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Contingent Price Agreement

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CONTINGENT PRICE AGREEMENT


THIS CONTINGENT PRICE AGREEMENT (this "Agreement") is made as of this 14th day of May 1997, by and between GARGOYLES ACQUISITION CORPORATION II, a Washington corporation ( "Purchaser") and wholly-owned subsidiary of Gargoyles, Inc. ("Guarantor"), on the one hand, and THE PRIVATE EYES SUNGLASS CORPORATION, a Massachusetts corporation ("Seller"), on the other hand.


RECITALS


A. Seller owns and operates a business that designs, distributes and sells sunglasses and related products (the "Business") from its company headquarters located in Norwell, Massachusetts.


B. Seller and Purchaser are parties to that certain Asset Purchase and Sale Agreement of even date herewith (the "P&S Agreement") under which Seller has agreed to sell substantially all the assets used in the operation of its Business to Purchaser.


C. This Agreement is delivered in connection with the P&S Agreement. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the P&S Agreement.


AGREEMENT


NOW, THEREFORE, in consideration of the premises and the mutual agreements of the parties set forth herein, the parties hereto hereby agree as follows:


1. Definitions. The following capitalized terms used herein shall have the meanings ascribed to them below:


"Equitably Adjusted" means an adjustment to Gross Margin, Net Sales and/or the Contingent Price which may be agreed between Seller and Purchaser as required under the circumstances.


"Force Majeure" means any failure to perform an obligation due to causes beyond the obligor's control, including but not limited to, work stoppages, fire, civil disobedience, embargo, war, riots, rebellions, earthquakes, strikes, floods, water and the elements, acts of God or similar occurrences.


"Gross Margin" means a fraction, the numerator of which is Net Sales less cost of sales, including direct costs of the Products, cases, direct labor, if any, and an allocation of spoilage and reserve consistent with the treatment by


Page 1 2 Gargoyles, Inc. and its subsidiaries, which shall be no greater than such spoilage and reserve maintained by Seller during its 1996 fiscal year, and the denominator of which is Net Sales.


"Net Sales" means the actual invoice price for Products less trade and cash discounts, sales or similar transaction taxes, if any, freight charges if not separately invoiced, and returns and allowances.


"Products" means sunglasses, eyewear, accessories and related products sold in connection with the operation of the Business. If as a result of a corporate reorganization by Guarantor the product lines currently sold from the Business, including but not limited to, the Ellen Tracy, Emmanuelle Khahn and Private Eyes product lines, are transferred to Guarantor or to another one of its subsidiaries, the products in such product lines shall be deemed to be products sold in connection with the operation of the Business for purposes of this Agreement.


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