Exhibit 99.1
[ISG LETTERHEAD]
January 31, 2005
Mr. Carlos M. Hernandez, Esq.
General Counsel
International Steel Group Inc.
4020 Kinross Lakes Parkway
Richfield, Ohio 44286
Re: 280G Gross-Up Agreement
Dear Mr. Hernandez:
1. In consideration of your continued employment with International
Steel Group Inc. ("ISG") after October 24, 2004, in the event that any amount or
benefit (including any cash out of stock options) that is paid or distributed to
you by ISG or any affiliated company as a result or consequence of the Agreement
and Plan of Merger and Reorganization among ISPAT International N.V., Park
Acquisition Corp. and ISG dated as of October 24, 2004, taken together with any
amounts or benefits otherwise paid or distributed to you by ISG or any
affiliated company (collectively, the "Covered Payments"), are or become subject
to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be
imposed, ISG shall pay to you at the time specified in this letter agreement
(the "Agreement") an additional amount (the "Excise Tax Reimbursement") such
that the net amount retained by you with respect to such Covered Payments, after
deduction of any Excise Tax on the Covered Payments and any federal, state and
local income or employment tax and Excise Tax on the Excise Tax Reimbursement
provided for by this Agreement, but before deduction for any federal, state or
local income or employment tax withholding on such Covered Payments, shall be
equal to the amount of the Covered Payments.
2. For purposes of determining whether any of the Covered Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(a) Such Covered Payments will be treated as "parachute payments"
within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section
280G(b)(3) of the Code) shall be treated as subject to the Excise Tax,
unless, and except to the extent that, in the good faith judgment of
ISG's independent certified public accountants appointed prior to the
date upon which a change in control for purposes of Section 280G of the
Code became effective or tax counsel selected by such accountants (the
"Accountants"), ISG has a reasonable basis to conclude that such Covered
Payments (in whole or in part) either do not constitute "parachute
payments" or represent reasonable compensation for personal services
actually rendered (within the meaning of Section 280G(b)(4)(B) of the
Code) in excess of the "base amount," or such "parachute payments" are
otherwise not subject to such Excise Tax; and
(b) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the
principles of Section 280G of the Code.
3. For purposes of determining the amount of the Excise Tax
Reimbursement, you shall be deemed to pay:
(a) federal income taxes at the highest applicable marginal rate of
federal income taxation for the calendar year in which the Excise Tax
Reimbursement is to be made; and
(b) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in which the
Excise Tax Reimbursement is to be made, net of the maximum reduction in
federal income taxes which could be obtained from the deduction of such
state or local taxes if paid in such year.
4. In the event that the Excise Tax is subsequently determined by
the Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to be less than the amount taken into account hereunder in
calculating the Excise Tax Reimbursement made, you shall repay to ISG, at the
time that the amount of such reduction in the Excise Tax is finally determined,
the portion of such prior Excise Tax Reimbursement that would not have been paid
if such Excise Tax had been applied in initially calculating such Excise Tax
Reimbursement, plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in
the event any portion of the Excise Tax Reimbursement to be refunded to ISG has
been paid to any federal, state or local tax authority, repayment thereof shall
not be required until actual refund or credit of such portion has been made to
you, and interest payable to ISG shall not exceed interest received or credited
to you by such tax authority for the period it held such portion. You and ISG
shall mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if your good faith claim for refund or credit
is denied.
5. In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the time
the Excise Tax Reimbursement is made (including, but not limited to, by reason
of any payment the existence or amount of which cannot be determined at the time
of the Excise Tax Reimbursement), ISG shall make an additional Excise Tax
Reimbursement in respect of such excess (plus any interest or penalty payable
with respect to such excess) at the time that the amount of such excess is
finally determined.
6. The Excise Tax Reimbursement (or portion thereof) provided for
in this Agreement shall be paid to you not later than ten (10) business days
following the payment of the Covered Payments; provided, however, that if the
amount of such Excise Tax Reimbursement (or portion thereof) cannot be finally
determined on or before the date on which payment is due, ISG shall pay to you
by such date an amount estimated in good faith by the
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Accountants to be the minimum amount of such Excise Tax Reimbursement and shall
pay the remainder of such Excise Tax Reimbursement (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than forty five (45) calendar
days after payment of the related Covered Payment. In the event that the amount
of the estimated Excise Tax Reimbursement exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by ISG to you,
payable on the fifth (5th) business day after written demand by ISG for payment
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
7. This Agreement is intended to comply with Section 409A of the
Code and shall be construed and interpreted in accordance with such intent. To
the extent that the Excise Tax Reimbursement is subject to Section 409A of the
Code, it shall be paid in a manner that will comply with Section 409A of the
Code, including proposed, temporary or final regulations or any other guidance
issued by the Secretary of the Treasury and the Internal Revenue Service with
respect thereto (the "Guidance"). Any provision of this Agreement that would
cause the Excise Tax Reimbursement to fail to satisfy Section 409A of the Code
shall have no force and effect until amended to comply with Code Section 409A
(which amendment may be retroactive to the extent permitted by the Guidance).
8. This Agreement shall be regulated, construed and administered
under the laws of the State of Ohio.
IN WITNESS WHEREOF, ISG has caused this Agreement to be signed by a duly
authorized representative of the Board of Directors of ISG, and Carlos M.
Hernandez.
INTERNATIONAL STEEL GROUP INC.
By: /s/ Rodney B. Mott
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Its: President, CEO and Director
Accepted January 31, 2005
/s/ Carlos M. Hernandez
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Carlos M. Hernandez
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