UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 1997 to April 5, 1997
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, RICHARDSON, TEXAS 75082
(Address of principal executive offices)
(Zip Code)
(972) 234-2525
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
The number of shares of Registrant's common stock,
outstanding as of May 14, 1997: 13,251,511.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 5, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 12,360,676 $ 11,981,246
Accounts receivable - net 28,705,187 30,252,964
Inventories 49,364,413 49,782,555
Deferred income tax benefits 3,605,725 3,666,344
Prepaid expenses and other current assets 1,896,981 1,942,791
--------- ----------
Total current assets 95,932,982 97,625,900
Property, plant and equipment - net 16,973,912 16,718,976
Intangible and other assets 4,817,645 4,633,193
--------- ----------
$ 117,724,539 $ 118,978,069
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
NOTES PAYABLE $ 11,506,661 $ 10,506,144
ACCOUNTS PAYABLE 4,787,109 7,476,324
ACCRUED EXPENSES:
CO-OP ADVERTISING 6,928,228 7,857,196
COMPENSATION 2,024,937 2,154,996
OTHER 5,033,130 7,931,693
INCOME TAXES PAYABLE 3,715,775 1,838,656
--------- ----------
TOTAL CURRENT LIABILITIES 33,995,840 37,765,009
LONG-TERM DEBT 4,300,000 4,350,000
MINORITY INTERESTS IN SUBSIDIARIES 1,138,686 2,295,026
STOCKHOLDERS' EQUITY:
COMMON STOCK, SHARES ISSUED AND OUTSTANDING,
13,373,791 AND 13,242,994, RESPECTIVELY 133,738 132,430
ADDITIONAL PAID-IN CAPITAL 24,021,508 22,766,468
RETAINED EARNINGS 55,289,493 52,315,069
CUMULATIVE TRANSLATION ADJUSTMENT (1,154,726) (645,933)
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 78,290,013 74,568,034
---------- ----------
$ 117,724,539 $ 118,978,069
============= =============
</TABLE>
1
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
APRIL 5, March 31,
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 47,449,712 $ 42,909,068
Cost of sales 24,254,354 23,873,281
---------- ----------
Gross profit 23,195,358 19,035,787
Operating Expenses:
Selling and distribution 12,001,025 9,495,149
General and administrative 5,733,569 5,291,847
--------- ----------
Total operating expenses 17,734,594 14,786,996
---------- ----------
Operating income 5,460,764 4,248,791
Interest expense (229,550) (176,010)
Other income (expense) - net (189,790) (170,817)
--------- ---------
Income before income taxes 5,041,424 3,901,964
Provision for income taxes 2,067,000 1,562,000
--------- ---------
Net income $ 2,974,424 $ 2,339,964
============ ============
Earnings per share $ 0.22 $ 0.18
============ ============
Weighted average common and
common equivalent shares
outstanding 13,603,828 13,248,347
========== ============
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
---------------------
APRIL 5, March 31,
1997 1996
---- ----
Operating Activities:
<S> <C> <C>
Net income $ 2,974,424 $ 2,339,964
Noncash item affecting net income:
Minority interests in subsidiaries 69,045 145,230
Depreciation and amortization 716,250 710,712
Increase in allowance for doubtful accounts 78,792 180,829
(Decrease) increase in allowance for returns -
net of related inventory in transit (503,478) 124,541
Deferred income tax benefits 60,619 186,562
Cumulative translation adjustment (508,793) (245,137)
Cash from (used for) changes in assets and liabilities:
Accounts receivable 2,853,218 119,412
Inventories (462,612) 430,573
Prepaid expenses and other current assets 45,810 76,660
Accounts payable (2,689,215) 1,504,767
Accrued expenses (3,957,590) (3,448,034)
Income taxes payable 1,877,118 1,857,508
--------- ---------
Net cash from operations 553,588 3,983,587
Investing Activities:
Net assets acquired in business combination/consolidation,
net of cash received (931,088) ---
Additions to property, plant and equipment (919,852) (813,666)
(Increase) decrease in intangible and other assets (235,786) 19,075
--------- ---------
Net cash used in investing activities (2,086,726) (794,591)
Financing activities:
Issuance of common stock 1,256,348 ---
Decrease in minority interests in subsidiaries (294,297) (87,660)
Increase (repayments) in notes payable 950,517 (2,465,784)
------- -----------
Net cash from (used in) financing activities 1,912,568 (2,553,444)
--------- -----------
Net increase in cash and cash equivalents 379,430 635,552
Cash and cash equivalents:
Beginning of period 11,981,246 5,980,535
---------- ---------
End of period $ 12,360,676 $ 6,616,087
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. FINANCIAL STATEMENT POLICIES
BASIS OF PRESENTATION. The condensed consolidated financial statements include
the accounts of Fossil, Inc., a Delaware corporation, and its majority owned
subsidiaries (the "Company"). The condensed consolidated financial statements
reflect all adjustments which are, in the opinion of management, necessary to
present a fair statement of the Company's financial position as of April 5, 1997
and the results of operations for the thirteen and one-half and thirteen week
periods ended April 5, 1997 and March 31, 1996, respectively. All adjustments
are of a normal, recurring nature.
These interim financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in Form 10-K filed
by the Company pursuant to the Securities Exchange Act of 1934 for the year
ended December 31, 1996. Operating results for the thirteen and one- half week
period ended April 5, 1997 ("First Quarter") are not necessarily indicative of
the results to be achieved for the full year.
Beginning January 1, 1997, the Company changed its fiscal year to reflect the
retail-based calendar (containing 4-4-5 week calendar quarters). Due to this
change, the First Quarter contained an additional one-half week for the
transition period.
BUSINESS. The Company designs, develops, markets and distributes fashion watches
and other accessories, principally under the "FOSSIL", "FSL" and "RELIC" brands
names. The Company's products are sold primarily through department stores and
other major retailers, both domestically and internationally.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
April 5, December 31,
1997 1996
---- ----
<S> <C> <C>
Components and parts $ 2,716,053 $ 2,294,750
Work-in-process 1,254,937 657,125
Finished merchandise on hand 37,206,994 38,404,535
Merchandise at Company's stores 4,337,741 3,962,199
Merchandise in transit from estimated
customers' returns 3,848,688 4,463,946
--------- ---------
$49,364,413 $49,782,555
=========== ===========
</TABLE>
The Company periodically enters into forward contracts principally to hedge the
expected payment of intercompany inventory transactions with its non-U.S.
subsidiaries. Currency exchange gains or losses resulting from the translation
of the related accounts, along with the offsetting gains or losses from the
hedge, are deferred until the inventory is sold or the forward contract is
completed. On April 5, 1997, the Company had hedge contracts to sell 12,010,000
deutsche marks (DM) for approximately $7.7 million, expiring through July 1997.
4
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. ACQUISITIONS
Effective February 1, 1997, Fossil Europe B.V. acquired the remaining 40% of the
capital stock of Fossil Italia, S.R.L. from its minority stockholders in
exchange for the issuance of 128,109 shares of the Company's $0.01 par value
common stock ("Common Stock") valued at $1.2 million. The acquisition has been
accounted for as a purchase and, in connection therewith, the Company recorded
goodwill of approximately $300,000.
4. DEBT
BANK. In April 1997, the Company extended the maturity date on its short-term
revolving credit facility with its primary bank to July 5, 1997. The Company
anticipates renewing its short-term credit facility during May 1997 for a period
of one year at terms no less favorable than those contained in the current
credit facility.
5
<PAGE>
FOSSIL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the thirteen and one-half week period
ended April 5, 1997 (the "First Quarter"), as compared to the thirteen
week period ended March 31, 1996 (the "Prior Year Quarter"). Due to a
change in the Company's fiscal year to reflect the retail based
calendar (containing 4-4-5 week calendar quarters) the First Quarter
contained an additional one-half week for the transition period. This
change had an immaterial impact on comparability to the Prior Year
Quarter. This discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and the related Notes
attached hereto.
GENERAL
Since the Company's organization 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 authorized distributors.
1997 HIGHLIGHTS
The Company acquired the remaining 40% of the capital stock of Fossil
Italia, S.R.L. from its minority stockholders.
During March 1997, FOSSIL brand neckwear became available through the
Company's first licensing agreement of the FOSSIL brand name.
The Company entered into a multi-year licensing agreement for the
design, production, and marketing of FOSSIL brand underwear and lounge
wear throughout the United States. The products should be available to
the public for the 1997 holiday season.
The Company announced in May 1997 that it had entered into a
worldwide, multi-year licensing agreement with Giorgio Armani for the
rights to design, produce and market a line of Emporio Armani watches.
6
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) the
percentages of the Company's net sales represented by certain line
items from the Company's condensed consolidated statements of income
and (ii) the percentage changes in these line items between the First
Quarter and the Prior Year Quarter.
<TABLE>
<CAPTION>
Percentage of Percentage
Net Sales Change From
------------- -----------
The Quarter Ended The Quarter Ended
----------------- -----------------
APRIL 5, March 31,
1997 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 10.6%
Cost of sales 51.1 55.6 1.6
----- ----- -----
Gross profit margin 48.9 44.4 21.9
Selling and distribution
expenses 25.3 22.1 26.4
General and
administrative expenses 12.1 12.4 8.4
---- ---- -----
Operating income 11.5 9.9 28.5
Interest expense (0.5) (0.4) 30.4
Other income (expense)- net (0.4) (0.4) 11.1
----- ----- -----
Income before income taxes 10.6 9.1 29.2
Income taxes 4.3 3.6 32.3
--- ---
Net income 6.3% 5.5% 27.1%
===== === ====
</TABLE>
7
<PAGE>
NET SALES. The following table sets forth certain components of the
Company's consolidated net sales and the percentage relationship of the
components to consolidated net sales for the periods indicated (in millions,
except percentage data):
<TABLE>
<CAPTION>
Amounts % of Total
------- ----------
The Quarter Ended The Quarter Ended
----------------- -----------------
April 5, MARCH 31, APRIL 5, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
International:
<S> <C> <C> <C> <C>
Europe $ 10.6 $ 11.5 22% 27%
Other 4.8 4.1 10 9
--- --- ---- ----
Total International 15.4 15.6 32 36
---- ---- ---- ----
Domestic:
Watch products 18.0 16.6 38 39
Other products 11.2 9.2 24 21
---- --- ----- ---
Total 29.2 25.8 62 60
Stores 2.8 1.5 6 4
--- --- -- --
Total Domestic 32.0 27.3 68 64
---- ---- ----- ---
Total Net Sales $ 47.4 $ 42.9 100% 100%
====== ====== ===== ====
</TABLE>
Sales volume increases during the First Quarter were principally
derived from domestic sales of FOSSIL Leather products in addition to
sales from additional FOSSIL outlet and retail stores opened during
1996. The comparability of the sales increase in the First Quarter was
negatively impacted by the volume of certain low margin sales made in
the Prior Year Quarter, which however positively impacted the
comparability of the gross profit margin in the First Quarter. A
reduction in sales volumes from the Company's European-based operations
was almost fully offset by increased export sales from the United
States, resulting in relatively flat International-based sales volumes
in the First Quarter as compared to the Prior Year Quarter. The Company
believes that its European- based sales reflect the continuing poor
economic conditions throughout Europe and a consumer preference shift
from leather to metal banded watches. Retail tests in Europe of the
latest FOSSIL metal banded watches have been successful. Therefore,
management has recently begun implementing a line change in Europe to
include a higher concentration of these metal banded watches.
Management believes this influx of new product will yield positive
results beginning the second quarter of 1997.
8
<PAGE>
GROSS PROFIT. The increase in the gross profit margin principally
resulted from a change in the Company's sales mix in the First Quarter as
compared to the Prior Year Quarter, including:
Sales from the Company's Japan-based operations ("Fossil Japan"),
acquired in April 1996, at substantially higher gross margins than the
Company attained through distributor sales to Japan in the Prior Year
Quarter.
A reduction in the sales volume in France and the United Kingdom where
the Company has historically sold its products at lower gross profit
margins in an attempt to obtain brand-name recognition.
A reduction in the sales volume of discontinued product through
traditional discounters which generally yield low gross margins.
Increased sales volume through the Company's three retail stores
opened after the Prior Year Quarter at gross profit margins in excess
of the Company's normal wholesale margins.
In addition, increased production and sales volume of goods produced from the
Company's majority-owned factories positively impacted the Company's gross
profit margins. Management believes that the Company's gross profit margin for
the balance of the year will be sustained in the 48% range.
OPERATING EXPENSES. Selling, general and administrative expenses, as a
percentage of net sales, increased from 34.5% in the Prior Year Quarter
to 37.4% in the First Quarter. Operating expenses increased in the
aggregate primarily due to increased sales volumes, operating costs of
Fossil Japan and the operating costs from the Company's additional
outlet and retail stores opened during 1996. The operating expense
ratio for the First Quarter was negatively impacted by the operating
costs of Fossil Japan and the impact of Company-owned outlet and retail
stores, both of which operate at substantially higher operating costs
than the Company's consolidated average. Management believes the
Company's operating expense ratio will decline from the First Quarter
levels as it reaches its anniversary date of its acquisition of Fossil
Japan and several FOSSIL Store locations and as the portion of the
sales mix attributable to the Company-owned stores declines.
LIQUIDITY AND CAPITAL RESOURCES
Historically the Company has not required substantial financing in the
First Quarter but has increased its debt needs starting in the second
quarter, while typically reaching its peak borrowing needs in the
September - November time frame. The additional financing needs have
generally been to finance the accumulation of inventory and the
build-up in accounts receivable. During 1997, the Company will
additionally require approximately $5 million in financing for the
construction of a 138,000 sq. ft. warehouse facility being built
adjacent to its main headquarters. Currently, the construction costs
are being funded through the Company's short-term credit facilities,
but management intentions to secure long-term financing for this
facility upon its completion.
Management believes the Company's financial position as of April 5,
1997 remains extremely strong with working capital of approximately $62
million and $12 million in cash. As of May 13, 1997, the Company had
approximately $12 million borrowed against its combined $38 million
bank credit facilities. The current bank borrowings are primarily
related to financing the expansion of the Company into company-owned
retail locations and internationally as well as financing its facility
costs in Texas. 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.
9
<PAGE>
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q, including, but
not limited to statements in Management's Discussion and Analysis of Financial
Condition and Results of Operation that are not historical facts are
forward-looking statements and involve a number of uncertainties. The actual
results of the future events 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 set forth on the Company's Current Report on Form 8-K dated March
31, 1997.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stock Purchase Agreement dated February 1, 1997,
by and between Bluewhale Holding S.a, and Fossil Europe B.V.
10.2 Fourth Amendment to Second Amended and Restated
Loan Agreement dated April 2, 1997, by and among Wells Fargo
Bank (Texas), National Association, a national banking
association formerly known as First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil
Intermediate, Inc., Fossil Trust , Fossil New York, Inc.,
Fossil Stores I, Inc. and Fossil Stores II, Inc. (without
Exhibits)
27 Financial Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during
the period covered by this Report:
1. Current Report on Form 8-K filed on March 13, 1997
regarding "Item 8. Change in Fiscal Year."
2. Current Report on Form 8-K filed on March 31, 1997
regarding "Item 5. Other Events" identifying certain risk
factors associated with the Company's securities.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
FOSSIL, INC.
Date: May 16, 1997 /s/ Randy S. Kercho
-------------------
Randy S. Kercho
Executive Vice President and
Chief Financial Officer
(Principal financial officer
duly authorized to sign on behalf of
Registrant)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Document Description
10.1 Stock Purchase Agreement dated February 1, 1997, by and between
Bluewhale Holding S.a, and Fossil Europe B.V.
10.2 Fourth Amendment to Second Amended and Restated Loan Agreement
dated April 2, 1997, by and among Wells Fargo Bank (Texas),
National Association, a national banking association formerly
known as First Interstate Bank of Texas, N.A., Fossil Partners,
L.P., Fossil, Inc., Fossil Intermediate, Inc., Fossil Trust ,
Fossil New York, Inc., Fossil Stores I, Inc. and Fossil Stores
II, Inc. (without Exhibits)
27 Financial Data Schedule
13
STOCK PURCHASE AGREEMENT
This Agreement made as of February 1, 1997, by and between Bluewhale
Holding S.a. , a corporation organized under the laws of Luxembourg ("Seller")
and Fossil, Europe B.V., a corporation organized under the laws of the
Netherlands ("Buyer").
A. Seller currently is the registered owner of forty percent (40%) of the
issued and outstanding shares of common stock (the "Shares") of Fossil Italia,
S.r.l., an Italian 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 128,109 shares of common stock of Fossil, Inc., which shall be
unregistered and shall contain appropriate legends restricting transfer for a
period of 2 years. 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 it 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.
-1-
<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.
BLUEWHALE HOLDING, S.A. FOSSIL EUROPE B.V.
By: /s/ Karl U. Sanne By: /s/ Randy S. Kercho
------------------ --------------------
Name: Karl U. Sanne Name: Randy S. Kercho
Title: Director Title: CFO
By: /s/ Gerard Muller
------------------
Name: Gerard Muller
Title: Director
-2-
FOURTH AMENDMENT TO SECOND
AMENDED AND RESTATED LOAN AGREEMENT
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") is made and entered into this 2nd day of April, 1997, by and among
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, a national banking association
formerly known as First Interstate Bank of Texas, N.A. (the "Bank"), Fossil
Partners, L.P. (the "Borrower"), Fossil, Inc. (the "Company"), Fossil
Intermediate, Inc. ("Fossil Intermediate"), Fossil Trust ("Fossil Trust"),
Fossil New York, Inc. ("Fossil New York"), Fossil Stores I, Inc. ("Fossil I")
and Fossil Stores II, Inc. ("Fossil II").
RECITALS
A. The Bank, the Borrower, the Company, Fossil Intermediate, Fossil Trust,
Fossil New York and Fossil I are parties to that certain Second Amended and
Restated Loan Agreement, dated effective April 30, 1995, as amended by (i) that
certain First Amendment to Second Amended and Restated Loan Agreement, dated
effective March 27, 1996, by and among the Bank, the Borrower, the Company,
Fossil Intermediate, Fossil Trust, Fossil New York and Fossil I, (ii) that
certain Second Amendment to Second Amended and Restated Loan Agreement, dated
effective May 3, 1996, by and among the Bank, the Borrower, the Company, Fossil
Intermediate, Fossil Trust, Fossil New York, Fossil I and Fossil II, and (iii)
that certain Third Amendment to Second Amended and Restated Loan Agreement,
dated effective September 11, 1996, by and among the Bank, the Borrower, the
Company, Fossil Intermediate, Fossil Trust, Fossil New York, Fossil I and Fossil
II (as amended, the "Loan Agreement");
B. The Bank and the Borrower desire to amend the Loan Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
Definitions
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
Amendment
2.01 Amendment to Section 1. Effective as of the date hereof, the second
sentence of Section 1 of the Loan Agreement is hereby deleted in its entirety
and the following substituted in lieu thereof:
"All loans under the Line of Credit shall be evidenced by the
Borrower's Seventh Amended and Restated Master Revolving Credit Note
(the 'Revolving Note'), substantially in form and substance
satisfactory to the Bank, payable to the order of the Bank, and bearing
interest upon the terms provided therein (but in no event to exceed the
maximum non-usurious interest rate permitted by law)."
ARTICLE III
Conditions Precedent
3.01 Conditions to Effectiveness. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent, unless
specifically waived in writing by the Bank:
(a) The Bank shall have received the following documents, each
in form and substance satisfactory to the Bank and its counsel:
(i) This Amendment, duly executed by the Borrower, the Company,
Fossil Intermediate, Fossil Trust, Fossil New York, Fossil I and
Fossil II;
(ii) A Revolving Note in the form of Exhibit A to this Amendment,
duly executed by Borrower; and
(iii) A company general certificate (hereinafter referred to as
the "Company General Certificate") for the Company, certified by
its Secretary or Assistant Secretary, acknowledging (A) that its
Board of Directors has met and has adopted, approved, consented
to and ratified resolutions which authorize the execution,
delivery and performance of this Amendment, the Revolving Note
and all other Loan Documents to which it is or is to be a party,
and (B) the names of the officers authorized to sign this
Amendment, the Revolving Note and each of the other Loan
Documents to which it is or is to be a party (including the
certificates contemplated herein) together with specimen
signatures of such officers. The Company General Certificate
shall conform to the Company General Certificate which is
attached hereto as Exhibit B and incorporated herein for all
purposes;
(b) There shall have been no Fmaterial adverse change
in the financial condition of the Borrower or any Guarantor;
(c) There shall be no material adverse litigation, either
pending or threatened, against the Borrower or any Guarantor that
could reasonably be expected to have a material adverse effect on
the Borrower or such Guarantor;
(d) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is
amended hereby, shall be true and correct as of the date hereof,
as if made on the date hereof;
(e) No default or Event of Default shall have occurred and be
continuing, unless such default or Event of Default has been
specifically waived in writing by the Bank;
(f) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents,
instruments and other legal matters incident thereto shall be
satisfactory to the Bank and its legal counsel; and
ARTICLE IV
No Waiver
4.01 Nothing contained herein shall be construed as a waiver by the Bank of
any covenant or provision of the Loan Agreement, the other Loan Documents, this
Amendment, or of any other contract or instrument between the Borrower or the
Guarantors and the Bank, and the failure of the Bank at any time or times
hereafter to require strict performance by the Borrower or any Guarantor of any
provision thereof shall not waive, affect or diminish any right of the Bank to
thereafter demand strict compliance therewith. The Bank hereby reserves all
rights granted under the Loan Agreement, the other Loan Documents, this
Amendment and any other contract or instrument between the Borrower, the
Guarantors and the Bank.
ARTICLE V
Ratifications, Representations and Warranties
5.01 Ratifications. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions set forth in
the Loan Agreement and the other Loan Documents, and, except as expressly
modified and superseded by this Amendment, the terms and provisions of the Loan
Agreement and the other Loan Documents are ratified and confirmed and shall
continue in full force and effect. The parties hereto agree that the Loan
Agreement and the other Loan Documents, as amended hereby, shall continue to be
legal, valid, binding and enforceable in accordance with their respective terms.
5.02 Representations and Warranties. The Borrower, the Company, Fossil
Intermediate, Fossil Trust, Fossil New York, Fossil I and Fossil II hereby
represent and warrant to the Bank that (a) the execution, delivery and
performance of this Amendment and any and all other Loan Documents executed
and/or delivered in connection herewith have been duly authorized by all
requisite corporate, partnership or trust proceedings, as appropriate, and will
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the Agreement of Limited Partnership, Articles of
Incorporation, By-Laws or Trust Agreement, as applicable, of the Borrower or any
Guarantor, or of any mortgage, indenture, contract, agreement or other
instrument, or any judgment, order or decree, binding upon the Borrower or any
Guarantor; (b) the representations and warranties contained in the Loan
Agreement, as amended hereby, and the other Loan Documents are true and correct
on and as of the date hereof and on and as of the date of execution hereof as
though made on and as of each such date; (c) no default or Event of Default
under the Loan Agreement, as amended hereby, has occurred and is continuing,
unless such default or Event of Default has been specifically waived in writing
by the Bank; and (d) the Borrower and the Guarantors are in full compliance with
all covenants and agreements contained in the Loan Agreement and the other Loan
Documents, as amended hereby.
ARTICLE VI
Miscellaneous Provisions
6.01 Survival of Representations and Warranties. All representations and
warranties made in the Loan Agreement or any other Loan Documents, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by the Bank or any closing shall affect the
representations and warranties or the right of the Bank to rely upon them.
6.02 Reference to Loan Agreement. Each of the Loan Agreement and the other
Loan Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof or pursuant to
the terms of the Loan Agreement, as amended hereby, are hereby amended so that
any reference in the Loan Agreement and such other Loan Documents to the Loan
Agreement shall mean a reference to the Loan Agreement, as amended hereby.
6.03 Expenses of the Bank. As provided in the Loan Agreement, the Borrower
agrees to pay on demand all reasonable costs and expenses incurred by the Bank
in connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of the Bank's legal counsel, and all costs and
expenses incurred by the Bank in connection with the enforcement or preservation
of any rights under the Loan Agreement, as amended hereby, or any other Loan
Documents, including, without, limitation, the costs and fees of the Bank's
legal counsel.
6.04 Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 Successors and Assigns. This Amendment is binding upon and shall inure
to the benefit of the Borrower, the Guarantors and the Bank and their respective
successors and assigns.
6.06 Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6.07 Effect of Waiver. No consent or waiver, express or implied, by the
Bank to or for any breach of or deviation from any covenant or condition by the
Borrower or any Guarantor shall be deemed a consent to or waiver of any other
breach of the same or any other covenant, condition or duty.
6.08 Headings. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER AGREEMENTS EXECUTED
PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, EACH
AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH RESPECT
TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE LOAN
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY THE BORROWER,
THE GUARANTORS AND THE BANK.
6.11 RELEASE. THE BORROWER HEREBY ACKNOWLEDGES THAT IT HAS NO DEFENSE,
COUNTERCLAIM, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE
WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS
LIABILITY TO REPAY THE "INDEBTEDNESS" OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES
OF ANY KIND OR NATURE FROM THE BANK. THE BORROWER AND THE GUARANTORS HEREBY
VOLUNTARILY AND KNOWINGLY RELEASE AND FOREVER DISCHARGE THE BANK, ITS
PREDECESSORS, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS,
FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS,
EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR
UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT
LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS
AMENDMENT IS EXECUTED, WHICH THE BORROWER OR THE GUARANTORS MAY NOW OR HEREAFTER
HAVE AGAINST THE BANK, ITS PREDECESSORS, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND
ARISING FROM ANY LOANS OR EXTENSIONS OF CREDIT FROM THE BANK TO THE BORROWER
UNDER THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR
RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE
OF ANY RIGHTS AND REMEDIES UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS, AND
NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.
6.12 Agreement for Binding Arbitration. Each party to this Amendment hereby
acknowledges that it has agreed to be bound by the terms and provisions of the
Bank's current Arbitration Program, which is incorporated by reference herein
and is acknowledged as received by the parties pursuant to which any and all
disputes shall be resolved by mandatory binding arbitration upon the request of
any party.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective as of
the date first above-written.
"BANK"
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION,
By:/s/ Jeffrey S. A. Cook
----------------------------------------
Jeffrey S.A. Cook, Vice President
"BORROWER"
FOSSIL PARTNERS, L.P.
By: Fossil, Inc., its general partner
By:/s/ Randy S. Kercho
----------------------------------------
Randy S. Kercho,Executive Vice President
and Chief Financial Officer
"GUARANTORS"
FOSSIL, INC.
By:/s/ Randy S. Kercho
----------------------------------------
Randy S. Kercho, Executive Vice President
and Chief Financial Officer
FOSSIL INTERMEDIATE, INC.
By:/s/ Kosta N. Kartsotis
----------------------------------------
Kosta N. Kartsotis, President
FOSSIL TRUST
By:/s/ Randy S. Kercho
----------------------------------------
Randy S. Kercho, Trustee
FOSSIL NEW YORK, INC.
By:/s/ Kosta N. Kartsotis
----------------------------------------
Kosta N. Kartsotis, Chief Executive
Officer
FOSSIL STORES I, INC.
By:/s/ Randy S. Kercho
----------------------------------------
Randy S. Kercho, Treasurer
FOSSIL STORES II, INC.
By:/s/ Randy S. Kercho
----------------------------------------
Randy S. Kercho, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Part I Item - Financial Statements of Fossil, Inc. and subsidiaries as of and
for the thirteen and one-half weeks ended April 5, 1997 filed on Form 10-Q.
</LEGEND>
<CIK> 0000883569
<NAME> FOSSIL, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> APR-05-1997
<CASH> 12,360,676
<SECURITIES> 0
<RECEIVABLES> 33,076,124
<ALLOWANCES> 4,370,937
<INVENTORY> 49,364,413
<CURRENT-ASSETS> 95,932,982
<PP&E> 25,309,008
<DEPRECIATION> 8,335,096
<TOTAL-ASSETS> 117,724,539
<CURRENT-LIABILITIES> 33,995,840
<BONDS> 0
0
0
<COMMON> 133,738
<OTHER-SE> 78,156,275
<TOTAL-LIABILITY-AND-EQUITY> 117,724,539
<SALES> 47,449,712
<TOTAL-REVENUES> 47,449,712
<CGS> 24,254,354
<TOTAL-COSTS> 41,988,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 78,792
<INTEREST-EXPENSE> 229,550
<INCOME-PRETAX> 5,041,424
<INCOME-TAX> 2,067,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 297,424
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
