimum royalties. The Company may expand its product
offerings in the future to include selected accessories that would complement
its existing products.

DESIGN AND DEVELOPMENT

The Company's products are created and developed by the in-house design
staff for such products in cooperation with various outside sources,
including its manufacturing sources and component suppliers. Product design
ideas are drawn from various sources and are reviewed and modified by the
design staff to ensure consistency with the Company's existing product
offerings and the themes and images that it associates with its products.
Senior management is actively involved in the design process.

In order to respond effectively to changing consumer preferences, the
Company attempts to stay abreast of emerging lifestyle and fashion trends
affecting accessories and apparel. In addition, the Company attempts to take
advantage of the constant flow of information from the Company's customers
regarding the retail performance of its products. The design staff reviews
weekly sales reports provided by a substantial number of the Company's
customers containing information with respect to sales and inventories by
product category and style. Once a trend in the retail performance of a
product category or style has been identified, the design and marketing
staffs review their product design decisions to ensure that key features of
successful products are incorporated into future designs. Other factors
having an influence on the design process include the availability of
components, the capabilities of the factories that will manufacture the
products and the anticipated retail prices of and profit margins for the
products.

The Company differentiates its products from those of its competitors
principally by incorporating into its product designs innovations in fashion
details, including variations in the treatment of dials, crystals, cases and
straps for the Company's watches and details and treatments of its other
accessories. In certain instances, the Company believes that such
innovations have allowed it to achieve

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significant improvements in consumer acceptance of its product offerings with
only nominal increases in manufacturing costs. The Company believes that the
substantial experience of its design staff will assist it in maintaining its
current leadership position in watch design and in expanding the scope of its
product offerings.

MANUFACTURING

The Company's products are manufactured to its specifications by
independent contractors and by companies in which the Company holds a
majority interest. Substantially all of the Company's watches are
manufactured by approximately 22 factories located primarily in Hong Kong,
and to a lesser extent in Japan and the United States Virgin Islands.
Newtime, Ltd. ("Newtime"), a Hong Kong corporation, is an indirect wholly
owned subsidiary of the Company. In addition, the Company holds a majority
interest in Pulse Time Center Company, Ltd. ("Pulse Time"), a Hong Kong
corporation, Amazing Time, Ltd. ("Amazing Time"), a Hong Kong corporation and
Trylink International Ltd. ("Trylink"), a Hong Kong corporation. During the
year ended December 31, 1996, approximately 18.5% of the Company's watches
were manufactured by Pulse Time; 12.5% by Amazing Time; approximately 16.4%
by Trylink and 14.3% by Newtime. In addition, one other factory accounted
for more than 10% of the Company's watch supplies in 1996.

The Company's sunglasses are manufactured by approximately nine
factories located in Hong Kong, Korea, Taiwan, China and Italy. The
Company's leather products are manufactured by approximately 12 factories
located in Italy, Korea, Taiwan, China and Hong Kong. Except for its
interest in Pulse Time, Amazing Time, Trylink and Newtime, the Company does
not own or operate any manufacturing facilities. The Company does not have
long-term contracts with any of its manufacturing sources. All transactions
between the Company and its manufacturing sources are conducted on the basis
of purchase orders.

The principal components used in the manufacture of the Company's
watches are cases, crystals, dials, movements and straps. These components
are obtained by the Company's manufacturing sources from a large number of
suppliers located principally in Hong Kong, Japan, China, Taiwan, Italy and
Korea. Because components are sold directly to the Company's manufacturing
sources, the Company is not aware of the precise quantities sourced from
particular suppliers. Based upon the information available to the Company,
the Company estimates that the majority of the movements used in the
manufacture of the Company's watches are supplied by three principal vendors.
The Company estimates that no other single component supplier accounted for
more than 10% of component supplies in 1996.

Although the Company does not normally engage in direct transactions
with component suppliers, in some cases it actively reviews the performance
of such suppliers and makes recommendations to its manufacturing sources
regarding the sourcing of components. The Company does not believe that its
business is materially dependent on any single component supplier.

The Company believes that its policy of outsourcing products allows it
to achieve increased production flexibility while avoiding significant
capital expenditures, build-ups of work-in-process inventory and the costs of
managing a substantial production work force. The Company believes that it
has established and maintains close relationships with a number of watch
manufacturers located in Hong Kong and Japan. In 1996, four separate watch
manufacturers in which the Company holds a majority interest, each accounted
for 10% or more of the Company's watch supplies. The loss of any one of
these manufacturers could temporarily disrupt shipments of certain of the
Company's watches. However, as a

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result of the number of suppliers from which the Company purchases its
watches, the Company believes that it could arrange for the shipment of goods
from alternative sources within approximately 30 days on terms that are not
materially different from those currently available to the Company.
Accordingly, the Company does not believe that the loss of any single
supplier, including Pulse Time, Amazing Time, Trylink or Newtime would have a
material adverse effect on the Company's business. In general, however, the
future success of the Company will depend upon its ability to maintain close
relationships with its current suppliers and to develop long-term
relationships with other suppliers that satisfy the Company's requirements
for price and production flexibility.

The Company's products are manufactured according to plans that reflect
management's estimates of product performance based on recent sales results,
current economic conditions and prior experience with manufacturing sources.
The average lead time from the commitment to purchase products through the
production and shipment thereof ranges from two to three months in the case
of watches, from three to six months in the case of sunglasses and from three
to four months in the case of leather goods. The Company believes that the
close relationships that it has established and maintains with its principal
manufacturing sources constitute a significant competitive advantage and
allow it to quickly and efficiently introduce innovative product designs and
alter production in response to the retail performance of its products.

Fossil East, a subsidiary of the Company, acts as the Company's
exclusive agent in Hong Kong. In such capacity, Fossil East is responsible
for overseeing the production of samples of new products, placing orders with
factories located in Hong Kong and China, monitoring manufacturing operations
on a daily basis, inspecting finished goods and coordinating the shipment of
finished goods. Fossil East also acts as the Company's payment agent in
purchasing products from the Company's manufacturing sources.

QUALITY CONTROL

The Company's quality control program attempts to ensure that its
products meet the standards established by its design staff. Samples of
products are inspected by the Company prior to the placement of orders with
manufacturing sources to ensure compliance with its specifications. The
operations of the Company's manufacturing sources located in Hong Kong are
monitored on a periodic basis by Fossil East. Substantially all of the
Company's watches and certain of its other accessories are inspected by
personnel of Fossil East or by the manufacturer prior to shipment to the
Company. In addition, substantially all of the Company's products are
re-inspected by its personnel upon receipt at the Company's facility.

MARKETING AND PROMOTION

The Company's in-house advertising department oversees the conception,
development and implementation of all aspects of the packaging, advertising,
marketing and sales promotion of the Company's products. The advertising
staff uses computer-aided design techniques to generate the images presented
on product packaging and other advertising materials. The Company believes
that the use of computers encourages greater creativity and reduces the time
and cost required to incorporate new themes and ideas into effective product
packaging and other advertising materials. Senior management is involved in
monitoring the Company's advertising and promotional activities to ensure
that themes and ideas are communicated in a cohesive manner to the Company's
target audience.

9
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The Company's current advertising themes aim at evoking nostalgia for the
simpler values and more optimistic outlook of the 1950s through the use of
images of cars, trains, airliners and consumer products that reflect the classic
American tastes of the period. These images are carefully coordinated in order
to convey the flair for fun, fashion and humor that the Company associates with
its products.

The Company participates in cooperative advertising programs with its major
retail customers, whereby it shares the cost of certain of their advertising and
promotional expenses. An important aspect of the marketing process involves the
use of in-store visual support and other merchandising materials, including
packages, signs, posters and fixtures. Through the use of these materials, the
Company attempts to differentiate the space used to sell its products from other
areas of its customers' stores. In addition, the Company frequently offers
promotional gifts, such as T-shirts, caps and pens, to consumers who purchase
its products. The Company also provides its customers with a large number of
preprinted, customized advertising inserts and from time to time stages
promotional events designed to focus public attention on its products.

The Company has opened a number of FOSSIL concept "shops" in stores
operated by its retail customers. In 1991, the Company, in cooperation with
Macy's, designed and established an elaborate concept shop inside of Macy's
Manhattan store. Based on the initial success of the "shop-in-shop" format the
Company opened additional concept shops in selected retail locations. Certain
of these concept shops are used to establish a permanent presence in stores
operated by key retail customers. Other concept shops are temporary in nature
and are used to provide increased visibility for the Company's products during
the peak selling seasons. The Company believes that the "shop-in-shop" format
provides it with an opportunity to ensure that the Company's products are sold
in an environment that is consistent with the advertising themes and images that
it associates with its products. This format also frequently places personnel
trained by the Company in direct contact with the ultimate purchasers of its
products and allows the Company to monitor more closely changing consumer
preferences. Furthermore, the Company believes that this format may in some
cases result in a greater amount of space being devoted to the Company's
products in stores operated by its retail customers.

In 1994, the Company introduced the Fossil Collectors Club. Club members
receive a special limited edition watch, lapel pin, T-shirt and official Club
membership card. Newsletters are produced quarterly to inform members of new
product launches and to provide information to members about FOSSIL
collectibles, trivia and upcoming store events. In 1995, the Fossil Collectors
Club was successfully launched in certain international markets as well.

The Company advertises, markets and promotes its products to potential
consumers through a variety of media, including catalog inserts, billboards and
print media. The Company has advertised from time to time with billboards and
other outdoor advertisements including bus panels in Chicago, Dallas, Los
Angeles, San Francisco and New York City and has advertised in national fashion
magazines, as well as in trade publications such as Women's Wear Daily and Daily
News Record.

SALES AND CUSTOMERS

The Company sells its products in approximately 15,000 retail locations in
the United States through a diversified distribution network that includes
department stores and other major retailers, as well as specialty retail stores.
The Company also sells its product in retail stores operated by Fossil located
at retail malls in the United States and sells certain of its products in Fossil
outlet stores located at selected outlet centers throughout the United States.
In addition, the Company from time to time sells

<PAGE>

its products to certain off-price retailers in order to manage current
product offerings and inventory levels. The Company does not have long-term
contracts with any of its retail customers. All transactions between the
Company and its retail customers are conducted on the basis of purchase
orders, which generally require payment of amounts due to the Company on a
net 30-day basis.

For the years ended December 31, 1996 , 1995 and 1994, domestic department
stores accounted for 46.6%, 40.5% and 47.8% of the Company's net sales,
respectively. In addition, in the same periods, the Company's ten largest
customers represented approximately 47.0% , 46.0% and 47.2% of net sales,
respectively. For the year ended December 31, 1996, Dillards Department Stores
accounted for 10% of the Company's net sales and no customer accounted for more
than 10% of the Company's net sales in the years ended December 31, 1995, and
1994. Certain of the Company's customers are under common ownership. Sales to
the department store group under common ownership by Federated Department Stores
accounted for approximately 11.1% and 11.8% of the Company's net sales in the
years ended December 31, 1996 and 1995, respectively. No other customer, when
considered as a group under common ownership, accounted for more than 10% of
the Company's net sales in the year ended December 31, 1996, 1995 and 1994.

Sales by the Company to off-price retailers accounted for approximately
2.7%, 2.2% and 2.6% of its net sales during the years ended December 31, 1996,
1995 and 1994, respectively. Off-price retailers include those customers to whom
the Company makes periodic or occasional sales of products at reduced prices. A
majority of the products sold to off-price retailers consist of watch styles
that the Company has eliminated or proposes to eliminate from its current
product lines.

In 1995, the Company commenced operations of Fossil outlet stores at
selected outlet centers throughout the United States. These stores, which
operate under the FOSSIL name, carry some of the product that previously were
sold by the Company to off-priced retailers. The Company's products in such
stores are generally sold at discounts from 25% to 50% off the suggested retail
price.

In 1996, the Company commenced operations of full priced Fossil retail
stores at retail malls located in Dallas, Texas (The Galleria), Short Hills, New
Jersey (The Mall at Short Hills), and Chicago, Illinois (Woodfield Mall). These
stores, which operate under the FOSSIL name, carry a full assortment of FOSSIL
merchandise which is generally sold at the suggested retail price.

In November 1995, the Company began offering various products for sale to
consumers through America Onlines's Market Place. These products include
selected FOSSIL watches, sunglasses and leather goods, as well as NFL and NBA
licensed watches. In November 1996, the Company established its own website at
www.fossil.com. In addition to offering selected FOSSIL products, the Company
also provides Company news and information, product annoucements and promotional
contests on the website.

The Company historically has relied on in-house sales personnel, instead of
the independent sales representatives more typical in the industry. In 1996,
the Company utilized independent sales representatives to help develop the
market for the FSL watch line into sports specialty stores. The Company also
utilized independent sales representatives to expand the distribution of RELIC
watches to selected retailers and to promote the sale of the Company's leather
goods to certain specialty retailers. As of December 31, 1996, the Company had
72 in-house sales and customer service employees and 53 independent sales
representatives. The Company's in-house sales personnel receive a salary and, in
some cases, a commission based on a percentage of gross sales attributable to
specified accounts. Independent

<PAGE>

sales representatives generally do not sell competing product lines and are
under contracts with the Company that are generally terminable by either
party upon 30 days' prior notice. These independent contractors are
compensated on a commission basis.

The Company's products are sold in over 60 countries through foreign
subsidiaries in which Fossil has an interest and through a network of
approximately 42 independent distributors operating in South and Central
America, the Carribean, Canada, the Far East, Australia and the Middle East.
Foreign distributors generally purchase products at uniform prices established
by the Company for all international sales and resell them to department stores
and specialty retail stores. The Company generally receives payment from its
foreign distributors in United States currency. In May 1993, the Company formed
Fossil B.V. which established Fossil GmbH to market and resell the Company's
products throughout Europe. Fossil GmbH resells the Company's products directly
to department stores or other retailers, and in certain countries, Fossil GmbH
offers the Company's products through independent distributors. In 1994, Fossil
B.V. established Fossil Italy to market and sell the Company's products in
Italy. In 1995, Fossil B.V. established Fossil France and Fossil U.K. to market
and sell the Company's products in France and England, respectively. In 1996,
Fossil B.V. established Fossil Spain to market and sell the Company's products
in Spain. In April 1996, the Company acquired an 81% interest in Fossil Japan
which acts as the sole distributor of the Company's products in Japan. During
the years ended December 31, 1996, 1995 and 1994, international and export sales
accounted for 30%, 32% and 24% of net sales, respectively.

During the past several years, the retail industry has undergone
significant consolidation and a number of department stores and other major
retailers have experienced financial difficulties. As a result of these
developments, department stores and other major retailers have generally become
more dependent on the resources and market expertise of their suppliers. The
Company believes that this dependence has created opportunities for suppliers
that provide superior service to their retail customers and are able to manage
the retail sales process effectively. In order to take advantage of the
opportunities presented by this increasing dependence, the Company has developed
an approach to managing the retail sales process that involves monitoring its
customers' sales and inventories by product category and style and assisting in
the conception, development and implementation of their marketing programs. For
example, the Company reviews weekly selling reports prepared by certain of its
principal customers and has established an active electronic data interchange
program with certain of its customers. The Company also places significant
emphasis on the establishment of cooperative advertising programs with its major
retail customers. The Company believes that its management of the retail sales
process has resulted in close relationships with its principal customers, often
allowing it to influence the mix, quantity and timing of their purchasing
decisions.

The Company believes that its sales approach achieves high retail turnover
in its products, which can result in attractive profit margins for its retail
customers. The Company believes that the resulting profit margins for its retail
customers encourage them to devote greater selling space to its products within
their stores and enable the Company to work closely with buyers in determining
the mix of products any store should carry. In addition, the Company believes
that the buyers' familiarity with the Company's sales approach should facilitate
the introduction of new products through its existing distribution network.

The Company permits the return of damaged or defective products. In
addition, although it has no obligation to do so, the Company accepts limited
amounts of product returns from its customers in certain other instances.
Accordingly, the Company provides allowances for the estimated amount of

<PAGE>

product returns. The allowances for product returns at December 31, 1996,
1995 and 1994 were $8,855,000, $9,034,000 and $8,137,000, respectively.
Since 1990, the Company has not experienced any returns in excess of the
aggregate allowances therefor.

BACKLOG

At December 31, 1996, the Company had unfilled customer orders of
approximately $15,852,000 compared to $14,340,000 and $15,371,000 at December
31, 1995 and 1994, respectively. It is the practice of a substantial number of
the Company's customers not to confirm orders by delivering a formal purchase
order until a relatively short time prior to the shipment of goods. As a result,
the amounts shown above include confirmed orders and orders that the Company
believes will be confirmed by delivery of a formal purchase order. A majority of
such amounts represent orders that have been confirmed. The remainder of such
amounts represent orders that the Company believes, based on industry practice
and prior experience, will be confirmed in the ordinary course of business. The
Company's backlog at a particular time is affected by a number of factors,
including seasonality and the scheduling of the manufacture and shipment of
products. Accordingly, a comparison of backlog from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
In addition, the increase use and reliance on the electronic data interchange
program in recent years has contributed to the decline in backlog in comparison
to prior years.

DISTRIBUTION

Upon completion of manufacturing, the Company's products are shipped to its
warehousing and distribution centers in Richardson, Texas, Italy, Japan and
Germany from which they are shipped to customers in their respective markets. In
1994, the Company consolidated its United States warehouse and distribution
facilities into a single facility which enhances the Company's inventory
management and distribution capabilities. The Company is currently constructing
an additional warehouse and distribution facility adjacent to its existing
facility which should be completed by mid-1997. The Company maintains inventory
control systems at this facility which enable it to track each item of
merchandise from receipt to ultimate sale. A significant number of products sold
by the Company are pre- ticketed and bar coded prior to shipment to its retail
customers. The Company believes that its distribution capabilities enable it to
reduce inventory risk and increase its flexibility in responding to the delivery
requirements of its customers.

WARRANTY AND REPAIR

The Company's Fossil watch products are covered by a limited warranty
against defects in materials or workmanship for a period of 11 years from the
date of purchase. The Company's sunglass line is covered by a one year limited
warranty against defects in materials or workmanship. Defective products
returned by customers are processed at the Company's warehousing and
distribution centers. In most cases, defective products under warranty are
repaired by the Company's personnel. Products under warranty that cannot be
repaired in a cost-effective manner are replaced by the Company at no cost to
the customer. The Company also performs watch repair services on behalf of
certain of its private label customers.

<PAGE>

GOVERNMENTAL REGULATIONS

IMPORTS AND IMPORT RESTRICTIONS. The Company's products are currently
manufactured in China and Hong Kong and, to a lesser extent, in Japan, Italy,
Korea, and Taiwan. The Company's arrangements with its manufacturing sources are
subject to the risks of doing business abroad.

The Company's products imported to the United States are subject to United
States customs duties and, in the ordinary course of its business, the Company
may from time to time be subject to claims by the United States Customs Service
for duties and other charges.

The United States and the countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adversely adjust prevailing quotas, duty or tariff levels,
which could adversely affect the Company's operations and its ability to import
products at current or increased levels. In general, the Company cannot predict
the likelihood or frequency of any such events occurring or what effect such
events could have on its financial condition and results of operations.

The United States Trade Representative (the "USTR") has been directed to
designate those countries that deny adequate and effective intellectual property
rights or fair and equitable market access to United States firms that rely on
intellectual property. From the countries designated, the USTR is to identify as
"priority" foreign countries those countries where the lack of intellectual
property rights protection is most egregious and has the greatest adverse impact
on United States products. The USTR is directed to identify and investigate as
priority foreign countries only those that have not entered into good faith
negotiations or made significant progress in protecting intellectual property.
Where such an investigation does not lead to a satisfactory resolution of such
practices, through consultations or otherwise, the USTR is authorized to take
retaliatory action, including the imposition of retaliatory tariffs and import
restraints on goods from the priority foreign country.

The Company cannot predict whether any of the countries in which its
products are currently manufactured or any of the countries in which the Company
may manufacture its products in the future will be subject to an investigation
by the USTR. The Company cannot predict the likelihood, type or effect of any
trade retaliation as a result of such investigations. Trade retaliation in the
form of increased tariffs or quotas, or both, against products that are
manufactured on behalf of the Company now or in the future could increase the
cost or reduce the supply of such products available to the Company.

There have been a number of ongoing trade disputes between the United
States and China during which the United States has threatened to impose tariffs
and duties on some products imported from China and to withdraw China's "most
favored nation" status. There can be no assurance that legislation will not be
introduced in Congress seeking to place restrictions on the renewal of China's
most favored nation status or that China will continue to enjoy such status in
the future. If goods manufactured in China enter the United States without the
benefit of most favored nation treatment, such goods will be subject to
significantly higher duty rates. Any such increased duties would increase the
cost or reduce the supply of goods from China, although the Company believes
that it could replace such goods with items manufactured in other countries at
prices that would not materially affect its profit margins. Accordingly, the
Company believes that the expiration of China's most favored nation status would
not have a material adverse effect on the Company's financial condition or
results of operations.

<PAGE>

In addition to the foregoing factors, the Company's import operations may
be adversely affected by political instability, foreign governmental regulation,
fluctuations in exchange rates and changes in economic conditions in countries
in which the Company's manufacturing sources are located, any of which could
result in the disruption of trade from exporting countries. The potential effect
of these factors on the Company may be heightened as a result of the fact that
substantially all of the Company's products are manufactured in, or sourced
from, Hong Kong, over which China will resume sovereignty in 1997. The Company
cannot predict the effect, if any, this event will have on its operations in
Hong Kong and there can be no assurances that Hong Kong will not experience
political, economic or social disruption as a result of the resumption of
Chinese sovereignty.

GENERAL. The Company's sunglass products are subject to regulation by the
United States Food and Drug Administration as medical devices. The Company does
not believe that compliance with such regulations is material to its operations.
In addition, the Company is subject to various state and federal regulations
generally applicable to similar businesses.

TRADEMARKS

The Company has registered the FOSSIL and RELIC trademarks for use on the
Company's watches, leather goods and other fashion accessories, and has applied
for registration of the FSL trademark for use on the Company's watches and other
accessories in the United States. The Company has also registered or applied
for the registration of certain other marks used by the Company in conjunction
with the sale and marketing of its products and services. In addition, the
Company has registered certain of its trademarks, including FOSSIL, RELIC and
FSL, in certain foreign countries, including a number of countries located in
Europe, the Far East, the Middle East, South America and Central America. The
Company also has certain trade dress rights in the distinctive rectangular tins
in which the Company packages the majority of its Fossil watch products. The
Company regards its trademarks and trade dress as valuable assets and believes
that they have significant value in the marketing of its products. The Company
intends to protect its trademarks and trade dress rights vigorously against
infringement.

COMPETITION

There is intense competition in each of the businesses in which the Company
competes. The Company's watch business competes with a number of established
manufacturers, importers and distributors such as Guess? and Swatch. In
addition, the Company's leather goods and sunglass businesses compete with a
large number of established companies that have significantly greater experience
than the Company in designing, developing, marketing and distributing such
products. In all its businesses, the Company competes with numerous
manufacturers, importers and distributors who have significantly greater
financial, distribution, advertising and marketing resources than the Company.
The Company's competitors include distributors that import watches and
accessories from abroad, domestic companies that have established foreign
manufacturing relationships and companies that produce watches and accessories
domestically.

The Company competes primarily on the basis of style, price, value,
quality, brand name, advertising, marketing and distribution. In addition, the
Company believes that its ability to identify and respond to changing fashion
trends and consumer preferences, to maintain existing relationships and develop
new relationships with manufacturing sources, to deliver quality merchandise in
a timely manner and to manage the retail sales process are important factors in
its ability to compete.

<PAGE>

The Company considers that the risk of significant new competitors is
mitigated to some extent by barriers to entry such as high startup costs and the
development of long-term relationships with customers and manufacturing sources.
During the past few years, it has been the Company's experience that better
department stores and other major retailers have been increasingly unwilling to
source products from suppliers who are not well capitalized or do not have a
demonstrated ability to deliver quality merchandise in a timely manner. There
can be no assurance, however, that significant new competitors will not emerge
in the future.

EMPLOYEES

As of December 31, 1996, the Company (excluding Fossil GmbH, Fossil Italy,
Fossil Japan, Fossil France, Fossil U.K., Fossil Spain and Fossil East) had 430
full-time employees, including 52 in executive or managerial positions, and the
balance in design, advertising, sales, quality control, distribution, clerical
and other office positions. Also included in this amount are 52 full-time
employees of Fossil Stores I, Inc. and 8 full-time employees of Fossil Stores
II, Inc. As of December 31, 1996, Fossil East had 53 full-time employees,
including 12 in managerial positions and the balance in sampling, quality
control, clerical and other office positions. As of December 31, 1996, Fossil
GmbH had 132 full time-employees, including 3 in managerial positions and the
balance in sampling, quality control, clerical and other office positions.. As
of December 31, 1996, Fossil Japan had 26 full time-employees, including 3 in
managerial positions and the balance in sampling, quality control, clerical and
other office positions. As of December 31, 1996, Fossil Italy had 27 full-time
employees, Fossil France had 11 full-time employees and Fossil U.K. had 10
full-time employees.

The Company has not entered into any collective bargaining agreements with
its employees. The Company believes that its relations with its employees are
generally good.

ITEM 2. PROPERTIES

In July 1994, the Company completed construction of its new corporate
headquarters located in a 150,000 square foot facility in Richardson, Texas.
This facility contains the general office, warehousing and distribution
functions of the Company and is located on approximately ten acres of land. In
December 1996, the Company commenced construction of a new 138,000 square foot
distribution center located on approximately ten acres of land immediately
adjacent to its headquarters. The new distribution center will contain the
warehouse and distribution functions of the Company's leather goods and is
scheduled to be completed by mid-1997. The Company owns both facilities and the
land on which each is located. The land and the current facility are subject to
mortgage indebtedness.

As of December 31, 1996, the Company had entered into four lease
agreeements for retail space at prime locations in the United States for the
sale of its full assortment of products. The leases, including renewal options,
expire at various times from 2005 to 2007 and provide for minimum annual rentals
above specified net sales amounts and for the payment of additional rent based
on a percentage of sales ranging from 6% to 7%. The Company is also required to
pay its pro rata share of the common area maintenance costs at each retail mall,
including, real estate taxes, insurance, maintenance expenses and utilities.

The Company also leases retail space at selected outlet centers throughout
the United States for the sale of its products. As of December 31, 1996, the
Company had entered into 26 such leases. The

<PAGE>

leases, including renewal options, expire at various times from 2005 to 2010,
and provide for minimum annual rentals and for the payment of additional rent
based on a percentage of sales above specified net sales amounts ranging from
4% to 6%. The Company is also required to pay its pro rata share of the
common area maintenance costs at each outlet center, including, real estate
taxes, insurance, maintenance expenses and utilities. The Company also
leases showrooms in Atlanta, Chicago, Los Angeles and New York City, which
are used to display the Company's products to its retail customers.

Fossil East leases approximately 37,600 square feet of office, warehouse
and assembly space in Hong Kong pursuant to a lease agreement that expires in
December 1997. Fossil GmbH leases approximately 6,100 square feet of office
space in Traunstein, Germany pursuant to a lease agreement that expires in 2000,
and an additional 6,300 square feet of warehouse and storage space under leases
that expire in 2001. Fossil Italy leases approximately 2,800 square feet of
office space in Vicenza, Italy and an additional 3,100 square feet of warehouse
and storage space. Fossil Japan also leases warehouse and office space in
Tokyo, Japan. The Company believes that its existing facilities are well
maintained, in good operating condition and adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings to which the Company is a party or to which
its properties are subject, other than routine litigation incident to the
Company's business which is not material to the Company's consolidated financial
condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the stockholders of the Company during
the fourth quarter of the year ended December 31, 1996.

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "FOSL." Quotation of the Company's Common Stock began on the Nasdaq
National Market on April 8, 1993.

The following table sets forth the range of quarterly high and low sales
prices per share of the Company's Common Stock on the Nasdaq National Market for
the year ended December 31, 1996 and 1995.

Fiscal year beginning January 1, 1996:

HIGH LOW
------- -------
First Quarter $11 1/4 $ 6 3/4
Second Quarter 16 3/8 9 3/4
Third Quarter 14 3/4 7 3/8
Fourth Quarter 15 7/8 11 1/2

Fiscal year beginning January 1, 1995:

First Quarter $19 1/8 $12 3/4
Second Quarter 19 1/2 13 7/8
Third Quarter 26 1/4 12 1/8
Fourth Quarter 13 1/4 7

As of March 26, 1997, the Company estimates that there were approximately
2,400 beneficial owners of the Company's Common Stock, represented by
approximately 150 holders of record.

DIVIDEND POLICY. The Company expects that it will retain all available
earnings generated by its operations for the development and growth of its
business and does not anticipate paying any cash dividends in the foreseeable
future. Any future determination as to dividend policy will be made in the
discretion of the Board of Directors of the Company and will depend on a number
of factors, including the future earnings, capital requirements, financial
condition and future prospects of the Company and such other factors as the
Board of Directors may deem relevant.

The following table sets forth certain information regarding the cash
dividends and other distributions paid by the Company to Messrs. Tom Kartsotis,
Kosta N. Kartsotis and Alan D. Moore (the "Principal Stockholders") during the
years ended December 31, 1996, 1995 and 1994.

YEARS ENDED DECEMBER 31,
(IN $000S)

1996 1995 1994
---- ---- ----
Cash Dividends 0 0 1,077(1)
Promissory Notes 0 1,000(2) 1,000(2)
Total 0 1,000 2,077

<PAGE>

(1) Represents cash payments of $1,077,500 made by the Company to the
Principal Stockholders in 1994 in respect of their federal and state income tax
obligations attributable to the Company's 1993 Subchapter S Earnings following
the determination of the amount of such earnings based upon a pro rata
allocation of the Company's earnings for the full fiscal year ended December 31,
1993.

(2) Represents the principal payments to the Principal Stockholders under
the notes (the "New Notes") in the principal amount of $10,910,000 issued to the
Principal Stockholders prior to the date of the Offering. The Company used a
portion of the proceeds of the Offering to repay $8,910,000 principal amount of
the New Notes.

RECENT SALES OF UNREGISTERED SECURITIES. On October 1, 1996, the Company
entered into an agreement to purchase 3,791 shares of common stock of Fossil
Europe, B.V. from Franz Scheurl for $1,000,000 in cash, 50,000 shares of
Common Stock and options to acquire 20,000 shares of Common Stock at an
exercise price of $11.75 per share. Such securities were not registered under
the Securities Act of 1933, as amended, in reliance on the exemption from
registration provided under Section 4(2) thereof.

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under "Selected Consolidated Financial
Highlights" beginning on page 3 of the Fossil, Inc. 1996 Annual Report is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The information appearing under "Management's Discussion" beginning on
page 12 of the Fossil, Inc. 1996 Annual Report is incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information appearing under "Financial Information" beginning on
page 25 of the Fossil, Inc. 1996 Annual Report is incorporated herein by
reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

The Company has had no disagreements with its accountants to report under
this item.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of Report.

1. FINANCIAL STATEMENTS:

The Financial Statements appearing under "Financial Information"
beginning on page 25 of the Fossil, Inc. 1996 Annual Report are incorporated
herein by reference.

2. FINANCIAL STATEMENT SCHEDULE:

The following Financial Statement Schedule and related Auditor's Report are
contained herein on pages S-1 and S-2 of this Report.

Schedule II - Valuation and Qualifying Accounts

3. EXHIBITS:

3.1 Amended and Restated Certificate of Incorporation of Fossil, Inc.
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

3.2 Amended and Restated Bylaws of Fossil, Inc.(incorporated by reference
to Exhibit 3.2 of the Company's Registration Statement on Form S-1,
registration no. 33-45357, filed with the Securities and Exchange
Commission).

3.3 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of Fossil, Inc. (incorporated by reference to Exhibit 3.1
of the Company's Report on Form 10-Q for the quarterly period ended
June 30, 1995).

4.1 Promissory Note in the principal amount of $6,000,500 dated as of
April 6, 1993 by Fossil, Inc. in favor of Tom Kartsotis (incorporated
by reference to Exhibit 4.3 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).

4.2 Promissory Note in the principal amount of $2,727,500 dated as of
April 6, 1993 by Fossil, Inc. in favor of Kosta N. Kartsotis (incorporated
by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).

4.3 Promissory Note in the principal amount of $2,182,000 dated as of April 6,
1993 by Fossil, Inc. in favor of Alan D. Moore (incorporated by reference
to Exhibit 4.5 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).

4.4 Promissory Note in the principal amount of $839,620 dated as of December
31, 1993 by Fossil, Inc. in favor of Jal S. Shroff and Pervin J. Shroff
(incorporated herein by reference to Exhibit 4.6 of the Company's
Registration Statement on Form S-1, registration no. 33-45357, filed with
the Securities and Exchange Commission).

<PAGE>

4.5 Promissory Note in the principal amount of $181,570.20 by Fossil,
Inc. in favor of Arrow Merchandising, Inc. (incorporated herein
by reference to Exhibit 4.7 of the Company's Registration Statement
on Form S-1, registration no. 33-45357, filed with the Securities
and Exchange Commission).

10.1 Fossil, Inc. 1993 Nonemployee Director Stock Option Plan (incorporated
herein by reference to Exhibit 10.1 of the Company's Registration
Statement of Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

10.2(2) Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.2 of the Company's Registration Statement
of Form S-1, registration no. 33-45357, filed with the Securities
and Exchange Commission).

10.3(2) Fossil, Inc. 1993 Savings and Retirement Plan (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration Statement of
Form S-1, registration no. 33-45357, filed with the Securities and
Exchange Commission).

10.4(2) Description of Bonus Program (incorporated herein by reference to
Exhibit 10.4 of the Company's Registration Statement of Form S-1,
registration no. 33-45357, filed with the Securities and Exchange
Commission).

10.5 Non-Competition Agreement dated December 31, 1992 between Fossil,
Inc. and Mr. Jal S. Shroff (incorporated herein by reference to
Exhibit 10.12 of the Company's Registration Statement of Form S-1,
registration no. 33-45357, filed with the Securities and Exchange
Commission).

10.6 Amended and Restated Buying Agent Agreement dated March 21, 1992
between Fossil, Inc. and Fossil East Ltd. (incorporated by reference
to Exhibit 10.13 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).

10.7 Amended and Restated Loan Agreement dated August 31, 1994, by and
between First Interstate Bank of Texas, N.A., Fossil Partners, L.P.,
Fossil, Inc., Fossil Intermediate, Inc. and Fossil Trust (without
exhibits) (incorporated by reference to Exhibit 10.2 of the
Company's Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.8 First Amendment to Amended and Restated Loan Agreement dated
September 30, 1994, by and between First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate,
Inc., Fossil Trust and Fossil New York, Inc. (without exhibits)
(incorporated by reference to Exhibit 10.3 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.9 Second Amendment to Amended and Restated Loan Agreement dated
February 13, 1995, by and between First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate,
Inc., Fossil Trust, Fossil New York, Inc. and Fossil Stores I,
Inc.(without exhibits) (incorporated by reference to Exhibit 10.21
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).

10.10 Commercial/Real Estate Note dated as of August 31, 1994, in the
principal amount of $5,000,000 executed by Fossil Partners, L.P.
and payable to the order of First Interstate Bank of

<PAGE>

Texas, N.A. (incorporated by reference to Exhibit 10.6 of the
Company's Report on Form 10-Q for the quarterly period ended
September 30, 1994).

10.11 Subordination Agreement of Fossil Trust for the benefit of First
Interstate Bank of Texas, N.A. dated as of August 31, 1994
(incorporated by reference to Exhibit 10.7 of the Company's
Report on Form 10-Q for the quarterly period ended September
30, 1994).

10.12 Indemnity Agreement dated as of August 31, 1994 from Fossil Partners,
L.P. and Fossil, Inc. to First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.8 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.13 Master Licensing Agreement dated as of August 30, 1994, by and
between Fossil, Inc. and Fossil Partners, L.P. (incorporated by
reference to Exhibit 10.12 of the Company's Report on Form 10-Q
for the quarterly period ended September 30, 1994).

10.14 Agreement of Limited Partnership of Fossil Partners, L.P.
(incorporated by reference to Exhibit 10.13 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.15 Overhead Allocation Agreement by and between Fossil Partners, L.P.
and Fossil New York, Inc. dated October 1, 1994 (incorporated by
reference to Exhibit 10.33 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994).

10.16 Services and Operations Agreement by and between Fossil Partners,
L.P. and Fossil New York, Inc. dated October 1, 1994 (incorporated by
reference to Exhibit 10.34 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).

10.17 Overhead Allocation Agreement by and between Fossil Partners, L.P.
and Fossil Stores I, Inc. dated December 1, 1994 (incorporated by
reference to Exhibit 10.35 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).

10.18(2) Letter Agreement dated April 1, 1994 between Fossil, Inc. and Richard
H. Gundy (incorporated by reference to Exhibit 10.36 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).

10.19 Second Amended and Restated Loan Agreement entered into on May 2,
1995 by and between First Interstate Bank of Texas, N.A., Fossil
Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil
Trust, Fossil New York, Inc. and Fossil Stores I, Inc. (without
exhibits) (incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 10-Q for the quarterly period ended June 30, 1995).

10.20 Third Amended and Restated Master Revolving Credit Note dated April
30, 1995, in the stated principal amount of $25,000,000 executed by
Fossil Partners, L.P. and payable to the order of First Interstate
Bank of Texas, N.A. (incorporated by reference to Exhibit 10.2 of
the Company's Report on Form 10-Q for the quarterly period ended
June 30, 1995).

10.21 Stock Pledge Agreement entered into on May 2, 1995 by and between
Fossil, Inc. and First Interstate Bank of Texas, N.A. (incorporated
by reference to Exhibit 10.3 of the Company's Report on Form 10-Q
for the quarterly period ended June 30, 1995).

<PAGE>

10.22 Stock Purchase Agreement by and between Gerhardt Geisreiter and
Fossil, Inc. entered into as of July 1, 1995 (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q
for the quarterly period ended September 30, 1995).

10.23 Stock Purchase Agreement by and between Hans Stopfinger and Fossil,
Inc. entered into as of July 1, 1995 (incorporated by reference to
Exhibit 10.2 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1995).

10.24 Stock Purchase Agreement by and between Mike Houtzaager and Fossil,
Inc. entered into as of July 1, 1995 (incorporated by reference to
Exhibit 10.3 of the Company's Report on Form 10-Q for the quarterly
period ended September 30, 1995).

10.25 Joint Development Agreement entered into on December 25, 1995 by and
between Fossil, Inc., Seiko Instruments, Inc, and Time Tech, Inc.
(incorporated by reference to Exhibit 10.43 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).

10.26 Joint Venture Agreement entered into on December 22, 1994 by and
between Fossil, Inc., Fossil Europe B.V., Enrico Margaritelli, Zuglia,
S.r.l. and Bluewhale Holding, S.a. (without exhibits) (incorporated by
reference to Exhibit 10.44 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).

10.27 Amendment No. 1 to Joint Venture Agreement entered into on January
18, 1995 by and between Fossil, Inc., Fossil Europe B.V., Enrico
Margaritelli, Zuglia, S.r.l. and Bluewhale Holding, S.a. (incorporated
by reference to Exhibit 10.45 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996).

10.28 Stock Purchase Agreement between Kabushiki Kaisha Hattori Seiko and
Fossil, Inc., dated March 29, 1996 (incorporated by reference to
Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended March 31, 1996).

10.29 First Amendment to Second Amended and Restated Loan Agreement by and
between First Interstate Bank of Texas, N.A. and Fossil Partners,
L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil
New York, Inc. and Fossil Stores I, Inc. dated as of March 27, 1996
(incorporated by reference to Exhibit 10.2 of the Company's Report
on Form 10-Q for the quarterly period ended March 31, 1996).

10.30 Second Amendment to Second Amended and Restated Loan Agreement by and
between First Interstate Bank of Texas, N.A. and Fossil Partners,
L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil
New York, Inc., Fossil Stores I, Inc. and Fossil Stores II, Inc. dated
as of May 3, 1996 (incorporated by reference to Exhibit 10.1 of the
Company's Report on Form 10-Q for the quarterly period ended June 30,
1996).

10.31(1) Stock Purchase Agreement by and between Franz Scheurl and Fossil,
Inc. dated October 1, 1996.

10.32(1,2)Letter Agreement dated October 4, 1995 between Fossil, Inc. and
Mark D. Quick.

13(1) Fossil, Inc. 1996 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

<PAGE>

23.1(1) Consent of Independent Auditors.

27(1) Financial Data Schedule.

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

The Company did not file any report on Form 8-K during the last quarter of
the period covered by this Report.

25
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Richardson, State of Texas, on March 28, 1997.

FOSSIL, INC.

/s/ Tom Kartsotis
----------------------------------------
TOM KARTSOTIS, CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE

/s/ Tom Kartsotis Chairman of the Board, March 28, 1997
- --------------------------- Chief Executive
TOM KARTSOTIS Officer and Director
(Principal Executive Officer)

/s/ Kosta N. Kartsotis President and Chief March 28, 1997
- --------------------------- Operating Officer
KOSTA N. KARTSOTIS and Director

/s/ Randy S. Kercho Executive Vice President, March 28, 1997
- --------------------------- Chief Financial Officer
RANDY S. KERCHO and Treasurer (Principal
Financial and Accounting Officer)

/s/ Michael W. Barnes Executive Vice President March 28, 1997
- --------------------------- and Director
MICHAEL W. BARNES

/s/ Alan D. Moore Director March 28, 1997
- ---------------------------
ALAN D. MOORE

/s/ Jal S. Shroff Director March 28, 1997
- ---------------------------
JAL S. SHROFF

/s/ Kenneth W. Anderson Director March 28, 1997
- ---------------------------
KENNETH W. ANDERSON

/s/ Alan J. Gold Director March 28, 1997
- ---------------------------
ALAN J. GOLD

/s/ Donald J. Stone Director March 28, 1997
- ---------------------------
DONALD J. STONE

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Fossil, Inc.

We have audited the consolidated financial statements of Fossil, Inc. and
subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996 and have issued our report thereon dated
February 15, 1997, which report expressed an unqualified opinion; such
consolidated financial statements and report are included in your 1996 Annual
Report to Stockholders and are incorporated herein by reference. Our audit also
included the consolidated financial statement schedule of Fossil, Inc. and
subsidiaries listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

/s/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP
Dallas, Texas
February 15, 1997

S-1

<PAGE>

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 1994, 1995, and 1996

<TABLE>
Additions
Charged
Balance at (Credited) to Deductions
Beginning of Costs and Actual Returns Balance at End
Classification Period Expenses or Writeoffs of Period
- -------------- ------------ ------------- -------------- --------------
<S> <C> <C> <C> <C>
December 31, 1994:
Accounts receivable allowances:
Sales returns 6,218,721 11,849,783 (9,931,309) 8,137,195
Bad debts 1,026,900 1,101,523 (77,537) 2,050,886
Cash discounts 35,705 85,232 (35,705) 85,232
Inventory in transit for
estimated customer returns (3,408,654) (6,234,286) 5,365,362 (4,277,578)

December 31, 1995:
Accounts receivable allowances:
Sales returns 8,137,195 14,536,232 (13,639,303) 9,034,124
Bad debts 2,050,886 1,389,980 (584,800) 2,856,066
Cash discounts 85,232 115,507 (94,621) 106,118
Inventory in transit for
estimated customer returns (4,277,578) (8,074,296) 7,524,874 (4,827,000)

December 31, 1996:
Accounts receivable allowances:
Sales returns 9,034,124 12,524,626 (12,704,297) 8,854,453
Bad debts 2,856,066 2,103,499 (667,419) 4,292,146
Cash discounts 106,118 218,500 (110,747) 213,871
Inventory in transit for
estimated customer returns (4,827,000) (6,330,967) 6,694,021 (4,463,946)
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

3.1 Amended and Restated Certificate of Incorporation of Fossil, Inc.
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, registration no. 33-45357,
filed with the Securities and Exchange Commission).

3.3 Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of Fossil, Inc. (incorporated by reference to
Exhibit 3.1 of the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1995).

4.2 Promissory Note in the principal amount of $2,727,500 dated as of
April 6, 1993 by Fossil, Inc. in favor of Kosta N. Kartsotis
(incorporated by reference to Exhibit 4.4 of the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).

4.3 Promissory Note in the principal amount of $2,182,000 dated as of
April 6, 1993 by Fossil, Inc. in favor of Alan D. Moore (incorporated
by reference to Exhibit 4.5 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).

4.4 Promissory Note in the principal amount of $839,620 dated as of
December 31, 1993 by Fossil, Inc. in favor of Jal S. Shroff and
Pervin J. Shroff (incorporated herein by reference to Exhibit 4.6
of the Company's Registration Statement on Form S-1, registration
no. 33-45357, filed with the Securities and Exchange Commission).

10.2(2) Fossil, Inc. 1993 Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.2 of the Company's Registration Statement of
Form S-1, registration no. 33-45357, filed with the Securities and
Exchange Commission).

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

10.8 First Amendment to Amended and Restated Loan Agreement dated
September 30, 1994, by and between First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust and Fossil New York, Inc. (without exhibits)
(incorporated by reference to Exhibit 10.3 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.10 Commercial/Real Estate Note dated as of August 31, 1994, in the
principal amount of $5,000,000 executed by Fossil Partners, L.P. and
payable to the order of First Interstate Bank of Texas, N.A.
(incorporated by reference to Exhibit 10.6 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.11 Subordination Agreement of Fossil Trust for the benefit of First
Interstate Bank of Texas, N.A. dated as of August 31, 1994
(incorporated by reference to Exhibit 10.7 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

10.14 Agreement of Limited Partnership of Fossil Partners, L.P.
(incorporated by reference to Exhibit 10.13 of the Company's Report
on Form 10-Q for the quarterly period ended September 30, 1994).

10.16 Services and Operations Agreement by and between Fossil Partners,
L.P. and Fossil New York, Inc. dated October 1, 1994 (incorporated
by reference to Exhibit 10.34 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

10.29 First Amendment to Second Amended and Restated Loan Agreement by
and between First Interstate Bank of Texas, N.A. and Fossil Partners,
L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust, Fossil
New York, Inc. and Fossil Stores I, Inc. dated as of March 27, 1996
(incorporated by reference to Exhibit 10.2 of the Company's Report
on Form 10-Q for the quarterly period ended March 31, 1996).

10.31(1) Stock Purchase Agreement by and between Franz Scheurl and Fossil,
Inc. dated October 1, 1996.

10.32(1,2)Letter Agreement dated October 4, 1995 between Fossil, Inc. and
Mark D. Quick.

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

13(1) Fossil, Inc. 1996 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27(1) Financial Data Schedule.

(1) Filed herewith.

(2) Management contract or compensatory plan or arrangement.

<PAGE>

EXHIBIT 10.31

<PAGE>

STOCK PURCHASE AGREEMENT

This Agreement made as of this 1st day of October 1996, by and between
Franz Scheurl, residing at Anton Beilhack Strasse 7, W-83278 Traunstein, Germany
("Seller") and Fossil, Inc., a Delaware, U.S.A. corporation ("Buyer").

A. Seller currently is the registered owner of 3791 shares of common
stock (the "Shares") of Fossil Europe, B.V., a Dutch corporation (the
"Company"); and

B. Seller wishes to sell, and Buyer wishes to buy, the Shares on the
following terms and conditions.

NOW, THEREFORE, the parties agree as follows:

1. PURCHASE AND SALE OF SHARES. Seller agrees to sell and Buyer agrees to
purchase from Seller all of the Shares, which constitute all of the ownership
interest of Seller in the Company.

2. PURCHASE PRICE. The consideration to be paid by Buyer to Seller for
the Shares is as follows:

1) USD $1,000,000 payable in cash or check by Buyer;

2) 50,000 shares of common stock of Fossil, Inc. (unregistered and
nontransferable); and

3) 20,000 options to purchase an equivalent number of shares of
Fossil, Inc. common stock at a purchase price of USD $11.75 per share,
substantially in the form of agreement attached as Exhibit A.

Upon payment of the purchase price by Buyer, Seller shall deliver to Buyer a
certificate representing all of the Shares, duly endorsed in blank for transfer
or accompanied by stock powers duly executed in blank, or such other documents
as may be necessary or required in order to transfer the Shares to Buyer.

3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents,
warrants and covenants to Buyer as set forth below:

3.1 OWNERSHIP OF SECURITIES. Seller represents and warrants to
Buyer that he is the record and beneficial owner of the Shares, free and clear
of any charges, liens, options, claims and encumbrances of any kind whatsoever
(other than and subject to the legends, if any, upon tile certificate
representing the Shares and laws and regulations restricting the transfer
thereof); and that other than as provided in this Agreement, there are no
agreements or commitments on the part of the Seller for the sale or other
disposition of the Shares. Upon delivery of and payment for the Shares in
accordance with this Agreement, good and marketable title and beneficial
ownership thereto will be delivered to the Buyer free and clear of any liens,
claims or encumbrances.

3.2 (a) AUTHORITY. Seller has full power and authority to
execute and perform this Agreement, to deliver the Shares hereunder, to perform
his other obligations hereunder and to consummate the transactions contemplated
hereby. All necessary action has been taken by the Seller to authorize the
execution, delivery and performance of this Agreement, and the delivery of the
Shares hereunder. This Agreement constitutes the legal valid, and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms.

<PAGE>

(b) EXECUTION, DELIVERY AND PERFORMANCE. The execution,
delivery and performance of this Agreement, does not, and will not, result in
any violation of or be in conflict with or constitute a default under any term
or provision of any judgement, decree, order, statute, injunction, rule or
regulation applicable to the Seller, or any note, bond, mortgage, indenture,
lease, license, franchise, agreement or other instrument or obligation to which
Seller is bound.

3.3 CONSENTS AND APPROVALS. All consents, waivers, orders, approvals
and authorizations of, and declarations, designations, filings, registrations
and qualifications with any court, governmental or regulatory authority, or any
third party, necessary for the valid execution and delivery of this Agreement,
have been, or prior to the purchase of the Shares, will be obtained by Seller.

4. REPRESENTATIONS OF BUYER.

(a) Buyer represents that it has the full legal capacity and
authority to enter into this Agreement and to purchase the Shares as
contemplated hereunder.

(b) Buyer represents and warrants to Seller that Buyer is acquiring
the Shares for its own account for investment and not with a view to, or for
sale in connection with, any distribution thereof Buyer confirms its
understanding that the shares may be subject to certain restrictions, including
that such Shares have not been registered or qualified under applicable
securities laws.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.

SELLER: PURCHASER: FOSSIL, INC.

/s/ FRANZ SCHEURL By: /s/ RANDY S. KERCHO
- --------------------------------- ----------------------------------
Franz Scheurl Title: Chief Financial Officer

<PAGE>

EXHIBIT 10.32

<PAGE>

October 4, 1995

Mr. Mark Quick
c/o Fossil, Inc.
2280 N. Greenville Ave.
Richardson, Texas 75082

Re: Compensation Program - Senior Vice President

Dear Mark:

Listed below is an outline of the Fossil, Inc. Compensation Program for the
position of Senior Vice President.

A. Salary

As of the commencement of your employment with Fossil on November 15, 1995, you
will assume the office of Senior Vice President with an annual salary of
$175,000.

B. Bonus

You will be eligible to participate in the Annual Bonus Program of Fossil as
amended from time to time.

C. Stock Options

A total of 75,000 stock options will be awarded to you on or about November 15,
1995, with an exercise price equal to the closing price of a share of common
stock of Fossil as of that date. This award is subject to the terms and
conditions of the 1993 Long-Term Incentive Plan of Fossil, Inc. and your stock
option award agreement (attached hereto).

These stock options will become exercisable, on a cumulative basis, as follows:
(i) with respect to 50% of the total number of shares subject to options, such
options shall be exercisable as of the first anniversary date of the grant; and
(ii) with respect to an additional 25% of the total number of shares subject of
options, such options shall be exercisable as of the second anniversary date of
the grant; and (iii) with respect to the remaining 25% of the total number of
shares subject to options, such options shall be exercisable as of the third
anniversary date of the grant.

D. Notice of Termination

Employment may be terminated by either party effective upon written notice to
the other party. In the event that your employment is terminated by Fossil
without cause prior to the third anniversary date of your commencement of
employment, then Fossil agrees to pay you salary continuation (at your then
current salary) from the date of such termination until such third anniversary
date. In Fossil's sole and absolute discretion, such payments may either be in
the form of monthly installments or a lump sum amount due and payable upon
termination. No such payments shall be due, however, in the event of
termination by reason of death, termination with cause, or voluntary termination
of employment prior to the third anniversary date of your commencement of
employment.

<PAGE>

E. Insurance

You will be able to participate in the Company's medical, dental and disability
insurance programs in accordance with standard Company plans.

Sincerely,

/s/ Kosta N. Kartsotis

Kosta N. Kartsotis

Enclosures: Form of Stock Option Award Agreement 1993 Long-Term
Incentive Plan of Fossil, Inc.

<PAGE>
EXHIBIT 13

01 Company Profile
03 Financial Highlights
05 Letter to Stockholders
09 Company Overview
12 Management's Discussion
25 Financial Information
41 Corporate Information

Inside front cover
table of contents (graphics)

<PAGE>

company

PROFILE

FOSSIL IS A DESIGN AND MARKETING company that specializes in consumer
products which are predicated on fashion and value.

FOSSIL watches, the Company's flagship product, is an extensive
line of fashion watches sold in department stores and other upscale
retailers in over 60 countries around the world. Complementary lines
of various accessories such as small leather goods, belts, handbags
and sunglasses also capitalize on the increasing awareness of the
FOSSIL brand.

The wholesome brand image of "America in the 1950s" is one that
is targeted to the value-driven, back-to-basics consumer of the 1990s.
Designs for the distinctive tin box packaging, advertising materials
and visual enhancements at the point-of-purchase are efficiently
created in an in-house creative services department.

The product is designed and developed utilizing a series of
product design, manufacturing and marketing systems which are flexible,
quick and efficient. The strategy is to capture an increasing market
share of a growing number of markets by providing customers with high
quality, value-driven products which are marketed in a unique manner.

The Company also develops products under the RELIC and FSL brand
names, in addition to private label products for some of the most
distinguished companies in the world.

1
FOSSIL 1996 ANNUAL REPORT
<PAGE>

Graphic depicting:
Net Sales
Operating Income
Net Income
Stockholders' Equity

<PAGE>

selected consolidated

FINANCIAL HIGHLIGHTS

(in thousands, except per share amounts)
1996 1995 1994 1993 1992

Net sales............... $205,899 $181,114 $161,883 $105,089 $73,831
Gross profit............ 98,038 82,900 71,880 45,343 29,031
Operating income........ 24,373 20,463 26,217 16,576 11,167
Income before taxes..... 23,040 20,142 24,923 16,718 10,698
Net income(1)........... 13,591 12,057 15,345 11,485 7,050
Earnings per share(1)... $ 1.02 $ 0.91 $ 1.15 $ 0.91 $ 0.62

Weighted average common
and common equivalent
shares outstanding(1).. 13,378 13,293 13,304 12,662 11,408

Working capital......... $ 59,861 $ 49,251 $ 41,434 $ 27,692 $12,021
Total assets............ 119,456 96,994 80,420 46,539 27,561
Long-term debt.......... 4,350 4,811 4,750 1,000 840
Stockholders' equity.... 74,568 61,269 48,906 33,025 15,017

(1) 1993 amounts and prior are pro forma

STOCK INFORMATION

FOSSIL'S COMMON STOCK prices are published daily in The Wall Street Journal
and other publications under the Nasdaq National Market Listing. The stock is
traded under the ticker symbol "FOSL". The following are the high and low
sale prices of the Company's stock per the Nasdaq National Market.

1996 HIGH LOW
First quarter $11 1/4 $ 6 3/4
Second quarter 16 3/8 9 3/4
Third quarter 14 3/4 7 3/8
Fourth quarter 15 7/8 11 1/2

1995 HIGH LOW
First quarter $19 1/8 $12 3/4
Second quarter 19 1/2 13 7/8
Third quarter 26 1/4 12 1/8
Fourth quarter 13 1/4 7

3
FOSSIL 1996 ANNUAL REPORT
<PAGE>

Graphic depicting Fossil world logo

4
<PAGE>

letter to

STOCKHOLDERS

The strategy of continually investing with a long term mindset seems to be
paying off. In 1996, the Company's brands continued to widen their audience
and increased in value. We continued to accelerate the recognition of our
brands by diversifying through the introduction of new product lines, opening
related businesses and expanding geographically. The costs of this
diversification were apparent in the operating results early in the year.
Maintaining our focus for the future, however, proved to be the correct
strategy as our operating income increased over 40% on net sales increases of
15% during the second half of 1996. We are pleased with the momentum that we
seem to be building.

We look back on 1996 as the year that our long term investments in the
women's handbag business finally paid off. For years, we have been developing
our design and sourcing capabilities within the handbag business at the same
time as we have been grooming the FOSSIL brand for successful product
roll-outs. The reception to our handbag offering in 1996 was phenomenal and
it fueled the sales of our other leather products as well.

We are also pleased with the development of our core FOSSIL watch
business in the domestic market in 1996. Development of the entire line
became more focused and the performance of our watches over the retail
counter improved noticeably. The launch of FOSSIL Blue, a line of sport
watches with metal bracelets, was the most successful new line of watches
that we have introduced in some time. We also saw nice success in the
roll-out of ladies metal bracelet watches in our F2 collection. These
mid-year introductions provided the momentum to begin recording the first
increases in domestic watch sales since the first quarter of 1995.

In April of 1996, we purchased the majority control of our marketing and
distribution company in Japan. While from a bottom line perspective we
believe it may take another year to return a profit, we believe that Japan is
a major market for our products which opens up a gateway into the far east.
Our increased presence in Japan has substantially impacted our visibility
throughout the far east and is allowing us to operate more aggressively in
this region. Our strong presence in Japan is also presenting us new business
opportunities at an encouraging pace.

During 1996, we opened three FOSSIL General Stores in premier mall
locations in key markets near New York, Dallas and Chicago. These locations
not only provide a source of income for our Company but also function as a

5
FOSSIL 1996 ANNUAL REPORT

<PAGE>

Graphic of Fossil products

6
<PAGE>

Graphic of Fossil Products

7
<PAGE>

showcase for all our products and our brand image. In visiting one of these
locations our retail customers and our consumers immediately understand the
strong brand image that FOSSIL has developed. We are actively developing our
retail strategy on a global basis.

In addition, 1996 became our inaugural year in developing relationships
with companies who will license our brand for products that are in demand
from consumers but for which we do not have expertise in developing. We have
recently entered the business of ties and boxer shorts/lounge wear through
strategic alliances with two strong companies who specialize in these unique
businesses. Additional product categories will be approached on a global
basis through licensing when we believe products can be more effectively
developed by companies with existing infrastructure as opposed to building a
separate infrastructure within our Company.

Our strategy continues to be dedicating our energy towards building
brand name recognition, creating worldwide expansion and seeking strategic
diversification. The continuing momentum of the FOSSIL brand is bringing
opportunities at an increasing rate. In the immediate future look for our
retail presence to expand with FOSSIL shops in domestic airport locations, on
premier cruise ships, shop-in-shop expansions internationally and the
installation of a FOSSIL shop on the main floor of Tourneau's Superstore
opening in 1997 on 57th Street in New York City. From a product perspective,
future years will bring further diversification through the roll-out of new
products driven both internally and through license arrangements. We believe
we are on the right track in building long term viable brands which can
continually fuel increased stockholder value.

In closing we would like to send a special thanks to our dedicated
employees and supportive customers, suppliers and distributors around the
world who are all responsible for our continued growth.

Sincerely,

/s/ TOM KARTSOTIS /s/ KOSTA N. KARTSOTIS

TOM KARTSOTIS KOSTA N. KARTSOTIS
Chairman of the Board President

8
FOSSIL 1996 ANNUAL REPORT

<PAGE>

company

OVERVIEW

BUILDING A BRAND

The Company's primary objective is to create value by building the FOSSIL
brand name. An enhanced brand encourages retailers to increase the importance
of FOSSIL products within their assortments and thus increase sales. A strong
brand also provides opportunities to expand into new product categories
within department stores. During 1996, the FOSSIL brand continued to be one
of the leading fashion watch brands, gain momentum in its sales of non-watch
products and increase its brand presence internationally thus, signifying the
emergence of FOSSIL as a global brand.

WATCHES. The FOSSIL line continued its leadership position in
department stores with the highly successful launch of FOSSIL Blue, a water
resistant sport watch collection for men and women. FOSSIL Blue has become
the dominant product category in the FOSSIL line with stainless steel metal
bracelets comprising the majority of the assortment. Women's metal dress
watches also had a terrific year during 1996 with the addition of
Adjust-o-Matic styles featuring easily adjustable bracelet bands. FOSSIL made
great strides in quick response shipping in 1996 through timely delivery of
the best selling styles to the appropriate department stores resulting in a
quicker inventory turn in 1996.

LEATHER ACCESSORIES. Sales and brand awareness continued to increase in
the Company's non-watch product categories with sales of FOSSIL leather
accessories increasing 75% over the prior year. The success of the Company's
leather accessory line can be attributed in large part to the launch of
women's handbags in 1996. Women's handbags gained wide consumer acceptance in
1996 through the Company's targeted distribution pattern and remain a
considerable sales volume opportunity for 1997. During 1996, the Company also
demonstrated growth in leather accessories through a dramatic sales increase
of over 100% in women's small leather goods compared to the prior year. These
increases are due in large part to the sales of FOSSIL mini-bags and the
expansion of this category to additional retail stores. Women's belts are
well positioned in key department stores and posted strong double-digit sales
increases in 1996. The Company expanded its men's small leather goods to an
additional key department store account during 1996 thus, propelling men's
small leather good business to double-digit sales growth. The Company's men's
belt business generated strong retail performance on a small retail base in
1996 and represents a key area of growth for 1997.

SUNGLASSES. FOSSIL established additional brand awareness through its
eyewear business in 1996. FOSSIL sunglasses penetrated a majority of women's
and men's departments in FOSSIL's traditional department store customer base.
FOSSIL sunglasses were also introduced to new distribution channels this past
year including optical stores such as LensCrafters and speciality retail
stores such as Sunglass Hut and Gadzooks. FOSSIL enjoyed immediate success
with sales of FOSSIL sunglasses in international markets accounting for over
25% of total sunglass sales in 1996. The FOSSIL sunglass collection has
proven to be an excellent addition to the FOSSIL product assortment. FOSSIL
sunwear complements the quality and value of the FOSSIL brand perfectly by
providing 100% UV protection, optical quality materials and the unique tin
box with its assortment. In addition, the seasonality of the sunglass
business is directly opposite to the seasonality of the fashion watch
business, thus operational

9
FOSSIL 1996 ANNUAL REPORT
<PAGE>

Graphic of Fossil retail store

<PAGE>

synergy is achieved. Sunglasses have proven to be an attractive industry from
a profit margin perspective as it is primarily dominated by companies who
license other company's brand names. Since the Company owns the FOSSIL brand,
it is able to offer an incredible price-value relationship to consumers while
maintaining an attractive profit margin for the Company and its stockholders.

WORLDWIDE. The Company remains committed to achieving brand and sales
growth through expansion into new territories, improving distribution
channels in existing territories and expanding the distribution of product
categories in the international marketplace. The international market
continues to offer excellent growth opportunities for the Company and the
brand. The value of the FOSSIL brand was clearly demonstrated in 1996 beyond
the United States borders. In 1996, FOSSIL added new distributors in 11
countries including: Australia, Brazil, Indonesia, Kuwait, Malaysia, Oman,
Philippines, Qatar, Saudi Arabia, Thailand and United Arab Emirates. The
Company anticipates meaningful contributions from these new territories in
1997 and increased expansion in other regions around the globe.

OTHER BUSINESS

FSL. During 1996, the Company almost doubled the distribution of its'
next-generation sport brand, FSL, over 1995. Sales of FSL watches continued
to remain strong in international markets, particularly in Japan where FSL is
being touted as the next up-and-coming brand.

RELIC. Through its increased distribution in national and regional
department stores, specialty stores and catalog showrooms, RELIC has become a
national brand over its seven year history. RELIC watches feature similar
styling, quality and value as the FOSSIL brand yet with subtle changes in the
design and component specifications that allow for a lower price point. This
past year, RELIC expanded upon its core line with select licensed products
such as a line of "Barbie" watches and new pocket watches in its "Classic
American Car" series featuring a '57 Chevy and a '64 Ford Mustang. Sears
Roebuck & Co. named RELIC as a recipient of its prestigious "Partners in
Progress" award for the second consecutive year. This award recognizes
Sears' most outstanding suppliers from a list of more than 10,000 vendors.

PRIVATE LABEL. In addition to building its own brand, the Company also
designs and manufactures private label product for some of the most prestigious
companies in the world including national retailers, entertainment companies and
theme restaurants. The Company continues to expand its core private label
business as well as integrate other product categories such as leather goods and
eyewear. The Company's premium/incentive division featured substantial gains in
1996 utilizing its sourcing, design and development systems to translate many
corporate themes, events or promotions into a comprehensive custom program.

FOSSIL GENERAL STORES. Three full-price FOSSIL Stores were opened in
1996. Locations were strategically selected to elevate FOSSIL's presence and
to build brand recognition. The first three FOSSIL stores were opened in
Chicago, Illinois (Woodfield Mall), Short Hills, New Jersey (The Mall at
Short Hills) and Dallas, Texas (The Galleria). Additional locations are being
evaluated for 1997.

11
FOSSIL 1996 ANNUAL REPORT
<PAGE>

MANAGEMENT'S

DISCUSSION

Since the Company's origination in 1984, sales growth has been principally
attributable to increased sales of FOSSIL brand watches both domestically and
in a growing number of international markets. Adding to the Company's sales
growth has been the addition of FOSSIL brand leather goods and sunglasses, the
diversification into FOSSIL outlet and retail stores and the introduction of
other watch brands (RELIC and FSL). Increased sales volume has also been
generated through leveraging the Company's infrastructure of sourcing, design
and developmental systems for the production of its products for corporate
gift programs as well as under the names of internationally recognized
specialty retailers, entertainment companies and theme restaurants. The
Company's products are marketed internationally, mainly through major
department stores and specialty retailers.

The Company maintains sales and distribution offices in the United States,
Germany, Italy, Japan, the United Kingdom, Spain, France and Hong Kong. In
addition to sales through the Company's offices, FOSSIL also currently
distributes its products to over 50 additional countries through licensed
distributors.

1996 HIGHLIGHTS

- - The newly-designed line of FOSSIL handbags, first shipped in mid-1996, were
a success in the retail marketplace. Sales of FOSSIL handbags also
increased the awareness and sales of the Company's other leather products
allowing leather good sales to exceed last year's gross sales by 75%.

- - FOSSIL Blue, a line of mainly metal-banded, water resistant sport watches
was introduced. This line of watches, introduced in mid-1996, marked the
Company's first large scale movement into metal-banded as opposed to
leather- banded watches.

- - The Company opened nine additional Outlet Stores for a total of 26 sites
operating at the end of 1996.

- - Three FOSSIL retail stores were opened in 1996 in some of the most
prestigious malls in the U.S.

- - Profits from the Company's European-based operations declined as the
Company continued to invest in international infrastructure in both
existing and new markets, despite a slow down in international revenue
growth.

- - The Company acquired 81% control of its marketing and distribution company
in Japan.

12
<PAGE>

Graphic of Fossil eyewear

13
<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 consolidated statements of income and (ii) the percentage changes in
these line items between the years indicated.

percentage percentage
change change
from year from year
years ended december 31, 1996 1995 1995 1994 1994

Net sales 100.0% 13.7% 100.0% 11.9% 100.0%
Cost of sales (52.4) 9.8 (54.2) 9.1 (55.6)
------------------------------------------
Gross profit 47.6 18.3 45.8 15.3 44.4
Operating expenses (35.8) 18.0 (34.5) 36.7 (28.2)
------------------------------------------
Operating income 11.8 19.1 11.3 (21.9) 16.2
Interest expense (0.6) 7.9 (0.6) 90.8 (0.4)
Other income (expense) -- (116.0) 0.4 (212.3) (0.4)
------------------------------------------
Income before income taxes 11.2 14.4 11.1 (19.2) 15.4
------------------------------------------
Income taxes:
Federal, State, Foreign (4.6) 16.9 (4.4) (15.6) (5.9)
------------------------------------------
Net income 6.6% 12.7% 6.7% (21.4)% 9.5%

14
<PAGE>

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 years indicated (in millions, except percentage
data):

years ended december 31, 1996 1995 1994 1996 1995 1994

International:
Europe $ 45.9 $ 40.0 $ 22.9 22.3% 22.1% 14.1%
Other 15.2 18.7 15.0 7.4 10.3 9.3
------------------------ ----------------------
Total International 61.1 58.7 37.9 29.7 32.4 23.4
------------------------ ----------------------
------------------------ ----------------------
Domestic:
Watch products 86.4 89.4 106.0 41.9 49.4 65.5
Other products 44.5 25.7 17.9 21.6 14.2 11.1
------------------------ ----------------------
Total 130.9 115.1 123.9 63.5 63.6 76.6
Stores 13.9 7.3 -- 6.8 4.0 --
------------------------ ----------------------
Total Domestic 144.8 122.4 123.9 70.3 67.6 76.6
------------------------ ----------------------
Total Net Sales $205.9 $181.1 $161.8 100.0% 100.0% 100.0%
------------------------ ----------------------
------------------------ ----------------------

NET SALES. The growth in net sales during 1996 was principally due to
sales volume increases in the Company's leather goods, sunglass products and
sales generated through the Company's additional owned stores. These same
sales factors, in addition to significant sales volume increases from the
Company's European-based operations, were primarily responsible for net sales
increases in 1995. The Company's European-based sales grew dramatically during
1995 as a result of opening several additional points of distribution in
Europe during late 1994. However, a sluggish economy abroad in 1996 coupled
with a reduction in the number of new points of sale as compared to the
previous year, slowed the 1996 sales growth of our European-based operations
to 14.8%. Domestic sales during 1995 were negatively impacted by both a weak
retail environment and an inventory reduction effort by several of the
Company's major customers. Several retailers, in anticipation of decreased
sales during the 1995 holiday season, began reducing their inventory levels by
decreasing their product reorders commencing in approximately July 1995.

15
<PAGE>

Graphic of Fossil leather goods

<PAGE>

The Company's sales volume was also negatively impacted during 1995 and early
1996 due to a dramatic consumer preference shift from leather-banded to
metal-banded watches. Primarily as a result of new metal-banded watch product
offerings and a stabilization of inventory levels of the Company's
merchandise at its major customers, domestic sales of the Company's watches
increased, beginning the third quarter of 1996 compared to the same period in
1995. Management anticipates that sales volumes will continue to increase in
1997 at approximately the 1996 rate primarily based on increased sales of the
Company's leather goods, as well as continued positive momentum in the sales
of its domestic watch products.

GROSS PROFIT. Gross profit margins increased steadily the last two
years from 44.4% in 1994, to 45.8% in 1995, to 47.6% in 1996. The increases
in gross profit margins are primarily attributable to an increase in the
amount of the Company's watch products supplied by its majority-owned
assembly facilities and an increase in the sales through its European-based
operations. In addition, gross profit margins have been positively impacted
by an increase in the percentage of sales mix of products which generally
provide higher than average gross profit margins, including sunglasses and
sales derived from Company-owned outlet and retail stores. Furthermore,
during 1996, the Company's purchase cost of certain watch components
decreased due 16 to the strength of the U.S. dollar over the Japanese Yen.
Management believes that the Company's gross profit margins in 1997 will
approximate 1996 levels.

OPERATING EXPENSES. Total selling, general and administrative expenses
as a percentage of net sales were 35.8% in 1996 compared to 34.5% in 1995 and
28.2% in 1994. The aggregate increases in operating expenses were due
primarily to costs necessary to support increased sales volumes, operating
costs of new ventures in Japan, France, Spain and the United Kingdom and
operating costs of the Company's outlet and retail stores added throughout
1995 and 1996. In addition to these factors, operating expenses in 1995 were
negatively impacted by a significant sales increase in the Company's
European-based operations. 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 FOSSIL brand name recognition.
Furthermore, operating expenses of FOSSIL outlet and retail stores are
historically substantially higher, as a percentage of sales, than the
consolidated average. Management believes the operating expense ratio during
1997 will approximate 1996 levels. However, the operating expense percentage
for the first quarter of 1997 may exceed the prior year's comparable
percentage due to the negative impact of additional store

17
FOSSIL 1996 ANNUAL REPORT

<PAGE>

operations as compared to the previous year, and from the costs of the
Company's operations in Japan, acquired in the second quarter of 1996, both
of which historically operate at a loss in the first quarter.

OTHER INCOME (EXPENSE). Other income (expense) typically reflects the
minority interests in the profit (loss) of the Company's European-based
operations and majority owned assembly facilities. As a percentage of net
sales, other income (expense) has gone from an expense of 0.4% in 1994, to
income of 0.4% in 1995, to being immaterial in 1996. The increase in 1995 was
primarily attributable to income of $1.0 million from non-recurring
consulting services to a major watch company performed by the Company and
from insurance proceeds of approximately $600,000 received to cover lost
profits resulting from a fire at one of the Company's operations. During
1996, income derived from refunds of certain prior year duty payments in
addition to interest income substantially offset minority interest expense.

PROVISION FOR INCOME TAXES. In 1996, the Company's effective tax rate
increased to 41.0% compared to 40.1% and 38.4% in 1995 and 1994,
respectively. The 1996 increase resulted primarily from losses incurred in
countries where the Company recently commenced operations or has generated
losses from inception. The Company will not recognize any tax benefits in
these countries until realization is assured. During 1995, the effective tax
rate increased mainly due to an increase in the mix of operating income from
the Company's European-based operations, which have tax rates exceeding the
Company's domestic tax rates.

EFFECTS OF INFLATION

Management does not believe that inflation has had a material impact on
results of operations for the periods presented. Substantial increases in
costs, however, could have an impact on the Company and the industry.
Management believes that, to the extent inflation affects its costs in the
future, the Company could generally offset inflation by increasing prices if
competitive conditions permit.

LIQUIDITY AND CAPITAL RESOURCES

The Company's general business operations historically have not required
significant capital expenditures. However, beginning in 1994 the Company
incurred substantial expenditures in building office and distribution
facilities and building out Company owned stores. During 1994, the Company
built a new corporate headquarters and distribution facility. In connection
with this building project the Company had expenditures of approximately $7.0
million. During 1995 and 1996, the Company built out 29 store locations
totaling $3.9 million in leasehold improvement expenditures. Currently the
Company is

18
FOSSIL 1996 ANNUAL REPORT

<PAGE>

building an additional 138,000 sq. ft. warehouse facility on Company owned
property adjacent to its main headquarters. The capital requirements of this
facility and equipment will be approximately $5.0 million. Long-term
financing of $5.0 million was arranged for the 1994 building project of which
$4.6 million remained outstanding as of December 31, 1996. The Company
intends to secure similar long-term financing for the 1997 building project.
The Company has combined short-term credit facilities of approximately $33.0
million available for general working capital needs of which $9.3 million was
outstanding at the end of 1996. Management believes the Company's financial
position as of December 31, 1996 remains extremely strong with working
capital of $60 million and net cash balances (defined as cash and cash
equivalents less current notes payable) of $1.5 million as compared to
working capital of $49 million and negative net cash balances of $1.2 million
as of December 31, 1995. Management believes that cash flow from operations
and existing credit facilities as well as financing for the Company's 1997
building project will be sufficient to satisfy its working capital
expenditure requirements for at least the next twelve months.

FORWARD LOOKING STATEMENTS

Included in the management's discussion of the Company's operating results,
the Company made forward looking statements regarding the expectations for
1997. The actual results could differ materially from those expressed by
these forward looking statements. Significant factors that could cause the
Company's sales, gross profit margins and operating expenses to differ
materially from management's current expectations include, among other items,
significant changes in consumer spending patterns or preferences, competition
in the Company's product areas, international in comparison to domestic sales
mix, changes in foreign currency valuations in relation to the United States
Dollar, principally the German Mark and Japanese Yen, an inability of
management to control operating expenses in relation to net sales without
damaging the long-term direction of the Company and the risks and
uncertainties set forth in the Company's Current Report on Form 8-K dated
March 31, 1997.

SELECTED QUARTERLY FINANCIAL DATA

The table on page 21 sets forth selected quarterly financial information.
This information is derived from unaudited consolidated financial statements
of the Company and includes, in the opinion of management, all normal and
recurring adjustments that management considers necessary for a fair
statement of results for such periods. The operating results for any quarter
are not necessarily indicative of results for any future period.

19
FOSSIL 1996 ANNUAL REPORT

<PAGE>

Graphic of FSL Watch

<PAGE>

<TABLE>

1996 (dollars in thousands, except per share amounts) First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $42,909 $45,238 $52,821 $64,931
Gross profit 19,036 22,463 25,756 30,783
Operating expenses 14,787 17,862 18,478 22,538
Operating income 4,249 4,601 7,278 8,245
Income before income taxes 3,902 4,464 6,491 8,183
Provision for income taxes 1,562 1,880 2,661 3,346
Net income 2,340 2,584 3,830 4,837
Earnings per share 0.18 0.19 0.29 0.36
Gross profit as a percentage of net sales 44.4% 49.7% 48.8% 47.4%
Operating expenses as a percentage of net sales 34.5% 39.5% 35.0% 34.7%
Operating income as a percentage of net sales 9.9% 10.2% 13.8% 12.7%

1995 (dollars in thousands, except per share amounts) First Second Third Fourth
Quarter Quarter Quarter Quarter

Net sales $35,497 $43,340 $43,545 $58,732
Gross profit 16,674 19,972 19,397 26,856
Operating expenses 12,320 14,809 14,860 20,447
Operating income 4,354 5,163 4,537 6,409
Income before income taxes 3,927 4,916 4,659 6,640
Provision for income taxes 1,512 1,910 1,850 2,813
Net income 2,415 3,006 2,809 3,827
Earnings per share 0.18 0.23 0.21 0.29
Gross profit as a percentage of net sales 47.0% 46.1% 44.5% 45.7%
Operating expenses as a percentage of net sales 34.7% 34.2% 34.1% 34.8%
Operating income as a percentage of net sales 12.3% 11.9% 10.4% 10.9%
</TABLE>

<PAGE>

Graphic of Fossil retail display

22
<PAGE>

While the majority of the Company's products are not seasonal in nature,
a significant portion of the Company's net sales and operating income are
generally derived in the second half of the year. The Company's fourth
quarter, which includes the Christmas season, typically generates in excess
of 30% of the Company's annual operating income, while the first quarter
generally accounts for less than 20% of the annual operating income. The
amount of net sales and operating income generated during the first quarter
is affected by the levels of inventory held by retailers at the end of the
Christmas season, as well as general economic conditions and other factors
beyond the Company's control. In general, high levels of inventory at the end
of the Christmas season may have an adverse effect on net sales and operating
income in the first quarter as a result of lower levels of restocking orders
placed by retailers. Management currently believes that the Company's
inventory levels at its major customers as of the end of 1996 were not
substantially above or below targeted levels and therefore should not
significantly impact retailer's restocking orders in the first quarter of
1997. Since the Company has increased the number of owned outlet and retail
stores, the percentage of operating income occurring in the second half of
the year may increase above historical levels in the future. The results of
operations for a particular quarter may also vary due to a number of
factors, including retail, economic and monetary conditions, timing of orders
or holidays and the mix of the products sold by the Company.

FOSSIL 1996 ANNUAL REPORT

<PAGE>

Graphic of Fossil Merchandise

<PAGE>

FINANCIAL INFORMATION

INDEPENDENT AUDITORS' REPORT

To the Directors and Stockholders of Fossil, Inc.:

We have audited the accompanying consolidated balance sheets of Fossil, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, such consolidated financial statements present fairly,
in all material respects, the financial position of Fossil, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ DELOITTE & TOUCHE LLP

Deloitte & Touche LLP
Dallas, Texas
February 15, 1997

REPORT OF MANAGEMENT

The accompanying consolidated financial statements and other information
contained in this Annual Report have been prepared by management. The
financial statements have been prepared in accordance with generally accepted
accounting principles and include amounts that are based upon our best
estimates and judgements.

To help assure that financial information is reliable and that assets
are safeguarded, management maintains a system of internal controls and
procedures which it believes is effective in accomplishing these objectives.
These controls and procedures are designed to provide reasonable assurance,
at appropriate costs, that transactions are executed and recorded in
accordance with management's authorization.

The consolidated financial statements and related notes thereto have
been audited by Deloitte & Touche LLP, independent auditors. The accompanying
auditors' report expresses an independent professional opinion on the
fairness of presentation of management's financial statements.

The Audit Committee of the Board of Directors is composed from the
Company's outside directors, and is responsible for selecting the independent
auditing firm to be retained for the coming year. The Audit Committee meets
periodically with the independent auditors, as well as with management, to
review internal accounting controls and financial reporting matters. The
independent auditors also meet privately on occasion with the Audit
Committee, to discuss the scope and results of their audits and any
recommendations regarding the system of internal accounting controls.

/s/ TOM KARTSOTIS /s/ RANDY S. KERCHO

Tom Kartsotis Randy S. Kercho
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer

FOSSIL 1996 ANNUAL REPORT

<PAGE>

CONSOLIDATED BALANCE SHEETS

ASSETS december 31, 1996 1995

Current assets:
Cash and cash equivalents $ 11,981,246 $ 5,980,535
Accounts receivable -- net 30,252,964 24,932,467
Inventories 49,782,555 42,515,468
Deferred income tax benefits 3,666,344 3,290,419
Prepaid expenses and other current assets 1,942,791 1,428,273
----------------------------
Total current assets 97,625,900 78,147,162

Property, plant and equipment -- net 16,718,976 15,464,559
Intangible and other assets 4,633,193 3,381,806
----------------------------

Total assets $118,978,069 $ 96,993,527
----------------------------

Liabilities and Stockholders' Equity

Current liabilities:
Notes payable:
Banks $ 9,505,400 $ 6,044,462
Affiliates 1,000,744 1,128,574
Accounts payable 7,476,324 5,173,792
Accrued expenses:
Co-op advertising 7,857,196 6,181,063
Compensation 2,154,996 2,711,800
Other 7,931,693 4,835,474
Income taxes payable 1,838,656 2,820,890
----------------------------

Total current liabilities 37,765,009 28,896,055
----------------------------

Long-term debt 4,350,000 4,811,298
Commitments
Minority interests in subsidiaries 2,295,026 2,016,716

Stockholders' equity:
Common stock, shares issued and outstanding --
13,242,994 and 13,182,333, respectively 132,430 131,823
Additional paid-in capital 22,766,468 22,219,692
Retained earnings 52,315,069 38,723,962
Cumulative translation adjustment (645,933) 193,981
----------------------------

Total stockholders' equity 74,568,034 61,269,458
----------------------------

$118,978,069 $ 96,993,527
----------------------------

See notes to consolidated financial statements.

FOSSIS 1996 ANNUAL REPORT

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
years ended december 31, 1996 1995 1994
<S> <C> <C> <C>
Net sales $205,899,262 $181,114,447 $161,883,257
Cost of sales 107,861,291 98,214,748 90,003,683
--------------------------------------------
Gross profit 98,037,971 82,899,699 71,879,574
Operating expenses:
Selling and distribution 50,638,117 42,581,303 30,748,099
General and administrative 23,026,895 19,854,943 14,914,808
--------------------------------------------

Total operating expenses 73,665,012 62,436,246 45,662,907
--------------------------------------------

Operating income 24,372,959 20,463,453 26,216,667
Interest expense (1,205,233) (1,116,883) (585,317)
Other income (expense) -- net (127,619) 795,894 (708,433)
--------------------------------------------

Income before income taxes 23,040,107 20,142,464 24,922,917
Provision for income taxes 9,449,000 8,085,000 9,578,000
--------------------------------------------

Net income $ 13,591,107 $ 12,057,464 $ 15,344,917
--------------------------------------------

Earnings per share $ 1.02 $ 0.91 $ 1.15
--------------------------------------------

Weighted average common and
common equivalent shares outstanding 13,378,435 13,293,040 13,303,948
</TABLE>

See notes to consolidated financial statements.

FOSSIL 1996 ANNUAL REPORT

<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
common stock
--------------------- additional cumulative total
par paid-in retained translation stockholders'
shares value capital earnings adjustment equity
--------------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 13,125,499 $131,255 $21,739,386 $11,321,581 $(167,206) $33,025,016
Common stock issued
upon exercise of
stock options 37,425 374 283,369 -- -- 283,743
Net income -- -- -- 15,344,917 -- 15,344,917
Foreign currency
translation adjustment -- -- -- -- 252,069 252,069
---------- -------- ----------- ----------- ---------- -----------

Balance at
December 31, 1994 13,162,924 131,629 22,022,755 26,666,498 84,863 48,905,745
Common stock issued
upon exercise of
stock options 19,409 194 196,937 -- -- 197,131
Net income -- -- -- 12,057,464 -- 12,057,464
Foreign currency
translation adjustment -- -- -- -- 109,118 109,118
---------- -------- ----------- ----------- ---------- -----------

Balance at
December 31, 1995 13,182,333 131,823 22,219,692 38,723,962 193,981 61,269,458
Common stock issued
upon exercise of
stock options 10,661 107 106,651 -- -- 106,258
Common stock issued for
purchase of certain
minority interests 50,000 500 440,125 -- -- 441,125
Net income -- -- -- 13,591,107 -- 13,591,107
Foreign currency
translation adjustment -- -- -- -- (839,914) (839,914)
---------- -------- ----------- ----------- ---------- -----------

Balance at
December 31, 1996 13,242,994 $132,430 $22,766,468 $52,315,069 $(645,933) $74,568,034
---------- -------- ----------- ----------- ---------- -----------
</TABLE>

28 See notes to consolidated financial statements.

FOSSIL 1996 ANNUAL REPORT

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 13,591,107 $12,057,464 $ 15,344,917
Noncash items affecting net income:
Minority interest in subsidiaries 362,084 685,055 773,940
Depreciation and amortization 3,125,598 2,481,649 1,502,958
Equity in net income of affiliate -- -- (82,975)
Increase in allowance for doubtful accounts 1,424,243 911,298 988,281
Increase in allowance for returns --
net of related inventory in transit 183,382 347,508 1,049,550
Deferred income tax benefits (375,925) (504,236) (1,056,531)
Cumulative translation adjustment (839,914) 109,118 196,833
Cash from (used for) changes in assets and liabilities:
Accounts receivable (5,384,069) 1,526,055 (18,503,546)
Inventories (6,353,919) (9,611,015) (12,275,154)
Prepaid expenses and other current assets 82,839 (655,458) (244,600)
Accounts payable 2,125,766 1,303,388 1,522,613
Accrued expenses 3,989,332 2,314,422 6,284,808
Income taxes payable (992,803) 806,227 (1,595,733)
----------- ----------- ------------
Net cash from (used in) operation 10,937,721 11,771,475 (6,094,639)
----------- ----------- ------------

Investing Activities:
Net assets acquired in business combination/consolidation,
net of cash received (634,734) -- 467,365
Additions to property, plant and equipment (4,183,990) (6,225,894) (8,233,470)
Increase in intangible and other assets (391,669) (1,179,619) (665,701)
----------- ----------- ------------
Net cash used in investing activities (5,210,393) (7,405,513) (8,431,806)
----------- ----------- ------------

Financing Activities:
Issuance of common stock 547,383 197,131 283,743
Increase (decrease) in minority interests in subsidiaries (83,774) (368,714) 355,088
Issuance of notes payable -- affiliates -- 1,128,574 --
Repayment of notes payable -- affiliates (127,830) (1,000,000) (1,000,000)
Increase (repayments) in notes payable -- bank (62,396) (659,240) 11,515,000
Distributions to S Corporation stockholders -- -- (1,077,500)
----------- ----------- ------------
Net cash from (used in) financing activities 273,383 (702,249) 10,076,331
----------- ----------- ------------

Net increase (decrease) in cash and cash equivalents 6,000,711 3,663,713 (4,450,114)
Cash and cash equivalents:
Beginning of year 5,980,535 2,316,822 6,766,936
----------- ----------- ------------
End of year $11,981,246 $ 5,980,535 $ 2,316,822
----------- ----------- ------------
----------- ----------- ------------
</TABLE>

See notes to consolidated financial statements. 29

FOSSIL 1996 ANNUAL REPORT

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Fossil, Inc., a
Delaware corporation, and its subsidiaries (the "Company"). Significant
intercompany balances and transactions are eliminated in consolidation. The
organizational structure of the Company's U.S.-based operations was changed
in August 1994 by transferring substantially all of its assets and
liabilities, except those connected with investments in subsidiaries,
trademarks, or similar intangible assets, to Fossil Partners, L.P., a Texas
limited partnership. Fossil, Inc. is the sole managing general partner of
Fossil Partners, L.P. The company is primarily engaged in the design,
development and distribution of 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.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

CASH EQUIVALENTS are considered all highly liquid investments with
original maturities of three months or less.

ACCOUNTS RECEIVABLE are stated net of allowances of $8,854,453 and
$9,034,124 for estimated customer returns and $4,292,145 and $2,856,066 for
doubtful accounts at December 31, 1996 and 1995, respectively.

INVENTORIES are stated at the lower of average cost, including any
applicable duty and freight charges, or market.

PROPERTY, PLANT AND EQUIPMENT are stated at cost less accumulated
depreciation and amortization. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets of three
to ten years for equipment and thirty years for buildings. Leasehold
improvements are amortized over the shorter of the lease term or the asset's
useful life.

INTANGIBLE AND OTHER ASSETS include the cost in excess of tangible
assets acquired, noncompete agreements and trademarks, which are amortized
using the straight-line method over the estimated useful lives of generally
twenty, three and five years, respectively.

CUMULATIVE TRANSLATION ADJUSTMENT in stockholders' equity reflects the
unrealized adjustments resulting from translating the financial statements of
foreign subsidiaries. The functional currency of the Company's foreign
subsidiaries is the local currency of the country. Accordingly, assets and
liabilities of the foreign subsidiaries are translated to U.S. dollars at
year-end exchange rates. Income and expense items are translated at the
average rates prevailing during the year. Changes in exchange rates which
affect cash flows and the related receivables or payables are recognized as
transaction gains and losses in the determination of net income. The Company
realized net foreign currency losses of approximately $308,000, $151,000 and
$104,000 for 1996,1995 and 1994 respectively, which have been included in
other income (expense).

FORWARD CONTRACTS are entered into by the Company 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 December 31, 1996, the Company had hedge contracts to sell
6,000,000 deutsche marks for approximately $4.1 million, expiring through
July 1997.

REVENUES are recognized as sales when merchandise is shipped. Company
permits the return of damaged or defective products and accepts limited
amounts of product returns in certain other instances. Accordingly, the
Company provides allowances for the estimated amounts of these returns at the
time of revenue recognition.

ADVERTISING costs for in-store and media advertising as well as co-op
advertising and promotional allowances are expensed as incurred. Advertising
expenses for the years ended December 31, 1996, 1995 and 1994 were approxi
mately $14,919,000, $14,254,000 and $12,676,000, respectively.

30 FOSSIL 1996 ANNUAL REPORT
<PAGE>

DEFERRED INCOME TAXES are provided for under the asset and liability
method for temporary differences in the recognition of certain revenues and
expenses for tax and financial reporting purposes.

EARNINGS PER SHARE is based on the weighted average number of common and
common equivalent shares outstanding during each period.

FAIR VALUE OF FINANCIAL INSTRUMENTS are estimated to approximate the
related book values, unless otherwise indicated, based on market information
available to the Company.

2. ACQUISITIONS

Effective April 1, 1996, the Company invested approximately $700,000 in cash
for an 81% interest in Kabushiki Kaisha Fossil Japan, a Japanese corporation
("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 has been accounted for as a purchase, and in connection
therewith, the Company recorded goodwill of approximately $300,000.

In May 1993, the Company formed Fossil Europe b.v., a Netherlands
holding company ("FOSSIL B.V."). The Company contributed $1.43 million to the
joint venture for 70% of Fossil b.v.'s outstanding common stock. In July
1995, the Company acquired an additional 18% of Fossil b.v.'s outstanding
common stock from its minority stockholders for approximately $1.68 million,
of which approximately $1.32 million was recorded as goodwill. Effective
October 1, 1996, the Company acquired the remaining 12% of Fossil b.v.'s
outstanding common stock from its minority stockholders for $1.0 million in
cash, 50,000 shares of the Company's $0.01 par value common stock ("Common
Stock") and the issuance of options to acquire 20,000 shares of Common Stock,
of which approximately $1.0 million was recorded as goodwill, Fossil b.v.'s
initial purpose was to form and purchase through Fossil Europe GmbH ("Fossil
GmbH") certain inventory and fixed assets from the Company's prior distributor
in Germany. During 1994, Fossil b.v. formed an Italian subsidiary, Fossil
Italia, S.r.l., ("Fossil Italy") and invested approximately $7,500 for a 60%
equity interest in the Italian subsidiary. Fossil b.v. also formed a wholly
owned subsidiary in both France and the United Kingdom, during 1995, and in
Spain, during 1996. Each of these subsidiaries is generally responsible for
sales and operations within their respective countries with the exception of
Fossil GmbH, which acts as the Company's main marketing and distribution
point in Europe.

The balance sheets and results of operations of these subsidiaries and
affiliates are included in the accompanying consolidated financial statements
since the dates of their formation or acquisition.

3. INVENTORIES

Inventories consist of the following:
DECEMBER 31,
-------------------------
1996 1995
----------- -----------

Components and parts $ 2,294,750 $ 1,929,100
Work-in-process 657,125 546,917
Finished merchandise on hand 38,404,535 33,406,561
Merchandise at Company's stores 3,962,199 1,805,890
Merchandise in-transit from customer returns 4,463,946 4,827,000
----------- -----------
$49,782,555 $42,515,468
----------- -----------
----------- -----------

FOSSIL 1996 ANNUAL REPORT 31

<PAGE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

december 31, 1996 1995

Land $ 2,535,361 $ 2,535,361
Building 4,982,164 4,855,898
Office and store furniture and fixtures 5,960,469 5,042,603
Equipment 4,446,863 3,724,761
Computer software 1,203,440 981,453
Leasehold improvements 5,260,858 3,116,370
-------------------------
24,389,155 20,256,446
Less accumulated depreciation and amortization 7,670,179 4,791,887
-------------------------
$16,718,976 $15,464,559

5. INTANGIBLE AND OTHER ASSETS

Intangibles and other assets consist of the following:

december 31, 1996 1995

Costs in excess of tangible net assets acquired $ 4,031,643 $ 2,770,751
Noncompete agreement 475,000 475,000
Trademarks 528,132 442,969
Deposits 453,213 310,261
Other 253,411 276,997
-------------------------
5,741,399 4,275,978
Less accumulated amortization 1,108,206 894,172
-------------------------
$ 4,633,193 $ 3,381,806

6. DEBT

BANKS. In December 1993, the Company acquired a 20-acre parcel of land in
Richardson, Texas. Approximately ten acres was utilized as a site for the
Company's new corporate offices and distribution facility, completed in July
1994. In August 1994, the Company signed a $5.0 million financing agreement
with its primary bank ("Long-Term Revolver") to partially finance the
approximate $7.0 million cost of the facility and for other general corporate
purposes. The financing agreement is for a ten-year revolving term loan with
quarterly payments equal to 1% of the stated principal amount of the facility.
The interest rate is the lender's prime rate (8.25% at December 31, 1996) and
is payable quarterly. The financing agreement additionally allows for interest
to be calculated at the London Interbank Offered Rate ("LIBOR") (5.53% at
December 31, 1996), plus 1.25%. In connection with the financing agreement the
Company agreed to pay an origination fee equal to .75% of the original
principal amount of the facility and an unused fee of .50% per annum. At
December 31, 1996, $4.55 million was outstanding under this facility of which
$200,000 is due during 1997. Interest expense under these

32
FOSSIL 1996 ANNUAL REPORT
<PAGE>

credit facilities was $1,104,140, $855,631, and $456,063 for 1996, 1995 and
1994 respectively. In April 1996, the Company amended its short-term
revolving credit facility in the United States ("U.S. 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
borrowings under the amended facility bore interest at the bank's prime rate
less 0.5% or the Euroyen rate plus 1.00% (1.58% at December 31, 1996), at the
option of the Company. In May 1996, the Company renewed its U.S. short-term
revolver through May 3, 1997. At the time of the renewal, the Company
increased the funds available under the facility by $5,000,000 to the lesser
of $30,000,000 or the result of a calculated borrowing base, determined
principally on the Company's cash flow, as defined within the loan agreement.
The U.S. short-term revolver is collateralized by substantially all the
Company's assets and requires the maintenance of specific levels of tangible
net worth, working capital and financials ratios. In December 1996, the
Company entered into a short-term revolving credit facility in Japan ("Japan
short-term revolver") with a Japan-based bank and paid off all Yen Borrowings
which were outstanding under the U.S. short-term revolver. The borrowings
under the Japan short-term revolver are in Yen and bear interest at the
Euroyen rate plus 0.5% (1.08% at December 31, 1996). The Japan short-term
revolver is collateralized by a standby letter of credit issued by the
Company's primary U.S. bank. As of December 31, 1996, based on the borrowing
formula, the entire U.S. credit facility was available, less borrowings. The
Company as of December 31, 1996, had total cash borrowings under the U.S. and
Japan short-term revolvers of approximately $6,500,000 and $2,805,000,
respectively.

During April 1995, Pulse Time purchased its office facilities in Hong
Kong and signed a financing agreement with its primary bank for approximately
$350,000 ("Term Loan") to partially finance the approximate $650,000 cost of
the facility. The financing agreement was for a seven-year term loan with
monthly payments of approximately 1.2% of the stated principal amount plus
interest, calculated at bank prime rate in the United States plus 1.5%. The
entire note balance was paid in full during 1996.

During the first quarter of 1995, Fossil GmbH entered into a short-term
credit facility with each of two German-based banks. No borrowings were
outstanding under the combined credit facilities at December 31, 1996, with
outstanding borrowings of 4,000,000 deutsche marks (approximately $2.8
million) at December 31, 1995. Outstanding borrowings under the facilities
bear interest at approximately 6% and are collateralized by substantially all
of Fossil GmbH's assets.

At December 31, 1996 and 1995, the Company had outstanding letters of
credit of approximately $2,695,000, and $592,000, respectively, to vendors for
the purchase of merchandise.

AFFILIATES. In connection with the Company's initial public offering in
April 1993, the Company issued notes payable to stockholders of $10,910,000
which represented S Corporation distributions; $8,910,000 was paid from a
portion of the public offering proceeds and an additional $1,000,000 was paid
during both 1994 and 1995. Interest paid to stockholders totaled $20,000 and
$84,444 for 1995, and 1994, respectively. On March 31, 1993, two separate
dividends were declared payable by the Company to the stockholders as of that
date as follows: (i) $1,787,000 of which $1,077,500 remained payable as of
December 31, 1993 and was paid during 1994 and (ii) $1,500,000 was declared
representing a return on their investment in the Company, which was paid in
December 1993.

The minority stockholders of Fossil Italy are providing a portion of the
short-term financing for that entity. The credit agreement between Fossil b.v.
and the minority stockholders requires short-term financing be provided in the
amount of approximately $1.1 million at an interest rate equivalent to the
bank prime interest rate in the United States, payable based on certain
financial covenants being attained within Fossil Italy. Interest paid to the
minority stockholders totaled approximately $75,000 for the year ended
December 31, 1995. No interest was paid to minority interest stockholders for
the year ended December 31, 1996.

33
FOSSIL 1996 ANNUAL REPORT
<PAGE>

7. OTHER INCOME (EXPENSE) -- NET

Other income (expense) -- net consists of the following:

years ended december 31, 1996 1995 1994

Consulting fees $ - $1,000,000 $ -
Insurance proceeds above book value 101,814 579,673 -
Minority income (expense) (840,084) (685,055) (773,940)
Legal settlements 50,000 (251,000) (25,000)
Duty drawback 321,836 - -
Interest income 235,098 91,896 69,423
Other income (expense) 3,717 60,380 21,084
-----------------------------------
$(127,619) $ 795,894 $(708,433)

8. INCOME TAXES

Deferred income tax benefits reflect the net tax effects of deductible
temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
The tax effects of significant items comprising the Company's net deferred tax
benefits, consist of the following:

december 31, 1996 1995

Deferred tax assets:
Bad debt allowance $ 1,146,268 $ 890,283
Returns allowance 2,835,344 2,914,393
263(a) capitalization of inventory 555,135 598,121
Miscellaneous tax asset items 655,514 455,837
Deferred tax liabilities:
In-transit returns inventory (1,525,917) (1,568,215)
--------------------------
Net current deferred tax benefits $ 3,666,344 $ 3,290,419

Management believes that no valuation allowance against net deferred tax
benefits is necessary. The resulting provision for income taxes consists of
the following:

years ended december 31, 1996 1995 1994

Current expense:
United States $6,776,925 $5,932,384 $ 9,259,841
Foreign 3,048,000 2,656,852 1,374,690
Deferred benefit - United States (375,925) (504,236) (1,056,531)
--------------------------------------
Provision for income taxes $9,449,000 $8,085,000 $ 9,578,000

34
FOSSIL 1996 ANNUAL REPORT
<PAGE>

A reconciliation of income tax computed at the U.S. Federal statutory income
tax rate of 35% to the provision for income taxes is as follows:

years ended december 31, 1996 1995 1994

Tax at statutory rate $8,064,037 $7,049,862 $8,723,021
State, net of federal tax benefit 194,312 288,073 477,381
Other 1,190,651 747,065 377,598
-------------------------------------
Provision for income taxes $9,449,000 $8,085,000 $9,578,000

Deferred U.S. federal income taxes are not provided on certain undistributed
earnings of foreign subsidiaries as management plans to continue reinvesting
these earnings outside the United States. Determination of such tax amounts is
not practical because potential offset by U.S. foreign tax credits would be
available under various assumptions involving the tax calculation.

9. COMMITMENTS

LICENSE AGREEMENTS. The Company has various license agreements to market
watches bearing certain trademarks owned by various entities. In accordance
with these agreements, the Company incurred royalty expense of $1,365,579,
$1,299,976, and $1,591,530 in 1996, 1995, and 1994, respectively. These
amounts are included in the Company's cost of sales. The Company has several
agreements in effect at December 31, 1996, which expire on various dates from
April 1997 to December 1999, and require the Company to pay royalties ranging
from 5% to 15% of defined net sales. Future minimum royalty commitments under
such license agreements at December 31, 1996, are as follows:

Royalties
---------
1997 $299,000
1998 164,000
1999 213,000
--------
$676,000

LEASES. The Company leases its retail and outlet store facilities as well as
certain of its office facilities and equipment under non-cancelable operating
leases. Most of the retail store leases provide for contingent rental based on
operating results and require the payment of taxes, insurance and other costs
applicable to the property. Generally, these leases include renewal options
for various periods at stipulated rates. Rent expense under these agreements
was $3,698,981, $2,288,677, and $1,264,26 for 1996, 1995 and 1994,
respectively. Future minimum rental commitments under such leases at December
31, 1996, are as follows:

35
FOSSIL 1996 ANNUAL REPORT
<PAGE>

Leases
-----------
1997 $ 3,755,000
1998 2,655,000
1999 2,458,000
2000 2,032,000
2001 1,628,000
Thereafter 2,721,000
-----------
$15,249,000

10. STOCKHOLDER'S EQUITY AND BENEFIT PLANS

The Company has 50,000,000 shares of authorized $0.01-par-value common stock
("Common Stock"), with 13,242,994 and 13,182,333 shares issued and outstanding
at December 31, 1996 and 1995, respectively. The Company has 1,000,000 shares
of authorized $0.01-par-value preferred stock with none issued or outstanding.

SAVINGS PLAN. The Company has a savings plan in the form of a defined
contribution plan (the "401(k) plan") established in July 1992 for
substantially all full-time employees of the Company. Employees are eligible
to participate in the 401(k) plan after one year of service. The Company
matches 50% of employee contributions up to 3% of their compensation and 25%
of the employee contributions between 3% and 6% of their compensation. The
Company also has the right to make certain additional matching contributions
not to exceed 15% of employee compensation. The Company's Common Stock is one
of several investment alternatives available under the 401(k) plan. Matching
contributions made by the Company to the 401(k) plan totaled $129,035,
$97,808, and $55,971 for 1996, 1995 and 1994, respectively.

LONG-TERM INCENTIVE PLAN. An aggregate of 1,150,000 shares of Common
Stock were reserved for issuance pursuant to the 1993 Fossil Long-Term
Incentive Plan ("Incentive Plan"), adopted April 1993. An additional 600,000
shares were reserved in 1995 for issuance under the Incentive Plan. Designated
employees of the Company, including officers and directors, are eligible to
receive (i) stock options, (ii) stock appreciation rights, (iii) restricted or
nonrestricted stock awards, (iv) cash awards or (v) any combination of the
foregoing.

The Incentive Plan is administered by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee"). Each option
issued under the Incentive Plan terminates at the time designated by the
Compensation Committee, not to exceed ten years. The current options
outstanding predominately vest over a three-year period and were priced at not
less than estimated fair market value of the Company's Common Stock at the
date of grant. Effective January 10, 1996, the Company offered the
participants under the Incentive Plan the opportunity to exchange any
outstanding stock option grants with an exercise price of $15.50 or above for
a pro-rata number of options at a $10.00 exercise price. The pro-rata number
of options offered in exchange was equivalent to the total number of options
outstanding for each grant exchanged multiplied by the percentage figure
calculated by dividing $10.00 by the optionees's previous exercise price. A
total of 244,325 options with exercise prices ranging from $15.50 to $28.50
were canceled in exchange for 130,794 options with an exercise price of
$10.00. The weighted average fair value of the stock options granted during
1996, 1995 and 1994 were $4.94, $7.56 and $10.64, respectively.

NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. An aggregate of 100,000 shares of
Common Stock were reserved for issuance pursuant to this nonqualified stock
option plan, adopted April 1993. During the first year an individual is

36
FOSSIL 1996 ANNUAL REPORT

<PAGE>

elected as a nonemployee director of the Company, they receive a grant of
5,000 nonqualified stock options. In addition, on the first day of each
subsequent calendar year, each nonemployee director will automatically
receive a grant of an additional 3,000 nonqualified stock options, so long
as the person is serving as a nonemployee director.

Pursuant to this plan, 50% of the options granted will become
exercisable on the first anniversary of the date of grant and in two
additional installments of 25% on the second and third anniversaries. The
exercise prices of options granted under this plan were not less than the
fair market value of the Common Stock at the time of grant. The weighted
average fair value of the stock options granted during 1996, 1995 and 1994
were $5.17, $8.69, and $19.00, respectively. The fair value of options
granted under the Company's stock option plans during 1996, 1995 and 1994
were estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used: no dividend
yield, expected volatility of approximately 65%, risk free interest rate of
6.11%, and expected life of 5 years. The following tables summarize the
Company's stock option activity:

INCENTIVE PLAN

<TABLE>
weighted weighted
average average
exercise exercise exercise
price price price available
per share per share outstanding per share exercisable for grant
------------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1993 $ 7.50-$18.50 $ 8.126 202,950 -- -- 947,050

Granted $15.50-$28.50 $18.866 298,650 -- -- (298,650)
Exercised $ 7.50-$11.50 $ 7.581 (37,425) -- -- --
Canceled $ 7.50-$27.50 $18.000 (7,075) -- -- 7,075
Exercisable $ 7.50-$18.50 -- -- $ 8.210 68,925 --
----------------------------------------------------------------------------

At December 31, 1994 $ 7.50-$28.50 $14.655 457,100 $ 8.210 68,925 655,475
Shares designated for
grant through the
Incentive Plan -- -- -- -- -- 600,000
Granted $8.875-$25.50 $12.550 326,200 -- -- (326,200)
Exercised $ 7.50-$19.50 $10.157 (19,409) -- -- --
Canceled $ 7.50-$26.75 $11.045 (33,950) -- -- 33,950
Exercisable -- -- -- $14.220 166,729 --
----------------------------------------------------------------------------

At December 31, 1995 $ 7.50-$28.50 $13.894 729,941 $14.212 235,654 963,225
Granted $6.625-$15.875 $ 7.984 552,194 -- -- (552,194)
Exercised $ 7.50-$13.625 $10.014 (10,661) -- -- --
Canceled $6.625-$28.50 $17.391 (300,207) -- -- 300,207
Exercisable -- -- -- $10.652 176,600 --
----------------------------------------------------------------------------

At December 31, 1996 $6.625-$25.75 $ 9.782 971,267 $10.430 412,254 711,238
</TABLE>

37
FOSSIL 1996 ANNUAL REPORT

<PAGE>

NONEMPLOYEE DIRECTOR PLAN

Granted $19.00 $19.00 14,000 -- -- (14,000)
Exercisable $ 7.50 -- -- $ 7.50 7,500 --
-----------------------------------------------------------------------------

At December 31, 1994 $ 7.50 -$19.00 $11.813 24,000 $ 7.500 7,500 76,000
Granted $13.125-$17.125 $14.554 14,000 -- -- (14,000)
Exercisable $ 7.50 -$19.00 -- -- $13.772 8,250 --
-----------------------------------------------------------------------------

At December 31, 1995 $ 7.50 -$19.00 $12.822 38,000 $10.786 15,750 62,000
Granted $ 8.375 $ 8.375 12,000 -- -- (12,000)
Exercisable $ 7.50 -$19.00 -- -- $13.289 13,000 --
-----------------------------------------------------------------------------

At December 31, 1996 $ 7.50 -$19.00 $11.755 50,000 $11.917 28,750 50,000
</TABLE>

Additional weighted average information for options outstanding and exercisable
as of December 31, 1996:

<TABLE>
options outstanding options exercisable
----------------------- ---------------------
weighted weighted weighted
average average average
range of exercise remaining exercise
exercise number price contractual number of price
prices of shares per share life shares per share
-------------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Incentive Plan: $ 6.625-$12.99 696,510 $ 8.269 8 years 186,707 $ 8.842
$13.00 -$25.75 274,757 $13.617 8 years 225,547 $13.781
Nonemployee
Director Plan: $ 7.50 -$12.99 27,000 $ 7.889 7 years 15,000 $ 7.500
$13.00 -$19.00 23,000 $16.293 8 years 13,750 $16.736
</TABLE>

The Company applies Accounting Principles Board Opinion No.25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation cost (generally measured as the excess, if any, of the quoted
market price of the Common Stock at the date of the grant over the amount an
employee must pay to acquire the Common Stock) has been recognized for the
Company's stock option plans. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123") issued by the
Financial Accounting Standards Board in 1995, prescribed a method to record
compensation cost for stock-based employee compensation plans at fair value.
Pro forma disclosures as if the Company had adopted the cost recognition
requirements under SFAS 123 in 1996 and 1995 are presented below. Because the
SFAS 123 method of accounting has not been applied to options granted prior
to January 1, 1995, the resulting pro forma compensation cost may not be
representative of that expected in future years.

38
FOSSIL 1996 ANNUAL REPORT

<PAGE>

years ended december 31, 1996 1995
Net income:
As reported $13,591,107 $12,057,464
Pro forma $12,254,598 $11,345,196

Earnings per share:
As reported $ 1.02 $ 0.91
Pro Forma $ 0.92 $ 0.85

11. SUPPLEMENTAL CASH FLOW INFORMATION

The following is provided as supplemental information to the consolidated
statements of cash flows:

<TABLE>
years ended december 31, 1996 1995 1994
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 1,117,107 $ 1,073,248 $ 521,920
Income taxes $11,614,532 $ 7,424,463 $12,256,101
</TABLE>

12. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

Customers of the Company consist principally of major department stores and
specialty retailers located throughout the United States. The most
significant customers, individually or considered as a group under common
ownership, which accounted for over 10% of net sales for the periods
presented, were as follows:

<TABLE>
years ended december 31, 1996 1995 1994
<S> <C> <C> <C>
Customer A 11% 12% --
Customer B 10% -- --
</TABLE>

39
FOSSIL 1996 ANNUAL REPORT

<PAGE>

The Company operates in a single industry, as a designer, developer, marketer
and distributor of fashion watches and other accessories. Information about
the Company's operations in the United States and international markets in
1996, 1995 and 1994 is presented below. Intercompany sales of products
between geographic areas are referred to as intergeographic items. These
intercompany sales primarily consist of product sales from the Far East into
the u.s. and European operations which are priced at cost plus a 5%-8% trade
agent commission.

year ended december 31, 1996 Net Sales Operating Income Assets

United States $158,159,270 $17,741,711 $ 78,302,341
Europe 45,926,815 1,781,220 27,842,878
Far East 66,270,186 5,008,243 8,335,684
Japan 6,266,671 (158,215) 4,497,166
Intergeographic items (70,723,680) -- --
---------------------------------------------

Consolidated $205,899,262 $24,372,959 $118,978,069

year ended december 31, 1996 Net Sales Operating Income Assets

United States $134,747,319 $14,293,470 $ 64,772,200
Europe 40,053,692 1,701,085 24,795,443
Far East 69,430,240 4,468,898 7,425,884
Intergeographic items (63,116,804) -- --
---------------------------------------------

Consolidated $181,114,447 $20,463,453 $ 96,993,527

year ended december 31, 1996 Net Sales Operating Income Assets

United States $138,934,157 $19,348,201 $ 58,224,508
Europe 23,155,617 1,758,554 11,996,136
Far East 92,959,221 5,109,912 10,199,458
Intergeographic items (93,165,738) -- --
---------------------------------------------

Consolidated $161,883,257 $26,216,667 $ 80,420,102

40
FOSSIL 1996 ANNUAL REPORT

<PAGE>

information

CORPORATE

<TABLE>

EXECUTIVE OFFICERS AND DIRECTORS
<S> <C> <C>
Tom Kartsotis Randy S. Kercho Kenneth W. Anderson
Chairman of the Board and Executive Vice President Director
Chief Executive Officer and Chief Financial Officer

Kosta N. Kartsotis Mark D. Quick Alan J. Gold
President, Executive Vice President Director
Chief Operating Officer
and Director

Michael W. Barnes T.R. Tunnell Alan D. Moore
Executive Vice President Senior Vice President, Director
and Director Development Chief Legal
Officer and Secretary

Richard H. Gundy Jal S. Shroff Donald J. Stone
Executive Vice President Managing Director- Director
Fossil East and Director

CORPORATE INFORMATION

Transfer Agent and Registrar Independent Auditors Corporate Counsel
ChaseMellon Shareholder Deloitte & Touche LLP Jenkens & Gilchrist
Services LLC 2200 Ross Avenue 1445 Ross Avenue
Overpeck Centre Dallas, TX 75201 Dallas, TX 75202
85 Challenger Road
Ridgefield Park, NJ 07760

INTERNET WEB SITE

The Company maintains a web site at the worldwide web internet address
of www.fossil.com. Certain product, event, press release and collector
club information concerning the Company is available at the site.

STOCKHOLDER INFORMATION

Annual Meeting
The Annual Meeting of Stockholders will be held on Thursday, May 22, 1997,
at 4:00 pm at the Company's headquarters, 2280 N. Greenville Ave., Richardson,
Texas.