<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1363
ENVIROSOURCE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 34-0617390
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Business Center Drive, Horsham, Pennsylvania 19044-3454
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215)
956-5500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the Registrant's Common
Stock as of the close of business on August 9, 1996 was 40,238,244.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
--------------------
EnviroSource, Inc.
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,298 $ 8,367
Accounts receivable, less allowance
for doubtful accounts of $906
and $729 39,069 37,208
Other current assets 9,272 8,252
----- -----
Total current assets 55,639 53,827
Property, plant and equipment, at cost 307,250 287,198
Less allowance for depreciation 140,058 124,636
------- -------
167,192 162,562
Goodwill, less amortization 161,485 155,255
Landfill permits, less amortization 22,811 22,549
Closure trust funds and deferred
charges, less amortization 33,637 33,867
Debt issuance costs, less amortization 9,096 9,625
Other assets 11,520 11,997
------ ------
$ 461,380 $ 449,682
========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
EnviroSource, Inc.
CONSOLIDATED CONDENSED BALANCE SHEET -- Continued
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Trade payables $ 11,253 $ 13,125
Salaries, wages and related benefits 7,873 10,161
Insurance obligations 6,704 6,257
Estimated reorganization and
restructuring costs 3,082 1,779
Interest 2,067 1,279
Other current liabilities 14,008 12,836
Current portion of debt 12,344 9,397
Class G preferred stock redeemed
on July 15, 1996 186 33,092
--- ------
Total current liabilities 57,517 87,926
Long-term debt 323,202 275,158
Other liabilities 51,165 53,994
Commitments and contingencies (Note E)
Stockholders' equity:
Common stock, par value $.05 per
share, 60,000,000 shares author-
ized, 40,233,444 shares issued and
outstanding in 1996 and 40,194,244
shares in 1995 2,012 2,010
Capital in excess of par value 162,686 162,580
Accumulated deficit (133,407) (130,189)
Stock purchase loans receivable from
officers (840) (840)
Canadian translation adjustment (955) (957)
---- ----
Total stockholders' equity 29,496 32,604
------ ------
$ 461,380 $ 449,682
============ ============
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
EnviroSource, Inc.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 62,412 $ 66,533 $124,383 $137,356
Cost of revenues 47,493 49,393 95,664 103,146
Selling, general and
administrative expenses 6,106 6,757 13,312 14,216
Unusual items, net 1,240 (800) 4,640 (800)
----- ---- ----- ----
Operating income 7,573 11,183 10,767 20,794
Interest income 257 295 514 577
Interest expense (7,693) (6,792) (15,047) (13,775)
------ ------ ------- -------
Income (loss) before
income taxes 137 4,686 (3,766) 7,596
Income tax (expense) benefit:
Taxes payable (507) (326) (489) (689)
Federal taxes not
payable in cash (150) (1,047) 1,187 (2,019)
---- ------ ----- ------
Net (loss) income (520) 3,313 (3,068) 4,888
Preferred stock dividend
requirements, reduced by a
retirement gain of $250
in the 1996 six months (2) (454) (150) (902)
-- ---- ---- ----
(Loss) income applicable to
common shares and equivalents $ (522) $ 2,859 $ (3,218) $ 3,986
======= ======== ======== =======
Net (loss) income per share $ (.01) $ .07 $ (.08) $ .10
======= ======== ======== =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
EnviroSource, Inc.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six months ended
June 30,
--------
1996 1995
---- ----
OPERATING ACTIVITIES
<S> <C> <C>
Net (loss) income $ (3,068) $ 4,888
Adjustments to reconcile net (loss) income
to cash provided by operations:
Income tax (benefit) expense not
(receivable) payable in cash (1,187) 2,019
Depreciation 12,751 12,597
Amortization 4,445 4,612
Reorganization and restructuring costs 1,973 (2,077)
Changes in working capital (2,138) (262)
Other (444) 579
---- ---
Cash provided by operating activities 12,332 22,356
------ ------
INVESTING ACTIVITIES
Property, plant and equipment additions (11,528) (14,577)
Purchase of Alexander Mill Services, Inc.
(net of cash acquired) (5,934)
Landfill permit additions and closure
expenditures (1,631) (189)
Closure trust fund payments (391) (282)
Ongoing net cash flows related to
IU acquisition (2,062) (3,768)
Other 336 (1,043)
--- ------
Cash used by investing activities (21,210) (19,859)
------- -------
FINANCING ACTIVITIES
Issuance of debt 49,000 11,100
Debt repayment (8,060) (15,551)
Retirement of preferred stock (33,056) (42)
Sale of common stock 108 12
Other (183) (24)
---- ---
Cash provided (used) by financing activities 7,809 (4,505)
----- ------
CASH AND CASH EQUIVALENTS
Decrease during the period (1,069) (2,008)
Beginning of year 8,367 8,389
----- -----
End of period $ 7,298 $ 6,381
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
NOTE A. BASIS OF PRESENTATION
- - ------------------------------
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals and the unusual charges discussed in Note C)
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1996. The
consolidated condensed balance sheet at December 31, 1995 has been derived from
audited financial statements at that date. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
NOTE B. ALEXANDER ACQUISITION
- - ------------------------------
The Company purchased Alexander Mill Services, Inc., a metal reclamation company
serving the mini-mill sector of the steel industry, on May 20, 1996 and
Alexander's results of operations are included in the consolidated condensed
statement of operations from that date. Pro forma results of operations, as if
this transaction had occurred at the beginning of each period, would be as
follows (in millions, except per share amounts):
Six months ended
June 30,
--------
1996 1995
---- ----
Pro forma revenues $128.8 $142.7
Pro forma net (loss) income $ (2.6) $ 5.3
Pro forma (loss) income per share $ (.07) $ .11
The pro forma information is not necessarily indicative of the results that
would have occurred had the transaction taken place at the beginning of the
respective periods.
The cost of this acquisition was $9 million (including $2.8 million that is
payable to the former owner over three and one-half years with interest) plus
the assumption of $7.2 million of debt. The Alexander business has been
included in the consolidated condensed financial statements based on a
preliminary allocation of the purchase price, including $8.7 million charged to
goodwill.
<PAGE>
NOTE C. UNUSUAL ITEMS, NET
- - ---------------------------
In the first quarter the Company initiated a reorganization to improve
productivity and reduce costs. The reorganization consisted principally of
consolidating the Company's headquarters functions in a single office. The
Company's Stamford, Connecticut corporate headquarters and the Treatment &
Disposal Services segment's Horsham, Pennsylvania headquarters were closed and
their activities moved to the International Mill Service headquarters building,
also in Horsham, by June 30. Early in the second quarter, the Company decided to
close IMSAMET's Phoenix, Arizona headquarters as well. Approximately 55
positions have been eliminated as a result of the reorganization, mostly in the
Treatment & Disposal Services segment.
To cover the cost of these and related changes, the Company expects to record
restructuring and relocation charges during 1996 of approximately $4.2 million.
$3.7 million of this amount was recorded in the 1996 six month period (including
$1.2 million in the second quarter) for office closures and related employee
termination costs, $1.2 million of which has been spent. As a result of
reorganizing, the Company expects to realize ongoing cost savings of
approximately $5 million per year. Savings of approximately $1 million were
achieved in the first six months of 1996 and a total of $3.5 million is expected
for the year.
In the first quarter the Company also recorded a $.9 million charge resulting
from the settlement of the last disputed matter remaining from the Company's
1993 restructuring.
After taxes, the 1996 unusual charges amounted to $.02 per share loss in the
quarter and together with the gain from retiring 236,120 shares of Class G
preferred stock amounted to a net $.07 loss per share in the six months.
In the second quarter of 1995, the Company resolved favorably a number of
liabilities resulting from its 1988 acquisition of IU International Corporation.
The benefit of these favorable developments was partially offset by additional
charges for other matters arising from that acquisition. The resulting net $.8
million unusual item credit amounted to $.01 per share, after tax, in both the
quarter and the six months.
NOTE D. OTHER INFORMATION
- - --------------------------
At June 30, 1996, $88 million of revolving credit borrowings and $8 million of
standby letters of credit were outstanding under the Company's $100 million bank
credit facility. The current portion of long-term debt includes $4 million of
revolving credit borrowing that was repaid after June 30.
<PAGE>
NOTE D. OTHER INFORMATION -- Continued
- - ---------------------------------------
The Company paid interest of $13.5 million and $13.3 million during the six
months ended June 30, 1996 and 1995.
Income tax expense payable for the six months ended June 30, 1996 consists of
state and foreign income taxes. In the six months ended June 30, 1996 and 1995,
the Company made cash income tax payments, net of refunds, of $.5 million and
$.8 million.
Per share amounts are based on the weighted average number of common shares
outstanding and the dilutive effect of stock options and warrants: 40,460,000
and 40,668,000 for the three months ended June 30, 1996 and 1995, 40,449,000 and
40,566,000 for the six months then ended.
NOTE E. COMMITMENTS AND CONTINGENCIES
- - --------------------------------------
As of June 30, 1996, the Company has commitments to spend $7 million for
equipment additions.
To secure its obligations to close its Idaho landfill and perform post-closure
monitoring and maintenance procedures, the Company must deposit into a closure
trust fund approximately $1 million annually through 1998. The Company believes
these payments together with those previously made will satisfy substantially
all of its landfill closure and post-closure obligations, based on current
regulations and permitted capacity.
At June 30, 1996, the Company was contingently liable for $8 million of letters
of credit outstanding under its bank credit agreement, including approximately
$5 million to secure liabilities already reflected in the consolidated condensed
balance sheet.
IU International Corporation ("IU International") sold P-I-E Nationwide, Inc.
("PIE") in 1985. PIE commenced bankruptcy proceedings in 1990 and ceased
operations, which triggered withdrawal liabilities to certain multiemployer
pension plans, estimated by PIE in 1990 to aggregate $58 million. In 1991 the
trustees of the largest plan sought information from the Company for the stated
purpose of determining whether the circumstances of IU International's 1985 sale
of PIE would justify a claim against the Company for any deficiencies in PIE's
payment of withdrawal liabilities to such plan. Such plan did not again contact
the Company concerning this matter until early in 1995, when the Company was
advised that such plan's consideration as to whether it would assert a claim is
ongoing. In early 1996, such plan sent a letter to the Company indicating its
intention to initiate a claim under the Multiemployer Pension Plan Amendments
<PAGE>
NOTE E. COMMITMENTS AND CONTINGENCIES -- Continued
- - ---------------------------------------------------
Act of 1980 ("MPPAA") if the plan and the Company are unable to resolve the
matter. The Company believes any such claim is unwarranted and, if asserted,
would contest any such claim vigorously. The Company also believes it will
ultimately prevail on the merits. However, under MPPAA, the plan trustees could
require the Company to make substantial monthly payments before any issues are
arbitrated or litigated. If onerous monthly payments are imposed by the plan,
the Company will take any and all actions it deems necessary and appropriate to
protect itself until the matter can be arbitrated and/or litigated on its
merits. The Company and the plan have met to discuss the issues raised in the
plan's letter and they are continuing their efforts to resolve this matter. The
Company continues to believe that the underlying facts and circumstances support
a conclusion that this matter will be resolved with no material adverse effect
on its financial condition. However, resolution of this matter, which is likely
to take place in the current fiscal year, could result in a charge that is
material to results of operations and cash flows in a single accounting period.
The Company's Ohio and Idaho facilities hold operating permits issued by state
and federal environmental agencies under the Resource Conservation and Recovery
Act, as amended, that require renewal and modification from time to time. The
Company expects that it will obtain the renewals and modifications to its
permits that it requires to continue to provide landfill capacity in its
approved disposal cells well into the next decade.
The Company and its competitors and customers are subject to a complex, evolving
array of federal, state and local environmental laws and regulations. In
particular, such requirements not only can affect the demand for treatment and
disposal services, but could also require the Company to incur significant costs
for such matters as facility upgrading, remediation or other corrective action,
facility closure and post-closure maintenance and monitoring. It is possible
that the future imposition of such requirements could have a material adverse
effect on the Company's results of operations or financial condition, but the
Company believes that the consolidated financial statements appropriately
reflect all presently known compliance costs in accordance with generally
accepted accounting principles.
The Company is a party to litigation and proceedings arising in the normal
course of its present or former businesses. In the opinion of management, the
outcome of such matters will not have a material adverse effect on the Company's
financial condition or results of operations.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
------------------------------------
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30
Three months
ended 1996 better (worse)
June 30, than 1995
-------- ---------
1996 1995 Amount %
---- ---- ------ -
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues
Industrial Environmental Services $ 54,856 $ 57,000 $ (2,144) (4)%
Treatment & Disposal Services 7,556 9,533 (1,977) (21)%
----- ----- ------
$ 62,412 $ 66,533 $ (4,121) (6)%
======== ======== ========
Gross Profit
Industrial Environmental Services $ 14,541 $ 15,677 $ (1,136) (7)%
Treatment & Disposal Services 378 1,463 (1,085) (74)%
--- ----- ------
$ 14,919 $ 17,140 $ (2,221) (13)%
======== ======== ========
Operating Income
Industrial Environmental Services $ 11,014 $ 11,931 $ (917) (8)%
Treatment & Disposal Services (930) 135 (1,065) -
Corporate headquarters (1,271) (1,683) 412 24 %
Unusual items, net (1,240) 800 (2,040) -
------ --- ------
$ 7,573 $ 11,183 $ (3,610) (32)%
======== ======== ========
</TABLE>
Although conditions in the steel industry were strong in both the 1996 and
1995 quarters, Industrial Environmental Services revenues declined due to
conditions in the aluminum industry. The largest blast furnace at the
Company's largest steel industry customer suffered a 60-day outage during the
1996 quarter, but the revenue shortfall resulting from the outage was offset by
the revenues of the Alexander Mill Services business that was acquired during
the quarter. Alexander Mill Services revenues (and earnings) in the second half
of the year and beyond should also compensate for the loss of another steel
industry customer that accounted for approximately 4% of second quarter
Industrial Environmental Services revenues. Aluminum industry conditions in the
1996 quarter were not as favorable as in the 1995 quarter. In the 1995 quarter
aluminum prices were higher and the Company's Idaho facility enjoyed a higher
volume of used beverage cans for recycling. Treatment & Disposal Services
revenues decreased because there was no scrubber sludge stabilization system
contract revenue in 1996 compared with $1.8 million of revenue from one such
contract in 1995. Treatment and disposal volume reductions in 1996, resulting
from continuing depressed market conditions, accounted for the rest of the
decline.
Industrial Environmental Services gross profit decreased for the reasons
discussed above, except that the impact of the blast furnace outage was largely
offset by an estimated business interruption insurance recovery. Also, in 1996
margins were lower at the Company's aluminum recycling plants and slightly lower
at the metal recovery operations that serve the steel industry. The Treatment &
Disposal Services gross profit decline for the quarter was primarily due to the
lack of stabilization system contracts and the continuing shortfall in treatment
and disposal volume. However, the tonnage decline was less severe than in the
first quarter, as this segment continued to add contracts to stabilize electric
arc furnace dust (a hazardous waste produced by steel mini-mills). The Treatment
& Disposal Services segment is continuing the comprehensive marketing program it
began in 1995 to increase treatment and disposal volume by using its proprietary
Super Detox(R) technology to treat steel mill electric arc furnace dust at its
Ohio and Idaho facilities.
<PAGE>
Selling, general and administrative expenses were $.7 million lower in 1996
due primarily to the effects of the 1996 reorganization, which is discussed in
the next paragraph.
The 1996 second quarter unusual charge of $1.2 million was for additional
costs of the Company's previously announced 1996 reorganization. See Note C for
a description of the reorganization. To cover the cost of this reorganization,
the Company expects to record restructuring and relocation charges during 1996
totaling approximately $4.2 million. As a result of reorganizing, the Company
expects to realize ongoing cost savings of approximately $5 million per year.
Savings of approximately $.7 million were achieved in the quarter and a total of
$3.5 million is expected for the year. The consolidation of headquarters
personnel in a single office also will enhance the Company's ability to expand
the range of environmental and specialized material handling services it
provides to the U.S. steel industry, its largest customer base.
In the 1995 second quarter the Company resolved favorably a number of
liabilities resulting from its 1988 acquisition of IU International Corporation.
The benefit of these favorable developments was partially offset by additional
charges for other matters arising from that acquisition, resulting in a net $.8
million unusual credit.
Interest expense in the 1996 quarter increased $.9 million over the 1995
quarter due to higher average debt levels, primarily to finance the retirement
of the Class G preferred stock.
Income tax expense was lower in the 1996 second quarter because income
before taxes amounted to $.1 million as compared with $4.7 million in the 1995
quarter.
Due to the factors described above, the 1996 net loss was $.5 million
compared with $3.3 million net income in 1995.
There was virtually no Class G preferred stock dividend requirement in 1996
because almost all of the Class G stock was retired in the first quarter.
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30
Six months
ended 1996 better (worse)
June 30, than 1995
-------- ---------
1996 1995 Amount %
---- ---- ----- -
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues
Industrial Environmental Services $ 109,179 $ 113,182 $ (4,003) (4)%
Treatment & Disposal Services 15,204 24,174 (8,970) (37)%
------ ------ ------
$ 124,383 $ 137,356 $ (12,973) (9)%
========= ========= =========
Gross Profit
Industrial Environmental Services $ 28,034 $ 30,388 $ (2,354) (8)%
Treatment & Disposal Services 685 3,822 (3,137) (82)%
--- ----- ------
$ 28,719 $ 34,210 $ (5,491) (16)%
========= ========= =========
Operating Income
Industrial Environmental Services $ 20,717 $ 22,873 $ (2,156) (9)%
Treatment & Disposal Services (2,503) 259 (2,762) -
Corporate headquarters (2,807) (3,138) 331 11 %
Unusual items, net (4,640) 800 (5,440) -
------ --- ------
$ 10,767 $ 20,794 $ (10,027) (48)%
========= ========= =========
</TABLE>
Industrial Environmental Services revenues declined for the reasons outlined
in the three month discussion above. As stated above, the revenues (and
earnings) of the Alexander Mill Services business that was acquired during the
second quarter should compensate during the second half of the year for the loss
of a steel industry customer that accounted for approximately 4% of Industrial
Environmental Services revenues during the first six months of 1996. Treatment &
Disposal Services revenues decreased because there was no scrubber sludge
stabilization system contract revenue in 1996 compared with $6.1 million of
revenue from one such contract in 1995. Treatment and disposal volume reductions
in 1996, resulting from depressed market conditions, accounted for the rest of
the decline.
Industrial Environmental Services gross profit decreased for the reasons
outlined in the three month discussion. The Treatment & Disposal Services gross
profit decline was due to the shortfall in treatment and disposal volume and to
the lack of any stabilization system contracts.
Selling, general and administrative expenses were $.9 million lower in 1996
due primarily to the effects of the 1996 reorganization, which is discussed in
the next paragraph.
1996 unusual charges of $4.6 million include $.9 million resulting from the
first quarter settlement of the last disputed matter remaining from the
Company's 1993 restructuring and $3.7 million for the Company's previously
announced 1996 reorganization. See Note C for a description of the
reorganization. The Company expects to record additional restructuring and
relocation charges of approximately $.5 million to complete the reorganization.
As a result of reorganizing, the Company expects to realize ongoing cost savings
of approximately $5 million per year. Savings of approximately $1 million were
achieved in the first six months and a total of $3.5 million is expected for the
year.
<PAGE>
The net $.8 million unusual credit in 1995 is covered in the three month
discussion above. In addition, a 1995 unusual charge of $.4 million for
Industrial Environmental Services severance cost was offset by a 1995 unusual
Treatment & Disposal Services gain resulting from the sale of its prospective
Pennsylvania landfill site, designated for disposal as part of the Company's
1993 restructuring, for more than previously estimated.
Interest expense increased $1.3 million for the six month period due to
higher average debt levels, including borrowings to finance the retirement of
the Class G preferred stock.
Income tax benefit in the 1996 period compared to expense in the 1995 period
was due to the pre-tax loss in the current period versus income in 1995.
Due to the factors described above, the 1996 net loss was $3.1 million
compared with $4.9 million net income in 1995.
Class G preferred stock dividend requirements in 1996 were substantially
reduced because almost all of the Class G stock was retired in the first quarter
at a $.3 million gain.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding of its
capital expenditures, Treatment & Disposal Services trust fund payments, working
capital needs and debt service obligations. Historically, the Company has met
such requirements with cash flows generated by operations and with additional
debt financing.
In addition, the Company's Class G redeemable preferred stock was due for
redemption on July 15, 1996. In the first quarter of 1996, the Company retired
virtually all of such Class G preferred stock for $33.1 million, financed with
borrowings under its bank credit facility.
The Company expects 1996 capital expenditures of $20 to $25 million,
primarily for equipment replacements. $11.5 million was spent through June 30,
1996 and the Company is committed for an additional $7 million.
Treatment & Disposal Services' landfill permits require it to fund closure
and post-closure monitoring and maintenance obligations by making essentially
nonrefundable trust fund payments. These payments amounted to $27.1 million in
the three years 1993 through 1995. However, based on current regulations and
permitted capacity, remaining payments are expected to amount to about $1
million annually through 1998.
<PAGE>
The consolidated condensed balance sheet reflects negative working
capital of $1.9 million at June 30, 1996, including $3.1 million of accrued
liabilities for estimated reorganization and restructuring costs. Scheduled
debt repayments in the last two quarters of 1996 are $4.2 million.
In early 1995, a multiemployer pension plan contacted the Company concerning
a potential claim against the Company for deficiencies in the payment of
withdrawal liabilities by a subsidiary that was sold by IU International
Corporation prior to the Company's acquisition of IU International in 1988. See
Note E. In early 1996, such plan sent a letter to the Company indicating its
intention to initiate a claim under the Multiemployer Pension Plan Amendments
Act of 1980 ("MPPAA") if the plan and the Company are unable to resolve the
matter. The Company believes any such claim is unwarranted and, if asserted,
would contest any such claim vigorously. The Company also believes it will
ultimately prevail on the merits. However, under MPPAA, the plan trustees could
require the Company to make substantial monthly payments before any issues are
arbitrated or litigated. If onerous monthly payments are imposed by the plan,
the Company will take any and all actions it deems necessary and appropriate to
protect itself until the matter can be arbitrated and/or litigated on its
merits. The Company and the plan have met to discuss the issues raised in the
plan's letter and they are continuing their efforts to resolve this matter. The
Company continues to believe that the underlying facts and circumstances support
a conclusion that this matter will be resolved with no material adverse effect
on its financial condition. However, resolution of this matter, which is likely
to take place in the current fiscal year, could result in a charge that is
material to results of operations and cash flows in a single accounting period.
The bank credit facility provides $100 million of revolving credit borrowing
and letter of credit capacity, declining by $12.5 million in each of January
1999 and 2000 and terminating on January 2, 2001. At June 30, 1996, $88 million
of revolving credit borrowings and $8 million of standby letters of credit were
outstanding. $4 million of revolving credit borrowing was repaid after June 30.
Cash on hand, funds from operations and borrowing capacity under the bank
credit facility are expected to satisfy the Company's normal operating and debt
service requirements.
Because its businesses are environmentally-oriented, and therefore highly
regulated, the Company is subject to violations alleged by environmental
regulators and, occasionally, fines. Such matters have not had and are not
expected to have a material impact on the Company's business. Environmental
compliance is discussed in Note E.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Matters Submitted to a Vote of Security Holders.
------------------------------------------------
The Company's Annual Meeting of Stockholders was held at 10:00 a.m. on
June 20, 1996. Three matters were acted upon at such meeting.
a. Three Members of Class A of the Board of Directors were elected. The
tabulation of the votes cast with respect to each such director is as follows:
<TABLE>
<CAPTION>
Louis A. Jeffrey G. Jon D.
Guzzetti, Jr. Miller Ralph
------------- ------ -----
<S> <C> <C> <C>
For 35,410,332 35,418,444 35,418,770
Against 0 0 0
Withheld 1,553,476 1,545,364 1,545,038
Abstain 0 0 0
Broker
Non-Vote 0 0 0
</TABLE>
b. The amended and restated Certificate of Incorporation of
EnviroSource, Inc. was ratified and adopted by the Company's
stockholders. The votes cast with respect to this item were as
follows: 35,179,404 for; 1,469,798 against; 29,024 abstain; 0 broker
non-votes.
c. The Company's selection of Ernst & Young as its independent public
accountants for the fiscal year ending December 31, 1996 was ratified and
approved by the Company's stockholders. The votes cast with respect to this item
were as follows: 36,874,608 for; 71,982 against; 17,218 abstain; 0 broker
non-votes.
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
3.1 - Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (File
No. 1-1363)).
3.2 - Certificate of Amendment to the Certificate of
Incorporation of the Company, dated February 26,
1992 (incorporated herein by reference to
Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1991 (File No. 1-1363)).
3.3 - Certificate of Amendment to the Certificate of
Incorporation of the Company, dated August 5,
1993 (incorporated herein by reference to
Exhibit 4.9 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30,
1993 (File No. 1-1363)).
3.4 - Certificate of Designation of Shares of Class H
Cumulative Preferred Stock of the Company
(incorporated herein by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1987 (File
No. 1-1363)).
<PAGE>
3.5 - Certificate of Designation of Shares of Class I
Cumulative Redeemable Preferred Stock, Series A,
Increasing Rate of the Company (incorporated
herein by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 (File No. 1-
1363)).
3.6 - Certificate of Designation of Shares of Class I
Cumulative Redeemable Preferred Stock, Series B,
Exchangeable of the Company (incorporated herein
by reference to Exhibit 3.6 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 (File No. 1-1363)).
3.7 - Certificate of Designation of Shares of Class I
Preferred Stock, Series C of the Company
(incorporated herein by reference to Exhibit 3.5
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File
No. 1-1363)).
3.8 - Certificate of Designation of the Preferences of
Class J Convertible Preferred Stock of the
Company (incorporated herein by reference to
Exhibit 3.7 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
3.9 - Certificate of Correction to the Certificate of
Designation of the Preferences of Class J
Convertible Preferred Stock of the Company
(incorporated herein by reference to Exhibit 4.8
to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1993 (File
No. 1-1363)).
3.10 - By-Laws of the Company (incorporated herein by
reference to Exhibit C (pages C-1 to C-9) to the
Company's Proxy Statement filed April 24, 1987,
in respect of its 1987 Annual Meeting of
Stockholders (File No. 1-1363)).
3.11 - Amendment to the By-Laws of the Company
(incorporated herein by reference to Exhibit 3.4
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987 (File
No. 1-1363)).
4.1 - Loan and Security Agreement, dated as of April
6, 1993, between IMS Funding Corporation and
Greyhound Financial Corporation. (The Company
agrees to furnish a copy of such agreement to
the Commission upon request.)
4.2 - Agreement Amending Loan and Security Agreement and
Corporate Guarantee Agreement, dated as of December 8,
1995, between FINOVA Capital Corporation (formerly
known as Greyhound Financial Corporation), IMS Funding
Corporation, and International Mill Service, Inc. (The
Company agrees to furnish a copy of such agreement to
the Commission upon request.)
<PAGE>
4.3 - Indenture, dated as of July 1, 1993, between the
Company and United States Trust Company of New
York, as Trustee, relating to the Company's 9-
3/4% Senior Notes due 2003, including the form
of such Notes attached as Exhibit A thereto
(incorporated herein by reference to Exhibit
4.10 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1993
(File No. 1-1363)).
4.4 - First Supplemental Indenture, dated as of November 2,
1995, between the Company and United States Trust
Company of New York, as Trustee, relating to the
Company's 9-3/4% Senior Notes due 2003 (incorporated
herein by reference to Exhibit 4.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1995 (File No. 1-1363)).
4.5 - Registration Rights Agreement, dated as of May
13, 1993, among the Company, FS Equity Partners
II, L.P., The IBM Retirement Plan Trust Fund and
Enso Partners, L.P. (incorporated herein by
reference to Exhibit 4.29 to Amendment No. 1 to
the Company's Registration Statement on Form S-
1, filed June 14, 1993 (File No. 33-62050)).
4.6 - Warrant to purchase shares of Common Stock of
the Company issued to FS Equity Partners II,
L.P., dated as of May 13, 1993 (incorporated herein by
reference to Exhibit 4.30 to Amendment No. 1 to
the Company's Registration Statement on Form S-
1, filed June 14, 1993 (File No. 33-62050)).
4.7 - Warrant to purchase shares of Common Stock of
the Company issued to The IBM Retirement Plan
Trust Fund, dated as of May 13, 1993 (incorporated
herein by reference to Exhibit 4.31 to Amendment No. 1
to the Company's Registration Statement on Form S-1,
filed June 14, 1993 (File No. 33-62050)).
4.8 - Warrant to purchase shares of Common Stock of
the Company issued to Enso Partners, L.P.,
dated as of May 13, 1993 (incorporated herein by
reference to Exhibit 4.32 to Amendment No. 1 to the
Company's Registration Statement on Form S-1, filed
June 14, 1993 (File No. 33-62050)).
4.9 - Warrants to purchase 244,445 shares of Common
Stock issued to Chemical Bank, NCNB Texas
National Bank, Banque Paribas and National Bank of
Canada (incorporated herein by reference to Exhibit
10.24 to Amendment No. 2 to the Company's Registration
Statement on Form S-1, filed October 31, 1991
(File No. 33-42381)).
4.10 - Amendment, dated as of September 29, 1995, to Warrant
No. 2-1991 to purchase 53,640 shares of Common Stock
issued to NationsBank of Texas, N.A., formerly NCNB
Texas National Bank (incorporated herein by reference
to Exhibit 4.16 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1995 (File No. 1-1363)).
<PAGE>
4.11* - Amendment, dated as of July 18, 1996, to Warrant
No. 4-1991 to purchase 26,820 shares of Common Stock
issued to National Bank of Canada.
4.12 - Loan Agreement between the Industrial
Development Corporation of Owyhee County, Idaho
and Envirosafe Services of Idaho, Inc. relating
to $8,500,000 Industrial Revenue Bonds, Series
1994. (The Company agrees to furnish a copy of
such agreement to the Commission upon request.)
4.13 - Credit Agreement, dated as of December 19, 1995, among
the Company, International Mill Service, Inc., the
lenders parties thereto, NationsBank, N.A., as
Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference
to Exhibit 4.14 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1995 (File No. 1-1363)).
4.14 - Assignment and Acceptance, dated as of February
8, 1996, between NationsBank, N.A. and Banque Paribas;
and Assignment and Acceptance, dated as of February 8, 1996,
between Credit Lyonnais New York Branch and Banque Paribas
(incorporated herein by reference to Exhibit 4.13 to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996 (File No. 1-1363)).
4.15* - First Amendment, dated as of May 15, 1996, to the
Credit Agreement, dated as of December 19, 1995,
among the Company, International Mill Service, Inc.,
the lenders parties thereto, NationsBank, N.A., as
Administrative Agent, and Credit Lyonnais as
Syndication Agent.
10.1 - Restated Incentive Stock Option Plan of the
Company, as amended (incorporated herein by
reference to Exhibit A to the Company's
Registration Statement on Form S-8, filed
January 17, 1989 (File No. 33-26633)).
10.2 - Promissory Note of Louis A. Guzzetti, Jr., dated
March 31, 1993, amending and replacing the
Promissory Notes dated October 15, 1987, March
31, 1991 and March 31, 1992 and the Letter
Amendments dated April 13, 1991 and May 12,
1992, payable to the Company in the principal
amount of $459,039.00 (incorporated herein by
reference to Exhibit 10.13 to Post-Effective
Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed September 16, 1993
(File No. 33-46930)).
<PAGE>
10.3 - Promissory Notes of Aarne Anderson, Jerrold I.
Dolinger, George E. Fuehrer, George T. Milano
and Mr. Guzzetti, dated as of April 1, 1993,
amending and replacing the Promissory Notes
dated January 13, 1989, April 1, 1991 and April
1, 1992, payable to the Company in the aggregate
principal amount of $1,122,601 (incorporated
herein by reference to Exhibit 10.17 to Post-
Effective Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed
September 16, 1993 (File No. 33-46930)).
10.4 - Stock Option Agreement, dated March 18, 1992,
between the Company and Raymond P. Caldiero
(incorporated herein by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992
(File No. 1-1363)).
10.5 - Stock Option Agreement, dated March 18, 1992,
between the Company and Jeffrey G. Miller
(incorporated herein by reference to Exhibit
10.21 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1992
(File No. 1-1363)).
10.6 - Amendment, dated August 5, 1993, to the Stock
Option Agreement, dated March 18, 1992, between
the Company and Jeffrey G. Miller, to which
reference is made in Exhibit 10.9 to this Annual
Report on Form 10-K (incorporated herein by
reference to Exhibit 10.22 to Post-Effective
Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed September 16, 1993
(File No. 33-46930)).
10.7 - Stock Option Agreement, dated August 5, 1993,
between the Company and Wallace B. Askins
(incorporated herein by reference to Exhibit
10.23 to Post-Effective Amendment No. 1 to the
Company's Registration Statement on Form S-1,
filed September 16, 1993 (File No. 33-46930)).
10.8 - Stock Option Agreement, dated November 1, 1993,
between the Company and Arthur R. Seder, Jr.
(incorporated herein by reference to Exhibit
10.12 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1994 (File No. 1-1363)).
10.9 - 1993 Stock Option Plan of the Company
(incorporated herein by reference to Exhibit
10.21 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June
14, 1993 (File No. 33-62050)).
10.10 - EnviroSource, Inc. Stock Option Plan for Non-
Affiliated Directors, dated as of January 1,
1995 (incorporated herein by reference to Exhibit
10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (File No. 1-
1363)).
10.11 - Supplemental Executive Retirement Plan of the
Company, effective January 1, 1995 (incorporated
herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-1363)).
* Filed Herewith
<PAGE>
(b) Reports on Form 8-K.
-------------------
During the quarter ended June 30, 1996, the Company filed no Current
Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996
ENVIROSOURCE, INC.
By: /s/ James C. Hull
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Exhibit Page
4.11 Amendment, dated as of July 18, 1996, EXHIBIT 1
to Warrant No. 4-1991 to purchase 26,820
shares of Common Stock issued to National
Bank of Canada.
4.15 First Amendment, dated as of May 15, 1996, EXHIBIT 2
to the Credit Agreement, dated as of December
19, 1995, among the Company, International
Mill Service, Inc., the lenders parties
thereto, NationsBank, N.A., as Administrative
Agent, and Credit Lyonnais as Syndication
Agent.
<PAGE>
AMENDMENT TO WARRANT
Warrant No. 4-1991
This Amendment to Warrant (the "Amendment") is made as of the 18th day of
July, 1996 by EnviroSource, Inc., a Delaware corporation (the "Corporation"),
and National Bank of Canada, a banking association of Canada ("NBC").
WHEREAS, on October 29, 1991 the Corporation granted to NBC that certain
Warrant No. 4-1991 (the "Warrant") pursuant to the terms of which the
Corporation granted to NBC the right to purchase 26,820 shares (the "Warrant
Shares") of duly authorized, validly issued, fully paid and non-assessable
Common Stock, par value $.05 per share (the "Common Stock"), of the Corporation,
at a purchase price of $.07 per share; and
WHEREAS, the parties desire to amend the Warrant as set forth herein.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Corporation and NBC hereby agree as follows:
1. Modifications to Specific Provisions of the Warrant.
The following sections of the Warrant are hereby modified as follows:
(a) Section 1.01. Subsections (i) and (ii) of Section
1.01 are hereby deleted in their entirety and replaced by the
following:
"(i) a written notice, in substantially the form of the
Subscription Notice attached as Exhibit A hereto, of such
holder's election to exercise all or part of the purchase rights
represented by this Warrant;
(ii) consideration in the form of (a) an amount equal to the
aggregate Exercise Price for the number of Warrant Shares being
purchased (the "Aggregate Exercise Price"), payable in whole or
in part by certified bank or cashiers check payable to the order
of the Corporation, (b) the surrender of such number of Warrant
Shares with respect to which this Warrant may be exercised as
equals the Aggregate Exercise Price divided by the average
closing price of the Common Stock for the twenty (20) trading
days preceding the date of exercise, rounded to the nearest
share, or (c) any combination of (a) and (b) of this Section
1.01(ii), and"
<PAGE>
(b) Warrant Shares. The number of Warrant Shares set
forth on the face of the Warrant and to which this Warrant
relates shall be reduced to 26,015.
2. Further Modifications. All other terms and conditions
set forth in the Warrant shall remain in full force and effect
and shall not be amended, modified or otherwise altered by the
terms of this Amendment.
3. Defined Terms. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to such terms
in the Warrant.
IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be
signed by a duly authorized officer of all as of the date first written above.
ENVIROSOURCE, INC.
By: /s/ James C. Hull
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/ John L. Conover
Title: Vice President
<PAGE>
EXHIBIT A
ENVIROSOURCE, INC.
SUBSCRIPTION NOTICE
The undersigned, the holder of the Warrant to which this Subscription
Notice is attached (the "Warrant"), hereby elects to exercise rights represented
by such Warrant for and to purchase pursuant to the terms and conditions of the
Warrant, ______________ shares of Common Stock, and herewith makes payment in
full, therefore, of $________________ (a) by certified bank or cashiers check
payable to the order of the Corporation in the amount of $______________, and/or
(b) by surrender of ________________ Warrant Shares with respect to which the
Warrant may be exercised pursuant to the terms of Section 1.01(ii) of the
Warrant, and requests (i) that certificates for the Warrant Shares being
purchased (and any securities or other property issuable upon such exercise) be
issued in the name of and delivered to _____________________________ whose
address is ______________________________________________ and (ii) if such
Warrant Shares shall not include all of the Warrant Shares issuable as provided
in the Warrant, that a new warrant of like tenor and date for the balance of the
Warrant Shares issuable thereunder be delivered to the undersigned. Terms not
otherwise defined herein shall have the same meaning given them in the Warrant.
Dated: _____________________
----------------------------------
Signature Guaranteed:
<PAGE>
FIRST AMENDMENT, dated as of May 15, 1996, to the
Credit Agreement, dated as of December 19, 1995 (the "Credit
Agreement"), among International Mill Service, Inc., a
Pennsylvania corporation (the "Borrower"), EnviroSource,
Inc., a Delaware corporation (the "Parent"), the several
banks and other financial institutions parties thereto (the
"Lenders"), NationsBank, N.A., as administrative agent for
the Lenders (in such capacity, the "Administrative Agent"),
and Credit Lyonnais New York Branch, the New York branch of
a banking organization organized under the laws of the
Republic of France, as syndication agent for the Lenders.
The parties hereto have agreed, subject to the terms and conditions hereof,
to amend the Credit Agreement as provided herein. Capitalized terms used and not
otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1.01. Amendments to Section 1.1.
--------------------------
(a) The definition of "ABR Margin" in subsection 1.1 of the Credit
Agreement is hereby amended in full to read as follows:
"ABR Margin": for any day, calculated on a per
annum basis:
(i) 0.25%, if such day falls within a Level I
Pricing Period;
(ii) 0.50%, if such day falls within a Level
II Pricing Period;
(iii) 0.75%, if such day falls within a
Level III Pricing Period;
(iv) 1.00%, if such day falls within a Level
IV Pricing Period; and
(v) 1.25%, if such day falls within a Level V
Pricing Period.
Any change in the ABR Margin required hereunder shall become effective five
days after the date the Parent delivers its financial statements required
by subsection 6.1(a) or 6.1(d), as the case may be, and the certificate
required by subsection 6.2(e); provided that if the Parent fails to deliver
such financial statements and certificate on or before the date such
statements and certificate are required to be delivered pursuant to
subsection 6.1(a) or 6.1(d), as the case may be, and subsection 6.2(e), the
<PAGE>
ABR Margin for the period from such required date until the date such
statements and certificate are actually delivered shall be calculated as if
a Level V Pricing Period were in effect, and after the date such statements
and certificate are actually delivered the ABR Margin shall be determined
as otherwise provided for herein.
(b) The definition of "EBITDA" in subsection 1.1 of the Credit Agreement is
hereby amended by adding at the end thereof a new sentence to read as follows:
For purposes of the Pricing Ratio and subsections 7.1(a), 7.1(c) and 7.1(d)
only, EBITDA shall be determined without regard to restructuring expenses
of the Parent and its Subsidiaries incurred with respect to 1993 of
$900,000 and reorganization expenses of the Parent and its Subsidiaries
incurred in 1996 up to $4,500,000.
(c) The definition of "Eurodollar Margin" in subsection 1.1 of the Credit
Agreement is hereby amended in full to read as follows:
"Eurodollar Margin": for any day, calculated on a
per annum basis:
(i) 1.50%, if such day falls within a Level I
Pricing Period;
(ii) 1.75%, if such day falls within a Level
II Pricing Period;
(iii)2.00%, if such day falls within a
Level III Pricing Period;
(iv) 2.25%, if such day falls within a Level
IV Pricing Period; and
(v) 2.50%, if such day falls within a Level V
Pricing Period.
Any change in the Eurodollar Margin required hereunder shall become
effective five days after the date the Parent delivers its financial
statements required by subsection 6.1(a) or 6.1(d), as the case may be, and
the certificate required by subsection 6.2(e); provided that if the Parent
fails to deliver such financial statements and certificate on or before the
date such statements and certificate are required to be delivered pursuant
to subsection 6.1(a) or 6.1(d), as the case may be, and subsection 6.2(e),
the Eurodollar Margin for the period from such required date until the date
such statements and certificate are actually delivered shall be calculated
as if a Level V Pricing Period were in effect, and after the date such
statements and certificate are actually delivered the Eurodollar Margin
shall be determined as otherwise provided for herein.
<PAGE>
(d) The definition of "Level I Pricing Period" in subsection 1.1 of the
Credit Agreement is hereby amended in full to read as follows:
"Level I Pricing Period": any period during which
the Pricing Ratio is less than or equal to 3.5 to 1.0 and
no Event of Default has occurred and is continuing.
(e) The definition of "Level II Pricing Period" in subsection 1.1 of the
Credit Agreement is hereby amended in full to read as follows:
"Level II Pricing Period": any period during which
the Pricing Ratio is greater than 3.5 to 1.0 but less
than or equal to 4.0 to 1.0 and no Event of Default has
occurred and is continuing.
(f) The definition of "Level III Pricing Period" in subsection 1.1 of the
Credit Agreement is hereby amended in full to read as follows:
"Level III Pricing Period": any period (a) which is on or after the
First Amendment Effective Date and prior to the date which is five days
after the delivery by the Parent to the Administrative Agent of its
financial statements required by subsection 6.1(a) and the certificate
required by subsection 6.2(e) with respect to its fiscal quarter ending
June 30, 1996 and during which no Event of Default has occurred and is
continuing or (b) during which the Pricing Ratio is greater than 4.0 to 1.0
but less than or equal to 4.5 to 1.0 and no Event of Default has occurred
and is continuing.
(g) The definition of "Matrix Pricing Date" in subsection 1.1 of the Credit
Agreement is hereby deleted in its entirety.
(h) The following definitions are hereby added to subsection 1.1 of the
Credit Agreement in appropriate alphabetical order:
"First Amendment Effective Date" shall mean the date on which the
First Amendment, dated as of May 15, 1996, to this Agreement shall become
effective in accordance with its terms.
"Level IV Pricing Period": any period during which
the Pricing Ratio is greater than 4.5 to 1.0 but less
than or equal to 4.75 to 1.0 and no Event of Default has
occurred and is continuing.
"Level V Pricing Period": any period which is not
a Level I Pricing Period, a Level II Pricing Period, a
Level III Pricing Period or a Level IV Pricing Period.
<PAGE>
SECTION 1.02. Amendments to Section 2.
------------------------
(a) Subsection 2.4 of the Credit Agreement is hereby amended
in full to read as follows:
2.4 Fees. (a) The Borrower agrees to pay to the Administrative Agent
for the account of each Lender, on the last day of each March, June,
September and December and on the Termination Date or such earlier date as
the Revolving Credit Commitments shall terminate as provided herein, a
commitment fee for the period from and including the First Amendment
Effective Date to the Termination Date on the average daily amount of the
Available Commitment of such Lender during the preceding quarter (or such
other period commencing with the First Amendment Effective Date or ending
with the date on which the Revolving Credit Commitment of such Lender shall
be terminated), equal to (i) during a Level I Pricing Period or a Level II
Pricing Period, .375% per annum and (ii) during a Level III Pricing Period,
a Level IV Pricing Period or a Level V Pricing Period, .50% per annum. In
addition, the Borrower agrees to pay to the Administrative Agent for the
account of each Lender, on June 30, 1996, a commitment fee on the average
daily amount of the Available Commitment of such Lender during the period
from and including April 1, 1996 to the First Amendment Effective Date
equal to 0.375% per annum. Any change in the rate at which the commitment
fee is computed hereunder shall become effective five days after the date
the Parent delivers its financial statements required by subsection 6.1(a)
or 6.1(d), as the case may be, and the certificate required by subsection
6.2(e); provided that if the Parent fails to deliver such financial
statements and certificate on or before the date such statements and
certificate are required to be delivered pursuant to subsection 6.1(a) or
6.1(d), as the case may be, and subsection 6.2(e), the rate at which the
commitment fee is computed hereunder for the period from such required date
until the date such statements and certificate are actually delivered shall
be calculated as if a Level V Pricing Period were in effect, and after the
date such statements and certificate are actually delivered the rate at
which the commitment fee is computed hereunder shall be determined as
otherwise provided for herein.
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, on the Closing Date and each anniversary of the Closing Date
prior to the Termination Date, an annual administration fee in the amount
set forth in the Fee Letter.
(b) Subsection 2.6(a) of the Credit Agreement is hereby amended by deleting
the phrase "subsections 2.6(c) and 2.6(d)" in the seventh line thereof and
substituting therefor the phrase "subsection 2.6(d)".
<PAGE>
(c) Subsection 2.6(b) of the Credit Agreement is hereby
amended in full to read as follows:
(b) The Revolving Credit Commitments shall be reduced on each of
January 4, 1999 and January 3, 2000 by 12.5% of the Revolving Credit
Commitments then in effect; provided, however, that if the effect of the
foregoing would not be to reduce the Revolving Credit Commitments to
$75,000,000 or less on January 3, 2000, the Revolving Credit Commitments
shall nevertheless be reduced to $75,000,000 on January 3, 2000.
(d) Subsection 2.6(c) of the Credit Agreement is hereby amended by deleting
the text thereof in its entirety and substituting therefor the phrase
"[intentionally deleted]".
(e) Subsection 2.10(c) of the Credit Agreement is hereby amended by
deleting the phrase "Level III Pricing Period" each place it appears therein
and, in each case, substituting therefor the phrase "Level V Pricing Period".
SECTION 1.03. Amendments to Section 7.
-----------------------
(a) Subsection 7.1(a) is hereby amended by deleting the following language
from the table set forth therein:
Fiscal quarters from and including fourth
quarter of fiscal 1995 through and including
third quarter of fiscal 1996 2.35:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1996 through and including
third quarter of fiscal 1997 2.45:1.00
and replacing therefor the following language:
Fiscal quarters from and including fourth
quarter of fiscal 1995 through and including
first quarter of fiscal 1996 2.35:1.00
Fiscal quarters from and including second
quarter of fiscal 1996 through and including
fourth quarter of fiscal 1996 2.25:1.00
Fiscal quarters from and including first
quarter of fiscal 1997 through and including
third quarter of fiscal 1997 2.45:1.00
<PAGE>
(b) Subsection 7.1(c) is hereby amended by deleting the following language
from the table set forth therein:
Fiscal quarters from and including fourth
quarter of fiscal 1996 through and including
third quarter of fiscal 1997 1.80:1.00
and replacing therefor the following language:
Fourth fiscal quarter of fiscal 1996 1.75:1.00
Fiscal quarters from and including first
quarter of fiscal 1997 through and including
third quarter of fiscal 1997 1.80:1.00
(c) Subsection 7.1(d) is hereby amended by deleting the following language
from the table set forth therein:
Fiscal quarters from and including fourth
quarter of fiscal 1995 through and including
third quarter of fiscal 1996 4.75:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1996 through and including
third quarter of fiscal 1997 4.35:1.00
and replacing therefor the following language:
Fiscal quarters from and including fourth
quarter of fiscal 1995 through and including
first quarter of fiscal 1996 4.75:1.00
Fiscal quarters from and including second
quarter of fiscal 1996 through and including
third quarter of fiscal 1996 5.00:1.00
Fourth fiscal quarter of fiscal 1996 4.75:1.00
Fiscal quarters from and including first
quarter of fiscal 1997 through and including
third quarter of fiscal 1997 4.35:1.00
<PAGE>
(d) Subsection 7.8 is hereby amended by adding immediately after the phrase
"$35,000,000 in fiscal year 1995" in the sixth line thereof the following: ",
$35,000,000 in fiscal year 1996".
SECTION 1.04. Representations and Warranties. The Parent and
------------------------------
the Borrower hereby represent and warrant to the Agents and each
Lender that:
(a) The representations and warranties set forth in Section 4 of the Credit
Agreement, and in each other Loan Document, are true and correct in all material
respects on and as of the date hereof and on and as of the First Amendment
Effective Date (as defined in Section 1.05) with the same effect as if made on
and as of the date hereof or the First Amendment Effective Date, as the case may
be, except to the extent such representations and warranties expressly relate
solely to an earlier date (in which case such representations and warranties
shall have been true and correct in all material respects on and as of such
earlier date).
(b) Each of the Loan Parties is in compliance with all the terms and
conditions of the Credit Agreement and the other Loan Documents on its part to
be observed or performed and no Default or Event of Default has occurred or is
continuing.
(c) The execution, delivery and performance by each of the Borrower and the
Parent of this First Amendment have been duly authorized by such party.
(d) This First Amendment constitutes the legal, valid and binding
obligation of each of the Borrower and the Parent, enforceable against it in
accordance with its terms, except as affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws affecting
creditors' rights generally.
(e) The execution, delivery and performance by each of the Borrower and the
Parent of this First Amendment (i) do not conflict with or violate (A) any
provision of law, statute, rule or regulation, or of the certificate of
incorporation or by-laws of the Borrower or the Parent, (B) any order of any
Governmental Authority or (C) any provision of any indenture, agreement or other
instrument to which the Borrower or the Parent is a party or by which it or any
of its property may be bound and (ii) do not require any consents under, result
in a breach of or constitute (with notice or lapse of time or both) a default
under any such indenture, agreement or instrument.
SECTION 1.05. Effectiveness. This First Amendment shall become effective
-------------
only upon satisfaction of the following conditions precedent on or prior to May
15, 1996 (the first date upon which each such condition has been satisfied being
herein called the "First Amendment Effective Date"):
(a) The Administrative Agent shall have received duly executed counterparts
of this First Amendment which, when taken together, bear the authorized
signatures of the Borrower, the Parent and the Required Lenders.
<PAGE>
(b) The Required Lenders shall be satisfied that the representations and
warranties set forth in Section 1.04 are true and correct on and as of the First
Amendment Effective Date and that no Default or Event of Default has occurred or
is continuing.
(c) There shall not be any action pending or any judgment, order or decree
in effect which, in the judgment of the Required Lenders or their counsel, is
likely to restrain, prevent or impose materially adverse conditions upon
performance by any Loan Party of its obligations under the Loan Documents.
(d) The Borrower shall have paid in full all amounts accrued and payable as
of the First Amendment Effective Date under the Credit Agreement and under the
Fee Letter and shall have paid an amendment fee of $125,000, which amendment fee
shall be distributed to the Lenders pro rata in accordance with their Revolving
Credit Commitments.
(e) The Administrative Agent shall have received from each of the
Guarantors duly executed Consents, in the form attached hereto as Annex A, which
bear the authorized signatures of such Guarantors.
(f) The Administrative Agent shall have received an opinion of counsel to
the Borrower, the Parent and the other Loan Parties in form and substance
satisfactory to the Administrative Agent.
(g) The Required Lenders shall have received such other documents, legal
opinions, instruments and certificates as they shall reasonably request and such
other documents, legal opinions, instruments and certificates shall be
satisfactory in form and substance to the Required Lenders and their counsel.
All corporate and other proceedings taken or to be taken in connection with this
First Amendment and all documents incidental thereto, whether or not referred to
herein, shall be satisfactory in form and substance to the Required Lenders and
their counsel.
SECTION 1.06. APPLICABLE LAW. THIS FIRST AMENDMENT SHALL BE
--------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 1.07. Expenses. The Borrower shall pay all reasonable out-of-pocket
--------
expenses incurred by the Agents in connection with the preparation, negotiation,
execution and delivery and the Agents' and the Lenders' enforcement of this
First Amendment, including, but not limited to, the reasonable fees and
disbursements of counsel. The agreement set forth in this Section 1.07 shall
survive the termination of this First Amendment and the Credit Agreement.
SECTION 1.08. Counterparts. This First Amendment may be
------------
executed in any number of counterparts, each of which shall
constitute an original but all of which when taken together shall
constitute but one agreement.
<PAGE>
SECTION 1.09. Reference to and Effect on the Loan Documents.
---------------------------------------------
(a) On and after the First Amendment Effective Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended by this First Amendment.
(b) Each of the amendments provided herein shall apply and be effective
only with respect to the provisions of the Credit Agreement specifically
referred to by such amendment. Except as specifically amended above, the Credit
Agreement and the Revolving Credit Notes, and all other Loan Documents, are and
shall continue to be in full force and effect and are hereby in all respects
ratified and confirmed.
(c) The execution, delivery and effectiveness of this First Amendment shall
not operate as a waiver of any right, power or remedy of any Lender, any Agent
or any Secured Party under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed by their duly authorized officers, all as of the date first
above written.
INTERNATIONAL MILL SERVICE, INC.
By: /s/ James C. Hull
Title: Vice President
ENVIROSOURCE, INC.
By: /s/ James C. Hull
Title: Vice President
NATIONSBANK, N.A., as Administrative
Agent, as Issuing Lender, as
Swingline Lender and as a Lender
By: /s/ Scott A. Jackson
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH, as
Syndication Agent and as a Lender
By: /s/ Frederick Haddad
Title: Senior Vice President
BANQUE PARIBAS, as a Lender
By: /s/ Pierre-Jean de Filippis
Title: General Manager
By: /s/ Jeffrey N. MacDowell
Title: Vice President
<PAGE>
ANNEX A
CONSENT
Dated as of May 15, 1996
Each of the undersigned, as a Guarantor under one of the Guarantees, dated
as of December 19, 1995 (each, a "Guarantee") in favor of the Agent for the
Lenders parties to the Credit Agreement referred to in the foregoing First
Amendment, hereby consents to the First Amendment and hereby confirms and agrees
that (i) the Guarantee to which such Guarantor is a party is, and shall continue
to be, in full force and effect and is hereby ratified and confirmed in all
respects except that, upon the effectiveness of, and on and after the date of,
the First Amendment, each reference in such Guarantee to the Loan Documents or
any thereof, "thereunder", "thereof" or words of like import shall mean and be a
reference to the Loan Documents or such Loan Document as amended by the First
Amendment and (ii) the Security Documents (as defined in the Credit Agreement
referred to in the foregoing First Amendment) to which such Guarantor is a party
and all of the Collateral described therein do, and shall continue to, secure
the payment of all of the Obligations (as defined therein).
C. BREWER TERMINALS, INC.
By: /s/ C.E. Huben
Title: Vice President
CONVERSION SYSTEMS, INC.
By: /s/ C.E. Huben
Title: Vice President
ENVIROSAFE MANAGEMENT
SYSTEMS, INC.
By: /s/ C.E. Huben
Title: Vice President
<PAGE>
ENVIROSAFE SERVICES OF IDAHO, INC.
By: /s/ Jerrold I. Dolinger
Title: Executive Vice President
ENVIROSAFE SERVICES OF NORTH
AMERICA, INC.
By: /s/ Jerrold I. Dolinger
Title: Executive Vice President
ENVIROSAFE SERVICES OF OHIO, INC.
By: /s/ Jerrold I. Dolinger
Title: Executive Vice President
ENVIROSAFE SERVICES OF TEXAS, INC.
By: /s/ Jerrold I. Dolinger
Title: Executive Vice President
ENVIROSOURCE CORP.
By: /s/ C.E. Huben
Title: Vice President
<PAGE>
ENVIROSOURCE TREATMENT & DISPOSAL
SERVICES, INC.
By: /s/ C.E. Huben
Title: Vice President
ETDS, INC.
By: /s/ Laura M. Sillins
Title: Vice President
FOX HUNT FARMS, INC.
By: /s/ Jerrold I. Dolinger
Title: Executive Vice President
IMSAMET, INC.
By: /s/ C.E. Huben
Title: Vice President
IMSAMET OF UTAH, INC.
By: /s/ C.E. Huben
Title: Vice President
IMS LYCRETE EGYPT, LTD.
By: /s/ C.E. Huben
Title: Vice President
<PAGE>
IU INTERNATIONAL CORPORATION
By: /s/ Laura M. Sillins
Title: Vice President
IU NORTH AMERICA FINANCE, INC.
By: /s/ Laura M. Sillins
Title: Vice President
IU NORTH AMERICA, INC.
By: /s/ Laura M. Sillins
Title: Vice President
MARCUS HOOK PROCESSING, INC.
By: /s/ C.E. Huben
Title: Vice President
McGRAW CONSTRUCTION COMPANY, INC.
By: /s/ C.E. Huben
Title: Vice President
NEOAX INVESTMENT CORP.
By: /s/ Laura M. Sillins
Title: Vice President
<PAGE>
NOSROC CORP.
By: /s/ Laura M. Sillins
Title: Vice President
SONCOR CORP.
By: /s/ Laura M. Sillins
Title: Vice President
WAYLITE CORPORATION
By: /s/ C.E. Huben
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements included in EnviroSource's Form 10-Q for the quarterly
period ended June 30, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,298
<SECURITIES> 0
<RECEIVABLES> 39,975
<ALLOWANCES> 906
<INVENTORY> 0
<CURRENT-ASSETS> 55,639
<PP&E> 307,250
<DEPRECIATION> 140,058
<TOTAL-ASSETS> 461,380
<CURRENT-LIABILITIES> 57,517
<BONDS> 323,202
0
0
<COMMON> 2,012
<OTHER-SE> 27,484
<TOTAL-LIABILITY-AND-EQUITY> 461,380
<SALES> 0
<TOTAL-REVENUES> 124,383
<CGS> 0
<TOTAL-COSTS> 95,664
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,047
<INCOME-PRETAX> (3,766)
<INCOME-TAX> (698)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,068)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
