FOSSIL INC, 424B2, 1998-05-06

FOSSIL INC
424B2, 1998-05-06
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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<PAGE>
P R O S P E C T U S

FILE PURSUANT TO RULE 424B2
REGISTRATION NO. 333-49699

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 May 5, 1998 was $20.63 per share.

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>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share..................... $19.00 $0.997 $18.003 $18.003
Total(3)...................... $40,850,000 $2,143,550 $3,870,645 $34,835,805
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $400,000, of which $397,000 is
payable by the Company and $3,000 is 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 $46,977,500, $2,465,082 and
$40,641,773, 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 May
11, 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

May 5, 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, PAID 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

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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.

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
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- 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-Registered Trademark- line
of watches, which in 1997 accounted for approximately 44% 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
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THE OFFERING

<TABLE>
<S> <C>
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
</TABLE>

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

(1) Excludes 1,984,810 shares of Common Stock that are issuable under
outstanding options as of April 15, 1998.

CONTROL BY PRINCIPAL STOCKHOLDERS

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. Following the Offering, Messrs. Tom
Kartsotis and Kosta Kartsotis will own, directly or indirectly, an aggregate of
9,911,807 shares of Common Stock of the Company, representing approximately
47.9% of the outstanding shares of Common Stock (9,589,307 shares and 46.3% if
the Underwriters' over-allotment option is exercised in full). See "Risk
Factors--Control by Principal Stockholders," "--Dependence on Key Personnel" and
"Principal and Selling Stockholders."

6
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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
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
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
---------- ---------- ---------- ---------- ----------
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
---------- ---------- ---------- ---------- ----------
Total operating expenses......................... 82,918 73,665 62,437 45,663 28,767
---------- ---------- ---------- ---------- ----------
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
---------- ---------- ---------- ---------- ----------
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
---------- ---------- ---------- ---------- ----------
Net income (1)..................................... $ 18,942 $ 13,591 $ 12,057 $ 15,345 $ 11,485
---------- ---------- ---------- ---------- ----------
Basic earnings per share (1)....................... $ 0.94 $ 0.69 $ 0.61 $ 0.78 $ 0.61
---------- ---------- ---------- ---------- ----------
Diluted earnings per share (1)..................... $ 0.91 $ 0.68 $ 0.60 $ 0.77 $ 0.60
---------- ---------- ---------- ---------- ----------
Weighted average common and common equivalent shares
outstanding (1):
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...................... $ 74,077 $ 70,603 $ 59,861 $ 49,251 $ 41,434 $ 27,692
Total assets......................... 143,044 139,570 118,978 96,994 80,420 46,539
Long-term debt....................... -- -- 4,350 4,811 4,750 1,000
Stockholders' equity................. 98,737 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. See "Use of Proceeds" and
"Capitalization."

7
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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

8
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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 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.

9
<PAGE>
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."

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

10
<PAGE>
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 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 9,911,807 shares of Common Stock of the
Company, representing approximately 47.9% of the outstanding shares of Common
Stock (9,589,307 shares and 46.3% 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."

11
<PAGE>
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.

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 after deducting
underwriting discounts and commissions and estimated Offering expenses payable
by the Company are approximately $3,474,000. 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 May 5, 1998, the last reported price of the
Company's Common Stock on the Nasdaq National Market was $20.63.

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL YEAR BEGINNING JANUARY 4, 1998:
First Quarter......................... $ 21 5/8 $ 14 1/2
Second Quarter (through May 5,
1998)............................... 23 1/8 18 1/16

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 paid 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 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.

<TABLE>
<CAPTION>
JANUARY 3, 1998
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
(IN THOUSANDS)
Cash..................................................................................... $ 21,104 $ 24,577
---------- -----------
---------- -----------
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 29,493
Retained earnings...................................................................... 71,257 71,257
Cumulative translation adjustment...................................................... (2,218) (2,218)
---------- -----------
Total stockholders' equity............................................................. 95,263 98,737
---------- -----------
Total capitalization................................................................. $ 103,125 $ 106,599
---------- -----------
---------- -----------
</TABLE>

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

(1) Excludes 1,984,810 shares of Common Stock that are issuable under
outstanding options as of April 15, 1998.

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
approximately 44% 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.

<TABLE>
<CAPTION>
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):

<TABLE>
<CAPTION>
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 to overall sales increases in

16
<PAGE>
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.

17
<PAGE>
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.

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 approximately $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
$42.8 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.

18
<PAGE>
FORWARD-LOOKING STATEMENTS

Included within management's discussion of the Company's operating results
and this prospectus, 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
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.

<TABLE>
<CAPTION>
FISCAL YEAR 1997
------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
--------- --------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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
------------------------------------------
1ST QTR 2ND QTR 3RD QTR 4TH QTR
--------- --------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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>

19
<PAGE>
While the majority of the Company's products are not seasonal in nature, a
significant portion of the Company's net sales and operating income are
generally derived in the second half of the year. The Company's fourth quarter,
which includes the Christmas season, typically generates in excess of 30% of the
Company's annual operating income, while the first quarter generally accounts
for less than 20% of the annual operating income. The amount of net sales and
operating income generated during the first quarter is affected by the levels of
inventory held by retailers at the end of 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.

20
<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

21
<PAGE>
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 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

- 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

22
<PAGE>
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.

- 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 approximately 44% 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.

23
<PAGE>
- 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 Industries to offer
FOSSIL outerwear.

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:

<TABLE>
<CAPTION>
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 BLUE TEQ, Dress, DRT, FOSSIL
Hudson Corp., Dillard's, Steel, FOSSIL Blue, Limited
Federated/Macy's, May Dept. Edition, Skeleton & Vintage
Stores, Mercantile Stores
Company, Inc., Nordstrom, Inc.
and Profitts)

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

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

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<PAGE>
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 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.

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.

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.

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.

25
<PAGE>
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.

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

26
<PAGE>
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 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 independently-owned,
authorized 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.

27
<PAGE>
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 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

28
<PAGE>
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.

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

29
<PAGE>
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 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 new warehouse

30
<PAGE>
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."

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

31
<PAGE>
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.

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

32
<PAGE>
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 250 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 of 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.

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.

33
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
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................ 66 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.

34
<PAGE>
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.).

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.

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<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 five
highest compensated executive officers, (iii) each director, (iv) all directors
and executive officers as a group and (v) each Selling Stockholder:

<TABLE>
<CAPTION>
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>
Tom Kartsotis(3).................... 7,977,562(4) 38.9% 1,126,612(5) 6,850,950(5) 33.1% (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 *
Mark D. Quick....................... 107,625(8) * -- 107,625 *
Jal S. Shroff(9).................... 393,910(10) 1.9 -- 393,910 1.9
Franz Scheurl....................... 108,192(11) * 22,500 85,692 *
Kenneth W. Anderson................. 29,625(12) * -- 29,625 *
Alan J. Gold........................ 37,125(13) * -- 37,125 *
Donald J. Stone..................... 29,550(14) * -- 29,550 *
FMR Corp............................ 1,500,000(15) 7.3 -- 1,500,000 7.2
All executive officers, directors
and Selling Stockholders as a
group (12 persons)(4)(6)(7)
(8)(10)(11)(12)(13)(14)........... 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 1,449,112, 6,528,450 and
31.5%, respectively.

36
<PAGE>
(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 103,125 shares issuable pursuant to the exercise of stock options
within 60 days.

(9) Mr. Shroff and his wife, Pervin J. Shroff, share voting and investment power
with respect to 312,235 of the shares shown.

(10) 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.

(11) 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.

(12) 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.

(13) Includes 22,125 shares issuable pursuant to the exercise of stock options
within 60 days.

(14) Includes 22,125 shares issuable pursuant to the exercise of stock options
within 60 days.

(15) 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.

37
<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 OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc................................................................. 537,500
Hambrecht & Quist LLC............................................................ 537,500
J.C. Bradford & Co............................................................... 537,500
Southwest Securities, Inc........................................................ 537,500
----------
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. are 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 $0.60 per share under the public offering price. The Underwriters may allow,
and such dealers may allow, a concession not in excess of $0.10 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

38
<PAGE>
the Offering documents. Each of the foregoing indemnities is in addition to any
liabilities that the parties may otherwise have.

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;

39
<PAGE>
(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 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.

40
<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.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
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.................................................................. 21
Management................................................................ 34
Principal And Selling Stockholders........................................ 36
Underwriting.............................................................. 38
Legal Matters............................................................. 39
Experts................................................................... 39
Available Information..................................................... 39
Documents Incorporated by Reference....................................... 40
</TABLE>

2,150,000 Shares
Fossil, Inc.
Common Stock

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PROSPECTUS

MAY 5, 1998

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Salomon Smith Barney
Hambrecht & Quist
J.C. Bradford & Co.
Southwest Securities

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