Exhibit 10.5


                               E L L E N  T R A C Y


                                                         As of September 8, 1998


Gargoyles, Inc.
5866 South 194th Street
Kent, Washington 98032

Attn:      Mr. Leo Rosenberger
           Mr. Douglas B. Hauff

Ladies and Gentlemen:

     Reference is made to that certain  License  Agreement  between Ellen Tracy,
Inc.  ("Ellen  Tracy") and Gargoyles  Acquisition  Corporation  II, now known as
Private Eyes Sunglass  Corporation  ("Licensee"),  a wholly-owned  subsidiary of
Gargoyles, Inc. ("Gargoyles"),  dated as of May, 1997 (the "Agreement"). Defined
terms used herein shall have the same meanings as in the Agreement.

     This shall confirm  that, by mutual  agreement of Ellen Tracy and Licensee,
the Agreement shall terminate as of September 8, 1998 (the "Termination  Date").
All accrued but unpaid Guaranteed Minimum Royalties in the amount of $214,375.00
shall be paid to Ellen Tracy by delivery  concurrently with the execution hereof
of (i) a  Promissory  Note  made  by  Licensee,  and  (ii) a  Guaranty,  made by
Gargoyles,  guaranteeing  Licensee's  obligations under such Promissory Note. On
the Termination  Date, all rights granted to Licensee  pursuant to the Agreement
shall  revert  to Ellen  Tracy.  Pursuant  to  Section  20(a) of the  Agreement,
Licensee agrees that,  following the Termination Date,  Licensee shall cease all
manufacturing,  by itself or by any third party with whom it has contracted,  of
any Licensed Articles, other than Licensed Articles which are part of the August
line  which are to be  delivered  in October  and  November  of 1998,  and shall
destroy or efface any items used to reproduce Licensed Properties.  Furthermore,
upon  countersignature  of this  letter and  delivery  thereof  to Ellen  Tracy,
Licensee  will deliver to Ellen Tracy (a) any and all artwork used or created by
it in connection with the Agreement, and (b) if Licensee has any unsold Licensed
Articles in inventory on the Termination Date, a complete and accurate statement
of the kinds  and  numbers  of such  unsold  Licensed  Articles.  Provided  that
Licensee has delivered to Ellen Tracy the Promissory  Note referred to above for
an amount equal to the Owed  Royalties  and Gargoyles has delivered the Guaranty
referred to above,  Licensee  may continue to sell such unsold  inventory  for a
limited  period  of 180 days  following  the  Termination  Date  (the  "Sell-Off
Period")  and shall pay Ellen Tracy  Actual  Royalties  with respect to any such
sales. If any such inventory  remains unsold at the end of the Sell-Off  Period,
such  Licensed  Articles  either shall be  destroyed or all Licensed  Properties
removed or  obliterated  therefrom.  In no event may Licensee sell or distribute
any Licensed Articles following the expiration of the Sell-Off Period.


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                               E L L E N  T R A C Y

Gargoyles, Inc.
As of September 8, 1998
Page 2

     Ellen Tracy and Licensee  hereby each waive all defaults (if any) occurring
prior to the Termination Date and hereby release each other and their respective
affiliates, successors, assigns, directors, officers and agents from any and all
liabilities  for payments of royalties and all other  obligations of the parties
arising under the Agreement prior to the Termination  Date, other than (i) those
obligations of the parties set forth in this letter and in the  Promissory  Note
and Guaranty  referred to above,  and (ii)  Licensee's  obligation  to pay Ellen
Tracy Actual  Royalties  with respect to sales of Licensed  Articles  during the
Sell-Off Period.

     This letter  agreement  contains  the entire  understanding  of the parties
regarding the  termination of the Agreement and supersedes all prior  agreements
and understandings of the parties relating thereto.

     Please  acknowledge  your agreement  with the foregoing by signing,  in the
space below,  the enclosed  two copies of this letter and  returning  one to the
undersigned.


                                      Very truly yours,

                                      ELLEN TRACY, INC.



                                      By: /s/ Howard Rosenberger
                                          ----------------------
                                          Howard Rosenberger



AGREED TO:

GARGOYLES, INC., on behalf of itself and its wholly-owned subsidiary,  
GARGOYLES ACQUISITION CORPORATION II, now known as 
Private Eyes Sunglass Corporation



By:  /s/ Leo Rosenberger            
     -------------------------------
     Leo Rosenberger, CEO & CFO