Prepared by MERRILL CORPORATION









STOCK PURCHASE AND




JOINT VENTURE AGREEMENT




 




This Stock

Purchase and Joint Venture Agreement (the “Agreement”) is entered into as of

the ____ day of June 2001, by and between Fossil, Inc. (“Fossil”), a

corporation organized and existing under the laws of the State of Delaware,

U.S.A., with its principal offices at 2280 N. Greenville Avenue, Richardson,

Texas 75082 and Seiko Instruments Inc. (“SII”), a corporation organized and

existing under the laws of Japan, with its principal offices located at 8,

Nakase 1-chome, Mihama-ku, Chiba-shi, Chiba 

261-8507, Japan.




 




RECITALS




 




WHEREAS, Fossil

is engaged in the business of manufacturing, marketing and distributing fashion

watches and accessories throughout the world; and




 




WHEREAS, SII

is engaged in the business of manufacturing and marketing watches and other

products throughout the world; and




 




WHEREAS, Fossil has previously formed Fossil Japan

K.K., (the “Company”), a corporation organized and existing under the laws of

Japan, with its principal offices at 8F Shibuya-Hashimoto Bldg., 5-5,

Maruyamacho, Shibuya-Ku, Tokyo, which is engaged in the business ofmarketing, distributing,

importing and exporting watches, including, but not limited to, watches under

the FOSSIL Brand in Japan; and




 




WHEREAS,

Fossil owns one hundred percent (100%) of the issued and outstanding common

stock of the Company; and




 




WHEREAS,

Fossil desires to sell to SII and SII desires to purchase from Fossil, five

hundred (500) common shares of the Company representing fifty percent (50%) of

the Total Outstanding Shares (as defined below) in the Company upon the terms

and conditions hereinafter described; and




 




WHEREAS,

following Closing, the Parties desire to change the name of the Company to SFJ,

Inc. (kabusikigaisha SFJ); and




 




WHEREAS, SII

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:




 




                “Affected Stockholder” has a meaning set

forth in Section 13.1(f) hereof.




 




“Affiliate” means any person or entity that directly or indirectly

through one or 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.




 




                “Articles of Incorporation” means the

articles of incorporation (Teikan) of the Company, substantially in

the form attached hereto as Exhibit A.




 




“Board” means the Board of Directors of the Company.




 




“Business” has the meaning set forth in Section 3.1 hereof.




 




 “Capital” has the meaning set

forth in Section 4.1 hereof.




 




“Closing” means the consummation of the transactions set forth in

Section 11.2 of this Agreement.




 




“Closing Date” shall mean July 9, 2001, or such other date as may be

agreed upon by the Parties.




 




“Commercial Code” means the Commercial Code of Japan (Law No. 48, March

9, 1899), as amended and in effect from time to time.




 




“Corporate Auditor” shall mean a corporate auditor (Kansa-yaku)

of the Company with the powers and duties specified in the Commercial Code.




 




“Deadlock” has the meaning set forth in Section 12.1 hereof.




 




“Defaulting Stockholder” has the meaning set forth in Section 13.1(b)

hereof.




 




“Director” means any member of the Board with the powers and duties

specified in the Commercial Code and the Articles of Incorporation.




 




“Fair Market Value” means the fair value in the open market as between

a willing seller and a willing buyer as determined by an independent third

party mutually acceptable to the Stockholders.




 




“GAAP” means generally accepted accounting principles in Japan.













“Government Approval” of

any action to be taken by a Party under this Agreement means such

approval of, or consent to such action, together with such licenses,

authorizations, or permits as will be reasonably required for such action, as

the laws, statutes, decrees, regulations and rulings of the appropriate

government authorities may require to be obtained in connection with such

action.  Whenever the term “Government

Approval” is used herein, it shall be interpreted and construed to include the requirements

that such approval be in form and substance reasonably acceptable to the

Parties.




 




“Insolvent Stockholder” has the meaning set forth in Section 13.1(c)

hereof.




 




“Merging Stockholder” has the meaning set forth in Section 13.1(d)

hereof.




 




“Net Book Value” means net book value in accordance with GAAP as of any

date of determination.




 




“Non-Transferring Stockholder” has the meaning set forth in Section

6.1(b) hereof.




 




“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 SII, and collectively, the “Parties”.




 




“Person” means any natural person, partnership, corporation, limited

liability company, association, trust, estate or any other legal entity.




 




“Prevented Stockholder” has the meaning set forth in Section 13.1(e)

hereof.




 




“Products” means the products distributed by the Company from time to

time, including, but not limited to, watches and clocks bearing the FOSSIL

Brand.




 




“Prospective Purchaser” has the meaning set forth in Section 6.1(b)

hereof.




 




“Purchase Notice” has the meaning set forth in Section 6.1(b) hereof.




 




“Representative Director” means one of the Directors, with the powers

and duties specified in the Commercial Code and the Articles of Incorporation.




 




“Resolution Date” has the meaning set forth in Section 12.3 hereof.




 




“Sale Notice” has the meaning set forth in Section 6.1(b) hereof.




 




“Shareholding Percentage,” with respect to either Stockholder, means

the percentage represented by dividing (a) the number of shares in the Company

issued to such Stockholder, by (b) the number of all shares in the Company

issued to all of the Stockholders.













“SII” means Seiko

Instruments Inc., a Japanese corporation.




 




“Stockholder” means either of Fossil or SII, and collectively, the

“Stockholders”.




 




“Stockholder Loans” has the meaning set forth in Section 4.2(c) hereof.




 




“Subject Shares” has the meaning set forth in Section 6.1(b) hereof.




 




“Third Party Loans” has the meaning set forth in Section 4.2(a) hereof.




 




“Total Outstanding Shares” has the meaning set forth in Section 2.1

hereof.




 




“Transfer” has the meaning set forth in Section 6.1(b) hereof.




 




“Transferring Stockholder” has the meaning set forth in Section 6.1(b)

hereof.




 




ARTICLE 2




PURCHASE AND SALE OF SHARES




 




                Section 2.1           Transfer of the Shares.   Subject to the terms and conditions

contained in this Agreement, Fossil shall transfer, assign and sell to SII, by

delivering share certificates representing fifty percent (50%) of the total

number of the issued and outstanding Shares (the “Total Outstanding Shares) in

the Company, and SII shall acquire, free and clear of all liens and

encumbrances, five hundred (500) shares of the common stock of the Company (the

“Shares”) at the Closing, which number represents fifty percent (50%) of the

Total Outstanding Shares.




 




              Section 2.2                       Rights

Attached.  The transfer of the

Shares shall include all rights attached or accruing to the Shares, including

all dividends and distributions declared or made after the Closing.




 




Section 2.3                                Purchase

Price.  In consideration of the

transfer of the Shares, SII shall (i) pay Fossil the sum of twenty-five million

Japanese Yen (¥25,000,000) (the “Purchase Price”); and (ii) carry out the

obligations herein specified.




 




Section 2.4                                Payment.  The Purchase Price shall be payable at the

Closing by wire transfer in Japanese yen to the bank account as specified by

Fossil prior to Closing.




 




ARTICLE 2A




ADDITIONAL

UNDERTAKINGS




 




Section 2A.1        Pre-Closing

Undertakings.  The Parties agrees to

take the following actions at, or prior to, Closing:




 




(a)                                Fossil

shall cause the Company to clear deficit (“Kessonkin” in GAAP) of the Company after

performing undertakings of this Section 2A.1;













(b)                                Fossil agrees to

cause the Company to return all non-watch products currently in inventory to

Fossil and Fossil agrees to accept such returns;




 




(c)                                Fossil

shall cause the Company to return any inventory items shown as discontinued (or

“R” goods) by the Company as of the date hereof to Fossil and Fossil agrees to

accept such returns;




 




(d)                                Any

items in inventory that have not been ordered by the Company during the

eighteen (18) month period preceding the date hereof, shall be returned to

Fossil by the Company and Fossil agrees to accept such return;




 




(e)                                Fossil

shall cause the Company to write-off (i) any displays held in inventory as of

the date hereof that will not be used by the Company; and (ii) any displays

located at a retail customer that the Company no longer does business with;




 




(f)                                Fossil

shall cause the Company to write-off any fixed assets that are not currently

being utilized in the ordinary course of business of the Company;




 




(g)                                Fossil

shall cause the Company to record any guaranteed retirement benefits applicable

to the employees of the Company, reserve for any guaranteed retirement benefits

in full amount calculated based on the number of employees of the Company and

periods of the employment of such employees elapsed as of the end of June,

2001, and any allowance relating to possible dismissal, which have not previously

been recorded;




 




(h)                                Fossil

shall cause the Company to pay invoices issued by Fossil Partners, L.P., which

are overdue subject to the terms and conditions of the International Marketing

and Distribution Agreement between the Company and Fossil Partners, L.P;




 




(i)                                SII

shall perform a simple check on all other balance sheet items of the Company;




 




(j)                                Fossil

shall, at its own costs, cause the Company to dismiss certain of its employees

as listed on Schedule 1 hereto, the method of dismissal carefully being

overseen by Fossil to assure no violation of relevant laws;




 




(k)                                Fossil

shall cause any secret partnership or other agreement regarding the investments

and distribution between the Company and any of Fossil or its Affiliates,

including the Partnership Agreement between Fossil Intermediate Inc. and the

Company dated April 1, 1996 and the Intercompany Service Agreement between the

Company and Fossil Partners, L.P. dated January 1, 2000, to be terminated and

shall settle all the Tokumei Kumiai Syussikin in GAAP (the TK

receivable);













(l)                                Fossil shall

estimate any tax liabilities in the course of or in relation to performing the

Pre-Closing Undertakings (which would not have been imposed on or incurred by

the Company if it were not for the obligations under the Pre-closing

Undertaking) as set forth in this Section2A.1 and cause the Company to reflect

such estimation of tax liabilities on the anticipated balance sheet as set

forth in item (m) of the Section 2A.1 as the provision for such tax

liabilities; and




 




(m)                                Fossil

shall submit and attach to this Agreement as Exhibit B the anticipated balance

sheet of the Company as of the end of June 2001.  Fossil shall pay to the Company for the adverse difference, if

any, in order to make the Company’s actual balance sheet same as the

anticipated balance sheet as of the end of June 2001.




 




Section 2A.2                                Post-Closing

Undertakings.  The Parties agree to

take the following actions following Closing:




 




(a)                                The

Parties agree to review the accounts and notes receivable of the Company as of

the end of month in October 2001, and Fossil agrees to remit to the Company any

amounts owed for any uncollected accounts arising from such review; provided

that, the Company can demonstrate that such amounts were invalid due to

non-payment or dispute;




 




(b)                                The

Parties agree that any accounts receivable paid by a customer of the Company

following Closing will first be credited against the older receivable unless

the older receivable is demonstrated by the Company to be invalid or is subject

to genuine dispute, with the exception of balances that are received following

October 2001, and in such case those amounts shall be credited back to Fossil;




 




(c)                                The

Parties agree that any invoices received after Closing that relate to goods or

services purchased by the Company prior to Closing, will be paid by the Company

according to the terms applicable to such invoice and Fossil shall promptly

reimburse the Company for such amounts upon receipt of adequate documentation

of such expenditure;




 




(d)                                The

Parties agree that the Company will be entitled to the same privileges as to

timing of return, replacement, reimbursement, credit for return, shipping fees,

and similar privileges from Fossil with respect to inventory returns as Fossil

affords to its wholly owned subsidiaries and Fossil agrees to cause such

provision to be reflected in the International Marketing and Distribution

Agreement by and between the Company and Fossil Partners, L. P., unless SII

requests any such privilege not to be so included.                                Fossil shall cause Fossil Partners,

L.P. to negotiate, upon the requests of the Company, the amendment of other

terms and conditions as set forth in such International Marketing and

Distribution 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 and distribution

of watches and clocks, including, but not limited to, watches under the FOSSIL

Brand and such other matters as may be approved from time to time by the Board

or as may be contemplated within the scope of this Agreement.













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 Representative Director 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 (third party financing, additional

capital contribution 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 Representative

Director of the Company shall present to the Board an Operating Plan for fiscal

year 2001 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.  The Company currently has

authorized capital consisting of 1,000 shares of common stock with par value of

¥50,000 per share (the “Capital”). All of the Company’s shares shall be the

same class 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                                Working

Capital.




 




(a)                Third Party Financing.

The 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 (including, but not limited

to, after discussing the conditions of obtaining Third Party Loan, such as any

requirements by any third party lender to subordinate the Stockholder Loan to

the Third Party Loan).  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 SII and

Fossil shall negotiate in good faith to provide a guaranty in favor of the

lender of such Third Party Loan so that SII and Fossil each guarantees an

amount equal to their respective Shareholding Percentage.













(b)                Additional

Capital Contributions.  In the event the

Board unanimously determines that the working capital requirements of the

Company should not be raised by obtaining Third Party Loan pursuant to Section

4.2(a), then the working capital requirements of the Company may be met through

additional capital contribution by the Stockholders, subject that the

authorized capital of the Company as provided in the Article of Incorporation

then in effect shall allow such additional capital contributions by the

Stockholders.  In the event the Board

unanimously 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 accept to subscribe such additional

capital and 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 Shareholding Percentage; and (iii) such

additional capital contribution shall otherwise be made in accordance with the

resolution of the Board. Upon contribution of the capital by the Parties

pursuant to this Section, the Company shall issue additional shares at ¥50,000

per share to SII and to Fossil in proportion to such subsequent capital

contribution and deliver share certificates representing such shares as

provided in the Articles of Incorporation.




 




(c)                  Stockholder

Loans. In the event the Board determines unanimously that the working

capital requirements of the Company should not be raised by obtaining Third

Party Loan pursuant to Section 4.2(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 unanimously determines that all or part of the working capital

requirements of the Company shall be met by obtaining a Stockholder Loan, then

the Stockholders shall provide such Stockholder Loan to the Company, provided,

however, that (i) such Stockholder Loan is made and repaid in Japanese yen;

(ii) each Stockholder shall provide such Stockholder Loan in an amount equal to

the total amount of such Stockholder Loan, multiplied by the applicable

percentage set forth in Section 14.13; The Stockholders may provide its portion

of the Stockholder Loan by extending the payment date of any invoice issued for

products sold to the Company by the Stockholder or any affiliate of such

Stockholder. and (iii) 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.




 




                (d)                Pre-closing Loans.  Fossil shall be sole guarantor all working capital requirements

or funds borrowed by the Company on or prior to Closing.  All working capital requirements or funds

borrowed by the Company following Closing shall be governed by Sections (a),

(b) and (c) of this Article as respectively applicable.













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 subject to Japanese Commercial

Code and related regulations.




 




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.




 




(b)                                Transfer to

Non-Affiliates.




(i)                                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, nor shall merge into or with

another company, allow fifty (50) percent or more of its shares become held by

a Person other than the Person who holds fifty (50) percent or more of shares

in either of the Stockholders as of the date hereof, or act any other actions

which shall result in a substantial change in the holder of Shares directly or

indirectly (collectively, a “Transfer”) other than in accordance with this

Section 6.1(b).  In the event

possibilities of the occurrence of the foregoing which is not under the control

of the concerned Stockholder arises, such Stockholder shall notify of the same

to the other Stockholder as soon as reasonably practical.  In the event either Stockholder (the

“Transferring Stockholder”) desires to sell all or part of its shares (the

“Subject Shares”) of the Company to a third party, the Transferring Party shall

give written notice (the “Sale Notice”) to the other Stockholder (the

“Non-Transferring Stockholder”) which Sale Notice shall state (1) the identity

of the person or entity (the “Prospective Purchaser”) to which the Transferring

Stockholder desires to dispose of such Subject Shares, which Prospective

Purchaser shall not be acting in concert with the Transferring Stockholder to

circumvent the provisions of this Section or shall be in competition with the

Company or the Non-Transferring Stockholder, (2) the price to be paid for such

Subject Shares, which price must be payable in cash upon consummation of such

disposition, (3) the date on which such disposition is scheduled to occur

(which date shall be no later than ninety (90) days after the date of the Sale

Notice), and (4) that the offer of the Prospective Purchaser has been accepted

by the Transferring Stockholder, subject to the rights of the Non-Transferring

Stockholder contained herein.




 




(ii)                                Upon receipt of

the Sale Notice, the Non-Transferring Stockholder shall have the right to

purchase, upon the same terms and conditions as contained in the Sale Notice,

the Subject Shares, by providing a written notice (the “Purchase Notice”) to

the Transferring Stockholder within sixty (60) days after receipt of the Sale

Notice.  The closing of the purchase of

the Subject Shares pursuant to this Section 6.2(b)(ii) shall be held within

thirty (30) days after delivery of the Purchase Notice.













(iii)

                                In the

event the Non-Transferring Stockholder elects not to exercise its rights pursuant

to Section 6.2(b)(ii) above, then the Transferring Stockholder may transfer the

Subject Shares to the Prospective Purchaser in accordance with the terms and

conditions set forth in the Sale Notice. 

If the Transferring Stockholder does not complete the sale of the

Subject Shares to the Prospective Purchaser within ninety (90) days after the

date of the Sale Notice, the provisions of Section 6.1(b) shall again be

applicable.




 




(iv)                                In

the event the Non-Transferring Stockholder is prevented from exercising its

right to purchase the Subject Shares pursuant to Section 6.1(b)(ii) as a result

of applicable rule, law or regulation, then, notwithstanding anything to the

contrary contained herein, within an additional sixty (60) days, the

Non-Transferring Stockholder shall elect, in its sole and absolute discretion

and by notifying the Transferring Stockholder, whether the Transferring

Stockholder shall sell the Subject Shares to (1) the Prospective Purchaser, (2)

the Non-Transferring Stockholder or (3) a party designated by the

Non-Transferring Stockholder, in each case on terms and conditions set forth in

the Sale Notice, provided that the Transferring Stockholder shall consummate

the transaction within thirty (30) days from the end of such sixty (60) day

period.  In the event the sale to the

Prospective Purchaser pursuant to Section 6.1(b)(iv)(1) is not consummated

within such thirty (30)-day period, then the provisions of Section 6.1(b) shall

again be applicable.




 




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.




 




Section 6.4                                Board

Approval; Legends.  All Transfer of

Shares in the Company shall subject to approval by the Board.  Each party shall cause its Board nominee to

vote in favor of any proposed Transfer complying with the foregoing terms of

this Section 6 and to vote against any proposed Transfer that fails to do

so.  Each share certificate of the

Company shall bear a legend, consistent with applicable laws, providing that any

transfer of the shares evidenced by such certificate is subject to approval by

the Board.




 




ARTICLE 7




ACTIONS OF

STOCKHOLDERS




 




Section 7.1                                Meeting.  The meetings and resolutions of the

Stockholders shall be conducted or obtained according to the Articles of

Incorporation.













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

Company funds with the funds of any other Person or use Company 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 Articles of Incorporation or the laws of

Japan or the United States of America, including, but not limited to, the U.S.

Foreign Corrupt Practices Act; or




 




(c)                                Enter into any

agreement 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                                Name

Change.  Promptly following Closing,

the Parties agree to take such action as may be necessary to effect a name

change of the Company to SFJ, Inc. (kabusikigaisha SFJ)”, or such other name

as the Parties mutually agree from time to time.




 




Section 7.4                                Further

Assurance.  Fossil and SII

additionally shall execute such further documents and cooperate in taking such

further actions as may be necessary to give effect to this Agreement and the

transactions contemplated hereby and to obtain any Government Approval or other

government action necessary therefor.




 




ARTICLE 8




BOARD OF DIRECTORS




 




Section 8.1                                Power.  The company shall be managed by the Board in

accordance with the terms of this Agreement and applicable laws.  The Board shall decide by resolution all

important matters relating to the policies and management of the business of

the Company, except those matters which are reserved by this Agreement, the

Articles of Incorporation 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

Articles of Incorporation, 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 SII and two (2) of the 

Directors shall be nominated by Fossil. 

The nominees for the initial directors of the Company as nominated by

the respective Parties are as follows:




 




	

  Fossil

  Director Nominees:


  	

  Michael

  Barnes


  
	

   


  	

  Martin

  Pomphrey


  
	

   


  	

   


  
	

  SII Director

  Nominees:


  	

  Toshio  Sato


  
	

   


  	

  Kenichi

  Tomidokoro


  





 




 




The Stockholders hereby agree

to cast their votes from time to time to elect or re-elect the director

nominees of the Parties.













Section 8.3                                Chairman.  The Representative Director shall serve as

the Chairman of the Board.




 




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 Articles of

Incorporation.




 




Section 8.6                                Necessary

Corporate Action.  The Parties agree

to take such action as may be necessary to carry out the effect of this

Section, including making or authorizing any required changes or amendments to

the Articles of Incorporation.




 




ARTICLE 9




BASIC CORPORATE AND

OPERATING POLICIES




 




Section 9.1                                Representative

Director.  The Company shall have

one (1) Representative Director, who shall be the President of the Company with

the powers and duties specified in the Articles of Incorporation and who shall

be responsible for the day-to-day operations of the Company.  The Representative Director of the Company

shall be elected by the Board from time to time.  The initial Representative Director of the Company following

Closing shall be Kenichi Tomidokoro and, subject to the provisions of Section

14.13(b), SII shall have the right to nominate the Representative Director

thereafter from time to time.  The

Stockholders hereby agree to cause their nominated Directors to vote for the

election of Kenichi Tomidokoro as the initial Representative Director of the

Company.




 




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 Articles of Incorporation,

this Agreement and the Ancillary Agreements.




 




Section 9.3                                Corporate

Auditors.  The Company shall have

one (1) Corporate Auditor, who shall be appointed by the Stockholders Meeting

of the Company. A Corporate Auditor may be removed for cause in accordance with

applicable laws.













Section 9.4                                Financial

Statements.  The financial

statements of the Company shall be prepared in accordance with GAAP,

consistently applied, and adjusted to reflect generally accepted accounting

principles in the United States for presentation purposes.  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 control 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 fiscal year.




 




ARTICLE 10




REPRESENTATIONS,

WARRANTIES AND COVENANTS




 




Section 10.1                                Fossil’s

Representations, Warranties and Covenants. 

Fossil represents, warrants and covenants to SII as follows:




 




(a)                                Fossil is a

corporation duly organized, validly existing and in good standing under the

laws of the State of Delaware and has all requisite corporate power and

authority to enter into this Agreement, perform its obligations hereunder and

consummate the transactions contemplated hereby and that the Company is

corporation duly organized, validly existing and in good standing under the

laws of Japan.




 




(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 and the Company. 

This Agreement has been duly executed and delivered by a duly authorized

officer of Fossil and constitutes the legal, valid and binding obligation of

Fossil and thereby the Company. 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 certificate of incorporation

or bylaws of Fossil or the Company 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.




 




(c)                                To

the Company’s knowledge, no employee of the Company is in violation of any term

of any employment contract (whether written or oral) or any other contract or

Agreement relating to the relationship of any such employee with the Company or

any other party because of the nature of the business now conducted or now

proposed to be conducted by the Company and that there is no strike, labor

dispute or union organization activities pending or, to the knowledge of

Fossil, threatened, involving the Company or any of its employees.




 




(d)                                The

Company has filed or caused to be filed all reports, return or other

information required to be supplied to a governmental entity with respect to

the tax, charges, fees, levies, or other assessments imposed by a governmental

entity and those are true and correct in all material respects.  The Company has within the time and in the

manner prescribed by applicable law, paid directly or indirectly , and until the Closing the

Company will pay directly or indirectly within the time and in the manner

prescribed by applicable law, all taxes, charges, fees, levies, or other

assessments imposed by a governmental entity.













(e)                                The Company is

in compliance in all material respects with all applicable laws, rules,

regulations, ordinances, decrees, orders, judgments or permits and/or approvals

of all relevant authorities.




 




(f)                                Fossil

will cause the Directors nominated by Fossil to operate the Company in strict

compliance with this Agreement and all applicable provisions of the laws of

Japan.




 




(g)                                Fossil

hereby agrees to indemnify and hold SII harmless from and against all losses,

damages and costs resulting from any breach of any of the provisions of this

Agreement by Fossil or direct or indirect breach thereof by the Company.




 




(h)                                Fossil

hereby agrees that all taxes, charges, assessments imposed in relation to the

Share holding by Fossil, including but not limited to the taxes on the dividend

paid by the Company, are to be borne by Fossil.




 




Section 10.2                                SII’s

Representations, Warranties and Covenants. 

SII represents, warrants and covenants to Fossil as follows:




 




(a)                                SII is a

corporation duly organized validly existing and in good standing under the laws

of Japan 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 SII.  This Agreement

has been duly executed and delivered by a duly authorized officer of SII and

constitutes the legal, valid and binding obligation of SII 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 SII 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 SII.




 




(c)                                SII will cause

the Directors nominated by SII to operate the Company in strict compliance with

this Agreement and all applicable provisions of the laws of Japan.




 




(d)                                SII 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 SII.




 













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 the

Company.  The Parties agree that this

Agreement may be executed in any number of counterparts, each of which shall be

an original.




 




Section 11.2                                Events

of Closing.  At or prior to the

Closing, the Parties shall take the following actions:




 




(a)                                The Stockholders

shall elect the Board of Directors nominated by the Stockholders and to

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 Kenichi Tomidokoro as

an initial Representative Director of the Company and to transact such other

business as may be necessary or proper to be transacted at said meeting, as

provided in the minutes of the meeting of the Board, in the form attached

hereto as Exhibit C hereto;




 




(d)                                Kenichi

Tomidokoro shall accept the position as the Representative Director of the

Company under terms and conditions reasonably acceptable to the Parties;




 




(e)                                SII shall tender

the Purchase Price consideration required by Section 4.3 hereof, and in

exchange for such payment, Fossil shall deliver to SII certificates evidencing

ownership of the number of shares of stock of the Company specified in Section

4.3 hereof.




 




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:




 




(a)                                The

Pre-Closing Undertakings specified in Section 2A.1 shall have occurred;




 




(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;




 




(e)                                All Governmental

Approvals required for the performance by each Party of this Agreement, the

consummation of the transactions herein contemplated and the fulfillment of and

compliance with the terms and conditions hereof, by either Party shall have

been obtained, and all filings and other formalities completed; and




 




(f)                                All consents and

approvals of third parties required for the performance by each Party, the

consummation of the transactions herein contemplated and the fulfillment of and

compliance with the terms and conditions hereof, 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.




 




In the event

that representations and warranties hereunder or due diligence reports or

similar opinions hereunder prove untrue, the Transfer of Shares hereunder shall

be void and of no force and effect from its inception, provided that

satisfactory proof of such untruth is presented in arbitration under Article

14.12.




 




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 Articles of Incorporation and/or the applicable law to arrive at

a decision on any matter or issue which, under this Agreement, the Articles of

Incorporation 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, the chief executive

officers of both SII 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, SII shall have the option to acquire all, but not

less than all, of the shares in the Company owned by Fossil at a purchase price

equal to the Fair Market Value thereof; (b) in the event that SII 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, Fossil shall

have the option to acquire all, but not less than all, of the shares owned by

SII in the Company at a purchase price equal to the Fair Market Value

thereof.  In the event neither SII 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.




 




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;




 




(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 shares in the Company to a third party unrelated to

the Stockholders;




 




(h)                                Automatically

upon the acquisition of one hundred percent (100%) of the shares in the Company

by one of the Stockholders; or




 




(i)                                Automatically in

the event the Closing does not occur on or before the Closing Date.




 




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) or Section 13.1(f) 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 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 Fair Market Value, (ii)

purchase all, but not less than all of the shares in the Company held by the

other Stockholder at the Net Book Value, or (iii) require the Company to be

dissolved and liquidated pursuant to Section 13.3 hereof.













                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 loan liability of the Company

(including, but not limited to, any amounts outstanding under the Stockholders

Loans and any amount paid by SII and Fossil in guaranteeing Third Party Loan)

to SII and Fossil pro rata according to the respective amounts of loans and/or

liabilities due to each such Party; and (iii) third, any remaining proceeds

shall be distributed to the Stockholders pro rata in accordance with their

respective Shareholding 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.




 




Section 14.2                                Governing

Law.  The validity, performance,

construction and effect of this Agreement shall be governed by the laws of

Japan 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 (including, but not limited to, the

cost of attorneys and other professionals and any other fees, taxes, and public

charges) incurred in connection with the preparation, negotiation and execution

of this Agreement and in obtaining the necessary Government Approvals and other

governmental 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.  Such notices shall be delivered personally,

or sent by telegram, registered airmail, return receipt requested, or by

facsimile with a confirmation copy to be sent by registered mail, return

receipt requested, addressed as follows:




 




	

  If to SII:


  	

  Seiko

  Instruments Inc.


  
	

   


  	

  8, Nakase

  1-chome, Mihama-ku


  
	

   


  	

  Chiba-shi,

  Chiba 261-8507


  
	

   


  	

  Japan


  
	

   


  	

  Attention :

  Takeshi Iwadare, Deputy Division Manager of Watch Division


  
	

   


  	

  Facsimile:+81-43-211-8041


  





 




	

  If to

  Fossil:


  	

  Fossil, Inc.


  
	

   


  	

  2280 N.

  Greenville


  
	

   


  	

  Richardson,

  Texas 75082


  
	

   


  	

  U.S.A.


  
	

   


  	

  Attention:

  T.R. Tunnell, Executive Vice President


  
	

   


  	

  Facsimile:

  214-498-9639


  





 




 




Said notice

shall be deemed to have been received on the first business day following the

date the telex, telegram or facsimile is dispatched.  Notice sent by registered airmail, return receipt requested,

properly addressed and posted, shall be deemed to have been received not later

than fourteen (14) business days after posting.  Nothing contained herein shall justify or excuse failure to give

oral notice for the purposes of informing the other Party thereof when prompt

notification is appropriate, but such notice shall not satisfy the requirement

of written notice.













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 Articles of Incorporation of

the Company, on the other hand, this Agreement shall govern, and the Parties

agree to take all necessary steps to amend the Articles of Incorporation, as

applicable, to conform to this Agreement promptly upon the discovery of any

such inconsistency or conflict.




 




Section 14.12                                Arbitration

of Disputes. In the event that any dispute or controversy arising out of,

in relation to, or in connection with this Agreement, such dispute or

controversy shall be finally settled by arbitration pursuant to the Japan

American Trade Arbitration agreement of September 16, 1952, by which each party

hereto is bound.  The arbitration venue

shall be Tokyo, Japan.  Arbitration

shall be conducted by a panel of three (3) members, one member selected by SII,

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, but either Party shall

be free to make any submission in English or Japanese without providing a

translation thereof.  The Parties’

obligations under this Section 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  Tokyo District Court which the

parties hereby agree to have a non-exclusive 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 Shareholding 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 Shareholding Percentages of SII and

Fossil following such acquisition:




 




	

  Fossil Shareholding Percentage


  	

   


  	

  SII Shareholding Percentage


  	

   


  	

  No. of Fossil Directors


  	

   


  	

  No. of SII Directors


  
	

  Less than 10%


  	

   


  	

  90% or more


  	

   


  	

  0


  	

   


  	

  4


  
	

  10% or more but less than 40%


  	

   


  	

  60% or more but less than 90%


  	

   


  	

  1


  	

   


  	

  3


  
	

  40% or more but less than 60%


  	

   


  	

  40% or more but less than 60%


  	

   


  	

  2


  	

   


  	

  2


  
	

  60% or more but less than 90%


  	

   


  	

  10% or more but less than 40%


  	

   


  	

  3


  	

   


  	

  1


  
	

  90% or more


  	

   


  	

  Less than 10%


  	

   


  	

  4


  	

   


  	

  0


  





 













(b)                In

the event the Shareholding Percentage of Fossil becomes more than fifty percent

(50%), Fossil shall be entitled to designate the Representative Director.




 




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 (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.




 




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 (i), (ii), (iv) and (v) 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.




 




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, INC.


  	

   


  	

  SEIKO INSTRUMENTS INC.


  	 

	

   


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  
	

  By:


  	

  _____________________


  	

   


  	

  By:


  	

  _____________________


  
	

  Name:  


  	

  _____________________


  	

    


  	

  Name:


  	

  _____________________


  
	

  Title:


  	

  _____________________


  	

   


  	

  Title:


  	

  _____________________


  
								














EXHIBIT A




Articles of

Incorporation













EXHIBIT B




 




Anticipated  Balance Sheet of the Company













EXHIBIT C




Minutes of the

Meeting of the Board










Schedule 1




List of Terminated

Employees