Exhibit 10.8
TAX DISAFFILIATION AGREEMENT
THIS AGREEMENT dated as of this of this 23 day of October, 1995, by and
between Kansas City Southern Industries, Inc., a Delaware corporation ("KCSI")
and DST Systems, Inc., a Delaware corporation ("DST").
WHEREAS, KCSI is the common parent of an affiliated group of corporations
within the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and the members of the affiliated group, which include DST
and its subsidiaries, have heretofore joined in filing consolidated federal
income tax returns;
WHEREAS, a sale of shares of DST in a public offering will reduce KCSI's
ownership of DST to less than eighty percent, and DST and its subsidiaries will
no longer be members of the KCSI affiliated group for federal income tax
purposes;
WHEREAS, KCSI and DST desire on behalf of themselves, their subsidiaries
and their successors to set forth their rights and obligations with respect to
taxes due for periods before and after the Date upon which DST and its
subsidiaries are no longer members of the KCSI affiliated group, including
obligations with respect to any adjustments to the consolidated federal income
tax returns of KCSI through such date.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties agree as follows:
ARTICLE I. PREPARATION AND FILING OF TAX RETURNS
Section 1.1 Responsibility for Preparation of Consolidated and Combined
Returns. KCSI shall timely file or cause to be filed all tax returns and reports
which are filed on a consolidated or combined basis including DST and any of its
subsidiaries (a) for all periods ending on or prior to the day on which DST
ceases, by reason of the sale of shares of DST stock, to be a member of the
affiliated group of which KCSI is the common parent (the "Sale Date"), and (b)
that are required to be filed for the taxable year of the KCSI affiliated group
that begins before and ends on or after the Sale Date. For purposes of this
agreement, (i) "Subsidiary" shall mean any corporation as to which the ownership
test of Section 1504(a)(2) of the Internal Revenue Code of 1986, as amended (or
any predecessor provision) is now or was in the past met, but including any such
corporation only for the period or periods as to which such ownership test was
met; (ii) the "DST Group" shall mean DST and its Subsidiaries; and (iii) the
"KCSI Group" shall mean KCSI and its Subsidiaries other than members of the DST
Group. Notwithstanding the foregoing to the contrary, Wyandotte Garage
Corporation shall be treated as a member of only the KCSI Group and First
President Corporation shall be treated as a member of only the DST Group. DST
shall provide, at DST's expense and to the extent permitted by law, consistent
with DST's past tax accounting methods, information necessary for KCSI to
complete the portion of the KCSI consolidated and combined returns relating to
the DST Group for the period through the Sale Date (or such longer period as
necessary for the ratable allocation election discussed below) and any periods
thereafter which are included in a KCSI consolidated or combined return. Each
return and supporting details shall provide the type of information on members
of the DST Group as is consistent with past practice and shall be prepared in
accordance with the Tax Allocation Agreement dated January 1, 1989 between KCSI
and DST (the "DST Tax
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Allocation Agreement"). For purposes of each federal income tax return, DST and
KCSI shall make an irrevocable ratable allocation election under Treasury
Regulation (S)1.1502 -76(b)(2)(ii) or any successor provision, and each shall
take all action reasonably required of it to comply with the requirements of
such election. DST shall submit all such information and supporting details to
KCSI at least forty-five (45) days prior to the date on which the consolidated
or combined returns are due, including extensions.
Section 1.2 Payment of Taxes. With respect to periods covered by returns
prepared in accordance with Section 1.1, DST shall make estimated tax payments
in accordance with the DST Tax Allocation Agreement and also shall pay to KCSI
any additional taxes of the DST Group which are due at the time of filing any
request for an extension of the time to file a return. After the filing of such
consolidated or combined returns, DST shall pay to KCSI the excess, if any, of
the final tax liability of the DST Group over any estimated tax payments or
other credits relating to the DST Group, and KCSI shall pay to DST the excess,
if any, of any such estimated tax payments and other credits over the final tax
liability of the DST Group. Such payments shall be made within 15 days after the
filing of any federal consolidated return and, with respect to all consolidated
or combined state returns covering the same tax period, within 15 days after the
filing of the last such state return.
Section 1.3 DST Tax Allocation Agreement. The DST Tax Allocation
Agreement, including without limitation the provisions thereof relating to
estimated tax payments, shall remain in effect solely for the purpose of returns
prepared after the date of this Agreement in accordance with Section 1.1 and
with respect to the periods covered by such returns. In the event of any
conflict or inconsistency between the DST Tax Allocation Agreement and this
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agreement, this agreement shall govern. Except as otherwise specifically
provided in this agreement, the DST Tax Allocation Agreement shall have no
application to taxable periods ending after the Sale Date.
Section 1.4 Other Returns. KCSI shall timely file or cause to be filed
all other tax returns and reports required with respect to the KCSI Group, and
DST shall timely file or cause to be filed all other tax returns and reports
with respect to the DST Group.
ARTICLE II. INDEMNIFICATION OF TAX LIABILITIES
Section 2.1 Indemnification by KCSI. KCSI shall indemnify and hold
harmless DST and each member of the DST Group against liability for any and all
Taxes attributable to the income, operations or assets of the KCSI Group,
whether arising before or after the Sale Date. As used herein, "Taxes" means
all taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profit taxes, customs,
duties or similar fees, assignments or charges of any kind whatsoever, together
with any interest, penalties and other additions to tax imposed by any
governmental authority, domestic or foreign.
Section 2.2 Indemnification by DST. DST shall indemnify and hold
harmless KCSI and each member of the KCSI Group against liability for any and
all Taxes (other than Taxes arising from the triggering of any excess loss
account relating to KCSI's ownership of DST
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stock) attributable to the income, operations or assets of the DST Group,
whether arising before or after the Sale Date.
Section 2.3 All indemnity payments made pursuant to Section 2.1 or 2.2
with respect to periods for which consolidated or combined returns were filed
and which included members of both the KCSI Group and the DST Group shall be
treated, to the fullest extent possible, as payments made directly to the taxing
authority by a taxpayer having a direct obligation (whether joint or joint and
several) to the taxing authority.
ARTICLE III. REFUNDS AND CARRYBACKS
Section 3.1 Tax Refunds. KCSI shall pay to DST any refund of any Tax and
any interest on such refund which is received after the Sale Date by any member
of the KCSI Group or credited after the Sale Date against any liability of any
member of the KCSI Group and which is attributable to the income, operations or
assets of any member of the DST Group. Such payment shall be made within ten
days of receipt or the crediting of such refund. The crediting of a refund shall
be deemed to occur at the time the liability would have been paid absent the
refund.
Section 3.2 Carrybacks. If any member of the DST Group generates a
deduction, loss or credit for any Tax period ending after the Sale Date that can
be carried back to any prior consolidated or combined Tax year which includes
members of both the KCSI Group and the DST Group, KCSI shall, at the written
request of DST and at DST's expense, prepare and file an amended return for such
prior year reflecting such carryback. KCSI shall pay to DST an amount
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equal to any Tax refund and interest received with respect to such carryback in
accordance with Section 3.1.
Section 3.3 AMT Credits. The parties acknowledge that DST has not paid
any Alternative Minimum Tax ("AMT") for federal income tax purposes, even though
AMT has been incurred by the KCSI affiliated group. However, applicable
regulations may require that a portion of the group's AMT credit carryforward be
allocated to DST. If a portion of such carryforward is allocated to DST under
Treasury Regulation (S)1.1501-55(h) (6) for years prior to 1995 and reduces
DST's tax liability, DST shall pay KCSI an amount equal to such portion by
October 31, 1995. If any AMT credit carryforward becomes available with respect
to the KCSI affiliated group's 1995 tax year and any portion thereof is
allocated to DST under the aforesaid regulation and reduces DST's tax liability,
DST shall pay KCSI an amount equal to such portion by October 31, 1996.
ARTICLE IV. TAX AUDITS
Section 4.1 General. Except as provided in Section 4.2, KCSI shall have
sole responsibility for all audits and other proceedings with respect to Taxes
or Tax returns or reports of the KCSI Group and DST shall have sole
responsibility for all audits and other proceedings with respect to Taxes or Tax
returns or reports of the DST Group.
Section 4.2 Indemnified Claims. KCSI or DST shall promptly notify the
other in writing of any proposed adjustment to a Tax return, report, or
obligation that may result in liability of the other party (the "Indemnitor")
under this Agreement. The Indemnitor shall have
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the right to control and contest the proposed adjustment and to employ counsel,
experts and consultants of its choice at its expense; provided, however, that if
the proposed adjustment involves a consolidated or combined return for which the
indemnified party is responsible and proceedings involving the proposed
adjustment cannot be separated from other proposed adjustments or proceedings,
the Indemnitor shall not settle the proposed adjustment without the written
consent of the indemnified party, which consent shall not be unreasonably
withheld. Upon request, the Indemnitor shall provide the indemnified party with
information about the nature and amounts of the proposed adjustment and the
status of the proceeding.
ARTICLE V. STOCK OPTIONS
The parties acknowledge that certain options to purchase KCSI common stock
granted to employees of the DST Group under KCSI stock options plans will remain
outstanding after the Sale Date and that DST rather than KCSI will be entitled
to federal and state income tax deductions associated with the exercise of such
options. To partially compensate KCSI for the value of the stock issued upon
exercise of such options, DST shall pay KCSI as purchase price for such stock
forty percent of the difference between (i) the fair market value of the KCSI
common stock on the date of exercise of the option, and (ii) the option price
received by KCSI from the optionee. The preceding sentence shall not apply to
options granted to employees of Vantage Computer Systems, Inc. The fair market
value of the KCSI common stock shall be determined in accordance with the terms
of KCSI's stock option plans. Such payments shall be made by DST to KCSI by the
tenth day of each calendar month with respect to options exercised during the
preceding month.
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ARTICLE VI. COOPERATION
KCSI and DST shall cooperate with each other as necessary in the filing of
Tax reports and returns and the conduct of audits and other proceedings and each
shall execute and deliver such powers of attorney and other documents and make
available such information and documents as are necessary to carry out the
intent of this Agreement. DST shall have the right to review returns filed
pursuant to Section 1.1 and any amended KCSI returns for periods prior to the
Sale Date which may affect the liability of DST under this Agreement, and may
control the presentation in such returns of any matters which affect DST's
liability. Each party agrees to notify the other party of any audit adjustment
which does not result in Tax liability but can be reasonably expected to affect
Tax reports or returns of the other party or any of its subsidiaries. KCSI and
DST shall retain adequate records, documents, accounting data and other
information necessary for the preparation and filing of all Tax returns and
reports required to be filed by any member of the KCSI Group or the DST Group
and for any audits and litigation relating to such returns and reports or to any
Taxes payable by any member of the KCSI Group or the DST Group for periods prior
to the Sale Date and to give the other party reasonable access to such records,
documents, accounting data and other information and to its personnel and
premises, for the purpose of the review or audit of such reports or returns and
obtaining copies thereof to the extent relevant to an obligation or liability of
a party under this Agreement. KCSI shall provide to DST, upon reasonable
request, all tax accounting information in KCSI's possession or control relating
to DST's operations and assets (for whatever purpose deemed necessary by DST),
including, without limitation, earnings and profits studies and calculations,
asset depreciation and amortization schedules and other such information. Tax
returns and reports and support files and work papers for periods ending on or
prior to the Sale Date shall remain in the possession of
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KCSI, subject to the provisions of the two preceding sentences. The obligations
set forth in the preceding sentence shall continue until the final conclusion of
any litigation to which the records and information relate or until expiration
of all applicable statutes of limitations, whichever is longer.
ARTICLE VII. MISCELLANEOUS PROVISIONS
Section 7.1 Notices. Any notice required or permitted to be given
pursuant to this Agreement shall be in writing and shall be delivered
personally, by courier service providing a delivery receipt or by registered or
certified U.S. mail, postage prepaid, to the other party at the address set
forth below or at such other address as the party may designate by written
notice to the other party:
If to KCSI:
Kansas City Southern Industries, Inc.
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▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
If to DST:
DST Systems, Inc.
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▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
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Section 7.2 Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of Missouri, without regard
to its principles of conflicts of laws.
Section 7.3 Complete Agreement. Except for the DST Tax Allocation
Agreement, this agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all other prior
negotiations, agreements and understandings between the parties with respect to
the subject matter hereof.
Section 7.4 Successors and Assignment. This agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns. KCSI and DST hereby guarantee the performance of
actions, agreements and obligations contained in this Agreement of each member
of the KCSI Group and the DST Group, respectively. Neither KCSI nor DST shall
assign any of their rights or delegate any of their duties under this Agreement
without the prior written consent of the other party, which consent shall not be
unreasonably withheld.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
KANSAS CITY SOUTHERN INDUSTRIES, INC.
By /s/ ▇. ▇. ▇▇▇▇▇▇▇
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DST Systems, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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