SECOND AMENDMENT
TO PURCHASE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AGREEMENT (the "Second Amendment") is
entered into effective as of May 1, 1997, by and among METAL MANAGEMENT,
INC., a Delaware corporation ("MTLM"); X. XXXXXX IRON & METAL, INC., an Ohio
corporation (the "Company") and the sole general partner of RESERVE IRON &
METAL LIMITED PARTNERSHIP, a Delaware limited partnership ("Reserve"); and
XXXX X. XXXXXX, XXXXXX X. XXXXXX and XXXXX X. XXXXXX who constitute all of
the shareholders of the Company (together the "Shareholders" and individually
a "Shareholder"). Certain other capitalized terms used herein are defined in
that certain purchase agreement ("Purchase Agreement") dated as of January
17, 1997, by and among the parties hereto, as amended by that certain First
Amendment to Purchase Agreement, dated as of March 6, 1997 (the "First
Amendment" and collectively with the Purchase Agreement the "Agreement") or
elsewhere throughout this Second Amendment.
RECITALS
A. The parties have previously entered into the Purchase Agreement and
the First Amendment.
B. Pursuant to the Agreement, the Company and Shareholders have provided
MTLM with certain information regarding potential litigation liabilities.
C. As a result, in order to complete the Transaction and to reflect
certain other changes to the Transaction as have been agreed to by the parties
hereto, the parties hereto believe it is in their mutual best interests to enter
into this Second Amendment and thereby modify certain of the terms and
conditions of the Agreement.
TERMS OF AMENDMENT
In consideration of the premises and the mutual promises contained herein,
the parties hereto agree as follows:
1. SECTION 1.2 of the Purchase Agreement is hereby amended by deleting in
line three the reference to "7%" and substituting in its place "9%."
2. Each of the Shareholders, jointly and severally, agrees to defend,
indemnify and hold harmless MTLM and the Company from and against all
expenses, losses, costs, deficiencies, liabilities, judgments, settlements,
awards and damages (including without limitation, related attorneys' fees,
costs and expenses including but not limited to expert consultants, paralegal
and legal support fees, expenses and costs whether incurred in connection
with any claims, trial or subsequent appeal) (collectively the "Abboud
Indemnified Damages") relating to or arising out of the facts giving rise to
that certain Case No.: 304772 filed in the Court of Common Pleas, Cuyahoga
County, ABBOUD V. RESERVE IRON & METAL, L.P. AND X. XXXXXX IRON & METAL, INC.
(the "Abboud Case").
3. SECTION 5.13 of the Purchase Agreement (as amended by the First
Amendment) is hereby further amended by deleting clause (y) from that section
and substituting in its place the following: "(y) either (A) payment of all
amounts due on the Purchase Price Note, whether to the holder thereof and/or
into the escrow account in the manner set forth in SECTION 8.4, or (B)
furnishing of MTLM Shares as substitute collateral to secure the Purchase
Price Note as provided in Paragraph 18 of the Stock Pledge and Security
Agreement," provided, however, that such amendment shall be effective upon
and only upon a lien foreclosure by any lender holding a first security
interest in all or substantially all of the assets of Reserve.
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4. MTLM hereby waives as a closing delivery pursuant to SECTION 6.11(e)
of the Purchase Agreement the financial statements of the Company audited as
of December 31, 1996.
5. SECTION 8.1(a) of the Purchase Agreement is hereby amended by
excluding Abboud Indemnified Damages from the definition of "Indemnifiable
Damages."
6. Notwithstanding any other provision in this Second Amendment to the
contrary, the Shareholders' aggregate monetary liability for Abboud Indemnified
Damages shall be limited as follows:
(i) Abboud Indemnified Damages shall not include (A) any cost or
expense of any kind whatsoever, which cost or expense has been paid by
insurance or (B) any attorneys' fees, costs or expenses incurred in
connection with the Abboud Case of any law firms retained by Reserve
or MTLM to monitor the law firm having primary responsibility for
defense of the Abboud Case. Any Abboud Indemnified Damages
other than the amounts excluded pursuant to clauses 6(i)(A) and
(B) hereof shall be referred to as the "Adjusted Abboud Indemnified
Damages";
(ii) The Shareholders shall not be liable for any Adjusted Abboud
Indemnified Damages unless and until the aggregate amount of all Adjusted
Abboud Indemnified Damages incurred by the Company and MTLM exceed an
aggregate of Seven Hundred Fifty Thousand Dollars ($750,000.00) in which
case the Shareholders shall be liable for the sum of: (a) the full amount
of Adjusted Abboud Indemnified Damages in excess of Seven Hundred Fifty
Thousand Dollars up to the amount of Two Hundred Fifty Thousand Dollars
($250,000.00); (b) Seventy-five percent (75%) of the next Three Million
Dollars ($3,000,000) of the Adjusted Abboud Indemnified Damages; and (c)
one-half of all
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Adjusted Abboud Indemnified Damages in excess of Four Million Dollars
($4,000,000.00);
(iii) In the event that the total amount of money deposited into
the Abboud Escrow Account #2 and the Abboud Escrow Account #3 (as such
terms are defined in the Abboud Escrow Agreement #2 and the Abboud Escrow
Agreement #3 among the parties and in the forms attached hereto as "Exhibit
G" and "Exhibit H" respectively) is less than the total aggregate amount of
the Adjusted Abboud Indemnified Damages to be paid by the Shareholders
pursuant to the Second Amendment, then the Shareholders joint and several
liabilities for the Adjusted Abboud Indemnified Damages under this Second
Amendment shall be limited to the amount deposited into the Abboud Escrow
Account #2 and the Abboud Escrow Account #3, plus an amount equal to the
sum of: (a) the aggregate sales proceeds from the sale of any and all
shares of Common Stock received or "Deemed Received", as hereinafter
defined, from time to time in regard to any warrant initially received by a
Shareholder pursuant to his employment agreement with Reserve (the "Warrant
Stock") less (A) the aggregate exercise price paid or "Deemed Paid", as
hereinafter defined, in regard to the Warrant Stock (B) the "Tax
Adjustment" as hereinafter defined and (C) any actual or reasonably
estimated brokerage fees relating to the sale or deemed sale of such Common
Stock. For purposes hereof, "Tax Adjustment" shall mean an amount equal to
the net tax obligation to the Shareholder on any sale or deemed sale of the
Common Stock pursuant to this paragraph 6 taking into account any
corresponding or related tax deductions or reductions in taxable income
available to the Shareholder on account of the payment of the Shareholder's
liability in connection with
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the Adjusted Abboud Indemnified Damages relating to the sale or
deemed sale of such Common Stock. For purposes hereof, sale
proceeds shall be "Deemed Received" in regard to any Warrant
Stock actually received ("Received Warrant Stock") or covered by any
Warrants as to which a Shareholder's right to receive Common Stock has
become vested ("Deemed Received Warrant Stock" and collectively with the
Received Warrant Stock referred to as the "Deemed Sold Warrant Stock") and
that has not been sold on or before the last day of a period of 90
consecutive days (the "90 Day Window") following the last to occur of (i)
the date of receipt of Received Warrant Stock or (ii) the date of the Final
Abboud Determination (as hereinafter defined). The "Final Abboud
Determination" shall mean the first to occur of (i) a final, nonappealable
judgment in the Abboud Case or (ii) delivery to Reserve of a fully executed
and enforceable agreement settling the Abboud Case. The amount of sale
proceeds Deemed Received in regard to any particular Deemed Sold Warrant
Stock shall be equal to the closing price of the Common Stock on the Nasdaq
Stock Market (or such other public market upon which the Common Stock is
then traded) on the Deemed Sale Date (as hereinafter defined), times the
number of shares of Deemed Sold Warrant Stock then held by the
Shareholders. For purposes hereof, the "Deemed Sale Date" shall mean the
last Trading Day of the 90 Day Window, provided however that if during the
90 Day Window there has not been at least 10 consecutive Trading Days, then
the Deemed Sale Date shall mean the tenth consecutive Trading Day following
the 90 Day Window For purposes hereof, a "Trading Day" shall mean any day
on which (i) the public market on which the Common Stock is then traded is
open for business and (ii) the sale of Common Stock owned by a Shareholder
is not
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prohibited under a Blackout Notice as that term is defined in such
Shareholder's employment agreement with Reserve. In the event the Final
Abboud Determination occurs prior to certain Warrant Stock being Deemed
Sold Warrant Stock because the Warrants covering such Warrant Stock have
not yet vested, then for purposes of calculating the amount of sale
proceeds "Deemed Received" from time to time, such Warrant Stock shall be
deemed to be Deemed Sold Warrant Stock on those dates subsequent to the
Final Abboud Determination on which a Shareholder's right to receive Common
Stock becomes vested ("Subsequently Vested Warrant Stock") under any
warrant issued to a Shareholder pursuant to his employment agreement with
Reserve. For purposes of calculating the amount of sale proceeds Deemed
Received from time to time as to any Subsequently Vested Warrant Stock,
the 90 Day Window in regard to such Subsequently Vested Warrant Stock shall
be deemed to begin on the date any Common Stock becomes Subsequently Vested
Warrant Stock. With respect to any Deemed Received Warrant Stock and
Subsequently Vested Warrant Stock, the exercise price "Deemed Paid" shall
mean the Initial Exercise Price (as that term is defined in the warrant
issued to the Shareholder pursuant to his employment agreement with
Reserve) that would be due in regard to any such stock as determined on the
Deemed Sale Date.
7. It is expressly acknowledged herein by all parties hereto that nothing
herein is to be construed to indicate in any way whatsoever that MTLM has
assumed either monetary or other liability or responsibility relating to the
Abboud Case or any liability or responsibility arising out of the Abboud Case.
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8. The Agreement is hereby amended by deleting in its entirety the
Purchase Price Note in the form attached to the First Amendment as "Exhibit A"
and substituting in its place the Purchase Price Note in the form attached
hereto as "Exhibit A."
9. The Agreement is hereby amended by deleting in its entirety the
Employment Agreement in the form of "Exhibit C" and substituting in its place
the Employment Agreement in the form attached hereto as "Exhibit C."
10. The Agreement is hereby amended by deleting in its entirety the
Employment Agreement in the form of "Exhibit D" and substituting in its place
the Employment Agreement in the form attached hereto as "Exhibit D."
11. The Agreement is hereby amended by deleting in its entirety the
Employment Agreement in the form of "Exhibit E" and substituting in its place
the Employment Agreement in the form attached hereto as "Exhibit E."
12. As additional consideration to the Shareholders for entering into this
Agreement, commencing on the first day of the month subsequent to funding the
Abboud Escrow Account #2, and continuing for so long as any amounts remain in
the Abboud Escrow Account #2, MTLM shall pay the Shareholders an amount equal to
(i) Five Hundred Thousand Dollars ($500,000), as reduced from time to time by
any amounts disbursed from the Abboud Escrow Account #2 times (ii) the interest
rate that could be earned from time to time by MTLM on funds held in any
interest bearing account selected by MTLM with an FDIC insured bank having gross
assets in excess of One Billion Dollars ($1,000,000).
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13. At Closing, the parties hereto agree to enter into the Abboud Escrow
Agreement #2 and the Abboud Escrow Agreement #3 in the forms attached hereto as
Exhibits "G" and "H", respectively.
14. MTLM and the Shareholders hereby agree that in the event that MTLM
elects to provide substitute collateral pursuant to paragraph 18 of the Stock
Pledge and Security Agreement, MTLM and the Shareholders shall enter into the
Substitute Collateral Stock Pledge and Security Agreement in the form attached
hereto as Exhibit "I", the terms and conditions of which shall govern the pledge
of such substitute collateral.
15. The Index to the Purchase Agreement is hereby amended to add "Exhibit
G - Abboud Escrow Agreement #2", "Exhibit H - Abboud Escrow Agreement #3", and
"Exhibit I - Substitute Collateral Stock Pledge and Security Agreement" to the
list of Exhibits.
16. MTLM agrees to permit Reserve to pay the reasonable legal fees and
expenses of Dinn Xxxxxxx & Xxxxxx, P.L.L. incurred by Reserve on account of the
defense of the Abboud Case during the 30 day period immediately following the
Closing Date.
17. In the event that upon termination of Abboud Escrow Agreement #2 there
is a remaining Escrow Amount to be delivered to the Shareholders pursuant to a
notice delivered pursuant to Paragraphs 3(a) or 3(b) thereof or pursuant to a
joint consent of MTLM and the Shareholders, the Shareholders shall have the
right to direct the Escrow Agent in writing on or before the date such Escrow
Amount is delivered to the Shareholders to pay to MTLM from such Escrow Amount
and receive in exchange therefore that number of shares of Common Stock (as
defined in the Purchase Agreement) determined by dividing the amount of such
Escrow Amount by _____ Dollars and _____ Cents ($_______) (subject to
appropriate adjustment for stock splits,
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stock dividends and other corporate action). In the event such calculation
results in a fractional share of Common Stock, the corresponding amount of
such Escrow Amount shall instead be paid to the Shareholders so as to
eliminate such fractional share.
18. SECTION 12.3 of the Purchase Agreement is hereby amended by deleting
the first sentence thereof and substituting in its place the following:
"Reserve shall pay all reasonable, documented professional fees
incurred by the Company, Reserve and R&M in connection with the
negotiation of this Agreement and the additional instruments and
agreements contemplated hereby, due diligence investigations,
preparation of schedules, consummation of the Transaction, and all
other matters related to the Transaction."
19. All other terms, conditions and provisions set forth in the Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed and delivered as of the day and year first above written.
METAL MANAGEMENT, INC., a Delaware
corporation
Dated: As of May 1, 1997 By: /s/ T. XXXXXXXX XXXXXXXX
------------------------------------------
Name: T. XXXXXXXX XXXXXXXX
----------------------------------------
Title: CHAIRMAN OF THE BOARD
---------------------------------------
X. XXXXXX IRON & METAL, INC., an Ohio
corporation
Dated: As of May 1, 1997 By: /s/ XXXX X. XXXXXX
-------------------------------------------
Name: XXXX X. XXXXXX
-----------------------------------------
Title: PRESIDENT/ CEO
----------------------------------------
[signatures continue on following page]
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RESERVE IRON & METAL LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: X. XXXXXX IRON & METAL, INC.,
its sole general partner,
Dated: As of May 1, 1997 By: /S/ XXXX X. XXXXXX
--------------------------------------------
Name: XXXX X. XXXXXX
-----------------------------------------
Title: PRESIDENT/ CEO
-----------------------------------------
Dated: As of May 1, 1997 /s/ XXXX X. XXXXXX
-----------------------------------------------
XXXX X. XXXXXX
Dated: As of May 1, 1997 /s/ XXXXXX X. XXXXXX
-----------------------------------------------
XXXXXX X. XXXXXX
Dated: As of May 1, 1997 /s/ XXXXX X. XXXXXX
------------------------------------------------
XXXXX X. XXXXXX
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