Guess Inc. and Fossil Inc. announced Friday that they are in advanced negotiations for a 10-year licensing agreement under which Fossil will produce and distribute Guess and Guess Collection watches beginning January 2007.

The companies plan to base minimum royalties on wholesale sales of $1.36 billion over the initial 10-year term of the agreement, which Fossil and L.A.-based Guess have an option to renew.

Fossil, based in Richardson, Texas, plans to form a separate company to handle the business and will use its network to expand the distribution of Guess watches. Guess and Guess Collection watches account for approximately $150 million in worldwide sales.

The agreement is expected to be finalized in the next week.

“We are confident that our proposed partnership with Fossil will be a strong one and should contribute to the further expansion of the business both domestically and internationally,” said Paul Marciano, co-chairman and co-CEO of Guess, in a statement.

Guess, which operates 302 retail stores in North America, began its licensed watch business 21 years ago. During that time, it worked with Callanen, a unit of Timex.