FOSSIL INC, 10-K, 1999-04-02

FOSSIL INC
10-K, 1999-04-02
WATCHES, CLOCKS, CLOCKWORK OPERATED DEVICES/PARTS

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

FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 2, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-19848

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

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

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

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

The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the sale trade price of the Common Stock as reported by the
Nasdaq National Market on March 30, 1999, was $339,326,309. For purposes of this
computation, all officers, directors and 10% beneficial owners of the registrant
are deemed to be affiliates. Such determination should not be deemed an
admission that such officers, directors or 10% beneficial owners are, in fact,
affiliates of the registrant. As of March 30, 1999, 20,937,580 shares of Common
Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of Stockholders to be held May 26, 1999, to be filed with the Commission
pursuant to Regulation 14A, and the Company's Annual Report to Stockholders are
incorporated by reference into Part III of this report.

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PART I

ITEM 1. BUSINESS

GENERAL

Fossil, Inc. (the "Company") is a Delaware corporation formed in December
1991 and is the successor to a Texas corporation formed in 1984. In 1993, the
Company completed an initial public offering (the "Offering") of 2,760,000
shares of common stock, par value $.01 (the "Common Stock"). On March 4, 1998,
the Board of Directors of the Company declared a three-for-two stock split of
the Company's Common Stock which was effected in the form of a stock dividend
paid on April 8, 1998 to stockholders of record on March 25, 1998. On May 11,
1998, the Company completed a secondary offering of 2,150,000 shares of Common
Stock (plus an additional 152,500 shares on June 9, 1998 pursuant to an
underwriter's over-allotment allocation) for an aggregate of 2,302,500 shares.

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

The Company 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.

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 and optical frames under the FOSSIL brand. In addition,
the Company licenses the brands of other companies in order to further leverage
its infrastructure. For example, in 1997 the Company entered into a multi-year
license agreement with Giorgio Armani to design, manufacture, distribute and
market a line of EMPORIO ARMANI-Registered Trademark- watches.

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the Company's products are offered at retail locations in major airports in
the United States, on cruise ships and in independently-owned, authorized
FOSSIL retail stores and kiosks in certain international markets.

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

The Company's operations in Hong Kong relating to the procurement of
watches from various manufacturing sources are conducted by Fossil (East)
Limited ("Fossil East"), a wholly owned subsidiary of the Company organized
under the laws of Hong Kong and acquired by the Company in 1992. Fossil Europe
B.V. ("Fossil B.V."), a Netherlands holding company established in May 1993, is
a wholly owned subsidiary of the Company. Fossil Europe GmbH ("Fossil GmbH") is
a wholly owned German subsidiary of Fossil B.V., which markets and resells the
Company's products throughout Europe. Fossil Italia, S.r.l. ("Fossil Italy"), a
wholly owned Italian subsidiary of Fossil B.V., was formed in June 1994 and
markets and sells the Company's products in Italy. Fossil France EURL, S.a.r.l.
("Fossil France"), a wholly owned subsidiary of Fossil B.V., was formed in 1995
to market and sell the Company's products in France. Fossil Spain, S. A.
("Fossil Spain"), a wholly owned subsidiary of Fossil B.V., was formed in 1996
and markets and sells the Company's products in Spain. Fossil Singapore, Ltd.
("Fossil Singapore"), a majority owned subsidiary of the Company, was formed in
1998 and markets and sells the Company's products in Singapore.

FORWARD-LOOKING INFORMATION

The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts, including, but not limited to,
statements found in this Item 1. Business and Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and uncertainties.
The actual results of the future events described in such forward-looking
statements in the Annual Report could differ materially from those stated in
such forward-looking statements. Among the factors that could cause actual
results to differ materially are: general economic conditions, competition,
government regulation and possible future litigation, as well as the risks and
uncertainties discussed in this Annual Report, including, without limitation,
the portions referenced above, and the risks and uncertainties set forth on the
Company's Current Report on Form 8-K dated March 30, 1999.

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

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brand names such as Concord, Piaget and Rolex. Watches offered in this
segment are usually made of precious metals or stainless steel and may be set
with precious gems. These watches are often manufactured in Switzerland and
are sold by trade jewelers and in the fine jewelry departments of better
department stores and other purveyors of luxury goods at retail prices
ranging from $1,500 to $20,000. A second segment of the market consists of
fine premium branded and designer watches manufactured in Switzerland and the
Far East such as Gucci, Rado, Raymond Weil, Seiko and Swiss Army. These
watches are sold at retail prices generally ranging from $150 to $1,500. The
Company's EMPORIO ARMANI line generally competes in this market segment. A
third segment of the market consists of watches sold by mass marketers, which
include certain watches sold under the Timex brand name as well as certain
watches sold by Armitron under various brand names and labels. Retail prices
in this segment range from $5 to $40.

The fourth segment of the market consists of moderately priced watches
characterized by contemporary fashion and well known brand names. Moderately
priced watches are typically manufactured in Japan or Hong Kong and are sold 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, Kenneth Cole 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 specialty 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

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.

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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 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 those of 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.

- - 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, Hong Kong and Japan. The Company believes its centralized
distribution capabilities enable it to reduce inventory risk, increase
flexibility

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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, its FOSSIL
Steel line in mid-1997, its BLUE TEQ line in late 1997 and its BIG TIC
brand in the fall of 1998. In addition, the Company introduced its line of
RELIC leather goods in 1997, its line of nylon bags and FSL sport bags in
early 1998 and FOSSIL STEEL and FOSSIL BLUE sunwear in 1998.

- - EXPAND INTERNATIONAL BUSINESS. The Company increased its efforts to align
its FOSSIL brand watches sold internationally with its successful domestic
assortments. 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 entered into
license agreements with London Fog Industries in 1998 to offer FOSSIL
outerwear beginning with the fall line in 1999 and with Safilo Group in
1999 to offer FOSSIL optical frames in the United States and Canada and
optical frames and sunglasses in Italy later in 1999.

- - 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 37 retail and outlet stores and
plans to open an additional six retail stores and five outlet stores in
1999. 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.

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 1998, 1997 and 1996
accounted for approximately 75.5%, 72.4% and 71.9%, respectively, of the
Company's gross sales.

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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 $55-120 $73 Major dept. stores (Dayton BLUE TEQ, Dress, DRT, F2, FOSSIL
Hudson Corp., Dillard's, Steel, FOSSIL BLUE, BIG TIC,
Federated/Macy's, May Dept. FOSSIL Sterling, DEFENDER,
Stores, Mercantile Stores Limited Edition, Skeleton,
Company, Inc., Nordstrom, Vintage
Inc. and Profitts)

RELIC $45-75 $58 Major retailers (Ames Dept. Dressy, Metal Sport, Moon,
Stores, Bealls Dept. Stores, Novelty, Pendant, Pocket,
JCPenney, Kohl's Department RELIC Wet, RELIC
Stores, Inc., Montgomery Adjust-A-Link, RELIC
Ward & Co., Sears, Service Stainless Steel, Skeleton,
Merchandise Co., Inc., SRI, Sport
Uptons)

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

PRIVATE LABEL AND PREMIUM PRODUCTS. The Company designs, markets and
arranges for the manufacture of watches on behalf of certain retailers,
entertainment companies, theme restaurants and other corporate customers such as
Warner Bros. and Disney, as private label products or as premium and incentive
items for use in various corporate events. Under this arrangement, the Company
performs design and product development functions as well as acts as a sourcing
agent for its customers by contracting for the manufacture of watches, managing
the manufacturing process, inspecting the finished watches, purchasing the
watches and arranging 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 with an average price of $238.

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

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in 1998 included Felix the Cat, Mickey & Co., the X Files, Pink Panther,
Peanuts, the Simpsons 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 1998, 1997 and 1996
accounted for approximately 23.5%, 26.4% and 26.5%, 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 $35.

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 $35. Retail prices for the Company's FOSSIL brand men's and
women's belts generally range from $20 to $40 with an average price of $26. In
addition, the Company has introduced a line of small leather goods and belts
under the RELIC brand name, with suggested retail prices generally ranging from
$14 to $24.

HANDBAGS. In 1996, the Company introduced a line of FOSSIL handbags and
recently introduced an additional line of handbags under the FSL brand name. The
Company's handbags are made of a variety of fine leathers and other materials.
These products emphasize classic styles and incorporate a variety of creative
designs. Suggested retail prices for the Company's handbags generally range from
$35 to $170 with an average price of $85.

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

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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 entered into a multi-year license agreement with
London Fog in 1998 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 the fall of 1999. The Company also entered into a multi-year
license agreement with Itochu Fashion Systems Co., Ltd. for the manufacture,
marketing and sale of casual shirts, knit tops, pants, jackets and related
separates for everyday wear in Japan under the FOSSIL brand.

FUTURE PRODUCTS. In March 1999, the Company entered into a multi-year
license agreement with the Safilo Group for the manufacture, marketing and sale
of optical frames under the FOSSIL brand in the United States and Canada and
optical frames and sunglasses in Italy. The line is currently scheduled for
introduction to optical stores later 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 product.

DESIGN AND DEVELOPMENT

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

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

The Company differentiates its products from those of its competitors
principally by incorporating into its product designs innovations in fashion
details, including variations in the treatment of dials, crystals, cases and
straps for the Company's watches and details and treatments of its other
accessories. In certain instances, the Company believes that such innovations
have allowed it to achieve significant improvements in consumer acceptance of
its product offerings with only nominal increases in manufacturing costs. The
Company believes that the substantial experience of its design staff will assist
it in maintaining its current leadership position in watch design and in
expanding the scope of its product offerings.

MARKETING AND PROMOTION

The Company's current FOSSIL brand advertising themes aim at evoking
nostalgia for the simpler values and more optimistic outlook of the 1950s
through the use of images of cars, trains, airliners and consumer products that
reflect the classic American tastes of the period. These images are carefully

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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.

DEPARTMENT STORES. For fiscal years 1998, 1997 and 1996, domestic
department stores accounted for approximately 48.4%, 45.2% and 46.6% of the
Company's net sales, respectively. In addition, in the same periods, the
Company's 10 largest customers represented approximately 47.0%, 45.0% and 47.0%
of net sales, respectively. For fiscal year 1996, Dillard's accounted for
approximately 10.0% of the Company's

9
<PAGE>

net sales. No other customer accounted for more than 10% of the Company's net
sales in fiscal years 1998, 1997 and 1996. 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 10.0%,
10.8% and 11.1% of the Company's net sales in fiscal years 1998, 1997 and
1996, 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 1998, 1997 and 1996.

INTERNATIONAL SALES. The Company's products are sold to department stores
and specialty retail stores in over 80 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 1998, 1997 and 1996, international and export sales accounted for
approximately 29%, 31% and 30% 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 28 outlet stores at the end of fiscal year 1998.
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 five additional outlet stores in 1999.

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 nine retail stores, located at Scottsdale Fashion Square (Scottsdale,
Arizona), Universal Studios City Walk (Los Angeles, California), 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 six additional retail stores in 1999.

INTERNET SALES. 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 1998, the Company had 75
in-house sales and customer service employees and 40 independent sales
representatives. The Company's in-house sales personnel receive a salary and, in
some cases, a commission

10
<PAGE>

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

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

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

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 1998, 1997 and
1996 were $13,966,000, $10,576,000 and $8,854,000, respectively. Since 1990, the
Company has not experienced any returns in excess of the aggregate allowances
therefor.

BACKLOG

For fiscal year 1998, the Company had unfilled customer orders of
approximately $22,237,000 compared to $16,223,000 and $15,852,000 for
fiscal years 1997 and 1996, 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.

11
<PAGE>

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 29 factories located primarily in Hong Kong and China, and to a
lesser extent in Japan. The Company believes that its policy of outsourcing
products allows it to achieve increased production flexibility while avoiding
significant capital expenditures, build-ups of work-in-process inventory and
the costs of managing a substantial production work force.

The principal components used in the manufacture of the Company's watches
are cases, crystals, dials, movements and straps. These components are obtained
by the Company's manufacturing sources from a large number of suppliers located
principally in Hong Kong, Japan, China, Taiwan, Italy and Korea. The Company
estimates that the majority of the movements used in the manufacture of the
Company's watches are supplied by two principal vendors. No other single
component supplier accounted for more than 10% of component supplies in 1998.
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 1998, three 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).

12
<PAGE>

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,
Hong Kong and Germany from which they are shipped to customers in selected
markets. Since July 1997, the Company has owned and operated a new warehouse
and distribution facility in Richardson, Texas, adjacent to the Company's
headquarters, to maximize the Company's inventory management and distribution
capabilities.

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

MANAGEMENT INFORMATION SYSTEMS

INVENTORY CONTROL. The Company maintains inventory control systems at
its facilities that enable it to track each item of merchandise from receipt
from its manufacturing sources, through shipment to its customers. To
facilitate this tracking, a significant number of products sold by the
Company are pre-ticketed and bar coded prior to shipment to its retail
customers. The Company's inventory control systems 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 Management's Discussion and Analysis of Financial Condition and
Results of Operation contained in the Company's Annual Report to Stockholder
which is an exhibit to this Annual Report on Form 10-K.

13
<PAGE>

WARRANTY AND REPAIR

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

GOVERNMENTAL REGULATIONS

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

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.

14
<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? Anne
Klein II, Kenneth Cole 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 of 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 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 1998, the Company (excluding the Company's
foreign subsidiaries) had 535 full-time employees, including 75 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 1998, the Company's foreign subsidiaries had 293 full-time
employees, including 21 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.

ITEM 2. PROPERTIES

In July 1994, the Company completed construction of its current
corporate headquarters located in a 150,000 square foot facility in
Richardson, Texas. In July 1997, the Company completed construction of a
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 1998, the Company had entered into 10 lease
agreements for retail space at prime locations in the United States for the
sale of its full assortment of products. The leases,

15
<PAGE>

including renewal options, expire at various times from 2003 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 9%. 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 1998, the Company had entered into 28 such leases. The leases,
including renewal options, expire at various times from 2002 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 retailers.

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.

ITEM 3. LEGAL PROCEEDINGS

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

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

No matter was submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year 1998.

16
<PAGE>

PART II

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

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

The following table sets forth the range of quarterly high and low sales
prices per share of the Company's Common Stock on the Nasdaq National Market
for the fiscal years ended January 2, 1999 and January 3, 1998. Such prices
have been adjusted to reflect a three-for-two stock split (the "3 for 2 Stock
Split") of the Company's Common Stock effected 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.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year beginning January 3, 1998:

First Quarter $ 21 2/3 $ 14 1/2
Second Quarter 27 3/8 17 7/8
Third Quarter 27 13
Fourth Quarter 30 5/8 13

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 5/8 11
</TABLE>

As of March 30, 1999, the Company estimates that there were
approximately 2,600 beneficial owners of the Company's Common Stock,
represented by approximately 132 holders of record.

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

The Company declared the 3 for 2 Stock Split 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.

ITEM 6. SELECTED FINANCIAL DATA

The information appearing under "Financial Highlights" beginning on page 5
of the Fossil, Inc. 1998 Annual Report is incorporated herein by reference.

17
<PAGE>

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

The information appearing under "Management's Discussion and Analysis "
beginning on page 18 of the Fossil, Inc. 1998 Annual Report is incorporated
herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information appearing under "Management's Discussion and Analysis"
and "Financial Information" beginning on pages 18 and 37, respectively, of
the Fossil, Inc. 1998 Annual Report is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The information appearing under "Financial Information" beginning on
page 37 of the Fossil, Inc. 1998 Annual Report is incorporated herein by
reference.

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

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

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

18
<PAGE>

PART IV

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

(a) Documents filed as part of Report.

1. FINANCIAL STATEMENTS:

The Financial Statements appearing under "Financial Information"
beginning on page 37 of the Fossil, Inc. 1998 Annual Report are incorporated
herein by reference.

2. FINANCIAL STATEMENT SCHEDULE:

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

Schedule II - Valuation and Qualifying Accounts

3. EXHIBITS:

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

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

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

3.4 Second Amended and Restated Certificate of Incorporation of Fossil,
Inc. (incorporated by reference to Exhibit 3.1 of the Company's Report
on Form 10-Q for the quarterly period ended July 4, 1998).

10.1(2) Fossil, Inc. 1993 Nonemployee Director Stock Option Plan (incorporated
herein by reference to Exhibit 10.1 of the Company's Registration
Statement of Form S-1, registration no. 33-45357, filed with the
Securities and Exchange Commission).

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

20
<PAGE>

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

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

10.20(2) Letter Agreement dated October 4, 1995 between Fossil, Inc. and Mark D.
Quick (incorporated by reference to Exhibit 10.32 of the Company's
Annual Report on Form 10-K for the year-ended December 31, 1996).

10.21 Stock Purchase Agreement dated February 1, 1997, by and between
Bluewhale Holding S.a., and Fossil Europe B.V. (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the
transition period from January 1, 1997 to April 5, 1997).

10.22(2) First Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.23(2) Second Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.24(1,2)Amendment to the Fossil, Inc. 1993 Non-Employee Director Stock Option
Plan.

10.25(1,2)Fossil, Inc. and Affiliates Deferred Compensation Plan.

10.26 Third Amended and Restated Loan Agreement dated June 29, 1998, by and
among Wells Fargo Bank (Texas), National Association, a national
banking association formerly known as First Interstate Bank of Texas,
N.A., Fossil Partners, L.P., Fossil, Inc., Fossil Intermediate, Inc.,
Fossil Trust, Fossil New York, Inc., Fossil Stores I, Inc., and Fossil
Stores II, Inc. (without exhibits) (incorporated by reference to
Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended July 4, 1998).

13(1) Fossil, Inc. 1998 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27 (1) Financial Data Schedule.
</TABLE>

(1) Filed herewith.
(2) Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

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

21
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Richardson, State of Texas, on April 1, 1999.

FOSSIL, INC.

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

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

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Tom Kartsotis Chairman of the Board, Chief Executive April 1, 1999
- ------------------------------- Officer and Director
TOM KARTSOTIS (Principal Executive Officer)

/s/ Kosta N. Kartsotis President and Chief Operating Officer April 1, 1999
- ------------------------------- and Director
KOSTA N. KARTSOTIS

/s/ Randy S. Kercho Executive Vice President, Chief Financial April 1, 1999
- ------------------------------- Officer and Treasurer
RANDY S. KERCHO (Principal Financial and Accounting Officer)

/s/ Michael W. Barnes Executive Vice President and Director April 1, 1999
- -------------------------------
MICHAEL W. BARNES

/s/ Jal S. Shroff Director April 1, 1999
- -------------------------------
JAL S. SHROFF

/s/ Kenneth W. Anderson Director April 1, 1999
- -------------------------------
KENNETH W. ANDERSON

/s/ Alan J. Gold Director April 1, 1999
- -------------------------------
ALAN J. GOLD

/s/ Donald J. Stone Director April 1, 1999
- -------------------------------
DONALD J. STONE
</TABLE>

22
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Fossil, Inc.:

We have audited the consolidated financial statements of Fossil, Inc. and
subsidiaries as of January 2, 1999 and January 3, 1998 and for each of the
three years in the period ended January 2, 1999 and have issued our report
thereon dated February 19, 1999, which report expressed an unqualified
opinion; such consolidated financial statements and report are included in
your 1998 Annual Report to Stockholders and are incorporated herein by
reference. Our audit also included the consolidated financial statement
schedule of Fossil, Inc. and subsidiaries listed in Item 14. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP
Dallas, Texas
February 19, 1999

S-1
<PAGE>

SCHEDULE II

FOSSIL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

Fiscal Years 1996, 1997, and 1998

<TABLE>
<CAPTION>
Additions
---------
Charged Deductions
Balance at (Credited) to --------------
Beginning of Costs and Actual Returns Balance at End
Classification Period Expenses or Writeoffs of Period
- -------------- ------ -------- ------------ ---------
<S> <C> <C> <C> <C>
Fiscal Year 1996:

Accounts receivable allowances:

Sales returns 9,034,124 12,524,626 (12,704,297) 8,854,453

Bad debts 2,856,066 2,103,499 (667,419) 4,292,146

Cash discounts 106,118 218,500 (110,747) 213,871

Inventory in transit for estimated
customer returns (4,827,000) (6,330,967) 6,694,021 (4,463,946)

Fiscal Year 1997:

Accounts receivable allowances:

Sales returns 8,854,453 17,399,057 (15,677,328) 10,576,181

Bad debts 4,292,146 2,024,647 (1,616,962) 4,699,831

Cash discounts 213,871 204,448 (229,722) 188,597

Inventory in transit for estimated
customer returns (4,463,946) (9,715,573) 8,484,687 (5,694,831)

Fiscal Year 1998:

Accounts receivable allowances:

Sales returns 10,576,181 22,967,297 (19,577,057) 13,966,421

Bad debts 4,699,831 4,004,929 (1,840,395) 6,864,365

Cash discounts 188,597 248,965 (209,335) 228,227

Inventory in transit for estimated
customer returns (5,694,831) (12,595,116) 10,804,762 (7,485,185)
</TABLE>

S-2
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

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

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

3.6 Second Amended and Restated Certificate of Incorporation of Fossil,
Inc. (incorporated by reference to Exhibit 3.1 of the Company's Report
on Form 10-Q for the quarterly period ended July 4, 1998).

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

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

10.20(2) Letter Agreement dated October 4, 1995 between Fossil, Inc. and Mark
D. Quick (incorporated by reference to Exhibit 10.32 of the Company's
Annual Report on Form 10-K for the year-ended December 31, 1996).

<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION

10.22 Stock Purchase Agreement dated February 1, 1997, by and between
Bluewhale Holding S.a., and Fossil Europe B.V. (incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for
the transition period from January 1, 1997 to April 5, 1997).

10.22(2) First Amendment to the Fossil, Inc. 1993 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4.1 of the Company's Report on
Form 10-Q for the quarterly period ended July 4, 1998).

10.24(1,2) Amendment to the Fossil, Inc. 1993 Non-Employee Director Stock
Option Plan.

10.25(1,2) Fossil, Inc. and Affiliates Deferred Compensation Plan.

10.26 Third Amended and Restated Loan Agreement dated June 29, 1998, by
and among Wells Fargo Bank (Texas), National Association, a
national banking association formerly known as First Interstate
Bank of Texas, N.A., Fossil Partners, L.P., Fossil, Inc., Fossil
Intermediate, Inc., Fossil Trust, Fossil New York, Inc., Fossil
Stores I, Inc., and Fossil Stores II, Inc. (without exhibits)
(incorporated by reference to Exhibit 10.1 of the Company's
Report on Form 10-Q for the quarterly period ended July 4, 1998).

13(1) Fossil, Inc. 1998 Annual Report to Stockholders.

21.1(1) Subsidiaries of Fossil, Inc.

23.1(1) Consent of Independent Auditors.

27 (1) Financial Data Schedule.

(1) Filed herewith.
(2) Management contract or compensatory plan or arrangement.

<PAGE>

AMENDMENT NUMBER ONE
TO THE
1993 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
OF
FOSSIL, INC.

The following Amendment to the 1993 Nonemployee Director Stock Option
Plan of Fossil, Inc. (the "Plan"), as authorized by the Board of Directors of
Fossil, Inc. (the "Company"), is adopted as of the effective date specified
herein:

Notwithstanding the provisions of paragraph 13 of the Plan, grants of
Options under the Plan commencing on January 1, 1999, shall not be adjusted
for the 3-for-2 split of the Common Stock of the Company effected as a stock
dividend on April 8, 1998 to all stockholders of record on March 25, 1998.

All other terms and conditions of the Plan shall remain in full force
and effect.

This amendment shall become effective as of December 31, 1998

Fossil, Inc.

By:
------------------------------------
Tom Kartsotis
Chairman and Chief Executive Officer

<PAGE>

FOSSIL, INC. AND AFFILIATES
DEFERRED COMPENSATION PLAN

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
SECTION ONE DEFINITIONS 1
1.1 "ADDENDUM(s)" 1
1.2 "ACCOUNT(s)" 1
1.3 "INSTALLMENT PAYMENT" 1
1.4 "APPLICABLE INTEREST RATE" 1
1.5 "BENEFICIARY" 1
1.6 "BENEFIT" 1
1.7 "BOARD" 1
1.8 "BONUS" 1
1.9 "BUSINESS DAY" 2
1.10 "CHANGE OF CONTROL" 2
1.11 "CODE" 2
1.12 "COMMITTEE" 2
1.13 "COMPANY" 2
1.14 "CONTRIBUTIONS" 3
1.15 "DEFERRED PAYMENTS" 3
1.16 "DEFERRED PAYMENT DATE" 3
1.17 "DESIGNATED AFFILIATE" 3
1.18 "EARNINGS" 3
1.19 "EFFECTIVE DATE" 3
1.20 "ELECTION FORM" 3
1.21 "ELIGIBLE INDIVIDUAL" 3
1.22 "EMPLOYEE" 3
1.23 "EMPLOYER" 3
1.24 "EMPLOYER CONTRIBUTION" 3
1.25 "EMPLOYER ACCOUNT" 3
1.26 "ENTRY DATE" 4
1.27 "ERISA" 4
1.28 "FINAL DEFERRAL FILING DATE" 4
1.29 "INVESTMENT DATE" 4
1.30 "LUMP SUM" 4
1.31 "MEASUREMENT PREFERENCES" 4
1.32 "PARTICIPANT" 4
1.33 "PLAN" 4
1.34 "PLAN YEAR" 4
1.35 "QUARTER" 4
1.36 "RULES OF GENERAL APPLICATION" 4
1.37 "THIRD-PARTY RECORDKEEPER" 4
1.38 "SALARY" 4
1.39 "SALARY DEFERRAL CONTRIBUTIONS" 4
1.40 "SALARY DEFERRAL ACCOUNT" 5
1.41 "SEPARATES" OR "SEPARATION" 5
1.42 "TRUST" 5

<PAGE>

1.43 "VALUATION DATE" 5
1.44 "VEST" OR "VESTING" 5

SECTION TWO ADMINISTRATION 5
2.1 APPOINTMENT OF COMMITTEE. 5
2.2 EMPLOYER DUTIES 5
2.3 AUTHORITY OF COMMITTEE. 5
2.4 ACTION BY COMMITTEE. 5
2.5 MEETINGS OF COMMITTEE. 5
2.6 POWERS OF COMMITTEE AND COMPANY. 6
2.7 INDEMNIFICATION. 6
2.8 BOND AND EXPENSES. 6
2.9 RELIANCE ON TABLES 6

SECTION THREE PARTICIPATION 6

SECTION FOUR CONTRIBUTIONS 7
4.1 SALARY DEFERRAL CONTRIBUTIONS. 7
4.2 CREDITING OF SALARY DEFERRAL CONTRIBUTIONS. 7
4.3 EMPLOYER CONTRIBUTIONS. 8
4.4 DISPOSITION OF CONTRIBUTIONS. 8

SECTION FIVE PARTICIPANT'S ACCOUNTS AND INVESTMENTS 8
5.1 ESTABLISHMENT OF ACCOUNT. 8
5.2 EARNINGS CREDITED TO ACCOUNTS. 8
5.3 INVESTMENT DIRECTION. 8
5.4 STATEMENTS. 9

SECTION SIX VESTING 9
6.1 SALARY DEFERRAL ACCOUNT. 9
6.2 EMPLOYER ACCOUNT. 9

SECTION SEVEN DISTRIBUTION OF BENEFIT 9
7.1 FORM AND TIMING OF DISTRIBUTION. 9
7.2 ELECTION OF DEFERRED PAYMENTS. 10
7.3 INSTALLMENT PAYMENTS. 10
7.4 CHANGE IN CONTROL. 10
7.5 HARDSHIP DISTRIBUTION. 10
7.6 IN-SERVICE WITHDRAWAL. 11
7.7 SOURCE OF DISTRIBUTION. 11

SECTION EIGHT DESIGNATION OF BENEFICIARIES 11
8.1 DESIGNATION BY PARTICIPANT 11
8.2 LACK OF DESIGNATION. 11

<PAGE>

SECTION NINE AMENDMENT AND TERMINATION 12

SECTION TEN GENERAL PROVISIONS 12
10.1 NO ASSIGNMENT. 12
10.2 INCAPACITY. 12
10.3 CLAIMS PROCEDURE. 12
10.4 FINAL RESOLUTION OF DISPUTES RELATING TO PLAN 13
10.5 INFORMATION REQUIRED. 13
10.6 COMMUNICATIONS BY, AND INFORMATION FROM, PARTICIPANT. 13
10.7 NO RIGHTS IMPLIED. 14
10.8 COMMUNICATIONS BY COMMITTEE OR EMPLOYER. 14
10.9 INTERPRETATIONS AND ADJUSTMENTS. 14
10.10 NO LIABILITY FOR GOOD FAITH DETERMINATIONS. 14
10.11 NO EMPLOYMENT RIGHTS. 14
10.12 WITHHOLDING OF TAXES. 14
10.13 WAIVERS. 15
10.14 RECORDS. 15
10.15 SECURITIES LAWS. 15
10.16 SEVERABILITY. 15
10.17 CAPTIONS AND GENDER. 15
10.18 CHOICE OF LAW. 15
10.19 EFFECTIVE DATE AND TERMINATION DATE. 15
</TABLE>

<PAGE>

FOSSIL, INC. AND AFFILIATES
DEFERRED COMPENSATION PLAN

Fossil, Inc. hereby establishes the Fossil, Inc. And Affiliates Deferred
Compensation Plan to give a select group of highly compensated employees the
opportunity to defer a portion of their compensation and possibly receive
deferred employer contributions. For purposes of the Code, the Employers
intend this Plan to be an unfunded, unsecured promise to pay on the part of
each Employer. For purposes of ERISA, the Employers intend this Plan to be
an unfunded plan solely for the benefit of a select group of management or
highly compensated employees of the Employers for the purpose of qualifying
the Plan for the "top hat" plan exception under sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA.

SECTION ONE DEFINITIONS

1.1 "ADDENDUM(s)" shall mean, collectively, the pages which are
attached to this Plan document, and incorporated by reference, on which shall
be reflected the information described in SECTION 4.3.

1.2 "ACCOUNT(s)" shall mean, collectively, the Salary Deferral Account,
and the Employer Account, maintained for each Participant, except that when
it shall be appropriate to refer to a particular Account, reference shall be
to that Account.

1.3 "INSTALLMENT PAYMENT" shall mean an annual distribution, in cash,
of the Participant's Account balance over a period of years as provided for
in SUBSECTIONS 7.2 AND 7.3.

1.4 "APPLICABLE INTEREST RATE" shall mean, for each day during a period
of reference (but computed without compounding), a percentage equal to the
product of (i), (ii) and (iii), where (i) is the sum of the one (1) year
London Interbank Offered Rate ("LIBOR") as reported in the Wall Street
Journal as of (x) the first Business Day, plus (y) the last Business Day,
occurring during such period of reference, (ii) is fifty percent (50%), and
(iii) is a quotient of 1 divided by 360.

1.5 "BENEFICIARY" shall mean the person(s), entity or entities
designated by the Participant as the beneficiary of balance of his Benefit.

1.6 "BENEFIT" shall mean the Vested amount credited to the
Participant's Account at the time of reference.

1.7 "BOARD" shall mean the Board of Directors of the Company.

1.8 "BONUS" shall mean amounts of compensation paid by an Employer
which is not regular salary, wages or commissions, and which is determined to
be a Bonus by the Committee.

<PAGE>

1.9 "BUSINESS DAY" shall mean, with respect to each Measurement
Preference, a day on which the exchange on which it is traded is operating.

1.10 "CHANGE OF CONTROL" shall mean the first to occur of the following:

(a) a dissolution or liquidation of the Company; or

(b) a merger or consolidation (other than a merger effecting a
re-incorporation of the Company in another state or any other merger or a
consolidation in which the shareholders of the surviving corporation and
their proportionate interests therein immediately after the merger or
consolidation are substantially identical to the shareholders of the
Company and their proportionate interests therein immediately prior to the
merger or consolidation) in which the Company is not the surviving
corporation (or survives only as a subsidiary of another corporation as a
result of a transaction in which the shareholders of the parent of the
Company and their proportionate interests therein immediately after the
transaction are not substantially identical to the shareholders of the
Company and their proportionate interests therein immediately prior to the
transaction; provided, however, that the Board may at any time prior to
such a merger or consolidation provide by resolution that there has been no
Change in Control and that the foregoing provisions of this parenthetical
shall not apply if a majority of the Board of Directors of such parent
immediately after the transaction consists of individuals who constituted a
majority of the Board immediately prior to the transaction);

(c) a transaction in which any person becomes the owner of fifty
percent (50%) or more of the total combined voting power of all classes of
stock of the Company (provided, however, that the Board may at any time
prior to such transaction provide by resolution that there has been no
Change in Control and that this subparagraph (c) shall not apply if such
acquiring person is a corporation and a majority of the Board of Directors
of the acquiring corporation immediately after the transaction consists of
individuals who constituted a majority of the Board immediately prior to
the acquisition of such fifty percent (50%) or more total combined voting
power); or

(d) any other transaction or series of transactions which the Board
determines has the effect of a Change in Control.

1.11 "CODE" shall mean the Internal Revenue Code of 1986, as amended.

1.12 "COMMITTEE" shall mean those persons designated to administer the
Plan pursuant to SECTION TWO.

1.13 "COMPANY" shall mean Fossil, Inc., a Delaware corporation, and its
successors and assigns.

<PAGE>

1.14 "CONTRIBUTIONS" shall mean, collectively, the Salary Deferral
Contributions, and the Employer Contributions, with respect to each
Participant, except that when it shall be appropriate to refer to a
particular Contribution, reference shall be to that Contribution.

1.15 "DEFERRED PAYMENTS" shall mean the payment of a Participant's
Benefits as described in SECTION 7.2.

1.16 "DEFERRED PAYMENT DATE" shall mean the date as of which a
Participant's Deferred Payments are made or commenced.

1.17 "DESIGNATED AFFILIATE" shall mean Fossil Partners, L.P., and each
other entity of which fifty percent (50%) or more of its value or, in the
case of a corporation, of the total combined voting power of all classes of
stock, are held by the Company or another subsidiary, whether or not such
entity now exists or is hereafter organized or acquired by the Company or
another subsidiary, and which has been designated for participation herein by
the Committee.

1.18 "EARNINGS" shall mean the amounts notationally credited or debited
to a Participant's Account based on changes in the value (including, without
limitation, unrealized appreciation or depreciation) of the Participant's
Measurement Preferences, plus the amount, if any, attributable to the
crediting of the Applicable Interest Rate, all determined in accordance with
Rules of General Application.

1.19 "EFFECTIVE DATE" shall mean December 30, 1998.

1.20 "ELECTION FORM" shall mean a written form on which the Participant
may specify his (i) Salary Deferral Contribution for the Plan Year, (ii)
Measurement Preferences, (iii) form and timing of distribution of his
Benefit, and (iv) such other matters as shall be determined by the Committee
at the time of reference.

1.21 "ELIGIBLE INDIVIDUAL" shall mean an employee of an Employer who is
(i) a member of a select group of management or highly compensated employees,
and (ii) designated by the Committee as eligible to participate in the Plan.

1.22 "EMPLOYEE" shall mean a common law employee of the Employer.

1.23 "EMPLOYER" shall mean, collectively, the Company and each of its
Designated Affiliates.

1.24 "EMPLOYER CONTRIBUTION" shall mean the amount, if any, credited
under the Plan by an Employer to an Eligible Participant, and evidenced by an
Addendum.

1.25 "EMPLOYER ACCOUNT" shall mean the account maintained for each
Participant who has received an Employer Contribution, and which will reflect
the amount of such Employer Contribution and appropriate adjustments as
provided herein.

<PAGE>

1.26 "ENTRY DATE" shall mean February 1, 1999 for the 1999 Plan Year,
and January 1st for each subsequent Plan Year; except that, where the
Employee is not an Eligible Individual on such February 1, 1999 or a later
January 1st, it also shall mean July 1st; provided, without limitation, that
each Eligible Individual shall have a single Entry Date with respect to each
Plan Year.

1.27 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.

1.28 "FINAL DEFERRAL FILING DATE" shall mean the date that precedes the
date on which a Participant's Deferred Payment is scheduled to begin by 24
months.

1.29 "INVESTMENT DATE" shall mean the first Business Day in each
Quarter, except that it also shall mean an Entry Date (except that if the
Entry Date is not a Business Day, then the first Business Day following an
Entry Date) with respect to each Eligible Employee who first becomes a
Participant on such Entry Date.

1.30 "LUMP SUM" shall mean a single distribution, in cash, of a
Participant's Benefit.

1.31 "MEASUREMENT PREFERENCES" shall mean the preferences described in
SUBSECTION 5.3.

1.32 "PARTICIPANT" shall mean an Eligible Individual who participates in
the Plan pursuant to SECTION THREE.

1.33 "PLAN" shall mean the Fossil, Inc. and Affiliates Deferred
Compensation Plan, as set forth in this document and subsequent amendments.

1.34 "PLAN YEAR" shall mean calendar year.

1.35 "QUARTER" shall mean calendar quarter.

1.36 "RULES OF GENERAL APPLICATION" shall mean those rules promulgated
by the Committee, in its sole discretion, from time to time with respect to
the matter of reference, but which will be applied in a similar manner to
Participants similarly situated.

1.37 "THIRD-PARTY RECORDKEEPER" shall mean the person or entity selected
by the Committee to maintain the records necessary to the administration of
the Plan.

1.38 "SALARY" shall mean Participant's regular salary, wages, and
commissions paid by an Employer, plus any amounts deferred under sections 125
or 401(k) of the Code, plus any amounts under this Plan, but excludes
Bonuses, expense reimbursements and fringe benefits.

1.39 "SALARY DEFERRAL CONTRIBUTIONS" shall mean the amounts described in
SUBSECTION 4.1.

<PAGE>

1.40 "SALARY DEFERRAL ACCOUNT" shall mean the amount credited under the
Plan as a result of the Participant's Salary Deferral Contributions, and
appropriate adjustments as provided herein.

1.41 "SEPARATES" OR "SEPARATION" or similar shall mean a Participant's
termination of employment with an Employer for any reason (including death or
disability).

1.42 "TRUST" shall mean a trust which substantially conforms to the
model rabbi trust provided in section 5 of the Internal Revenue Service's
Revenue Procedure 92-64, 1992-2 C.B. 422, that may be established between the
Company and the trustee(s) named in the Trust.

1.43 "VALUATION DATE" shall mean the last Business Day of each Quarter.

1.44 "VEST" OR "VESTING" or similar, shall mean the portion of a
Participant's Employer Account which is nonforfeitable at the time of
reference.

SECTION TWO ADMINISTRATION

2.1 APPOINTMENT OF COMMITTEE. The Board shall appoint the Committee.
The Board may change Committee membership at any time without cause, and a
member may resign by providing written notice to the Company. Any vacancy in
the membership of the Committee may be filled by the Board.

2.2 EMPLOYER DUTIES. An Employer shall, upon request or as may be
specifically required under the Plan, furnish or cause to be furnished all of
the information or documentation in its possession or control that is
necessary or required by the Committee to perform its duties and functions
under the Plan.

2.3 AUTHORITY OF COMMITTEE. The Committee shall have the exclusive
authority and responsibility for administering the Plan in accordance with
its terms. All exercises of authority by the Committee under this Plan shall
be final, conclusive and binding, unless found by a court of competent
jurisdiction to be arbitrary and capricious.

2.4 ACTION BY COMMITTEE. The Committee may elect a chairman who shall
be a member of the Committee and a secretary who may, but need not, be a
member of the Committee. Any and all acts and decisions of the Committee
shall be by at least a majority of the then members, but the Committee may
delegate to any one or more of its members the authority to sign notices or
other documents on its behalf or to perform ministerial acts for it, in which
event any person may accept such notice, document or act without questioning
its having been authorized by the Committee.

2.5 MEETINGS OF COMMITTEE. The Committee shall hold meetings upon such
notice, at such place or places, and at such time or times as it may from
time to time determine; provided, however, any decisions made or action taken
pursuant to written approval of a majority

<PAGE>

of the then members shall be sufficient; and provided, further, and without
limitation, that the Committee may take actions which have retroactive effect.

2.6 POWERS OF COMMITTEE AND COMPANY. The Committee shall have all
powers and discretion as may be necessary to discharge its duties and
responsibilities under this Plan, including, without limitation, the power,
exercisable in its sole discretion, (i) to interpret or construe the Plan,
(ii) to make rules and regulations for the administration of the Plan, (iii)
to determine all questions of eligibility, status and other rights of
Participants, beneficiaries and other persons, (iv) to confirm or reject each
Participants selection of Measurement Preferences, and (v) to resolve any
dispute which may arise under this Plan involving Participants or
beneficiaries. The Committee may engage agents to assist it and may engage
legal counsel, who may be counsel for the Company.

No member of the Committee shall vote or act upon any matter which
relates exclusively to his own rights or benefits under this Plan, and if
all members of the Committee shall be disqualified, with regard to one or
more matters, the President of the Company shall appoint one or more
qualifying persons to be the Committee with regard to such matters.

2.7 INDEMNIFICATION. Without limitation, including SECTION 10.10, the
members of the Committee shall be indemnified by the Company against any and
all liabilities arising by reason of any act, or failure to act, pursuant to
the provisions of the Plan, including expenses reasonably incurred in the
defense of any claim relating to the Plan, even if the same is judicially
determined to be due to such member's negligence, but not when the same is
judicially determined to be due to the gross negligence or willful misconduct
of such member.

2.8 BOND AND EXPENSES. The Committee shall serve without bond unless
state or federal statutes require otherwise, in which event the Company shall
pay the premium. The expenses of the Committee shall be paid by the Company.
Such expenses shall include all expenses incident to the functioning of the
Committee, including, without limitation, litigation costs, fees of
accountants, counsel and other specialists and other costs of administering
the Plan.

2.9 RELIANCE ON TABLES. In administering the Plan, the Committee shall
be entitled to the extent permitted by law to rely conclusively on all
tables, valuations, certificates, opinions and reports which are furnished by
accountants, legal counsel or other experts employed or engaged by the
Committee.

SECTION THREE PARTICIPATION

An Eligible Individual will become a Participant either by filing an
Election Form prior to his Entry Date, or by being credited with an Employer
Contribution, and will remain a Participant until he receives the payment of
his entire Benefit. Being designated as an Eligible Individual for one Plan
Year does not entitle such Employee to continued status as an Eligible
Individual for subsequent Plan Years, but such person will remain an Eligible
Individual until notified in writing by the Committee of his removal from
that status and, following such

<PAGE>

removal, such Employee shall not be able to elect Salary Deferral
Contributions on any Entry Date on which he is not an Eligible Individual.

SECTION FOUR CONTRIBUTIONS

4.1 SALARY DEFERRAL CONTRIBUTIONS. An Employee who is an Eligible
Individual on his Entry Date with respect to a Plan Year may elect to defer
from Salary any amount which is not less than Five Thousand Dollars ($5,000)
(prorated based on the remaining portion of the Plan Year if the
Participant's Entry Date is not February 1, 1999 or a subsequent January 1st)
and not more than fifty percent (50%) of his Salary; and may elect to defer
from his Bonus up to one hundred percent (100%) of his Bonus, in each case
payable during the portion of the Plan Year following such Entry Date, by
filing an Election Form with the Committee prior to such Entry Date. Unless
otherwise determined by the Committee, the election to defer Salary must be
designated as a fixed dollar amount, and the election to defer with respect
to the Bonus may be designated in either a fixed dollar, or a percentage,
amount. Each Election Form shall continue to apply to each later Entry Date
until a new Election Form is filed; provided, further, that only the last
Election Form filed prior to an Entry Date shall be effective. If an
Eligible Individual has not filed an Election Form deferring a portion of his
Salary and/or Bonus on or before the Entry Date of reference, such Eligible
Individual shall be deemed to have elected not to defer any portion of his
Salary and/or Bonus with respect to the Plan Year in which such Entry Date
occurs. Notwithstanding any provision hereof to the contrary, the Committee
may designate a special Entry Date with respect to one or more Participants
solely for purposes of permitting each such Participant to elect to defer an
additional amount from each such Participant's Bonus; provided, further, that
such special Entry Date shall have no other effect hereunder.

4.2 CREDITING OF SALARY DEFERRAL CONTRIBUTIONS. The amount of a
Participant's Salary Deferral Contributions will be deducted (i) from a
Participant's Salary on each payroll date during the Plan Year of reference
in an amount equal to the total Salary Deferral Contribution divided by the
number of payroll dates during the Plan Year of reference following the Entry
Date of reference, and (ii) from a Bonus on the date of its payment in the
full amount of Salary Deferral Contribution elected to be deducted from such
Bonus payments. The portion of the Salary Deferral Contribution amount which
will be deducted from Salary shall be credited to the Participant's Salary
Deferral Account as of the first Business Day following the Entry Date or, if
communicated to the Participant in writing on or before such Entry Date, as
of the payroll date on which deducted; and the full amount of the Salary
Deferral Contribution to be deducted from the Bonus shall be credited to the
Participant's Salary Deferral Account on the date the Bonus is (or would have
been) paid. In the event a Participant's Salary Deferral Account is credited
with a Salary Deferral Contribution before such amount is actually deducted
from the Participant's Salary, and the Participant terminates employment
during the Plan Year of reference, such Participant shall forfeit an amount
from his Salary Deferral Account equal to the excess of (iii) the amount of
Salary Deferral Contribution credited to his Account with respect to such
Plan Year, over (iv) the aggregate amount of Salary Deferral Contribution
actually deducted from his Salary during such Plan Year, and such forfeited
amount shall inure to the benefit of the Employer in the manner determined by
the Committee.

<PAGE>

4.3 EMPLOYER CONTRIBUTIONS. At any time on or after the Effective
Date, in addition to the amount described in SECTIONS 4.1 and 4.2, an
Employer may credit a Participant's Employer Account with such amount as it
shall determine in its sole discretion. The name of the Participant, the
amount to be credited, the date as of which it is to be credited, the rate of
Vesting, and such other matters as are required to be set forth (as
determined by the Employer in its sole discretion), shall be set forth on an
Addendum; provided that 100% of such amounts contributed for a Participant,
and related Earnings, shall be forfeited on such Participant's Separation
unless otherwise expressly provided in an Addendum expressly relating to such
Employer Contribution.

4.4 DISPOSITION OF CONTRIBUTIONS. All Contributions shall be delivered
to the Trust; provided, however, that such delivery may cease, and the funds
retained by the Employer, effective with respect to Contributions made with
respect to a Plan Year beginning after delivery of written notice of such
change to each Participant.

SECTION FIVE PARTICIPANT'S ACCOUNTS AND INVESTMENTS

5.1 ESTABLISHMENT OF ACCOUNT. The Committee shall establish separate
Accounts for each Participant, to which shall be credited or debited the
Participant's share of Contributions and Earnings, and to which shall be
debited the Account's share of expenses and distributions.

5.2 EARNINGS CREDITED TO ACCOUNTS. Earnings on amounts credited to an
Account shall be credited or debited to such Account on each Business Day
based on the value of the Account's Measurement Preferences on such Business
Day, all in the manner determined by the Committee in accordance with Rules
of General Application.

5.3 INVESTMENT DIRECTION. Effective as of each Investment Date, in
accordance with Rules of General Application, each Participant may select
investments ("Measurement Preferences") from among the different investment
alternatives which are made available by the Committee, for existing balances
in his Account and for future Contributions, such selection of Measurement
Preferences to be made in increments of 5%, and such percentages to apply
equally to the amount credited to the Participant's Account on the
immediately preceding Valuation Date, and to Contributions credited to such
Account subsequent to such Valuation Date. No actual investments shall be
made by Participants. The Measurement Preferences, and the Applicable
Interest Rate, are only for the purpose of determining the Employer's payment
obligation under the Plan and such Measurement Preferences do not control any
actual investments made by the Employer or the Trustee.

A participant may change Measurement Preferences on the next Investment
Date by contacting the Third-Party Recordkeeper, either through filing a
written Election Form or, if available under the Rules of General
Application, through the Third-Party Recordkeeper's voice response system not
later than the 15th day of the month preceding the month in which such
Investment Date occurs. Regardless of the method used to change the
Measurement Preferences, the Third-Party Recordkeeper shall send a
confirmation to the Committee verifying the new

<PAGE>

Measurement Preferences. The final Election Form (or its equivalent) timely
filed by the Participant prior to the Investment Date of reference shall be
controlling with respect to such Investment Date. If a Participant has not
timely filed an Election Form with respect to some or all of the funds in his
Account with respect to an Investment Date, he will be credited with interest
at the Applicable Interest Rate on such amount until the first Investment
Date with respect to which he has filed a timely Election Form with respect
to such amount.

Notwithstanding the forgoing, the Committee shall have the power to
reject some or all of the selections of Measurement Preferences by any one or
more Participants by advising the affected Participant(s) and the Third-Party
Recordkeeper in writing of such rejection within 3 days of being receiving
the notice described in the preceding paragraph. If the Committee rejects a
selection, notwithstanding any provision hereof to the contrary, the portion
of such Account(s) subject to such rejection shall earn interest at the
Applicable Interest Rate from the date specified in such written rejection
until the date as of which an approved investment in a Measurement Preference
is made.

5.4 STATEMENTS. As soon as administratively practicable following the
close of each Quarter, the Committee shall furnish each Participant with a
statement setting forth (i) the amount in his Account, (ii) the amount of
Contributions, separately showing the Salary Deferral Contributions and
Employer Contributions, credited to his Account during such Quarter, (iii)
the Earnings credited or debited to his Account for such Quarter, and (iv)
any debited charges to, or distributions from, his Account during such
Quarter.

SECTION SIX VESTING

6.1 SALARY DEFERRAL ACCOUNT. Participant shall always be 100% Vested
in the amounts credited to his Salary Deferral Account.

6.2 EMPLOYER ACCOUNT. Participant shall Vest in the amount credited to
his Employer Account in accordance with the Vesting Schedule set forth on the
Addendum which evidences such Employer Contribution, and otherwise shall be
zero (0) Vested. Notwithstanding any other provision in this Plan, a
Participant's Employer Account will become one hundred percent (100%) Vested
upon the date of a Change of Control.

SECTION SEVEN DISTRIBUTION OF BENEFIT

7.1 FORM AND TIMING OF DISTRIBUTION. Unless a Participant is entitled
to a Deferred Payment, upon a Participant's Separation he shall receive a
Lump Sum distribution within a reasonable period of time, not to exceed sixty
(60) days, after the Valuation Date next following his Separation. The
amount of such Lump Sum distribution shall be equal to his Benefit determined
as of the Valuation Date preceding the date of distribution.

<PAGE>

7.2 ELECTION OF DEFERRED PAYMENTS. A Participant shall be entitled to
a Deferred Payment if his Separation is not by reason of his death, and if on
his date of Separation (i) he has attained the age of 55 and completed at
least 5 Years of Service, and (ii) has filed an Election Form on which he has
(x) selected a Deferred Payment Date, and (y) selected a form of payment. A
Participant's Deferred Payments may be made or commenced at any time, after
age 55 and prior to the later of age 65 or his Separation, and may be paid
either in a Lump Sum or in 5, 10, or 15 Installment Payments, as the
Participant shall select on the Election Form in effect on his Final Deferral
Filing Date, and only the last Election Form filed on or before such Final
Deferral Filing Date shall be effective. Installment Payments shall be paid
at such time, during the first 30 days of each Plan Year, as shall be
determined by the Committee. If a Participant receiving an Installment
Payment shall be reemployed, all such Installment Payments shall cease during
the period of his reemployment, and shall resume (iii) during the first 30
days of the Plan Year following his Separation, and (iv) shall be paid out in
the same number of installments as were remaining to be paid on the date of
his reemployment.

7.3 INSTALLMENT PAYMENTS. If Participant elects a Deferred Payment in
the form of Installment Payments, each installment shall be equal to the
product of (i) his Benefit on the Valuation Date next preceding the date of
payment, multiplied by (ii) a fraction, the numerator of which is one (1),
and the denominator of which is the total number of installments originally
elected less the number of installments previously paid.

7.4 CHANGE IN CONTROL. Notwithstanding any other provision to the
contrary, upon a Change of Control, all Benefits hereunder (including,
without limitation, Benefits subject to Deferred Payment elections or which
are being paid in Installment Payments), shall be distributed to Participants
in a Lump Sum as soon as reasonably possible, but not more than 30 days,
after such Change of Control. Notwithstanding the foregoing, at any time
prior to the date of a Change of Control, or with respect to each Participant
who is not notified in writing of an impending Change of Control at least 14
days prior to the date of Change in Control, for a period of 14 days after
the date of notice of such Change of Control, a Participant may elect to
waive the provisions of this SECTION 7.4 with respect to such Change of
Control and his Benefits will continue to be deferred under the Plan as if
such Change of Control had not occurred.

7.5 HARDSHIP DISTRIBUTION. Upon the Committee's determination
(following petition by the Participant) that the Participant has suffered a
"severe financial hardship", the Committee shall distribute to Participant
that portion of such Participant's Benefit as requested by the Participant
and approved by the Committee, but in no event shall the Committee approve a
distribution which is greater than is necessary to relieve the financial
hardship. A "severe financial hardship" means an unforeseeable event
resulting from a sudden and unexplained illness or accident experienced by
either the Participant or his dependents, the loss of property due to
casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the Participant's control, which the
Participant is unable to satisfy through available or attainable assets.
Without limitation, the definition of severe financial hardship does not
include the need to send a child to college or the desire to purchase a home.

<PAGE>

The Committee shall evaluate the facts and circumstances of each
hardship request and may rely on the written representations of the
Participant unless it has reason to know such representations are false. The
Participant shall receive a Lump Sum cash payment of the amount approved by
the Committee as soon as possible following the next succeeding Valuation
Date (or, upon the Participant's request, on such earlier date and under such
rules as shall be determined by the Committee), and such amount shall be
deducted from his Measurement Preferences in accordance with Rules of General
Application. If a Participant receives a hardship distribution he shall be
ineligible to elect Salary Deferral Contributions for the following Plan Year.

7.6 IN-SERVICE WITHDRAWAL. Prior to a Participant's Separation, in
accordance with Rules of General Application, a Participant may elect to
receive a distribution of all (subject to the forfeiture), or a portion of
his Benefit. If a Participant elects to receive such a distribution, he shall
permanently and irrevocably forfeit from his Benefit an amount equal to 20
percent (20%) of the amount so distributed and such Participant shall be
ineligible to elect Salary Deferral Contributions for the following Plan
Year. The amount forfeited shall inure to the benefit of the Employer in the
manner determined by the Committee, and such amount shall be deducted from
his Measurement Preferences in accordance with Rules of General Application.

7.7 SOURCE OF DISTRIBUTION. All payments of Benefits shall be in cash
from the funds in the Trust or, in the discretion or the Employer, from the
Employer's funds held outside of the Trust. Nothing contained in the Plan,
nor any action taken pursuant to the provisions of the Plan, shall create or
be construed to create a fiduciary relationship between the Company, an
Employer, Participant, Beneficiary, or Employee or other person. To the
extent that any person acquires a right to be paid Benefits, such right shall
be no greater than the right of an unsecured general creditor of his Employer.

SECTION EIGHT DESIGNATION OF BENEFICIARIES

8.1 DESIGNATION BY PARTICIPANT. Participant's written designation of
one or more persons or entities as his Beneficiary shall operate to designate
the Participant's Beneficiary under this Plan. The Participant shall file
with the Committee a copy of his Beneficiary designation under the Plan. The
last such designation received by the Committee shall be controlling, and no
designation, or change or revocation of a designation shall be effective
unless received by the Committee prior to the Participant's death, and in no
event shall it be effective as of a date prior to such receipt.

8.2 LACK OF DESIGNATION. If no Beneficiary designation is in effect at
the time of Participant's death, if no designated Beneficiary survives the
Participant or if the otherwise applicable Beneficiary designation conflicts
with applicable law, the Participant's estate shall be the Beneficiary. The
Committee may direct the Employer or Trustee to retain any unpaid Benefits,
without crediting for either Measurement Preferences or Applicable Interest
Rate, until all rights to the unpaid Benefits are determined. Alternatively,
the Committee may direct the Employer or Trustee to pay the Benefits into
any court of appropriate jurisdiction. Any such

<PAGE>

payment shall completely discharge each Employer, the Trustee, and the
Committee from any liability under the Plan.

SECTION NINE AMENDMENT AND TERMINATION

The Plan, without cause and without prior notice, may be terminated, in
whole or in part, by the Board, in which case the Employer Account of any
affected Participant shall become 100% Vested on such date of termination
and, notwithstanding any provisions of the Plan to the contrary, the Benefits
of such affected Participant will be distributed in a Lump Sum as soon as
reasonably possible following such termination. The Plan may be amended at
any time by the Board or the Committee and, without limiting the generality
of any other provision hereof, if the Committee determines that an amendment
to the Plan would result in a substantial prospective reduction in either the
rights or benefits of one or more Participants with respect to their Benefit
determined as of the effective date of such amendment, the Committee must
give each affected Participant notice of the amendment not less than 5 days
prior to the earlier of its adoption or its effective date, and allow each
such Participant to waive the right to elect an immediate distribution and,
in the absence of such timely waiver, each such Participant shall have the
right, for a period of 90 days commencing on the earlier of the adoption, or
the effective date, of such amendment, to elect, in a writing filed with the
Committee, to have all (but not less than all) of his Benefit distributed to
him as soon as reasonably possible.

SECTION TEN GENERAL PROVISIONS

10.1 NO ASSIGNMENT. The right of any Participant to Benefits shall not
be assigned, transferred, pledged or encumbered, either voluntarily or by
operation of law, except as provided in SECTION EIGHT with respect to
designations of Beneficiaries.

10.2 INCAPACITY. If the Committee shall find that any person to whom
any Benefit is payable under the Plan is unable to care for his affairs
because of illness or accident or is a minor, any payment due shall be paid
to the duly appointed guardian, committee or other legal representative for
such person. Any such payment shall be a complete discharge of the
liabilities of each Employer, the Trustee and the Committee as to the amount
paid.

10.3 CLAIMS PROCEDURE. The Committee will make all determinations as to
the rights of any Employee, Participant, Beneficiary or other person under
the terms of this Plan. Any Employee, Participant, Beneficiary, or person
claiming under them, may make a claim for benefits under this Plan by filing
written notice with the Committee setting forth the substance of the claim.
If a claim is wholly or partially denied, the claimant will have the
opportunity to appeal the denial upon filing with the Committee a written
request for review within 60 days after receipt of notice of denial. In
making an appeal the claimant may examine pertinent Plan documents and may
submit issues and comments in writing. Denial of a claim or a decision on
review will be made in writing by the Committee delivered to the claimant
within 60 days after receipt of the claim or request for review, unless
special circumstances require an extension of

<PAGE>

time for processing the claim or review, in which event the Committee's
decision must be made as soon as possible thereafter but not beyond an
additional 60 days. If no action on an initial claim is taken within 120
days, the claims will be deemed denied for purposes of permitting the
claimant to proceed to the review stage. The denial of a claim or the
decision on review will specify the reasons for the denial or decision and
will make reference to the pertinent Plan provisions upon which the denial or
decision is based. The denial of a claim will also include a description of
any additional material or information necessary for the claimant to perfect
the claim and an explanation of the claim review procedure herein described.
The Committee will serve as an agent for service of legal process with
respect to the Plan unless the Employer, through written resolution, appoints
another agent.

10.4 FINAL RESOLUTION OF DISPUTES RELATING TO PLAN. If, after the
exhaustion of the claims procedure set forth in SECTION 10.3, one or more
disputes remain with regard to the rights under the Plan of any Employee,
Participant, Beneficiary or person claiming under them, such person(s) and
the Committee (collectively, "Interested Parties") agree to attempt to
resolve same by telephone conference with an agreed mediator. If the
Interested Parties cannot resolve their differences by such telephone
conference, then the Interested Parties agree to schedule a one day mediation
with a mediator who is mutually agreeable to the Interested Parties, within
thirty (30) days to resolve the disputes and to share equally the costs of
such mediation. If one of the Interested Parties refuses to mediate, then
such Interested Party thereby waives any recovery for attorneys' fees or
costs incurred in any arbitration brought to construe or enforce the
provisions of this Plan. If the Interested Parties are unable to resolve
their dispute by mediation, the Interested Parties may institute an
arbitration proceeding under the auspices of the American Arbitration
Association to construe or enforce the provisions of the Plan. THE
INTERESTED PARTIES HEREBY WAIVE THEIR RIGHT TO INSTITUTE LITIGATION IN A
COURT OF LAW TO RESOLVE A DISPUTE CONCERNING THE CONSTRUCTION OR ENFORCEMENT
OF THIS PLAN. The Interested Party prevailing in any such arbitration shall
recover from the adverse party its actual damages and reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees incurred
in connection with such dispute and arbitration.

10.5 INFORMATION REQUIRED. Each Participant shall file with the
Committee such pertinent information concerning himself and his Beneficiary
as the Committee may specify, and no Participant or Beneficiary or other
person shall have any rights or be entitled to any benefits under the Plan,
unless such information is properly filed.

10.6 COMMUNICATIONS BY, AND INFORMATION FROM, PARTICIPANT. All
elections, selections, designations, requests, notices, instructions and
other communications to the Committee, Third-Party Recordkeeper, Company, or
Employer required or permitted under the Plan shall be (i) in such form as is
prescribed from time to time by the Committee, (ii) shall be (x) mailed by
first-class mail, or (y) delivered, to such location as shall be specified by
the Committee and shall be deemed to have been given and delivered only on
actual receipt by the person to be charged at such location. If the
Committee notifies the Participant or Beneficiary by registered mail (return
receipt requested) at his last known address that he is entitled to a
distribution and also notifies him of the provisions of this paragraph, and
the Participant or Beneficiary fails to claim his benefits under the Plan or
provide his current address to the

<PAGE>

Committee within one year after such notification, his Benefit will be
forfeited and inure to the benefit of the Employer in the manner determined
by the Committee. If the Participant or Beneficiary is subsequently located,
such Benefit will be restored, but without Earnings being credited subsequent
to the date of the forfeiture.

10.7 NO RIGHTS IMPLIED. Without limitation, nothing contained in this
Plan, nor any modification or amendment to the Plan, nor the creation of any
Account on the books of the Company, shall give any Employee or Participant
any legal or equitable right against the Company or any officer, director, or
Employee of the Company, except as expressly provided by the Plan.

10.8 COMMUNICATIONS BY COMMITTEE OR EMPLOYER. All notices, statements,
reports and other communications from the Committee or any Employer to any
person required or permitted under the Plan shall be deemed to have been duly
given when delivered to, or when mailed first-class mail, postage prepaid and
addressed to, such person at his address last appearing on the records of the
most recent Employer.

10.9 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law,
each interpretation of the Plan and each decision on any matter relating to
the Plan made by the Board, the Company, or the Committee, within their scope
of their authority hereunder, shall be made in their sole discretion and
shall be binding on all persons. A misstatement or other mistake of fact
shall be corrected when it becomes known and the person responsible shall
make such adjustment on account thereof as he considers equitable and
practicable.

10.10 NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the Company,
the Board, nor the Committee shall be liable for any act, omission, or
determination taken or made with respect to the Plan which is not judicially
determined to be due to willful misconduct, and members of the Board, and the
Committee, shall be entitled to indemnification and reimbursement by the
Company in respect of any claim, loss, damage, or expense (including
attorneys' fees, the costs of settling any suit, provided such settlement is
approved by independent legal counsel selected by the Company, and amounts
paid in satisfaction of a judgment, except a judgment based on a finding of
willful misconduct) arising therefrom to the full extent permitted by law and
under any directors' and officers' liability or similar insurance coverage
that may from time to time be in effect.

10.11 NO EMPLOYMENT RIGHTS. Neither the Plan nor any action taken under
the Plan shall be construed as giving to any Employee the right to be
retained in the employ of an Employer or as affecting the right of an
Employer to dismiss any Employee at any time, with or without cause.

10.12 WITHHOLDING OF TAXES. An Employer shall deduct from Participant's
Salary or the amount of any payment made pursuant to this Plan any amounts
required to be paid or withheld by the federal government or any state or
local government. By his participation in the Plan, the Participant agrees
to all such deductions.

<PAGE>

10.13 WAIVERS. Any waiver of any right granted pursuant to this Plan
shall not be valid unless the same is in writing and signed by the party
waiving such right. Any such waiver shall not be deemed to be a waiver of
any other rights.

10.14 RECORDS. Records of the Company, and of the Committee, as to any
matters relating to this Plan will be conclusive on all persons.

10.15 SECURITIES LAWS. The Plan intends to comply with and be exempt
under The Securities Act of 1933, as amended. The Participants under the
Plan are final purchasers and not underwriters or conduits to other
beneficial owners or subsequent purchasers.

10.16 SEVERABILITY. In case any one or more of the provisions contained
in this Plan shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions in this
Plan shall not in any way be affected or impaired.

10.17 CAPTIONS AND GENDER. The captions preceding the Sections and
Subsections of this Plan have been inserted solely as a matter of convenience
and in no way define or limit the scope or intent of any provisions of this
Plan. Where the context admits or requires, words used in the masculine
gender shall be construed to include the feminine and the neuter also, the
plural shall include the singular, and the singular shall include the plural.

10.18 CHOICE OF LAW. THE PLAN AND ALL RIGHTS UNDER THIS PLAN SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
EXCEPT TO THE EXTENT PREEMPTED BY ERISA.

10.19 EFFECTIVE DATE AND TERMINATION DATE. The Plan is effective on the
Effective Date and shall terminate on the date no further Benefits are
credited hereunder, or on such earlier date as the Plan is terminated
pursuant to SECTION NINE.

IN WITNESS WHEREOF, the Company has executed this Plan on this the 22nd day
of December, 1998.

FOSSIL, INC.

By: /s/ Randy Kercho
-------------------------------
Its: CFO
-----------------------------

<PAGE>

Fossil
1998 Annual Report

<PAGE>

Company Profile
4
Financial Highlights
5
Letter to Stockholders
8
Company Overview
11
Management's Discussion
and Analysis
18
Financial Information
37
Corporate Information
55

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

4 COMPANY PROFILE

Fossil is a design, development, marketing and distribution company that
specializes in consumer products predicated on fashion and value. The
Company's flagship product, FOSSIL brand watches, is sold in department
stores and other upscale retailers in over 80 countries around the world.
Product offerings have been diversified into 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.

The Company's products are differentiated from 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. An in-house creative services team coordinates product design,
packaging, advertising and in-store presentations to more effectively and
cohesively communi cate to its target markets the themes and images
associated with its brands. Brand name development is further enhanced
through Company-owned stores as well as the Company's e-commerce web site.

Utilizing several majority-owned watch assembly facilities and centralized
distribution points enables the Company to reduce its inventory risk,
increase flexibility in meeting the delivery requirements of its customers
and maintain significant cost advantages compared to its competitors. To
further leverage the Company's infrastructure, including its design,
development and production expertise, the Company has licensed the brands of
other companies as well as designing and manufacturing private label products
for some of the most distinguished companies in the world.

<TABLE>
<S> <C> <C> <C>
[GRAPH] [GRAPH] [GRAPH] [GRAPH]
NET SALES OPERATING INCOME NET INCOME STOCKHOLDERS' EQUITY
(IN MILLIONS OF DOLLARS) (IN MILLIONS OF DOLLARS) (IN MILLIONS OF DOLLARS) (IN MILLIONS OF DOLLARS)
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS 5

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996 1995 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales ....................................................... $304,743 $244,798 $205,899 $181,114 $161,883
Gross profit .................................................... 150,504 117,528 98,038 82,900 71,880
Operating income ................................................ 55,370 34,610 24,373 20,463 26,217
Income before income taxes ...................................... 54,729 32,151 23,040 20,142 24,923
Net income ...................................................... 32,161 18,942 13,591 12,057 15,345
Basic earnings per share (1) .................................... 1.55 0.94 0.69 0.61 0.78
Diluted earnings per share (1) .................................. 1.48 0.91 0.68 0.60 0.77

Weighted average common and common equivalent shares outstanding:
Basic shares (1) ........................................... 20,703 20,136 19,783 19,761 19,720
Diluted shares (1) ......................................... 21,724 20,833 20,068 19,940 19,956

Working capital ................................................. $109,040 $ 70,603 $ 59,861 $ 49,251 $ 41,434
Total assets .................................................... 194,078 139,570 118,978 96,994 80,420
Long-term debt .................................................. -- -- 4,350 4,811 4,750
Stockholders' equity ............................................ 134,919 95,263 74,568 61,269 48,906
Return on average stockholders' equity .......................... 29.3% 23.1% 20.3% 22.0% 38.8%
</TABLE>

(1) All share and per share data has been adjusted to reflect a three-for-two
stock split effected in the form of a stock dividend paid April 8, 1998.

STOCK INFORMATION

Fossil's common stock prices are published daily in The Wall Street Journal
and other publications under the Nasdaq National Market Listing. The stock is
traded under the ticker symbol "FOSL." The following are the high and low
sale prices of the Company's stock per the Nasdaq National Market. All share
data has been adjusted to reflect a three-for-two stock split effected in the
form of a stock dividend paid on April 8, 1998. Stock prices have been
adjusted to the nearest traded amount.

<TABLE>
1998 1997
------------------- -------------------
HIGH LOW HIGH LOW
------- ------- ------ -----
<S> <C> <C> <C> <C>
FIRST QUARTER $21 2/3 $14 1/2 $9 3/4 $7
SECOND QUARTER 27 3/8 17 7/8 11 7/8 8 1/4
THIRD QUARTER 27 13 15 1/2 11
FOURTH QUARTER 30 5/8 13 17 5/8 11
</TABLE>

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

8 LETTER TO STOCKHOLDERS

We are pleased to report continued record sales and earnings this past year.
Net sales increased 25% over 1997, surpassing the $300 million mark. Net
income of $32 million represented a 70% increase over the prior year marking
ten consecutive quarters during which the Company's earnings averaged in
excess of 40% over its prior year's comparable quarter results.

Sales of FOSSIL branded watch products both domestically and internationally
were the largest contributor to the Company's sales growth. Over the past two
years, the FOSSIL watch product assortment has transitioned from novelty
designs to the mainstream watch business. As that migration has taken place,
we have seen our market share continue to expand as our target consumer
demographic increased in size. Realizing that the products the Company offers
need to hit the consumer sweet spot, our design teams focused on integrating
design, packaging and visual treatments to create a high quality and
desirable product. Focusing on these elements and fully utilizing the
Company's efficient and vertical infrastructure yields products at prices our
competitors find hard to beat. In addition, as FOSSIL's market share
increases, so does its brand recognition. Enhanced brand presence provides
the Company more opportunities to extend the brand into additional product
categories. Later this year the product extensions will continue with the
introduction of FOSSIL brand outerwear and optical frames through key
licensing agreements.

Product extensions and increased recognition for the FOSSIL brand has also
been achieved through the development of the Company's retail store concept
as well as a growing internet presence. FOSSIL general stores in key high
traffic malls across the United States offer us the opportunity to
effectively display the Company's products and communicate the FOSSIL image
to our customers. By the end of 1999, we anticipate having approximately 15
of these locations in the United States while also testing this retail
concept internationally. The Company's e-commerce at www.fossil.com continues
to increase in volume while also providing consumers the opportunity to learn
more about our Company, the FOSSIL brand and product selection.

The Company is simultaneously growing other Fossil-owned brands including the
RELIC brand. RELIC brand watches are currently sold in leading national and
regional chain department and specialty stores. As a result of increasing
brand recognition for RELIC, we have

<PAGE>

LETTER TO STOCKHOLDERS 9

recently begun expanding this brand out of its roots in the watch department
and into the leather goods and eyewear departments, in a similar direction to
the path we took with the FOSSIL brand.

Internationally, we have continued to build the Company's infrastructure.
Today, FOSSIL branded products are sold in over 80 countries across the
globe. A significant number of these are serviced out of the Company's six
owned facilities strategically placed across Europe and Asia. This
international infrastructure not only provides us a solid foundation from
which to grow our owned brand names, but also represents a platform from
which we can launch other brand names. The Company's strength in design and
worldwide distribution has been a major factor in securing several strategic
relationships with some of the most prestigious companies in the world
including Disney, Eddie Bauer, Giorgio Armani and Warner Bros.

Our Company's foundation continues to strengthen through product extensions,
geographic expansion, broadened distribution channels and strategic alliances
with world class companies. The expansion in each of these areas has
increased the predictability of our business and provided additional
platforms from which to grow the Company's sales. We appreciate everyone who
contributed to our growth during 1998, especially our dedicated employees,
customers, suppliers and, most importantly, our consumers. Combined, we are
positioned to enter the new millennium stronger than ever!

Sincerely,

/s/ TOM KARTSOTIS /s/ KOSTA N. KARTSOTIS
TOM KARTSOTIS KOSTA N. KARTSOTIS
Chairman of the Board President

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

COMPANY OVERVIEW 11

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. The Fossil brand continued to be one of the leading
fashion watch brands in 1998, while continuing to gain momentum in sales of
non-watch products and increasing its brand presence globally.

WATCHES: The Fossil brand continued to build market share in department
stores in 1998. New product introductions throughout the year contributed to
driving comparable store sales to record levels. The introduction of Fossil
BIG TIC in the fall was highly successful and FOSSIL Steel solid stainless
steel watches continued to build momentum after their 1997 debut. FOSSIL BLUE
water-resistant sport watches continued to increase market share and FOSSIL
BLUE TEQ chronograph-styled watches were strong throughout the year. FOSSIL
F2 women's dress watches performed well all year and continued to maintain a
leadership position in the dress classification at department stores.

LEATHERS: The leather division continued to exhibit strong sales and earnings
growth in 1998. Handbags continued to increase market share and enhance the
visibility and sales of the Company's other leather cate gories, including
men's and women's small leather goods and belts. A new line of FOSSIL nylon
handbags was introduced in 1998 in addition to a group of bags with a sporty
feel and look. Strong growth should continue in the leather product category
during 1999 as key basic collections continue sales increases fueled by new
lines of more classic, less ornamented styles providing a fresh and exciting
product assortment.

SUNGLASSES: FOSSIL sunwear rebounded in 1998 with double-digit increases in
the midst of continued turmoil in the sunglass market. The overall success of
the division was spurred by significant growth in optical and specialty
stores such as Lenscrafters and Sunglass Hut. Strong international sales,
particularly in northern Europe, played a role in the growth of this product
category. A new collection of more popularly-priced sunglasses provided
increased market share and retail sales in the Company's department store
distribution channel, prompting the introduction of two new collections in
the third quarter. FOSSIL Steel sunwear, featuring polarized polycarbonate
lenses and stainless steel frames, and FOSSIL BLUE sunwear, crafted from a
technologically advanced plastic material that floats, complement the
quality and value of the FOSSIL brand perfectly.

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

14 COMPANY OVERVIEW

INTERNATIONAL: Increasing demand for FOSSIL products worldwide, coupled with
the expansion of the EMPORIO ARMANI licensed line of watches, helped broaden
the Company's business tremendously across the globe. The FOSSIL brand is
available in over 80 countries around the world through the Company's six
subsidiary operations and a network of independent distributors. The Company
began distribution in five additional markets in 1998, including Argentina,
Uruguay, Egypt, Israel and Korea Duty Free. In addition, FOSSIL retail stores
and kiosks grew from 40 international locations in 1997 to over 80 locations
in 1998. These stores and kiosks are principally owned and operated by
independent distributors. International distribution will continue to offer
excellent growth opportunities for the Company in 1999.

RELIC: The RELIC brand displayed strong sales in 1998, due primarily to an
improved product assortment and a new store image and visual presentation.
The RELIC brand featured an assortment of four primary categories: RELIC
Wet (water-resistant sport watches), RELIC Adjust-A-Link (women's metal dress
watches with easily adjustable links), RELIC Stainless Steel (100% solid
stainless Steel cases and bracelets), and RELIC Pocket Watches (geared toward
the young, casual consumer). The RELIC division unveiled a new image and
visual presentation - upscale look featuring natural wood, black and white
photography, and the strong red RELIC logo. These new displays were
installed in over 1,000 doors during 1998, and due to the excellent sales
results, another 1,000 doors are currently scheduled to receive the new look
in 1999.

EMPORIO ARMANI: The Company has a worldwide, multi-year licensing agreement
with Giorgio Armani for Emporio Armani Orologi, a line of watches featuring
distinctive interpretations of retro and modern design. Throughout the
collection, the Emporio Armani name and Eagle logo are used as a background
element on the dials, etched into the casings, or incorporated more subtly
into the band designs. Available in Emporio Armani Boutiques, better
department stores, specialty stores and select jewelry stores, the line
continues to grow in sales and distribution worldwide. New markets continue
to open as the product continues to perform well at retail.

LICENSING: The Company continues to test new products bearing the FOSSIL mark
by utilizing license agreements with select partners. The Company is careful
to limit the size and penetration of these product categories to be sure that
the products are consistent with the brand image and desirable to end
consumers. FOSSIL brand outerwear and optical frames will be launched in
1999. The Company will continue to evaluate additional

<PAGE>

COMPANY OVERVIEW 15

license arrangements as a mechanism for product expansion as suitable
products and partners are identified.

PRIVATE LABEL: In addition to building its own brand, the Company also
designs and manufactures private label products for some of the most
prestigious companies in the world, including national retailers,
entertainment companies and theme restaurants. The Company continues to
expand its core private label watch business as well as integrate other
product categories such as leather goods and eyewear. In 1998, the Company's
premium/incentive division continued to utilize its sourcing, design, and
development expertise to translate many corporate themes, events, or
promotions into a comprehensive custom program.

FOSSIL GENERAL STORES: The Company was operating nine FOSSIL stores at the end
of 1998, adding three new locations during the year. New stores were opened in
North Miami, Florida (Aventura Mall), Scottsdale, Arizona (Scottsdale Fashion
Square), and Los Angeles, California (Universal Studios City Walk). The FOSSIL
stores continue to provide an exciting and profitable format in which to display
the Company's increasing product assortments and to convey the FOSSIL brand
image. The Company also operates 28 outlet stores coast-to-coast, allowing the
Company to control the timely liquidation of discontinued styles while
maintaining the integrity of the FOSSIL brand.

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

18 MANAGEMENT'S DISCUSSION AND ANALYSIS

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 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 outerwear and optical frames under
the FOSSIL brand. In addition, the Company licenses the brands of other
companies to further leverage its infrastructure. For example, during 1997
the Company entered into a multi-year license agreement with Giorgio Armani
to design, manufacture, market and distribute a line of EMPORIO ARMANI brand
watches.

The Company's products are sold to department stores and specialty retail
stores in over 80 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 Asia,
Australia, Canada, the Caribbean, Europe, Central and South America and the
Middle East. In addition, the Company's products are offered at Company-owned
retail locations throughout the United States and in independently-owned,
authorized FOSSIL retail stores and kiosks located in several major airports,
on cruise ships and in certain international markets. The Company's
successful expansion of its product lines and leveraging of its
infrastructure has contributed to its increasing net sales and operating
profits.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS 19

COMPANY HIGHLIGHTS

Overall

- - Net sales increases have averaged in excess of 20% for the most recent two
years and have grown at an average compounded growth rate of 19% over the
last five years.
- - For the past ten consecutive fiscal quarters ended January 2, 1999, the
Company has achieved increases in net income, in comparison to the previous
year's comparable period, of not less than 26% and averaging 48%.
- - A three-for-two stock split of the Company's $0.01 par-value common stock
("Common Stock") was effected in the form of a 50% stock dividend paid on
April 8, 1998.
- - A secondary offering of 2,302,500 shares of the Company's Common Stock was
completed mid-year 1998, of which the Company sold 215,000 shares.
- - In 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 three main watch assembly factories.

Product Expansion

- - FOSSIL BLUE, a line of mainly metal-bracelet, water resistant sport watches
first introduced in mid-1996, marked the Company's first large scale
movement into metal banded as opposed to leather strap watches.
- - FOSSIL Steel, a line of stainless steel watches, and BLUE TEQ, chronograph
look watches, were introduced under the FOSSIL brand in mid- and late-1997,
respectively. Both of these introductions were well received and became a
significant part of the Company's core watch assortment in 1997 and 1998.
- - FOSSIL BIG TIC, a revolutionary part analog, part digital watch that
highlights the seconds on a backlite digital display was introduced late
in 1998. This style was extremely well received and should contribute
positively to sales growth during 1999.
- - RELIC, the Company-owned brand sold in leading national and regional chain
department stores and specialty stores, continued to gain brand name
recognition. As a result, the Company began the extension of the RELIC
brand into leather products during 1998.
- - A newly designed line of FOSSIL brand handbags, first shipped in mid-1996,
was a success in the retail marketplace. FOSSIL handbag sales continued to
record double-digit growth in 1997 and 1998. In addition, sales of FOSSIL
handbags increased the awareness and sales of the Company's other leather
products.

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

22 MANAGEMENT'S DISCUSSION AND ANALYSIS

- - Sales of FOSSIL brand sunglasses, introduced in mid-1995, positively
contributed to sales growth during 1996. Sunglass sales were negatively
impacted during 1997 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, contributing to double-digit sales
growth in the category during 1998.

Licensing The Fossil Brand Name

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

Retail Location Expansion

- - The Company operated 28 FOSSIL outlet stores at the end of 1998. Additional
outlet stores have been added each year since the first store openings in
early 1995 with an additional nine new stores opening in 1996 and one in
both 1997 and 1998.
- - The Company operated nine FOSSIL retail stores at the end of 1998. The
retail stores, located in high volume, international destination-type
malls, allow the Company to test new product introductions and enhance the
FOSSIL brand name. The Company added three retail stores each year from
1996 through 1998.

Leveraging Infrastructure

- - The Company entered into a worldwide, multi-year licensing agreement with
Giorgio Armani for the rights to design, produce and market a line of
EMPORIO ARMANI brand watches. Distribution began in September 1997 and
amounted to $7.7 million in net sales volume during the year, increasing to
approximately $22.6 million in 1998.
- - The Company signed a five-year agreement with Eddie Bauer, Inc. appointing
the Company as the exclusive supplier of Eddie Bauer watches, effective
January 1998.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS 23

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>
PERCENTAGE PERCENTAGE
CHANGE CHANGE
FROM YEAR FROM YEAR
FISCAL YEAR 1998 1997 1997 1996 1996
<S> <C> <C> <C> <C> <C>
Net sales ................ 100.0% 24.5% 100.0% 18.9% 100.0%
Cost of sales ............ (50.6) 21.2 (52.0) 18.0 (52.4)
----- ----- -----
Gross profit ............. 49.4 28.1 48.0 19.9 47.6
Operating expenses ....... (31.2) 14.7 (33.9) 12.6 (35.8)
----- ----- -----
Operating income ......... 18.2 60.0 14.1 42.0 11.8
Interest expense ......... (0.1) (78.0) (0.4) (20.7) (0.6)
Other income (expense) ... (0.1) 71.4 (0.6) (1,077.6) --
----- ----- -----
Income before income taxes 18.0 70.2 13.1 39.5 11.2
Income taxes ............. (7.4) 70.9 (5.4) 39.8 (4.6)
----- ----- -----
Net income ............... 10.6% 69.8% 7.7% 39.4% 6.6%
----- ----- -----
</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 fiscal years indicated (dollars in millions):

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
International:
Europe.............................. $ 62.7 $ 45.2 $ 45.9 20.6% 18.4% 22.3%
Other............................... 26.9 30.8 15.2 8.8 12.6 7.4
------ ------- ------- ------ ------ ------
Total international................. 89.6 76.0 61.1 29.4 31.0 29.7

Domestic:
Watch products...................... 137.0 101.2 86.4 45.0% 41.3% 41.9%
Other products...................... 52.0 47.6 44.5 17.0 19.5 21.6
------ ------- ------- ------ ------ ------
Total............................... 189.0 148.8 130.9 62.0 60.8 63.5
Stores.............................. 26.1 20.0 13.9 8.6 8.2 6.8
------ ------- ------- ------ ------ ------
Total domestic...................... 215.1 168.8 144.8 70.6 69.0 70.3
------ ------- ------- ------ ------ ------

Total net sales..................... $304.7 $ 244.8 $ 205.9 100.0% 100.0% 100.0%
------ ------- ------- ------ ------ ------
</TABLE>

NET SALES. Worldwide sales volume of FOSSIL branded watches have continued to
represent the single largest factor in the Company sales growth. FOSSIL brand
watches had strong

<PAGE>

24 MANAGEMENT'S DISCUSSION AND ANALYSIS

sales gains in the later half of 1996 and throughout 1997 and 1998, due
primarily to the increase of metal bracelet watches in the Company's sales
mix and the popularity of its FOSSIL brand core watch assortments. 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. In addition, over the past few
years, the Company has transitioned its FOSSIL and RELIC brand watch
assortments from mainly novelty designs to mainstream preferences. This
inherent change in the style mix has increased the Company's target audience
demographic, increasing the ability for the Company to capture additional
market share. Internationally, the process of aligning the Company's watch
collection offered in Europe with the Company's best selling styles in the
U.S., which the Company began mid-1997, has resulted in significant increases
in the European sales momentum. "International Other" sales as denoted in the
above table, were negatively impacted in 1998 as a result of declining sales
in the Company's Asian-based operations, due primarily to the region's
economic problems, and an approximate $6 million sale during 1997 of
non-branded watches used as a premium incentive. Worldwide sales generated
from the continued rollout of the Company's EMPORIO ARMANI licensed brand
watches also positively impacted watch sales during 1997 and 1998. Leather
and sunglass product sales, which comprise the majority of the "Domestic
Other" sales line in the above table, each contributed double digit growth to
overall net sales increases in 1996 and 1998. While the Company continued to
increase its market share in leather goods during 1997, sunglass sales
declined. Continued expansion of Company-owned stores, as well as increases
in same store sales, has added to sales growth in each of the last three
years. Management anticipates that sales volumes will continue to increase in
1999 at approximately the 1998 rate from continued sales momentum across the
Company's product lines and geographic regions.

GROSS PROFIT. Gross profit margins steadily increased over the past two years.
The increases in gross profit margin are primarily attributable to the increased
strength of the U.S. dollar over the Japanese Yen, an increased mix of the
Company's watch products supplied by its majority-owned assembly facilities and
increased sales through Company-owned retail locations. The Company's cost of
certain watch components declined as the U.S. dollar strengthened in relation to
the Japanese Yen. Management believes that the Company's gross profit margins
for fiscal 1999 will approximate 1998 levels. Gross profit margins in the 2nd
quarter of 1999 will be negatively impacted, however,

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

26 MANAGEMENT'S DISCUSSION AND ANALYSIS

by an international-based sale of non-branded watches used as a premium
incentive, similar to the sale the Company recorded in the 2nd quarter of
1997.

OPERATING EXPENSES. 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. Total selling, general and administrative expenses as
a percentage of net sales decreased significantly over the past two years.
Leveraging expenses against higher sales volumes positively impacted
operating expense ratios. Management believes the operating expense ratio for
1999 will marginally improve as a result of leveraging fixed costs on higher
sales volumes offsetting an increase in the Company's infrastructure to
support its current and future sales growth.

OTHER INCOME (EXPENSE). Other income (expense) increased marginally in 1998
over 1996 levels but spiked during 1997. The fluctuation in 1997 was
primarily due to unusual charges, including an expense of $700,000 related to
legal settlements. An increase in foreign currency losses over the past two
years, due mainly to the strength of the U.S. dollar, has been mitigated by
an increase in interest income the Company has received.

PROVISION FOR INCOME TAXES. During the last three years, the Company's
effective tax rate was approximately 41.0%. Management believes that the
effective tax rate during 1999 will approximate 1998 levels.

EFFECTS OF INFLATION

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

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS 27

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 determine the extent of any remedial action and
associated costs. Management believes it has substantially completed the
review of the Company's internal computer systems and either substantially
made modifications or purchased new hardware and software to make the
Company's internal computer systems Year 2000 compliant. The Company is now
involved in the testing phase of its computer modifications and new system
purchases to determine its ability to handle Year 2000 related date
calculations. Based on the Company's evaluation to date, management believes
that the Company will incur approximately $2.4 million in internal and
external costs to address the Year 2000 problem of which $2.0 million has
been expended as of year-end 1998. The Company plans to complete all
remediation efforts for its critical systems prior to year 2000. The
financial impact of the Year 2000 reviews, modifications, testing,
replacements or related purchases are not expected to have a material adverse
effect on the Company's business or its consolidated financial position,
results of operations or cash flows. The Company is also contacting its key
suppliers and customers to determine their Year 2000 readiness in order to
ensure a steady flow of goods and services to the Company and continuity with
respect to customer service. The Company has no information that indicates
that a significant vendor may be unable to sell to the Company; that a
significant customer may be unable to purchase from the Company; or that a
significant service provider may be unable to provide services to the
Company. The Company is formulating a contingency plan in the event of
failure of production operations, the inability of major suppliers to fulfill
their commitments and the inability of major customers to submit orders and
receive product. The Company expects to have the majority of its contingency
plans formalized by September

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

30 MANAGEMENT'S DISCUSSION AND ANALYSIS

1999. Notwithstanding the above, the effect, if any, on the Company's future
results of operations, due to the Company's major suppliers and customers not
being Year 2000 compliant, cannot be reasonably estimated. Management
believes that this latter risk is mitigated somewhat by the Company's broad
base of customers and suppliers and the worldwide nature of its operations.

ADOPTION OF THE EURO

On January 1, 1999, the European Union nations launched a single currency,
the euro (the "Euro"). The Euro is currently being utilized for electronic
financial and banking transactions, but will transition into Euro coins and
notes on January 1, 2002. During January 1999, the Company's European-based
operations began processing certain transactions denominated in the Euro.
These transactions have been processed accurately and efficiently. At an
appropriate point in the transition period, the Company's financial systems
located in the participating countries will be converted from local currency
denominations to Euros. Management does not expect the introduction of the
Euro to result in any material risk or a material increase in costs to the
Company.

FOREIGN CURRENCY RISK

As a multinational enterprise, the Company is exposed to changes in foreign
currency exchange rates. The Company employs a variety of practices to manage
this market risk, including its operating and financing activities and, where
deemed appropriate, the use of derivative financial instruments. Forward
contracts have been utilized by the Company to mitigate foreign currency
risk. The Company's most significant foreign currency risk relates to the
Euro. The Company uses derivative financial instruments only for risk
management purposes and does not use them for speculation or for trading.
There were no significant changes in how the Company managed foreign currency
transactional exposures during 1998 and management does not anticipate any
significant changes in such exposures or in the strategies it employs to
manage such exposure in the near future.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS 31

LIQUIDITY AND CAPITAL RESOURCES

The Company's general business operations historically have not required
significant capital expenditures. During 1997, capital expenditures increased
over 1996 mainly as a result of the construction of a 138,000 sq. ft.
warehouse and distribution facility. The construction costs of the 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 1997 year-end. During January 1998, the Company
paid this long-term credit facility in full with available cash. Capital
expenditures remained elevated in 1998 based on computer system hardware and
software acquisitions to address the Year 2000 problem and the construction
costs for five additional Company-owned stores. During 1998, the Company
completed a secondary offering of 2,302,500 shares of Common Stock from which
it received approximately $3.6 million in cash proceeds for working capital
needs. The Company's Board of Directors during 1998, authorized management to
repurchase up to 500,000 shares of the Company's Common Stock in the open
market or privately negotiated transactions. As of year-end 1998, the Company
had repurchased 188,500 shares of Common Stock at a cost of approximately
$2.6 million. Management believes the Company's financial position remains
extremely strong. Working capital of $109.0 million and net cash balances
(defined as cash and cash equivalents less current notes payable) of $52.7
million existed at the end of fiscal 1998 compared to working capital of
$70.6 million and net cash balances of $13.2 million as of year-end 1997.
During fiscal year 1999, management believes capital expenditures may exceed
1998 levels due to the Company's intent to construct approximately ten
additional retail locations and further build-out its U.S. headquarters
requiring capital expenditures in excess of $4.3 million. Short-term credit
facilities totaling approximately $43.0 million are available to the Company
for general working capital needs of which $4.5 million was outstanding at
the end of 1998. Management believes that cash flow from operations and
existing credit facilities will be sufficient to satisfy its capital
expenditure requirements.

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

34 MANAGEMENT'S DISCUSSION AND ANALYSIS

FORWARD-LOOKING STATEMENTS

Included within management's discussion and analysis of the Company's
operating results and this annual report, "forward-looking statements" were
made within the meaning of the Private Securities Litigation Reform Act of
1995 regarding expectations for 1999. The actual results may differ
materially from those expressed by these forward-looking statements.
Significant factors that could cause the Company's 1999 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 Euro and Japanese Yen, an inability of
management to control operating expenses in relation to net sales without
damaging the long-term direction of the Company and the risks and
uncertainties set forth in the Company's current report on Form 8-K dated
March 30, 1999.

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.

FISCAL YEAR 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1ST QTR 2ND QTR 3RD QTR 4TH QTR
<S> <C> <C> <C> <C>
Net sales ...................................... $ 56,885 $ 64,363 $ 82,393 $101,102
Gross profit ................................... 27,901 31,905 40,433 50,265
Operating expenses ............................. 20,051 22,019 24,828 28,236
Operating income ............................... 7,850 9,886 15,605 22,029
Income before income taxes ..................... 7,882 9,697 15,456 21,694
Provision for income taxes ..................... 3,216 3,993 6,400 8,959
Net income ..................................... 4,666 5,704 9,056 12,735
Basic earnings per share ....................... 0.23 0.28 0.43 0.61
Diluted earnings per share ..................... 0.22 0.26 0.41 0.58
Gross profit as a percentage of net sales ...... 49.0% 49.6% 49.1% 49.7%
Operating expenses as a percentage of net sales. 35.2% 34.2% 30.1% 27.9%
Operating income as a percentage of net sales .. 13.8% 15.4% 18.9% 21.8%
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS 35

FISCAL YEAR 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1ST QTR 2ND QTR 3RD QTR 4TH QTR
<S> <C> <C> <C> <C>
Net sales ........................................ $47,449 $56,932 $61,013 $79,404
Gross profit ..................................... 23,195 26,305 29,690 38,338
Operating expenses ............................... 17,735 19,527 19,875 25,781
Operating income ................................. 5,460 6,778 9,815 12,557
Income before income taxes ....................... 5,041 6,137 9,303 11,670
Provision for income taxes ....................... 2,067 2,503 3,793 4,846
Net income ....................................... 2,974 3,634 5,510 6,824
Basic earnings per share ......................... 0.15 0.18 0.27 0.34
Diluted earnings per share ....................... 0.15 0.18 0.26 0.32
Gross profit as a percentage of net sales ........ 48.9% 46.2% 48.7% 48.3%
Operating expenses as a percentage of net sales... 37.4% 34.3% 32.6% 32.5%
Operating income as a percentage of net sales..... 11.5% 11.9% 16.1% 15.8%
</TABLE>

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, on average generates in excess of 35% of
the Company's annual operating income, while the first quarter generally
accounts for less than 16% 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 1998 were not substantially above or below targeted levels and
therefore should not significantly impact retailers restocking orders in the
first quarter of 1999. 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 watches used as a premium
incentive.

<PAGE>

[Collage of various
FOSSIL brand products
and artistic designs]

<PAGE>

FINANCIAL INFORMATION 37

INDEPENDENT AUDITORS' REPORT

To the Directors and Stockholders of Fossil, Inc.:
We have audited the accompanying consolidated balance sheets of Fossil, Inc. and
subsidiaries as of January 2, 1999 and January 3, 1998 and the related
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for each of the three years in the period ended January 2, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Fossil, Inc. and subsidiaries at
January 2, 1999 and January 3, 1998, and the results of their operations and
their cash flows for each of the three years in the period ended January 2,
1999, in conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
- ----------------------------
Deloitte & Touche LLP
Dallas, Texas
February 19, 1999

REPORT OF MANAGEMENT

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

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

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

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

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

<PAGE>

38 FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
January 2, 1999 January 3, 1998
---------------------------------
<S> <C> <C>
Assets
Current assets:

Cash and cash equivalents.................................... $ 57,263,132 $ 21,103,581
Accounts receivable-net...................................... 42,582,242 34,237,526
Inventories.................................................. 57,294,668 51,382,160
Deferred income tax benefits................................. 5,655,002 4,503,749
Prepaid expenses and other current assets.................... 3,538,443 2,432,282
-------------------------------
Total current assets..................................... 166,333,487 113,659,298

Property, plant and equipment - net.......................... 23,116,838 21,073,333
Intangible and other assets.................................. 4,627,517 4,837,259
-------------------------------
$ 194,077,842 $ 139,569,890
-------------------------------
-------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - Banks........................................ $ 4,537,150 $ 7,862,145
Accounts payable............................................. 14,511,758 9,609,805
Accrued expenses:
Co-op advertising........................................ 13,311,276 8,700,696
Compensation............................................. 3,245,888 2,665,485
Other.................................................... 11,201,038 8,714,067
Income taxes payable......................................... 10,486,823 5,504,304
-------------------------------
Total current liabilities................................ 57,293,933 43,056,502
-------------------------------
Commitments (Note 9)
Minority interest in subsidiaries................................. 1,864,436 1,250,405
Stockholders' equity:
Common stock, shares issued and outstanding -
20,932,091 and 20,308,503, respectively...................... 209,321 203,085
Additional paid-in capital................................... 34,345,061 26,021,255
Retained earnings............................................ 102,858,657 71,257,176
Accumulated other comprehensive income....................... (1,037,181) (2,218,533)
Treasury stock at cost, 103,679 shares....................... (1,456,385) -
-------------------------------
Total stockholders' equity............................... 134,919,473 95,262,983
-------------------------------
$ 194,077,842 $ 139,569,890
-------------------------------
-------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL INFORMATION 39

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Net sales.......................................... $ 304,743,425 $ 244,797,532 $ 205,899,262
Cost of sales...................................... 154,239,588 127,269,749 107,861,291
--------------------------------------------
Gross profit.................................. 150,503,837 117,527,783 98,037,971
Operating expenses:
Selling and distribution...................... 67,871,709 58,065,138 50,638,117
General and administrative.................... 27,262,555 24,852,550 23,026,895
--------------------------------------------
Total operating expenses.................. 95,134,264 82,917,688 73,665,012
--------------------------------------------
Operating income................................... 55,369,573 34,610,095 24,372,959
Interest expense................................... (210,672) (956,182) (1,205,233)
Other income (expense)--net......................... (429,932) (1,502,806) (127,619)
--------------------------------------------

Income before income taxes......................... 54,728,969 32,151,107 23,040,107
Provision for income taxes......................... 22,568,000 13,209,000 9,449,000
Net income .................................. 32,160,969 18,942,107 13,591,107
--------------------------------------------

Currency translation adjustment........... 1,181,352 (1,572,600) (839,914)
--------------------------------------------
Other comprehensive income.................... $ 33,342,321 $ 17,369,507 $ 12,751,193
--------------------------------------------
--------------------------------------------

Basic earnings per share...................... $ 1.55 $ 0.94 $ 0.69
--------------------------------------------
Diluted earnings per share ................... $ 1.48 $ 0.91 $ 0.68
--------------------------------------------
--------------------------------------------

Weighted average common and common equivalent shares outstanding:
Basic .................................... 20,702,694 20,135,540 19,783,172
Diluted .................................. 21,724,064 20,833,431 20,067,653
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

40 FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED TREASURY STOCK
ADDITIONAL OTHER TOTAL
PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME SHARES AMOUNT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996 .................. 13,182,333 $131,823 $22,219,692 $ 38,723,962 $ 193,981 -- $ -- $61,269,458
Common stock issued
upon exercise of stock
options ............... 10,661 107 106,651 -- -- -- -- 106,758
Common stock issued
for purchase of
additional B.V.
ownership ............. 50,000 500 440,125 -- -- -- -- 440,625
Net income .............. -- -- -- 13,591,107 -- -- -- 13,591,107
Currency translation
adjustment ............ -- -- -- -- (839,914) -- -- (839,914)
----------------------------------------------------------------------------------------------------
Balance, December 31,
1996 .................. 13,242,994 132,430 22,766,468 52,315,069 (645,933) -- -- 74,568,034
Common stock issued upon
exercise of stock
options ............... 167,899 1,679 1,622,711 -- -- -- -- 1,624,390
Tax benefit derived from
exercise of stock
options ............... -- -- 464,000 -- -- -- -- 464,000
Common stock issued for
purchase of additional
Italy ownership ....... 128,109 1,281 1,235,771 -- -- -- -- 1,237,052
Three-for-two stock
split ................. 6,769,501 67,695 (67,695) -- -- -- -- --
Net income .............. -- -- -- 18,942,107 -- -- -- 18,942,107
Currency translation
adjustment ............ -- -- -- -- (1,572,600) -- -- (1,572,600)
----------------------------------------------------------------------------------------------------

Balance, January 3,
1998 .................. 20,308,503 203,085 26,021,255 71,257,176 (2,218,533) -- -- 95,262,983
Common stock issued upon
exercise of stock
options ............... 408,588 4,086 2,876,692 -- -- -- -- 2,880,778
Tax benefit derived
from exercise of
stock options ......... -- -- 1,495,000 -- -- -- -- 1,495,000
Secondary offering,
net of offering
costs ................. 215,000 2,150 3,610,686 -- -- -- -- 3,612,836
Purchase of treasury
stock ................. -- -- -- -- -- (188,500) (2,647,272) (2,647,272)
Reissuance of treasury
stock upon exercise of
stock options ......... -- -- -- (559,488) -- 84,821 1,190,887 631,399
Net income .............. -- -- -- 32,160,969 -- -- -- 32,160,969
Currency translation
adjustment ............ -- -- -- -- 1,181,352 -- -- 1,181,352
Other ................... -- -- 341,428 -- -- -- -- 341,428
----------------------------------------------------------------------------------------------------

Balance, January 2,
1999 .................. 20,932,091 $ 209,321 $ 34,345,061 $102,858,657 $(1,037,181) (103,679) $(1,456,385) $134,919,473
----------------------------------------------------------------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

FINANCIAL INFORMATION 41

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Operating Activities:
Net income ........................................ $ 32,160,969 $ 18,942,107 $ 13,591,107
Noncash items affecting net income:
Minority interest in subsidiaries............... 1,003,607 343,879 362,084
Depreciation and amortization................... 4,395,319 3,047,329 3,125,598
Increase in allowance for doubtful accounts..... 2,164,534 407,686 1,424,243
Increase in allowance for returns -
net of related inventory in transit........... 2,052,597 784,300 183,382
Deferred income tax benefits.................... (1,151,253) (837,405) (375,925)

Changes in assets and liabilities:

Accounts receivable............................. (13,899,490) (6,113,976) (5,384,069)
Inventories..................................... (4,574,865) (662,178) (6,353,919)
Prepaid expenses and other current assets....... (1,106,161) (489,491) 82,839
Accounts payable................................ 5,830,676 1,392,915 1,574,382
Accrued expenses................................ 7,677,954 2,136,363 3,989,332
Income taxes payable............................ 6,477,519 4,129,648 (992,803)
--------------------------------------------
Net cash from operations.................. 41,031,406 23,081,177 11,226,251

Investing Activities:
Net assets acquired in business combination/
consolidation, net of cash received........... - (384,614) (634,734)
Additions to property, plant and equipment...... (6,307,218) (7,363,440) (4,260,546)
Cash received from sale of property and
equipment..................................... 263,623 - -
Decrease (increase) in intangible and other
assets........................................ (69,875) 272,002 (391,669)
--------------------------------------------
Net cash used in investing activities..... (6,113,470) (7,476,052) (5,286,949)

Financing Activities:
Issuance of common stock........................ 6,493,614 1,624,390 547,383
Net purchase of treasury stock.................. (2,015,873) - -
Distribution of minority interest earnings...... (389,576) (498,784) (83,774)
Repayment of notes payable - affiliates......... - (1,000,744) (127,830)
Repayments of notes payable - banks............. (3,324,995) (5,993,255) (62,396)
Other........................................... 341,428 - -
--------------------------------------------
Net cash from(used in) financing
activities.............................. 1,104,598 (5,868,393) 273,383

Effect of exchange rate changes on cash
and cash equivalents.......................... 137,017 (614,397) (211,974)
--------------------------------------------
Net increase in cash and cash equivalents.......... 36,159,551 9,122,335 6,000,711
Cash and cash equivalents:
Beginning of year......................... 21,103,581 11,981,246 5,980,535
--------------------------------------------
End of year............................... $ 57,263,132 $ 21,103,581 $ 11,981,246
--------------------------------------------
</TABLE>

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

<PAGE>

42 FINANCIAL INFORMATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Fossil, Inc., a
Delaware corporation, and its subsidiaries (the "Company"). Significant
intercompany balances and transactions are eliminated in consolidation. The
Company is primarily engaged in the design, development and distribution of
fashion watches and other accessories, principally under the "FOSSIL", "FSL",
and "RELIC" brand names. The Company's products are sold primarily through
department stores and other major retailers, both domestically and
internationally.

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

Beginning January 1, 1997, the Company changed its fiscal year to reflect the
retail-based calendar (containing 4-4-5 week calendar quarters). Due to this
change, the first quarter of fiscal 1997 contained an additional one-half
week for the transition period. This change had an immaterial impact on
comparability to the prior fiscal year.

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

ACCOUNTS RECEIVABLE are stated net of allowances of $13,966,421 and
$10,576,181 for estimated customer returns and $6,864,365 and $4,699,831 for
doubtful accounts at the close of fiscal year 1998 and 1997, respectively.

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

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

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

CUMULATIVE TRANSLATION ADJUSTMENT in stockholders' equity reflects the
unrealized adjustments resulting from translating the financial statements of
foreign subsidiaries. The functional currency of the Company's foreign
subsidiaries is the local currency of the country. Accordingly, assets and
liabilities of the foreign subsidiaries are translated to U.S. dollars at
year-end exchange rates. Income and expense items are translated at the
average rates prevailing during the year. Changes in exchange rates which
affect cash flows and the related receivables or payables are recognized as
transaction gains and losses in the determination of net income. The Company
incurred net foreign currency transaction losses of approximately $427,000,
$733,000 and $308,000 for fiscal years 1998, 1997 and 1996, respectively,
which have been included in other income (expense).

<PAGE>

FINANCIAL INFORMATION 43

FORWARD CONTRACTS are entered into by the Company principally to hedge the
payment of intercompany inventory transactions with its non-U.S.
subsidiaries. Currency exchange gains or losses resulting from the
translation of the related accounts, along with the offsetting gains or
losses from the hedge, are deferred until the inventory is sold or the
forward contract is completed. At January 2, 1999, the Company had hedge
contracts to sell (i) 24,000,000 German Marks for approximately $13.9
million, expiring through December 1999, (ii) 199,199,000 Japanese Yen for
approximately $1.4 million, expiring through March 1999 and (iii)
2,266,000,000 Italian Lira for approximately $1.4 million, expiring through
March 1999.

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

ADVERTISING COSTS for in-store and media advertising as well as co-op
advertising and promotional allowances are expensed as incurred. Advertising
expenses for fiscal years 1998, 1997 and 1996 were approximately $16,986,000,
$14,255,000 and $14,919,000, respectively.

In fiscal year 1998, the Company adopted the following Statements of
Financial Accounting Standards ("SFAS"):

"REPORTING COMPREHENSIVE INCOME" (SFAS No. 130), requires the componenets of
comprehensive income to be disclosed in the financial statements.

"DISCLOSURES ABOUT SEGEMENTS OF AN ENTERPRISE AND RELATED INFORMATION" (SFAS
No. 131), requires disclosures of certain information about the Company's
operating segments on a basis consistent with the way in which the Company is
managed and operated.

NEW ACCOUNTING STANDARDS. In June 1998 SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued which establishes
new accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires the recognition of all derivatives as either assets
or liabilities in the statement of financial position and the measurement of
those instruments at fair value. This pronouncement will require such
disclosures in the Company's financial statements for all reporting periods
beginning fiscal year 2000. The Company is currently analyzing the effect of
this standard and does not expect it to have a material effect on the
Company's consolidated statements of financial position, income and cash
flows.

MINORITY INTEREST IN SUBSIDIARIES, included within other income (expense)
represents the minority stockholders' share of the net income (loss) of
various consolidated subsidiaries. The minority interest in the consolidated
balance sheets reflects the proportionate interest in the equity of these
consolidated subsidiaries.

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

<PAGE>

44 FINANCIAL INFORMATION

The following table reconciles the numerators and denominators used in the
computations of both basic and diluted EPS:

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 1997 1996
<S> <C> <C> <C>
Basic EPS computation:
Numerator:
Net income..................................... $32,160,969 $ 18,942,107 $13,591,107
-----------------------------------------
Denominator:
Weighted average common shares outstanding..... 20,747,242 13,423,693 13,188,781
Three-for-two stock split paid April 1998...... - 6,711,847 6,594,391
Treasury stock................................. (44,548) - -
-----------------------------------------
20,702,694 20,135,540 19,783,172
-----------------------------------------
Basic EPS............................................ $ 1.55 $ 0.94 $ 0.69
-----------------------------------------
Diluted EPS computation:
Numerator:
Net income..................................... $32,160,969 $ 18,942,107 $13,591,107
-----------------------------------------
Denominator:
Weighted average common shares outstanding..... 20,747,242 13,423,693 13,188,781
Stock option conversion........................ 1,021,370 465,261 189,654
Three-for-two stock split paid April 1998...... - 6,944,477 6,689,218
Treasury stock................................. (44,548) - -
-----------------------------------------
21,724,064 20,833,431 20,067,653
-----------------------------------------
Diluted EPS.......................................... $ 1.48 $ 0.91 $ 0.68
-----------------------------------------
</TABLE>

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

FAIR VALUE OF FINANCIAL INSTRUMENTS are estimated to approximate the related
book values, unless otherwise indicated, based on market information
available to the Company. Reclassification of certain 1996 and 1997 amounts
have been made to conform to the 1998 presentation.

2. ACQUISITIONS

Effective April 1997, Fossil (East) Limited acquired the remaining 35% of
capital stock of Amazing Time, Ltd. from its minority stockholder in exchange
for approximately $380,000 in cash. The acquisition of this Hong Kong-based
watch assembly factory has been accounted for as a purchase and,in connection
therewith, the Company recorded goodwill of approximately $210,000. Effective
April 1996, the Company invested approximately $700,000 in cash for an 81%
interest in Kabushiki Kaisha Fossil Japan, a Japanese corporation ("Fossil
Japan"). Fossil Japan is the sole distributor of Fossil products within Japan
and was previously 100% owned by a foreign-based entity. The acquisition has
been accounted for as a purchase, and in connection therewith, the Company
recorded goodwill of approximately $300,000.

In May 1993, the Company formed Fossil Europe B.V., a Netherlands holding
company ("Fossil B.V."). The Company contributed $1.43 million to the joint
venture for 70% of Fossil B.V.'s outstanding common stock. In July 1995, the
Company acquired an additional 18% of Fossil B.V.'s outstanding common stock
from its minority stockholders for approximately $1.68 million, of which
approximately $1.32 million was recorded as goodwill. Effective October 1,
1996, the Company acquired the remaining 12% of Fossil B.V.'s outstanding
common stock from its

<PAGE>

FINANCIAL INFORMATION 45

minority stockholders for $1.0 million in cash, 50,000 shares of the
Company's $0.01 par value common stock ("Common Stock") and the issuance of
options to acquire 20,000 shares of Common Stock, of which approximately $1.0
million was recorded as goodwill. Fossil B.V.'s initial purpose was to form
and purchase through Fossil Europe GmbH ("Fossil GmbH") certain inventory and
fixed assets from the Company's prior distributor in Germany. During 1994,
Fossil B.V. formed an Italian subsidiary, Fossil Italia, S.r.l., ("Fossil
Italy") and invested approximately $7,500 for a 60% equity interest in the
Italian subsidiary. Effective February 1997, Fossil B.V. acquired the
remaining 40% of Fossil Italy's outstanding common stock from it's minority
stockholders for 192,164 shares of the Company's Common Stock, of which
approximately $300,000 was recorded as goodwill. Fossil B.V. also formed a
wholly owned subsidiary in Spain during 1996. Each of these subsidiaries is
generally responsible for sales and operations within their respective
countries with the exception of Fossil GmbH, which acts as the Company's main
marketing and distribution point in Europe. The balance sheets and results of
operations of these subsidiaries and affiliates are included in the
accompanying consolidated financial statements since the dates of their
formation or acquisition.

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 1997
<S> <C> <C>
Components and parts..................................... $ 3,402,058 $ 2,751,719
Work-in-process.......................................... 1,444,665 2,064,623
Finished merchandise on hand............................. 40,344,158 35,707,813
Merchandise at Company stores............................ 5,339,798 5,484,479
Merchandise in-transit from customer returns............. 6,763,989 5,373,526
-------------------------
$ 57,294,668 $51,382,160
-------------------------
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 1997
<S> <C> <C>
Land....................................................... $ 2,535,361 $ 2,535,361
Building................................................... 9,912,879 9,209,315
Furniture and fixtures..................................... 11,291,941 6,720,046
Equipment.................................................. 5,485,666 4,905,291
Computer software.......................................... 2,517,824 1,382,537
Leasehold improvements..................................... 5,035,370 6,790,409
------------------------
36,779,041 31,542,959
Less accumulated depreciation and amortization............. 13,662,203 10,469,626
------------------------
$23,116,838 $21,073,333
------------------------
</TABLE>

5. INTANGIBLE AND OTHER ASSETS

Intangibles and other assets consist of the following:

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 1997
<S> <C> <C>
Costs in excess of tangible net assets acquired............ $4,545,098 $ 4,545,098
Noncompete agreement....................................... 475,000 475,000
Trademarks................................................. 554,851 547,573
Deposits................................................... 478,707 430,503
Other...................................................... 217,567 203,174
-----------------------
6,271,223 6,201,348
Less accumulated amortization.............................. 1,643,706 1,364,089
-----------------------
$4,627,517 $ 4,837,259
-----------------------
</TABLE>

<PAGE>

46 FINANCIAL INFORMATION

6. DEBT

BANK: U.S.-BASED. In August 1994, the Company signed a $5.0 million financing
agreement with its primary bank ("Long-term revolver") to partially finance
the Company's facilities construction costs and for other general corporate
purposes. The financing agreement was for a ten-year revolving term loan with
quarterly payments equal to 1% of the stated principal amount of the
facility. The interest rate was the lender's prime rate (8.50% at January 3,
1998) and was payable quarterly with an unused fee of 0.5% per annum. The
financing agreement additionally allowed for interest to be calculated at the
London Interbank Offered Rate ("LIBOR") (5.82% at January 3, 1998), plus
1.25%. The amount outstanding under this facility was $4.35 million at the
end of fiscal year 1997. The Company paid the Long-term revolver in full in
January 1998 from available cash on hand, therefore the funds outstanding
under the facility were classified as short-term debt as of January 3, 1998.
In May 1997, the Company extended the maturity date of its short-term
revolving credit facility with its primary bank ("U.S. short-term revolver").
In June 1997, the Company renewed the U.S. short-term revolver and amended it
to increase the funds available under the facility to $40 million, an
increase of $10 million over the previous facility, not subject to any
borrowing base calculation. The facility was also amended to eliminate
Japanese Yen currency borrowings and replace them with a stand-by letter of
credit for 540 million Japanese Yen (approximately $4.8 million) as
collateral for Company borrowings from any Japan-based bank. In June 1998,
the Company renewed the U.S. short-term revolver for one year and amended the
interest rate the Company pays on LIBOR based borrowings. All borrowings
under the U.S. short-term revolver accrue interest at the bank's prime rate
less 0.5% or LIBOR plus 1.00% (LIBOR plus 1.25% prior to June 29, 1998) and
is collateralized by substantially all the Company's assets and requires the
maintenance of specific levels of net worth, quarterly income, working
capital and financial ratios. There were no borrowings under the U.S.
short-term revolver as of fiscal year end 1998 or 1997. Interest expense
under these credit facilities was $5,630, $835,275 and $1,077,713 for fiscal
years 1998, 1997 and 1996, respectively. At fiscal year-end 1998, 1997 and
1996, the Company had outstanding letters of credit of approximately
$3,200,000, $1,225,000 and $2,695,000, respectively, to vendors for the
purchase of merchandise.

BANKS: FOREIGN-BASED. Fossil GmbH has short-term credit facilities with two
Germany-based banks with combined borrowing capacity of 5,000,000 deutsche
marks (approximately $3.0 million as of fiscal year-end 1998). No borrowings
were outstanding under the combined credit facilities at the end of fiscal
1998 or 1997. Outstanding borrowings under the facilities bear interest at
approximately 6% and are collateralized by substantially all of Fossil GmbH's
assets. During August 1997, Fossil Japan restructured its short-term credit
facility with a Japan-based bank allowing borrowings of up to 540 million
Japanese Yen. All outstanding borrowings under the facility bore interest at
the Euroyen rate (1.02% at January 2, 1999) plus 1.8%. In connection with
the financing agreement, Fossil Japan agreed to pay an origination fee equal
to 0.12% of the amount available under the facility and an unused fee of 0.5%
per annum. The facility is collateralized by a stand-by letter of credit
issued by the Company's primary U.S. bank. Japan-based borrowings, in U.S.
dollars, under the facilities were approximately $4.5 million and $3.5
million as of fiscal year-end 1998 and 1997, respectively. Interest expense
under these credit facilities was $83,004, $21,188 and $27,427 for fiscal
years 1998, 1997 and 1996, respectively.

<PAGE>
FINANCIAL INFORMATION 47

7. OTHER INCOME (EXPENSE) - NET
Other income (expense) - net consists of the following:

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Interest income........................ $ 1,159,862 $ 335,528 $ 235,098
Minority interest in subsidiaries...... (1,003,607) (343,879) (362,084)
Currency loss.......................... (427,240) (732,614) (308,249)
Legal settlements...................... (266,586) (661,365) 50,000
Royalty income......................... 44,799 106,100 -
Duty drawback ......................... - - 321,836
Insurance proceeds above book value ... 93,345 - 101,814
Loss on sale of fixed assets........... (83,888) - -
Other income (expense)................. 53,383 (206,576) (166,034)
-------------------------------------------
$ (429,932) $(1,502,806) $ (127,619)
-------------------------------------------
</TABLE>

8. INCOME TAXES

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

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 1997
<S> <C> <C>
Deferred tax assets:
Bad debt allowance.................................... $ 2,193,068 $ 1,514,158
Returns allowance..................................... 4,283,415 3,359,383
263(A) capitalization of inventory.................... 503,438 418,355
Miscellaneous tax asset items......................... 1,005,850 1,033,373
Deferred tax liabilities:
In-transit returns inventory........................... (2,330,769) (1,821,520)
---------------------------
Net current deferred tax benefits........................ $ 5,655,002 $ 4,503,749
---------------------------
</TABLE>

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

<TABLE>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Current provision:
United States...................... $ 11,773,253 $ 9,026,405 $ 6,776,925
Foreign............................ 11,946,000 5,020,000 3,048,000
Deferred provision - United States... (1,151,253) (837,405) (375,925)
-----------------------------------------------
Provision for income taxes........... $ 22,568,000 $13,209,000 $ 9,449,000
-----------------------------------------------
</TABLE>

<PAGE>

48 FINANCIAL INFORMATION

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

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Tax at statutory rate................ $ 19,155,139 $11,252,887 $ 8,064,037
State, net of federal tax benefit.... 363,779 378,005 194,312
Other................................ 3,049,082 1,578,108 1,190,651
-----------------------------------------------
Provision for income taxes........... $ 22,568,000 $13,209,000 $ 9,449,000
-----------------------------------------------
</TABLE>

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

9. COMMITMENTS

LICENSE AGREEMENTS. The Company has various license agreements to market
watches bearing certain trademarks owned by various entities. In accordance
with these agreements, the Company incurred royalty expense of $3,520,743,
$1,703,245 and $1,365,579 in fiscal years 1998, 1997 and 1996, respectively.
These amounts are included in the Company's cost of sales and selling
expenses. The Company has several agreements in effect at the end of fiscal
year 1998 which expire on various dates from January 1999 and require the
Company to pay royalties ranging from 5% to 15.5% of defined net sales.
Future minimum royalty commitments under such license agreements at the close
of fiscal year 1998 are as follows:

LEASES. The Company leases its retail and outlet store facilities as well as
certain of its office facilities and equipment under non-cancelable operating
leases. Most of the retail store leases provide for contingent rental based
on operating results and require the payment of taxes, insurance and other
costs applicable to the property. Generally, these leases include renewal
options for various periods at stipulated rates. Rent expense under these
agreements was $5,118,310, $4,387,821 and $3,698,981 for fiscal years 1998,
1997 and 1996, respectively. Contingent rent expense has been minimal in
each of the last three fiscal years. Future minimum rental commitments under
such leases at the close of fiscal year 1998, are as follows:

<TABLE>
<S> <C>
1999...................................................... $ 4,993,795
2000...................................................... 4,241,915
2001...................................................... 3,225,614
2002...................................................... 2,727,764
2003...................................................... 2,095,377
Thereafter................................................ 5,544,223
-----------
$22,828,688
-----------
</TABLE>

<PAGE>

FINANCIAL INFORMATION 49

10. STOCKHOLDERS' EQUITY AND BENEFIT PLANS

COMMON AND PREFERRED STOCK. On March 4, 1998, the Board of Directors declared
a three-for-two stock split of the Company's Common Stock to be effected in
the form of a stock dividend payable on April 8, 1998 to stockholders of
record on March 25, 1998. Retroactive effect has been given to the stock
split in all share and per share data in the accompanying financial
statements.

The Company has 50,000,000 shares of authorized Common Stock, with 20,932,091
and 20,308,503 shares issued and outstanding at the close of fiscal year-end
1998 and 1997, respectively. The Company has 1,000,000 shares of authorized
$0.01 par value preferred stock with none issued or outstanding. Rights,
preferences and other terms of preferred stock will be determined by the
Board of Directors at the time of issuance.

TREASURY STOCK. On September 18, 1998, the Company's Board of Directors
authorized management to repurchase up to 500,000 shares of the Company's
Common Stock in the open market or privately negotiated transactions (the
"Repurchase Program"). During fiscal year 1998, the Company repurchased
188,500 shares of treasury stock under the Repurchase Program at a cost of
$2,647,272. During fiscal year 1998, 84,821 shares of treasury stock were
reissued in connection with the Company's 1993 Long-Term Incentive Stock
Option Plan ("Incentive Plan").

SAVINGS PLAN. The Company has a savings plan in the form of a defined
contribution plan (the "401(k) plan") for substantially all full-time
employees of the Company. Employees are eligible to participate in the 401(k)
plan after one year of service. The Company matches 50% of employee
contributions up to 3% of their compensation and 25% of the employee
contributions between 3% and 6% of their compensation. The Company also has
the right to make certain additional matching contributions not to exceed 15%
of employee compensation. The Company's Common Stock is one of several
investment alternatives available under the 401(k) plan. Matching
contributions made by the Company to the 401(k) plan totaled $197,501,
$156,575 and $129,035 for fiscal years 1998, 1997 and 1996, respectively.

LONG-TERM INCENTIVE PLAN. An aggregate of 1,725,000 shares of Common Stock
were reserved for issuance pursuant to the Incentive Plan, adopted April
1993. An additional 900,000 shares were reserved in each of 1995 and 1998 for
issuance under the Incentive Plan. Designated employees of the Company,
including officers and directors, are eligible to receive (i) stock options,
(ii) stock appreciation rights, (iii) restricted or nonrestricted stock
awards, (iv) cash awards or (v) any combination of the foregoing. The
Incentive Plan is administered by the Compensation Committee of the Company's
Board of Directors (the "Compensation Committee"). Each option issued under
the Incentive Plan terminates at the time designated by the Compensation
Committee, not to exceed ten years. The current options outstanding
predominately vest over a period ranging from three to five years and were
priced at not less than estimated fair market value of the Company's Common
Stock at the date of grant. Effective January 10, 1996, the Company offered
the participants under the Incentive Plan the opportunity to exchange any
outstanding stock option grants with an exercise price of $10.33 or above for
a pro-rata number of options at a $6.67 exercise price. The pro-rata number
of options offered in exchange was equivalent to the total number of options
outstanding for each grant exchanged multiplied by the percentage figure
calculated by dividing $6.67 by the optionees's previous exercise price. A
total of 366,487 options with exercise prices ranging from $10.33 to $19.00
were canceled in exchange for 196,191 options with an exercise price of
$6.67. The weighted average fair value of the stock options granted during
fiscal years 1998, 1997 and 1996 was $9.40, $5.36 and $3.29, respectively.

<PAGE>

50 FINANCIAL INFORMATION

NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. An aggregate of 150,000 shares of
Common Stock were reserved for issuance pursuant to this nonqualified stock
option plan, adopted April 1993. During the first year an individual
waselected as a nonemployee director of the Company, they received a grant of
7,500 nonqualified stock options. In addition, on the first day of each
subsequent calendar year, each nonemployee director automatically received a
grant of an additional 4,500 nonqualified stock options. Effective January 1,
1999, grants of options under the Plan were reduced for nonemployee directors
to 5,000 nonqualified stock option in their first year of service and 3,000
nonqualified stock options in each subsequent year as long as the person is
serving as a nonemployee director. Pursuant to this plan, 50% of the options
granted will become exercisable on the first anniversary of the date of grant
and in two additional installments of 25% on the second and third
anniversaries. The exercise prices of options granted under this plan were
not less than the fair market value of the Common Stock at the date of grant.
The weighted average fair value of the stock options granted during fiscal
years 1998, 1997 and 1996 was $17.89, $7.95 and $3.45, respectively.

The fair value of options granted under the Company's stock option plans
during fiscal years 1998, 1997 and 1996 were estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used: no dividend yield, expected volatility of
approximately 63% to 65%, risk free interest rate of 4.75% to 6.11%, and
expected life of 5 to 6 years. The following tables summarize the Company's
stock option activity:

INCENTIVE PLAN

<TABLE>
<CAPTION>
weighted weighted
average average
exercise exercise exercise
price price price available
per share per share outstanding per share for grant
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, Fiscal 1995 ..... $ 5.00 -$19.00 $ 9.262 1,094,912 $ 9.475 1,444,838
Granted.............. $ 4.417 -$10.583 $ 5.323 828,291 - (828,291)
Exercised............ $ 5.00 -$ 9.083 $ 6.676 (15,992) - -
Canceled............. $ 4.417 -$19.00 $11.594 (450,311) - 450,311
Exercisable.......... - - - - -
-------------------------------------------------------------------------------

Balance, Fiscal 1996...... $ 4.417 -$17.167 $ 6.521 1,456,900 $ 6.953 1,066,858
Granted.............. $ 8.334 -$16.792 $ 8.651 506,588 - (506,588)
Exercised............ $ 4.417 -$11.917 $ 6.344 (243,971) - -
Canceled............. $ 4.417 -$14.75 $ 7.842 (54,758) - 54,758
Exercisable.......... $ 4.417 -$19.00 - - - -
-------------------------------------------------------------------------------

Balance, Fiscal 1997 ..... $ 4.417 -$19.00 $ 7.173 1,664,759 $ 6.975 615,028
Additional options
available for grant - - - - 900,000
Granted.............. $ 13.00 -$29.75 $15.117 422,307 - (422,307)
Exercised............ $ 4.417 -$12.917 $ 7.051 (493,409) - -
Canceled............. $ 4.417 -$22.25 $11.263 (51,133) - 51,133
Exercisable.......... $ 4.417 -$19.00 - - - -
-------------------------------------------------------------------------------

Balance, Fiscal 1998...... $ 4.417 -$29.75 $ 9.280 1,542,524 $ 7.150 1,143,854
-------------------------------------------------------------------------------
</TABLE>

There were 760,301, 876,180 and 618,381 options available for exercise under
the Incentive Plan at fiscal year end 1998, 1997 and 1996, respectively.

<PAGE>

FINANCIAL INFORMATION 51

NONEMPLOYEE DIRECTOR PLAN

<TABLE>
<CAPTION>
weighted weighted
average average
exercise exercise exercise
price price price available
per share per share outstanding per share for grant
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, Fiscal 1995...... $5.00 -$12.667 $ 8.548 57,000 $ 7.191 93,000
Granted.............. $5.583 $ 5.583 18,000 - (18,000)
Exercisable.......... $5.00 -$12.667 - - - -
------------------------------------------------------------

Balance, Fiscal 1996...... $5.00 -$12.667 $ 7.837 75,000 $ 7.945 75,000
Granted.............. $9.00 -$16.667 $12.833 27,000 - (27,000)
Exercised............ $5.583-$11.417 $ 9.750 (7,875) - -
Canceled............. $5.583-$11.417 $ 8.235 (4,125) - 4,125
Exercisable.......... $5.00 -$12.667 - - - -
------------------------------------------------------------

Balance, Fiscal 1997...... $5.00 -$16.667 $ 9.150 90,000 $ 7.818 52,125
Granted.............. $28.75 $28.750 9,000 - (9,000)
Exercisable.......... $5.00 -$16.667 - - - -
------------------------------------------------------------

Balance, Fiscal 1998...... $5.00 -$ 28.75 $10.932 99,000 $ 8.521 43,125
------------------------------------------------------------
</TABLE>

There were 79,875, 66,375 and 43,125 options available for exercise under the
Nonemployee Director Plan at fiscal year end 1998, 1997 and 1996, respectively.

Additional weighted average information for options outstanding and
exercisable as of fiscal year end 1998:

<TABLE>
<CAPTION>
options outstanding options exercisable
------------------- -------------------
weighted weighted weighted
average average average
range of exercise remaining exercise
exercise number price contractual number price
prices of shares per share life of shares per share
------ --------- --------- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Long-Term
Incentive Plan:......... $ 4.417-$ 8.50 895,662 $ 6.544 7.2 years 546,492 $ 6.253
$ 8.51 -$29.75 646,862 $13.067 8.1 years 213,809 $ 9.442
Nonemployee
Director Plan:.......... $ 5.00 -$ 8.50 36,000 $ 5.219 5.3 years 36,000 $ 5.219
$ 8.51 -$28.75 63,000 $14.196 7.4 years 43.875 $11.231
</TABLE>

<PAGE>

52 FINANCIAL INFORMATION

The Company applies Accounting Principles Board Opinion No.25 and related
Interpretations in accounting for its stock option plans. Accordingly, no
compensation cost (generally measured as the excess, if any, of the quoted
market price of the Common Stock at the date of the grant over the amount an
employee must pay to acquire the Common Stock) has been recognized for the
Company's stock option plans. SFAS No. 123, "Accounting for Stock-Based
Compensation, "issued by the Financial Accounting Standards Board in 1995,
prescribed a method to record compensation cost for stock-based employee
compensation plans at fair value. Pro forma disclosures as if the Company had
adopted the cost recognition requirements under SFAS No. 123 in fiscal years
1998, 1997 and 1996 are presented below. Because the SFAS No. 123 method of
accounting has not been applied to options granted prior to January 1, 1995,
the resulting pro forma compensation cost may not be representative of that
expected in future years.

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Net income:
As reported............................. $ 32,160,969 $ 18,942,107 $ 13,591,107
Pro forma............................... $ 30,047,917 $ 17,177,727 $ 12,254,598
Basic earnings per share:
As reported............................. $ 1.55 $ 0.94 $ 0.69
Pro forma............................... $ 1.45 $ 0.85 $ 0.62
Diluted earnings per share:
As reported............................. $ 1.48 $ 0.91 $ 0.68
Pro forma............................... $ 1.38 $ 0.82 $ 0.61
</TABLE>

11. COMPREHENSIVE INCOME

Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The components of other comprehensive income for
fiscal years 1998, 1997 and 1996 consist of the following:

<TABLE>
<S> <C>
Balance, January 1, 1995.......................... $ 193,981
Currency translation adjustment.................. (839,914)
-------------
Balance, December 31, 1996........................ (645,933)
Currency translation adjustment.................. (1,572,600)
-------------
Balance, January 3, 1998.......................... (2,218,533)
Currency translation adjustment.................. 1,181,352
-------------
Balance, January 2, 1999.......................... $ (1,037,181)
-------------
</TABLE>

<PAGE>

FINANCIAL INFORMATION 53

12. SUPPLEMENTAL CASH FLOW INFORMATION

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

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................. $ 81,908 $ 923,635 $ 1,117,107
Income taxes............................. 18,388,246 10,641,735 11,614,532
Acquisition of minority interest in
subsidiary in exchange for common
stock...................................... - 1,237,052 -
Reduction in income tax payable resulting
from exercise of employee stock options.... 1,495,000 464,000 -
</TABLE>

13. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION

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

<TABLE>
<CAPTION>
FISCAL YEAR 1998 1997 1996
<S> <C> <C> <C>
Customer A........................................ 10% 11% 11%
Customer B........................................ 9% 9% 10%
</TABLE>

The Company's majority owned facilities operate primarily in four geographic
regions. The Company operates in a single industry, as a designer, developer,
marketer and distributor of fashion watches and other accessories, except in
the United States where the Company has an additional reportable segment:
Company Stores. Company Stores consist of outlet and mall-based retail stores
selling the Company's product direct to the consumer. Specific information
related the Company's reportable segments and geographic areas are contained
in the following table. Intercompany sales of products between geographic
areas are referred to as intergeographic items. These intercompany sales
primarily consist of product sales from the Far East into the u.s. and
European operations which are priced at cost plus a 5%-8% trade agent
commission.

<PAGE>

54 FINANCIAL INFORMATION

<TABLE>
<CAPTION>
FISCAL YEAR END 1998 NET SALES OPERATING INCOME LONG-LIVED ASSETS TOTAL ASSETS
<S> <C> <C> <C> <C>
United States - exclusive of Company Stores... $ 213,959,462 $ 23,757,392 $17,849,365 $124,132,894
Stores........................................ 26,116,514 1,178,696 5,359,602 14,940,541
Europe........................................ 62,568,178 10,148,534 2,028,024 31,756,226
Far East...................................... 126,292,290 21,032,467 2,361,287 18,245,468
Japan......................................... 7,667,348 (747,516) 146,078 5,002,713
Intergeographic items......................... (131,860,367) - - -
------------------------------------------------------------------
Consolidated.................................. $ 304,743,425 $ 55,369,573 $27,744,356 $194,077,842
------------------------------------------------------------------

FISCAL YEAR END 1997 NET SALES OPERATING INCOME LONG-LIVED ASSETS TOTAL ASSETS
United States - exclusive of Company Stores... $ 169,554,476 $ 18,844,130 $16,836,120 $ 81,816,784
Stores........................................ 20,036,131 1,557,988 4,721,960 13,940,707
Europe........................................ 46,032,760 2,552,650 1,965,430 24,743,975
Far East...................................... 89,214,060 12,369,973 2,260,976 14,333,258
Japan......................................... 9,613,533 (714,646) 126,106 4,735,166
Intergeographic items......................... (89,653,428) - - -
------------------------------------------------------------------
Consolidated.................................. $ 244,797,532 $ 34,610,095 $25,910,592 $139,569,890
------------------------------------------------------------------

FISCAL YEAR END 1996 NET SALES OPERATING INCOME LONG-LIVED ASSETS TOTAL ASSETS
United States - exclusive of Company Stores... $ 144,261,483 $ 16,687,274 $12,490,119 $ 67,694,188
Stores........................................ 13,897,787 1,054,437 3,885,803 10,608,153
Europe........................................ 45,926,815 1,781,220 2,650,722 27,842,878
Far East...................................... 66,270,186 5,008,243 2,239,817 8,335,684
Japan......................................... 6,266,671 (158,215) 85,709 4,497,166
Intergeographic items......................... (70,723,680) - - -
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Consolidated.................................. $ 205,899,262 $ 24,372,959 $21,352,170 $118,978,069
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</TABLE>

<PAGE>

COPORATE INFORMATION

EXECUTIVE OFFICERS AND DIRECTORS

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

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

Michael W. Barnes T.R.Tunnell Donald J. Stone
Executive Vice President Senior Vice President, Development Director
and Director Chief Legal Officer and Secretary

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

CORPORATE INFORMATION

Transfer Agent and Registrar Independent Auditors Corporate Counsel

Chase Mellon Shareholder Deloitte & Touche LLP Jenkens & Gilchrist
Services LLC 2200 Ross Avenue 1445 Ross Avenue
Overpeck Centre Dallas, TX 75201 Dallas, TX 75202
85 Challenger Road
Ridgefield Park, NJ 07760
</TABLE>

INTERNET WEB SITE

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

STOCKHOLDER INFORMATION

Annual Meeting

The Annual Meeting of Stockholders will be held on Wednesday, May 26, 1999,
at 4:00 pm at the Company's headquarters, 2280 N. Greenville Ave.,
Richardson, Texas.