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TAX INDEMNITY AGREEMENT
This Tax Indemnity Agreement ("Agreement") is
dated for reference purposes only December 28, 2006, and is by and
between OraLabs, Inc., a Colorado corporation ("OraLabs"), China
Precision Steel, Inc., formerly known as OraLabs Holding Corp., a
Colorado corporation ("Holding") and Partner Success Holdings
Limited, a British Virgin Islands international business company
("PSHL").
WHEREAS, Holding and PSHL entered into a Stock
Exchange Agreement (the "Exchange Agreement") dated as of March 31,
2006, as amended by First Amendment to Stock Exchange Agreement
("First Amendment") and the Second Amendment to Stock Exchange
Agreement, dated October 12, 2006, under which, among other things,
PSHL became on even date herewith (the "Closing Date") a
wholly-owned subsidiary of Holding in consideration for the
issuance to the principals of PSHL and their designees of
controlling ownership of Holding; and
WHEREAS, under the Exchange Agreement, such
acquisition of the ownership of PSHL was followed immediately on
the Closing Date by the redemption by Holding of all of the stock
of Holding owned individually by Gary H. Schlatter ("Schlatter") in
exchange for the conveyance to Schlatter of all of the stock of
OraLabs owned by Holding (the "Redemption Transaction");
and
WHEREAS, the parties agree that the Redemption
Transaction is a taxable transaction under the Internal Revenue
Code of 1986, as amended, (the "Code"), calculated upon the excess,
if any, of the value of OraLabs ("OraLabs Value") on the Closing
Date over Holding’s basis in the OraLabs’ common stock
owned by Holding immediately prior to the distribution of those
shares of common stock to Schlatter (the "Basis"), and that income
taxes assessed by a State may also be payable with respect to the
Redemption Transaction; and
WHEREAS, on the Closing Date, OraLabs estimated
that the Basis is $7,006,586 and the OraLabs Value is $8,542,000,
(as determined from a fairness opinion from Capitalink, L.C.);
and
WHEREAS, on the Closing Date, the Spinoff Tax
Liability (defined below) was estimated to be $522,041, and to pay
the same, OraLabs purchased 100,000 shares of common stock from
Holding for the total purchase price of $450,690, and paid to
Holding an additional sum of $71,351 (the "Cash Payment")
(collectively, the "Estimated Tax") plus a Gross-Up Amount (as
defined in Section 5B below) on the Cash Payment of $36,756.25, to
provide the public company with the funds to pay the Estimated Tax
and taxes thereon; and
WHEREAS, Holding and PSHL have required an
indemnity from OraLabs to the extent that the amount of Spinoff Tax
Liability owing with respect to the Redemption Transaction is
Finally Determined to be more than the Estimated Tax, and OraLabs
is willing to provide an indemnity in accordance with the
provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing
recitals and for other good and valuable consideration, the receipt
and sufficiency of which is acknowledged by the parties, the
parties agree as follows:
1. For the purposes
of this Agreement, the capitalized terms set forth below have the
meanings set forth in this Section:
1.1 "Final
Determination" or "Finally Determined" means with respect to any
liability for Taxes for any period, (a) a final, unappealable
decision by a court of competent jurisdiction, (b) the expiration
of applicable statutes of limitations on assessment of Taxes or
filing of claims for refund, (c) the execution of a closing
agreement under section 7121 of the Code or the acceptance by the
IRS of an offer in compromise pursuant to section 7122 of the Code
(or similar agreements with tax authorities entered into under
applicable state or local tax law), but excluding any agreement or
compromise that reserves (whether by its terms or by operation of
law) the right of the taxpayer to file a claim for refund and/or
the right of the Taxing Authority to assert a further deficiency,
or (d) any other final, irrevocable and unappealable determination
of Taxes for such period.
1.2 "IRS" means the
United States Internal Revenue Service or any successor
thereto.
1.3 "Income Tax" or
"Income Taxes" means Taxes based upon or measured by net
income.
1.4 "Income Tax
Return" means a Tax Return relating to the payment or receipt of
any refund of any Income Tax.
1.5 "Neutral
Auditors" means a firm of nationally or regionally recognized
independent accountants who shall not have had a material
relationship with OraLabs, Holding or PSHL.
1.6 "Preclosing
Taxable Period" means a Taxable Year that ends on or before the
Closing Date.
1.7 "Spinoff Tax
Liability" means the excess of the OraLabs Value (as finally
determined) over the Basis (as finally determined) multiplied by
34% plus the state income tax rate, if applicable.
1.8 "Tax" or "Taxes"
means any taxes imposed by any federal, state or local government
or agency thereof within the United States.
1.9 "Tax Practices"
means the most recently applied policies, procedures and practices
employed by Holding in the preparation and filing of, and positions
taken on, any Tax Returns of Holding for any Preclosing Taxable
Period.
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1.10 "Tax Return"
means all returns and other filings relating to, or required to be
filed by any taxpayer in connection with, the payment or receipt of
any refund of any Income Tax.
1.11 "Taxable Year"
means a taxable year (which may be shorter than a full calendar or
fiscal year) or similar period with respect to which any Tax may be
imposed.
1.12 "Taxing
Authority" means the IRS or any other governmental authority
responsible for the administration of any Tax.
2. Holding has the
responsibility to file the Income Tax Return(s) that will report
the Redemption Transaction for the Taxable Year during which the
Closing Date occurs. Holding will prepare the Tax Return(s) with
respect thereto in a manner consistent with past Tax Practices
except as otherwise required by changes in applicable law or
material underlying facts. Holding will report the Redemption
Transaction in the Income Tax Return(s) for said Taxable Year and
agrees that the basis in its OraLabs stock and the value of OraLabs
will be reported as the Basis and OraLabs Value stated above.
However, the Basis calculation (but not the OraLabs Value) may be
adjusted as required by changes in applicable law or material
underlying facts, or by a determination by Holding after
Holding’s compliance with Section 4 below of a different
amount of Basis. The parties agree that OraLabs has no indemnity
obligation with respect to the amount of Income Tax owed with
respect to the Redemption Transaction except to the extent that the
amount of Spinoff Tax Liability exceeds the Estimated Tax. Prior to
Holding’s filing any Income Tax Return that reports the
Redemption Transaction, Holding will comply with the provisions of
Section 4 of this Agreement, and if the amount of Basis reported in
said Income Tax Return is lower than the Basis used to compute the
Estimated Tax, OraLabs will pay to Holding, within 30 days after
filing the Income Tax Return, the additional amount of Estimated
Tax calculated upon the lower Basis, plus the applicable Gross-Up
Amount defined in Section 5B. If the amount of Basis reported in
said Income Tax Return is higher than used to calculate the
Estimated Tax at Closing, then to the extent of any Cash Payment
(and Gross-Up Amount thereon) made at Closing, Holding will refund
to OraLabs an amount equal to the sum of the overpayment portion of
the Cash Payment made at Closing, plus the applicable Gross-Up
Amount on the refunded amount.
3. In the event that
Holding does not comply with its obligations under this Agreement,
then notwithstanding any provision of this Agreement to the
contrary, OraLabs will be relieved of all of its indemnity
obligations under this Agreement.
4. OraLabs will
cooperate and assist Holding in the preparation and filing of all
Tax Returns required to be filed for Holding after the date hereof
that relate to a Preclosing Taxable Period. At least 45 days prior
to the filing of any Tax Return (including amendments thereto) for
Holding for a Preclosing Taxable Period, Holding will provide
OraLabs with a copy of those portion
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