SUBORDINATION
AGREEMENT OF FOSSIL TRUST FOR

THE BENEFIT OF FIRST INTERSTATE BANK OF TEXAS,

N.A.


 


WHEREAS,     Fossil
Partners, L.P. (“Borrower”) is or may become indebted to Fossil Trust, a
Delaware business trust (“Junior Creditor”)


 


WHEREAS, Borrower desires
to enter into an Amended and Restated Loan Agreement (the “Loan -Agreement”)
with First Interstate Bank of Texas, N.A. (“Bank”); and


 


WHEREAS, upon Bank’s
acceptance of this Subordination Agreement, Borrower will be indebted to Junior
Creditor only in the amounts and on the evidences of indebtedness described on
Exhibit A attached hereto;


 


NOW, THEREFORE, to induce Bank, in its discretion, to extend
credit to Borrower at any time, in such manner, upon such terms and for such
amounts as may be mutually agreeable to Bank and Borrower, Junior Creditor
hereby agrees to subordinate and does hereby subordinate payment by Borrower of
all or any part of the indebtedness described on Exhibit A attached hereto together
with any and all other indebtedness of Borrower to Junior Creditor now or
hereafter incurred, created or evidenced, howsoever such indebtedness may be hereafter
extended, renewed or evidenced (all such indebtedness hereinafter referred to
as the “Subordinated Indebtedness”), together with all collateral, mortgage(s)
and security if any, for the payment of the Subordinated Indebtedness, to the
payment in full, in cash to Bank, its successors and assigns, of any and all
indebtedness, direct or contingent for which Borrower may now or hereafter be obligated
to Bank, including, without limitation, interest at the rate(s) provided for in
the Loan Agreement which, but for the commencement of any bankruptcy,
insolvency or receivership proceeding relating to Borrower, would have accrued
and been payable with respect to such indebtedness, (“Senior Obligations”) and
any collateral, mortgage(s) and security granted to Bank therefor, and in
furtherance thereof does hereby agree not to ask for, demand, sue for, take or
receive all or any part of the Subordinated Indebtedness or enforce Junior
Creditor’s rights to any security therefor, nor ask for, demand, take or
receive any security therefor, unless and until Senior Obligations have been
paid in full in cash and Bank’s financing arrangements with Borrower terminated.
Junior Creditor also hereby agrees that Bank shall be subrogated for Junior
Creditor with respect to Junior Creditor’s claims against Borrower and Junior
Creditor’s rights, liens and security interests, if any, in any of Borrower’s assets
and the proceeds thereof until the Senior Obligations have been paid in full,
in cash and Bank’s financing arrangements with Borrower terminated.


 


Junior Creditor further agrees that, upon any distribution
of the assets or readjustment of the indebtedness of Borrower, whether by
reason of liquidation, composition, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding involving
the readjustment of all or any of the Subordinated Indebtedness, or the
application of the assets of Borrower to the payment or liquidation thereof,
Bank shall be entitled to receive payment in full in cash of the Senior
Obligations prior the payment of all or any part of the Subordinated Indebtedness,
and in order to enable Bank to enforce its rights hereunder in any such action or
proceeding, Bank is hereby irrevocalby authorized and empowered in its sole discretion
make and present for and on behalf of Junior Creditor such proofs of claim
against Borrower on account of the Subordinated Indebtedness in the name of
Junior Creditor or Bank may deem expedient or proper and to vote such proofs of
claim in any such proceeding and to receive and collect any and all dividends or
other payments or disbursements made thereon in whatever form the same may be paid
and issued and to apply the same on account of any of the Senior Obligations.


 





















 


Junior Creditor
represents and warrants to Bank that Exhibit A attached hereto identifies all
of Borrower’s existing indebtedness and obligations to Junior Creditor.


 


Junior Creditor further agrees to execute and deliver
to Bank such assignments, endorsements, or other instruments as my be required
by Bank in order to enable Bank to enforce any and all such claims and to
collect any and all dividends or other payments or disbursements which may be
made at any time on account of all or any of the Subordinated Indebtedness.


 


If any money or other
property is received by Junior Creditor for application on the Subordinated
Indebtedness before the Senior Obligations are paid in full, in cash, Junior
Creditor will hold such money and other property in trust for Bank and promptly
after receipt, deliver such money and other property to Bank.


 


Junior Creditor hereby also agrees not to assign or transfer
at any time while this Subordination Agreement remains in effect any rights,
claim or interest of any kind in or to any of the Subordinated Indebtedness,
either principal or interest, without (1) first notifying Bank and (2) making such
assignment expressly subject to this Subordination Agreement in form and
substance satisfactory to Bank. Junior Creditor will, upon request from Bank, deliver
any note or other evidence of the Subordinated Indebtedness to Bank, and Bank
may (or Junior Creditor, upon request from Bank, will) add a legend to such
note or other evidence of the Subordinated Indebtedness stating that payment
thereof is the subject of the provisions of this Subordination Agreement.


 


This is a continuing
agreement of subordination and Bank may continue, without notice to Junior
Creditor, to extend credit or other accommodation or benefit and lend moneys to
or for the account of Borrower on the faith hereof. It is further understood
and agreed that Bank may at any time, in its sole discretion, renew or extend
the time of payment of all or any existing or future indebtedness or
obligations of Borrower to Bank or waive or release any collateral which may be
held therefor at any time and in reference thereto to make and enter into any
such agreement or agreements as Bank may deem proper or desirable without
notice to or further assent from Junior Creditor and without in any manner
impairing or affecting this Subordination Agreement or any of Bank’s rights
hereunder.


 


Junior Creditor hereby expressly
waives notice of acceptance by Bank of the subordination and other provisions of
this Subordination Agreement and all other notices whatsoever, including,
without limitation, notice of the creation of any indebtedness or liability of
Borrower to Bank, notice of the giving or extension of credit by Bank to Borrower,
notice of protest and default, and all other notices to which Junior Creditor
might otherwise be entitled. Junior Creditor consents and agrees that Bank
shall be under no obligation to marshal any assets in favor of Junior Creditor or
against or in payment of any or all of the Senior Obligations. Junior Creditor
hereby assents to any extension or postponement of the time of payment of the
Senior Obligations or to any other indulgence with respect thereto, to any
substitution, exchange or release of collateral which may at any time secure
the Senior Obligations and/or to the addition or release of any other party or
person primarily or secondarily liable therefor.


 


Junior Creditor expressly
waives reliance by Bank upon the subordination and other agreements as herein
provided and presentment, demand and protest. Junior Creditor agrees that Bank
has made no warranties or representations with respect to the due execution,
legality, validity, completeness or enforceability of the Loan Agreement or any
other document or instrument evidencing or relating to the Senior Obligations, or
the collectibility of the Senior Obligations, that Bank shall be entitled to
manage and supervise its loans to Borrower in accordance with its usual practices,
modified from time to time as it deems appropriate under the circumstances,
without regard to the existence of any rights that Junior Creditor may now or
hereafter have in or to any of the assets of Borrower, and that Bank shall have
no liability to Junior Creditor for, and waives any claim which Junior Creditor
may now or hereafter have


 





















 


against Bank arising out of, (1) any and all actions which Bank, in
good faith, takes or omits to take (including, without limitation, actions with
respect to the creation, perfection or continuation of liens or security interests
in the “Collateral” (as defined in the Loan Agreement), actions with respect to
the occurrence of an “Event of Default” (as defined in the Loan Agreement), actions
with respect to the foreclosure upon, sale, release of, depreciation of or
failure to realize upon any of the Collateral, and actions with respect to the
collection of any claim for all or any part of the Senior Obligations from any account
debtor, guarantor or any other party) with respect to the Loan Agreement or any
other agreement related thereto or to the collection of the Senior Obligations
or the valuation, use, protection or release of the Collateral, (2) Bank’s
election, in any proceeding instituted under Chapter 11 of Title 11 of the
United States Code (11 U.S.C. §101 et seq.) (the “Bankruptcy Code”), of the application
of Section 1111(b)(2) of the Bankruptcy Code, and/or (3) any borrowing or grant
of a security interest under Section 364 of the Bankruptcy Code.


 


Junior Creditor hereby
assumes responsibility for keeping itself informed of the financial condition
of Borrower, any and all endorsers and any and all guarantors of Borrower’s indebtedness
to Bank and of all other circumstances bearing upon the risk of nonpayment of
the Subordinated Indebtedness that diligent inquiry would reveal, and Junior
Creditor hereby agrees that Bank shall have no duty to advise Junior Creditor
information known to Bank regarding such condition or any such circumstances.


 


This Subordination
Agreement is binding on Junior Creditor, its successors and assigns, and shall
inure to the benefit of Bank, its successors and assigns. Whenever reference is
made in this Subordination Agreement to Borrower, such term shall include any
successor or assign of Borrower, including, without limitation, a receiver,
trustee or deptor-in-possession.


 


The foregoing notwithstanding, until such time as Bank
gives Junior Creditor notice that Borrower is in default of any of its obligations
to Bank, Junior Creditor may accept and retain payments identified on Exhibit A
attached hereto as “Permitted Payments”.


 


Any notice or notification required, permitted or contemplated
hereunder shall be in writing, shall be addressed to the party to be notified
at the address set forth below or at such other address as each party may
designate for itself from time to time by notice hereunder, and shall be deemed
to have been validly served, given or delivered (i) three (3) days following
deposit in the United States mails, with proper first class postage prepaid,
certified mail, return receipt requested (ii)  the next Business Day after such notice was delivered
to a regularly scheduled overnight delivery carrier with delivery fees either prepaid
or an arrangement, satisfactory with such carrier, made for the payment of such
fees, or (iii) upon receipt of notice given by telecopy, mail-gram, telegram,
telex, or personal delivery:


 


	
   

  	
  To Bank:

  	
  First        Interstate Bank of Texas, N.A

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1445 Ross Avenue Suite
  300

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dallas, Texas 75202
  Attn: Jeffrey S. A. Cook

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  To Junior Creditor:

  	
  Fossil Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1100 N. Market Street

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Rodney Square North

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Wilmington, Delaware
  19890

  



 





















 


	
   

  	
  With a copy to:

  	
  Fossil Trust c/o
  Fossil, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2280 N. Greenville
  Avenue

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Richardson, Texas
  75082-4412

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention: Randy S.
  Kercho

  



 


THIS SUBORDINATION AGREEMENT SHALL BE INTERPRETED AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH
THE LOCAL LAW OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR
PRINCIPLE THAT MIGHT OTHERWISE REFER CONSTRUCTION OR INTERPRETATION OF THIS
SUBORDINATION AGREEMENT TO THE SUBSTANTIVE LAW OF ANOTHER JURISDICTION, AND ALL
OTHER LAWS OF MANDATORY APPLICATION.


 


BANK AND JUNIOR CREDITOR EACH HEREBY WAIVES TRIAL BY
JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT TO ARISING
OUT OF THIS AGREEMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN BANK AND
JUNIOR CREDITOR.


 


This Subordination Agreement sets forth the complete undertaking
and agreements of Bank and Junior Creditor with the subject matter hereof, and
there are no other agreements or understandings binding upon them, including, without
limitation, any conflicting provisions of any agreement of note referred to on
Exhibit A attached hereto.


 


The parties agree to be bound by the terms and
provisions of the Arbitration Program (dated 9/1/92) which is incorporated by
reference herein and is acknowledged as received by the parties pursuant to
which any and all disputes shall be resolved by mandatory binding arbitration
upon the request of any party.


 


IN WITNESS WHEREOF, this
Subordination Agreement has been duly executed by Junior Creditor as of August
31, 1994,


 


	
   

  	
  FOSSIL TRUST,

  
	
   

  	
   

  
	
   

  	
  a Delaware business
  trust

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alan D. Moore

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   Alan D. Moore, Trustee

  	
   

  



 


 


ACKNOWLEDGEMENT BY
BORROWER


 


Borrower hereby acknowledges receipt of a copy of the
Subordination Agreement, confirms the accuracy of the information set forth in
Exhibit A attached hereto and that Exhibit A identifies all of Borrower’s
existing indebtedness and obligations to Junior Creditor, and agrees that it will
not pay any indebtedness subordinated by the foregoing Subordination Agreement
(except as otherwise permitted thereby) until all indebtedness of Borrower to
Bank now existing and hereafter arising shall have been paid in full and Bank’s
financing arrangements with Borrower are terminated. In the event of any breach
of the provisions of


 





















 


foregoing Subordination Agreement, Borrower agrees that, in addition to
any other rights and remedies Bank may have, all of Borrower’s obligations and
liabilities to Bank shall, without notice or demand, become immediately due and
payable, unless Bank shall otherwise elect.


 


	
   

  	
  FOSSIL PARTNERS, L.P

  
	
   

  	
   

  
	
   

  	
  By: Fossil, Inc.,

  
	
   

  	
  its general partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randy S. Kercho

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Randy S. Kercho

  
	
   

  	
   

  
	
   

  	
  Title:VP and Chief
  Financial Officer

  



 





















 


EXHIBIT A


 


TO SUBORDINATION
AGREEMENT


 


I.                                         Indebtedness
Owen to Junior Creditor


 


II.                                     Permitted
Payments


 


So long as, after giving
effect to such payment, Borrower remains in compliance with all the covenants
of the Loan Agreement and no Event of Default (as defined in the Loan Agreement)
then exists, Junior Creditor may accept and retain principal and interest
payments of the note evidencing the Subordinated Indebtedness. The Junior
Creditor hereby acknowledges that it has been provided a copy of and has Loan
Agreement.


 





















 


LEGEND TO NOTE


 


THIS NOTE, AND PAYMENT
AND ENFORCEMENT HEREOF, IS SUBJECT TO THE TERMS AND PROVISIONS OF THAT CERTAIN SUBORDINATION
AGREEMENT DATED AUGUST 31, 1994, BETWEEN FOSSIL TRUST AND FIRST INTERSTATE BANK
OF TEXAS, N. A. AND ACKNOWLEDGED BY FOSSIL PARTNERS, L.P., AS SUCH
SUBORDINATION AGREEMENT MAY BE AMENDED FROM TIME TO TIME.