1
EXHIBIT 2.2
FIRST AMENDMENT
TO
MERGER AGREEMENT
This First Amendment to Merger Agreement (the "First Amendment") dated
as of December 10, 1996, is entered into by and among Metal Management, Inc.
("MTLM"), MTLM Merger, Inc., HouTex Metals Company, Inc. ("HouTex"), Xxxx
Xxxxxx, Zalman (Sol) Xxxxxx and Clend Investment Holdings Ltd. (the "Parties").
Reference is hereby made to that certain Merger Agreement (the "Merger
Agreement") dated as of December 10, 1996, by and among the Parties. Capitalized
terms defined in the Merger Agreement are used herein with the same meaning; in
addition, the term the "Notes" shall mean the Xxxxxx Notes and the Clend Note,
collectively, and the term the "Noteholders" shall mean Xxxx Xxxxxx, Zalman
(Sol) Xxxxxx and Clend Investment Holdings, Ltd., collectively.
NOW, THEREFORE, in consideration of their mutual agreements and
covenants, the Parties hereby agree as follows, intending to be legally bound
hereby:
A. Amendment to Terms of Merger Agreement. Notwithstanding anything in the
Merger Agreement to the contrary, the Parties hereby agree that the Merger
Agreement shall be amended as set forth below. It is the express intention of
the Parties that the following additions, deletions or modifications to the
existing terms of the Merger Agreement shall supersede the provisions of the
Merger Agreement to which they relate.
1. Category One Conversion Rights. The holder of the Clend Note shall
have the right, at any time between the Closing Date and April 30,
1997, to apply an aggregate, maximum of One Million Dollars
($1,000,000.00) of the unpaid principal balance of the Clend Note to
purchase MTLM Common Stock, at a price per share equal to Seventy-Five
Percent (75%) of the average closing price of MTLM Common Stock on the
five (5) trading days immediately preceding the date of delivery by the
holders of the Clend Note to MTLM of a written notice (the "Category
One Notice") of the exercise of such right signed by all of the holders
of the Clend Note. The Category One Notice shall specify the unpaid
principal balance of the Clend Note being so applied to the purchase of
MTLM Common Stock. The holder of the Clend Note shall have the right to
exercise Category One Conversion Rights only three times with each such
exercise to be in an amount of at least $250,000.
2. Category Two Conversion Rights. Also, the holders of the Clend Note
shall have the right, at any time between the Closing Date and April
30, 1997-but in no event later than thirty (30) calendar days following
any public announcement by MTLM of its execution of a letter of intent
or a definitive agreement to acquire the stock or assets of a scrap
metal recycling company with gross revenue for its most recent fiscal
year in excess of
1
2
$150,000,000-to apply an aggregate maximum of One Million Dollars
($1,000,000.00) of the unpaid principal balance of the Clend Note to
purchase MTLM Common Stock, at a price per share equal to either.
(a) Five Dollars ($5.00), if the average closing price of
MTLM Common Stock (the "Category Two Average Closing
Price") on the five (5) trading days immediately
preceding the date of delivery by the holder of the
Clend Note to MTLM of a written notice (the "Category
Two Notice") of the exercise of such right signed by
the holder of the Clend Note is less than Seven
Dollars Twenty-Five Cents ($7.25); or
(b) Five Dollars Forty-Eight Cents ($5.48), if the
Category Two Average Closing Price is Seven Dollars
Twenty-Five Cents ($7.25) or greater.
The Category Two Notice shall specify the unpaid principal balance of
the Clend Note being so applied to the purchase of MTLM Common Stock.
The holder of the Clend Note shall have the right to exercise the
Category Two Conversion Rights only three (3) times with each such
exercise to be in an amount of at least $250,000.
3. Escrow of Conversion Shares. If the holder of the Clend Note
exercises its rights under Paragraphs 1 and/or 2 above to apply a
portion of the unpaid balance of the principal of the Notes to purchase
MTLM Common Stock, then all of the MTLM Common Stock so purchased by
the holder of the Clend Note shall be held in escrow (the "Escrowed
Conversion Shares") in accordance with paragraph 8 below.
4. Acquisition Financing. MTLM has received a commitment to place
approximately $30,000,000 in convertible MTLM subordinated debt
instruments (the "EVEREN Financing") from EVEREN Securities ("EVEREN").
A copy of this commitment has previously been furnished to the HouTex
Shareholders. The Parties agree that MTLM's receipt of the EVEREN
Financing or any other financing (whether such financing is from a
public offering or private placement of debt or equity or from bank
loans, excluding, however, (i) the pending financing for the Reserve
acquisition and (ii) the senior bank debt replacement financing
currently being negotiated by MTLM) which provides MTLM with net
proceeds in excess of $7,000,000 which are available to fund
acquisitions (collectively the "Acquisition Financing") prior to the
maturity of the Notes shall have a material effect on the terms of the
Notes and on the liquidated damages received by the HouTex Shareholders
in the event MTLM defaults on the Notes. MTLM agrees to use its
reasonable best efforts to obtain such Acquisition Financing from
either EVEREN or some other financing source.
5. Modification to Cash Consideration and Notes. The Cash Consideration
set forth in Section 1.3 of the Merger Agreement is hereby increased
from $500,000 to $750,000 and the respective principal amounts of the
Xxxxxx Notes are hereby decreased by $250,000 to reflect
2
3
such increase in Cash Consideration. Furthermore, the Notes and the
Stock Pledge and Security Agreements attached as Exhibit B-5 to the
Merger Agreement shall be modified to provide that (i) the obligations
reflected by the Notes and the Stock Pledge and Security Agreements are
entered into without recourse as to MTLM in the event that MTLM uses
its reasonable best efforts to obtain the Acquisition Financing but the
proceeds of the Acquisition Financing are not received prior to April
30, 1997; and (ii) the sole remedy available to the Noteholders if an
event of default occurs and, provided MTLM has used its reasonable best
efforts to obtain the Acquisition Financing, the proceeds of the
Acquisition Financing have not been so received by MTLM prior to April
30, 1997, shall be to exercise the Noteholders respective rights under
the Stock Pledge and Security Agreements and foreclose on the HouTex
shares pledged as collateral under the Stock Pledge and Security
Agreements.
6. Liquidated Damages if Acquisition Financing Does Not Occur. In the
event (i) MTLM does not receive the proceeds of the Acquisition
Financing prior to April 30, 1997; (ii) the Notes are not paid in full
at or prior to their respective maturity dates; and (iii) MTLM fails to
cure such default within the time period allowed by the Escrow
Agreements, then the HouTex Shareholders shall be entitled to retain as
liquidated damages only the following:
(a) all Cash Consideration paid by MTLM at Closing;
(b) all Limited Warrants issued to the HouTex
Shareholders either at or following Closing; and
(c) all rights of foreclosure on the HouTex stock held as
collateral under the Stock Pledge and Security
Agreements.
Except as set forth above, the HouTex Shareholders shall be entitled to
no damages or other remedies at law or in equity or to pursue, directly
or indirectly, any claims against MTLM arising from MTLM's default
under the Notes, if MTLM does not receive the proceeds of the
Acquisition Financing prior to April 30, 1997. All Five-Year Warrants
and Share Consideration issued to the HouTex Shareholders at Closing
and all Escrowed Conversion Shares issued following Closing shall be
returned to MTLM and cancelled under the terms of the escrow
arrangement described in paragraph 8 below.
7. Liquidated Damages if Acquisition Financing does Occur. The Notes
shall be amended to provide for acceleration of the due dates of the
Notes in the event MTLM does receive the proceeds of the Acquisition
Financing prior to April 30, 1997. The Notes shall provide that MTLM
will have an affirmative duty to pay the Notes in full within five (5)
business days after the receipt of the proceeds of the Acquisition
Financing. If MTLM fails to pay the Notes after acceleration, then the
HouTex Shareholders shall be entitled to either:
(a) retain as liquidated damages the following:
3
4
(i) all Cash Consideration paid by MTLM at
Closing;
(ii) all Limited Warrants issued to the HouTex
Shareholders either at or following the
Closing;
(iii) all rights of foreclosure on the HouTex
stock held as collateral under the Stock
Pledge and Security Agreements;
(iv) all Five-Year Warrants issued to the HouTex
Shareholders at Closing;
(v) all Share Consideration issued to the
HouTex Shareholders at Closing; and
(vi) all Escrowed Conversion Shares issued to
the HouTex Shareholders following Closing;
OR
(b)(i) retain as liquidated damages the following:
A. all Cash Consideration paid by MTLM
at Closing;
B. all Limited Warrants issued to the
HouTex Shareholders either at or
following the Closing;
C. all Five-Year Warrants issued to
the HouTex Shareholders at Closing;
D. all Share Consideration issued to
the HouTex Shareholders at Closing;
and
E. all Escrowed Conversion Shares
issued to the HouTex Shareholders
following Closing; AND
(ii) seek specific performance under the Notes.
Except as set forth above, the HouTex Shareholders shall be entitled to
no damages or other remedies at law or in equity or to pursue, directly
or indirectly, any claims against MTLM arising from MTLM's default
under the Notes, if MTLM does receive the proceeds of Acquisition
Financing prior to April 30, 1997. All Five-Year Warrants, Share
Consideration and Escrowed Conversion Shares shall be delivered to the
HouTex Shareholders under the terms of the escrow arrangement described
in paragraph 8 below.
4
5
8. Escrow. The Parties agree that the Escrow Agreements shall be
modified and expanded to provide for the escrow at Closing of (i) the
Five-Year Warrants, (ii) the Share Consideration and the escrow
thereafter of the Escrowed Conversion Shares, together with the shares
of HouTex common stock pledged to the HouTex Shareholders under the
Stock Pledge and Security Agreements. The Escrow Agreements, as
modified, shall provide that, in the event MTLM defaults on the Notes
and the HouTex Shareholders are only entitled to receive the liquidated
damages specified under paragraph 6 above, then the escrow agent under
the Escrow Agreements shall return the Five-Year Warrants, the Share
Consideration, and the Escrowed Conversion Shares to MTLM for
cancellation and shall return the escrowed HouTex common stock owned by
MTLM to the HouTex Shareholders, subject to the terms and conditions of
the Stock Pledge and Security Agreement. Similarly, the Escrow
Agreements, as modified, shall provide that in the event MTLM defaults
on the Notes and the HouTex Shareholders are entitled to receive the
damages set forth in paragraph 7 above, the escrow agent under the
Escrow Agreements shall deliver the Five-Year Warrants, the Share
Consideration and the Escrowed Conversion Shares to the HouTex
Shareholders.
9. Termination of Lease and Guarantee Relationship. In the event MTLM
fails to pay the Notes when they mature and the HouTex Shareholders
foreclose on the stock of HouTex, the Lease will terminate and MTLM
will be released from its guarantee obligations under the Lease and on
all other obligations of HouTex which have been guaranteed by MTLM;
provided, however, MTLM agrees that, in the event it guarantees
HouTex's revolving credit obligations to NationsBank of Texas, N.A., it
will agree to remain liable to NationsBank under such guarantee
agreement. The HouTex Shareholders agree to use their reasonable best
efforts to obtain a release of MTLM's guarantee obligation from
NationsBank. In the event MTLM fails to pay the Notes when they mature
and the HouTex Shareholders foreclose on the stock of HouTex owned by
MTLM, but the HouTex Shareholders are unable to obtain a release of
MTLM's guarantee obligation to NationsBank, MTLM shall have and retain
subrogation rights against HouTex and the HouTex Shareholders in the
event MTLM thereafter is required to pay any funds to NationsBank as a
guarantor for HouTex.
10. Modifications to Documents. The Parties agree that each of the
Exhibits to the Merger Agreement and all other documents described in,
or contemplated by, the Merger Agreement will be modified, amended, or
restated in a manner consistent with the provisions of this First
Amendment. The form of all such Exhibits and other documents, as
modified, shall be mutually agreeable to all Parties and their
respective legal counsel.
B. Ratification of Merger Agreement. Except as specifically modified by
the provisions of this First Amendment, all terms and conditions of the Merger
Agreement are hereby ratified by the Parties.
5
6
IN WITNESS WHEREOF, the parties have executed this agreement on the
date first written above.
METAL MANAGEMENT, INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------
Name: XXXXXX X. XXXXXX
-----------------------
Title: President
----------------------
MTLM MERGER, INC.
By: /s/ Xxxxxx X. Xxxxxx
-------------------------
Name: XXXXXX X. XXXXXX
-----------------------
Title: President
----------------------
HOUTEX METALS COMPANY, INC.
By: /s/ Xxxx Xxxxxx
-----------------------
Name: XXXX XXXXXX
-----------------------
Title: President
----------------------
/s/ Xxxx Xxxxxx
____________________________
Xxxx Xxxxxx
December 10, 1996
/s/ Xxx Xxxxxx
----------------------------
Zalman (Sol) Xxxxxx
/s/ Xxx Xxxxxx
---------------------------
Xxx Xxxxxx
6
7
CLEND INVESTMENT HOLDINGS LTD.
By: /s/ Xxxxxxx Xxxxxxx
--------------------------
Name: XXXXXXX XXXXXXX
------------------------
Title: Director
-----------------------
7
