FOSSIL INC, S-3, 1998-04-08

FOSSIL INC
S-3, 1998-04-08
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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<PAGE>

As filed with the Securities and Exchange Commission on April 8, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
FOSSIL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2018505
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)

T.R. TUNNELL, ESQ.
2280 NORTH GREENVILLE AVENUE SENIOR VICE PRESIDENT AND CHIEF LEGAL
RICHARDSON, TEXAS 75082 OFFICER
(972) 234-2525 2280 NORTH GREENVILLE AVENUE
RICHARDSON, TEXAS 75082
(972) 699-2139

(Name, address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and telephone number, including area
of registrant's principal executive code, of registrant's agent for
offices) service)

Copies to:

RONALD J. FRAPPIER, ESQ. BRUCE MENDELSOHN, ESQ.
JENKENS & GILCHRIST, AKIN, GUMP, STRAUSS, HAUER & FELD,
A PROFESSIONAL CORPORATION L.L.P.
1445 ROSS AVENUE, SUITE 3200 1333 NEW HAMPSHIRE AVENUE, N.W.
DALLAS, TEXAS 75202 WASHINGTON, D.C. 20036
(214) 855-4500 (202) 887-4000

APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
---------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.01 par value per $ 56,000,000 $ 16,520
share ............................. ------------ ---------
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</TABLE>

(1) In accordance with Rule 457(o) under the Securities Act of 1933, as
amended, the number of shares being registered and the proposed
maximum offering price per share are not included in this table.
(2) Estimated solely for purposes of calculating the registration fee.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 8, 1998

P R O S P E C T U S
2,150,000 SHARES
[LOGO]

COMMON STOCK

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

Of the 2,150,000 shares of the Common Stock of Fossil, Inc. (the
"Company"), par value $0.01 per share (the "Common Stock") offered hereby (the
"Offering"), 215,000 shares are being sold by the Company and 1,935,000 shares
are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of the shares by the Selling Stockholders. The Company's Common Stock is traded
on the Nasdaq National Market under the symbol "FOSL." The last reported sale
price of the Common Stock on the Nasdaq National Market on April 7, 1998 was
$22.33 per share after giving effect to the 3-for-2 Stock Dividend (as defined
herein).

SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.

---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share $ $ $ $
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Total (3) $ $ $ $
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</TABLE>

- --------------
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $500,000, of which $497,000 is
payable by the Company and $3,000 payable by the Selling Stockholders.
(3) One of the Selling Stockholders has granted the Underwriters a 30-day
option to purchase up to 322,500 additional shares of Common Stock solely
to cover over-allotments, if any. See "Underwriting." If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Selling Stockholders will be $_____, $______
and $_____, respectively.
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the
shares of Common Stock offered hereby will be available for delivery on or
about _______________, 1998, at the office of Smith Barney Inc., 333 West
34th Street, New York, New York 10001.

-------------------------
Salomon Smith Barney
Hambrecht & Quist
J.C. Bradford & Co.
Southwest Securities
APRIL __, 1998

<PAGE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTION AND THE
IMPOSITION OF PENALTY BIDS. SEE "UNDERWRITING."

THE UNDERWRITERS HAVE ADVISED THE COMPANY AND THE SELLING STOCKHOLDERS
THAT CERTAIN OF THE UNDERWRITERS CURRENTLY ACT AS MARKET MAKERS FOR THE
COMMON STOCK AND CURRENTLY INTEND TO CONTINUE TO ACT AS MARKET MAKERS
FOLLOWING THE OFFERING. SINCE THE AVERAGE DAILY TRADING VOLUME OF THE COMMON
STOCK EXCEEDS $1 MILLION AND THE COMPANY'S PUBLIC FLOAT EXCEEDS $150 MILLION,
THE PROVISIONS OF REGULATION M PERMIT SUCH UNDERWRITERS TO CONTINUE MARKET
MAKING ACTIVITIES DURING THE PERIOD OF THE OFFERING. HOWEVER, THE
UNDERWRITERS ARE NOT OBLIGATED TO DO SO AND MAY DISCONTINUE ANY MARKET MAKING
AT ANY TIME.

<PAGE>

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED HEREIN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS. CERTAIN INFORMATION CONTAINED IN THIS PROSPECTUS MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS," AND ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED IN SUCH STATEMENTS. SEE "RISK FACTORS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--FORWARD-LOOKING STATEMENTS." FOR PURPOSES OF THIS PROSPECTUS, THE
"COMPANY" INCLUDES FOSSIL, INC. AND ITS CONSOLIDATED SUBSIDIARIES. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED AND (II) REFLECTS A
3-FOR-2 STOCK SPLIT (THE "3-FOR-2 STOCK DIVIDEND") OF THE COMPANY'S COMMON STOCK
TO BE EFFECTED PRIOR TO THE OFFERING AS A FIFTY PERCENT (50%) STOCK DIVIDEND
DECLARED ON MARCH 4, 1998, PAYABLE ON APRIL 8, 1998 TO ALL STOCKHOLDERS OF
RECORD ON MARCH 25, 1998. AS USED IN THIS PROSPECTUS, "FISCAL YEAR" REFERS TO
THE COMPANY'S FISCAL YEAR ENDED JANUARY 3, 1998 OR DECEMBER 31, 1996, 1995, 1994
OR 1993, AS APPLICABLE.

THE COMPANY

Fossil, Inc. (the "Company") is a leader in the design, development,
marketing and distribution of contemporary, high quality fashion watches and
accessories. The Company developed the FOSSIL-Registered Trademark- brand name
to convey a distinctive fashion, quality and value message and a brand image
reminiscent of "America in the 1950s" that suggests a time of fun, fashion and
humor. Since its inception in 1984, the Company has grown from its original
flagship FOSSIL watch product into a diversified company offering an extensive
line of fashion watches that includes its RELIC-Registered Trademark- and
FSL-TM- brands as well as complementary lines of small leather goods, belts,
handbags and sunglasses under certain of the Company's brands. In addition to
developing its own brands, the Company leverages its development and production
expertise by designing and manufacturing private label products for some of the
most prestigious companies in the world, including national retailers,
entertainment companies and theme restaurants. The Company's successful
expansion of its product lines has contributed to its increasing net sales and
operating profits. In fiscal 1997, net sales increased approximately 18.9% from
fiscal 1996 to $244.8 million and operating income increased approximately 42.0%
from fiscal 1996 to $34.6 million.

The Company has further capitalized on the increasing awareness of the
FOSSIL brand by entering into various license agreements for other categories of
fashion accessories and apparel, such as men's underwear and lounge wear and,
most recently, outerwear under the FOSSIL brand. In addition, the Company
licenses the brands of other companies in order to further leverage its
infrastructure. For example, the Company recently entered into a multi-year
license agreement with Giorgio Armani to design, manufacture, distribute and
market a line of EMPORIO ARMANI-Registered Trademark- watches.

The Company sells its products in approximately 15,000 retail locations in
the United States through a diversified distribution network that includes
approximately 2,000 department store doors, such as Federated Department Stores,
Inc. ("Federated/Macy's"), May Department Stores Company ("May Department
Stores") and Dillard's, Inc. ("Dillard's") for its FOSSIL brand and J. C. Penney
Co., Inc. ("JCPenney") and Sears, Roebuck and Co. ("Sears") for its RELIC brand,
as well as approximately 13,000 specialty retail locations. The Company also
sells its products through a network of 34 Company-owned stores within the
United States, with seven retail stores located in premier retail malls and 27
outlet stores located in major outlet malls.

The Company's products are sold to department stores and specialty
retail stores in over 70 countries worldwide through Company-owned foreign
sales subsidiaries and through a network of approximately 50 independent
distributors. The Company's foreign operations include a presence in Europe,
South and Central America, the Caribbean, Canada, the Far East, Australia and
the Middle East. In addition, the Company's products are offered at retail
locations in major airports in the United States, on cruise ships and in
independently-owned, authorized FOSSIL retail stores and kiosks in certain
international markets. International sales accounted for approximately 30% of
the Company's net sales in fiscal 1997.

3
<PAGE>

BUSINESS STRATEGY

The Company's long-term goal is to capitalize on the strength of its
growing consumer brand recognition and capture an increasing share of a growing
number of markets by providing consumers with fashionable, high quality,
value-driven products. In pursuit of this goal, the Company has adopted
operating and growth strategies that provide the framework for the Company's
future growth, while maintaining the consistency and integrity of its brands.

OPERATING STRATEGY

- - FASHION ORIENTATION AND DESIGN INNOVATION. The Company is able to
market its products to consumers with differing tastes and lifestyles
by offering a wide range of product categories at a variety of price
points. The Company attempts to stay abreast of emerging fashion and
lifestyle trends affecting accessories and apparel, and it responds to
these trends by making adjustments in its product lines several times
each year. 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,
straps and bracelets for the Company's watches and innovative
treatments and details in its other accessories.

- - COORDINATED PRODUCT PROMOTION. The Company coordinates in-house
product design, packaging, advertising and in-store presentations to
more effectively and cohesively communicate to its target markets the
themes and images associated with its brands. For example, many of the
Company's FOSSIL brand products and certain of its accessory products
are packaged in metal tins decorated with nostalgic "America in the
1950s" designs consistent with the Company's marketing strategy and
product image. In addition, the Company generally markets its fashion
accessory lines through the same distribution channels as its watch
lines, using similar in-store presentations, graphics and packaging.

- - PRODUCT VALUE. The Company's products provide value to the consumer
by offering fashionable, high quality components and features at
suggested retail prices generally below competitive products of
comparable quality. The Company is able to offer its watches at a
reasonable price point by manufacturing them principally in the Far
East at lower cost than comparable quality watches manufactured in
Switzerland. In addition, the Company is able to offer its
accessories at reasonable prices because of its close relationships
with manufacturers in the Far East. Unlike certain of its principal
competitors, the Company does not pay royalties on most of its
products, which the Company believes allows it to enjoy certain cost
advantages that enhance its ability to achieve attractive profit
margins.

- - CAPTIVE SUPPLIERS. The Company owns a majority interest in a number
of watch assemblers with locations in Hong Kong and China. In
addition, the Company maintains close relationships with accessory
manufacturers in the Far East. The Company believes these
relationships create a significant competitive advantage, as they
allow the Company to produce quality products, reduce the delivery
time to market and improve overall operating margins.

- - ACTIVE MANAGEMENT OF RETAIL SALES. The Company manages the retail
sales process by monitoring customer sales and inventory levels by
product category and style, primarily through electronic data
interchange ("EDI"), and by assisting retailers in the conception,
development and implementation of their marketing programs. As a
result, the Company believes it enjoys close relationships with its
principal retailers, often allowing it to influence the mix, quantity
and timing of customer purchasing decisions.

4
<PAGE>

centralized distribution capabilities enable it to reduce inventory risk,
increase flexibility in meeting the delivery requirements of its customers
and maintain significant cost advantages as compared to its competitors.

GROWTH STRATEGY

- - INTRODUCE NEW PRODUCTS. The Company continually introduces new
products within its existing brands and through brand extensions to
attract a wide range of consumers with differing tastes and
lifestyles. For example, in mid-1996 the Company introduced its
FOSSIL Blue-Registered Trademark- line of watches, which in 1997
accounted for nearly half of the Company's FOSSIL brand domestic watch
business. Following the introduction of FOSSIL Blue, the Company
introduced watches under its FOSSIL Steel line in mid-1997, its BLUE
TEQ-TM- line in late 1997 and its DRT-TM- brand in early 1998. In
addition, the Company introduced its line of RELIC leather goods in
1997 and its line of nylon bags and FSL sport bags in early 1998.

- - EXPAND INTERNATIONAL BUSINESS. The Company recently increased its
efforts to align its FOSSIL brand watches sold internationally with
its successful domestic assortments, including the FOSSIL Blue and
FOSSIL Steel watch lines. The Company believes these efforts will
increase its global brand recognition and allow it to leverage this
recognition to successfully market the Company's accessory lines in
international markets.

- - ENTER INTO LICENSE AGREEMENTS. The Company leverages its brand
recognition and its design and marketing expertise to expand the scope
of its product offerings through the selective licensing of new
product categories that complement its existing products. For
example, the Company recently entered into a license agreement with
London Fog to offer FOSSIL outerwear.

- - EXPAND RETAIL LOCATIONS. The Company is currently expanding its
Company-owned FOSSIL retail and outlet locations to further strengthen
its brand image. The Company currently operates 34 retail and outlet
stores and plans to open an additional three retail stores and five
outlet stores in 1998. The Company also intends to continue to offer
its products through additional independently-owned, authorized FOSSIL
retail stores in airports, on cruise ships and in international
markets.

- - LEVERAGE INFRASTRUCTURE. The Company believes it has the design,
marketing, manufacturing and distribution infrastructure in place to
allow it to manage and grow its businesses. The Company continues to
develop additional products and brands and seeks additional businesses
and products to complement its existing business and allow it to
leverage its existing infrastructure.

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.

5
<PAGE>

THE OFFERING

Common Stock Offered by Company. . . . . . . . . . . 215,000 shares
Common Stock Offered by Selling Stockholders. . . . . 1,935,000 shares
Common Stock to be Outstanding After the Offering . . 20,699,892 shares (1)
Use of Proceeds . . . . . . . . . . . . . . . . . . . The Company intends to
use the net proceeds
from the sale of the
Common Stock offered
hereby for working
capital and general
corporate purposes.
See "Use of Proceeds."
Nasdaq National Market Symbol . . . . . . . . . . . . FOSL

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

(1) Excludes 1,984,810 shares of Common Stock that are issuable under
outstanding options.

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The income statement data and balance sheet data for each of the five
fiscal years ended January 3, 1998, and December 31, 1996, 1995, 1994 and 1993
set forth below have been derived from audited financial statements of the
Company. The following data should be read in conjunction with the consolidated
financial statements of the Company and notes thereto incorporated by reference
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR
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1997 1996 1995 1994 1993
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(in thousands, except per share amounts)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $244,798 $205,899 $181,114 $161,883 $105,089
Cost of sales . . . . . . . . . . . . . . 127,270 107,861 98,214 90,003 59,746
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Gross profit. . . . . . . . . . . . . . . 117,528 98,038 82,900 71,880 45,343
Operating expenses:
Selling and distribution. . . . . . . . 58,065 50,638 42,582 30,748 19,574
General and administrative. . . . . . . 24,853 23,027 19,855 14,915 9,193
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Total operating expenses . . . . . . 82,918 73,665 62,437 45,663 28,767
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Operating income. . . . . . . . . . . . . 34,610 24,373 20,463 26,217 16,576
Interest expense(956) . . . . . . . . . . (1,205) (1,117) (585) (236)
Other income (expense) - net. . . . . . . (1,503) (128) 796 (709) 378
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Income before income taxes. . . . . . . . 32,151 23,040 20,142 24,923 16,718
Provision for income taxes. . . . . . . . 13,209 9,449 8,085 9,578 5,233
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Net income (1) . . . . . . . . . . . $ 18,942 $ 13,591 $ 12,057 $ 15,345 $ 11,485
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Basic earnings per share (1) (2) . . $ 0.94 $ 0.69 $ 0.61 $ 0.78 $ 0.61
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Diluted earnings per share (1) (2) . $ 0.91 $ 0.68 $ 0.60 $ 0.77 $ 0.60
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Weighted average common and common
equivalent shares outstanding (1) (2):
Basic. . . . . . . . . . . . . . . . 20,136 19,783 19,761 19,720 18,765
Diluted. . . . . . . . . . . . . . . 20,833 20,068 19,940 19,956 18,993
</TABLE>

<TABLE>
<CAPTION>
AS
ADJUSTED(2) ACTUAL
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<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . $ 74,655 $ 70,603 $ 59,861 $ 49,251 $ 41,434 $ 27,692
Total assets. . . . . . . . . . . . . . . 143,622 139,570 118,978 96,994 80,420 46,539
Long-term debt. . . . . . . . . . . . . . -- -- 4,350 4,811 4,750 1,000
Stockholders' equity. . . . . . . . . . . 99,315 95,263 74,568 61,269 48,906 33,025

</TABLE>

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(1) Prior to 1993, the Company elected to operate as an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended, and
comparable provisions of certain state laws. The amounts shown for 1993
reflect provisions for historical state income taxes and for federal income
taxes as if the Company had been subject to federal income taxation during
such period.
(2) Adjusted to reflect the sale of the Common Stock offered hereby and the
application of the net proceeds from such sale, based on an estimated
offering price of $22.33 per share. See "Use of Proceeds" and
"Capitalization."

7
<PAGE>

RISK FACTORS

INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES CERTAIN RISKS.
HOLDERS OF THE COMPANY'S SECURITIES AND PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT IN THE COMPANY'S
SECURITIES. SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."

EFFECTS OF ECONOMIC CYCLES AND RETAIL INDUSTRY CONDITIONS

The Company's business is subject to economic cycles and retail industry
conditions. Purchases of discretionary fashion accessories, such as the
Company's watches, handbags, sunglasses and other products, tend to decline
during recessionary periods, when disposable income is low and consumers are
hesitant to use available credit. Any significant declines in general economic
conditions or uncertainties regarding future economic prospects that affect
consumer spending habits could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company sells its merchandise primarily to major department stores
across the United States and extends credit based on an evaluation of each
customer's financial condition, usually without requiring collateral. While in
the past few years various retailers, including some of the Company's customers,
have experienced financial difficulties, increasing the risk of extending credit
to such retailers, the Company's losses due to bad debts have been limited.
However, financial difficulties of a customer could cause the Company to curtail
business with such customers or require the Company to assume more credit risk
relating to such customers' receivables. The Company's inability to collect on
its trade accounts receivable relating to such customers could have a material
adverse effect on the Company's business and financial condition. See
"Business."

FASHION TRENDS

The Company's success depends upon its ability to anticipate and respond to
changing fashion trends and consumer preferences in a timely manner. Although
the Company attempts to stay abreast of emerging lifestyle and fashion trends
affecting accessories and apparel, any failure by the Company to identify and
respond to such trends could adversely affect consumer acceptance of its
existing brand names and product lines, which in turn could adversely affect the
Company's business, financial condition and results of operations. In this
regard, certain companies that have experienced rapid growth in sales of watches
and other fashion accessories have failed to sustain growth in sales or have
experienced declines in sales due to an inability to respond effectively to
changing consumer preferences. If the Company misjudges the market for its
products, it may be faced with a significant amount of unsold finished goods
inventory. Additionally, the Company has recently expanded and intends to
further expand the scope of its product offerings, and there can be no assurance
that new products introduced by the Company will achieve consumer acceptance
comparable to that of its existing product lines. See "Business--Sales and
Customers."

MANAGEMENT OF GROWTH

During recent years, the Company has experienced rapid and substantial
growth in sales. However, the Company's business is subject to a number of
risks, any one of which could have a material adverse effect on its business,
financial condition and results of operations. These risks include the
financial difficulties experienced by a number of the retailers to whom the
Company sells its products, the uncertainties associated with changing fashion
trends and consumer preferences and the Company's dependence on manufacturing
sources located in Hong Kong and China. The Company's future operating results
will also depend on a number of other factors, including the demand for its
products, the level of competition, general economic conditions and other
factors beyond the control of the Company. Accordingly, there can be no
assurance that the Company's recent growth in sales will continue or that sales
will not decline. In view of the recent expansion of its business, the Company
is subject to a variety of business risks generally associated with growing
companies, as well as risks related to the diversification of its product
offerings.

A key element of the Company's business strategy is to expand the scope
of its product offerings. There can be no assurance that the expansion of
the Company's product offerings will be successful or that new products will
be profitable or generate sales comparable to those of its existing
businesses. Another element of the Company's business strategy is to place
increased emphasis on growth in selected international markets. There can be
no assurance that the

8
<PAGE>

Company's brand names and products will achieve a high degree of consumer
acceptance in these markets. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

FOREIGN MANUFACTURING

The Company's products are currently manufactured to its specifications
by Company-owned subsidiaries with locations in Hong Kong and China and, to a
lesser extent, by independent manufacturers in Hong Kong, China, Japan,
Italy, Korea and Taiwan. The Company has no long-term contracts with these
independent manufacturing sources and competes with other companies for
production facilities. All transactions between the Company and its
independent manufacturing sources are conducted on the basis of purchase
orders. Although the Company believes that it has established close
relationships with its principal independent manufacturing sources, the
Company's future success 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.

In addition, because a substantial portion of the Company's watches and
certain of its handbags, sunglasses and other products are manufactured in Hong
Kong and China, the Company's success will depend to a significant extent upon
future economic and social conditions existing in Hong Kong and China. In 1997,
China resumed sovereignty over Hong Kong in accordance with the Sino-British
Joint Declaration of 1984 (the "Joint Declaration"). Although the Joint
Declaration established a framework for the continuation of existing economic
and social systems in Hong Kong after 1997, there can be no assurance as to the
manner in which such framework will continue to be implemented or whether it
will be respected in the future by the Chinese authorities. If the
manufacturing sources in Hong Kong and China were disrupted for any reason, the
Company believes that it could arrange for the manufacture and shipment of
products by alternative sources after a period of time. Because the
establishment of new manufacturing relationships involves numerous
uncertainties, including those relating to payment terms, costs of
manufacturing, adequacy of manufacturing capacity, quality control and
timeliness of delivery, the Company is unable to predict whether such
relationships would be on terms that the Company regards as satisfactory. Any
significant disruption in the Company's relationships with its manufacturing
sources located in Hong Kong and China would have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Sales and Customers."

FOREIGN CURRENCY FLUCTUATIONS

The Company generally purchases its products in U.S. dollars. However, the
Company sources a significant amount of its products overseas and, as such, the
cost of these products purchased by the Company's subsidiaries may be affected
by changes in the value of the relevant currencies. Changes in the currency
exchange rates may also affect the relative prices at which the Company and
foreign competitors sell their products in the same market. The Company, from
time to time, hedges certain exposures to changes in foreign currency exchange
rates arising in the ordinary course of business. There can be no assurance
that foreign currency fluctuations will not have a material adverse impact on
the Company's financial condition and results of operations.

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?, Ann
Klein II 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. See "Business--Competition."

9
<PAGE>

DEPENDENCE ON CERTAIN CUSTOMERS

The Company's department store customers include major United States
retailers. For fiscal years 1997, 1996 and 1995, domestic department stores
accounted for approximately 45.2%, 46.6% and 40.5% of the Company's net sales,
respectively. In addition, in the same periods, the Company's 10 largest
customers represented approximately 45.0%, 47.0% and 46.0% of net sales,
respectively. For fiscal year 1996, Dillard's accounted for approximately 10.0%
of the Company's net sales. No other customer accounted for more than 10% of
the Company's net sales in fiscal years 1997, 1996 and 1995. Certain of the
Company's customers are under common ownership. Sales to the department store
group under common ownership by Federated/Macy's accounted for approximately
10.8%, 11.1% and 11.8% of the Company's net sales in fiscal years 1997, 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 fiscal
years 1997, 1996 and 1995. While the Company believes that purchasing decisions
in many cases are made independently by each department store customer, the
trend may be toward more centralized purchasing decisions. A decision by
Dillard's or Federated/Macy's or any other significant customers to decrease the
amount purchased from the Company or to cease carrying the Company's products
could have a material adverse effect on the Company's financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

MANAGEMENT AND CONTROL SYSTEMS; YEAR 2000 COMPLIANCE

The Company's current expansion plans may place significant strain on the
Company's management, working capital, financial and management control systems
and staff. The failure to maintain or upgrade financial and management control
systems, to recruit additional staff or to respond effectively to difficulties
encountered during expansion could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the computer systems of the Company or its vendors may not adequately address
the Year 2000 operational problems. Although the Company has taken steps to
ensure that its systems and controls are adequate to address its current needs
and is attempting to recruit additional staff, there can be no assurance that
the Company's systems and controls or staff will be adequate to sustain future
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance."

FLUCTUATION OF QUARTERLY RESULTS; SEASONALITY OF BUSINESS

The Company's quarterly results of operations have fluctuated in the past
and may continue to fluctuate as a result of a number of factors, including
seasonal cycles, the timing of new product introductions, the timing of orders
by the Company's customers and the mix of product sales demand. The business of
the Company is seasonal by nature. A significant portion of the Company's net
sales and operating income are generated during the fourth quarter of its fiscal
year, which includes the Christmas season. The amount of net sales and
operating income generated during the fourth quarter depends upon the
anticipated level of retail sales during the Christmas season, as well as
general economic conditions and other factors beyond the Company's control. In
addition, the amount of net sales and operating income generated during the
first quarter depends in part upon the actual level of retail sales during the
Christmas season. There can be no assurance that such factors will not
adversely affect the Company's net sales and operating income during the first
and fourth quarter of its fiscal year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected Quarterly
Financial Data."

LICENSING RISKS; RISKS ASSOCIATED WITH A LACK OF OPERATIONAL AND FINANCIAL
CONTROL OVER LICENSED BUSINESSES

A portion of the Company's net income is derived from licensing revenue
received from its licensing partners. While the Company has significant control
over its licensing partners' products and advertising, it relies on its
licensing partners for, among other things, operational and financial control
over their businesses. The risks associated with the Company's own products
apply to its licensed products as well, in addition to any number of possible
risks specific to a licensing partner's business, including, for example, risks
associated with a particular licensing partner's ability to obtain capital and
manage its labor relations. Although certain of the Company's license
agreements prohibit licensing partners from entering into licensing arrangements
with the Company's competitors, generally the Company's licensing partners are
not precluded from offering, under other brands, the types of products covered
by their license agreements with the Company. A portion of sales of the
Company's products by its domestic licensing partners are also made to the
Company's largest customers. In addition, failure by the Company to maintain
its existing licensing alliances could

10
<PAGE>

adversely affect the Company's financial condition and results of operations.
Although the Company believes in most circumstances it could replace existing
licensing partners if necessary, its inability to do so for any period of time
could adversely affect the Company's revenues both directly from reduced
licensing revenue received and indirectly from reduced sales of the Company's
other products. See "Business--Products--Licensed Products."

RISKS ASSOCIATED WITH CHANGES IN SOCIAL, POLITICAL, ECONOMIC AND OTHER
CONDITIONS AFFECTING FOREIGN OPERATIONS AND SOURCING

The Company's businesses are subject to other risks generally associated
with doing business abroad, such as foreign governmental regulation and changes
in economic conditions in the countries in which the Company's manufacturing
sources are located. The Company cannot predict the effect that such factors
will have on its business or its arrangements with foreign manufacturing
sources. If any such factors were to render the conduct of business in a
particular country undesirable or impracticable, or if the Company's current
foreign manufacturing sources were for any other reason to cease doing business
with the Company, such a development could have a material adverse effect on the
Company's business, financial condition and results of operations. The
Company's business is also subject to the risks associated with the imposition
of additional United States legislation and regulations relating to imports,
including quotas, duties, tariffs or taxes, and other charges or restrictions on
imports, which could adversely affect the Company's operations and its ability
to import products at current or increased levels. The Company cannot predict
whether additional United States customs quotas, duties, tariffs, taxes or other
charges or restrictions will be imposed upon the importation of its products in
the future, or what effect such actions would have on its business, financial
condition and results of operations. See "Business--Governmental Regulations."

CONTROL BY PRINCIPAL STOCKHOLDERS

Following the Offering, Messrs. Tom Kartsotis and Kosta Kartsotis will own,
directly or indirectly, an aggregate of 9,926,807 shares of Common Stock of the
Company, representing approximately 48.0% of the outstanding shares of Common
Stock (9,604,307 shares and 46.4% if the Underwriters' over-allotment option is
exercised in full). As a result, they will be in a position to significantly
control the Company through their ability to determine the outcome of elections
of the Company's directors, adopt, amend or repeal the Bylaws and take certain
other actions requiring the vote or consent of the stockholders of the Company.
See "Principal and Selling Stockholders."

DEPENDENCE ON KEY PERSONNEL

The Company believes that its future success will depend upon its ability
to attract and retain skilled design, marketing and management personnel. Since
1988, the Company has been under the management of Mr. Tom Kartsotis, Chairman
of the Board and Chief Executive Officer, and Mr. Kosta Kartsotis, President and
Chief Operating Officer. The future success of the Company will be highly
dependent upon the personal efforts of Messrs. Tom Kartsotis and Kosta
Kartsotis, and the loss of the services of either of them could have a material
adverse effect on the Company. The Company currently maintains key man life
insurance policies in the aggregate face amount of $1,550,000 on the lives of
Messrs. Tom Kartsotis and Kosta Kartsotis. The Company has not entered into
employment agreements with Messrs. Tom Kartsotis or Kosta Kartsotis. The
Company's other executive officers have substantial experience and expertise in
the Company's business and have made significant contributions to its growth and
success.

ANTI-TAKEOVER MATTERS

The Company's Certificate of Incorporation and Bylaws, as well as the
General Corporation Law of the State of Delaware (the "DGCL"), contain
provisions that may have the effect of discouraging a proposal for a takeover of
the Company. These include a provision in the Company's Certificate of
Incorporation authorizing the issuance of "blank check" preferred stock and
provisions in the Company's Bylaws establishing advance notice procedures with
respect to certain stockholder proposals and requiring that action taken to
remove a director without cause be approved either by an 80% vote of the Board
of Directors or an 80% vote of the stockholders. The Company's Bylaws may be
amended by a vote of 80% of the Board of Directors, subject to repeal by a vote
of 80% of the stockholders. In addition, Section 203 of the DGCL limits the
ability of a Delaware corporation to engage in certain business combinations
with interested stockholders.

11
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of shares for future sales, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
Upon completion of the Offering, the Company will have 20,699,892 shares of
Common Stock outstanding. Of these shares, 8,481,179 shares, including the
2,150,000 shares sold in the Offering, will be freely transferable by persons
other than affiliates of the Company, without restriction or further
registration under the Securities Act of 1933, as amended. The Company and all
of its executive officers and directors and the Selling Stockholders have agreed
that, for a period of 120 days following the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell, grant
any option to purchase or otherwise dispose of Common Stock or any securities
convertible into or exchangeable for Common Stock. After the termination of
such 120-day period, 12,218,713 shares of Common Stock may be sold only if
registered under the Act or pursuant to certain volume and other limitations
under Rule 144 applicable to affiliates or pursuant to another exemption from
registration under the Act. See "Underwriting."

POTENTIAL VOLATILITY OF STOCK PRICE

The Common Stock is quoted on the Nasdaq National Market. The market price
of the Common Stock could be subject to significant fluctuations in response to
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock. In addition, the absence or
discontinuance of the listing of the Common Stock on the Nasdaq National Market
could adversely affect the liquidity and price of the Common Stock. See "Price
Range of Common Stock and Dividend Policy."

12
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of 215,000
shares of Common Stock offered by the Company herein (assuming an Offering
price of $22.33 per share and after deducting underwriting discounts and
commissions and estimated Offering expenses payable by the Company) are
approximately $4,000,000. The Company intends to use such net proceeds for
working capital and general corporate purposes. The Company will not receive
any of the proceeds from the sale of 1,935,000 shares of Common Stock offered
by the Selling Stockholders. See "Principal and Selling Stockholders."

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

PRICE RANGE OF STOCK

The Company's Common Stock is presently traded 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 as quoted on the Nasdaq National
Market for the periods indicated. Such prices have been rounded to the nearest
trading fraction on the Nasdaq National Market and adjusted to reflect the
3-for-2 Stock Dividend. As of April 7, 1998, the last reported price of the
Company's Common Stock on the Nasdaq National Market was $22.33.

HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR BEGINNING JANUARY 4, 1998:

First Quarter. . . . . . . . . . . . . . . . . . . $ 21 5/8 $ 14 1/2
Second Quarter (through April 7, 1998) . . . . . . 22 3/8 21 1/4

FISCAL YEAR BEGINNING JANUARY 1, 1997:

First Quarter. . . . . . . . . . . . . . . . . . . $ 9 3/4 $ 7
Second Quarter . . . . . . . . . . . . . . . . . . 11 7/8 8 1/4
Third Quarter. . . . . . . . . . . . . . . . . . . 15 1/2 11
Fourth Quarter . . . . . . . . . . . . . . . . . . 17 7/8 11

FISCAL YEAR BEGINNING JANUARY 1, 1996:

First Quarter. . . . . . . . . . . . . . . . . . . $ 7 1/2 4 1/2
Second Quarter . . . . . . . . . . . . . . . . . . 10 7/8 6 1/2
Third Quarter. . . . . . . . . . . . . . . . . . . 9 3/4 4 7/8
Fourth Quarter . . . . . . . . . . . . . . . . . . 10 1/2 7 5/8

</TABLE>

As of March 31, 1998, the Company estimates that there were approximately
1,800 beneficial owners of the Company's Common Stock, represented by
approximately 120 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 at 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 Company declared the 3-for-2 Stock Dividend on March 4, 1998, effected
as a fifty percent (50%) stock dividend payable on April 8, 1998 to all
stockholders of record on March 25, 1998.

13
<PAGE>

CAPITALIZATION

The following table sets forth as of January 3, 1998 the capitalization of
the Company on an actual basis and as adjusted to give effect to the sale by the
Company of 215,000 shares of Common Stock offered hereby at an assumed public
offering price of $22.33 per share (as of April 7, 1998) and the application of
the estimated net proceeds to the Company therefrom as described in "Use of
Proceeds." The information in this table should be read in conjunction with the
financial statements and related notes incorporated by reference in this
Prospectus.

JANUARY 3, 1998
---------------------------
ACTUAL As Adjusted
----------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,104 $ 25,156
---------- ----------
---------- ----------

Current liabilities (bank notes payable) . . . . . . . . . . . . . $ 7,862 7,862
Stockholder's equity:. . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value $0.01 per share, shares issued and
outstanding - 20,308,503 (20,523,503 as adjusted) (1). . . . . 203 205
Additional paid-in capital. . . . . . . . . . . . . . . . . . . 26,021 30,071
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 71,257 71,257
Cumulative translation adjustment . . . . . . . . . . . . . . . (2,218) (2,218)
---------- ----------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . 95,263 99,315
---------- ----------
Total capitalization. . . . . . . . . . . . . . . . . . . $ 103,125 $ 107,177
---------- ----------
---------- ----------

</TABLE>

- ---------------
(1) Excludes 1,984,810 shares of Common Stock that are issuable under
outstanding options as of the date hereof.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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
accessories and watches under other owned 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 premium and corporate gift programs as well as under the
names of internationally recognized designers, specialty retailers,
entertainment companies and theme restaurants. The Company's products are
marketed internationally mainly though major department stores and specialty
retailers. The Company maintains sales and distribution offices in the United
States, Germany, Italy, Japan, Spain and Hong Kong. In addition to sales
through the Company's offices, the Company also currently distributes its
products to over 60 additional countries through licensed distributors.

1997 HIGHLIGHTS

- - Sales volume of FOSSIL Blue, a line of mainly metal-bracelet, water
resistant sport watches first introduced in mid-1996, accounted for nearly
half of the Company's FOSSIL brand watch business domestically.

- - A line of stainless steel watches, FOSSIL Steel, and chronograph look
watches, BLUE TEQ, were introduced under the FOSSIL brand in mid- and
late-1997, respectively. Both of these introductions were well received by
the consumer and positively impacted sales volumes.

- - Sunglass sales were negatively impacted as a multitude of competitors
entered the marketplace driving supply above apparent consumer demand. The
Company quickly reacted to the market conditions, by producing a new
sunglass line with a wider breadth of price points and design.

- - The Company opened three additional FOSSIL retail stores in high traffic,
international destination type malls bringing the total number of
mall-based retail stores to six at the end of the year.

- - Several multi-year license agreements were awarded to companies for the use
of the FOSSIL brand name on their products. These included FOSSIL brand
underwear and lounge wear for the domestic market introduced in late 1997,
FOSSIL brand apparel in Japan to be introduced during 1998 and FOSSIL brand
outerwear to be introduced domestically during 1999.

- - The Company entered into a worldwide, multi-year license agreement with
Giorgio Armani for the rights to design, produce and market a line of
EMPORIO ARMANI watches. Distribution began in September 1997.

- - The Company acquired the remaining 40% of the capital stock of its
distribution company covering Italy and the remaining 35% of the capital
stock of one of the Company's four main watch assembly factories.

15
<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.

FISCAL YEAR ENDED
---------------------------------------------------------
PERCENTAGE PERCENTAGE
CHANGE CHANGE
FROM YEAR FROM YEAR
1997 1996 1996 1995 1995
------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . 100.0% 18.9% 100.0% 13.7% 100.0%
Cost of sales . . . . . . . . . . (52.0) 18.0 (52.4) 9.8 (54.2)
---------------------------------------------------------
Gross profit. . . . . . . . . . . 48.0 19.9 47.6 18.3 45.8
Operating expenses. . . . . . . . (33.9) 12.6 (35.8) 18.0 (34.5)
---------------------------------------------------------
Operating income. . . . . . . . . 14.1 42.0 11.8 19.1 11.3
Interest expense. . . . . . . . . (0.4) (20.7) (0.6) 7.9 (0.6)
Other income (expense). . . . . . (0.6) (1077.6) - (116.0) 0.4
Income before income taxes. . . . 13.1 39.5 11.2 14.4 11.1
Income taxes:
Federal, state, foreign . . . . (5.4) 39.8 (4.6) 16.9 (4.4)
---------------------------------------------------------
Net income. . . . . . . . . . . . 7.7% 39.4% 6.6% 12.7% 6.7%
---------------------------------------------------------
---------------------------------------------------------
</TABLE>

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):

FISCAL YEAR ENDED
------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>

International:
Europe. . . . . . . . . . . . . . $ 45.2 $ 45.9 $ 40.0 18.4% 22.3% 22.1%
Other . . . . . . . . . . . . . . 30.8 15.2 18.7 12.6 7.4 10.3
--------------------------------------------------------------------
Total international . . . . . . . 76.0 61.1 58.7 31.0 29.7 32.4
--------------------------------------------------------------------

Domestic:
Watch products. . . . . . . . . . 101.2 86.4 89.4 41.3 41.9 49.4
Other products. . . . . . . . . . 47.6 44.5 25.7 19.5 21.6 14.2
--------------------------------------------------------------------
Total . . . . . . . . . . . . . . 148.8 130.9 115.1 60.8 63.5 63.6
Stores. . . . . . . . . . . . . . 20.0 13.9 7.3 8.2 6.8 4.0
--------------------------------------------------------------------
Total domestic. . . . . . . . . . 168.8 144.8 122.4 69.0 70.3 67.6
--------------------------------------------------------------------

Total net sales . . . . . . . . . $ 244.8 $ 205.9 $ 181.1 100.0% 100.0% 100.0%
--------------------------------------------------------------------
--------------------------------------------------------------------

</TABLE>

NET SALES. Worldwide sales volume of FOSSIL branded watches showed strong
gains in the later half of 1996 and throughout 1997 due primarily to the
increase of metal bracelet watches in the Company's sales mix and the popularity
of two FOSSIL watch lines, FOSSIL Blue and FOSSIL Steel. Metal bracelet watches
have increased significantly as a percentage of the Company's watch mix in
response to a dramatic shift in consumer preference away from leather strap
watches during 1995. Sales of non-branded watches used for premium incentives
and watches sold under certain license agreements also positively impacted net
sales during 1997. Leather and sunglass product sales, that comprise the
majority of the domestic: Other Products sales line in the above table, both
contributed significantly

16
<PAGE>

to overall sales increases in 1996. While the Company continued to increase its
market share in leather goods during 1997, sunglass sales declined. Sales
increases in the sunglass line improved dramatically, however, in the fourth
quarter of 1997, increasing approximately 20% over the prior year same period.
The Company entered into owned retail operations in early 1995. At the end of
1997, the Company had 27 outlet store locations and 6 mall-based locations
throughout the U.S. Growth in the number of store locations, as well as
increases in same store sales, have added to sales growth in 1996 and 1997.
Management anticipates that sales volumes will continue to increase in 1998 at
approximately the 1997 rate with the exception of the second quarter which will
likely fall below the average 1997 growth rate. During the second quarter of
1997, the Company had a one-time international-based sale amounting to
approximately $6 million of non-branded watches used as a premium incentive.
Sales increases during 1998 will likely stem from continued sales momentum
across the Company's product lines and geographic regions.

GROSS PROFIT. Gross profit margins increased over the past two years from
45.8% in 1995, to 47.6% in 1996, to 48.0% in 1997. The increases in gross
profit margin are primarily attributable to an increase in the amount of the
Company's watch products supplied by its majority-owned assembly facilities and
increases in sales through the Company-owned retail locations. Additionally,
during 1996 and 1997, the Company's purchase cost of certain watch components
decreased due to the strength of the U.S. dollar over the Japanese Yen.
Management believes that the Company's gross profit margins in 1998 will
approximate 1997 levels.

OPERATING EXPENSES. Total selling, general and administrative expenses as
a percentage of net sales were 33.9% in 1997 compared to 35.8% in 1996 and 34.5%
in 1995. The aggregate increases in operating expenses were due primarily to
costs necessary to support increased sales volumes and operating costs of both
new ventures and from the Company's increasing outlet and retail store
locations. Operating expense ratios were positively impacted in 1997 by
leveraging expenses against higher sales volumes and as a result of the
reduction in operating expenses incurred in France and the United Kingdom, where
the Company has curtailed its owned operations in favor of sales through
independent distributors. Management believes the operating expense ratio for
1998 will marginally improve as a result of leveraging fixed costs on higher
sales volumes and layering on sales of certain licensed brand name watches with
only minimal infrastructure increases.

OTHER INCOME (EXPENSE). Other income (expense) typically reflects the
minority interests in the profit (loss) of the Company's majority-owned
operations. Other income (expense) has moved from an income item in 1995 to an
expense item in 1997. The fluctuation in this income statement line item has
generally been impacted by unusual charges. Other income in 1995 was positively
impacted by the income recognition of approximately $1.6 million, recorded from
non-recurring consulting services performed and from insurance proceeds related
to a fire at one of the Company's operations. During 1996, income derived from
refunds from certain prior year duty payments in addition to interest income
substantially offset minority interest expense. In 1997, the net expense was
primarily a result of legal settlements of approximately $700,000 as well as
increased foreign currency losses due primarily to the strength of the U.S.
dollar.

PROVISION FOR INCOME TAXES. In 1997 and 1996, the Company's effective tax
rate was approximately 41.0% compared to 40.1% in 1995. The 1996 increase
resulted primarily from losses incurred in countries where the Company had
commenced operations in 1996 and late 1995. The Company will not recognize any
tax benefits in these countries until realization is assured. Effective tax
rates have also risen as the Company accrued taxes at U.S. tax rates in certain
lower tax jurisdictions in anticipation of possible repatriation of earnings.
Management believes that the effective tax rate during 1998 will approximate
1997 levels.

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.

17
<PAGE>

YEAR 2000 COMPLIANCE

Computer programs that were written using two digits rather than four
digits to define the applicable year may recognize a date using "00" as the year
1900 rather than the year 2000. This result is commonly referred to as the "Year
2000" problem. The Year 2000 problem could result in information system failures
or miscalculations. Beginning in 1997, the Company initiated a program to
evaluate whether internally developed and/or purchased computer programs that
utilize embedded date codes could experience operational problems when the year
2000 is reached. The scope of this effort addressed internal computer systems
and supplier capabilities. The Company is completing an extensive review of its
businesses to determine whether or not purchased and internally developed
computer programs are Year 2000 compliant, as well as the remedial action and
related costs associated with any required modifications or replacements. A
significant amount of information has been collected and analyzed as part of
this review; however, the process will not be completed until the end of fiscal
year 1998. The Company plans to complete all remediation efforts for its
critical systems prior to the year 2000. Based upon its evaluation to date,
management currently believes that, while the Company will incur internal and
external costs to address the Year 2000 problem, such costs will not have a
material impact on the operations, cash flows or financial condition of the
Company in future years.

LIQUIDITY AND CAPITAL RESOURCES

The Company's general business operations historically have not required
significant capital expenditures. The Company built out 29 store locations
during 1996 and 1995, totaling $3.9 million in leasehold improvement
expenditures. During 1997, four additional store locations were added in
addition to the construction of a 138,000 sq. ft. warehouse and distribution
facility. The construction costs of the new facility were approximately $4.4
million. Long-term financing of $5.0 million was obtained in 1994 to cover
building projects of which $4.4 million was outstanding at year-end. During
January 1998, the Company paid this long-term credit facility in full with
available cash. Short-term credit facilities totaling approximately $43.0
million are available to the Company for general working capital needs of which
$3.5 million was outstanding at the end of 1997. Management believes the
Company's financial position remains extremely strong. Working capital of $70.6
million and net cash balances (defined as cash and cash equivalents less current
notes payable) of $13.2 million existed at the end of fiscal 1997 compared to
working capital of $59.9 million and net cash balances of $1.5 million as of
December 31, 1996. Management believes that cash flow from operations and
existing credit facilities will be sufficient to satisfy its capital expenditure
requirements for at least 12 months.

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board issued four new standards during
1997 that require additional financial reporting disclosures. See Note 1 to the
Consolidated Financial Statements of the Company incorporated by reference in
this Prospectus for a discussion of the new standards. The Company does not
expect the adoption of these standards to have a material impact on its
financial condition or results of operations.

FORWARD-LOOKING STATEMENTS

Included within management's discussion of the Company's operating results
and this prospectus, are forward- looking statements were made regarding
expectations for 1998. The actual results may differ materially from those
expressed by these forward-looking statements. Significant factors that could
cause the Company's 1998 operating results 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, Italian Lira 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 "Risk Factors" included herein.

SELECTED QUARTERLY FINANCIAL DATA

The table below sets forth selected quarterly financial information. The
information is derived from unaudited consolidated financial statements of the
Company and includes, in the opinion of management, all normal and recurring

18
<PAGE>

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.

FISCAL YEAR 1997
-------------------------------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1ST QTR 2ND QTR 3RD QTR 4TH QTR
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 47,449 $ 56,932 $ 61,013 $ 79,404
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 23,195 26,305 29,690 38,338
Operating expenses . . . . . . . . . . . . . . . . . . . . 17,735 19,527 19,875 25,781
-------------------------------------------------------
Operating income . . . . . . . . . . . . . . . . . . . . . 5,460 6,778 9,815 12,557
Income before income taxes . . . . . . . . . . . . . . . . 5,041 6,137 9,303 11,670
Provision for income taxes . . . . . . . . . . . . . . . . 2,067 2,503 3,793 4,846
-------------------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,974 $ 3,634 $ 5,510 $ 6,824
Basic earnings per share . . . . . . . . . . . . . . . . . $ 0.15 $ 0.18 $ 0.27 $ 0.34
Diluted earnings per share . . . . . . . . . . . . . . . . $ 0.15 $ 0.18 $ 0.26 $ 0.32

Gross profit as a percentage of net sales. . . . . . . . . 48.9% 46.2% 48.7% 48.3%
Operating expenses as a percentage of net sales. . . . . . 37.4% 34.3% 32.6% 32.5%
Operating income as a percentage of net sales. . . . . . . 11.5% 11.9% 16.1% 15.8%
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR 1996
-------------------------------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1ST QTR 2ND QTR 3RD QTR 4TH QTR
----------- ----------- ----------- -----------
<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
Basic earnings per share . . . . . . . . . . . . . . . . . $ 0.12 $ 0.13 $ 0.19 $ 0.24
Diluted earnings per share . . . . . . . . . . . . . . . . $ 0.12 $ 0.13 $ 0.19 $ 0.24

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%
</TABLE>

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 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 1997 were not substantially above or below targeted levels and therefore
should not significantly impact retailers restocking orders in the first quarter
of 1998. As the Company increases the amount of owned outlet and retail stores,
it would generally amplify the Company's seasonality by decreasing the Company's
operating income in the first quarter and increasing the operating income in the
fourth quarter. 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. During the 1997 second quarter gross profit margins decreased
principally as a result of the low gross profit margin realized on the
significant sale of the non-branded premium watches.

19
<PAGE>

BUSINESS

GENERAL

The Company is a leader in the design, development, marketing and
distribution of contemporary, high quality fashion watches and accessories. The
Company developed the FOSSIL brand name to convey a distinctive fashion, quality
and value message and a brand image reminiscent of "America in the 1950s" that
suggests a time of fun, fashion and humor. Since its inception in 1984, the
Company has grown from its original flagship FOSSIL watch product into a
diversified company offering an extensive line of fashion watches that includes
its RELIC and FSL brands as well as complementary lines of small leather goods,
belts, handbags and sunglasses under certain of the Company's brands. In
addition to developing its own brands, the Company leverages its development and
production expertise by designing and manufacturing private label products for
some of the most prestigious companies in the world, including national
retailers, entertainment companies and theme restaurants. The Company's
successful expansion of its product lines has contributed to its increasing net
sales and operating profits. In fiscal 1997, net sales increased approximately
18.9% from fiscal 1996 to $244.8 million and operating income increased
approximately 42.0% from fiscal 1996 to $34.6 million.

INDUSTRY OVERVIEW

WATCH PRODUCTS

The Company believes that the current market for watches in the United
States can be divided into four segments. One segment of the market consists of
fine watches characterized by internationally known brand names, such as
Concord, Piaget and Rolex. Watches offered in this segment are usually made of
precious metals or stainless steel and may be set with precious gems. These
watches 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 $1,500 to $20,000. A second
segment of the market consists of fine premium branded and designer watches
manufactured in Switzerland and the Far East such as Gucci, Rado, Raymond Weil,
Seiko and Swiss Army. These watches are sold at retail prices generally ranging
from $150 to $1,500. The Company's EMPORIO ARMANI line generally competes in
this market segment. A third 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 fourth 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

20
<PAGE>

by department stores and specialty stores at retail prices ranging from $40
to $150. This market segment is targeted by the Company and its principal
competitors, including the companies that market watches under the Guess?,
Anne Klein II 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?, Anne Klein II and
Kenneth Cole. 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.

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. 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. These fashion accessory products are generally
marketed through mass merchandisers, department stores and speciality shops,
depending upon price and quality. Higher price point items 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 at reasonable price points, such as FOSSIL and RELIC. The
Company currently offers small leather goods, handbags, belts, eyewear for
both men and women and men's underwear and lounge wear through department
stores and specialty retailers in the moderate to upper-moderate price range.
Companies such as Calvin Klein, Tommy Hilfiger, Guess?, Nine West, Kenneth
Cole and Liz Claiborne currently operate in this market.

BUSINESS STRATEGY

OPERATING STRATEGY

21
<PAGE>

manufacturing them principally in the Far East at lower cost than
comparable quality watches manufactured in Switzerland. In addition, the
Company is able to offer its accessories at reasonable prices because of
its close relationships with manufacturers in the Far East. Unlike certain
of its principal competitors, the Company does not pay royalties on most of
its products, which the Company believes allows it to enjoy certain cost
advantages that enhance its ability to achieve attractive profit margins.

- - ACTIVELY MANAGE RETAIL SALES. The Company manages the retail sales
process by monitoring customer sales and inventory levels by product
category and style, primarily through EDI, and by assisting retailers
in the conception, development and implementation of their marketing
programs. As a result, the Company believes it enjoys close
relationships with its principal retailers, often allowing it to
influence the mix, quantity and timing of customer purchasing
decisions.

- - CENTRALIZED DISTRIBUTION. The Company distributes substantially all
of its products sold in the United States and certain of its products
sold in international markets from its warehouse and distribution
center in Richardson, Texas. The Company also distributes its
products to international markets from warehouse and distribution
centers located in Germany, Italy and Japan. The Company believes its
centralized distribution capabilities enable it to reduce inventory
risk, increase flexibility in meeting the delivery requirements of its
customers and maintain significant cost advantages as compared to its
competitors.

GROWTH STRATEGY

- - INTRODUCE NEW PRODUCTS. The Company continually introduces new
products within its existing brands and through brand extensions to
attract a wide range of consumers with differing tastes and
lifestyles. For example, in mid-1996 the Company introduced its
FOSSIL Blue line of watches, which in 1997 accounted for nearly half
of the Company's FOSSIL brand domestic watch business. Following the
introduction of FOSSIL Blue, the Company introduced watches under its
FOSSIL Steel line in mid-1997, its BLUE TEQ line in late 1997 and its
DRT brand in early 1998. In addition, the Company introduced its line
of RELIC leather goods in 1997 and its line of nylon bags and FSL
sport bags in early 1998.

- - EXPAND INTERNATIONAL BUSINESS. The Company recently increased its
efforts to align to FOSSIL brand watches sold internationally with its
successful domestic assortments, including the FOSSIL Blue and FOSSIL
Steel watch lines. The Company believes these efforts will increase
its global brand recognition and allow it to leverage this recognition
to successfully market the Company's accessory lines in international
markets.

22
<PAGE>

PRODUCTS

The Company designs, develops, markets and distributes fashion watches and
accessories, including sunglasses, small leather goods, belts and handbags,
principally under the FOSSIL, RELIC and FSL brand names.

WATCH PRODUCTS

In 1986, the Company introduced FOSSIL watches, its flagship product. The
Company 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 fiscal years 1997, 1996 and 1995
accounted for approximately 72.4%, 71.9% and 83.6%, respectively, of the
Company's gross sales.

The following table sets forth certain information with respect to the
Company's watches:

SUGGESTED PRICE DISTRIBUTION
WATCH BRANDS POINT RANGE AVERAGE PRICE CHANNELS BRAND NAMES
------------ --------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
FOSSIL $ 45-120 $ 73 Major dept. stores (Dayton Hudson Corp., BLUE TEQ, Dress, DRT, FOSSIL
Dillard's, Federated/Macy's, May Dept. Steel, FOSSIL Blue, Limited
Stores, Mercantile Stores Company, Inc., Edition, Skeleton & Vintage
Nordstrom, Inc. and Profitts)

RELIC $ 30-75 $ 55 Major retailers (Ames Dept. Stores, Dressy, Metal Sport, Moon,
Bealls Dept. Stores, JCPenney, Kohl's Novelty, Pendant, Pocket,
Department Stores, Inc., Montgomery RELIC Wet, Skeleton, Sport
Ward & Co., Sears, Service Merchandise
Co., Inc., SRI, Uptons)

FSL $ 30-150 $ 60 Major dept. stores, specialty gift and FSL
apparel and sport specialty stores

</TABLE>

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 such
as Warner Bros. and Disney, 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

<PAGE>

for their shipment to the United States. 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 WATCHES. The Company has entered into a number of license
agreements for the sale of collectible watches under the Company's 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 in 1997 included the NFL, Star Wars, the Beatles, Felix the
Cat, James Bond, Mickey & Co. and I Love Lucy.

EMPORIO ARMANI OROLOGI. In 1997, the Company entered into a multi-year,
worldwide license agreement with Giorgio Armani for the manufacture,
distribution and sale for a line of EMPORIO ARMANI watches. These products are
sold through major department stores, specialty retailers and jewelry stores at
retail prices generally ranging from $125 to $500.

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 and selected fashion
accessories under the RELIC and FSL brands. The Company currently sells its
fashion accessories through a number of its existing major department store and
specialty retail store customers. 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. 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 watches.
Sales of the Company's accessory lines for fiscal years 1997, 1996 and 1995
accounted for approximately 26.4%, 26.5% and 15.2%, respectively of the
Company's gross 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 styling similar to other
FOSSIL products. Suggested retail prices for the Company's FOSSIL brand
sunglasses generally range from $28 to $75 with an average price of $40.

SMALL LEATHER GOODS AND BELTS. In 1992, the Company introduced a line of
small leather goods and belts for women 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 and wallets. Retail prices for the
Company's FOSSIL brand small leather goods generally range from $15 to $70, with
an average price of $40. Retail prices for the Company's FOSSIL brand men's and
women's belts generally range from $20 to $45 with an average price of $30. In
addition, the Company has introduced a line of small leather goods and belts
under the RELIC brand name, with suggested retail prices generally ranging from
$14 to $24.

HANDBAGS. In 1996, the Company introduced a line of FOSSIL handbags and
recently introduced an additional line of handbags under the FSL brand name.
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 $35 to $170 with an average price of $100.

24
<PAGE>

LICENSED PRODUCTS

In order to complement the Company's existing line of products and to
increase consumer awareness of the FOSSIL brand, the Company has entered into
various license agreements for other categories of fashion accessories and
apparel. These license agreements provide for royalty income to the Company
based on a percentage of net sales and are subject to certain guaranteed minimum
royalties.

MEN'S UNDERWEAR AND LOUNGE WEAR. The Company entered into a multi-year
license agreement with Tugaloo River Boxer Co. for the manufacture, marketing
and sale of men's underwear, sleepwear and lounge wear in the United States
under the FOSSIL brand. This product line was introduced in December 1997 and
is available at better department stores and specialty retailers in the United
States.

APPAREL. The Company also entered into a multi-year license agreement with
Itochu Fashion Systems Co., Ltd. for the manufacture, marketing and sale of
various apparel items in Japan under the FOSSIL brand. These products are
scheduled to be introduced in 1998 and include casual shirts, knit tops, pants,
jackets and related separates for everyday wear.

FUTURE PRODUCTS. The Company recently entered into a multi-year license
agreement with London Fog for the manufacture, marketing and sale of outerwear
in the United States under the FOSSIL brand. This line is currently scheduled
to be introduced in 1999. In addition, the Company continually evaluates
opportunities to expand its product offerings in the future to include other
accessory or apparel lines that would complement its existing products.

DESIGN AND DEVELOPMENT

The Company's products are created and developed by its in-house design
staff 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 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.

MARKETING AND PROMOTION

The Company's current FOSSIL brand 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's nostalgic "America in the
1950s" tin

25
<PAGE>

packaging concept for many of its watch products and certain of its accessories
is an example of these marketing themes. The tins have become a signature piece
to the FOSSIL image and have become popular with collectors.

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 and caps, 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's in-house advertising department designs, develops and
implements 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.

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 major metropolitan areas.
The Company also periodically advertises in national fashion magazines such as
GQ and GLAMOUR, 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
approximately 2,000 department store doors, such as Federated/Macy's, May
Department Stores and Dillard's for its FOSSIL brand and JCPenney and Sears for
its RELIC brand, as well as approximately 13,000 specialty retail locations. The
Company also sells its product at Company-owned FOSSIL retail stores located at
retail malls in the United States and sells certain of its products at
Company-owned FOSSIL outlet stores located at major outlet malls throughout the
United States. The Company also sells its products at retail locations in major
airports in the United States, on cruise ships and in FOSSIL retail stores and
kiosks in certain international markets. The Company generally 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.

DEPARTMENT STORES. For fiscal years 1997, 1996 and 1995, domestic
department stores accounted for approximately 45.2%, 46.6% and 40.5% of the
Company's net sales, respectively. In addition, in the same periods, the
Company's 10 largest customers represented approximately 45.0%, 47.0% and 46.0%
of net sales, respectively. For fiscal year 1996, Dillard's accounted for
approximately 10.0% of the Company's net sales. No other customer accounted for
more than 10% of the Company's net sales in fiscal years 1997, 1996 and 1995.
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 10.8%, 11.1% and 11.8% of the Company's net sales in
fiscal years 1997, 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 fiscal years 1997, 1996 and 1995.

INTERNATIONAL SALES. The Company's products are sold to department stores
and specialty retail stores in over 70 countries worldwide through Company-owned
foreign sales subsidiaries and through a network of approximately 50 independent
distributors. The Company's foreign operations include a presence in Europe,
South and Central America, the Caribbean, 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. During

26
<PAGE>

the fiscal years 1997, 1996 and 1995, international and export sales accounted
for approximately 31%, 30% and 32% of net sales, respectively.

COMPANY-OWNED FOSSIL STORES. In 1995, the Company commenced operations of
FOSSIL outlet stores at selected major outlet malls throughout the United
States. The Company operated 27 outlet stores at the end of fiscal year 1997.
These stores, which operate under the FOSSIL name, enable the Company to
liquidate excess inventory and increase brand awareness. The Company's products
in such stores are generally sold at discounts from 25% to 50% off the suggested
retail price. The Company intends to open an additional five of these stores in
1998.

In 1996, the Company commenced operations of full priced FOSSIL retail
stores at some of the most prestigious retail malls in the United States in
order to broaden the recognition of the FOSSIL brand name. The Company
currently operates seven retail stores, located at Aventura Mall (Aventura,
Florida), the Galleria (Dallas, Texas and Houston, Texas), The Mall at Short
Hills (Millburn, New Jersey), The Mall of America (Minneapolis, Minnesota),
Tuttle Crossing (Columbus, Ohio) and Woodfield Mall (Schaumburg, Illinois).
These stores, which operate under the FOSSIL name, carry a full assortment of
FOSSIL merchandise which is generally sold at the suggested retail price. The
Company intends to open an additional three of these stores in 1998.

OTHER SALES OUTLETS. In November 1995, the Company began offering various
products for sale to consumers through America Online's Market Place. The
Company currently offers products through a "storefront" on America Online that
is connected to the Company's website. 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 announcements and promotional contests on
the website.

SALES PERSONNEL. The Company historically has relied on in-house sales
personnel for the FOSSIL brand. The Company utilizes independent sales
representatives to help develop the market for the FSL watch line into sports
specialty stores and 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 the end of fiscal year 1997, the Company had 72
in-house sales and customer service employees and 58 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 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.

CUSTOMER SERVICE. During the past several years, the retail industry has
undergone significant consolidation. 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, primarily through EDI, 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 EDI 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.

27
<PAGE>

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 product
returns. The allowances for product returns for the fiscal years 1997, 1996 and
1995 were $10,576,000, $8,854,000 and $9,034,000, respectively. Since 1990, the
Company has not experienced any returns in excess of the aggregate allowances
therefor.

BACKLOG

For fiscal year 1997, the Company had unfilled customer orders of
approximately $16,223,000 compared to $15,852,000 and $14,340,000 for fiscal
years 1996 and 1995, 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 increased use and reliance on the EDI program in recent years
has contributed to the decline in backlog in comparison to prior years.

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. 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 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. The Company
estimates that the majority of the movements used in the manufacture of the
Company's watches are supplied by two principal vendors. No other single
component supplier accounted for more than 10% of component supplies in 1997.
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 it has established and maintains close
relationships with a number of watch manufacturers located in Hong Kong and
Japan. In 1997, 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 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 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

28
<PAGE>

and efficiently introduce innovative product designs and alter production in
response to the retail performance of its products.

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) Limited, a wholly owned subsidiary of the Company
("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, the Company
performs quality control checks on its products upon receipt at the Company's
facility.

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 selected markets. Since
July 1997, the Company has owned and operated a warehouse and distribution
facility in Richardson, Texas, adjacent to the Company's headquarters, to
maximize the Company's inventory management and distribution capabilities.

The Company's warehouse and distribution facility is operated in a special
purpose subzone established by the United States Department of Commerce Foreign
Trade Zone Board. As a result of the establishment of the subzone, the Company
enjoys certain economic and operational advantages: (i) the Company may not have
to pay duty on imported merchandise until it leaves the subzone and enters the
United States market, (ii) the Company does not pay any United States duty on
merchandise if the imported merchandise is subsequently re-exported, and (iii)
the Company does not pay local property tax on inventory located within the
subzone.

MANAGEMENT INFORMATION SYSTEMS

INVENTORY CONTROL. The Company maintains inventory control systems at its
facilities that enable it to track each item of merchandise from receipt from
its manufacturing sources, through shipment to its customers. To facilitate
this tracking, a significant number of products sold by the Company are
pre-ticketed and bar coded prior to shipment to its retail customers. The
Company's inventory control systems, written by Manhattan and Associates, report
shipping, sales and individual SKU level inventory information. The Company
manages the retail sales process by monitoring customer sales and inventory
levels by product category and style, primarily through EDI. The Company
believes that its distribution capabilities enable it to reduce inventory risk
and increase flexibility in responding to the delivery requirements of its
customers. The Company's management believes that its EDI efforts will continue
to grow in the future as customers focus further on increasing operating
efficiencies. In addition, the Company maintains systems that are designed to
track inventory movement through the FOSSIL retail and outlet stores. Detailed
sales transaction records are accumulated on each store's UNIX-based
point-of-sale ("POS") system and polled nightly by the Company on a system that
runs on an IBM RS/6000 system.

YEAR 2000. Beginning in 1997, the Company initiated a program to evaluate
whether internally developed and purchased computer programs that utilize
embedded date codes could experience operational problems when the year 2000 is
reached. The results of this program indicated that certain of the Company's
systems and the systems of certain of its customers and vendors require
remediation to properly address the Year 2000 problem. The Company plans to
complete all remediation efforts for its critical systems prior to the year
2000. Based upon its evaluation to date, management currently believes that
while the Company will incur internal and external costs to address the Year
2000 problem, such costs will not have a material impact on the operations, cash
flows or financial condition of the Company in future years. See "Risk
Factors--Management and Control Systems; Year 2000 Compliance" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."

29
<PAGE>

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 consumers 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.

GOVERNMENTAL REGULATIONS

IMPORTS AND IMPORT RESTRICTIONS. Most of the Company's products are
manufactured overseas. As a result, the United States and the countries in
which the Company's products are manufactured or sold may from time to time
modify existing or impose new quotas, duties, tariffs or other restrictions in a
manner that adversely affects the Company. For example, 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. Factors which may influence the modification or imposition of these
restrictions include the determination by the United States Trade Representative
that a country has denied adequate intellectual property rights or fair and
equitable market access to United States firms that rely on intellectual
property, trade disputes between the United States and a country that leads to
withdrawal of "most favored nation" status for that country and economic and
political changes within a country that are viewed unfavorably by the government
of the United States. The Company cannot predict the effect, if any, these
events would have on its operations, especially in light of the concentration of
its manufacturing operations in Hong Kong.

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, and has applied for registration
of, 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? Anne Klein II 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 accessories domestically.

30
<PAGE>

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.

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 the end of fiscal year 1997, the Company (excluding the Company's
foreign subsidiaries) had 472 full-time employees, including 65 in executive or
managerial positions and the balance in design, advertising, sales, quality
control, distribution, clerical and other office positions. As of the end of
fiscal year 1997, the Company's foreign subsidiaries had 195 full-time
employees, including eight in managerial positions.

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.

PROPERTIES

In July 1994, the Company completed construction of its new corporate
headquarters located in a 150,000 square foot facility in Richardson, Texas. In
July 1997, the Company completed construction of a new 138,000 square foot
distribution center located on land immediately adjacent to its headquarters.
These facilities contain the general office, warehousing and distribution
functions of the Company and are located on approximately 20 acres of land. The
Company owns both facilities and the land on which each is located.

As the end of fiscal year 1997, the Company had entered into six lease
agreements 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 2010 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 8%. 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 the end of fiscal year
1997, the Company had entered into 27 such leases. The 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.

The Company leases approximately 37,600 square feet of office, warehouse
and assembly space in Hong Kong pursuant to a lease agreement that expires in
December 1999. The Company leases approximately 12,000 square feet of office
and warehouse space in Erlstatt, Germany pursuant to a lease agreement that
expires in 2002. The Company leases approximately 2,800 square feet of office
space in Vicenza, Italy and an additional 3,100 square feet of warehouse and
storage space. The Company 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.

31
<PAGE>

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.

32
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table and text set forth the name, age and positions of each
executive officer and director:

NAME AGE POSITION
---- --- --------
<S> <C> <C>
Tom Kartsotis. . . . . . . . . . . . . . 38 Director, Chairman of the Board and Chief Executive Officer
Kosta N. Kartsotis . . . . . . . . . . . 45 Director, President and Chief Operating Officer
Michael W. Barnes. . . . . . . . . . . . 37 Director and Executive Vice President
Richard H. Gundy . . . . . . . . . . . . 55 Executive Vice President
Randy S. Kercho. . . . . . . . . . . . . 41 Executive Vice President, Chief Financial Officer and Treasurer
Mark D. Quick. . . . . . . . . . . . . . 49 Executive Vice President
T.R. Tunnell . . . . . . . . . . . . . . 44 Senior Vice President, Development, Chief Legal Officer and Secretary
Jal S. Shroff. . . . . . . . . . . . . . 61 Director and Managing Director of Fossil (East) Limited
Kenneth W. Anderson. . . . . . . . . . . 64 Director
Alan J. Gold . . . . . . . . . . . . . . 64 Director
Donald J. Stone. . . . . . . . . . . . . 69 Director

</TABLE>

Tom Kartsotis has served as Chairman of the Board and Chief Executive
Officer since December 1991. Mr. Tom Kartsotis founded the Company in 1984 and
served as its President until December 1991. He has been a director of the
Company since 1984.

Kosta N. Kartsotis has served as President and Chief Operating Officer
since December 1991. Mr. Kosta Kartsotis joined the Company in 1988 and served
as Vice President--Marketing until December 1991. He has been a director of the
Company since 1990.

Michael W. Barnes has served as Executive Vice President since February
1995. Mr. Barnes is currently responsible for the Company's international sales
and operations. Mr. Barnes served as Senior Vice President--International from
August 1994 until February 1995. From December 1993 until August 1994, Mr.
Barnes served as Senior Vice President--Operations. Mr. Barnes joined the
Company in 1985 and served as Vice President--Operations until December 1991. He
served as a director of the Company from 1985 until March 1992. Mr. Barnes has
been a director of the Company since he was re-elected to the Board of Directors
in February 1993.

Richard H. Gundy has served as Executive Vice President of the Company
since April 1994. Mr. Gundy is responsible for the Company's FOSSIL watch
division and the Company's retail and outlet stores. From a date prior to 1992
until April 1994, Mr. Gundy served as Executive Vice President and Director of
County Seat Stores, Inc., a national retailer of apparel and fashion
accessories.

Randy S. Kercho has served as Executive Vice President and Chief Financial
Officer of the Company since March 1997. Mr. Kercho served as Senior Vice
President and Chief Financial Officer of the Company from February 1995 until
March 1997 and has served as Treasurer since May 1995. Mr. Kercho served as
Vice President and Chief Financial Officer from May 1993 until February 1995 and
served as Vice President--Finance from May 1992 until May 1993. Prior to May
1992, Mr. Kercho served as Vice President, Controller, Treasurer and Secretary
of BSN Corp., a publicly traded consumer products company.

Mark D. Quick has served as Executive Vice President since March 1997. Mr.
Quick is responsible for the Company's fashion accessory lines including,
handbags, small leather goods, belts and sunglasses. From November 1995 until
March 1997 he served as Senior Vice President--Accessories. From a date prior
to 1992 until November 1995, Mr. Quick served as Senior Vice President--General
Merchandise Manager of Foleys (currently part of May Co.).

33
<PAGE>

T.R. Tunnell has served as Senior Vice President, Development, Chief Legal
Officer and Secretary of the Company since December 1996. Mr. Tunnell served as
Vice President and General Counsel of Pillowtex Corporation from April 1996
until December 1996. Mr. Tunnell served as Vice President, Secretary and
General Counsel of the Company from September 1993 until April 1996. From a
date prior to 1992, Mr. Tunnell was employed by Mary Kay Cosmetics, Inc. as Vice
President, Legal Operations and Assistant Secretary.

Jal S. Shroff has served as Managing Director of Fossil East and its
predecessor since January 1991 and has been a director of the Company since
April 1993.

Kenneth W. Anderson has been a director of the Company since April 1993.
Mr. Anderson was a co-founder of Blockbuster Entertainment Corporation, a video
rental company, and served as its President from 1985 until 1987. From 1987 to
1991, Mr. Anderson served in various positions with Amtech Corporation, a remote
electronic identification technology company, which he co-founded, including as
the Chairman of its Executive Committee.

Alan J. Gold has been a director of the Company since April 1993. Mr. Gold
was the founder of Accessory Lady, a women's fashion accessory retail chain, and
served as its President until 1992. Mr. Gold is currently President of Goldcor
Investments.

Donald J. Stone has been a director of the Company since April 1993. Mr.
Stone served as Vice Chairman of Federated Department Stores until February
1988, at which time he retired.

Mr. Tom Kartsotis and Mr. Kosta Kartsotis are brothers. There are no other
family relationships among any of the directors or executive officers of the
Company.

34
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of April 3, 1998 and as adjusted to
reflect the sale of 1,935,000 shares of Common Stock by the Selling Stockholders
and 215,000 shares of Common Stock by the Company in the Offering, including
beneficial ownership by (i) each person (or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934) known by the Company to own
beneficially more than five percent of the Company's Common Stock, (ii) each of
the executive officers, (iii) each director, (iv) all directors and executive
officers as a group and (v) each Selling Stockholder:

SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING (1) AFTER OFFERING (2)
--------------------- ------------------
SHARES BEING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tom Kartsotis(3) . . . . . . . . . . . . . . 7,977,562 (4) 38.9% 1,111,612(5) 6,865,950(5) 33.2%(5)
Chairman & CEO
Kosta N. Kartsotis(3). . . . . . . . . . . . 3,710,857 18.1 650,000 3,060,857 14.8
President & COO
Michael W. Barnes. . . . . . . . . . . . . . 93,937 (6) * -- 93,937 *
Richard H. Gundy . . . . . . . . . . . . . . 296,572 (7) 1.4 135,888 160,684 *
Randy S. Kercho. . . . . . . . . . . . . . . 79,266 (8) * 15,000 64,266 *
Mark D. Quick. . . . . . . . . . . . . . . . 107,625 (9) * -- 107,625 *
Jal S. Shroff(10). . . . . . . . . . . . . . 393,910 (11) 1.9 -- 393,910 1.9
Franz Scheurl. . . . . . . . . . . . . . . . 108,192 (12) * 22,500 85,692 *
Kenneth W. Anderson. . . . . . . . . . . . . 29,625 (13) * -- 29,625 *
Alan J. Gold . . . . . . . . . . . . . . . . 37,125 (14) * -- 37,125 *
Donald J. Stone. . . . . . . . . . . . . . . 29,550 (15) * -- 29,550 *
FMR Corp(14).. . . . . . . . . . . . . . . . 1,500,000 (16) 7.3 -- 1,500,000 7.2
All executive officers, directors and
Selling Stockholders as a group (11
persons)(4)(6) (7)(8)(9)(11)
(12)(13)(14)(15) . . . . . . . . . . . . . . 12,882,971 61.1 -- 10,947,971 51.4

</TABLE>

- ------------------------------
* Less than one percent.

(1) Unless otherwise indicated, to the knowledge of the Company, the persons
and entities named in the table have sole voting and sole investment
power with respect to all shares of Common Stock beneficially owned,
subject to community property laws where applicable. Such presentation
is based on 20,484,892 shares of Common Stock outstanding as of April 3,
1998.
(2) Assumes that all shares of Common Stock offered hereby by each Selling
Stockholder are actually sold. Such presentation is based on 20,699,892
shares of Common Stock outstanding after the Offering.
(3) The address of such individual is 2280 N. Greenville Avenue, Richardson,
Texas 75082.
(4) Includes 753,450 shares of Common Stock owned of record by Lynne Stafford
Kartsotis, wife of Mr. Tom Kartsotis, as to which Mr. Kartsotis disclaims
beneficial ownership, and 9,772 shares owned by Mr. Kartsotis as
custodian for Annie Grace Kartsotis, his minor daughter.
(5) Excludes 322,500 shares which are being offered pursuant to the
over-allotment option granted by Mr. Tom Kartsotis to the
Underwriters. If such option is exercised with respect to all of
such shares, the Shares Being Offered, Shares Beneficially Owned
After Offering and Percent of Shares Beneficially Owned After
Offering will be 1,434,112, 6,543,450 and 31.6%, respectively.
(6) Includes 93,337 shares issuable pursuant to the exercise of stock options
within 60 days.
(7) Includes 135,888 shares issuable pursuant to the exercise of stock
options within 60 days. Also includes 7,500 shares owned by the Richard
Gundy Trust, and 7,500 shares owned by the Richard Gundy Family Trust.
Mr. Gundy is a trustee of each of these trusts.
(8) Includes 56,916 shares issuable pursuant to the exercise of stock options
within 60 days.
(9) Includes 103,125 shares issuable pursuant to the exercise of stock
options within 60 days.

35
<PAGE>

(10) Mr. Shroff and his wife, Pervin J. Shroff, share voting and investment
power with respect to 312,235 of the shares shown.
(11) Includes 47,812 shares issuable pursuant to the exercise of stock options
within 60 days. Also includes indirect ownership of 33,862 shares
issuable pursuant to the exercise of stock options within 60 days which
are owned by Mrs. Shroff.
(12) Includes 33,192 shares issuable pursuant to the exercise of stock options
within 60 days. Mr. Scheurl has been Managing Director of Fossil Gmbh, a
subsidiary of the Company, for the past three years. Since April 1997,
Mr. Scheurl has been a Senior Vice President of the Company.
(13) Includes 22,125 shares issuable pursuant to the exercise of stock options
within 60 days. Also includes 7,500 shares owned by the K.W. Anderson
Family Limited Partnership. Mr. Anderson is managing general partner of
the partnership and has sole voting and investment power with respect to
those shares.
(14) Includes 22,125 shares issuable pursuant to the exercise of stock options
within 60 days.
(15) Includes 22,125 shares issuable pursuant to the exercise of stock options
within 60 days.
(16) Based on a Schedule 13G, dated February 14, 1998, filed by FMR Corp.
("FMR") with the Securities and Exchange Commission and the Company. The
Schedule 13G discloses that Fidelity Management & Research Company
(Fidelity), a wholly owned subsidiary of FMR and an investment adviser is
the beneficial owner of 1,500,000 shares of Common Stock or 7.3% of the
Common Stock of the Company as a result of acting as investment advisor
to various companies registered under the Investment Company Act of 1940.
Edward C. Johnson, III, FMR, through control of Fidelity and the funds,
each has sole power to dispose of the 1,500,000 shares owned by the
funds. Neither FMR, nor Edward C. Johnson, III has the sole power to
vote or direct the voting of the shares owned directly by the Fidelity
Funds, which power resides with the Fund's Board of Trustees. Fidelity
carries out the voting of the shares under written guidelines established
by such Board of Trustees. The address of FMR is 82 Devonshire Street,
Boston, Massachusetts 02109.

36
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of shares of Common Stock set forth opposite the name of such
Underwriter.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Smith Barney Inc.. . . . . . . . . . . . . . . . .
Hambrecht & Quist LLC . . . . . . . . . . . . . .
J.C. Bradford & Co.. . . . . . . . . . . . . . . .
Southwest Securities, Inc. . . . . . . . . . . . .

-------------
Total . . . . . . . . . . . . . . . . . . . . 2,150,000
-------------
-------------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Hambrecht & Quist LLC, J.C.
Bradford & Co. and Southwest Securities, Inc. acting as Representatives, propose
to offer part of the shares directly to the public at the public offering price
set forth on the cover page of this Prospectus and part of the shares to certain
dealers at a price which represents a concession not in excess of $_____ per
share under the public offering price. The Underwriters may allow, and such
dealers may allow, a concession not in excess of $___ per share to certain other
dealers. After the Offering of the shares to the public, the public offering
price and such concessions may be changed by the Representative.

The Company, its officers and directors, and certain stockholders of the
Company designated by the Representatives, have agreed that, for a period of 120
days from the date of this Prospectus, they will not, without the prior written
consent of Smith Barney Inc., offer, sell, contract to sell, or otherwise
dispose of, any shares of Common Stock of the Company or any securities
convertible into, or exercisable or exchangeable for, Common Stock of the
Company.

Mr. Tom Kartsotis, one of the Selling Stockholders, has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 322,500 additional shares of Common Stock at the
price to public set forth on the cover page of this Prospectus minus the
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with the offering of the shares offered hereby. To the extent such option is
exercised, each Underwriter will be obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite each Underwriter's name in the preceding
table bears to the total number of shares listed in such table.

The Company and the Selling Stockholders have agreed to indemnify, jointly
and severally, each of the Underwriters and the directors, officers, employees,
agents and control persons of each Underwriter against all losses, claims,
damages, expenses or liabilities under the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, and other federal and state
laws or regulations insofar as such losses, claims, damages or liabilities arise
out of or based upon any untrue statement or alleged untrue statement of
material fact or arise out of or based upon any omission or alleged omission to
state a material fact required to be stated to make statements not misleading.
Each Underwriter has severally agreed to indemnify the Company and its directors
and officers who sign the Registration Statement and each control person of the
Company to the same extent as the foregoing indemnity to each Underwriter but
only with respect to written information furnished by the Underwriters to the
Company for inclusion in the Offering documents. Each of the foregoing
indemnities is in addition to any liabilities that the parties may otherwise
have.

37
<PAGE>

LEGAL MATTERS

Unless otherwise specified, the validity of the Common Stock offered hereby
will be passed upon for the Company by Jenkens & Gilchrist, a Professional
Corporation, Dallas, Texas. Certain legal matters in connection with the
Offering of Common Stock will be passed upon for the Underwriters by Akin, Gump,
Strauss, Hauer & Feld, L.L.P.

EXPERTS

The consolidated financial statements and the related consolidated
financial statement schedule incorporated in this Prospectus by reference from
Fossil, Inc.'s Annual Report on Form 10-K for the year ended January 3, 1998
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
of which this Prospectus is a part, with respect to the securities offered
hereby. This Prospectus omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and related
exhibits for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of
documents are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Copies of
the Registration Statement, and exhibits thereto, may be acquired upon payment
of the prescribed fees or examined without charge at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission pursuant to the information requirements of the
Exchange Act are available for inspection at the public reference facilities of
the Commission at Room 1024, 450 Fifth Street, NW, Washington, DC 20549, and at
the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511 and Seven World Trade Center,
Suite 1300, New York, NY 10048. Copies of such information are obtainable, by
mail, upon payment of the Commission's customary charges, by writing to the
Commission's principal office at 450 Fifth Street, NW, Washington, DC 20549.
The Commission maintains a web site (http://www.sec.gov) that contains periodic
reports, proxy statements and other information regarding registrants that file
documents electronically with the Commission. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of The Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents or portions thereof filed by the Company are hereby
incorporated by reference in this Prospectus:

(i) The Company's Annual Report to Stockholders and the Annual Report
on Form 10-K for the fiscal year ended January 3, 1998;

(ii) Current Reports on Form 8-K filed with the Commission on March 19
and March 31, 1997; and

(iii) The Company's Amendment No. 2 to Registration Statement on Form
8-A, filed with the Commission on March 21, 1992, including any
amendment or report filed for the purpose of updating such
description

In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the securities shall
be deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for the purposes of this
Prospectus to the extent that a statement

38
<PAGE>

contained herein or in any subsequently filed document which is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon oral or written request of such person, a
copy of any and all of the documents incorporated by reference herein (other
than exhibits and schedules to such documents, unless such exhibits or schedules
are specifically incorporated by reference into such documents). Such requests
should be directed to Investor Relations, Fossil, Inc., 2280 North Greenville
Avenue, Richardson, Texas 75082, or by telephone at (972) 234-2525.

39
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

TABLE OF CONTENTS

PAGE
----
<S> <C>
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Price Range of Common Stock
And Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Principal And Selling Stockholders. . . . . . . . . . . . . . . . . . . . 35
Underwriting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Documents Incorporated by Reference . . . . . . . . . . . . . . . . . . . 38
</TABLE>

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

2,150,000 SHARES

FOSSIL, INC.

Common Stock

[LOGO]

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

PROSPECTUS

APRIL ___, 1998

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

SALOMON SMITH BARNEY

HAMBRECHT & QUIST

J.C. BRADFORD & CO.

SOUTHWEST SECURITIES

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

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The expenses in connection with the offering of shares hereby all of
which will be borne by the Registrant are as follows (all amounts are estimates
except for the Securities & Exchange Commission Registration fee):

<TABLE>
<CAPTION>
<S> <C>
Registration Fee. . . . . . . . . . . . . . . $ 16,520
Nasdaq Listing Fee. . . . . . . . . . . . . . 6,100
Printing and Engraving. . . . . . . . . . . . *
Legal Fees and Expenses . . . . . . . . . . . *
Accounting Fees and Expenses. . . . . . . . . *
Blue Sky Fees and Expenses. . . . . . . . . . *
Transfer Agent. . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . *
---------
Total . . . . . . . . . . . . . . $ *
---------
---------
</TABLE>
- -------------------
* To be filed by amendment

The Selling Stockholders will pay the incremental expenses of the Offering
associated with the inclusion of their shares.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

DELAWARE GENERAL CORPORATION LAW

Section 145(a) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may indemnify any person who was or is a party or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believes to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.

Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person ifs fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

II-1
<PAGE>

Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because has met the applicable standard of
conduct set forth in subsections (a) and (b) of Section 145. Such determination
shall be made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum
of disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the unitholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in Section 145.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.

CERTIFICATE OF INCORPORATION

The Certificate of Incorporation of the Company provides that a director of
the Company shall not be personally liable to the Company or its stockholder for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for a transaction
from which the director derived an improper personal benefit or (iv) in respect
of certain unlawful dividend payments or stock purchases or redemptions. If the
DGCL is amended to authorize the further elimination or limitation of the
liability of directors, but the liability of a director of the Company, in
addition to the limitation on personal liability described above, shall be
limited to the fullest extent permitted by the DGCL, as so amended. Further,
any repeal or modification of such provision of the Certificate of Incorporation
by the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.

BYLAWS

The Bylaws of the Company, a copy of which is filed as Exhibit 3.2 to the
Registration Statement, provides that each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceedings is
alleged action in an official capacity as a director or officer or in any other
capacity while serving or having agreed to serve as a director or officer, shall
be indemnified and held harmless by the Company to the fullest extent
authorized by the DGCL, as an effect or as it may be amended from time to time,
against all expense, liability and loss (including without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such person
in connection therewith, and such indemnification shall continue as to a person
who has ceased to serve in the capacity which initially entitled such person to
indemnity hereunder and shall inure to the benefit of his or her heirs,
executors and administrators. The Bylaws also contain certain provisions
designed to facilitate receipt of such benefits by any such persons.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits:

1.3 Form of Underwriting Agreement for Common Stock*

5.1 Opinion of Jenkens & Gilchrist, a Professional Corporation*

23.1 Consent of Deloitte & Touche LLP, Independent Auditors

23.2 Consent of Jenkens & Gilchrist, a Professional Corporation
(included in the opinion contained as Exhibit 5.1)*

II-2
<PAGE>

24 Power of Attorney (included on the signature page of the
Registration Statement)

27 Financial Data Schedule

- -----------------
* To be filed by amendment or as an exhibit to a document to be
incorporated by reference herein in connection with an offering of the Common
Stock.

(b) Financial Statement Schedules:

Not Applicable.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any material
information with respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such information in the
Registration Statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act), that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, thereunto duly authorized, in the City of Richardson and the State
of Texas, on April 8, 1998.

FOSSIL, INC.

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

Each individual whose signature appears below hereby designates and
appoints Tom Kartsotis, Randy S. Kercho and T.R. Tunnell, and each of them, any
one of whom may act without joinder of the other, as his true and lawful
attorney-in-fact and agent (the "Attorneys-in-Fact"), with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as either
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and request to accelerate the effectiveness of such registration statements, and
to file each such amendment with all requests to accelerate the effectiveness of
such registration statements, and to file each such amendment with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto such and each of them, full power and
authority to do and perform each and every action and thing requisite and
necessary to be done as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that such Attorneys-
in-Fact or either of them, or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof. Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.

SIGNATURE CAPACITY DATE

/s/ Tom Kartsotis Chairman of the Board, Chief April 8, 1998
- ------------------------- Executive Officer and Director
TOM KARTSOTIS (Principal Executive Officer)

/s/ Kosta N. Kartsotis President and Chief Operating April 8, 1998
- ------------------------- Officer and Director
KOSTA N. KARTSOTIS

/s/ Randy S. Kercho Executive Vice President, April 8, 1998
- ------------------------- Chief Financial Officer and
RANDY S. KERCHO Treasurer (Principal Financial
and Accounting Officer)

/s/ Michael W. Barnes Executive Vice President April 8, 1998
- ------------------------- And Director
MICHAEL W. BARNES

<PAGE>

/s/ Jal S. Shroff Director April 8, 1998
- -------------------------
JAL S. SHROFF

/s/ Kenneth W. Anderson Director April 8, 1998
- -------------------------
KENNETH W. ANDERSON

/s/ Alan J. Gold Director April 8, 1998
- --------------------
ALAN J. GOLD

/s/ Donald J. Stone Director April 8, 1998
- --------------------
DONALD J. STONE

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement of
Fossil, Inc. on Form S-3 of our reports dated February 19, 1998 (except for the
first paragraph of Note 10 which is as of March 4, 1998), appearing in and
incorporated by reference in the Annual Report on Form 10-K of Fossil, Inc. for
the fiscal year ended January 3, 1998 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.

DELOITTE & TOUCHE LLP
Dallas, Texas
April 8, 1998

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> JAN-01-1997
<PERIOD-END> JAN-03-1998
<CASH> 21,103,581
<SECURITIES> 0
<RECEIVABLES> 38,937,357
<ALLOWANCES> 4,699,831
<INVENTORY> 51,382,160
<CURRENT-ASSETS> 113,659,298
<PP&E> 31,542,959
<DEPRECIATION> 10,469,626
<TOTAL-ASSETS> 139,569,890
<CURRENT-LIABILITIES> 43,056,502
<BONDS> 0
0
0
<COMMON> 203,085
<OTHER-SE> 95,059,898
<TOTAL-LIABILITY-AND-EQUITY> 139,569,890
<SALES> 244,797,532
<TOTAL-REVENUES> 244,797,532
<CGS> 127,269,749
<TOTAL-COSTS> 210,187,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 407,686
<INTEREST-EXPENSE> 956,182
<INCOME-PRETAX> 32,151,107
<INCOME-TAX> 13,209,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,942,107
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.91

</TABLE>