-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WfmcEHQE6nTUkhHD+QZL1YpkQIB/dhZAseX2Gzwjgr/rkmfBmd2tiqbnjhSi8M5h 1fbxQRSNEP0uLgLnNmGheA== /in/edgar/work/0000899078-00-000670/0000899078-00-000670.txt : 20001116 0000899078-00-000670.hdr.sgml : 20001116 ACCESSION NUMBER: 0000899078-00-000670 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOSSIL INC CENTRAL INDEX KEY: 0000883569 STANDARD INDUSTRIAL CLASSIFICATION: [3873 ] IRS NUMBER: 752018505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19848 FILM NUMBER: 768863 BUSINESS ADDRESS: STREET 1: 2280 NORTH GREENVILLE AVE CITY: RICHARDSON STATE: TX ZIP: 75082 BUSINESS PHONE: 9722342525 MAIL ADDRESS: STREET 1: 2280 N GREENVILLE CITY: RICHARDSON STATE: TX ZIP: 75082 10-Q 1 0001.txt SEPTEMBER 30, 2000 FORM 10-Q FOR FOSSIL, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-19848 FOSSIL, INC. (Exact name of registrant as specified in its charter) Delaware 75-2018505 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2280 N. Greenville, Richardson, Texas 75082 (Address of principal executive offices) (Zip Code) (972) 234-2525 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of Registrant's common stock, outstanding as of November 13, 2000: 30,633,895. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
FOSSIL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) September 30, January 1, 2000 2000 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 63,266 $ 90,908 Short-term marketable investments 5,004 10,870 Accounts receivable - net 67,875 51,399 Inventories 104,657 63,029 Deferred income tax benefits 7,656 6,769 Prepaid expenses and other current assets 10,928 7,832 --------- --------- Total current assets 259,386 230,807 Investment in joint ventures 6,042 3,849 Property, plant and equipment - net 35,865 28,603 Intangible and other assets - net 6,787 6,105 --------- --------- $ 308,080 $ 269,364 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 4,759 $ 5,043 Accounts payable 27,685 11,870 Accrued expenses: Co-op advertising 10,988 15,191 Compensation 5,664 4,617 Other 25,745 21,493 Income taxes payable 20,224 17,395 --------- --------- Total current liabilities 95,065 75,609 Minority interest in subsidiaries 3,657 2,558 Stockholders' equity: Common stock, shares issued and outstanding 30,623,290 and 32,107,270 respectively 306 321 Additional paid-in capital 21,611 41,774 Retained earnings 190,600 153,569 Accumulated other comprehensive income (3,159) (3,259) Treasury stock at cost, 59,572 shares at January 1, 2000 - (1,208) --------- --------- Total stockholders' equity 209,358 191,197 --------- --------- $ 308,080 $ 269,364 ========= =========
See notes to condensed consolidated financial statements. 1
FOSSIL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME UNAUDITED (In thousands, except per share amounts) For the 13 Weeks For the 13 For the 39 For the 39 Ended Weeks Ended Weeks Ended Weeks Ended September 30, October 2, September 30, October 2, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $ 128,064 $ 104,831 $ 345,026 $ 278,379 Cost of sales 64,373 52,193 171,116 138,319 --------- --------- --------- --------- Gross profit 63,691 52,638 173,910 140,060 Operating expenses: Selling and distribution 31,210 22,649 82,722 61,825 General and administrative 10,092 7,675 27,188 21,285 --------- --------- --------- --------- Total operating expenses 41,302 30,324 109,910 83,110 ========= ========= ========= ========= Operating income 22,389 22,314 64,000 56,950 Interest expense 63 27 108 76 Other income (expense) - net 519 (31) 607 (215) --------- --------- --------- --------- Income before income taxes 22,845 22,256 64,499 56,659 Provision for income taxes 9,367 9,125 26,445 23,231 --------- --------- --------- --------- Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428 Other comprehensive income: Currency translation adjustment 1,139 978 (47) (852) Unrealized gain (loss) on short-term 103 (135) 147 (328) --------- --------- --------- --------- Investments Total comprehensive income $ 14,720 $ 13,974 $ 38,154 $ 32,248 ========= ========= ========= ========= Earnings per share: Basic $ 0.42 $ 0.41 $ 1.19 $ 1.05 ========= ========= ========= ========= Diluted $ 0.41 $ 0.39 $ 1.15 $ 1.00 ========= ========= ========= ========= Weighted average common shares outstanding: Basic 32,015 31,978 32,077 31,785 ========= ========= ========= ====== Diluted 32,929 33,513 33,151 33,409 ========= ========= ========= ======
See notes to condensed consolidated financial statements. 2
FOSSIL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands) For the 39 Weeks For the 39 Weeks Ended Ended September 30, October 2, 2000 1999 ---- ---- Operating activities: Net income $ 38,054 $ 33,428 Noncash items affecting net income: Minority interest in subsidiaries 1,592 1,531 Equity in losses of affiliates 273 - Loss on disposal of fixed assets 385 - Depreciation and amortization 4,546 4,042 Increase in allowance for doubtful accounts 1,295 362 Increase in allowance for returns - net of related inventory in transit 619 1,015 Deferred income tax benefits (887) (1,035) Changes in assets and liabilities: Accounts receivable (19,781) (11,074) Inventories (40,381) (18,089) Prepaid expenses and other current assets (3,191) (4,095) Accounts payable 16,865 3,520 Accrued expenses (6,176) 333 Income taxes payable 3,168 8,220 --------- --------- Net cash (used in) from operating activities (3,619) 18,158 Investing activities: Additions to property, plant and equipment (12,050) (7,283) Acquisition of distributor assets - (2,732) Sale of marketable investments 5,866 - Investment in affiliates (2,196) (3,947) Increase in intangible and other assets (942) (702) --------- --------- Net cash used in investing activities (9,322) (14,664) Financing activities: Issuance of common or treasury stock for stock option exercises 603 3,880 Purchase and retirement of common stock (13,647) - Distribution of minority interest earnings (493) (790) Repayments of notes payable-banks (284) 362 --------- --------- Net cash (used in) from financing activities (13,821) 3,452 Effect of exchange rate changes on cash and cash equivalents (880) (213) --------- --------- Net (decrease) increase in cash and cash equivalents (27,642) 6,733 Cash and cash equivalents: Beginning of period 90,908 57,263 --------- --------- End of period $ 63,266 $ 63,996 ========= =========
See notes to condensed consolidated financial statements. 3 FOSSIL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED 1. FINANCIAL STATEMENT POLICIES Basis of Presentation. The condensed consolidated financial statements include the accounts of Fossil, Inc., a Delaware corporation, and its majority-owned subsidiaries (the "Company"). The condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the Company's financial position as of September 30, 2000, and the results of operations for the thirteen-week and thirty-nine week periods ended September 30, 2000 and October 2, 1999. All adjustments are of a normal, recurring nature. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in Form 10-K filed by the Company pursuant to the Securities Exchange Act of 1934 for the year ended January 1, 2000. Operating results for the thirteen-week period ended September 30, 2000, are not necessarily indicative of the results to be achieved for the full year. Business. The Company is a design, development, marketing and distribution company that specializes in consumer products predicated on fashion and value. The Company's principle offerings include an extensive line of fashion watches sold under the FOSSIL and RELIC brands, as well as complementary lines of small leather goods, belts, handbags, sunglasses and FOSSIL brand apparel. The Company's products are sold in department stores and specialty retail stores in over 85 countries around the world. 2. INVENTORIES
Inventories consist of the following: September 30, January 1, (In thousands) 2000 2000 ---- ---- Components and parts $ 8,385 $ 5,568 Work-in-process 3,737 2,755 Finished merchandise on hand 69,927 38,595 Merchandise at Company stores 11,188 7,481 Merchandise in-transit from estimated customer returns 11,420 8,630 -------- ------- $104,657 $63,029 ======== =======
The Company periodically enters into forward contracts 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 September 30, 2000, the Company had hedge contracts to sell 29.8 million Euro Currency for approximately $27.6 million, expiring through April 2001; 1.6 million British Pound Sterling for approximately $2.4 million, expiring through January 2001; and 82 million Japanese Yen for approximately $0.8 million, expiring through December 2000. 4
3. GEOGRAPHIC INFORMATION (In thousands) For the 13 Weeks Ended For the 13 Weeks Ended September 30, 2000 October 2, 1999 ------------------ --------------- Operating Operating Net Sales Income Net Sales Income --------- --------- --------- --------- U.S.- exclusive of Company Stores: External customers $ 78,012 $13,522 $ 65,900 $12,921 Intergeographic 23,119 - 7,193 - Far East and Export: External customers 10,686 10,306 6,618 6,575 Intergeographic 50,526 - 33,809 - Stores 13,147 (1,692) 10,804 454 Europe 25,014 818 19,960 2,363 Japan 1,205 (565) 1,549 1 Intergeographic items (73,645) - (41,002) - -------- ------- -------- ------- Consolidated $128,064 $22,389 $104,831 $22,314 ======== ======= ======== ======= For the 39 Weeks Ended For the 39 Weeks Ended September 30, 2000 October 2, 1999 ------------------ --------------- Operating Operating Net Sales Income Net Sales Income --------- --------- --------- --------- U.S.- exclusive of Company Stores: External customers $206,022 $34,766 $166,100 $25,758 Intergeographic 53,536 - 9,452 - Far East and Export: External customers 35,258 27,699 27,919 21,750 Intergeographic 148,013 - 116,902 - Stores 31,390 (2,486) 22,951 167 Europe 67,943 4,843 56,348 9,848 Japan 4,413 (822) 5,061 (573) Intergeographic items (201,549) - (126,354) - -------- ------- -------- ------- Consolidated $345,026 $64,000 $278,379 $56,950 ======== ======= ======== =======
5
EARNINGS PER SHARE The following table reconciles the numerators and denominators used in the computations of both basic and diluted EPS: For the 13 For the 13 For the 39 For the 39 (In thousands, except per share data) Weeks Ended Weeks Ended Weeks Ended Weeks Ended September 30, October 2, September 30, October 2, 2000 1999 2000 1999 ---- ---- ---- ---- Basic EPS computation: Numerator: Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428 -------- -------- -------- -------- Denominator: Weighted average common shares outstanding 32,015 32,136 32,077 31,816 Treasury stock - (158) - (31) -------- -------- -------- -------- 32,015 31,978 32,077 31,785 -------- -------- -------- -------- Basic EPS $ 0.42 $ 0.41 $ 1.19 $ 1.05 ======== ======== ======== ======== Diluted EPS computation: Numerator: Net income $ 13,478 $ 13,131 $ 38,054 $ 33,428 -------- -------- -------- -------- Denominator: Weighted average common shares outstanding 32,015 31,978 32,077 31,785 Stock option conversion 914 1,535 1,074 1,624 -------- -------- -------- -------- 32,929 33,513 33,151 33,409 -------- -------- -------- -------- Diluted EPS $ 0.41 $ 0.39 $ 1.15 $ 1.00 ======== ======== ======== ========
5. INVESTMENT IN JOINT VENTURE Effective August 31, 2000, the Company sold 50% of the equity of its former wholly-owned subsidiary in Spain pursuant to a joint venture agreement with Sucesores de A. Cadarso ("Cadarso") for the marketing, distribution and sale of the Company's products in Spain. The Company accounted for this investment based upon the equity method from the effective date of the transaction. The Company does not expect this change in accounting to materially affect the results of operations for the remainder of its fiscal year. 6. STOCKHOLDERS' EQUITY During the Third Quarter, the Company acquired approximately 1.5 million shares of its common stock for approximately $20.6 million and immediately retired these shares. The shares were repurchased in conjunction with a 2.5 million share buyback authorized by the Company's board of directors on September 18, 2000. 6 FOSSIL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the financial condition and results of operations of Fossil, Inc. and its majority owned subsidiaries (the "Company") for the thirteen and thirty-nine week periods ended September 30, 2000 (the "Third Quarter" and "Year-to-Date Period," respectively), as compared to the thirteen and thirty-nine week periods ended October 2, 1999 (the "Prior Year Quarter" and "Prior Year YTD Period," respectively). This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related Notes attached hereto. General The Company is a leader in the design, development, marketing and distribution of contemporary, high quality fashion watches and accessories. The FOSSIL brand name was developed by the Company 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 Company offering a diversified range of accessories and apparel. The Company's current product offerings include an extensive line of fashion watches sold under the FOSSIL and RELIC brands, complementary lines of small leather goods, belts, handbags, sunglasses and FOSSIL brand apparel. In addition to developing its own brands, the Company leverages its development and production expertise by designing and manufacturing private label and licensed products for some of the most prestigious companies in the world, including national retailers, entertainment companies and fashion designers. The Company's products are sold primarily to department stores and specialty retail stores in over 85 countries worldwide through Company-owned foreign sales subsidiaries and through a network of approximately 52 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 worldwide and leveraging of its infrastructure have contributed to its increasing net sales and operating profits. Third Quarter and Company Highlights o DKNY licensed watch line sales surpassed $20 million since the launch in February. o The Company launched the Diesel licensed watch line. o Retail store expansion continued as the Company opened ten new apparel concept stores. o The Company entered into a joint venture agreement for marketing and distribution of FOSSIL products in Spain. o The Company acquired 1.5 million shares of its common stock. 7 Results of Operations
The following table sets forth, for the periods indicated, (i) the percentages of the Company's net sales represented by certain line items from the Company's condensed consolidated statements of income and (ii) the percentage changes in these line items between the current period and the comparable period of the prior year. Percentage of Percentage Percentage of Percentage Net Sales Change Net Sales Change For the 13 For the 13 For the 39 For the 39 Weeks Ended Weeks Ended Weeks Ended Weeks Ended ----------- ----------- ----------- ----------- September 30, October 2, September 30, September 30, October 2, September 30, 2000 1999 2000 2000 1999 2000 ---- ---- ---- ---- ---- ---- Net sales 100.0% 100.0% 22.2% 100.0% 100.0% 23.9% Cost of sales 50.3 49.8 23.3 49.6 49.7 23.7 ----- ----- ----- ----- Gross profit margin 49.7 50.2 21.0 50.4 50.3 24.2 Selling and distribution expenses 24.4 21.6 37.8 24.0 22.2 33.8 General and administrative expenses 7.9 7.3 31.5 7.9 7.6 27.7 ----- ----- ----- ----- Operating income 17.4 21.3 0.3 18.5 20.5 12.4 Interest expense 0.0 0.0 - 0.0 0.0 - Other income (expense)- net 0.4 (0.1) 1,815.0 0.2 (0.1) 383.9 ----- ----- ----- ----- Income before income taxes 17.8 21.2 2.6 18.7 20.4 13.8 Income taxes 7.3 8.7 2.6 7.7 8.4 13.8 ----- ----- ----- ----- Net income 10.5% 12.5% 2.6% 11.0% 12.0% 13.8% ===== ===== ===== =====
8 Net Sales. The following table sets forth certain components of the Company's consolidated net sales and the percentage relationship of the components to consolidated net sales for the periods indicated (in millions, except percentage data):
Amounts % of Total For the 13 Weeks Ended For the 13 Weeks Ended ---------------------- ---------------------- September 30, October 2, September 30, October 2, 2000 1999 2000 1999 ---- ---- ---- ---- International: Europe $ 25.1 $ 20.0 20% 19% Other 11.9 8.1 9 8 ------ ------ --- --- Total International 37.0 28.1 29 27 ------ ------ --- --- Domestic: Watch products 52.7 46.4 41 44 Other products 25.3 19.5 20 19 ------ ------ --- --- Total 78.0 65.9 61 63 Stores 13.1 10.8 10 10 ------ ------ --- --- Total Domestic 91.1 76.7 71 73 ------ ------ --- --- Total Net Sales $128.1 $104.8 100% 100% ====== ====== === === Amounts % of Total For the 39 Weeks Ended For the 39 Weeks Ended ---------------------- ---------------------- September 30, October 2, September 30, October 2, 2000 1999 2000 1999 ---- ---- ---- ---- International: Europe $ 67.9 $ 56.4 20% 20% Other 39.7 33.0 11 12 ------ ------ --- --- Total International 107.6 89.4 31 32 ------ ------ --- --- Domestic: Watch products 137.8 118.6 40 43 Other products 68.2 47.5 20 17 ------ ------ --- --- Total 206.0 166.1 60 60 Stores 31.4 22.9 9 8 ------ ------ --- --- Total Domestic 237.4 189.0 69 68 ------ ------ --- --- Total Net Sales $345.0 $278.4 100% 100% ====== ====== === ===
Net sales growth in the Third Quarter was led by an $8.9 million increase from the Company's international operations. This increase represented a 31.6% increase over the Prior Year Quarter despite the weakness of the EURO. At Prior Year Quarter EURO rates, the overall net sales increase from international operations would have exceeded 40%. The Company's domestic watch products increased $6.3 million over the Prior Year Quarter. Impacting the growth in this category was the market performance of the DKNY licensed watch brand, that was launched during the first quarter, and an increase in sales of the Company's RELIC brand watch. Domestic leather product sales also contributed to the net sales growth during the Third Quarter, primarily as a result of the continued success of the Company's handbag and women's small leather products. Additionally, retail store expansion, including the opening of ten new apparel concept stores, contributed to the Third Quarter net sales increase. Net sales for the Year-To-Date Period were favorably impacted from the same geographic regions and product lines that contributed to the Third Quarter sales increases. Leading this Year-To-Date increase was other domestic products, that consists of leather goods and sunglasses; international operations, again despite the weakness in the EURO; domestic watches, led by a $10.6 million contribution from DKNY watch sales; and the Company's retail stores as a result of expansion and same store sales growth. 9 Management currently anticipates the Company's fourth quarter net sales to display double digit growth and year-over-year growth to increase over 20%. Gross Profit. Gross profit margins for the Third Quarter decreased by 50 basis points to 49.7% compared to 50.2% in the Prior Year Quarter. This decrease was the result of the weakness of the EURO against the U.S. Dollar. Since the Company's European-based operations primarily purchase products from the United States and Hong Kong, the weakness in the EURO with no comparable increase in the Company's wholesale sales prices caused product costs to escalate approximately 10% during the Third Quarter. Additionally, the gross profit margin decrease in the Third Quarter was impacted by a higher mix of leather product versus watch sales as the Company's leather products historically generate gross profit margins below the Company's consolidated margin. On a year-to-date basis, gross profit margins increased slightly to 50.4% compared to 50.3% in the prior year. A higher sales mix of licensed designer brand watches and sales from Company-owned stores positively impacted gross margins throughout the Year-To-Date Period but were somewhat offset by the increasing product costs in the Company's European-based operations as well as the higher mix of leather product versus watch sales. Operating Expenses. Operating expenses, as a percentage of net sales, increased to 32.3% in the Third Quarter compared to 28.9% in the Prior Year Quarter. For the Year-To-Date Period, operating expenses increased to 31.9% compared to 29.8%. Operating expenses, in the aggregate, increased over the Prior Year Quarter and Prior Year-To-Date Period to support increased net sales volumes. Moreover, in order to promote continued sales growth both near-term and long-term, the Company continued to expand and enhance its infrastructure and promote its products and image by increasing brand advertising primarily through internet portal relationships. Increased infrastructure cost included additional payroll and personnel related expenses as well as expansion of the Company's distribution facilities. In addition to increased infrastructure cost and brand advertising, operating expenses increased as a result of cost associated with the DKNY licensed watch line launch, increased display cost associated with new leather fixtures to enhance the Company's positioning of these products within the retail environment and costs associated with the opening of ten new apparel concept stores. Management anticipates that infrastructure cost will continue to increase that may result in operating income margins decreasing to the 17% range during the next fifteen months. Other Income (Expense). Other income (expense) increased favorably by $550,000 during the Third Quarter as compared to the Prior Year Quarter and by $822,000 during the Year-To-Date Period as compared to the Prior Year YTD Period. These increases were the result of increased interest income earned as a result of higher invested cash balances and increased royalty income generated from licensing certain FOSSIL brand products. These increases more than offset minority expense from profits generated by the Company's assembly facilities and losses associated with joint ventures. Liquidity and Capital Resources The Company's general business operations historically have not required substantial cash needs during the first several months of its fiscal year. Generally, starting in the second quarter the Company's cash needs begin to increase and typically reach their peak in the September-November time frame. The additional cash needs have generally been to finance the accumulation of inventory and the build-up in accounts receivable. At the end of the Third Quarter, the Company's inventories increased by $28 million, or 31.7%, compared to inventory balances at the end of the Prior Year Quarter. This increase, in comparison to the 22% increase in net sales, is due to unusually low inventory levels at the end of the Prior Year Quarter combined with current year increases in leather product inventories due to longer delivery lead times for leather goods. Increased apparel inventory levels to support the ten new apparel concept stores opened during the Third Quarter also impacted the overall inventory increase. Annualized 10 inventory turns, however, remained relatively consistent with prior period results. As a result of the increase in inventories, accounts payable increased to $27.7 million compared to $20.2 million and $11.9 million at the end of the Prior Year Quarter and fiscal 1999 year-end, respectively. In addition to cash needs to support inventory levels and build-up in accounts receivable, during the Third Quarter the Company acquired 1.5 million shares of its common stock through open market purchases at an aggregate cost of approximately $20 million. This share buyback was in conjunction with a 2.5 million share buyback authorization approved by the Company's board of directors on September 18, 2000. As these shares were acquired at the end of the Third Quarter, actual cash expended to cover these trades amounted to approximately $13 million during the Third Quarter. The Company ended the Third Quarter with $68 million in cash, cash equivalents and short-term investments. At the end of the Third Quarter, the Company had working capital of $164 million compared to working capital of $139 million and $155 million at the end of the Prior Year Quarter and fiscal 1999 year-end, respectively. The Company had outstanding borrowings of only $4.8 million against its $43 million bank credit facility at the end of the Third Quarter. Management believes that cash flow from operations combined with existing cash on hand will be sufficient to satisfy its working capital requirements through the end of the Company's 2001 fiscal year as well as any additional cash requirements resulting from the Company's stock buyback program. Forward-Looking Statements Included within management's discussion of the Company's operating results, "forward-looking statements" were made within the meaning of the Private Securities Litigation Reform Act of 1995 regarding expectations for 2000. The actual results may differ materially from those expressed by these forward-looking statements. Significant factors that could cause the Company's 2000 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 European Union's 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 risks relate to the Euro and the Japanese Yen. 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 the Third Quarter and management does not anticipate any significant changes in such exposures or in the strategies it employs to manage such exposures in the near future. 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Bylaws of Fossil, Inc. 10.1 Joint Venture Agreement by and between Sucesores de A. Cadarso and Fossil Europe B.V, dated as of July 27, 2000 (without exhibits). 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the period covered by this Report. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FOSSIL, INC. Date: November 13, 2000 /s/ Mike L. Kovar --------------------------- Mike L. Kovar Senior Vice President and Chief Financial Officer (Principal financial and accounting officer duly authorized to sign on behalf of Registrant) 13 EXHIBIT INDEX Exhibit Number Document Description 3.1 Amended and Restated Bylaws of Fossil, Inc. 10.1 Joint Venture Agreement by and between Sucesores de A. Cadarso and Fossil Europe B.V, dated as of July 27, 2000 (without exhibits). 27 Financial Data Schedule EX-3.(II) 2 0002.txt EXHIBIT 3.1 - AMENDED AND RESTATED BYLAWS AMENDED AND RESTATED BYLAWS OF FOSSIL, INC. Adopted and Effective October 23, 2000
TABLE OF CONTENTS ARTICLE I OFFICES.......................................................................................1 Section 1.1 Registered Office.............................................................................1 Section 1.2 Other Offices.................................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS......................................................................1 Section 2.1 Place Of Meetings.............................................................................1 Section 2.2 Annual Meetings...............................................................................1 Section 2.3 Special Meetings..............................................................................1 Section 2.4 Quorum........................................................................................2 Section 2.5 Voting........................................................................................2 Section 2.6 List of Stockholders Entitled to Vote.........................................................2 Section 2.7 Stock Ledger..................................................................................2 Section 2.8 Record Date...................................................................................2 Section 2.9 Conduct of Meetings by Presiding Person.......................................................3 Section 2.10 Nomination of Directors.......................................................................4 Section 2.11 Stockholder Proposals Regarding Amendments to Certificate of Incorporation..................................................................5 Section 2.12 Stockholder Action by Written Consent.........................................................5 ARTICLE III DIRECTORS.....................................................................................6 Section 3.1 Number and Election of Directors..............................................................6 Section 3.2 Vacancies.....................................................................................6 Section 3.3 Duties and Powers.............................................................................6 Section 3.4 Meetings......................................................................................6 Section 3.5 Quorum........................................................................................7 Section 3.6 Actions of Board..............................................................................7 Section 3.7 Meetings by Means of Conference Telephone.....................................................7 Section 3.8 Compensation..................................................................................7 Section 3.9 Interested Directors..........................................................................7 Section 3.10 Removal.......................................................................................8 ARTICLE IV COMMITTEES....................................................................................9 Section 4.1 Committees....................................................................................9 Section 4.2 Committee Rules..............................................................................10 ARTICLE V OFFICERS.....................................................................................10 Section 5.1 General......................................................................................10 Section 5.2 Election.....................................................................................10 Section 5.3 Chairman of the Board of Directors...........................................................10 Section 5.4 President....................................................................................11 Section 5.5 Vice President...............................................................................11 Section 5.6 Absence of Officers..........................................................................11 Section 5.7 Secretary....................................................................................12 i Section 5.8 Treasurer....................................................................................12 Section 5.9 Controller...................................................................................12 Section 5.10 Assistant Secretaries........................................................................13 Section 5.11 Assistant Treasurers.........................................................................13 Section 5.12 Other Officers...............................................................................13 ARTICLE VI STOCK........................................................................................13 Section 6.1 Certificates Evidencing Shares...............................................................13 Section 6.2 Transfer Agent...............................................................................13 Section 6.3 Signatures...................................................................................13 Section 6.4 Lost Certificates............................................................................14 Section 6.5 Transfers....................................................................................14 ARTICLE VII NOTICES......................................................................................14 Section 7.1 Notices......................................................................................14 Section 7.2 Waivers of Notice............................................................................14 ARTICLE VIII INDEMNIFICATION..............................................................................14 Section 8.1 General......................................................................................14 Section 8.2 Expenses Related to Proceedings..............................................................15 Section 8.3 Advancement of Expenses......................................................................15 Section 8.4 Request for Indemnification..................................................................15 Section 8.5 Determining Entitlement to Indemnification If No Change of Control...........................15 Section 8.6 Determining Entitlement to Indemnification If Change of Control..............................15 Section 8.7 Procedures of Independent Counsel............................................................16 Section 8.8 Expenses of Independent Counsel..............................................................16 Section 8.9 Trial De Novo................................................................................16 Section 8.10 Non-Exclusivity..............................................................................17 Section 8.11 Insurance and Subrogation....................................................................17 Section 8.12 Severability.................................................................................18 Section 8.13 Certain Persons Not Entitled to Indemnification..............................................18 Section 8.14 Definitions..................................................................................18 Section 8.15 Notices......................................................................................19 Section 8.16 Contractual Rights...........................................................................19 ARTICLE IX AMENDMENTS...................................................................................20 Section 9.1 Vote Requirements............................................................................20 Section 9.2 Stockholder Proposals........................................................................20 ARTICLE X GENERAL PROVISIONS...........................................................................21 Section 10.1 Dividends....................................................................................21 Section 10.2 Disbursements................................................................................21 Section 10.3 Fiscal Year..................................................................................21 Section 10.4 Corporate Seal...............................................................................21 Section 10.5 Definition of Beneficial Owner...............................................................21 ii
BYLAWS OF FOSSIL, INC. ARTICLE I OFFICES Section 1.1 Registered Office. The registered office of Fossil, Inc. ("the Corporation") in the State of Delaware is 32 Loockerman Square, Suite L-100, Dover 19901, County of Kent. The registered agent at such address is The Prentice-Ban Corporation System Inc. Section 1.2 Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS Section 2.1 Place Of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be bold at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2.2 Annual Meetings. The annual meeting of stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting, at which meeting the stockholders shall elect a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 2.3 Special Meetings. Unless otherwise prescribed by law or by the Certificate of Incorporation of the Corporation, as amended from time to time (the "Certificate of Incorporation"), special meetings of stockholders, for any purpose or purposes, may be called by the Chairman of the Board, if any, the President or the President It the instruction of a majority of the Board of Directors or on the written request of holders of at least 50% of the total number of shares of capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the specific purpose of purposes of 1 the proposed meeting. Written notice of the special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given to each stockholder entitled to vote at such meeting not Ion than ton nor more than sixty days before the date of such meeting. Section 2.4 Quorum. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting. until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. Section 2.5 Voting. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before, any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote. Each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share standing in his name on the books of the Corporation. Votes may be cast in person or by proxy but no proxy shall be voted or acted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. Section 2.6 List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of At least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be bold. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder of the Corporation who is present.. Section 2.7 Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled (i) to examine the stock ledger, the, list required by Section 2.6 of this Article II or the books of the Corporation and (ii) to vote in person or by proxy at any meeting of stockholders. Section 2.8 Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment; of my dividend or other 2 distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other any other lawful action, the Board of Directors may fix a record date, which in the cast of a meeting, shall not be less than the minimum nor more than the maximum number of days prior to the scheduled date of such meeting permitted under the laws of the State of Delaware and which, in the case of any other action, shall be not less than the minimum nor more than the maximum number of days prior to any such action permitted by the laws of the State of Delaware. If no such record date is fixed by the Board of Directors, the record date shall be that prescribed by the laws of the State of Delaware. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a now record date for the adjourned meeting. Section 2.9 Conduct of Meetings by Presiding Person. All determinations of the presiding person at each meeting of stockholders shall be conclusive unless a matter is determined otherwise upon motion duly adopted by the affirm vote of the holders of at least 80% of the voting power of the shares of capital stock of the Corporation entitled to vote in the election of directors held by stockholders present in person or represented by proxy at such meeting. Accordingly, in any meeting of stockholders or part thereof, the presiding person shall have the sole power to determine appropriate rules or to dispense with theretofore prevailing rules. Without limiting the foregoing, the following rules shall apply: (a)......The presiding person may ask or require that anyone not a bona fide stockholder or proxy leave the meeting. (b)......A resolution or motion shall be considered for vote only if proposed by a stockholder or duly authorized proxy, and seconded by an individual who is a stockholder or a duly authorized proxy, other than the individual who proposed the resolution or motion, subject to compliance with any other requirements concerning such a proposed resolution or motion contained in these bylaws. The presiding person may propose any motion for vote. The order of business at all meetings of stockholders shall be determined by the presiding person. (c)......The presiding person may impose any reasonable limits with respect to participation in the meeting by stockholders, including, but not limited to, limits on the amount of time at the meeting taken up by the remarks or questions of any stockholder, limits on the numbers of questions per stockholder, and limits as to the subject matter and timing of questions and remarks by stockholders. (d)......Before any meeting of stockholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the presiding person may, and on the request of any stockholder or a stockholder's proxy shall appoint inspector(s) of election at the meeting of stockholders. If any person appointed as Inspector fails to appear or fails or refuses to act, the presiding person may, and upon the request of any stockholder or a stockholder's proxy shall appoint a person to fill such vacancy. The duties of these inspectors shall be as follows: 3 .........(i) Determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and affect of proxies; .........(ii) Receive votes or ballots; .........(iii) Hear and determine all challenges and questions in any way arising in connection with the right to vote; .........(iv) Count and tabulate all votes; .........(v) Report to the Board of Directors the results based on the information assembled by the inspectors; and .........(vi) Do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. Notwithstanding the foregoing, the final certification of the results of any election or other matter acted upon at a meeting of stockholders shall be made by the Board of Directors. Section 2.10 Nomination of Directors. Nominations for the election of directors may be. made by the Board of Directors or by any stockholder (a "Nominator") entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Corporation as set forth in this Section 2.10. To be timely in connection with an annual meeting of stockholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than 180 days prior to the date on which the immediately preceding year's annual meeting of stockholders was held. To be timely in connection with any election of a director at a special meeting of the stockholders, a Nominator's notice, setting forth the name of the person to be nominated shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than forty days nor more than sixty days prior to the date of such meeting provided, however, that in the event that less than fifty days' notice or prior public disclosure of the date of the special meeting of the stockholders is given or made to the stockholders, the Nominator's notice to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Secretary of the Corporation, that the Nominator is a stockholder of the Corporation and shall identify in writing (i) the name and address of the Nominator, (ii) the number of shares of each class of capital stock of the Corporation owned beneficially by the Nominator, (iii) the name and address of each of the persons with whom the Nominator is acting in concert and (iv) the number of shares of capital stock beneficially owned by each such person with whom the Nominator is acting in concert pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by each such proposed nominee to the effect 4 that, if elected as a member of the Board of Directors, be will serve and that he is eligible for election as a member of the Board of Directors. Within thirty days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Secretary of the Corporation, the Secretary of the Corporation shall determine whether the evidence of the Nominator's status as a stockholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of his determination. The failure of the Secretary of the Corporation to find such evidence reasonably satisfactory, or the failure of the Nominator to submit the requisite information in the form or within the time indicated, shall make such nomination ineffective for the election at the meeting at which such person is proposed to be nominated. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a no nomination was not made in accordance with the procedures prescribed by these bylaws, and if be should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 2.11 Stockholder Proposals Regarding Amendments to Certificate of Incorporation. No proposal by a stockholder to amend or supplement the Certificate of Incorporation of the Corporation shall be voted upon at a meeting of stockholders unless, at least not less than 90 nor more than 180 days before such meeting of stockholders, such stockholder shall have delivered in writing to the Secretary of the Corporation (i) notice of such proposal and the text of such amendment or supplement, (ii) evidence, reasonably satisfactory to the Secretary of the Corporation, of such stockholder's status as such and of the number of shares of each class of the capital stock of the Corporation beneficially owned by such stockholder, (iii) a list of the names of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and of the number of shares of each class of the capital stock of the Corporation beneficially named by each such beneficial owner, and (iv) an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Corporation, to the effect that the Certificate of Incorporation of the Corporation, as proposed to be so amended or supplemented, would not be in conflict with the laws of the State of Delaware. Within 30 days after such stockholder shall have delivered the aforesaid items to the Secretary of the Corporation, the Secretary of the Corporation shall determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of its determination. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Secretary of the Corporation determines that the items to be ruled upon by it are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at such meeting of stockholders. Section 2.12 Stockholder Action by Written Consent. Any action which may be taken by stockholders at an annual or special meeting of stockholders may be taken by written consent, without a meeting, unless otherwise provided in the Certificate of Incorporation of the Corporation. 5 ARTICLE III DIRECTORS Section 3.1 Number and Election of Directors. The number of directors that shall constitute the whole Board Of Directors may be increased or decreased from time to time by resolution adopted by the Board of Directors, provided, however, no decrease in the number shall have the effect of shortening the term of any incumbent director. Except as provided in Section 3.2 of this Article III, directors shall be elected by a plurality of the votes cast at the annual meetings of stockholders and each director so elected shall bold office until the next annual meeting and until his successor is duly elected and qualified or until his earlier resignation or removal. Any director may resign at any time upon notice to the Corporation. Directors need not be a stockholder, a citizen of the Untied States or a resident of Delaware. By a resolution adopted by 80% of the members of the Board of Directors, the Board of Directors may be divided into one, two or three classes, with the term of office of those of the first class to expire at the next annual meeting of stockholders, of the second class one year thereafter and of a third class two years thereafter; and at each annual election of directors held after such division and classification, directors shall be chosen for a full term, as the case may be, to succeed those whose terms expire. Section 3.2 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified or until their earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Section 3.3 Duties and Powers. The business of the Corporation shall be managed by or under the direction of the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 3.4 Meetings. The Board of Directors may bold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by or at the direction of the Chairman of the Board, if any, the President or a majority of the directors then in office. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by facsimile, telephone or telegram at least twenty-four hours before the meeting. Notice need not be given to any director or to any member of a committee of directors who submits a written. waiver of notice signed by him or her. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he or she attends a meeting for the express purpose of objecting, at the beginning of the meeting, 6 to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice. Section 3.5 Quorum. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or those Bylaws, at all meetings of the Board of Directors a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum is not present at a meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than by an announcement at the meeting, until a quorum is present. Section 3.6 Actions of Board. Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any Meeting of the Board of Directors may be taken without a meeting, if all the members of the Board of Directors consent thereto in writing, in one document or in counterparts, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 3.7 Meetings by Means of Conference Telephone. Unless otherwise provided by the Certificate of Incorporation, members of the Board of Directors or any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can bear each other, and participation in a meeting pursuant to this Section 3.7 shall constitute presence in person at such meeting. Section 3.8 Compensation. The Board of Directors may from time to time by resolution authorize the payment of fees, the grant of options to acquire stock in the Corporation or other compensation to the Directors for services as such to the Corporation including, but not limited to, a fixed sum and expenses for attendance at each regular or special meeting of the Board of Directors or any committee thereof,- provided that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 3.9 Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction or solely because his, her or their votes are counted for such purpose if (a) the material facts as to his, her or their relationship or interest as to the contract or transaction are disclosed or are known to the Board of Directors or committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, (b) the material facts as to his, her or their relationship or interest as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon and the 7 contract or transaction is specifically approved in good faith by vote of the stockholders or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or a committee that authorizes the contract or transaction. Section 3.10 Removal. No director of the Corporation shall be removed from his office as a director by vote or other action of the stockholders or otherwise except (a) with cause, as defined below, by the affirmative vote of the holders of at least a majority of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, voting together as a single class, or (b) without cause by (i) the affirmative vote. of at least 80% of all directors then in office at any regular or special meeting of the Board of Directors called for that purpose or (ii) the affirmative vote of the holders of at least 80% of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote in the election of directors, voting together as a single class. Except as may otherwise be provided by law, cause for removal of a director shall be construed to exist only if: (a) the director whose removal is proposed bas been convicted, or where a director is granted immunity to testify where another has been convicted, of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal; (b) such director has been found by the affirmative vote of at least 80% of all directors then in office at any regular or special meeting of the Board of Directors, called for that purpose or by a court of competent jurisdiction to have been negligent or guilty of misconduct in the performance of his duties to the Corporation in a matter of substantial importance to the Corporation; or (c) such director has been adjudicated by a court of competent jurisdiction to be mentally incompetent, which mental incompetency directly affects his ability as a director of the Corporation. No proposal by a stockholder to remove a director of the Corporation shall be voted upon at a meeting of the stockholders unless such stockholder shall have delivered or mailed in a timely manner (as set forth in this Section 11) and in writing to the Secretary of the Corporation (i) notice of such proposal, (ii) a statement of the grounds, if any, on which such director is proposed to be removed, (iii) evidence, reasonably satisfactory to the Secretary of the Corporation, of such stockholder's status as such and of the number of shares of each class of the capital stock of the Corporation beneficially owned by such stockholder, (iv) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and of the number of shares of each clan of the capital stock of the Corporation beneficially owned by each such beneficial owner, and (v) an opinion of counsel which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Corporation (excluding the director proposed to be removed), to the effect that, if adopted at a duly called special or annual meeting of the stockholders of the Corporation by the required vote as set forth in the first paragraph of this Section 11, such removal would not be in conflict with the laws of the State of Delaware, the Articles of Incorporation or these bylaws. To be timely in connection with an annual meeting of stockholders, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety nor more than 180 days prior to the date on which the immediately 8 preceding year's annual meeting of stockholders was held. To be timely in connection with the removal of any director at a special meeting of the stockholders, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than 180 days prior to the date of such meeting; provided, however, that in the event that less than fifty days' notice of prior public disclosure of the date of the special meeting of stockholders is given or made to the stockholders, the stockholder's notice and other aforesaid items to be timely must be so received not later than the dose of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. Within thirty days (or such shorter period that may exist prior to the date of the meeting) after such stockholder shall have delivered the aforesaid items to the Secretary of the Corporation, the Secretary and the Board of Directors of the Corporation shall respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of their respective determinations. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Secretary or the Board of Directors of the Corporation determines that the items to be ruled upon by them are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at such meeting of stockholders. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a proposal to remove a director of the Corporation was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. ARTICLE IV COMMITTEES Section 4.1 Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, and in the absence of a designation. by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any committee, to the extent provided in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation; provided, however, no committee shall have the power or authority to amend the certificate of incorporation of the Corporation, adopt an agreement of merger or consolidation, recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amend these Bylaws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes and report to the Board of Directors when required to do so. 9 Section 4.2 Committee Rules. Unless the Board of Directors otherwise provides, each Committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rule, each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article III of these Bylaws. ARTICLE V OFFICERS Section 5.1 General. The Board of Directors, in its discretion, may elect a Chairman of the Board (who must be a director), President, Secretary, Treasurer, Controller, and one or more Divisional Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation or, except in the case of the Chairman of the Board of Directors, directors of the Corporation. Section 5.2 Election. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be Hued by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors and may be altered from time to time except as otherwise provided by contract. Section 5.3 Chairman of the Board of Directors. There shall be a Chairman of the Board of Directors who, under the direction and subject to the control of the Board of Directors, in general shall supervise and control all of the business and affairs of the Corporation. The Chairman of the Board of Directors shall preside at all meetings of the stockholders and of the Board of Directors and shall perform such other duties as the Board of Directors may assign him from time to time. The Chairman of the Board of Directors shall possess the power to sign all contracts, certificates and other Instruments of the Corporation as the Board of Directors from time to time may prescribe. Section 5.4 Chief Executive Officer. The Chief Executive Officer of the Corporation will serve under the direction and subject to the control of the Board of Directors and the Chairman of the Board of Directors. The Chief Executive Officer in general shall supervise and control all of the business, affairs and property of the Corporation and shall be its chief policy making officer, and control over its officers, agents and employees; and shall see that all orders and resolutions of the Board of Directors and Chairman of the Board are carried into effect. In the absence of the Chairman of the Board of Directors the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors and shall perform such other duties as the Board of Directors may assign him from time to time. The Chief Executive 10 Officer shall possess the same power as the Chairman of the Board to sign all contracts, certificates and other Instruments of the Corporation. Section 5.5 President. The President shall be the chief operating officer of the Corporation and shall report to the Chairman of the Board of Directors. The President shall, subject to the Powers of the Board of Directors and the Chairman of the Board of Directors, have general charge of the business, affairs and property of the Corporation, and control over its officers, agents, and employees; and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President may execute and deliver certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments that the Board of Directors has authorized to be executed and delivered, except in cases where the execution and delivery thereof shall be expressly delegated to another officer and deliver thereof shall be otherwise required by law to be executed and delivered by another person. The President shall also perform such other duties and may exercise such other powers as from time to time my be assigned to him or her by these Bylaws or by the Board of Directors. Section 5.6 Vice President. Each Vice President shall perform such duties and have such other powers as the Board of Directors from time to time may prescribe. Certain Vice Presidents may from time to time be designated by the Board of Directors or the Chairman of the Board of Directors as Executive Vice Presidents or Senior Vice Presidents which positions shall have such varying degrees of authority as the Board of Directors shall prescribe. Section 5.7 Divisional Presidents. The Divisional Presidents shall perform such duties and have such other powers as the Board of Directors from time to time may prescribe. The Divisional Presidents shall, subject to the powers of the Board of Directors, the Chairman of the Board, the Chief Executive Officer and the President, have general charge of the business, affairs and property of that division over which he is Divisional President, and control over its officers, agents, and employees; and shall see that all orders and resolutions of the Board of Directors are carried into effect. The Divisional Presidents may execute and deliver such documents, certificates and such other instruments that the Board of Directors has authorized to be executed and deliver, except in cases where the execution and delivery thereof shall be expressly delegated to another officer or as otherwise required by law to be executed and delivered by another person. Section 5.8 Absence of Officers. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and (if the President is a director) the Board of Directors. In the absence or disability of both the Chairman of the Board of Directors and the President, or at the request of the Chairman of the Board of Directors, the Vice President or the Vice Presidents, if there be more than one, shall perform the duties of the Chairman of the Board of Directors, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board of Directors. If there be no Chairman of the Board of Directors, President or Vice President, the Board of Directors shall designate the officer of the Corporation who shall perform the duties of the Chairman of the Board of Directors, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chairman of the Board of Directors. 11 Section 5.9 Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or Chairman of the Board of Directors, under whose supervision he or she shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the Stockholders and special meetings of the Board of Directors, and if there be one, Assistant Secretary, then either the Board of Directors or the Chairman of the Board of Directors may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or an Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. Section 5.10 Chief Financial Officer. The Chief Financial Officer of the Corporation shall have general supervision over the financial operations of the Corporation, subject to the direction of the Board of Directors, the Chairman of the Board, the Chief Executive Officer and the President. The Chief Financial Officer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors and may execute and deliver such documents, certificates and such other instruments that the Board of Directors has authorized to be executed and delivered, except in cases where the execution and delivery thereof shall be expressly delegated to another officer or as otherwise required by law to be executed and delivered by another person. Section 5.11 Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board of Directors and the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. Section 5.12 Controller. The Controller, if there be one, shall have charge of the Corporation's books of account, records and auditing, and shall be subject in all matters to the control of the Chairman of the Board of Directors and the Board of Directors. 12 Section 5.13 Assistant Secretaries. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chairman of the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. Section 5.14 Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chairman of the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation. Section 5.15 Other Officers. Such other officers as the Board of Directors may appoint shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. ARTICLE VI STOCK Section 6.1 Certificates Evidencing Shares. Every holder of stock in the Corporation shall be entitled to have a certificate signed in the name of the Corporation (a) by the President or a Vice President and (b) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such bolder. Section 6.2 Transfer Agent. The Corporation may appoint a transfer agent to act on behalf of the Corporation in keeping certain records on each registered stockholder and to make legal transfers of the Corporation's shares. Section 6.3 Signatures. Where a certificate is countersigned by (a) a transfer agent other than the Corporation or its designated employees or (b) a registrar other than the Corporation or its designated employees, any other signature on the Certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a 13 certificate shall have ceased to be such Officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. Section 6.4 Lost Certificates. The Board of Directors may direct a now certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond or other indemnity deemed satisfactory by the Board of Directors in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 6.5 Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his or her attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. ARTICLE VII NOTICES Section 7.1 Notices. Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also, be given personally or by telegram, telecopy, telex or cable and such notice shall be deemed given at the time when the same is sent. Section 7.2 Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, a written waiver, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to notice. ARTICLE VIII INDEMNIFICATION Section 8.1 General. The Corporation shall indemnify, and advance Expenses (as this and all other capitalized words used in this Article VIII and not previously defined in these Bylaws are defined in Section 8.14 of this Article VIII) to, Indemnitee to the fullest extent permitted by applicable law in effect on the date of the effectiveness of these Bylaws, and to such greater extent as applicable law may thereafter permit. The rights of Indemnitee provided under 14 the preceding sentence shall include, but not be limited to, the right to be indemnified to the fullest extent permitted by ' 145(b) of the DGCL in Proceedings by or in the right of the Corporation and to the fullest extent permitted by ss. 145(a) of the DGCL in all other Proceedings. The provisions set forth below in this Article VIII are provided in furtherance, and not by way of limitation, of the obligations expressed in this Section 8.1. Section 8.2 Expenses Related to Proceedings. If Indemnitee is, by reason of his or her Corporate Status, a witness in or a party to and is successful, on the merits or otherwise, in any Proceeding, he or she, shall be indemnified against all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her or on his or her behalf relating to such Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. Section 8.3 Advancement of Expenses. Indemnitee shall be advanced Expenses within ten days after requesting them to the fullest extent permitted by ss. 145(e) of the DGCL. Section 8.4 Request for Indemnification. To obtain indemnification Indemnitee shall submit to the Corporation a written request with such Information as is reasonably available to Indemnitee. The Secretary of the Corporation shall promptly advise the Board of Directors of such request. Section 8.5 Determining Entitlement to Indemnification If No Change of Control. If a Change of Control bas not occurred prior to or at the time the request for Indemnification is sent, Indemnitee's entitlement to indemnification shall be determined in accordance with ss. 145(d) of the DGCL. If entitlement to indemnification is to be determined by Independent Counsel, the Corporation shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification, specifying the identity and address of Independent Counsel. Indemnitee may, within fourteen days after receipt of such written notice of selection, deliver to the Corporation a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis of such assertion. If there is an objection to the selection of Independent Counsel either the Corporation or Indemnitee may petition the Court of Chancery of the State of Delaware or any other court of competent jurisdiction for a determination that the objection is without a reasonable basis and/or for the appointment of Independent Counsel selected by the court. Section 8.6 Determining Entitlement to Indemnification If Change of Control. If Change of Control has occurred prior to or at the time the request for indemnification is sent, Indemnitee's entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give the Corporation written notice advising of the Identity and address of the Independent Counsel so selected. The Corporation may, within seven days after receipt of such written notice of selection, deliver to Indemnitee a written objection to such selection. Indemnitee may, within five 15 days after the receipt of such objection from the Corporation, submit the name of another Independent Counsel and the Corporation may, within seven days after receipt of such written notice of selection, deliver to Indemnitee a written objection to such selection. Any objection is subject to the limitations in Section 8.5 of this Article VIII. Indemnitee may petition the Court of Chancery of the State of Delaware or any other court of competent jurisdiction for a determination that the Corporation's objection to the first and/or second selection of Independent Counsel is without a reasonable, basis and/or for the appointment as Independent Counsel of a person selected by the court. Section 8.7 Procedures of Independent Counsel. If a Change of Control has occurred prior to or at the time the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except w otherwise expressly provided in this Article VIII) to be entitled to indemnification upon submission of a request for indemnification in accordance with Section 8.4 of this Article VIII, and thereafter the Corporation shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by independent Counsel as a bash for a determination of entitlement to indemnification unless the Corporation provides information. sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him or her by clear and convincing evidence that the presumption should not apply. Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel if the person or persons empowered under Section 8.5 or 8.6 of this Article VIII to determine entitlement to indemnification shall not have made and famished to Indemnitee in writing a determination within sixty days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for Indemnitee. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article VIII) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that (a) Indemnitee did not. act in good faith and in a manner that he or she reasonably believed, in the case of conduct in his or her official capacity as a director of the Corporation, to be in the best interests of the Corporation or in all other cases that at least his or her conduct was not opposed to the Corporation's best interests, or (b) with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful. Section 8.8 Expenses of Independent Counsel. The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Article VIII and in any proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection bas been made to his or her selection until a court has determined that such objection is without a reasonable basis. Section 8.9 Trial De Novo. In the event that (a) a determination is made pursuant to Section 8.5 or M of this Article VIII that Indemnitee is not entitled to indemnification under this Article VIII, (b) advancement of Expenses is not timely made Pursuant to Section 83 of this Article VIII, (c) Independent 16 Counsel has not made and delivered a written opinion determining the request for indemnification (i) within ninety days after being appointed by a court, (ii) within ninety days after objections to his of her selection have been overruled by a court or (iii) within ninety days after the time for the Corporation or Indemnitee to object to his or her selection or (d) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 8.5, 8.6 or 8.7 of this Article VIII, Indemnitee shall be entitled to an adjudication in any court of competent jurisdiction of his or her entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 8.9 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 8.9, the Corporation shall have, the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or deemed to have been made that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 8.9, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 8.9 that the procedures and presumptions of this Article VIII are not valid, binding and enforceable and shall stipulate in any such court that the Corporation is bound by all provisions of this Article VIII. In the event that Indemnitee, Pursuant to this Section 8.9, seeks a judicial adjudication to enforce his or her rights under, or to recover damages for breach of this Article VIII, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against any and all Expenses actually and reasonably incurred by him or her in such judicial adjudication, but only if he or she prevails therein. If it shall be determined in such judicial adjudication that Indemnitee, is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 8.10 Non-Exclusivity. The rights of indemnification and to receive advancement of Expenses as provided by this Article VIII shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, these Bylaws, any agreement, a vote of stockholder, a resolution of the Board of Directors or otherwise. No amendment, alteration or repeal of this Article VIII or any provision hereof shall be effective, as to any Indemnitee for acts, events and circumstances that occurred in whole or in part, before such amendment, alteration or repeal. The provisions of ibis Article VIII shall continue as to an Indemnitee whose Corporate Status has ceased and shall inure to the benefit of his or her heirs, executors and administrators. Section 8.11 Insurance and Subrogation. To the extent the Corporation maintains an insurance policy or policies providing liability insurance for directors or officers of the Corporation or of any other corporation, partnership, joint 17 venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of coverage available for any such director or officer under such policy or policies. In the event of any payment hereunder, the Corporation shall be subrogated to the went of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce. such rights. The Corporation shaft not be, liable under this Article VIII to make any payment of amounts otherwise indemnifiable hereunder if, and to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Section 8.12 Severability. If any provision or provisions of this Article VIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest went possible, the provisions of this Article VIII shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 8.13 Certain Persons Not Entitled to Indemnification. Notwithstanding any other provision of Article VIII, no person shall be entitled to indemnification or advancement of Expenses under this Article VIII with respect to any Proceeding, or any Matter therein, brought or made by such person against the Corporation. Section 8.14 Definitions. For purposes of this Article VIII: "Change of Control" means a change in control of the Corporation after the date of adoption of these Bylaws in any one of the following circumstances: (a) there shall have occurred an event request to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; (b) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding voting securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person's attaining such percentage interest; (c) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization or a proxy contest as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter or (d) during any period of two consecutive years, individual who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose. election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. 18 "Corporate Status" describes the status of a person who is or was a director, Officer, or employee or agent of the Corporation or of any other corporation, partnership, joint venture, trust employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. "DGCL" means the Delaware General Corporation Law, as currently in effect or as amended from time to time. "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in a Proceeding. "Indemnitee" includes any person who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Section 8.1 or 82 of this Melt by reason of his or her Corporate Status. "Independent Counsel" means a law firm, or member of a law firm that is experienced in matters of corporation law and neither presently is, nor in the five years previous to his or her selection or appointment has been, retained to represent: (a) the Corporation or Indemnitee in any matter material to either such party, (b) any other party to the Proceeding giving rim to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly, of securities of the Corporation representing 5% or more of the combined voting power of the Corporation's then outstanding voting securities. "Matter" is a claim, a material issue, or a substantial request for relief. "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Section 8.9 of this Article VIII to enforce his or her rights under this Article VIII. Section 8.15 Notices. Any communication required or permitted to the Corporation shall be, addressed to the Secretary of the Corporation and any such communication to Indemnitee shall be given in writing by depositing the same in the United States mail with postage thereon prepaid, addressed to the person to whom such notice is directed at the address of such person on the records of the Corporation, and such notice shall be deemed given at the time when the same shall be so deposited in the United States mail. Section 8.16 Contractual Rights. The right to be indemnified or to the advancement or reimbursement of Expenses (i) is a contract right based upon good and valuable consideration, pursuant to which Indemnitee may sue as if these provisions were set forth in a separate written contract between him or her and the Corporation, (ii) is and is intended to be retroactive and shall be 19 available as to events occurring prior to the adoption of these provisions and (iii) shall continue after any rescission or restrictive modification of such provisions as to events occurring prior thereto. ARTICLE IX AMENDMENTS Section 9.1 Vote Requirements. The Board of Directors shall have the power to alter, amend or repeal these bylaws or adopt new bylaws by the affirmative vote of at least 807c of all directors then in office at any regular or special meeting of the Board of Directors called for that purpose, subject to repeal or change by the affirm vote of the holders of at least 80% of the voting power of all the shares of the Corporation entitled to vote in the election of directors, voting together as a single class. Section 9.2 Stockholder Proposals. No proposal by a stockholder made pursuant to Section 1 of this Article VIII may be voted upon at a meeting of stockholders unless such stockholder shall have delivered or mailed in a timely manner (as set forth in this Section 2) and in writing to the Secretary of the Corporation (i) notice of such proposal and the text of the proposed alteration, amendment or repeal (ii) evidence reasonably satisfactory to the Secretary of the Corporation, of such stockholder's status as such and of the number of shares of each class of capital stock of the Corporation of which such stockholder is the beneficial owner, (iii) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and the number of shares of each class of the stock of the Corporation beneficially owned by each such beneficial owner and an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Corporation, to the effect the bylaws (if any) resulting from the adoption of such proposal would not be in conflict with the Articles of Incorporation or the laws of the State of Delaware. To be timely in connection with an annual meeting of stockholders, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety nor more than 180 days prior to the date on which the immediately preceding year's annual meeting of stockholders was held. To be timely in connection with the voting on any such proposal at a special meeting of the stockholder, a stockholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than forty days no, more than sixty days prior to the date of such meeting; provided, however, that in the t that less than fifty days' notice or prior public disclosure of the date of the meeting of the stockholders is given or made to the stockholders, such stockholder's notice and other aforesaid items to be timely must be so received not later than the close business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. Within thirty days (or such shorter period that may exist prior to the date of the meeting) after such stockholder shall have submitted the aforesaid item, the Secretary and the Board of Directors of the Corporation all respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of their respective determinations. If such stockholder fails to submit a required item in the form or within the time indicated, if the Secretary or the Board of Directors of the Corporation determines that the items be ruled upon by them are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at 20 such meeting of such stockholders. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a proposal made pursuant to Section 1 of this Article VIII was not made in accordance with the procedure prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. ARTICLE X GENERAL PROVISIONS Section 10.1 Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting and may be paid in cash, in property or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. Section 10.2 Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 10.3 Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 10.4 Corporate Seal. The corporate sea] shall have inscribed thereon the name of the Corporation, the year a( its organization and the words "Corporate Seal Delaware." The seal may be used by musing it or a facsimile thereof to be impressed or affixed or reproduced. Section 10.5 Definition of Beneficial Owner. "Beneficial owner" as used in these bylaws means of the following: 1. a person who individually or with any of his affiliates or associates beneficially owns (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) any capital stock of the Company, directly or indirectly; 2. a person who individually or with any of his affiliates or associates has either of the following rights: a. to acquire capital stock of the Corporation, whether such right is exercisable immediately or only after the passage of time, pursuant to any agreement arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; b. to vote capital stock of the Corporation pursuant to any agreement; arrangement or understanding; or 3. a person who has any agreement, arrangement or understanding for the in purpose of acquiring, holding, voting or disposing capital stock of the Company with any other person who beneficially owns or whose affiliates beneficially own (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, such shares of capital stock. EX-10 3 0003.txt EXHIBIT 10.1 - JOINT VENTURE AGREEMENT JOINT VENTURE AGREEMENT BY AND BETWEEN Sucesores De A. Cadarso AND FOSSIL EUROPE B.V. dated as of JuLY 27, 2000 JOINT VENTURE AGREEMENT This Joint Venture Agreement is entered into as of the ____ day of July, 2000, by and between Fossil Europe B.V., a corporation duly organized and existing under the Netherlands and having its principal place of business at De Boelelaan 7, Officiia I, 1083 HJ Amsterdam, the Netherlands (hereinafter referred to as "Fossil") and Sucesores De A. Cadarso, a corporation duly organized and operating under the laws of Spain, and having its principal place of business at Avenida Diagonal, 463 bis, 1 Planta, 08036 Barcelona, Spain (hereinafter referred to "Cadarso") RECITALS WHEREAS, Fossil is engaged in the business of manufacturing, marketing and distributing fashion watches and accessories in the United States and throughout the world; and WHEREAS, Cadarso has knowledge of the market for watches in Spain; and WHEREAS, Fossil has previously formed Fossil S.L., (the "Company") which is engaged in the business of manufacturing, marketing, distributing, importing and exporting watches, including, but not limited to, watches under the FOSSIL Brand in Spain; and WHEREAS, Cadarso desires to acquire ownership of certain stock participation of the Company to be issued as a result of an increase in the capital of the Company (the "Stock Participation"); and WHEREAS, Cadarso and Fossil desire to enter into this Agreement in order to define their respective rights and obligations hereunder. NOW, THEREFORE, the Parties hereby agree as follows: ARTICLE 1 DEFINITIONS For the purposes of this Agreement, the following terms shall have the respective meanings indicated below: "Affiliate" means any person or entity that directly or indirectly through one of more intermediaries controls, is controlled by or is under the common control with such first person or entity. "Agreement" means this Joint Venture Agreement, as it may be amended from time to time in accordance with the terms hereof. Page 1 Initials ________ ________ "Ancillary Agreements" shall mean, collectively, this Agreement, the Distribution Agreement, the Market Research Agreement and the Services Agreement. "Board" means the Board of Directors of Fossil S.L. "Bylaws" means the bylaws of Fossil S.L., in the form attached hereto as Exhibit A as amended from time to time. "Closing" means the consummation of the transactions set forth in Section 11.2 of this Agreement. "Closing Date" shall mean September 1, 2000, or such other date as may be agreed upon by the Parties. "Distribution Agreement" means the Amended and Restated International Marketing and Distribution Agreement, to be dated as of Closing, by and between Fossil Partners and the Company substantially in the form attached as Exhibit D hereto. "Director" means any member of the Board. "Earnings Multiple Amount" means, with respect to any date of determination, an amount in United States dollars equal to the net income of the Company, as determined in accordance with GAAP by the auditors of the Company, over the four (4) immediately preceding completed fiscal quarters, multiplied by five, multiplied by the applicable Shareholder Percentage. "Fossil Partners" means Fossil Partners, L.P., a Texas limited partner- ship. "GAAP" means generally accepted accounting principles in Spain. "Market Research Agreement" means the Market Research Agreement, to be dated as of Closing, by and between Fossil Partners and Cadarso substantially in the form attached as Exhibit C hereto. "Operating Plan" means the plan for the operations of the Company to be prepared by management and approved by the Board pursuant to Section 3.2 hereof. "Party" means either of Fossil or Cadarso, and collectively, the "Parties". "Person" means any natural person, partnership, corporation, limited liability company, association, trust, estate or any other legal entity. Page 2 Initials ________ ________ "Products" means the products distributed by the Company from time to time, including, but not limited to, watches bearing the FOSSIL Brand. "Service Agreement" means the Service Agreement, to be dated as of the Closing, by and between Fossil Partners and Cadarso, substantially in the form attached as Exhibit B hereto. "Stockholding Percentage," with respect to either Stockholder, means the percentage represented by dividing (a) the stock participations in the Company issued to such Stockholder, by (b) the stock participations in the Company issued to all of the Stockholders. "Stockholder" means either of Fossil or Cadarso, and collectively, the "Stockholders". "Stock Participations" means the stock participation of the Company to be issued and subscribed by Cadarso hereunder, which shall represent fifty percent (50%) of the authorized capital of the Company following Closing. ARTICLE 2 ISSUANCE OF STOCK PARTICIPATION Section 2.1 Issuance of Stock Participations. At closing, Fossil shall cause the Company to take such measures as may be necessary to increase the authorize capital of the Company and to issue the Stock Participations to be subscribed by Cadarso pursuant to the terms of this Agreement. The issuance, subscription and payment of the Stock Participation to be issued by the Company shall take place at Closing in accordance with the provisions of Article 4 hereof. Section 2.2 Meeting of the Board. Following Closing, the Parties shall cause the Directors to hold a meeting of the Board to elect the officers of the Company and to take such other actions as may be necessary to carry out the intent of this Agreement. The Parties agree to execute such documents, and take such other actions, and to cause all Affiliates and the Company to execute such documents and take such other actions, as may be necessary to carry out the intent of this Agreement. ARTICLE 3 BUSINESS OF THE COMPANY Section 3.1 General Description of the Company. The business (the "Business") of the Company will be the marketing, distribution, importing and exporting of watches in Spain principally bearing the FOSSIL brand. Page 3 Initials ________ ________ Section 3.2 Operating Plan. In order to implement the Business, at least thirty (30) days prior to the beginning of each fiscal year, the officers of the Company shall present an Operating Plan to the Board for approval by the Board. The Operating Plan shall set forth the plans according to which the Company shall be operated for such fiscal year and shall include, at a minimum, the following: (i) operating budgets; (ii) budgets for working capital requirements; (iii) three-year summary budget projections; (iv) projected stock keeping unit ("SKU") count levels by product category and introduction dates for the upcoming year; and (v) the manner (including, third party financing, additional capital contributions or stockholder financing) by which to raise the working capital requirements and detailed terms and conditions thereof. Notwithstanding the foregoing, within thirty (30) days after the Closing, the officers of the Company shall present to the Board an Operating Plan for the remainder of fiscal year 2000 for approval by the Board. Any Operating Plan approved by the Board may be amended from time to time by the Board. ARTICLE 4 CAPITALIZATION OF THE COMPANY AND FINANCING Section 4.1 Authorized Capital. At Closing, the Company shall have authorized capital consisting of two million pesetas represented by 2,000 stock participations with par value of 1,000 Pts. each. All of the Company's stock participations shall be the same class and otherwise alike in all respects and the holders thereof shall be entitled to identical rights and privileges including, without limitation of the foregoing, identical rights and privileges with respect to dividends, voting power and distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company. Section 4.2 Capital Contribution at Closing. At Closing, the Company shall issue 1,000 Stock Participations, which shall be fully subscribed and paid in by Cadarso by means of a capital contribution in cash in an amount equal to Fossil's shareholder's equity ("Fossil's Equity") in the Company immediately prior to Closing (the "Initial Capital Contribution"). The Parties agree that Fossil's Equity in the Company as reflected on the balance sheet as of June 30, 2000 is US$720,824. The Initial Capital Contribution shall consist of 1,000,000 Pesetas corresponding to the nominal value of the Stock Participations and the balance will be paid as a subscription premium. Page 4 Initials ________ ________ Section 4.3 Pre-Closing Equity Calculation. Immediately prior to Closing, the Parties shall determine Fossil's Equity as of such date as reflected on the balance sheet of the Company. The Parties currently estimate that Fossil's Equity as of Closing will be approximately US$ 740,824. Such amount as finally determined in accordance with this section shall constitute Cadarso's Initial Capital Contribution. Section 4.4 Additional Working Capital. (a) Third Party Financing. Any additional working capital requirements of the Company shall primarily be met, to the extent possible, by obtaining third party financing (the "Third Party Loan"). In the event the Board determines that all or part of the working capital requirements of the Company shall be met through obtaining Third Party Loan, such Third Party Loan shall be in such amounts and subject to such terms as the Board may determine. To the extent one of the conditions of the extension of the Third Party Loan so approved by the Board is the subordination of any Stockholder Loans to such Third Party Loan, then the Stockholders agree to take such action as necessary to subordinate such Stockholder Loan. To the extent that the Board determines that it is necessary to provide a guaranty of the Stockholders to obtain such Third Party Loan, then each of Cadarso and Fossil shall negotiate in good faith to provide a guaranty in favor of the lender of such Third Party Loan so that the Parties guaranty an amount equal to their respective Shareholder Percentage as of the date of any such guaranty. If the lender of such Third Party Loan requires a guaranty of the entire amount of the loan by each Party, then the Parties each agree to provide such a guaranty. Notwithstanding the provisions of the foregoing sentence, if either Party does not have net assets in excess of the amount of the guaranteed amount, then a Third Party Loan may not be obtained without the expressed consent of the other Party. (b) Additional Capital Contribution. In the event the Board determines that the working capital requirements of the Company should not be raised by obtaining Third Party Loan pursuant to Section 4.4(a), then the working capital requirements of the Company may be met through additional capital contributions by the Stockholders. In the event the Board determines that all or part of the working capital requirements of the Company shall be met through additional capital contributions of the Stockholders, then the Stockholders shall provide such additional capital contributions to the Company, provided, however, that (i) such additional capital contribution is made in cash; (ii) each Stockholder shall make such additional capital contribution in an amount equal to the total amount of such additional capital contribution, multiplied by such Stockholder's Stockholding Percentage; and (iii) such additional capital contribution shall otherwise be made in accordance with the resolution of the Board. Page 5 Initials ________ ________ (c) Stockholder Loans. In the event the Board determines that the working capital requirements of the Company should not be raised by obtaining Third Party Loan pursuant to Section 4.4(a), then the working capital requirements of the Company may be met by obtaining financing from the Stockholders (the "Stockholder Loan"). In the event the Board determines that all or part of the working capital requirements of the Company shall be met by obtaining Stockholder Loan, then the Stockholders shall provide such Stockholder Loan to the Company, provided, however, that (i) each Stockholder shall provide such Stockholder Loan in an amount equal to the total amount of such Stockholder Loan, multiplied by the Stockholding Percentage of each Stockholder as of such date; and (ii) such Stockholder Loan shall otherwise be made in accordance with the resolution of the Board. Unless otherwise determined by the Board, the interest rate of such Stockholder Loan shall not exceed the interest rate available to the Company through Third Party Loans with similar terms, conditions and principal amounts as the Stockholder Loan in question, and shall be payable only at such times as the principal amount of such Stockholder Loan shall become payable in accordance with Section 5.1 hereof. ARTICLE 5 DIVIDENDS AND REPAYMENTS OF STOCKHOLDER LOANS Section 5.1 Stockholder Loan Repayment Policy. Except as otherwise determined by the Board, the Company shall covenant to repay all of the outstanding principal and interest on all Stockholder Loans pursuant to the terms of the loan agreement before the Company is permitted under the terms of such loan agreement to make distributions of any dividends to the Stockholders. Section 5.2 Dividend Policy. Subject to Section 5.1, dividends may be distributed to the Stockholders from time to time as determined by a majority of the Board and the General Meeting of Stockholders. ARTICLE 6 TRANSFER OF SHARES Section 6.1 Transfer Restrictions. (a) Transfer to Affiliates. With the prior written consent of the other Stockholder, which consent shall not be unreasonably withheld, and without the application of Section 6.1(b) hereof, either Stockholder may transfer all or any portion of its shares in the Company to any Affiliate of such Stockholder. Page 6 Initials ________ ________ (b) Transfer to Non-Affiliates. Except as provided in Section 6.1(a), Section 12.3 or Section 13.2, neither Stockholder shall sell, assign, transfer, encumber, pledge or grant a security interest in any of its shares of the Company (collectively, a "Transfer") without the prior written consent of the other Stockholder, which consent may be withheld in such Stockholder's sole and absolute discretion. Section 6.2 Agreement to be Bound. As a condition to the valid transfer of any shares to any party hereunder, the transferor shall be responsible for obtaining from the transferee prior to such transfer, written agreement of the transferee to comply with, be bound by and perform all of the terms and conditions of this Agreement. Thereafter, the transferee shall be a party to this Agreement. Section 6.3 Transfer in Violation of Transfer Restrictions. Any purported Transfer of shares in the Company not expressly authorized by the terms of this Agreement shall be void and of no force and effect. ARTICLE 7 ACTIONS OF STOCKHOLDERS Section 7.1 Meeting. The meetings and resolutions of the Stockholders shall be conducted or obtained according to the Bylaws. Section 7.2 Restricted Actions. The Stockholders agree that during the term of this Agreement they will not, nor will they allow any of their employees, representatives or Affiliates to: (a) Commingle the Company's funds with the funds of any other Person or use the Company's funds for other than Company purposes or as directed by the Board; (b) Take any action or allow the Directors or the Company to take any action that would result in any violation of this Agreement, the Bylaws or the laws of the United States of America or Spain, including, but not limited to, the U.S. Foreign Corrupt Practices Act; or (c) Enter into any agreement (other than the applicable Ancillary Agreements) or establish any relationship with the Company except as specified herein, unless such agreement or relationship is on terms and conditions that would be established between unrelated parties dealing at arm's length. Section 7.3 Further Assurance. Fossil and Cadarso additionally shall execute such further documents and cooperate in taking such further actions as may be necessary to give effect to this Agreement, the Ancillary Agreements and the transactions contemplated hereby and to obtain any other approvals and consents necessary therefor. Page 7 Initials ________ ________ ARTICLE 8 BOARD OF DIRECTORS Section 8.1 Power. The Board shall carry out the resolutions passed at the meetings of the Stockholders and of the Board, including, but not limited to, the implementation of the Operating Plan. The Board shall decide by resolution all other important matters relating to the policies and management of the business of the Company, except those matters which are reserved by this Agreement, the Bylaws or by law to the decision of the Stockholders. Section 8.2 Election of Directors. The Directors shall be duly elected at general meetings of the Stockholders in accordance with the Bylaws, and the Board shall consist of four (4) Directors. Subject to the provisions of Section 14.13, two (2) of the Directors shall be nominated by Cadarso and two (2) Director shall be nominated by Fossil. The Stockholders hereby agree to cast their votes from time to time to elect or re-elect each of such nominees. Section 8.3 Chairman. The Chairman of the Board shall represent the Company and administer the affairs of the Company in accordance with the policies and programs established by the Bylaws, the Stockholders and the Board from time to time. Subject to the provisions of Section 14.13, the Stockholders agree that Fossil may designate the director that shall serve as the Chairman of the Board from time to time. Fossil shall designate Michael Barnes as the initial Chairman of the Board. The Parties agree to take such action as may be necessary to carry out the foregoing, including making necessary amendments to the Bylaws. Section 8.4 Vacancy on Board. In case the position of a Director becomes vacant for any reason, the Stockholders agree to elect as a replacement any such person as may be nominated by the Stockholder who nominated the person whose office is vacant. In the event that the Stockholder who nominated the person whose office is vacant does not nominate a replacement within thirty (30) days after such office becoming vacant, then the other Stockholder shall have the right to nominate such replacement. The Stockholders agree to cast their votes to elect such replacement nominee. Section 8.5 Meetings. The meetings of the Board shall be held at such times and with such notice as is specified in the Bylaws. ARTICLE 9 BASIC CORPORATE AND OPERATING POLICIES Section 9.1 Officers. The officers of the Company shall be elected by the Board from time to time. The Managing Director of the Company following Closing shall be Miguel Angel Cadarso Font who shall be responsible for the day-to-day management of the Company. The initial Secretary of the Company following Closing shall be Mr. Inigo Montesino-Espartero Velasco. The Stockholders hereby agree to cause their nominated Directors to vote for the election of the Managing Director and Secretary of the Company as provided for in this Section 9.1. Page 8 Initials ________ ________ Section 9.2 Operating Plan. The Stockholders hereby agree to cause their nominated Directors and other representatives to effectuate the Operating Plan adopted by the Board, to implement such other basic corporate and operating policies established by the Stockholders or the Board during the continuance of this Agreement, and to act in accordance with the Bylaws, this Agreement and the Ancillary Agreements. Section 9.3 Financial Statements. The financial statements of the Company shall be prepared in accordance with GAAP, consistently applied. The Company will make and keep books and records and accounts which, in reasonable detail, accurately and fairly reflect the business transactions of the Company (including, but not limited to, any asset disposition), and the Company shall devise and maintain a system of internal financial controls sufficient to provide reasonable assurances that the financial statements of the Company are maintained according to GAAP and by applicable law. In addition, the Company shall have its financials audited by an independent public accountant at the end of every year. ARTICLE 10 REPRESENTATIONS, WARRANTIES AND COVENANTS Section 10.1 Fossil's Representations, Warranties and Covenants. Fossil represents, warrants and covenants to Cadarso as follows: (a) Fossil is a corporation duly organized, validly existing and in good standing under the laws of the Netherlands and has all requisite corporate power and authority to enter into this Agreement, perform its obligations hereunder and consummate the transactions contemplated hereby. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action of Fossil. This Agreement has been duly executed and delivered by a duly authorized officer of Fossil or other Person pursuant to a validly issued power of attorney and constitutes the legal, valid and binding obligation of Fossil. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or result in any violation of any provisions of the article of incorporation or bylaws of Fossil or conflict with, or result in any violation of or default under any provision of any mortgage, indenture, lease, instrument, agreement, judgment, order, decree, statute, law, ordinance, rule, regulation, or other governmental authorization or approval applicable to Fossil. Page 9 Initials ________ ________ (c) Fossil will cause the Directors nominated by Fossil to operate the Company in strict compliance with this Agreement and all applicable laws. (d) Fossil hereby agrees to indemnify and hold Cadarso harmless from and against all losses, damages and costs resulting from any breach of any of the provisions of this Agreement by Fossil. (e) The stock participations being issued hereunder by the Company have been duly and validly authorized, and, when issued and delivered to and paid for by Cadarso pursuant to this Agreement, will be fully paid and nonassessable. (f) The holders of outstanding stock participations of the Company are not entitled to preemptive or other rights to subscribe for the shares; and, except as set forth in this Agreement, no options, warrants or other rights to purchase, agreements or other obligations to issue, or rights to convert any obligations or exchange any securities for, shares or ownership interests in the Company are outstanding. Section 10.2 Cadarso's Representations, Warranties and Covenants. Cadarso represents, warrants and covenants to Fossil as follows: (a) Cadarso is a corporation duly organized, validly existing and in good standing under the laws of Spain and has all requisite corporate power and authority to enter into this Agreement, perform its obligations hereunder and consummate the transactions contemplated hereby. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action of Cadarso. This Agreement has been duly executed and delivered by a duly authorized officer of Cadarso and constitutes the legal, valid and binding obligation of Cadarso enforceable in accordance with its terms. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or result in any violation of any provisions of the articles of incorporation or bylaws of Cadarso or conflict with, or result in any violation of or default under any provision of any mortgage, indenture, lease, instrument, agreement, judgment, order, decree, statute, law, ordinance, rule, regulation, or other governmental authorization or approval applicable to Cadarso or any of its Affiliates. (c) Cadarso will cause the Directors nominated by Cadarso to operate the Company in strict compliance with this Agreement and all applicable laws. Page 10 Initials ________ ________ (d) Cadarso hereby agrees to indemnify and hold Fossil harmless from and against all losses, damages and costs resulting from any breach of any of the provisions of this Agreement by Cadarso. ARTICLE 11 CLOSING AND CONDITIONS THEREOF Section 11.1 Closing. The Closing of the transactions contemplated by this Agreement shall take place on the Closing Date at the offices of Cadarso. The Parties agree that this Agreement and the Ancillary Agreements may be executed in any number of counterparts, each of which shall be an original. Section 11.2 Events of Closing. At the Closing, the Parties shall take the following actions: (a) The Stockholders shall elect the Board of Directors nominated by the Stockholders and transact such other business as may be necessary or proper to be transacted at said meeting; (b) Each Director shall accept his position as director of the Company; (c) The Board shall hold a meeting for the purposes of electing officers of the Company and to transact such other business as may be necessary or proper to be transacted at said meeting; (d) Miguel Angel Cadarso Font shall accept the position as Managing Director of the Company under terms and conditions reasonably acceptable to the Parties; (e) Cadarso shall each make the Initial Capital Contribution required by Section 4.2(a) hereof, and in exchange for such capital contribution, the Company shall issue to Cadarso the Stock Participation specified in Section 4.2(a) hereof. (f) Each of the Company, Cadarso, Fossil and their respective Affiliates shall execute and deliver each of the Ancillary Agreements to which it is a party. Section 11.3 Closing Date. Unless otherwise agreed by the Stockholders, the Closing shall take place within five (5) days after satisfaction of the conditions set forth in Section 11.4 hereof but in no event later than the Closing Date. If the Closing does not occur on or before the Closing Date, then this Agreement shall thereupon terminate automatically and shall be of no further force or effect, without any further liability or obligation of either Stockholder to the other Stockholder. Section 11.4 Conditions to the Closing. All obligations of each Stockholder hereunder to take the actions contemplated by this Agreement and otherwise take the action necessary to consummate the Closing, are subject to the fulfillment of each of the following conditions: Page 11 Initials ________ ________ (a) The final terms and conditions of each of the Ancillary Agreements shall have been agreed upon by each of the parties signatories thereto; (b) All actions, proceedings, instruments, opinions and documents required to carry out this Agreement and the Ancillary Agreements or incidental hereto or thereto, and all other related legal matters, shall be reasonably satisfactory to the respective legal counsel of the Parties; (c) All other terms, covenants and conditions of this Agreement and the Ancillary Agreements to be complied with and performed by the respective parties hereto and thereto prior to or at the Closing shall have been complied with and performed in all material respects (with the right of such parties in compliance with such terms, covenants and conditions to waive the non-compliance by the other Party); (d) No action, suit, proceeding or investigation by or before any court, administrative agency or other governmental authority shall have been instituted or threatened to restrain, prohibit or invalidate any of the transactions contemplated by this Agreement or any Ancillary Agreements; (e) All consents and approvals of third parties required for the performance by each Party and the Ancillary Agreements, the consummation of the transactions herein or therein contemplated and the fulfillment of and compliance with the terms and conditions hereof and thereof, shall have been obtained or valid waivers or consents obtained. Neither Party shall deliberately cause any condition set forth in this Article 11 not to be satisfied, and each Party shall, as to events, causes and circumstances within its control, take such action as shall be reasonably necessary to cause such condition to be satisfied and shall keep the other Party currently informed as to the status of such actions. In the event the Closing takes place, each Party shall be deemed to have represented and warranted to the other Party as of the Closing Date that all of the aforementioned conditions precedent to such Party's obligations hereunder shall have been fulfilled prior to or as of the Closing Date. Section 11.5 Closing Documents and Materials to be Delivered by Fossil. At the Closing, Fossil will deliver to Cadarso: (a) Stock participations along with all duly executed instruments effecting the transfer and such other documents as requested by Cadarso to perfect Cadarso's rights thereto. (b) All consents and approvals necessary to effect the transfer of the Shares. (c) The Ancillary Agreements, duly executed by Fossil or its Affiliates. Section 11.6 Closing Document and Material to be delivered by Cadarso. At the Closing, Cadarso will deliver to Fossil or the Company as applicable: Page 12 Initials ________ ________ (a) The Initial Capital Contribution. (b) A duly executed Managing Director agreement for Miguel Angel Cadarso Font, wherein he agrees to assume the position of Managing Director of the Company and to devote time and effort to the business and such other terms reasonably acceptable to Fossil and the Company. (c) The Ancillary Agreements, duly executed by Cadarso. ARTICLE 12 DEADLOCK Section 12.1 Definition. As used in this Agreement the term "Deadlock" shall mean any circumstance in which the Stockholders or the Board of the Company are unable, by reason of lack of a quorum or inability to achieve the votes that are required under this Agreement, the Bylaws and/or the applicable law to arrive at a decision on any matter or issue which, under this Agreement and/or applicable law requires action, provided that an inability of the Stockholders or the Board to arrive at such a decision or take such action shall not constitute a Deadlock unless the Board or the Stockholders shall have failed within a forty-five (45) day period to decide the matter or shall have failed within such period to implement such decision. Section 12.2 Notice of Deadlock. No Deadlock shall be deemed to have occurred until either Stockholder gives the other Stockholder a written notice of Deadlock. Such notice of Deadlock shall specify in reasonable detail the nature of the issue giving rise thereto. Within twenty (20) business days after the delivery of the notice of Deadlock, representatives of both Cadarso and Fossil shall meet for the purpose of amicably resolving the Deadlock. Section 12.3 Rights in Event of Deadlock. In the event after good faith discussions the Deadlock is not resolved within twenty (20) business days from the date of the notice of Deadlock is delivered (the "Resolution Date"), then the following procedure shall apply: (a) within thirty (30) days after the end of such twenty (20) business day period, Fossil shall have the option to acquire all, but not less than all, of the shares in the Company owned by Cadarso at a purchase price equal to the Earnings Multiple Amount; (b) in the event that Fossil shall have failed to exercise its option to acquire Fossil's shares pursuant to the foregoing (a), then, within an additional thirty (30) day period, Cadarso shall have the option to acquire all, but not less than all, of the shares owned by Fossil in the Company at a purchase price equal to the Earnings Multiple Amount. In the event neither Cadarso nor Fossil exercises its rights pursuant to the foregoing sentence, then the Company shall be dissolved and liquidated pursuant to Section 13.3 and in accordance with applicable law. Page 13 Initials ________ ________ ARTICLE 13 TERMINATION Section 13.1 Events Permitting Termination. This Agreement shall become effective as of the date of this Agreement and shall continue for an indefinite period thereafter, until terminated as follows: (a) By mutual consent of the Stockholders to terminate this Agreement in writing; (b) By either Stockholder upon giving written notice to the other Stockholder (the "Defaulting Stockholder") if the Defaulting Stockholder is in default hereunder or under any of the Ancillary Agreements and such default is not cured within thirty (30) days after written notice of such default; (c) By either Stockholder upon giving written notice to the other Stockholder (the "Insolvent Stockholder") if (i) the ownership, management or control of such Insolvent Stockholder or all or substantially all of such Insolvent Stockholder's assets are transferred to a person or entity other than the person or entity exercising ownership, management or control at the date of this Agreement, or (ii) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Insolvent Stockholder in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect, or appoint a receiver, liquidator, assignee, custodian, trustee, sequestrator of such Insolvent Stockholder or for any substantial part of its property, or order the winding up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days, or (iii) the Insolvent Stockholder shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in any involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator of such other Party or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due or shall take any action in furtherance of any of the foregoing; (d) By either Stockholder upon giving written notice to the other Stockholder (the "Merging Stockholder") if, without the prior written consent of the other Stockholder, the Merging Stockholder is merged or consolidated with another entity or if there is a change of control of the Merging Stockholder; Page 14 Initials ________ ________ (e) By either Stockholder upon giving written notice to the other Stockholder (the "Prevented Stockholder") if the Prevented Stockholder is prevented from performing its obligations under this Agreement for a continuous period of six (6) months or more as a result of any intervention, direct or indirect, by any government or governmental authority; (f) By either Stockholder upon giving written notice to the other Stockholder (the "Affected Stockholder") if the Affected Stockholder is prevented from performing its obligations under this Agreement for a continuous period of six (6) months or more as a result of an event of Force Majeure. (g) Automatically upon the sale of all of the Stock Participations in the Company to a third party unrelated to the Stockholders; (h) Automatically upon the acquisition of one hundred percent (100%) of the Stock Particiations in the Company by one of the Stockholders; (i) Automatically in the event the Closing does not occur on or before the Closing Date; (j) By Fossil upon giving written notice to Cadarso (the "Defaulting Stockholder") in the event that the Company fails to achieve a minimum of 70% of the sales projection in any fiscal year as defined in the Services Agreement between the Company and Cadarso unless failure to achieve such percentage of the sales projections is due solely to a Force Mejeure; or (k) Automatically in the event that the Market Research Agreement, the Services Agreement or the Distribution Agreement is terminated in accordance with its terms. Section 13.2 Rights Upon Termination. (a) Survival. Termination of this Agreement shall not extinguish debts and other obligations created or arising between the Stockholders by virtue of this Agreement or by virtue of contracts entered into hereunder before the date of termination. Without limiting the generality of the foregoing, the respective obligations of the Parties under Sections 13.2 and 13.3 shall survive termination of this Agreement. (b) Rights. Without limiting the generality of Section 13.2(a), if this Agreement is terminated pursuant to Section 13.1(b), Section 13.1(c), Section 13.1(d), Section 13.1(e), Section 13.1(f), Section 13.1(j), Section 13.1(k) or Section 13.1(l) hereof, the non-Defaulting Stockholder, the non-Insolvent Stockholder, the non-Merging Stockholder, the non-Prevented Stockholder or the non-Affected Stockholder, as applicable, shall be entitled to, in addition to any other remedies it may have in law, equity or contract: (i) require the other Page 15 Initials ________ ________ Stockholder to purchase any or all of the shares in the Company of the non-Defaulting Stockholder, non-Insolvent Stockholder, non-Merging Stockholder, non-Prevented Stockholder or non-Affected Stockholder, as applicable, at the Earnings Multiple Amount, (ii) purchase all, but not less than all of the shares in the Company held by the other Stockholder at the Earnings Multiple Amount, or (iii) require the Company to be dissolved and liquidated pursuant to Section 13.3 hereof. Upon termination, the Services Agreement, Market Research Agreement and Distribution Agreement shall automatically terminate. Section 13.3 Liquidation. Upon the occurrence of a dissolution event set forth in Section 12.3, the termination of the Agreement pursuant to Section 13.1(i) or in the event either Stockholder elects to require to dissolve the Company pursuant to Section 13.2(b)(iii), then in no event later than one hundred twenty (120) days after the occurrence of such dissolution event or such election, as applicable, the Stockholders shall vote for and otherwise take all requisite actions to cause the dissolution and liquidation of assets of the Company as follows: (a) All assets of the Company (including, but not limited to, all Products remaining at the Company) shall be sold within such one hundred twenty (120) day period at the best price offered by any party therefor; (b) The proceeds of such sale shall be used as follows: (i) first, to pay in full all third party creditors (including, but not limited to, any amounts outstanding under the Third Party Loan); (ii) second, to pay any outstanding accounts payable owed to Fossil Partners under the International Marketing and Distribution Agreement or to Cadarso under the Services Agreement, pro rata according to the respective amounts due to each such party; (iii) third, to pay any outstanding loan liability of the Company (including, but not limited to, any amounts outstanding under the Stockholders Loans and any amount paid by Cadarso and Fossil in guaranteeing Third Party Loan) to Cadarso and Fossil pro rata according to the respective amounts of loans and/or liabilities due to each such Party; and (iv) fourth, any remaining proceeds shall be distributed to the Stockholders pro rata in accordance with their respective Stockholding Percentages. ARTICLE 14 MISCELLANEOUS Section 14.1 Force Majeure. Any delay or failure by either Party to perform any of its obligations hereunder shall be excused if and to the extent caused by occurrences beyond such Party's reasonable control, including, but not limited to, acts of God, strikes or other labor disturbances, war, whether declared or not, sabotage, civil insurrections or commotion, acts by governmental authorities and any other cause or causes whether similar of dissimilar to those herein specified which cannot reasonably be controlled by such Party ("Force Mejeure"). Page 16 Initials ________ ________ Section 14.2 Governing Law. The validity, performance, construction and effect of this Agreement shall be governed by the laws of Spain without regard to principles of conflict of laws. Section 14.3 Assignment. Except in accordance with the transfer provisions set forth in Article 6, this Agreement and the rights and obligations hereunder shall not be assigned by either Party hereto, by contract or by operation of law, without the prior written consent of the other Party. Section 14.4 Expenses and Enforcement Costs. Each Party agrees to pay its own costs and expenses incurred in connection with the preparation, negotiation and execution of this Agreement and in obtaining the necessary approvals and other action contemplated herein. Each Party hereto agrees to pay and discharge all reasonable costs, attorney fees and expenses (including, but not limited to the costs of arbitration and litigation) that are incurred by the other Party in enforcing the terms of this Agreement or in defending itself in an action to enforce the terms of this Agreement provided that such other Party shall substantially prevail in such proceedings as determined by the arbitrator(s) or judges, as applicable. Section 14.5 Severability; Waiver. If any provision of this Agreement is or becomes illegal, invalid or unenforceable under applicable law, such provision shall be fully severable, and the remaining provisions hereof shall not be affected thereby and shall remain in full force and effect. Failure of either Party at any time to require performance by the other of any provision of this Agreement shall not affect its rights to require full performance thereof at any time thereafter, and a waiver by either Party of a breach of any provision shall not constitute a waiver of rights arising from any subsequent breach or nullify the effectiveness of such provision. Section 14.6 Notices. Unless otherwise agreed in writing, all notices required hereunder shall be in writing and in English. Notices to be given to any party under this Agreement shall not be effective unless given in writing and hand delivered or mailed by registered mail, or via overseas courier, or sent by electronic mail or facsimile to such party at the following addresses: If to Cadarso: Sucesores De A. Cadarso Avenida Diagonal, 463 bis., 1 Planta ________________________ ________________________ Phone: ________________ Fax: __________________ E-mail: _______________ Page 17 Initials ________ ________ If to Fossil: Fossil Europe, B.V. c/o Fossil, Inc. 2280 North Greenville Ave. Richardson, Texas 75082 Attn: T.R. Tunnell, Chief Legal Officer Phone: 972-699-2139 Fax: 972-498-9639 E-mail: trtunnell@fossil.com Any party may change its address by giving notice of such change in the manner above provided. Notices sent via certified or registered mail or oversees courier shall be deemed to have been received as of the date indicated by the postal or courier's receipt as having been received by the intended recipient. Notices sent via electronic mail or facsimile shall be deemed to have been received two (2) business days after the date on which they were transmitted, provided the party transmitting any such notice mails a copy of the notice on the next business day to the party to be notified via certified or registered mail or via overseas courier Section 14.7 Language. This Agreement may be translated into other languages, but the English language version shall be the official version and shall control the construction and interpretation hereof. Section 14.8 Amendment. This Agreement may be amended only by a written document signed by the Parties. Section 14.9 Headings. Headings or Articles in this Agreement are for convenience only and do not substantively affect the terms of this Agreement. Section 14.10 Inconsistencies. In case of any inconsistency or conflict between this Agreement, on the one hand, and the Bylaws of the Company, on the other hand, this Agreement shall govern, and the Parties agree to take all necessary steps to amend the Article of Incorporation or Bylaws, as applicable, to conform to this Agreement promptly upon the discovery of any such inconsistency or conflict. Section 14.11 Ownership of Intellectual Property; Non-Compete; Corporate Opportunity. Except as otherwise provided in the Ancillary Documents, the proprietary designs, trademarks, tradenames, processes and systems created by the Company shall remain the property of the Company. Section 14.12 Arbitration of Disputes. If any dispute, controversies or differences arise between the parties hereto in connection with any provision of this Agreement, or any breach thereof, the parties shall first attempt to settle same through friendly consultation carried out in good faith and with sincerity. In the event the dispute, controversy or difference is not so settled in the above manner, then such dispute or controversy shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association by three (3) arbitrators appointed as set forth below. The arbitration venue shall Page 18 Initials ________ ________ be Barcelona, Spain. Arbitration shall be conducted by a panel of three (3) members, one member selected by Cadarso, one member selected by Fossil and the third member selected by agreement between the other two members. Such arbitration shall be conducted in the English language. The parties' obligations under this Article shall survive termination or expiration of this Agreement. The provisions herein shall not be construed as prohibiting any party to this Agreement from applying to any court of competent jurisdiction for such injunctive or other provisional relief as may be necessary to protect that party from irreparable harm or injury or to preserve the status quo pending resolution of a dispute or controversy. As part of the arbitration award, the prevailing party shall be entitled to recover its reasonable costs and expenses (including attorney's fees) incurred in connection with the arbitration. Section 14.13 Change of Stockholding Percentage. In the event that either Party acquires some, but not all, of the other Party's equity ownership in the Company pursuant to this Agreement, including, but not limited to, pursuant to Article 6, then the following shall apply: (a) The following changes shall be made in the number of Directors each Party may nominate on the Board pursuant to Section 8.2 based upon the respective Stockholding Percentages of Cadarso and Fossil following such acquisition:
- ---------------------------------------------------------------------------------------------------------------------- No. of Fossil No. of Cadarso Fossil Stockholding Percentage Cadarso Stockholding Percentage Directors Directors - ---------------------------------------------------------------------------------------------------------------------- Less than 20% 80% or more 0 4 20% or more but less 50% More than 50% but less than 80% 1 3 50% 50% 2 2 More than 50% but less than 80% 20% or more but less 50% 3 1 80% or more Less than 20% 4 0 - ----------------------------------------------------------------------------------------------------------------------
(b) In the event the Stockholding Percentage of Cadarso becomes more than fifty percent (50%), Cadarso shall be entitled to designate the Chairman of the Board pursuant to Section 8.2. Section 14.14 Confidentiality. (a) Definition. As used in this Section 14.14, the term "Confidential Information" shall mean any information disclosed by one Party to the other pursuant to this Agreement which is in written, graphic, machine readable or other tangible form and is marked "Confidential," "Proprietary" or in some other manner to indicate its confidential nature, or is otherwise known by the recipient to be information of a type generally maintained in confidence by the disclosing Party. Confidential Information may also include oral information disclosed by one Party to the other pursuant to this Agreement, provided that such information is either (a) directly related to written Confidential Information, or (b) designated as confidential at the time of disclosure and reduced to a written summary by the disclosing Party, within a reasonable time Page 19 Initials ________ ________ (not to exceed sixty (60) days) after its oral disclosure, which is marked in a manner to indicate its confidential nature and delivered to the receiving Party. (b) Confidentiality Obligations. Each Party shall treat as confidential all Confidential Information of the other Party, shall not use such Confidential Information except as set forth herein, shall implement reasonable procedures to prohibit the disclosure, duplication, misuse or removal of the other Party's Confidential Information and shall not disclose such Confidential Information to any non-Affiliate third party. Without limiting the foregoing, each of the Parties shall use at least the same procedures and degree of care which it uses to prevent the disclosure of its own confidential information of like importance to prevent the disclosure of Confidential Information disclosed to it by the other Party under this Agreement, but in no event less than the care exercised by the disclosing Party with respect to its own Confidential Information. Each Party shall use its best efforts to enforce compliance with the provisions of this Section 14.14 by its directors, officers, employees, agents and any third party having access to the other Party's Confidential Information. (c) Non-Confidential Information. Notwithstanding the above, neither Party shall have liability to the other with regard to any Confidential Information of the other which: (i) was generally known and available in the public domain at the time it was disclosed, or which becomes generally known and available in the public domain through no fault of the receiver; (ii) was known to the receiver at the time of disclosure as shown by the files of the receiver in existence at the time of disclosure; (iii) is disclosed with the prior written approval of the initial disclosing Party; (iv) was independently developed by the receiver without any use of the disclosing Party's Confidential Information or by employees or other agents of (or independent contractors hired by) the receiver who have not been exposed to the disclosing Party's Confidential Information; (v) becomes known to the receiver from a source other than the disclosing Party without breach of this Agreement by the receiver and otherwise not in violation of the disclosing Party's rights; or (vi) is disclosed pursuant to the order or requirement of a court, administrative agency, or other governmental body; provided, that the receiver shall provide prompt, advance notice thereof to enable the disclosing Party to seek a protective order or otherwise prevent such disclosure. Page 20 Initials ________ ________ In addition, neither Party shall be restricted in any way by this Agreement as to that Party's use of any Confidential Information of the other described in subsections (a), (b), (d) and (e) above. (d) Equitable and Other Relief. Each Party acknowledges that the other Party's Confidential Information is an extremely valuable business asset, the misuse or improper disclosure of which would cause irreparable harm to the business interests of such Party. Accordingly, if either Party breaches any of its obligations with respect to confidentiality and unauthorized use of Confidential Information hereunder, the other Party shall be entitled to equitable relief to protect its interest therein, including, but not limited to, injunctive relief, as well as money damages. Section 14.15 Currency Conversion. In the event that any exchange rate conversion is necessary with respect to any payment made or report provided hereunder, Distributor shall use the Internet historical currency conversion table located at "www.oanda.com" to calculate the average exchange rate over the applicable period, or other mutually agreeable conversion source. Page 21 Initials ________ ________ IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date of this Agreement. FOSSIL EUROPE B.V. Sucesores De A. Cadarso By: _____________________ By: _____________________ Name: _____________________ Name: _____________________ Title: _____________________ Title: _____________________ Page 22 Initials ________ ________ EXHIBIT A Bylaws EXHIBIT B Services Agreement EXHIBIT C Market Research Agreement EXHIBIT D Amended and Restated International Marketing and Distribution Agreement EX-27 4 0004.txt FDS -- FOR FOSSIL, INC.
5 Part I, Item 1 - Financial Statements of Fossil, Inc. and Subsidiaries as of and for the thirty-nine weeks ended September 30, 2000, filed on Form 10-Q. 0000883569 Fossil, Inc. 1,000 U.S. Dollars 9-MOS DEC-30-2000 JAN-02-2000 SEP-30-2000 1 63,266 5,004 77,127 9,252 104,657 259,386 57,775 21,910 308,080 95,065 0 0 0 306 209,052 308,080 345,026 345,026 171,116 281,026 0 1,295 108 64,499 26,445 38,054 0 0 0 38,054 1.19 1.15
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