<PAGE>   1
                                                                    EXHIBIT 3.2

                          CERTIFICATE OF DESIGNATIONS,
                             PREFERENCES AND RIGHTS

                                       OF

                      SERIES A CONVERTIBLE PREFERRED STOCK

                                       OF

                             METAL MANAGEMENT, INC.

                         PURSUANT TO SECTION 151 OF THE
                        DELAWARE GENERAL CORPORATION LAW

         Metal Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), hereby certifies that the
following resolutions were adopted by the Board of Directors of the Company
pursuant to the authority of the Board of Directors as required by Section 151
of the Delaware General Corporation Law.

         RESOLVED, that pursuant to the authority granted to the Board of
Directors in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Company's previously authorized Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges and restrictions thereof as
follows:

1.       DESIGNATION AND AMOUNT.

         The designation of this series, which consists of 36,000 shares (the 
"Preferred Shares") of Preferred Stock, is the Series A Convertible Preferred
Stock (the "Series A Preferred Stock") and the face amount shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").

2.       DIVIDENDS.

         (a)     Payment of Dividends.  The holders of shares of Series A
Preferred Stock (each, a "Holder" and collectively, the "Holders") shall be
entitled to receive cumulative dividends ("Dividends") on the Series A
Preferred Stock accruing on each share thereof at an annual rate of  (A) prior
to the date (the "Approval Date") on which Stockholder Approval (as defined
below) is obtained, nine percent (9%) and (B) on or after the Approval Date,
six percent (6%), in each such case, times the Stated Value per share (such
rate subject to ratable adjustment in the event of any stock split or
combination and to equitable adjustment in the event of a reclassification or
other similar event).  Dividends shall accrue, whether or not declared, on each
share of Series A Preferred Stock from the date of original issuance thereof
(the "Purchase Date") through the date on which such Dividends are paid.
Accrued but unpaid Dividends shall be payable in cash or, at the option of the
Company (the "Stock Payment Option") and upon satisfaction of the conditions
set forth in paragraph 2(c) below, in shares (the "Dividend Payment Shares") of
Series A Preferred
<PAGE>   2

Stock, on each Conversion Date and Mandatory Redemption Date and on the
Maturity Date (each as defined below, a "Dividend Payment Date").

         (b)     Delivery of Dividend Payment Shares.  If the Company elects to
exercise the Stock Payment Option upon a conversion by a Holder, the Company
shall deliver to such Holder, on or before the third business day following the
applicable Dividend Payment Date, one or more certificates representing the
aggregate number of whole Dividend Payment Shares that is determined by
dividing (x) the amount of the Dividend which has accrued with respect to all
of the Preferred Shares held by such Holder and would otherwise be payable in
cash on the applicable Dividend Payment Date by (y) one thousand dollars
($1,000).  No fractional Dividend Payment Shares shall be issued; the Company
shall, in lieu thereof, either issue a number of Dividend Payment Shares which
reflects a rounding up to the next whole number of shares or pay such amount in
cash. The Dividend Payment Shares shall be fully paid and non-assessable, free
and clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Company, entitled to all of the rights, preferences and privileges
set forth herein, and shall be issued and delivered to the Holder on or before
the third business day following the applicable Dividend Payment Date. The
Company agrees to inform the Holder at least five (5) Trading Days prior to the
first day of each calendar quarter in which the Company intends to exercise the
Stock Payment Option.

         (c)     Conditions to Stock Payment Option.  If the Company wishes to
exercise the Stock Payment Option with respect to Dividends payable to a
Holder, it may do so only if each of the following conditions has been
satisfied as of the applicable Dividend Payment Date:

                 (i)      the number of shares of Series A Preferred Stock
authorized, unissued and unreserved for all other purposes, or held in the
Company's treasury, is sufficient to pay such Dividends in Dividend Payment
Shares;

                 (ii)     the Company's common stock, par value $.01 per share
(the "Common Stock"), is authorized for quotation on the Nasdaq National Market
or for listing or quotation on the New York Stock Exchange or any other
national securities exchange;

                 (iii)    (x) the registration statement required to be
maintained by the Company (the "Registration Statement") pursuant to a
registration rights agreement by and among the Company and the Purchasers named
therein (the "Registration Rights Agreement") is effective and available for
the sale of the Dividend Payment Shares issuable pursuant to such exercise and
of all Conversion Shares (as defined below) then held by or issuable to the
Holders, or (y) sales of such Dividend Payment Shares may be made pursuant to
Rule 144(k); provided, however, that the Registration Statement will not be
deemed unavailable during a Standstill Period (as defined in the Registration
Rights Agreement).

                 (iv)     a Mandatory Redemption Event or a Liquidation Event
(each as defined herein) has not occurred and is continuing; and





                                      -2-
<PAGE>   3

                 (v)      the Company has delivered to the Holder a
certificate, signed by an executive officer of the Company, setting forth:

                          -       the amount of the Dividend to which the
                                  Holder is entitled;

                          -       the number of Dividend Payment Shares to be
                                  delivered in payment of such Dividend, and
                                  the calculation therefor; and

                          -       a statement to the effect that all of the
                                  conditions set forth in paragraphs 2(c)(i) -
                                  (iv) have been satisfied.

3.       PRIORITY.

         (a)     Payment upon Dissolution, Etc..  Upon the occurrence and
continuance of (x) any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings in
connection therewith, commenced by the Company or by its creditors, as such, or
relating to its assets or (y) the dissolution or other winding up of the
Company whether total or partial, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshaling of the material assets or
material liabilities of the Company (a "Liquidation Event"), no distribution
shall be made to the holders of any shares of capital stock (other than capital
stock that ranks pari passu with the Series A Preferred Stock) of the Company
unless prior thereto each Holder shall have received the Liquidation Preference
(as defined below) with respect to each share of Series A Preferred Stock then
held by such Holder.  In the event that upon the occurrence of a Liquidation
Event, the assets available for distribution to the Holders of the Series A
Preferred Stock and to the holders of such pari passu securities are
insufficient to pay the Liquidation Preference with respect to all of the
outstanding shares of Series A Preferred Stock and of such pari passu
securities, such assets shall be distributed ratably among such shares in
proportion to the ratio that the liquidation preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.

         (b)     Liquidation Preference.  The "Liquidation Preference" with
respect to a share of Series A Preferred Stock shall mean an amount equal to
the Stated Value of such share plus any accrued and unpaid Dividends thereon.

4.       CONVERSION.

         (a)     Right to Convert.  Subject to the limitations contained in
paragraph 4(h) below, each Holder shall have the right to convert at any time
and from time to time after the earlier to occur of (i) the ninetieth (90th)
day following the date on which the Series A Preferred Stock is issued and (ii)
the effectiveness of the Registration Statement, each of its shares of Series A
Preferred Stock into such number of fully paid and non-assessable shares of
Common Stock, free and clear of any liens, claims, preemptive rights or
encumbrances imposed by or through the Company (the "Conversion Shares"), as is
computed in accordance with the terms hereof (a "Conversion");





                                      -3-
<PAGE>   4

provided, however, that the right of such Holder to convert the Series A
Preferred Stock into Conversion Shares shall not become effective unless and
until the Company has obtained the approval of the transactions contemplated
hereby, including without limitation the conversion of the Preferred Stock into
shares of Common Stock in accordance with the terms hereof, by a majority of
the holders of shares of its Common Stock entitled to vote thereon
("Stockholder Approval").

         (b)     Reservation of Common Stock Issuable Upon Conversion.  The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, free from any preemptive rights, solely for
the purpose of effecting Conversions hereunder, such number of its shares of
Common Stock (the "Reserved Amount") as shall from time to time be sufficient
to effect the Conversion of the Series A Preferred Stock. If at any time the
Reserved Amount is less than 125% of the number of shares of Common Stock
issuable upon Conversion of the then outstanding shares of Series A Preferred
Stock, the Company shall take immediate action (including seeking shareholder
authorization of additional shares of Common Stock) to increase the Reserved
Amount to 175% of the number of shares of Common Stock into which the
outstanding shares of Series A Preferred Stock are then convertible. If the
Company shall issue any securities or make any change in its capital structure
which would change the number of Conversion Shares deliverable upon the
Conversion of the outstanding shares of Series A Preferred Stock, the Company
shall at the same time also make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and reserved,
free from any preemptive rights, for such Conversion.

         (c)     Conversion Notice.  In order to convert shares of Series A
Preferred Stock, or any portion thereof, the Holder shall send by facsimile
transmission (with a hard copy to follow by first class mail), at any time
prior to 11:59 p.m., eastern time, on the date on which the Holder wishes to
effect such Conversion (the "Conversion Date"), (i) a notice of conversion to
the Company and to its designated transfer agent for the Common Stock (the
"Transfer Agent") stating the number of shares of Series A Preferred Stock to
be converted, the amount of Dividends accrued on the shares of Series A
Preferred Stock then held by the Holder up to and including the Conversion
Date, the applicable Conversion Price and a calculation of the number of shares
of Common Stock issuable upon such Conversion (a "Conversion Notice") and (ii)
a copy of the certificate or certificates representing the Series A Preferred
Stock being converted. The Holder shall thereafter send the original of such
certificate or certificates by overnight mail to the Company. In the case of a
dispute as to the calculation of the Conversion Price or the number of
Conversion Shares issuable upon a Conversion, the Company shall promptly issue
to the Holder the number of Conversion Shares that are not disputed and shall
submit the disputed calculations to its independent accountants within one (1)
business day of receipt of the Holder's Conversion Notice. The Company shall
cause such accountant to calculate the Conversion Price as provided herein and
to notify the Company and the Holder of the results in writing no later than
two business days following the day on which it received the disputed
calculations.  Such accountant's calculation shall be deemed conclusive absent
manifest error.  The fees of any such accountant shall be borne by the Company.

         (d)     Number of Conversion Shares; Conversion Price.  The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be determined by dividing the Stated





                                      -4-
<PAGE>   5

Value of the Series A Preferred Stock to be converted by the Conversion Price
(as defined herein) in effect on the Conversion Date.  The "Conversion Price"
shall be the lesser of (A) the price determined by multiplying (x) the average
of the Closing Bid Prices (as defined below) for the Common Stock on the five
(5) Trading Days (as defined below) occurring immediately prior to (but not
including) the Conversion Date times (y) 85% (the "Floating Conversion Price")
and (B) $18.30 (the "Fixed Conversion Price"). "Trading Day" shall mean any day
on which the Common Stock is traded for any period on the Nasdaq National
Market or on the principal securities exchange or market on which the Common
Stock is then traded. "Closing Bid Price" means, with respect to a security,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to holders of a majority of
the then outstanding shares of Series A Preferred Stock if Bloomberg Financial
Markets is not then reporting closing bid prices of such security
(collectively, "Bloomberg"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.  If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an independent investment banking firm selected by
the Holders of a majority of the then outstanding shares of Series A Preferred
Stock, and reasonably acceptable to the Company, with the costs of such
appraisal to be borne by the Company.

         (e)     Delivery of Common Stock Upon Conversion.  Upon receipt of a
Conversion Notice pursuant to paragraph 4(c) above, the Company shall, no later
than the close of business on the later to occur of (i) the third (3rd)
business day following the Conversion Date set forth in such Conversion Notice
and (ii) the business day following the day on which the original certificate
or certificates representing the shares of Series A Preferred Stock being
converted are received by the Company (the "Delivery Date"), issue and deliver
or caused to be delivered to the Holder the number of Conversion Shares as
shall be determined as provided herein.  Conversion Shares delivered to the
Holder shall not contain any restrictive legend as long as the sale of such
Conversion Shares is covered by an effective Registration Statement or may be
made pursuant to Rule 144(k) under the Securities Act of 1933, as amended (the
"Securities Act") or any successor rule or provision.

         (f)     Failure to Deliver Conversion Shares.

                 (i)      In the event that the Company fails for any reason to
deliver to the Holder certificates representing the number of Conversion Shares
specified in the applicable Conversion Notice on or before the Delivery Date
therefor (a "Conversion Default"), the Company shall pay to the Holder payments
("Conversion Default Payments") in the amount of (i) (N/365) multiplied by (ii)
the aggregate Stated Value of the shares of Series A Preferred Stock
represented by the Conversion Shares which remain the subject of such
Conversion Default multiplied by (iii) the lower of twenty-four percent (24%)
and the maximum interest rate permitted by applicable law,





                                      -5-
<PAGE>   6

where "N" equals the number of days elapsed between the original Delivery Date
of such Conversion Shares and the earlier to occur of (A) the date on which all
of such Conversion Shares are issued and delivered to the Holder and (B) the
date on which such shares are redeemed pursuant to the terms of this
Certificate of Designations.  Cash amounts payable hereunder shall be paid on
or before the fifth (5th) business day of the calendar month following the
calendar month in which such amount has accrued. In the event that there occurs
a dispute between the Company and a Holder as to the number of Conversion
Shares issuable pursuant to a Conversion as described in paragraph 4(c) above,
and it is finally determined that such Holder is not entitled to receive
certain Conversion Shares, the Company shall not owe Conversion Default
Payments to such Holder with respect to such Conversion Shares.

                 (ii)     Nothing herein shall limit the Holder's right to
pursue actual damages for the Company's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of shares of Common Stock by the Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion, such damages to be in an amount equal to the difference between (A)
the aggregate purchase price for the shares of Common Stock so purchased and
(B) the aggregate number of net proceeds received by the Holder from the sale
of the Conversion Shares issued by the Company pursuant to such Conversion),
and the Holder shall have the right to pursue all other remedies available to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).

         (g)     Conversion at Maturity.

                 (i)      On the date which is three years from the Purchase
Date (the "Maturity Date"), and assuming the satisfaction of the Mandatory
Conversion Conditions (as defined below) the remaining shares of Series A
Preferred Stock then held by each Holder shall be automatically converted into
the number of shares of Common Stock equal to the Liquidation Preference of
such shares divided by the then applicable Conversion Price (a "Mandatory
Conversion"), and the Maturity Date shall be deemed to be the Conversion Date
with respect to such Mandatory Conversion. If a Mandatory Conversion occurs,
the Company and the Holder shall follow the procedures for Conversion set forth
in this Section 4; provided, however, that the Holder shall not be required to
send the Conversion Notice contemplated by paragraph 4(c). In the event that
the Mandatory Conversion Conditions are not satisfied as of the Maturity Date,
the Company shall, within five (5) business days of the Maturity Date, pay an
amount in cash to each Holder equal to the Liquidation Preference for the
shares of Series A Preferred Stock then held by such Holder.

                 (ii)     The "Mandatory Conversion Conditions" are as follows:

                          (1)     the market value of the outstanding shares of
Common Stock on the Maturity Date (not including any such shares represented by
the then outstanding shares of Series A Preferred Stock) shall be greater than
seventy-five million dollars ($75,000,000);

                          (2)     the Common Stock shall have an average daily
trading volume of at





                                      -6-
<PAGE>   7

least thirty (30) thousand shares during the period of one hundred and eighty
(180) days ending on the fifteenth (15th) day of the calendar month immediately
prior to the calendar month in which the Maturity Date occurs;

                          (3)     the Common Stock shall be designated for
quotation on the Nasdaq National Market or listed on the New York Stock
Exchange or other national securities exchange; and

                          (4)     a Registration Statement covering the resale
of all of the Conversion Shares issuable pursuant to such Mandatory Conversion
shall be effective, or such resale may be made pursuant to Rule 144(k).

         (h)     Limitations on Right to Convert.

                 (i)      In the event that the number of Preferred Shares to
be converted by a Holder pursuant to a Conversion Notice exceeds that number of
Preferred Shares (the "Preferred Share Conversion Limit") which, if converted
in full, would result in the issuance of a number of Conversion Shares that
would equal such Holder's Cap Amount (as defined below), the Company shall have
the option, in lieu of converting the Preferred Shares which would exceed such
Holder's Preferred Share Conversion Limit, to redeem such Preferred Shares at
the Optional Redemption Price (as defined below)(an "Optional Redemption"). In
order to effect an Optional Redemption, the Company shall, within two (2)
business days of receiving a Conversion Notice from a Holder pursuant to which
the Preferred Shares to be converted thereby exceeds such Holder's Preferred
Share Conversion Limit, deliver a written notice to such Holder that the
Company intends to redeem such excess Preferred Shares (an "Optional Redemption
Notice"). In the event that the Company does not deliver an Optional Redemption
Notice within such two business day period, the Company will convert the
Preferred Shares represented by such Conversion Notice in accordance with the
terms of this Certificate. A Holder shall have the right, upon converting
Preferred Shares in a number that equals or exceeds 99% of such Holder's
Preferred Share Conversion Limit, to deliver a written notice to the Company
requesting whether the Company intends to redeem such Holder's Preferred Shares
in excess of such Holder's Preferred Share Conversion Limit. If the Company
fails to deliver an Optional Redemption Notice within five (5) business days of
its receipt of such request, the Company will not be entitled thereafter to
exercise its right to an Optional Redemption with respect to the Preferred
Shares held by such Holder. A Holder's "Cap Amount" at any given time shall be
the number of shares of Common Stock equal to, (A) for a Holder which purchased
Preferred Shares from the Company, (i) the aggregate Stated Value of all of the
Preferred Shares purchased by such Holder on or before such date, divided by
(ii) ten dollars ($10), and (B) for a Holder which purchased Preferred Shares
from another Holder, a pro rata portion of such other Holder's Cap Amount, in
which case such other Holder's Cap Amount shall be appropriately reduced. In
the event that a Holder converts all of such Holder's Preferred Shares into a
number of shares of Common Stock which, in the aggregate, is less than such
Holder's Cap Amount, then the difference between such Holder's Cap Amount and
the number of shares of Common Stock actually issued to such Holder shall be
allocated pro rata to the Cap Amounts of the other Holders based on the number
of Preferred Shares then held by such Holders.  The Optional Redemption





                                      -7-
<PAGE>   8

Price for each Preferred Share redeemed pursuant to an Optional Redemption
shall be equal to (x) the Stated Value of such Preferred Share times 117.5%
plus (y) the amount of all Dividends accrued (and any other amounts payable
pursuant to this Certificate of Designations) on such Preferred Shares up to
and including the date on which the Company pays the Optional Redemption Price
to the applicable Holder. Upon delivering an Optional Redemption Notice to a
Holder, the Company shall pay the Optional Redemption Price to such Holder
within ninety (90) days of such delivery (such ninetieth day being referred to
as the "Optional Redemption Date"). If the Optional Redemption Price is not
paid to such Holder on or before the Optional Redemption Date, interest shall
accrue thereon in the amount of (i) (N/365) multiplied by (ii) the Optional
Redemption Price multiplied by (iii) the lower of twenty-four percent (24%) and
the maximum interest rate permitted by applicable law, where "N" equals the
number of days elapsed between the Optional Redemption Date and the date on
which such payment is made in full.

                 (ii)  In no event shall a Holder be permitted to convert any
shares of Series A Preferred Stock in excess of that number of such shares upon
the Conversion of which (x) the number of shares of Common Stock beneficially
owned by such Holder (other than shares of Common Stock which may be deemed
beneficially owned except for being subject to a limitation on conversion or
exercise analogous to the limitation contained in this subparagraph (ii) plus
(y) the number of shares of Common Stock issuable upon the Conversion of such
shares is equal to or exceeds (z) 4.99% of the number of shares of Common Stock
then issued and outstanding. Delivery by a Holder of a Conversion Notice shall
be deemed to represent the determination by such Holder that the Conversion
represented thereby will not violate the provisions of this subparagraph (ii),
and the Company shall have neither the right nor the obligation to confirm such
determination. Nothing contained herein shall be deemed to restrict the right
of a Holder to convert such shares of Series A Preferred Stock at such time as
such Conversion will not violate the provisions of this subparagraph (ii).

5.       ADJUSTMENTS TO CONVERSION PRICE.

         (a)     Adjustment to Fixed Conversion Price Due to Stock Split, Stock
Dividend, Etc.  If (A) the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, reclassification, the distribution
to holders of Common Stock of rights or warrants entitling them to subscribe
for or purchase Common Stock at less than the then current market price thereof
or other similar event, the Fixed Conversion Price shall be proportionately
reduced, or (B) the number of outstanding shares of Common Stock is decreased
by a reverse stock split, combination or reclassification of shares or other
similar event, the Fixed Conversion Price shall be proportionately increased.
In such event, the Company shall notify the Transfer Agent of such change on or
before the effective date thereof.  For purposes hereof, the market price per
share of Common Stock on any date shall be the average of the closing sale
prices for the Common Stock as reported by Nasdaq, or by the principal
securities market on which the Common Stock is then traded, on the five (5)
consecutive Trading Days (as defined below) selected by the Company not later
than, the earlier of the date in question and the Trading Day before the "ex"
date, if any, with respect to the issuance or distribution requiring such
computation.  The term "'ex' date", when used with respect





                                      -8-
<PAGE>   9

to any issuance or distribution, means the first Trading Day on which the
Common Stock trades regular way in the market from which such average closing
price is then to be determined without the right to receive such issuance or
distribution.  In the absence of one or more such quotations, the Company shall
determine the current market price on the basis of such quotations as it
considers appropriate.

         (b)     Adjustment to Conversion Price.  If, prior to the Conversion
of all of the shares of Series A Preferred Stock, the number of outstanding
shares of Common Stock is increased or decreased by a stock split, stock
dividend, combination, reclassification or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any Conversion thereof, the Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all Trading Days
immediately preceding the Conversion Date.

         (c)     Adjustment Due to Merger, Consolidation, Etc.  If, prior to
the Conversion of all of the shares of Series A Preferred Stock, there shall be
any merger, consolidation, exchange of shares, recapitalization,
reorganization, redemption or other similar event, as a result of which shares
of Common Stock shall be changed into the same or a different number of shares
of the same or another class or classes of stock or securities of the Company
or another entity or there is a sale of all or substantially all the Company's
assets or there is a change of control transaction with respect to which, in
any such case, a Holder does not exercise its right to a Mandatory Redemption
(as defined below) of the Series A Preferred Stock, then such Holder shall
thereafter have the right to receive upon Conversion of the shares of Series A
Preferred Stock, upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore issuable upon Conversion,
such stock, securities and/or other assets, if any, which such Holder would
have been entitled to receive in such transaction had such shares been
converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of such Holder to the end that the provisions hereof (including, without
limitation, provisions for the adjustment of the Conversion Price and of the
number of shares issuable upon a Conversion) shall thereafter be applicable as
nearly as may be practicable in relation to any securities thereafter
deliverable upon the exercise hereof.  The Company shall not effect any
transaction described in this subsection 5(c) unless (i) it first gives to each
Holder prior notice of such merger, consolidation, exchange of shares,
recapitalization, reorganization, redemption or other similar event, and makes
a public announcement of such event at the same time that it gives such notice
and (ii) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation, including the terms of this subsection 5(c).

         (d)     Distribution of Assets.  If the Company shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in shares of capital stock of
a subsidiary of the Company (collectively, a "Distribution"), then, upon a
Conversion by a Holder occurring after the record date for determining
shareholders entitled to such Distribution but prior to the effective date of
such Distribution, the Holder shall be entitled to receive the





                                      -9-
<PAGE>   10

amount of such assets which would have been payable to such Holder had such
Holder been the holder of such shares of Common Stock on the record date for
the determination of shareholders entitled to such Distribution.  The Fixed
Conversion Price for shares of Series A Preferred Stock not converted prior to
the effective date of a Distribution shall be reduced to a price determined by
decreasing the Fixed Conversion Price in effect immediately prior to the record
date of the Distribution by an amount equal to the fair market value of the
assets so distributed, as determined by mutual agreement of the Company and
each Holder.

         (e)     No Fractional Shares.  If any adjustment under this Section 5
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon Conversion shall be the
next higher number of shares or, at the option of the Company, shall be paid in
cash in an amount calculated by multiplying the amount of the fractional share
times the  Closing Bid Price used to calculate the Conversion Price for such
Conversion.

6.       MANDATORY REDEMPTION.

         (a)     Mandatory Redemption.  In the event that a Mandatory
Redemption Event (as defined below) occurs, each Holder shall have the right,
upon written notice to the Company, to have all or any portion of the shares of
Series A Preferred Stock held by such Holder redeemed by the Company (a
"Mandatory Redemption") at the Mandatory Redemption Price (as defined herein)
in same day funds.  Such notice shall specify the effective date of such
Mandatory Redemption (the "Mandatory Redemption Date") and the number of such
shares to be redeemed.

         (b)     Mandatory Redemption Price.  The "Mandatory Redemption Price"
shall be equal to the Liquidation Preference of the shares of Series A
Preferred Stock being redeemed multiplied by one hundred and twenty percent
(120%); provided that in the event of a Mandatory Redemption Event specified in
subparagraph 6(d)(vii) below, the Mandatory Redemption Price shall be equal to
fifteen percent (15%) times the Stated Value of such shares times N/365, where
N means the number of days elapsed between the Purchase Date and the Mandatory
Redemption Date.

         (c)     Payment of Mandatory Redemption Price.

                 (i)      The Company shall pay the Mandatory Redemption Price
to the Holder exercising its right to redemption within five (5) business days
of the Mandatory Redemption Date.  Upon redemption of a share of Series A
Preferred Stock, the Holder will return such share to the Company for
cancellation against payment of the Mandatory Redemption Price.

                 (ii)     If Company fails to pay the Mandatory Redemption
Price to the Holder within five (5) business days of the Mandatory Redemption
Date, the Holder shall be entitled to interest thereon at an annual rate equal
to the lower of (x) the "prime" rate (as published in the Wall Street Journal)
on such fifth business day plus three percent (3%) and (y) the highest rate
permitted by applicable law from the Mandatory Redemption Date until the
Mandatory Redemption Price has been paid in full.





                                      -10-
<PAGE>   11

         (d)     Mandatory Redemption Event.  Each of the following events
shall be deemed a "Mandatory Redemption Event":

                 (i)      the Company fails for any reason (other than as a
result of not having a sufficient number of shares of Common Stock authorized
and reserved for issuance) to issue shares of Common Stock and to transfer
certificates representing such shares to the Holder in accordance with the
provisions of this Certificate of Designations upon Conversion of any shares of
Series A Preferred Stock, and such failure continues for fifteen (15) business
days following written notice thereof by the Holder to the Company and to
counsel designated by the Company;

                 (ii)     the Company is unable to issue shares of Common Stock
upon Conversion of any shares of Series A Preferred Stock as a result of not
having a sufficient number of shares of Common Stock authorized and reserved
for issuance, and such inability continues for a period of thirty (30) days
thereafter;

                  (iii)   the Company breaches, in a material respect, any
covenant or other material term or condition of the Securities Purchase
Agreement between the Company and the Purchasers named therein pursuant to
which the Series A Preferred Stock may be issued and sold (the "Securities
Purchase Agreement"), the Registration Rights Agreement or any other
Transaction Document (as defined in the Securities Purchase Agreement) and such
breach continues for a period of ten (10) business days after written notice
thereof to the Company from the Holder; provided that, if the Company is then
using its best efforts to cure any such breach, such ten business day period
shall be extended for another ten (10) business days;

                  (iv)    the Registration Statement is not declared effective
by the Registration Deadline (as defined in the Registration Rights Agreement)
or, if the Registration Statement has been declared effective by such date, and
the effectiveness of the Registration Statement lapses for any reason
(including without limitation, the issuance of a stop order) or is unavailable
to the Holder for sale of Conversion Shares in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) business days; provided that the Registration Statement will
not be considered unavailable for the number of days occurring during a
Standstill Period (as defined in the Registration Rights Agreement);

                  (v)     the Common Stock is no longer quoted on the Nasdaq
National Market or listed on a national securities exchange;

                  (vi)    the sale, conveyance or disposition of all or
substantially all of the assets of the Company, the effectuation of a
transaction or series of related transactions, in which more than 50% of the
voting power of the Company is disposed of, or the consolidation, merger or
other business combination of the Company with or into any other entity (other
than the Company's merger transaction with Cozzi Iron & Metal, Inc.),
immediately following which the prior stockholders of the Company fail to own,
directly or indirectly, at least fifty percent (50%) of the surviving entity;
and





                                      -11-
<PAGE>   12

                 (vii) the Company fails to obtain Stockholder Approval within
one hundred and twenty (120) days of the Purchase Date.

7.       MISCELLANEOUS.

         (a)     Transfer of Series A Preferred Stock.  A Holder may sell,
transfer or otherwise dispose of all or any portion of the shares of Series A
Preferred Stock to any person or entity as long as such sale, transfer or
disposition is the subject of an effective registration statement under the
Securities Act or such Holder delivers an opinion of counsel to the effect that
such sale, transfer or disposition is exempt from registration thereunder;
provided that no such opinion shall be required in the event of a sale by such
Holder to an affiliate thereof or pursuant to Rule 144 under the Securities
Act.  From and after the date of such sale, transfer or disposition, the
transferee hereof shall be deemed to be a Holder.  Upon any such sale, transfer
or disposition, the Company shall, promptly following the return of the
certificate or certificates representing the shares of Series A Preferred Stock
that are the subject of such sale, transfer or disposition, issue and deliver
to such transferee a new Certificate in the name of such transferee.

         (b)     Lost or Stolen Certificate.  Upon receipt by the Company of
evidence of the loss, theft, destruction or mutilation of a certificate
representing shares of Series A Preferred Stock, and (in the case of loss,
theft or destruction) of indemnity or security reasonably satisfactory to the
Company, and upon surrender and cancellation of such certificate if mutilated,
the Company shall execute and deliver to the Holder a new certificate identical
in all respects to the original certificate.

         (c)     No Voting Rights.  The Holders of the Series A Preferred Stock
shall have no voting rights with respect to the business, management or affairs
of the Company; provided that the Company shall provide each Holder with prior
notification of each meeting of shareholders (and copies of proxy statements
and other information sent to such shareholders).

         (d)     Cancellation of Preferred Shares.  Upon the conversion or
redemption of a Preferred Share, the Company shall immediately cancel such
Preferred Share and shall not reissue such Preferred Share.

         (e)     Notices.  Except as otherwise specified herein, any notice,
demand or request required or permitted to be given pursuant to the terms of
this Certificate of Designations shall be in writing and shall be deemed given
(i) when delivered personally or by verifiable facsimile transmission (with a
hard copy to follow) on or before 5:00 p.m., eastern time, on a business day
or, if such day is not a business day, on the next succeeding business day,
(ii) on the next business day after timely delivery to an overnight courier and
(iii) on the third business day after deposit in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed as
follows:





                                      -12-
<PAGE>   13

                 If to the Company:

                 Metal Management, Inc.
                 500 North Dearborn Street, Suite 405
                 Chicago, Illinois 60610
                 Attn: Gerard M. Jacobs
                 Fax: 312-645-0714

                 With a copy to:

                 Shefsky & Froelich Ltd.
                 444 North Michigan Avenue
                 Chicago, Illinois 60611
                 Attn: Stuart M. Savitz, Esq.
                 Fax: 312-527-5921

and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.

         (f)     Protective Provisions

                 So long as shares of Series A Preferred Stock are outstanding,
the Company shall not, without first obtaining the approval of the Holders of
at least a majority of the then outstanding shares of Series A Preferred Stock:

                          (a)     alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any other capital stock of the
Company so as to affect adversely the Series A Preferred Stock;

                          (b)     create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to distribution
of assets upon a Liquidation Event or any other liquidation, dissolution or
winding up of the Company; or

                          (c)     increase the authorized number of shares of
Series A Preferred Stock;

provided, however, that such approval shall not be required in the event that
the average Closing Bid Price of the Common Stock on the five (5) trading days
immediately preceding the effective date of such change is equal to or exceeds
one hundred and fifty percent (150%) of the Fixed Conversion Price.

                 In the event that Holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Company to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to the terms hereof, so as to affect the Series A
Preferred Stock, then the Company will deliver notice of such approved change
to the





                                      -13-
<PAGE>   14

holders of the Series A Preferred Stock that did not agree to such alteration
or change (the "Dissenting Holders") and the Dissenting Holders shall have the
right for a period of thirty (30) days to convert their shares of Series A
Preferred Stock into Conversion Shares pursuant to the terms of this
Certificate of Designations as they existed prior to such alteration or change
and without regard to the limitations on Conversion contained in paragraph
4(h)(i) hereof, or continue to hold their shares of Series A Preferred Stock.





                                      -14-
<PAGE>   15

         IN WITNESS WHEREOF, the Company has executed this Certificate of
Designations as of the 7th day of August, 1997.

METAL MANAGEMENT, INC.


By:____________________________
   Name:
   Title:





                                      -15-
<PAGE>   16
                                                                     EXHIBIT 4.1


                         SECURITIES PURCHASE AGREEMENT


         SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August
8, 1997, by and among Metal Management, Inc., a Delaware corporation
(the "Company"), Proprietary Convertible Investment Group, Inc., a Delaware
corporation ("PCIG"), and Advantage Fund Limited, a corporation organized under
the laws of the British Virgin Islands ("Advantage"). PCIG and Advantage are
each referred to herein as a "Purchaser" and, together, as the "Purchasers".

         The Company wishes to sell to each Purchaser, and each Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, the number of shares (the "Preferred Shares") of the Company's
Series A Convertible Preferred Stock (the "Series A Preferred Stock") set forth
below such Purchaser's name on the signature pages hereof.  The Preferred
Shares are convertible into shares (the "Conversion Shares") of the Company's
Common Stock, $.01 par value per share (the "Common Stock"). The Company has
agreed to effect the registration of the Conversion Shares under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a Registration
Rights Agreement of even date herewith among the Company and the Purchasers
(the "Registration Rights Agreement").

         The rights, preferences and privileges of the Series A Preferred
Stock, including the terms upon which the Series A Preferred Stock is
convertible into Conversion Shares, are set forth in the form of Certificate of
Designations, Preferences and Rights attached hereto as Exhibit A (the
"Certificate of Designation"). The Preferred Shares and the Conversion Shares
are collectively referred to herein as the "Securities" and each as a
"Security".

         The sale of the Preferred Shares by the Company to the Purchasers will
be effected in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D ("Regulation D"), as promulgated by
the Securities and Exchange Commission (the "Commission") under the Securities
Act.

         The Company and the Purchasers hereby agree as follows:

1.       PURCHASE AND SALE OF PREFERRED SHARES.

         1.1     Agreement to Purchase and Sell.  Upon the terms and subject to
the satisfaction of the conditions set forth herein, the Company agrees to sell
at the First Closing (as defined below), and each Purchaser agrees to purchase,
the number of Preferred Shares set forth below such Purchaser's name on the
signature page hereof at a purchase price equal to one thousand dollars
($1,000) per share (the "Purchase Price").

         1.2     Closing.  Subject to the satisfaction of the conditions set
forth herein, the closing of the purchase and sale of the Preferred Shares will
be deemed to occur  when this Agreement and the other Transaction Documents (as
defined below), have been executed and delivered by the Company and each
Purchaser, and full payment of the Purchase Price has been made by each
Purchaser by wire transfer of immediately available funds to an account
designated by the
<PAGE>   17

Company against delivery by the Company of duly executed certificates to each
Purchaser representing the Preferred Shares purchased by such Purchaser
hereunder (the "First Closing").  The date on which the First Closing is deemed
to take place is referred to herein as the "Closing Date". The aggregate
Purchase Price for all of the Preferred Shares to be purchased by the
Purchasers at the First Closing (assuming the satisfaction of the conditions
described in Section 5 below) shall be twenty-one million dollars
($21,000,000). The Company may sell up to an additional twenty-nine million
dollars ($29,000,000) of preferred stock, up to nine million dollars
($9,000,000) of which may be shares of Series A Preferred Stock and the balance
of which shall be shares of the Company's preferred stock to be designated as
Series B Preferred Stock (the "Series B Preferred Stock") at a purchase price
of one thousand dollars ($1,000) per share at one or more additional closings
following the Closing Date (each, an "Additional Closing" and together the
"Additional Closings"). The shares of Series A Preferred Stock to be issued at
the Additional Closing or Additional Closings and the shares of Series B
Preferred Stock are collectively referred to herein as the "Additional
Preferred Shares".

         1.3     Certain Definitions.  When used herein, (A) "business day"
shall mean any day on which the New York Stock Exchange and commercial banks in
the city of New York are open for business, (B) an "affiliate" of a party shall
mean any person or entity controlling, controlled by or under common control
with that party and (C) "control" shall mean, with respect to an entity, the
ability to direct the business, operations or management of such entity,
whether through an equity interest therein or otherwise.

2.       REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.

         Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company (which shall be true as of the
date hereof and as of the Closing Date) and agrees with the Company that:

         2.1     Authorization; Enforceability.  Such Purchaser is duly and
validly organized, validly existing and in good standing as a corporation under
the laws of the state of its incorporation with full power and authority to
purchase the Preferred Shares and to execute and deliver this Agreement.  This
Agreement constitutes such Purchaser's valid and legally binding obligation,
enforceable in accordance with its terms, except as such enforcement may be
limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (ii) general principles of equity.

         2.2     Accredited Investor; Investment Intent.  Such Purchaser is an
accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Preferred Shares solely for its own account for investment
purposes as a principal and not with a present view to the public resale or
distribution of all or any part thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act; provided, however that in making such
representation, such Purchaser does not agree to hold the Securities for any
minimum or specific term and reserves the right to sell,





                                      -2-
<PAGE>   18

transfer or otherwise dispose of the Securities at any time in accordance with
the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.

         2.3     Information. The Company has provided such Purchaser with, and
such Purchaser has reviewed, the written information regarding the Company set
forth on Schedule 2.3, and has granted to such Purchaser the opportunity to ask
questions of and receive answers from representatives of the Company, its
officers, directors, employees and agents concerning the business, operations
and financial condition of the Company and materials relating to the terms and
conditions of the purchase and sale of the Preferred Shares hereunder. Neither
such information nor any other investigation conducted by such Purchaser or any
of its representatives shall modify, amend or otherwise affect such Purchaser's
right to rely on the Company's representations and warranties contained in this
Agreement.

         2.4     Limitations on Disposition.  Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have
not been and are not being registered under the Securities Act and may not be
transferred or resold without registration under the Securities Act or unless
pursuant to an exemption therefrom. Such Purchaser agrees not to sell, transfer
or otherwise dispose of the Securities unless and until:

                 (a)      there is then in effect a registration statement
         under the Securities Act covering such proposed disposition and such
         disposition is made in accordance with such registration statement; or

                 (b) (i)  such Purchaser shall have notified the Company in
         advance of the proposed disposition, and (ii) if reasonably requested
         by the Company, such Purchaser shall have furnished the Company with
         an opinion of counsel (the cost of which shall be borne by the
         Purchaser), reasonably satisfactory to the Company, that such
         disposition will not require registration under the Securities Act. It
         is agreed that no opinion of counsel will be required for the transfer
         of the Securities to an affiliate of such Purchaser or with respect to
         a sale thereof made pursuant to Rule 144 under the Securities Act
         ("Rule 144").

         2.5     Legend.  Such Purchaser understands that the certificates
representing the Securities may bear at issuance a restrictive legend in
substantially the following form:

                 "The securities represented by this certificate have not been
                 registered under the Securities Act of 1933, as amended (the
                 "Securities Act"), or any state securities laws, and may not
                 be sold, transferred or assigned in the absence of an
                 effective registration statement under the Securities Act and
                 any such state law or an exemption from the registration
                 requirements thereunder."

                 Notwithstanding the foregoing, it is agreed that, as long as
the sale of the Conversion Shares is registered pursuant to an effective
registration statement or such shares are





                                      -3-
<PAGE>   19

eligible for resale under Rule 144(k), the Conversion Shares shall be issued
upon a conversion of the Preferred Shares pursuant to the terms of the
Certificate of Designation, or in payment of a dividend thereon, without any
legend or other restrictive language. The legend set forth above shall be
removed and the Company shall issue a new certificate without such legend to
the holder of any Security upon which it is stamped if (i) the sale of such
Security is registered under the Securities Act, (ii) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions (the cost of which shall be
borne by the Purchaser) to the effect that such Security can be sold publicly
without registration under the Securities Act or (iii) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144 without any restriction as to the number of shares of such Security
that can then be immediately resold.

         2.6     No Reliance by Purchaser.  Such Purchaser acknowledges that
(i) it has such knowledge in business and financial matters as to be fully
capable of evaluating this Agreement, the other Transaction Documents (as
defined below) and the transactions contemplated hereby and thereby, (ii) it is
not relying on any advice or representation of the Company in connection with
entering into this Agreement, the other Transaction Documents or such
transactions (other than the representations made by the Company in this
Agreement and the other Transaction Documents, and in the written information
described in paragraph 2.3 above), (iii) it has not received from the Company
any assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice
of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by the Company.

3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company hereby makes the following representations and warranties
to each Purchaser (which shall be true as the date hereof and as of the Closing
Date, provided that the representations and warranties made by the Company in
paragraph 3.18 hereof shall be true as of the date specified therein) and
agrees with such Purchaser that:

         3.1     Organization, Good Standing and Qualification.  Each of the
Company and its subsidiaries is an entity duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority, corporate and
otherwise, to carry on its business as now conducted. Each of the Company and
its subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure so to qualify would have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. For purposes of this Agreement,
the term "subsidiaries" shall mean entities in which the Company has an equity
interest of 50% or greater.





                                      -4-
<PAGE>   20


         3.2     Authorization; Consents.  The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, to issue and sell the Preferred Shares to such
Purchaser in accordance with the terms hereof, and to issue the Conversion
Shares upon conversion of the Preferred Shares in accordance with the
Certificate of Designation.  All corporate action on the part of the Company by
its officers, directors and stockholders necessary for (A) the authorization,
execution and delivery of, and the performance by the Company of its
obligations under, (i) this Agreement, (ii) the Registration Rights Agreement
and (iii) all other agreements, documents, certificates or other instruments
delivered by the Company at the First Closing (the instruments described in
(i), (ii) and (iii) being collectively referred to herein as the "Transaction
Documents"), and (B) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Certificate of
Designation, has been obtained and no further consent or authorization of the
Company, its Board of Directors or its stockholders is required (other than the
Stockholder Approval (as defined in paragraph 4.1.10 below)).

         3.3     Enforcement.  The Transaction Documents and the Certificate of
Designation constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting
the enforcement of creditors' rights generally and (ii) general principles of
equity. Except as otherwise provided in the Transaction Documents, the Company
has obtained all governmental or regulatory consents and approvals required for
it to execute, deliver and perform its obligations under the Transaction
Documents and under the Certificate of Designation.

         3.4     Disclosure Documents; Material Agreements; Other Information.
The Company has filed with the Commission: (i) the Company's Annual Report on
Form 10-K for the year ended March 31, 1997, (ii) Quarterly Reports on Form
10-Q and 10-Q/A for the quarters ended January 31, 1996, March 31, 1996, June
30, 1996, September 30, 1996, and December 31, 1996, (iii) all Current Reports
on Form 8-K required to be filed with the Commission since January 31, 1996,
and (iv) the Company's definitive Proxy Statement for its 1995 Annual Meeting
of Shareholders, (v) any amendments to the foregoing and (vi) all schedules and
exhibits attached thereto (collectively, the "Disclosure Documents"). Except as
set forth on Schedule 3.4 hereto, and except for the transactions contemplated
hereby, the Company is not aware of any event that would require the filing of
a Form 8-K within fifteen (15) days following the Closing Date. Each Disclosure
Document, as of the date of the filing thereof with the Commission, conformed
in all material respects to the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations thereunder
and, as of the date of such filing or, if such Disclosure Document was
subsequently amended, as of the date of the filing of any amendment thereto
with the Commission, such Disclosure Document did not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.  All material
agreements required to be filed as exhibits to the Disclosure Documents have
been filed as required.  The written information provided to such Purchaser as
described in paragraph 2.3 above does not





                                      -5-
<PAGE>   21

contain an untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
as set forth in the financial statements of the Company included in the
Disclosure Documents, the Company has no liabilities, contingent or otherwise,
other than liabilities incurred in the ordinary course of business which, under
generally accepted accounting principles, are not required to be reflected in
such financial statements and which, individually or in the aggregate, are not
material to the business, operations or financial condition of the Company and
its subsidiaries taken as a whole.

         3.5     Capitalization.  The capitalization of the Company as of the
date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares reserved for issuance pursuant to
the Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Stock) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion of the
Preferred Shares is set forth on Schedule 3.5 hereto.  All of such outstanding
shares of capital stock have been, or upon issuance will be, validly issued,
fully paid and non- assessable.  No shares of the capital stock of the Company
are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances created by or through
the Company. Except as disclosed on Schedule 3.5, or as contemplated herein, as
of the date of this Agreement and as of the Closing Date, there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its subsidiaries.

         3.6     Valid Issuance.  The Preferred Shares are duly authorized and,
when issued, sold and delivered in accordance with the terms hereof, (i) will
be duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by
or through the Company, (ii) based in part upon the representations of such
Purchaser in this Agreement, will be issued, sold and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be
entitled to all of the rights, preferences and privileges set forth in the
Certificate of Designation.  The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Preferred Shares in
accordance with the terms of the Certificate of Designation, will be duly and
validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company.

         3.7     No Conflict with Other Instruments.  Neither the Company nor
any of its subsidiaries is in violation of any provisions of its Certificate of
Incorporation or Bylaws as amended and in effect on and as of the date hereof;
the Company is not in default (and no event has occurred which, with notice or
lapse of time or both, would constitute a default) under any material provision
of any material instrument or contract to which it is a party or by which it is
bound, or of any provision of any Federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to the Company,
which would have a material adverse





                                      -6-
<PAGE>   22

effect on the business, operations or financial condition of the Company and
its subsidiaries taken as a whole.  The execution, delivery and performance of
this Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby (including without limitation the
issuance and reservation for issuance of the Conversion Shares) will not result
in any such violation or be in conflict with or constitute, with or without the
passage of time and giving of notice, either a default under any such
provision, instrument or contract or an event which results in the creation of
any lien, charge or encumbrance upon any assets of the Company.

         3.8     Financial Condition; Taxes; Litigation.

                 3.8.1  The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in
the aggregate, materially adverse to the Company.  Except as otherwise
described in the Disclosure Documents, as of the date hereof and as of the
First Closing there has been no material adverse change to the Company's
business, operations, properties, financial condition or results of operations
since the date of the Company's most recent audited financial statements
contained in the Disclosure Documents.

                 3.8.2  The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not reasonably be expected to have a
material adverse effect on the consolidated business or financial condition of
the Company.

                 3.8.3  Except as set forth on Schedule 3.8.3, the Company is
not the subject of any pending or, to its knowledge, threatened investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission or any
state securities commission or other governmental entity which could reasonably
be expected to have a material adverse effect on the business, operations or
financial condition of the Company and its subsidiaries taken as a whole.

                 3.8.4  Except as set forth on Schedule 3.8.4, there is no
material claim, litigation or administrative proceeding pending, or, to the
best of the Company's knowledge, threatened, against the Company or against any
officer, director or employee of the Company in connection with such person's
employment therewith.  The Company is not a party to or subject to the
provisions of, any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality which could reasonably be expected to have
a material adverse effect on the business, operations or financial condition of
the Company and its subsidiaries taken as a whole.

         3.9     Reporting Company; Form S-3.  The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities
registered under Section 12 of the Exchange Act, and has filed all reports
required thereby. The Company is eligible to register





                                      -7-
<PAGE>   23

for resale shares of its Common Stock on a registration statement on Form S-3
under the Securities Act.

         3.10    No Reliance by Company.  The Company acknowledges that (i) it
has such knowledge in business and financial matters as to be fully capable of
evaluating this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of such Purchaser in connection with entering into this
Agreement, the other Transaction Documents or such transactions (other than the
representations made by such Purchaser in this Agreement and the other
Transaction Documents), (iii) it has not received from such Purchaser any
assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other
Transaction Documents or the performance of its obligations hereunder and
thereunder, and (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial and accounting advisors to the extent that it
has deemed necessary, and has entered into this Agreement and the other
Transaction Documents based on its own independent judgment and on the advice
of its advisors as it has deemed necessary, and not on any view (whether
written or oral) expressed by such Purchaser.

         3.11    Acknowledgment of Dilution.  The Company acknowledges that the
issuance of the Conversion Shares upon conversion of the Preferred Shares in
accordance with the terms of the Certificate of Designation may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions.  The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with the terms of the Certificate of Designation is
unconditional and absolute regardless of the effect of any such dilution.

         3.12    Registration Rights; Rights of Participation.  Except as
described on Schedule 3.12 hereto, (A) the Company has not granted or agreed to
grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority and (B) no person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate
in the transactions contemplated by this Agreement or any other Transaction
Document which has not been waived.

         3.13    Trading on Nasdaq.  The Common Stock is authorized for
quotation on the Nasdaq National Market, and trading in the Common Stock on
Nasdaq has not been suspended as of the date hereof and as of the Closing Date.

         3.14    Solicitation.  Neither the Company nor any of its subsidiaries
or affiliates, nor any person acting on its or their behalf, (i) has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D) in connection with the offer or sale of the Preferred Shares or
(ii) has, directly or indirectly, made any offers or sales of any security or





                                      -8-
<PAGE>   24

solicited any offers to buy any security, under any circumstances that would
require registration of the Preferred Shares under the Securities Act.

         3.15    Fees.  The Company is not obligated to pay any compensation or
other fee, cost or related expenditure to any underwriter, broker, agent or
other representative, other than Wharton Capital Partners, Ltd., in connection
with the transactions contemplated hereby.

         3.16    Foreign Corrupt Practices.  Neither the Company, nor any of
its subsidiaries nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has (i) used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful
expenses relating to political activity, (ii) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee,
(iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.

         3.17    Pending Acquisitions.  With respect to any acquisition of
assets or securities by the Company or any of its subsidiaries, the agreement
for which has been executed as of the date of this Agreement, the closing of
such acquisition, and the obligations of the parties thereunder, are not
conditioned in any respect on the maintenance at any given level of the closing
bid, ask or sale price of the Common Stock as quoted by Nasdaq.

         3.18    Environmental Matters.  Except as set forth in the Disclosure
Documents or on Schedule 3.18 hereof, the following representations and
warranties shall be true with respect to the Company and its subsidiaries as of
May 16, 1997:

                 3.18.1   To the best of the Company's knowledge, the Company
and each of its subsidiaries is in material compliance with all Environmental,
Health and Safety Laws (as defined below) governing its business, operations,
properties and assets.  Neither the Company nor any of its subsidiaries is
currently liable for any penalties, fines or forfeitures for failure to comply
with any Environmental, Health and Safety Laws.

                 3.18.2   The Company and each of its subsidiaries has
obtained, or caused to be obtained, and to the best of the Company's knowledge,
is in material compliance with, all applicable and material licenses,
certificates, permits, approvals and registrations required by the
Environmental, Health and Safety Laws (collectively, "Licenses").  There are no
administrative or judicial investigations, notices, claims or other proceedings
pending or threatened by any governmental authority or third parties against
the Company or any of its subsidiaries, their respective businesses,
operations, properties or assets, which question the validity or entitlement of
the Company or any of its subsidiaries to any License wherein an unfavorable
decision, ruling or finding could have a material adverse effect on the Company
or any of its subsidiaries.





                                      -9-
<PAGE>   25

                 3.18.3   Neither the Company nor any of its subsidiaries has
received or is aware of any non-compliance order, warning letter,
investigation, notice of violation, claim, suit, action, judgment or
administrative or judicial proceeding pending or threatened against or
involving the Company or any of its subsidiaries, issued by any governmental
authority or third party with respect to any Environmental, Health and Safety
Laws, which has not been resolved to the satisfaction of the issuing
governmental authority or third party and which could have a material adverse
effect on the Company or any of its subsidiaries.

                 3.18.4   To the best of the Company's knowledge, neither the
Company nor any of its subsidiaries has generated, manufactured, used,
transported, transferred, stored, handled, treated, Discharged, Released or
disposed of, nor has it allowed or arranged for any third parties to generate,
manufacture, use, transport, transfer, store, handle, treat, Discharge, Release
or dispose of, Hazardous Substances or other Waste (as defined below) to or at
any location other than a site lawfully permitted to receive such Hazardous
Substances or other waste for such purposes, nor has it performed, arranged for
or allowed by any method or procedure such generation, manufacture, use,
transportation, transfer, storage, treatment, spillage, leakage, dumping,
Discharge, Release or disposal in material contravention of any Environmental,
Health and Safety Laws.  To the best of the Company's knowledge, neither the
Company nor any of its subsidiaries has generated, manufactured, used, stored,
handled, treated, Discharged, Released or disposed of, or allowed or arranged
for any third parties to generate, manufacture, use, store, handle, treat,
spill, leak, dump, discharge, release or dispose of, any material quantities of
Hazardous Substances or other waste upon property currently or previously owned
or leased by it, except as permitted by law.  For purposes of this Agreement,
the term "Hazardous Substances" means any toxic or hazardous substance,
material, or waste, any other contaminant, pollutant or constituent thereof,
whether liquid, solid, semi-solid, sludge and/or gaseous, including without
limitation, chemicals, compounds, metals, by-products, pesticides, asbestos
containing materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation under
any Environmental, Health and Safety Laws or which are or become regulated,
listed or controlled by, under or pursuant to any Environmental Health and
Safety Laws.  For purposes of this Agreement, the term "Waste" means
agricultural wastes, biomedical wastes, biological wastes, bulky wastes,
construction and demolition debris, garbage, household wastes, industrial solid
wastes, liquid wastes, recyclable materials, sludge, solid wastes, special
wastes, used oils, white goods, and yard trash.

                 3.18.5   To the best of the Company's knowledge, neither the
Company nor any of its subsidiaries has caused, nor allowed to be caused or
permitted, either by action or inaction, a Release or Discharge, or threatened
Release or Discharge, of any material quantity of Hazardous Substances on, into
or beneath the surface of any parcel of the Owned Properties or the Leased
Premises or to any properties adjacent thereto which would have a material
adverse effect on the Company or its subsidiaries.  To the best of the
Company's knowledge, there has not occurred, nor is there presently occurring,
a Release or Discharge, or, threatened Release or Discharge, of any material
quantity of Hazardous Substances on, into or beneath the surface of any parcel
of the Owned Properties or the Leased Premises or to any properties





                                      -10-
<PAGE>   26

adjacent thereto which would have a material adverse effect on the Company or
its subsidiaries.  For purposes of this Agreement, the terms "Release" and
"Discharge" shall have the meanings given them in the Environmental, Health and
Safety Laws.

                 3.18.6   To the best of the Company's knowledge, neither the
Company nor any of its subsidiaries has generated, handled, manufactured,
treated, stored, used, shipped, transported, transferred or disposed of, nor
has it allowed or arranged, by contract, agreement or otherwise, for any third
parties to generate, handle, manufacture, treat, store, use, ship, transport,
transfer or dispose of, any Hazardous Substances or other Waste to or at a site
which, pursuant to CERCLA or any similar state law, has been placed or been
proposed for placement on the National Priorities List or its state equivalent.
Neither the Company nor any of its subsidiaries has received notice, and
neither the Company nor any of its subsidiaries has knowledge of any facts
which could give rise to any notice, that the Company or any of its
subsidiaries is a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under Environmental Health
and Safety Laws.  Neither the Company nor any of its subsidiaries has submitted
or was required to submit any notice pursuant to Section 103(c) of CERCLA with
respect to the Leased Premises or the Owned Properties.  Neither the Company
nor any of its subsidiaries has received any written request for information in
connection with any federal or state environmental cleanup site, or in
connection with any of the real property or premises where the Company or any
of its subsidiaries has transported, transferred or disposed of other Wastes.
Neither the Company nor any of its subsidiaries has been required to or has
undertaken any response or remedial actions or clean-up actions of any kind at
the request of any governmental authorities or at the request of any other
third party.  To the best of the Company's knowledge, neither the Company nor
any of its subsidiaries has any material liability under any Environmental,
Health and Safety Laws for personal injury, property damage, natural resource
damage, or clean up obligations.

                 3.18.7   To the best of the Company's knowledge, there are no
Aboveground Storage Tanks or Underground Storage Tanks on the Owned Properties
or the Leased Premises.  For purposes of this Agreement, the terms "Aboveground
Storage Tanks" and "Underground Storage Tanks" shall have the meanings given
them in Section 6901 et seq., as amended, of RCRA, or any applicable state or
local statute, law, ordinance, code, rule, regulation, order, ruling or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.

                 3.18.8   Schedule 3.18 identifies (i) all material
environmental audits, assessments or occupational health studies, of which the
Company is aware, undertaken by the Company, its subsidiaries or their agents,
or by any governmental authority, or by any third party, relating to or
affecting the Company, its subsidiaries or any of the Leased Premises or the
Owned Properties; and (ii) all material citations issued under OSHA, or similar
state or local statutes, laws, ordinances, codes, rules, regulations, orders,
rulings or decrees, relating to or affecting the Company or any of its
subsidiaries or any of the Leased Premises or the Owned Properties.





                                      -11-
<PAGE>   27

                 3.18.9   Schedule 3.18 contains a list of the assets of the
Company and its subsidiaries which have been confirmed to contain "Asbestos" or
"Asbestos-Containing Material" (as such terms are identified under the
Environmental, Health and Safety Laws).  The Company and each of its
subsidiaries has operated and continues to operate in material compliance with
all Environmental, Health and Safety Laws governing the handling, use and
exposure to and disposal of asbestos or asbestos-containing materials.  There
are no claims, actions, suits, governmental investigations or proceedings
before any governmental authority or third party pending, or threatened against
or directly affecting the Company, any of its subsidiaries, or any of their
respective assets or operations relating to the use, handling or exposure to
and disposal of asbestos or asbestos-containing materials in connection with
their assets and operations.

                 3.18.10          As used in this Agreement, "Environmental
Health and Safety Laws" means all federal, state, regional or local statutes,
laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings,
and changes or ordinances or judicial or administrative interpretations
thereof, any of which govern (or purport to govern) or relate to pollution,
protection of the environment, public health and safety, air emissions, water
discharges, hazardous or toxic substances, solid or hazardous waste or
occupational health and safety, as any of these terms are or may be defined in
such statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings and changes or ordinances, or judicial or administrative
interpretations thereof, including, without limitation, the United States
Department of Transportation Table (49 CFR 172, 101) or by the Environmental
Protection Agency as hazardous substances (40 CFR Part 302) and any amendments
thereto; the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986, 42 U.S.C. Section 9601, et seq. (collectively, "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976
and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. section
6901 et seq.  (collectively "RCRA"); the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as
amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42
U.S.C. Section 7401-7642); Toxic Substances Control Act, as amended, 15 U.S.C.
Section 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act
as amended, 7 U.S.C. Section 136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended, 42 U.S.C. Section 11001, et
seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. Section 651, et seq. ("OSHA"); any similar state
statute, or regulations implementing such statutes, laws, ordinances, codes,
rules, regulations, orders, rulings, or decrees, or which has been or shall be
determined or interpreted at any time by any governmental authority to be a
hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.

                 3.18.11   Schedule 3.18 identifies the operations and
activities, and locations thereof, which have been conducted and are being
conducted by the Company or any of its subsidiaries on any of the Owned
Properties or the Leased Premises which have involved the generation,
accumulation, storage, treatment, transportation, labeling, handling,
manufacturing,





                                      -12-
<PAGE>   28

use, spilling, leaking, dumping, discharging, release or disposal of any
material quantities of Hazardous Substances.

                 3.18.12  To the best of the Company's knowledge, none of the
Owned Properties or Leased Premises presently includes, or has been constructed
upon, any "Wetlands" as defined under applicable Environmental, Health and
Safety Laws.

                 3.18.13  As used in Section 3.18, the terms "Owned Properties"
and "Leased Premises" are deemed to refer only to the properties currently
owned or leased by the Company.

4.       COVENANTS.

         4.1     Covenants of the Company.   The Company hereby agrees and
covenants with each Purchaser as follows:

                 4.1.1  Corporate Existence.  The Company shall, so long as a
Purchaser beneficially owns any Securities (but in no event longer than three
(3) years from the Closing Date), maintain its corporate existence in good
standing and shall pay all its taxes when due except for taxes which the
Company reasonably disputes or which could not reasonably be expected to have a
material adverse effect on the business, operations or financial condition of
the Company and its subsidiaries taken as a whole.

                 4.1.2     Form D; Blue-Sky Qualification.  The Company agrees
to file a Form D with respect to the Securities as required under Regulation D
and to provide a copy thereof to each Purchaser promptly after such filing. The
Company shall, on or before the First Closing, take such action as is necessary
to qualify the Preferred Shares for sale under applicable state or "blue-sky"
laws or obtain an exemption therefrom, and shall provide evidence of any such
action to the Purchasers at or prior to the First Closing.

                  4.1.3  Reporting Status.  As long as either Purchaser or any
affiliate of such Purchaser beneficially owns any Securities and until the date
on which any of the foregoing may be sold to the public pursuant to Rule 144(k)
(or any successor rule or regulation), (i) the Company shall timely file with
the Commission all reports required to be so filed pursuant to the Exchange Act
and (ii) the Company shall not terminate its status as an issuer required by
the Exchange Act to file reports thereunder even if the Exchange Act or the
rules or regulations thereunder would permit such termination. The Company will
issue a press release describing the transactions contemplated by this
Agreement no later than the business day following the Closing Date.

                 4.1.4  Use of Proceeds.  The Company shall use the proceeds
from the sale of the Preferred Shares for general corporate purposes and shall
not use such proceeds to make a loan to or an investment in any other
corporation, partnership or other entity, provided that the Company may use
such proceeds as full or partial consideration for the purchase of more than





                                      -13-
<PAGE>   29

50% of the voting equity or substantially all of the assets of any corporation,
partnership or other entity.

                 4.1.5     Quotation on Nasdaq.  The Company shall promptly
secure the designation and quotation of the Conversion Shares on the Nasdaq
National Market and shall use its best efforts to maintain the designation and
quotation, or listing, of the shares of Common Stock on the Nasdaq National
Market or, if not quoted on such market, the New York Stock Exchange or other
national securities exchange.

                 4.1.6     Use of Purchaser Name.  The Company shall not use,
directly or indirectly, either Purchaser's name in any advertisement,
announcement, press release or other similar communication unless it has
received the prior written consent of such Purchaser for the specific use
contemplated, or except as it may be required to do so, in the reasonable
opinion of counsel to the Company, pursuant to applicable law or regulation.

                 4.1.7     Additional Equity Capital; Right of First Offer.
The Company agrees that, during the 270-day period following the Closing Date,
the Company will not issue or agree to issue any securities that are
convertible into or exercisable or exchangeable for, directly or indirectly,
Common Stock (other than Additional Preferred Shares that are issued at an
Additional Closing) if such securities provide for a conversion, exercise or
exchange price less than the market price for the Common Stock on the date of
such conversion, exercise or exchange (the "Capital Raising Limitation"). The
Capital Raising Limitation will not apply to (i) an offering that is registered
under the Securities Act, (ii) any transaction involving the issuance of
securities in connection with a merger, consolidation, acquisition or sale of
assets, or in connection with any strategic partnership or joint venture formed
for a bona fide commercial purpose (the primary purpose of which is not to
raise equity capital), or (iii) the granting of options, warrants or other
rights to acquire Common Stock to employees, consultants or directors of the
Company not in connection with a public or private offering of securities, or
the exercise thereof by any such individual. The Company agrees that it will
not issue or sell any Series B Preferred Stock, or any rights to purchase or
receive Series B Preferred Stock, unless and until the Company's planned merger
with Cozzi Iron & Metal, Inc. is consummated.

                 4.1.8    Right of First Offer.  Prior to any offer or sale of
Additional Preferred Shares, the Company must first deliver to each Purchaser
written notice describing the proposed issuance, including the terms and
conditions thereof, and provide such Purchaser with an option during the five
(5) business day period following delivery of such notice to purchase up to its
proportionate share (based on the number of Preferred Shares purchased by such
Purchaser hereunder relative to the number of Preferred Shares purchased by the
Purchasers hereunder) of the Additional Preferred Shares being offered on the
same terms as contemplated by such issuance. In the event that Purchaser either
does not give notice within such five business day period that it intends to
exercise the foregoing option or informs the Company in writing that it does
not intend to participate in such issuance, the Company may offer to each of
its officers and directors the option to purchase up to, in the aggregate, the
amount of Additional Preferred Shares which were declined by such Purchaser, on
the same terms as were offered to such





                                      -14-
<PAGE>   30

Purchaser. If any such officer or director declines to exercise such option,
the Company may offer to a third party the amount of Additional Preferred
Shares which were declined by such officer or director, on the same terms as
were offered to such officer or director.

                 4.1.9  Company's Instructions to Transfer Agent.  On or prior
to the First Closing, the Company shall execute and deliver a letter to its
transfer agent (the "Transfer Agent"), thereby appointing the Transfer Agent as
the Company's conversion agent and irrevocably instructing the Transfer Agent
(i) to issue certificates representing the Conversion Shares upon conversion of
the Preferred Shares in accordance with the terms of the Certificate of
Designation upon receipt of a valid Conversion Notice (as defined in the
Certificate of Designation) from a Purchaser, (ii) to issue certificates
representing the number of Conversion Shares specified in such Conversion
Notice, free of any restrictive legend, in the name of such Purchaser or its
nominee as long as the sale of the Conversion Shares is registered pursuant to
an effective registration statement or such shares are eligible for resale
under Rule 144(k) and (iii) to deliver such certificates to such Purchaser no
later than the close of business on the later to occur of (i) the third (3rd)
business day following the Conversion Date (as defined in the Certificate of
Designation) and (ii) the business day following the day on which the original
certificate or certificates representing the shares of Series A Preferred Stock
being converted are received by the Company. As long as purchases and sales of
shares of Common Stock are eligible for settlement at the Depository Trust
Company ("DTC"), the Company may instruct the Transfer Agent that, in lieu of
delivering physical certificates to a Purchaser upon conversion of the
Preferred Shares, the Transfer Agent may effect delivery of Conversion Shares
by crediting the account of such Purchaser or its nominee at DTC for the number
of shares for which delivery is required hereunder within the time frame
specified above for delivery of certificates. The Company represents to and
agrees with each Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Purchaser's right to convert the Preferred Shares or receive
Conversion Shares in accordance with the terms of the Certificate of
Designation, the Registration Rights Agreement and this Agreement,
respectively.  In the event the Company's relationship with the Transfer Agent
should be terminated for any reason, the Transfer Agent shall continue acting
as transfer agent pursuant to the terms hereof until such time that a successor
transfer agent is appointed by the Company and agrees to be bound by the terms
hereof.

                 4.1.10  Stockholder Meeting.  The Company will cause, pursuant
to Section 211 of the Delaware General Corporation Law, a meeting of
stockholders to be held on or prior to the date which is four (4) months
following the Closing Date (the "Meeting Date") and will submit to the vote of
its stockholders at such meeting a proposal to approve (in accordance with the
applicable provisions of the Company's Certificate of Incorporation) the
transactions contemplated by the Transaction Documents and the Certificate of
Designation, including without limitation the conversion of Preferred Shares
into Conversion Shares ("Stockholder Approval"). The Company will deliver proxy
materials and other information with respect to such meeting of stockholders to
each Purchaser at the same time that the Company delivers such materials and
information to the holders of its Common Stock. During the period beginning on
the date of this Agreement and ending on the Meeting Date, the Company will not
issue any Common Stock or





                                      -15-
<PAGE>   31

any securities, or rights or options to purchase Common Stock or any such
securities, whereby the number of votes represented by the Management Proxies
(as defined below) would be less than 51% of the votes eligible to be cast at
such meeting.

         4.2     Covenant of Each Purchaser.

                 4.2.1    Short Sales.  Each Purchaser hereby agrees and
covenants with the Company that neither such Purchaser, nor any affiliate of
such Purchaser, will engage in any short sales of shares of Common Stock during
the period from the date of this Agreement until the first date on which such
Purchaser no longer owns any Preferred Shares.  Notwithstanding the foregoing,
nothing contained herein will be deemed to limit (i) the right of an affiliate
of PCIG to engage in short sales resulting from customer orders or which are
effected on a proprietary basis by trading personnel of such affiliate  who are
not acting at the direction of PCIG or any employee of PCIG or (ii) the right
of such Purchaser to engage in bona fide hedging transactions that are effected
otherwise than through short sales of shares of Common Stock.  As used herein,
the term "short sale" shall have the meaning specified in Rule 3b-3 under the
Exchange Act; provided, however, that such term shall not include any such sale
(x) effected as a result of a failure by the Company to issue Conversion Shares
or to deliver certificates representing such shares in accordance with the
terms of the Certificate of Designation or (y) which involves a number of
shares of Common Stock not to exceed the number of Conversion Shares for which
a Conversion Notice (as defined in the Certificate of Designation) has been, or
will be on the day on which such short sales are effected, submitted to the
Company.

                 4.2.2     Agreement to Vote Shares.  Each of the Purchasers
agrees to attend (in person or by delivering its proxy) the meeting described
in paragraph 4.1.10 and to vote the shares of Common Stock which it is entitled
to vote pursuant to the Management Proxies (as defined in paragraph 5.1.4
below) in favor of the proposal described in paragraph 4.1.10.

5.  CONDITIONS TO CLOSING.

         5.1     Conditions to Purchaser's Obligations at First Closing.  Each
Purchaser's obligations at the First Closing, including without limitation its
obligation to purchase the Preferred Shares, are conditioned upon the
fulfillment of each of the following events:

                 5.1.1    the representations and warranties of the Company set
                          forth in this Agreement shall be true and correct in
                          all material respects as of the date of the First
                          Closing as if made on such date; provided that the
                          representations and warranties made by the Company in
                          paragraph 3.18 shall be true and correct in all
                          material respects as of the date specified therein;

                 5.1.2    the Company shall have complied with or performed all
                          of the agreements, obligations and conditions set
                          forth in this Agreement that are





                                      -16-
<PAGE>   32

                          required to be complied with or performed by the
                          Company on or before the First Closing;

                 5.1.3    the Company shall have delivered to such Purchaser a
                          certificate, signed by an officer of the Company,
                          certifying that the conditions specified in
                          paragraphs 5.1.1 and 5.1.2 above have been fulfilled;

                 5.1.4    the Company shall have delivered to the Purchasers an
                          executed irrevocable proxy, in substantially the form
                          of Exhibit 5.1.4 hereto (each, a " Management Proxy"
                          and collectively, the "Management Proxies"), from
                          each director of the Company who owns shares of
                          Common Stock as of the First Closing;

                 5.1.5    the Company shall have filed the Certificate of
                          Designation with the Secretary of State of the State
                          of Delaware, and shall have furnished such Purchaser
                          with a file-stamped copy thereof;

                 5.1.6    the Company shall have delivered to such Purchaser an
                          opinion of counsel for the Company, dated as of the
                          date of the First Closing, in the form attached as
                          Exhibit 5.1.6 hereto;

                 5.1.7    the Company shall have executed and delivered the
                          Registration Rights Agreement;

                 5.1.8    the Common Stock shall be designated for quotation
                          and actively traded on the Nasdaq National Market;

                 5.1.9    there shall have been no material adverse changes in
                          the consolidated business or financial condition of
                          the Company and its subsidiaries taken as a whole
                          since the date of the Company's most recent audited
                          financial statements contained in the Disclosure
                          Documents; and

                 5.1.10   the Company shall have authorized and reserved for
                          issuance upon conversion of the Preferred Shares
                          the number of shares of Common Stock specified in
                          the Registration Rights Agreement.

         5.2     Conditions to Company's Obligations at Closing.  The Company's
obligations at the First Closing are conditioned upon the fulfillment of each
of the following events:

                 5.2.1    the representations and warranties of each Purchaser
                          shall be true and correct in all material respects as
                          of the date of the First Closing as if made on such
                          date;





                                      -17-
<PAGE>   33

                 5.2.2    each Purchaser shall have complied with or performed
                          all of the agreements, obligations and conditions set
                          forth in this Agreement that are required to be
                          complied with or performed by such Purchaser on or
                          before the First Closing; and

                 5.2.3    each Purchaser shall have delivered to the Company a
                          certificate, signed by an officer of such Purchaser,
                          certifying that the conditions specified in
                          paragraphs 5.2.1 and 5.2.2 above have been fulfilled.

6.       INDEMNIFICATION.

         The Company agrees to indemnify and hold harmless each Purchaser and
its officers, directors, employees and agents, and each person who controls
such Purchaser within the meaning of the Securities Act or the Exchange Act
(each, a "Purchaser Indemnified Party") against any losses, claims, damages,
liabilities or reasonable out-of-pocket expenses (including the reasonable fees
and disbursements of counsel) as incurred, joint or several, to which it, they
or any of them, may become subject and not otherwise reimbursed, arising out of
or in connection with the breach by the Company of any of its representations,
warranties or covenants made herein.

         Each Purchaser agrees, severally and not jointly, to indemnify and
hold harmless the Company and its officers, directors, employees and agents,
and each person who controls the Company within the meaning of the Securities
Act or the Exchange Act (each, a "Company Indemnified Party") (a Purchaser
Indemnified Party and a Company Indemnified Party are each hereinafter referred
to as an "Indemnified Party") against any losses, claims, damages, liabilities
or expenses (including the fees and disbursements of counsel) as incurred,
joint or several, to which it, they or any of them, may become subject and not
otherwise reimbursed, arising out of or in connection with the breach by such
Purchaser of any of its representations, warranties or covenants made herein.

         Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought
hereunder, such Indemnified Party will, if a claim in respect thereof is to be
made against the other party (the "Indemnifying Party"), deliver to the
Indemnifying Party a written notice of the commencement thereof and the
Indemnifying Party shall have the right to participate in and to assume the
defense thereof with counsel reasonably selected by the Indemnifying Party,
provided, however, that an Indemnified Party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of such counsel to
be paid by the Company, if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential conflicts of interest under applicable standards of professional
conduct between such Indemnified Party and any other party represented by such
counsel in such proceeding.  The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action will not relieve the Indemnifying Party of any of its





                                      -18-
<PAGE>   34

obligations hereunder with respect to such action except to the extent such
failure is prejudicial to the Indemnifying Party's ability to defend any such
action.

         No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of pending or threatened action in
respect of which an Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on any claims that are the subject matter of such action.
An Indemnifying Party will not be liable for any settlement of any action or
claim effected without its written consent.

7.       MISCELLANEOUS.

                 7.1      Survival; Severability.  The representations,
warranties, covenants and indemnities made by the parties herein shall survive
the First Closing until the sooner to occur of  the date which is (i) eighteen
(18) months from the date hereof or (ii) the first date on which none of the
Purchasers owns any Preferred Shares, notwithstanding any due diligence
investigation made by or on behalf of the party seeking to rely thereon.  In
the event that any provision of this Agreement becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision;
provided that no such severability shall be effective if it materially changes
the economic benefit of this Agreement to either party.

                 7.2      Successors and Assigns.  The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.  The Purchaser may assign its rights hereunder, in
connection with any private sale or transfer of the Preferred Shares, as long
as, as a condition precedent to such transfer, the transferee executes an
acknowledgment agreeing to be bound by the applicable provisions of this
Agreement, in which case the term "Purchaser" shall be deemed to refer to such
transferee as though such transferee were an original signatory hereto.

                 7.3      Injunctive Relief.  The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to each
Purchaser and that the remedy or remedies at law for any such breach will be
inadequate and agrees, in the event of any such breach, in addition to all
other available remedies, to an injunction restraining any breach and requiring
immediate and specific performance of such obligations without the necessity of
showing economic loss.

                 7.4      Governing Law; Jurisdiction.  This Agreement shall be
governed by and construed under the laws of the State of Delaware without
regard to the conflict of laws provisions thereof. Each party hereby
irrevocably submits to the jurisdiction of the state and





                                      -19-
<PAGE>   35

federal courts sitting in the City of Wilmington, Delaware for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, that such suit,
action or proceeding is brought in an inconvenient forum or that the venue of
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.

                 7.5      Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.

                 7.6      Headings.  The headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

                 7.7      Notices.  Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow)
on or before 5:00 p.m., eastern time, on a business day or, if such day is not
a business day, on the next succeeding business day, (ii) on the next business
day after timely delivery to an overnight courier and (iii) on the third
business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as
follows:

                 If to the Company:

                 Metal Management, Inc.
                 500 North Dearborn Street, Suite 405
                 Chicago, Illinois 60610
                 Attn: Gerard M. Jacobs
                 Fax: 312-645-0714

                 With a copy to:

                 Shefsky & Froelich Ltd.
                 444 North Michigan Avenue
                 Chicago, Illinois 60611
                 Attn: Stuart M. Savitz. Esq.
                 Fax: 312-527-5921





                                      -20-
<PAGE>   36

                 If to PCIG:

                 Proprietary Convertible Investment Group, Inc.
                 c/o Credit Suisse First Boston Corporation
                 Eleven Madison Avenue - Third Floor
                 New York, New York 10010
                 Attn: Allan Weine/John McAvoy
                 Fax:  212-325-6519

                 With a copy to:

                 Solomon, Zauderer, Ellenhorn, Frischer & Sharp
                 45 Rockefeller Plaza
                 New York, New York 10111
                 Attn: Richard T. Sharp, Esq.
                 Fax:  212-956-4068

                 If to Advantage :

                 Advantage Fund Limited
                 c/o Genesee International, Inc.
                 10500 N.E. 8th Street
                 Suite 1920
                 Bellevue, Washington 98004-4332
                 Fax:     (206) 462-4645

or to such other address or fax number as any party shall specify in writing to
the other parties.

                 7.8      Expenses.  Except as otherwise specified herein, each
of the Company and each Purchaser shall pay all costs and expenses that it
incurs in connection with the negotiation, execution, delivery and performance
of this Agreement; provided that the Company shall pay twenty thousand dollars
($20,000) to PCIG at the First Closing in reimbursement of expenses incurred by
PCIG hereunder.

                 7.9      Entire Agreement; Amendments.  This Agreement and the
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties.  Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and both Purchasers, and no provision hereof may be waived other
than by a written instrument signed by the party against whom enforcement of
any such waiver is sought.





                                      -21-
<PAGE>   37

                 7.10     Issuances of Additional Securities.

                          7.10.1   Issuance of Enhanced Securities. In the
event that, during the period from the Closing Date until the earlier to occur
of (i) one year from the Closing Date and (ii) ninety (90) Trading Days (as
such term is defined in the Certificate of Designation) from the effectiveness
of the Registration Statement (the "Limitation Period"), the Company issues any
securities convertible or exercisable into Common Stock (including without
limitation the Series B Preferred Stock), which securities either (i) provide a
conversion or exercise price which is lower than the Conversion Price, or (ii)
allow the holder thereof, without being subject to a redemption provision
substantially similar to that provided by paragraph 4(h)(i) of the Certificate
of Designation, to convert or exercise such securities into a number of shares
of Common Stock that is greater on an aggregate basis than the number of shares
of Common Stock into which such securities would be convertible or exercisable
at a conversion or exercise price of ten dollars ($10) (the "Enhanced
Securities"), the Company shall, in either such case, promptly (but in no event
later than thirty (30) days following the issuance of such Enhanced Securities)
take such action as may be necessary in order to amend the Certificate of
Designation to conform the terms thereof with those of the instrument governing
the Enhanced Securities to the extent necessary to confer the benefit of the
provisions of such Enhanced Securities on the holders of the Series A Preferred
Stock, and the provisions of the Certificate of Designation as so amended shall
apply to the Series A Preferred Stock from and after the date on which such
Enhanced Securities are issued. In addition, if the Company issues any
convertible securities during the Limitation Period and, in connection
therewith, the Company issues any warrants, options or similar securities for
little or no consideration to the purchasers of such convertible securities in
connection with such issuance, the Company shall at the same time issue to each
holder such warrants, options or similar securities in an amount which is
proportional to the Purchase Price of the Series A Preferred Stock purchased by
such Initial Purchaser at the First Closing relative to the aggregate purchase
price of such convertible securities purchased by such purchasers.  The
provisions of this subparagraph 7.10.1 shall not apply to any transaction
involving the issuance of securities in connection with a merger,
consolidation, acquisition or sale or purchase of assets, or in connection with
any strategic partnership or joint venture formed for a bona fide commercial
purpose (the primary purpose of which is not to raise equity capital), or the
granting of options, warrants or other rights to acquire Common Stock to
employees, consultants or directors of the Company not in connection with a
public or private offering of securities, or the exercise thereof by any such
individual. The Company further agrees that, in the event of a stock split,
reverse stock split, reclassification or other similar event with respect to
the Common Stock, it will amend the Certificate of Designation so that the Cap
Amount (as defined in the Certificate of Designation) will be proportionately
increased or reduced, as the case may be.

                          7.10.2   Terms of Series B Preferred Stock. In the
event that the Company issues any Series B Preferred Stock, the Series B
Preferred Stock shall have terms which are identical in all material respects
to those of the Series A Preferred Stock, other than the Fixed Conversion Price
(as defined in the Certificate of Designation).





                                      -22-
<PAGE>   38

        IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.

METAL MANAGEMENT, INC.


By: __________________________
    Name:
    Title:


PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.


By: _________________________
    Name:
    Title:

Number of Shares of Preferred Stock to be Purchased:  5,000


ADVANTAGE FUND LIMITED


By: _________________________
    Name:
    Title:

Number of Shares of Preferred Stock to be Purchased:  16,000





                                      -23-
<PAGE>   39
                                                                     EXHIBIT 4.2


                         REGISTRATION RIGHTS AGREEMENT


         REGISTRATION RIGHTS AGREEMENT (this " Agreement"), dated as of August
8, 1997, by and among Metal Management, Inc., a Delaware corporation
(the "Company"), Proprietary Convertible Investment Group, Inc. ("PCIG") and
Advantage Fund Limited ("Advantage"). PCIG and Advantage are each referred to
herein as a "Purchaser" and, together, as the "Purchasers".

         The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser the
number of shares (the "Preferred Shares") of Preferred Stock (the "Preferred
Stock") specified therein.  The Preferred Shares are convertible into shares of
the Company's Common Stock, $.01 par value per share (the "Common Stock"),
pursuant to the Certificate of Designations, Rights and Privileges establishing
the Preferred Stock (the "Certificate of Designation").  In order to induce the
Purchasers to enter into the Securities Purchase Agreement, the Company has
agreed to provide certain registration rights under the Securities Act of 1933,
as amended (the "Securities Act"), and under applicable state securities laws.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement.

         In consideration of each Purchaser entering into the Securities
Purchase Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

         1.      DEFINITIONS.

         For purposes of this Agreement, the following terms shall have the
meanings specified:

                 (a)      "Closing" shall have the meaning specified in the
                 Securities Purchase Agreement;

                 (b)      "Closing Bid Price" shall have the meaning specified
                 in the Certificate of Designation;

                 (c)      "Conversion Price" shall have the meaning specified
                 in the Certificate of Designation;

                 (d)      "Filing Deadline" means the date which is thirty (30)
                 days following the date on which Stockholder Approval is
                 obtained in accordance with the terms of the Securities
                 Purchase Agreement;

                 (e)      "Registration Deadline" means the date which is one
                 hundred and twenty (120) days following the date on which
                 Stockholder Approval is obtained in accordance with the terms
                 of the Securities Purchase Agreement;
<PAGE>   40

                 (f)      "Holder" means any person owning or having the right
                 to acquire, through conversion of Preferred Shares,
                 Registrable Securities, including initially each Purchaser and
                 thereafter any permitted assignee thereof;

                 (g)      "Register", "registered" and "registration" refer to
                 a registration effected by preparing and filing a registration
                 statement or statements in compliance with the Securities Act
                 and pursuant to Rule 415 under the Securities Act ("Rule 415")
                 or any successor rule providing for the offering of securities
                 on a continuous basis ("Registration Statement"), and the
                 declaration or ordering of effectiveness of the Registration
                 Statement by the Securities and Exchange Commission (the
                 "Commission");

                 (h)      "Registrable Securities" means (i) the shares of
                 Common Stock issued or issuable either upon conversion of the
                 Preferred Shares or otherwise in accordance with the
                 Certificate of Designation, and (ii) any shares of capital
                 stock issued or issuable from time to time (with any
                 adjustments) in replacement of, in exchange for or otherwise
                 in respect of such shares;

                 (i)      "Stockholder Approval" shall have the meaning
                 specified in the Securities Purchase Agreement; and

                 (j)      "Trading Days" shall have the meaning specified in
                 the Certificate of Designation.

         2.      MANDATORY REGISTRATION.

                 (a)      On or before Filing Deadline, the Company shall
prepare and file a Registration Statement on Form S-3 (or, if Form S-3 is not
available, on such form of Registration Statement as is then available to
effect a registration of the Registrable Securities as a "shelf" registration
statement under Rule 415) covering the resale of at least 175% of the number of
shares of Common Stock which would be issuable if the Preferred Shares were
converted into shares of Common Stock at a Conversion Price equal to (A) the
average Closing Bid Price over the five Trading Days immediately preceding, but
not including the Closing Date times (B) 85%.  The Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of shares of Common Stock as may be
required to effect conversion of the Preferred Shares to prevent dilution
resulting from stock splits, stock dividends or similar events, or by reason of
changes in the Conversion Price in accordance with the terms of the Certificate
of Designation.

                 (b)      The Company shall cause the Registration Statement to
become effective as soon as practicable following the filing thereof but in no
event later than the Registration Deadline, and shall submit to the Commission,
within five (5) business days after the Company learns that no review of the
Registration Statement will be made by the staff of the Commission or that the
staff of the Commission has no further comments on the Registration Statement,
as the case may





                                       2
<PAGE>   41

be, a request for acceleration of the effectiveness of the Registration
Statement to a time and date not later than forty-eight (48) hours after the
submission of such request, and maintain the effectiveness of the Registration
Statement until the earlier to occur of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all of the
remaining Registrable Securities (in the reasonable opinion of counsel to the
Purchaser) may be immediately sold to the public without registration and
without regard to the amount of Registrable Securities which may be sold by a
Holder thereof at a given time (the "Registration Period").

                 (c)      The Filing Deadline and the Registration Deadline
shall be extended by the number of days (not exceeding an aggregate for both
such dates, when taken together, of thirty (30) days) during (i) any period in
which the Company has been advised by its outside counsel that the Registration
Statement will not be accepted for filing by the Commission as a result of the
Company then having on file a registration statement which has not yet gone
effective or a proxy statement that is then being reviewed by the Commission (a
"Filing Delay Period"), and (ii) any period in which the Board of Directors of
the Company determines in good faith (A) that an amendment or supplement to the
Registration Statement or prospectus contained therein is necessary in order to
correct a material misstatement made therein or to include information the
absence of which would render the Registration Statement or such prospectus
materially misleading and (B) that the disclosure of such information at such
time would be detrimental to the business or prospects of the Company; provided
that no such period specified in this clause (ii) may exceed ten (10) days
unless, prior to the end of such ten day period, the Company obtains the
written advice of its outside legal counsel that an amendment or supplement to
the Registration Statement or prospectus contained therein is necessary in
order to correct a material misstatement made therein or to include information
the absence of which would render the Registration Statement or such prospectus
materially misleading (a "Standstill Period").

                 (d)      If (A) the Registration Statement (i) is not filed by
the Filing Deadline or (ii) is not declared effective by the Commission on or
before the Registration Deadline, (B) after the Registration Statement has been
declared effective by the Commission, sales of Registrable Securities cannot be
made by a Holder under the Registration Statement for any reason not within the
exclusive control of such Holder, or (C) the Common Stock is not included for
quotation on the Nasdaq National Market ("Nasdaq") or listed on the New York
Stock Exchange (the "NYSE") or other national securities exchange at any time
after the Registration Deadline, the Company shall pay to such Holder an amount
equal to the lesser of (x) two percent (2%) per month and (y) the highest rate
permitted by applicable law, times the aggregate purchase price of the
Preferred Shares held by such Holder, accruing daily and compounded monthly,
(I) from the Filing Deadline until the date on which the Registration Statement
is filed with the Commission, (II) from the Registration Deadline until the
date on which the Registration Statement is declared effective, (III) from the
date on which the Registration Statement is unavailable for sales of
Registrable Securities by a Holder until the Registration Statement becomes
available for sales of Registrable Securities; provided that the Registration
Statement will not be considered unavailable for the number of days occurring
during a Standstill Period which takes place after the effectiveness of the
Registration Statement, or (IV) from the date on which the Common Stock is no
longer quoted or listed on Nasdaq, the NYSE or such other exchange until the
date on which the Common Stock becomes so





                                       3
<PAGE>   42

listed or quoted, as the case may be. The amounts paid or payable by the
Company hereunder shall be in addition to any other remedies available to the
Purchaser at law or in equity or pursuant to the terms of any other Transaction
Document.  Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, payments shall be
made at the end of each thirty-day period.

         3.      PIGGYBACK REGISTRATION.

                 If at any time prior to the expiration of the Registration
Period, (i) the Company proposes to register shares of Common Stock under the
Securities Act in connection with the public offering of such shares for cash
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan or a registration on Form S-4 under the
Securities Act or any successor or similar form registering stock issuable upon
a reclassification, a business combination involving an exchange of securities
or an exchange offer for securities of the issuer or another entity) (a
"Proposed Registration") and (ii) a registration statement covering the sale of
all of the Registrable Securities is not then effective and available for sales
thereof by the Holders, the Company shall, at such time, promptly give each
Holder written notice of such Proposed Registration.  Each Holder shall have
thirty (30) days from its receipt of such notice to deliver to the Company a
written request specifying the amount of Registrable Securities that such
Holder intends to sell and such Holder's intended method of distribution. Upon
receipt of such request, the Company shall use its best efforts to cause all
Registrable Securities which the Company has been requested to register to be
registered under the Securities Act to the extent necessary to permit their
sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Holder; provided, however, that
the Company shall have the right to postpone or withdraw any registration
effected pursuant to this Section 3 without obligation to the Holder.

         4.      OBLIGATIONS OF THE COMPANY.

         In addition to performing its obligations under paragraphs 2(a) and
(b) above, the Company shall:

                 (a)      prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to comply with
the provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested by a Holder in order to incorporate information concerning such
Holder or such Holder's intended method of distribution;

                 (b)      in the event that the number of shares available
under the Registration Statement filed by the Company hereunder is insufficient
during any period of three consecutive trading days to cover 125% of the
Registrable Securities then issued or issuable, the Company shall promptly
amend the Registration Statement, or file a new Registration Statement, or
both, so as to cover 175% of such Registrable Securities, in any event as soon
as practicable, but not later than





                                       4
<PAGE>   43

the tenth business day following the last day of such three day period. Any
Registration Statement filed pursuant to this Section 4 shall state that, to
the extent permitted by Rule 416 under the Securities Act, such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Shares.  Unless
and until such amendment or new Registration Statement becomes effective, each
Holder shall have the rights described in Section 2(d) above;

                 (c)      secure the designation and quotation of the
Registrable Securities on the Nasdaq National Market;

                 (d)      furnish to each Holder such number of copies of the
prospectus included in such Registration Statement, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Holder may reasonably request in order to facilitate
the disposition of such Holder's Registrable Securities;

                 (e)      use its best efforts to register or qualify the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdiction;

                 (f)      in the event of an underwritten public offering of
the Registrable Securities, enter into and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to
the Company, with the managing underwriter of such offering;

                 (g)      notify each Holder immediately upon the occurrence of
any event as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and as promptly as practicable, prepare, file and furnish to each
Holder a reasonable number of copies of a supplement or an amendment to such
prospectus as may be necessary so that such prospectus does not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;

                 (h)      use its best efforts to prevent the issuance of any
stop order or other order suspending the effectiveness of such Registration
Statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify each Holder of the issuance of such
order and the resolution thereof;

                 (i)      furnish to each Holder, on the date that such
Registration Statement becomes effective, (x) an opinion, dated such date, of
outside counsel representing the Company addressed





                                       5
<PAGE>   44

to such Holder and in form and substance as is customarily given to
underwriters in an underwritten public offering, and (y) in the case of an
underwriting, a letter, dated such date, from the Company's independent
certified public accountants, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to each Holder; and

                 (j)      permit counsel for each Holder to review such
Registration Statement and all amendments and supplements thereto, and provide
such counsel with the opportunity to conduct a reasonable inquiry of the
Company's financial and other records during normal business hours and make
available its officers, directors and employees for questions regarding
information contained in such Registration Statement, amendments or
supplements, a reasonable period of time prior to the filing thereof with the
Commission.

         5.      OBLIGATIONS OF EACH HOLDER.

         In connection with the registration of the Registrable Securities
pursuant to the Registration Statement, each Holder shall:

                 (a)  furnish to the Company such information regarding itself
and the intended method of disposition of Registrable Securities as the Company
shall reasonably request in order to effect the registration thereof; and

                 (b)  upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph 4(g) or 4(h) above,
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement until the Registration has been amended in accordance
with paragraph 4(g) or until withdrawal of the stop order referred to in
paragraph 4(h), as the case may be.

         6.      INDEMNIFICATION.

         In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:

                 (a)      To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, the officers, directors, employees,
agents and representatives of such Holder, and each person, if any, who
controls such Holder within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, liabilities or reasonable out-of- pocket expenses (whether joint or
several) (collectively, including legal or other expenses reasonably incurred
in connection with investigating or defending same, "Losses"), insofar as any
such Losses arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they





                                       6
<PAGE>   45

were made, not misleading (collectively, "Violations").  The Company will
reimburse such Holder, and each such officer, director, employee, agent,
representative or controlling person for any legal or other expenses as
reasonably incurred by any such entity or person in connection with
investigating or defending any Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any Loss if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be obligated to indemnify
any person for any Loss to the extent that such Loss arises out of or is based
upon and in conformity with written information furnished by such person
expressly for use in such Registration Statement; and provided, further, that
the Company shall not be required to indemnify any person to the extent that
any Loss results from such person selling Registrable Securities (i) to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale of such shares, a copy of the prospectus, as most
recently amended or supplemented, if the Company has previously furnished or
made available copies thereof or (ii) during any period following written
notice by the Company to such Holder of an event described in Section 4(g) or
4(h).

                 (b)      To the extent permitted by law, each Holder, acting
severally and not jointly, shall indemnify and hold harmless the Company, the
officers, directors, employees, agents and representatives of the Company, and
each person, if any, who controls the Company within the meaning of the
Securities Act or the 1934 Act, against any Losses to the extent (and only to
the extent) that any such Losses arise out of or are based upon and in
conformity with written information furnished by such Holder expressly for use
in such Registration Statement; and such Holder will reimburse any legal or
other expenses as reasonably incurred by the Company and any such officer,
director, employee, agent, representative, or controlling person, in connection
with investigating or defending any such Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any such
Loss if such settlement is effected without the consent of such Holder, which
consent shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 6(b) exceed the net purchase price of
securities sold by such Holder under the Registration Statement.

                 (c)      Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in and to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the reasonably incurred fees and expenses of one such counsel
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
under applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding.  The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 with respect to such action, but the





                                       7
<PAGE>   46

omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 6 or with respect to any other action.

                 (d)      In the event that the indemnity provided in paragraph
(a) or (b) of this Section 6 is unavailable or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree, severally
and not jointly, to contribute to the aggregate Losses to which the Company or
such Holder may be subject in such proportion as is appropriate to reflect the
relative fault of the Company and such Holder in connection with the statements
or omissions which resulted in such Losses; provided, however, that in no case
shall such Holder be responsible for any amount in excess of the net purchase
price of securities sold by it under the Registration Statement.  Relative
fault shall be determined by reference to whether any alleged untrue statement
or omission relates to information provided by the Company or by such Holder.
The Company and each Holder agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above.  Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is
not guilty of such fraudulent misrepresentation.  For purposes of this Section
6, each person who controls a Holder within the meaning of either the
Securities Act or the 1934 Act and each officer, director, employee, agent or
representative of such Holder shall have the same rights to contribution as
such Holder, and each person who controls the Company within the meaning of
either the Securities Act or the Exchange Act and each officer, director,
employee, agent or representative of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).

                 (e)      The obligations of the Company and each Holder under
this Section 6 shall survive the conversion or redemption, if any, of the
Preferred Shares, the completion of any offering of Registrable Securities
pursuant to a Registration Statement under this Agreement, or otherwise.

         7.      REPORTS.

                 With a view to making available to each Holder the benefits of
Rule 144 under the Securities Act ("Rule 144") and any other rule or regulation
of the Commission that may at any time permit such Holder to sell securities of
the Company to the public without registration, the Company agrees to:

                 (a)      make and keep public information available, as those
terms are understood and defined in Rule 144;

                 (b)      file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the 1934 Act; and





                                       8
<PAGE>   47

                 (c)      furnish to such Holder, so long as such Holder owns
any Registrable Securities, and until such Registrable Securities are eligible
for sale pursuant to Rule 144(k),  forthwith upon request (i) a written
statement by the Company, if true, that it has complied with the reporting
requirements of Rule 144, the Securities Act and the 1934 Act, (ii) a copy of
the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing such Holder of any rule or
regulation of the Commission which permits the selling of any such securities
without registration.

         8.      MISCELLANEOUS.

                 (a)      Expenses of Registration.  All expenses, other than
underwriting discounts and commissions and fees and expenses of counsel to each
Holder, incurred in connection with the registrations, filings or
qualifications described herein, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, the
fees and disbursements of counsel for the Company, and the fees and
disbursements incurred in connection with the opinion and letter described in
paragraph 4(i) hereof, shall be borne by the Company.

                 (b)      Amendment; Waiver.  Any provision of this Agreement
may be amended only pursuant to a written instrument executed by the Company
and each Holder.  Any waiver of the provisions of this Agreement may be made
only pursuant to a written instrument executed by the party against whom
enforcement is sought.  Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each Holder, each future Holder, and the
Company.

                 (c)      Notices.  Any notice, demand or request required or
permitted to be given by the Company or a Holder pursuant to the terms of this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally or when sent by verifiable facsimile transmission (with a hard copy
to follow), (ii) on the next business day after timely delivery to an overnight
courier and (iii) on the third business day after deposit in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed to the parties as follows:

                 If to the Company:

                 Metal Management, Inc.
                 500 North Dearborn Street, Suite 405
                 Chicago, Illinois 60610
                 Attn: Gerard M. Jacobs
                 Fax: 312-645-0714





                                       9
<PAGE>   48

                 With a copy to:

                 Shefsky & Froelich Ltd.
                 444 North Michigan Avenue
                 Chicago, Illinois 60611
                 Attn: Stuart M. Savitz. Esq.
                 Fax: 312-527-5921

                 If to PCIG:

                 Proprietary Convertible Investment Group, Inc.
                 Eleven Madison Avenue
                 New York, New York 10010
                 Attn: Allan Weine/John McAvoy
                 Fax:  212-325-6519

                 With a copy to:

                 Solomon, Zauderer, Ellenhorn, Frischer & Sharp
                 45 Rockefeller Plaza
                 New York, New York 10111
                 Attn: Richard T. Sharp, Esq.

                 If to Advantage:

                 Advantage Fund Limited
                 c/o Genesee International, Inc.
                 10500 N.E. 8th Street, Suite 1920
                 Bellevue, Washington 98004-4332
                 Attn:
                 Fax:     (206) 462-4645

or to such other address or fax number as any party shall notify the others in
accordance herewith.

                 (d)      Termination.  This Agreement shall terminate on the
earlier to occur of (a) the end of the Registration Period and (b) the date on
which all of the Registrable Securities have been publicly distributed; but any
such termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification obligations under this Agreement.

                 (e)      Assignment.  The rights of a Holder hereunder shall
be assigned automatically to any transferee of the Preferred Shares or
Registrable Securities from such Holder as long as: (i) the Company is, within
a reasonable period of time following such transfer, furnished with written
notice of the name and address of such transferee, (ii) the transferee agrees
in writing with the





                                       10
<PAGE>   49

Company to be bound by all of the provisions hereof and (iii) such transfer is
made in accordance with the applicable requirements of the Securities Purchase
Agreement.

                 (f)      Governing Law.  This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to the conflict of laws provisions thereof.





                                       11
<PAGE>   50

         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.

METAL MANAGEMENT, INC.


By: __________________________
    Name:
    Title:


PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.


By: _________________________
    Name:
    Title:


ADVANTAGE FUND LIMITED


By: _________________________
    Name:
    Title:





                                       12