Document:

Exhibit 10.2

 

REVOLVING LINE OF CREDIT NOTE

 

	
  September 23, 2004

  	
   

  	
  Dallas, Texas

  	
   

  	
  $50,000,000.00

  

 

FOR VALUE
RECEIVED, the undersigned (hereinafter called “Maker”) does hereby
unconditionally promise to pay to the order of Wells Fargo Bank, National Association, a national banking
association (“Payee”), at its office at 1445 Ross Avenue, 3rd Floor, MAC
T5303-031, Dallas, Texas 75202, the principal sum of FIFTY MILLION AND NO/100
DOLLARS
($50,000.000.00), or such lesser amount as has been loaned or advanced by Payee
to Maker hereunder, in lawful money of the United States of America, together
with interest from the date hereof until maturity at the rates per annum
provided below.

 

1.             Definitions. 
For purposes of this Revolving Line of Credit Note (this “Note”),
unless the context otherwise requires, the following terms shall have the
definitions assigned to such terms as follows:

 

“Business Day”
shall mean:

 

(i)            for all purposes (other than as covered
by clause (ii) below) any day except Saturday, Sunday or a day which in the
United States is a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close;

 

(ii)           with respect to all notices and
determinations in connection with, and payments of principal and interest on, a
LIBOR Balance, any day which is a Business Day described in clause (i) above
and which is also a day for trading by and between banks in the interbank
eurodollar market.

 

“Consequential
Loss” shall mean, with respect to Maker’s payment, or conversion to a
different Interest Option, of all or any portion of the then-outstanding
principal amount of any LIBOR Balance on a day other than the last day of the
LIBOR Interest Period related thereto, any loss, cost or expense incurred by
Payee in redepositing such principal amount, including the sum of (i) the
interest which, but for such payment, Payee would have earned in respect of
such principal amount so paid for the remainder of LIBOR Interest Period
applicable to such principal amount, reduced, if Payee is able to redeposit
such principal amount so paid for the balance of such LIBOR Interest Period, by
the interest earned by Payee as a result of so redepositing such principal
amount, plus (ii) any expense or penalty incurred by Payee on redepositing
such principal amount.

 

“Contract Rate”
shall mean a rate of interest based upon the LIBOR Base Rate or WFB Base Rate
in effect at any time pursuant to an Interest Notice.

 

“Dollars”
and the sign “$” shall mean lawful currency of the United States of
America.

 

“Eurocurrency
Reserve Percentage” shall mean, with respect to each LIBOR Interest Period
the maximum reserve percentage (expressed as a decimal) in effect on the first
day of any

 

1

 

LIBOR Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining reserve requirements
applicable to “eurocurrency liabilities” pursuant to Regulation D or any other
then applicable regulation of the Board of Governors (or any successor) which
prescribes reserve requirements applicable to “eurocurrency liabilities,” as
presently defined in Regulation D, or any eurocurrency funding.

 

“Event of
Default” shall mean an Event of Default as such term is defined in the Loan
Agreement.

 

“Excess
Interest Amount” shall mean, on any date, the amount by which (i) the
amount of all interest which would have accrued prior to such date on the
principal of this Note (had the applicable Contract Rate at all times been in
effect without limitation by the Maximum Rate) exceeds (ii) the
aggregate amount of interest actually received by Payee on this Note on or
prior to such date.

 

“Federal Funds
Effective Rate” means, for any day, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the immediately following
Business Day by the Federal Reserve Bank of New York or, if such rate is not
published for any Business Day, the average of the quotations for the day of
the requested advance received by Payee from three Federal funds brokers of
recognized standing selected by Payee.

 

“Interest
Notice” shall mean the written notice given by Maker to Payee of the
Interest Options selected hereunder. 
Each Interest Notice shall specify the Interest Option selected, the
amount of the unpaid principal balance of this Note to bear interest at the
rate selected and, if the LIBOR Base Rate is specified, the length of the
applicable LIBOR Interest Period.

 

“Interest
Option” shall have the meaning assigned to such term in paragraph 7
hereof.

 

“Interest
Payment Date” shall mean (i) in the case of any WFB Base Rate Balance, the
fifteenth (15th) day of the last month of each calendar quarter during the term
hereof, commencing December 15, 2004, and at the maturity of this Note,
and (ii) in the case of any LIBOR Balance, the last day of the corresponding
LIBOR Interest Period with respect to such LIBOR Balance and at the maturity of
this Note.

 

“LIBOR Balance”
shall mean any principal balance of this Note which, pursuant to an Interest
Notice, bears interest at a rate based upon the LIBOR Base Rate for the LIBOR
Interest Period specified in such Interest Notice.

 

“LIBOR Base
Rate” shall mean, with respect to each LIBOR Interest Period, on any day
thereof the quotient of (i) the LIBOR Rate with respect to such LIBOR Interest
Period, divided by (ii) the remainder of 1.0 minus the
Eurocurrency Reserve Percentage in effect on such day.

 

“LIBOR Interest
Period” shall mean, with respect to any LIBOR Balance, a period commencing:
(i) on any date upon which, pursuant to an Interest Notice, the principal
amount of such LIBOR Balance begins to accrue interest at the LIBOR Base Rate,
or (ii) on the last day of the immediately preceding LIBOR Interest Period in
the case of a rollover to a successive LIBOR Interest Period, and ending one
month, two months or three months thereafter as Maker

 

2

 

shall elect in accordance with the provisions hereof; provided, that:
(A) any LIBOR Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such LIBOR Interest
Period shall end on the next preceding Business Day; and (B) any LIBOR Interest
Period which begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at
the end of such LIBOR Interest Period) shall, subject to clauses (C) below and
(A) above, end on the last Business Day of a calendar month; and (C) any LIBOR
Interest Period which would otherwise end after September 22, 2005 shall
end on September 22, 2005.

 

“LIBOR Rate”
shall mean, with respect to each LIBOR Interest Period, the rate of interest
determined by Payee to be the arithmetic average (rounded upward, if necessary
to the nearest 1/16th of 1%) of the per annum rates of interest at which Dollar
deposits with a maturity equal to the proposed LIBOR Interest Period (and in an
amount approximating the LIBOR Balance) would be offered to Payee by major
banks in the interbank eurodollar market at approximately 8:00 a.m. (Dallas,
Texas time) on the Business Day immediately preceding the first day of such
LIBOR Interest Period.

 

“Loan Agreement”
shall mean that certain Loan Agreement, dated as of September 23, 2004, by
and among Maker, Payee and the subsidiaries and/or affiliates of Maker from
time to time a party thereto, as guarantors, as amended, restated, supplemented
and/or modified from time to time.

 

“Maximum Rate,”
as used herein, shall mean, with respect to the holder hereof, the maximum
non-usurious interest rate, if any, that at any time, or from time to time, may
be contracted for, taken, reserved, charged, or received on the indebtedness
evidenced by this Note under the laws which are presently in effect of the
United States and the State of Texas applicable to such holder and such
indebtedness or, to the extent permitted by law, under such applicable laws of
the United States and the State of Texas which may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than applicable laws
now allow.  To the extent that any of
the optional interest rate ceilings provided in Chapter 303 of the Texas
Finance Code, as amended from time to time (as amended, the “Texas Finance
Code”), may be available for application to any loan(s) or extension(s) of
credit under this Note for the purpose of determining the Maximum Rate
hereunder pursuant to the Texas Finance Code, the applicable “monthly ceiling”
(as such term is defined in Chapter 303 of the Texas Finance Code) from
time to time in effect shall be used to the extent that it is so available, and
if such “monthly ceiling” at any time is not so available then the applicable
“weekly ceiling” (as such term is defined in Chapter 303 of the Texas Finance
Code) from time to time in effect shall be used to the extent that it is so
available.

 

“Regulation D”
shall mean Regulation D of the Board of Governors of the Federal Reserve System
from time to time in effect and shall include any successor or other regulation
relating to reserve requirements applicable to member banks of the Federal
Reserve System.

 

“Total
Commitment” shall mean $50,000,000.00.

 

3

 

“WFB” shall
mean Wells Fargo Bank, National Association, a national banking association,
and its successors and assigns.

 

“WFB Base Rate”
shall mean, on any date of determination, a variable rate of interest per annum
equal to the higher of either (a) the WFB Prime Rate, or (b) the Federal Funds
Effective Rate plus one-half of one
percent (0.50%).

 

“WFB Base Rate
Balance” shall mean that portion of the principal balance of this Note
bearing interest at a rate based upon the WFB Base Rate.

 

“WFB Prime Rate”
shall mean the rate of interest most recently announced within Payee at its
principal office in San Francisco as its prime rate and is a base rate for
calculating interest on certain loans. 
The rate announced by Payee as its prime rate may or may not be the most
favorable rate charged by Payee to its customers.  Each change in the WFB Prime Rate shall become effective without
prior notice to Maker automatically as of the opening of business on the date
such change is announced within Payee.

 

2.             Manner of Borrowing; Advance Requests. 
A request for an advance under this Note shall be made, or shall be
deemed to be made, if Maker gives Payee notice of its intention to borrow, in
which notice Maker shall specify (i) the aggregate principal amount of such
advance and (ii) the requested date of such advance, which shall be a Business
Day.  Any such request for an advance
shall be accompanied by an Interest Notice and shall be made (i) no later than
11:00 a.m. Dallas, Texas time at least three (3) Business Days prior to the
requested advance date if the principal balance of such advance, pursuant to
such Interest Notice, is to bear interest at a rate based upon the LIBOR Base
Rate and (ii) no later than 11:00 a.m. Dallas, Texas time or the requested
advance date if the principal balance of such advance, pursuant to such
Interest Notice, is to bear interest at a rate based upon the WFB Base
Rate.  Notwithstanding anything herein
to the contrary, Payee shall have the right to refuse to accept a request for
an advance under this Note if at the date any such request is made or any such
advance is to be made there exists a default or an Event of Default under this
Note or the Loan Agreement.  As an
accommodation to Maker, Payee may permit telephonic requests for loans and
electronic transmittal of instructions, authorizations, agreements or reports
to Payee by Maker.  Unless Maker
specifically directs Payee in writing not to accept or act upon telephonic or
electronic communications from Maker, Payee shall have no liability to Maker
for any loss or damage suffered by Maker as a result of Payee’s honoring of any
requests, execution of any instructions, authorizations or agreements or
reliance on any reports communicated to Payee telephonically or electronically
and purporting to have been sent to Payee by any individual from time to time
designated by Maker as an authorized officer and Payee shall have no duty to
verify the origin or authenticity of any such communication.

 

3.             Payments of Interest and Principal. 
Interest on the unpaid principal balance of this Note shall be due and
payable on each Interest Payment Date as it accrues.  The unpaid principal balance of this Note shall be due and
payable in full on September 22, 2005.

 

4.             Rates of Interest. 
The unpaid principal of the WFB Base Rate Balance shall bear interest at
a rate per annum which shall from day to day be equal to the lesser of (i) the
higher of either (a) the WFB Base Rate in effect from day to day, minus  one percent (1.00%) or (b) three

 

4

 

percent (3.0%), or (ii) the Maximum Rate. The unpaid
principal of each LIBOR Balance shall bear interest at a rate per annum which
shall from day to day be equal to the lesser of (i) the LIBOR Base Rate for the
LIBOR Interest Period in effect with respect to such LIBOR Balance plus  one-half of
one percent (0.50%), or (ii) the Maximum Rate.  Each determination by Payee of the LIBOR
Base Rate shall, in the absence of manifest error, be conclusive and
binding.  Interest on this Note with
respect to each WFB Base Rate Balance and each LIBOR Balance shall be calculated
on the basis of the actual days elapsed in a year consisting of 360 days.

 

5.             Interest Recapture. 
If on each Interest Payment Date or any other date on which interest
payments are required hereunder, Payee does not receive interest on this Note
computed at the Contract Rate because such Contract Rate exceeds or has
exceeded the Maximum Rate, then Maker shall, upon the written demand of Payee,
pay to Payee in addition to the interest otherwise required to be paid
hereunder, on each Interest Payment Date thereafter, the Excess Interest Amount
(calculated as of such later Interest Payment Date); provided that in no event
shall Maker be required to pay interest at a rate exceeding the Maximum Rate
effective during such period.

 

6.             Default Rate of Interest. 
From and after the occurrence and during the continuance of an Event of
Default, this Note shall bear interest at any rate equal to or less than the
Maximum Rate, as chosen by Payee, at its discretion.  All past due principal and, to the extent permitted by applicable
law, interest upon this Note shall bear interest at any rate equal to or less
than the Maximum Rate, as chosen by Payee, at its discretion.

 

7.             Interest Option. 
Subject to the provisions hereof, Maker shall have the option (an “Interest
Option”) to designate portions of the unpaid principal balance hereof to
bear interest at a rate based upon the LIBOR Base Rate or WFB Base Rate as
provided in paragraph 4 hereof; provided, however, that in
the case of the selection of the LIBOR Base Rate, the LIBOR Balance for a
particular LIBOR Interest Period shall not be less than $500,000 (or, if greater than
$500,000,
in integral multiples of $100,000); provided  further,  however,
that no more than five (5) LIBOR Balances shall be outstanding at any one time
under this Note; provided  further, however, that the sum
of the aggregate amount of all LIBOR Balances and WFB Base Rate Balances
outstanding under this Note shall at no time exceed the Total Commitment.  The option of Maker to designate portions of
the principal of this Note to bear interest at a rate based upon the LIBOR Base
Rate or WFB Base Rate shall be exercised in the manner provided below:

 

(i)            At Time of Borrowing. 
Maker shall request advances under this Note in accordance with, and in
the manner prescribed by, paragraph 2 hereof.  In connection with any such advance request,
Maker shall give Payee an Interest Notice indicating the Interest Option
selected with respect to the principal amount of the proposed borrowing.

 

(ii)           At Expiration of LIBOR Interest. 
At least three (3) Business Days prior to the termination of any LIBOR
Interest Period, Maker shall give Payee an Interest Notice indicating the
Interest Option to be applicable to the corresponding LIBOR Balance, as
appropriate, upon the expiration of such LIBOR Interest Period.  If the required Interest Notice shall not
have been timely received by Payee prior to the expiration of the then relevant
LIBOR Interest Period, Maker shall be deemed (a) to have selected a rate based
upon the WFB Base Rate to be applicable to such LIBOR Balance, and such LIBOR

 

5

 

Balance shall thereafter be a WFB Base Rate Balance
upon the expiration of such LIBOR Interest Period and (b) to have given Payee
notice of such selections.

 

(iii)          Conversion From WFB Base Rate. 
During any period in which any portion of the principal hereof bears
interest at a rate based upon the WFB Base Rate, Maker shall have the right, on
any Business Day (the “Conversion Date”), to convert all or a portion of
such principal amount from the WFB Base Rate Balance to a LIBOR Balance by
giving Payee an Interest Notice of such selection at least three (3) Business
Days prior to such Conversion Date for any LIBOR Balance.

 

8.             Special Provisions For LIBOR Pricing

 

(a)           Inadequacy of LIBOR Pricing. 
If Payee reasonably determines that, by reason of circumstances
affecting the interbank market generally, deposits in Dollars (in the
applicable amounts) are not being offered to Payee in the interbank market for
any LIBOR Interest Period, or that the rate at which such Dollar deposits are
being offered will not adequately and fairly reflect the cost to Payee of
making or maintaining a LIBOR Balance for such LIBOR Interest Period, Payee
shall forthwith give notice thereof to Maker, whereupon until Payee notifies
Maker that the circumstances giving rise to such suspension no longer exist,
(i) the right of Maker to select an Interest Option based upon the LIBOR Base
Rate shall be suspended, and (ii) Maker shall convert each LIBOR Balance into the
WFB Base Rate Balance in accordance with the provisions hereof on the last day
of the then-current LIBOR Interest Period applicable to such LIBOR Balance.

 

(b)           Illegality.  If the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Payee with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for Payee to make or
maintain a LIBOR Balance, Payee shall so notify Maker.  Upon receipt of such notice, Maker shall
convert such LIBOR Balance into the WFB Base Rate Balance, on either (i) the
last day of the then-current LIBOR Interest Period applicable to such LIBOR
Balance if Payee may lawfully continue to maintain and fund such LIBOR Balance
to such day, or (ii) immediately, if Payee may not lawfully continue to
maintain such LIBOR Balance to such day.

 

(c)           Increased Costs for LIBOR Balances.

 

(i)            If the adoption of any applicable law,
rule or regulation, or any change therein, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Payee with any request or directive (whether or not having the
force of law) of any such authority, central bank or comparable agency shall
subject Payee to any tax (including without limitation any United States
interest equalization or similar tax, however named), duty or other charge with
respect to the LIBOR Balances, this Note or Payee’s obligation to compute interest
on the principal balance of this Note at a rate based upon the LIBOR Base Rate,
or shall change the basis

 

6

 

of taxation of payments to Payee of the principal of
or interest on the LIBOR Balances or any other amounts due under this Note in
respect of the LIBOR Balances or Payee’s obligation to compute the interest on
the balance of this Note at a rate based upon the LIBOR Base Rate (except for
changes in the rate on the tax on the overall net income of Payee imposed by
the jurisdiction in which Payee’s principal executive office is located); or

 

(ii)           if any governmental authority, central
bank or other comparable authority shall at any time impose, modify or deem
applicable any reserve (including, without limitation, any imposed by the Board
of Governors of the Federal Reserve System but excluding any reserve
requirement included in the Eurocurrency Reserve Percentage of Payee), special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, Payee, or shall impose on Payee (or its
eurocurrency lending office) or the interbank market any other condition
affecting a LIBOR Balance, this Note or Payee’s obligation to compute the
interest on the balance of this Note at a rate based upon the LIBOR Base Rate;
and the result of any of the foregoing is to increase the cost to Payee of
maintaining a LIBOR Balance, or to reduce the amount of any sum received or
receivable by Payee under this Note by an amount deemed by Payee to be
material, then upon demand by Payee, Maker shall pay to Payee such additional
amount or amounts as will compensate Payee for such increased cost or
reduction, the amount of which, when aggregated with interest to be paid under
the LIBOR Balance, does not exceed the interest which would have been payable
had the balance been calculated using the WFB Base Rate.  Payee will promptly notify Maker of any
event of which it has knowledge, occurring after the date hereof, which will
entitle Payee to compensation pursuant to this paragraph.  A certificate of Payee claiming compensation
under this paragraph and setting forth the additional amount or amounts to be
paid to Payee hereunder shall be conclusive in the absence of manifest error.

 

(d)           Effect on Balances. 
If notice has been given requiring a LIBOR Balance to be repaid or
converted to the WFB Base Rate Balance, then unless and until Payee notifies
Maker that the circumstances giving rise to such repayment no longer apply, the
Interest Option shall be a rate based upon the WFB Base Rate.  If Payee notifies Maker that the
circumstances giving rise to such repayment or conversion no longer apply,
Maker may thereafter select a rate based upon the LIBOR Base Rate in accordance
with the terms of this Note.

 

9.             Extension, Place and Application of
Payments.  Subject to the terms of the definitions of
LIBOR Interest Period, should the principal of, or any interest on, this Note
become due and payable on any day other than a Business Day, the maturity thereof
shall be extended to the next succeeding Business Day, and interest shall be
payable with respect to such extension. 
All payments of principal of, and interest on, this Note shall be made
by Maker to Payee at Payee’s principal banking office in Dallas, Texas in
federal or other immediately available funds. 
Payments made to Payee by Maker hereunder shall be applied first to
accrued interest and then to principal.

 

10.           Repayments of WFB Base Rate Balances;
Prepayments of LIBOR Balances; Consequential Loss. 
Maker may repay any WFB Base Rate Balance at any time without premium or
penalty and without prior notice.  Maker
may prepay any LIBOR Balance prior to

 

7

 

the expiration of the applicable LIBOR Interest Period
upon three (3) Business Days prior written notice subject to Maker’s payment of
the Consequential Loss incurred by Payee as a result of the timing of such
prepayment; provided, however, that Maker shall not have the
option to designate any portion of the unpaid principal balance hereof to bear
interest at a rate based upon the LIBOR Base Rate for a period of ninety (90)
days following any such prepayment of any LIBOR Balance.  Any repayment or permitted prepayment of
principal made hereunder shall not be less than $100,000 (or, if greater than
$100,000, in integral multiples of $100,000, or such lesser amount as is then
outstanding under this Note).  Any
repayment or permitted prepayment of principal made hereunder shall be made
together with interest accrued through the date of such repayment or
prepayment, as applicable.

 

11.           Advance Notice. 
Payee will use its best efforts to supply the Maker advance notice of
the interest and/or principal amounts that the Payee has calculated are due at
the scheduled payment dates at least one day in advance, assuming the unpaid
principal balance and interest rate remain the same until such scheduled
payment date.  Notwithstanding the
foregoing, no failure by the Payee to give such notice will reduce the obligation
of the Maker to pay such amounts on the date they become due.

 

12.           Notices.  All notices
required or permitted hereunder shall be in writing and shall be deemed to have
been given or made as follows: 
(a) if sent by hand delivery, upon delivery; (b) if sent by
registered or certified mail, return receipt requested, upon receipt (as
indicated on the return receipt); and (c) if sent by facsimile, upon
receipt (which shall be confirmed by a confirmation report from the sender’s
facsimile machine), addressed to Maker or Payee at the following respective
addresses or such other address as such party may from time to time designate
by written notice to the other:

 

	
  Payee:

  	
  Wells Fargo Bank, National Association

  
	
   

  	
  1445 Ross Avenue, 3rd Floor

  
	
   

  	
  MAC T5303-031

  
	
   

  	
  Dallas, Texas 75202

  
	
   

  	
  Attention:  Susan K. Nugent,
  Assistant Vice President

  
	
   

  	
  Fax:  (214) 969-0370

  
	
   

  	
   

  
	
  Maker:

  	
  Fossil Partners, L.P.

  
	
   

  	
  2280 N. Greenville Avenue

  
	
   

  	
  Richardson, Texas 75082-4412

  
	
   

  	
  Attention:  Mike L. Kovar

  
	
   

  	
  Fax:  (972) 498-9448

  

 

13.           Legal Fees.  If this Note
is placed in the hands of any attorney for collection, or if it is collected
through any legal proceeding at law or in equity or in bankruptcy, receivership
or other court proceedings, Maker agrees to pay all costs of collection
including, but not limited to, court costs and reasonable attorneys’ fees.

 

14.           Waivers.  Maker and
each surety, endorser, guarantor and other party ever liable for payment of any
sums of money payable on this Note, jointly and severally waive presentment and
demand for payment, protest, notice of protest, intention to accelerate,
acceleration and non-

 

8

 

payment, or other notice of default, and agree that
their liability under this Note shall not be affected by any renewal or
extension in the time of payment hereof, or in any indulgences, or by any
release or change in any security for the payment of this Note, and hereby
consent to any and all renewals, extensions, indulgences, releases or changes,
regardless of the number of such renewals, extensions, indulgences, releases or
changes.

 

No waiver by Payee
of any of its rights or remedies hereunder or under any other document
evidencing or securing this Note or otherwise shall be considered a waiver of
any other subsequent right or remedy of Payee; no delay or omission in the
exercise or enforcement by Payee of any rights or remedies shall ever be
construed as a waiver of any right or remedy of Payee; and no exercise or
enforcement of any such rights or remedies shall ever be held to exhaust any
right or remedy of Payee.

 

15.           Acceleration. 
If Maker fails or refuses to pay any part of the principal of or
interest upon this Note as the same become due, or upon the occurrence of any
Event of Default or other default hereunder or under any other agreement or
instrument securing or assuring the payment of this Note or executed in
connection herewith, then in any such event the holder hereof may, at its
option, declare the entire unpaid balance of principal and accrued interest on
this Note to be immediately due and payable, and foreclose all liens and
security interests securing payment hereof or any part hereof.

 

16.           Interest Laws; Spreading. 
Any provision herein, or in any document securing this Note, or any
other document executed or delivered in connection herewith, or in any other
agreement or commitment, whether written or oral, expressed or implied, to the
contrary notwithstanding, neither Payee nor any holder hereof shall in any
event be entitled to receive or collect, nor shall or may amounts received
hereunder be credited, so that Payee or any holder hereof shall be paid, as
interest, a sum greater than the maximum amount permitted by applicable law to
be charged to the person, partnership, firm or corporation primarily obligated
to pay this Note at the time in question. 
If any construction of this Note or any document securing this Note, or
any and all other papers, agreements or commitments, indicate a different right
given to Payee or any holder hereof to ask for, demand or receive any larger
sum as interest, such is a mistake in calculation or wording which this clause
shall override and control, it being the intention of the parties that this
Note, and all other instruments securing the payment of this Note or executed
or delivered in connection herewith shall in all things comply with applicable
law and proper adjustments shall automatically be made accordingly.  In the event that Payee or any holder hereof
ever receives, collects or applies as interest, any sum in excess of the
Maximum Rate, if any, such excess amount shall be applied to the reduction of
the unpaid principal balance of this Note, and if this Note is paid in full,
any remaining excess shall be paid to Maker. 
In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, if any, Maker and Payee or any
holder hereof shall, to the maximum extent permitted under applicable law: (a)
characterize any non-principal payment as an expense or fee rather than as
interest, (b) exclude voluntary prepayments and the effects thereof, (c)
“spread” the total amount of interest throughout the entire term of this Note;
provided that if this Note is paid and performed in full prior to the end of
the full contemplated term hereof, and if the interest received for the actual
period of existence thereof exceeds the Maximum Rate, if any, Payee or any
holder hereof shall refund to Maker the amount of such excess, or credit the
amount

 

9

 

of such excess against the aggregate unpaid principal
balance of all advances made by the Payee or any holder hereof under this Note
at the time in question.

 

17.           Choice of Law. 
This Note is being executed and delivered, and is intended to be
performed in the State of Texas.  Except
to the extent that the laws of the United States may apply to the terms hereof,
the substantive laws of the State of Texas shall govern the validity,
construction, enforcement and interpretation of this Note. In the event of a
dispute involving this Note or any other instruments executed in connection
herewith, the undersigned irrevocably agrees that venue for such dispute shall
lie in any court of competent jurisdiction in Dallas County, Texas to the
extent such dispute is not resolved by binding arbitration pursuant to the
Payee’s current Arbitration Program described in Section 19 below.

 

18.           Loan Agreement. 
This Note is executed in connection with the Loan Agreement and the
holder hereof is entitled to all the benefits provided therein and in the other
agreements, documents, instruments and certificates entered into in connection
with the Loan Agreement.

 

19.           AGREEMENT FOR BINDING ARBITRATION.  The parties agree to be bound by the terms
and provisions of the Payee’s current Arbitration Program 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.

 

[THE REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK]

 

10

 

IN WITNESS
WHEREOF, Maker has caused this Note to be duly executed and delivered in
Dallas, Texas, as of the date first above written.

 

	
   

  	
  FOSSIL PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   Fossil, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   Randy S. Kercho,

  
	
   

  	
   

  	
   Executive Vice PresidentExhibit 10.3

 

STOCK PLEDGE AGREEMENT

 

THIS
STOCK PLEDGE AGREEMENT (this “Agreement”) is entered into as of September 23,
2004, between FOSSIL, INC., a
Delaware corporation (“Pledgor”), and WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association (“Pledgee”).

 

1.             In consideration of any extension of credit heretofore
or hereafter made by Pledgee to Fossil Partners, L.P., a Texas limited
partnership (“Borrower”), and as collateral security for and to secure
the prompt payment and performance in full of all obligations of Pledgor to
Pledgee under that certain Guaranty Agreement, dated as of September 23,
2004 (as hereinafter amended, modified and/or restated from time to time),
pursuant to which Pledgor has absolutely and unconditionally guaranteed to
Pledgee the prompt payment and performance in full of all now existing or
hereafter arising obligations, liabilities and indebtedness of Borrower to
Pledgee under that certain Loan Agreement dated as of September 23, 2004
by and among Pledgee, Borrower, Pledgor and the subsidiaries and/or affiliates
of Pledgor from time to time a party thereto, as guarantors (as hereinafter
amended, modified and/or restated from time to time, the “Loan Agreement”),
Pledgor hereby assigns to Pledgee and grants to Pledgee a continuing security
interest in sixty-five percent (65%) of all issued and outstanding shares of
capital stock (including, without limitation, all shares of common stock
represented by the stock certificates identified on Schedule I
attached hereto) of each of Fossil Europe B.V. and Fossil (East) Limited (each
individually, a “Subsidiary” and collectively, the “Subsidiaries”),
whether now or hereafter issued by the Subsidiaries, together with all
proceeds, products and increases thereof and substitutions and replacements
therefor (collectively, the “Collateral”).  The obligations referenced above, together with any subsequent
renewals, extensions, modifications or increases thereof, are collectively
referred to as the “Secured Obligations.”

 

2.             Pledgor represents and warrants that (i) Pledgor holds
absolute ownership of the Collateral, free and clear of all liens and
encumbrances; (ii) there are no restrictions upon the transfer of any of the
Collateral, other than as may appear and may be referenced on the face of the
certificates or other than arising under applicable state or federal securities
laws or laws of the jurisdiction in which such Subsidiaries are incorporated;
(iii) Pledgor owns directly or indirectly (A) 70% of the issued and outstanding
capital stock of Fossil Europe B.V., and (B) 100% of the issued and outstanding
capital stock of Fossil (East) Ltd; (iv) there are no existing obligations to
issue capital stock or securities convertible into capital stock of any
Subsidiary and in no event will Pledgor permit any such stock or securities to
be issued prior to payment in full of the Secured Obligations; and (v) there
are no existing securities or obligations of any Subsidiary the amount of which
obligation is based, in whole or in part, on the value of any Subsidiary’s
capital stock or any increase thereof, nor will Pledgor permit any such
securities or obligations to exist prior to payment in full of the Secured
Obligations.

 

3.             In furtherance of Pledgee’s security interest in the
Collateral, Pledgor agrees to deliver to Pledgee, on the date hereof (to the
extent not previously delivered to Pledgee), the stock certificates identified
on Schedule I attached hereto, together with stock powers duly executed in
blank by Pledgor.  Pledgee acknowledges
that notwithstanding Pledgor’s delivery to Pledgee of stock certificates
representing in excess of sixty-five percent (65%) of the issued and

 

 

outstanding
shares of capital stock of the Subsidiaries, Pledgee’s security interest
hereunder shall be limited to sixty-five percent (65%) of the issued and
outstanding shares of capital stock of the Subsidiaries.

 

4.             With respect to the Collateral and all proceeds,
products and increases thereof and substitutions therefor, Pledgor hereby
appoints Pledgee its attorney-in-fact, to arrange for the transfer of the
Collateral on the books of the Subsidiaries to the name of Pledgee subsequent
to the occurrence and during the continuance of any Event of Default (as
hereinafter defined) hereunder. 
However, Pledgee shall be under no obligation to do so.

 

5.             During the term of this Agreement, provided no Event
of Default has occurred and then exists hereunder, Pledgor shall have the
right, where applicable, to vote the Collateral on all corporate questions, and
Pledgee shall, if necessary, execute due and timely proxies in favor of Pledgor
for this purpose; provided, however, that Pledgor will not be
entitled to exercise any such right if the result thereof could reasonably be
expected to materially and adversely affect the rights inuring to Pledgee
hereunder or the rights and remedies of Pledgee under this Agreement or the
ability of Pledgee to exercise the same.

 

6.             Upon the occurrence of any Event of Default and during
the continuance thereof, Pledgee may exercise all of the rights and privileges
in connection with the Collateral (including, without limitation, voting
rights) to which a transferee may be entitled as the record holder thereof,
together with the rights and privileges otherwise granted hereunder.  Pledgee shall be under no obligation to
exercise any of such rights or privileges.

 

7.             If, with the consent of Pledgee, Pledgor shall
substitute or exchange other securities in place of those herein mentioned, all
of the rights and privileges of Pledgee and all of the obligations of Pledgor
with respect to the securities originally pledged or held as Collateral
hereunder shall be forthwith applicable to such substituted or exchanged
securities.

 

8.             Upon the occurrence of any Event of Default and during
the continuance thereof, Pledgee shall be authorized to collect all dividends,
interest payments, and other amounts (including amounts received or receivable
upon redemption or repurchase) that may be, or become, due on any of the
Collateral.  If Pledgor receives any such
dividends, payments or amounts after the occurrence and during the continuance
of an Event of Default, it shall immediately endorse and deliver the same to
Pledgee in the form received.  All such
amounts which Pledgee receives and retains in accordance with the terms of this
paragraph 8 shall be applied to reduce the principal amount outstanding on the
Secured Obligations in inverse order of maturity.  Pledgee is, furthermore, authorized to give receipts in the name
of Pledgor for any amounts so received. 
Pledgee shall be under no obligation to collect any such amounts.

 

9.             In the event that, during the term of this Agreement,
subscription warrants or any other rights or options shall be issued in
connection with the Collateral, such warrants, rights, or options shall be
immediately assigned, if necessary, by Pledgor to Pledgee.  If any such warrants, rights, or options are
exercised by Pledgor, all new securities so acquired by Pledgor shall be
immediately assigned to Pledgee, shall become part of the Collateral and shall
be endorsed to, delivered to and held by Pledgee under the terms of this
Agreement in the same manner as the securities originally pledged.

 

2

 

10.           In the event that, during the term of this Agreement,
any share, dividend, reclassification, readjustment or other change is declared
or made in the capital structure of any Subsidiary, all new, substituted and
additional shares, or other securities and related stock certificates, issued by
reason of any such change shall become part of the Collateral and shall be
endorsed to, delivered to and held by Pledgee under the terms of this Agreement
in the same manner as the securities originally pledged hereunder (except to
the extent that any such pledge by Pledgor to Pledgee would cause more than
sixty-five percent (65%) of the issued and outstanding shares of capital stock
of any Subsidiary to become subject to Pledgee’s security interest hereunder).

 

11.           Pledgor authorizes Pledgee, without notice or demand,
and without affecting the liability of Pledgor hereunder, from time to time to:

 

(A)          hold security in addition to and other than the
Collateral for the payment of the Secured Obligations or any part thereof, and
exchange, enforce, waive and release any Collateral or any part thereof, or any
other such security, or part thereof;

 

(B)           release any of the endorsers or guarantors of the
Secured Obligations secured hereunder or any part thereof, or any other person
whomsoever liable for or on account of such Secured Obligations;

 

(C)           on the transfer of all or any part of the Secured
Obligations secured hereunder, Pledgee may assign all or any part of Pledgee’s
security interest in the Collateral and shall be fully discharged thereafter
from all liability and responsibility with respect to the Collateral so
transferred, provided that in no event shall Pledgee be liable for any act or
omission or negligent act or negligent omission with respect to the Collateral,
other than acts or omissions constituting gross negligence, willful misconduct
or tortious breach of contract.  The
transferee of the Collateral shall be vested with the rights, powers and
remedies of Pledgee hereunder, and with respect to any Collateral not so
transferred, Pledgee shall retain all rights, powers and remedies hereby given;
and

 

(D)          Pledgor hereby waives any right to require Pledgee to
proceed against Pledgor, Borrower or any other person whomsoever, to proceed
against or exhaust any collateral or any other security held by Pledgee, or to
pursue any other remedy available to Pledgee. 
Pledgor further waives any defense arising by reason of any liability or
other defense of Pledgor or of any other person.  Pledgor shall have no right to require Pledgee to marshal
collateral.

 

12.           It shall not be necessary for Pledgee to inquire into
the powers of Pledgor or the officers, directors or agents acting or purporting
to act on behalf of Pledgor, and any obligations made or created in reliance on
the professed exercise of such powers shall be secured hereunder.

 

13.           To the extent permitted by applicable law and in the
Loan Agreement, Pledgee shall be under no duty or obligation whatsoever to make
or give any presentments, demands for performance, notices of non-performance,
protests, notices of protest, or notices of dishonor in connection with the
Secured Obligations.

 

3

 

14.           The occurrence of an event of default under and as
defined in the Loan Agreement shall, at the option of Pledgee, constitute an “Event
of Default” under this Agreement.

 

15.           Upon the occurrence and during the continuance of any
Event of Default, the Secured Obligations shall, at the option of Pledgee,
become immediately due and payable, and Pledgee shall have all rights and
remedies as a secured party under any UCC (as hereinafter defined), and such
additional rights and remedies to which a secured party is entitled under the
laws in effect in all relevant jurisdictions, and, in this connection, subject
to applicable regulatory and legal requirements, Pledgee may sell the
Collateral, or any part thereof, at public or private sale or at any broker’s
board or on any securities exchange or electronic trading facility, for cash,
upon credit or for future delivery as Pledgee shall deem appropriate.  Pledgee shall be authorized at any such sale
(if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale Pledgee
shall have the right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. 
Each such purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of Pledgor, and, to the
extent permitted by applicable law, Pledgor hereby waives all rights of
redemption, stay, valuation and appraisal Pledgor now has or may at any time in
the future have under any rule of law or statute now existing or hereafter
enacted.  Pledgee shall give each person
entitled to notice of such sale under Section 9-611(c) of the UCC ten (10)
days prior written notice (which Pledgor agrees is reasonable notice within the
meaning of Section 9-612 of the UCC) of Pledgee’s intention to make any
sale of Collateral.  Such notice shall
conform to the requirements of Section 9-613 of the UCC.  Any such public sale shall be held at such
time or times within ordinary business hours and at such place or places as
Pledgee may fix and state in the notice of such sale.  At any such sale, the Collateral, or portion thereof, to be sold
may be sold in one lot as an entirety or in separate parcels, as Pledgee may
(in its sole and absolute discretion) determine.  Pledgee shall not be obligated to make any sale of any Collateral
if it shall determine not to do so, regardless of the fact that notice of sale
of such Collateral shall have been given. 
Pledgee may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned.  In case any sale of all or
any part of the Collateral is made on credit or for future delivery, the
Collateral so sold may be retained by Pledgee until the sale price is paid in
full by the purchaser or purchasers thereof, but Pledgee shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and
pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. 
At any public (or, to the extent permitted by applicable law, private)
sale made pursuant to this Section, Pledgee may bid for or purchase, free from
any right of redemption, stay or appraisal on the part of Pledgor (all said
rights being also hereby waived and released), the Collateral or any part
thereof offered for sale and may make payment on account thereof by using any
claim then due and payable to it from Pledgor as a credit against the purchase
price, and it may, upon compliance with the terms of sale, hold, retain and
dispose of such property without further accountability to Pledgor
therefor.  For purposes hereof, (a) a
written agreement to purchase the Collateral or any portion thereof shall be
treated as a sale thereof, (b) Pledgee shall be free to carry out such sale
pursuant to such agreement, and (c) Pledgor shall not be entitled to the return
of the Collateral or any portion

 

4

 

thereof
subject thereto, notwithstanding the fact that after Pledgee shall have entered
into such an agreement, all Events of Default shall have been remedied and the
Obligations paid in full.  As an
alternative to exercising the power of sale herein conferred upon it, Pledgee
may proceed by a suit or suits at law or in equity to foreclose upon the
Collateral and to sell the Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this
Section shall be deemed to be a commercially reasonable disposition as
provided in Section 9-610 of the UCC. 
Pledgee shall receive the proceeds of any such sale or sales, and, after
deducting therefrom any and all reasonable costs and expenses incurred in
connection with the sale thereof, apply the net proceeds toward the payment of
the Secured Obligations secured hereunder, including interest, reasonable
attorneys’ fees, and all other reasonable costs and expenses incurred by
Pledgee hereunder and under any other agreement between Pledgor and
Pledgee.  If such proceeds be more than
sufficient to pay the same, then in case of a surplus, such surplus shall be
accounted for and paid over to Pledgor, provided Pledgor be not then indebted
to Pledgee otherwise under this Agreement or any Other Agreement or for any
cause whatsoever.  As used herein, the
term “UCC” shall mean (i) the Uniform Commercial Code as in effect from time to
time in the State of Texas and (ii) in any case where mandatory choice or law
rules in the Texas Uniform Commercial Code require the application of the
Uniform Commercial Code of another jurisdiction, the Uniform Commercial Code of
such other jurisdiction as in effect from time to time.

 

16.           In view of the position of Pledgor in relation to the
Collateral, or because of other current or future circumstances, a question may
arise under the Securities Act of 1933, as now or hereafter in effect, or any
similar statute in any other jurisdiction or hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time
in effect being called the “Securities Laws”) with respect to any
disposition of the Collateral permitted hereunder.  Pledgor understands that compliance with the Securities Laws
might very strictly limit the course of conduct of Pledgee if Pledgee were to
attempt to dispose of all or any part of the Collateral, and might also limit
the extent to which or the manner in which any subsequent transferee of any
Collateral could dispose of the same. 
Similarly, there may be other legal restrictions or limitations
affecting Pledgee in any attempt to dispose of all or part of the Collateral
under applicable blue sky or other state securities laws or similar laws
analogous in purpose or effect.  Pledgor
recognizes that in light of such restrictions and limitations Pledgee may, with
respect to any sale of the Collateral, limit the purchasers to those who will
agree, among other things, to acquire such Collateral for their own account,
for investment, and not with a view to the distribution or resale thereof.  Pledgor acknowledges and agrees that in
light of such restrictions and limitations, Pledgee, in its sole and absolute
discretion, (a) may proceed to make such a sale whether or not a registration
statement for the purpose of registering such Collateral or part thereof shall
have been filed under the Securities Laws and (b) may approach and negotiate
with a single potential purchaser or a limited number of potential purchasers
to effect such sale.  Pledgor
acknowledges and agrees that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a public sale without
such restrictions.  In the event of any
such sales, Pledgee shall incur no responsibility or liability for selling all
or any part of the Collateral at a price that Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration under the
Securities Laws or if more than a single purchaser or a limited number of

 

5

 

purchasers
were approached.  The provisions of this
Section will apply notwithstanding the existence of a public or private
market upon which the quotations or sales prices may exceed substantially the
price at which Pledgee sells.

 

17.           Pledgor agrees to execute and deliver to Pledgee such
financing statements, continuation statements or amendments of financing
statements, each in form reasonably acceptable to Pledgee, as Pledgee may from
time to time reasonably request, or as are necessary or desirable in the
opinion of Pledgee to establish and maintain a valid, enforceable, first
priority perfected security interest in the Collateral as provided herein, and
the other rights and security contemplated hereby, all in accordance with the
UCC as enacted in any and all relevant jurisdictions, or any other relevant
law.  Pledgor hereby authorizes Pledgee
to file any such financing statements without the signature of Pledgor where
permitted by law.  Pledgee is herby
authorized to make filings with such recording offices and such other
governmental authorities as Pledgee may consider necessary or appropriate for
the purpose of perfecting, confirming, continuing, enforcing or protecting the
security interests and liens granted to Pledgor by Pledgee.  Pledgor will pay any applicable filing fees,
recordation taxes and related expenses relating to the Collateral.

 

18.           Pledgor hereby constitutes and appoints Pledgee its
true and lawful attorney, irrevocably, with full power after the occurrence of
and during the continuance of an Event of Default (in the name of Pledgor or
otherwise) (i) to act, require, demand, receive, compound and give acquittance
for any and all moneys and claims for moneys due or to become due to Pledgor
under or arising out of the Collateral, (ii) to endorse any checks or other
instruments or orders in connection therewith, (iii) to file any claims or take
any action or institute any proceedings which Pledgee may deem to be necessary
or advisable to protect its interests and (iv) to execute, deliver, record or
file any other document or instrument and take such other actions as it
considers appropriate in connection with the perfection, protection or
enforcement of its security interest in the Collateral, the possession,
maintenance, preparation for sale, foreclosure, sale, lease, exchange or other
disposition or release of any Collateral or the exercise of any rights or
remedies provided in this Agreement, which appointment as attorney is coupled
with an interest.

 

19.           Upon indefeasible repayment in full in cash of the
Secured Obligations, Pledgee will promptly, at Pledgor’s expense, deliver all
of the Collateral to Pledgor along with all instruments of assignment executed
in connection therewith, and execute and deliver to Pledgor such documents as
Pledgor shall reasonably request to evidence Assignor’s release of Pledgee’s security
interest hereunder.

 

20.           Choice of Law.  This
Agreement is being executed and delivered, and is intended to be performed in
the State of Texas.  Except to the
extent that the laws of the United States may apply to the terms hereof, the
substantive laws of the State of Texas shall govern the validity, construction,
enforcement and interpretation of this Agreement.  In the event of a dispute involving this Agreement or any other
instruments executed in connection herewith, the undersigned irrevocably agrees
that venue for such dispute shall lie in any court of competent jurisdiction in
Dallas County, Texas to the extent such dispute is not resolved by binding
arbitration pursuant to Pledgee’s current Arbitration Program described in Section 22
below.

 

6

 

21.           Loan Agreement.  This
Agreement is executed in connection with the Loan Agreement and Pledgee is
entitled to all the benefits provided therein and in the other agreements,
documents, instruments and certificates entered into in connection with the
Loan Agreement.

 

22.           AGREEMENT
FOR BINDING ARBITRATION. 
The parties agree to be bound by the terms and provisions of Pledgee’s
current Arbitration Program 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.

 

7

 

IN WITNESS WHEREOF, Pledgor and Pledgee have executed this Agreement as
of the date first above written.

 

	
   

  	
  PLEDGOR:

  
	
   

  	
   

  
	
   

  	
  FOSSIL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Randy S. Kercho, Executive Vice President

  
	
   

  	
   

  
	
   

  	
  PLEDGEE:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Susan K. Nugent, Assistant Vice President

  
						

 

 

SCHEDULE I

 

(See attached)

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