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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _________
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)
(215) 956-5500
(Registrant's telephone number, including area code)
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 8, 1997 was
40,713,765.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
---------------------
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,591 $ 9,678
Accounts receivable, less allowance
for doubtful accounts of $1,004
and $1,220 33,878 31,550
Net assets of discontinued
IMSAMET operations 34,864
Net deferred income taxes 3,900 15,200
Other current assets 4,335 4,686
----- -----
Total current assets 50,704 95,978
Property, plant and equipment, at cost 281,987 270,857
Less allowance for depreciation (138,304) (128,392)
-------- --------
143,683 142,465
Goodwill, less amortization 136,489 138,635
Closure trust funds and deferred
charges, less amortization 33,516 34,139
Landfill permits, less amortization 23,433 23,064
Net deferred income taxes 13,193 10,800
Debt issuance costs, less amortization 7,772 8,442
Other assets 7,198 6,386
----- -----
$ 415,988 $ 459,909
========= =========
See notes to condensed consolidated financial statements.
<PAGE>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS -- Continued
(Dollars in thousands)
June 30, December 31,
1997 1996
---- ----
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,838 $ 9,302
Salaries, wages and related benefits 7,552 7,253
Insurance obligations 5,557 6,187
Estimated reorganization and
restructuring costs 1,335 2,207
Interest 1,617 2,487
Other current liabilities 17,405 12,800
Current portion of debt 6,807 64,504
----- ------
Total current liabilities 51,111 104,740
Long-term debt 276,784 268,424
Other liabilities 41,986 47,688
Stockholders' equity:
Common stock, par value $.05 per
share, shares authorized-60,000,000,
shares issued and outstanding-
40,351,446 shares in 1997 and 1996 2,018 2,018
Capital in excess of par value 173,479 173,472
Accumulated deficit (127,662) (134,631)
Stock purchase loans receivable from
officers (690) (810)
Canadian translation adjustment (1,038) (992)
------ ----
Total stockholders' equity 46,107 39,057
------ ------
$ 415,988 $ 459,909
========== =========
See notes to condensed consolidated financial statements.
<PAGE>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
Revenues $ 57,231 $ 52,546 $111,828 $105,504
Cost of revenues 44,009 39,461 87,787 80,374
Selling, general and
administrative expenses 6,385 5,615 13,136 11,806
Unusual charges 1,240 4,640
----- ----- ------ -----
Operating income 6,837 6,230 10,905 8,684
Interest income 238 254 500 510
Interest expense (7,097) (6,871) (14,417) (13,392)
------ ------ ------- -------
Loss before income taxes (22) (387) (3,012) (4,198)
Income tax benefit (expense):
Current (374) (507) (712) (489)
Deferred 403 (150) 2,393 1,187
--- ---- ----- -----
Income (loss) from continuing
operations 7 (1,044) (1,331) (3,500)
Income from discontinued
IMSAMET operations 524 8,300 432
-- --- ----- ---
Net income (loss) 7 (520) 6,969 (3,068)
Preferred stock dividend
requirements, reduced by a
retirement gain of $250 (2) (150)
-- --- ----- ---
Income (loss) applicable to
common shares $ 7 $ (522) $ 6,969 $ (3,218)
======== ========= ========= ========
Income (loss) per share:
Continuing operations $ - $ (.03) $ (.03) $ (.09)
Discontinued operations - .02 .20 .01
-- --- --- ---
Net income (loss) $ - $ (.01) $ .17 $ (.08)
======== ========= ========= ========
Weighted average shares 40,351 40,460 40,351 40,449
See notes to condensed consolidated financial statements.
<PAGE>
ENVIROSOURCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Six months ended
June 30,
--------
1997 1996
---- ----
OPERATING ACTIVITIES
Net income (loss) $ 6,969 $ (3,068)
Adjustments to reconcile net income (loss)
to cash provided by operations:
Deferred income taxes 8,907 (1,187)
Gain from sale of IMSAMET (19,600)
Depreciation 12,974 12,751
Amortization 5,469 4,445
Unusual charges, net of payments (1,222) 1,973
Changes in working capital (826) (2,138)
Other 913 (444)
--- ----
Cash provided by operating activities 13,584 12,332
INVESTING ACTIVITIES
Net proceeds from sale of IMSAMET 54,464
Purchase of Alexander Mill Services, Inc.
(net of cash acquired) (5,934)
Property, plant and equipment:
Additions (14,742) (11,528)
Proceeds from dispositions 149 2,192
Landfill permit additions and closure
expenditures (1,631) (1,631)
Closure trust fund payments (332) (391)
Ongoing net cash flows related to
IU International acquisition (2,402) (2,062)
Other (832) (1,856)
---- ------
Cash provided (used) by investing activities 34,674 (21,210)
FINANCING ACTIVITIES
Debt issuance 17,000 49,000
Debt repayment (66,337) (8,060)
Retirement of preferred stock (33,056)
Sale of common stock 108
Other (8) (183)
-- ----
Cash (used) provided by financing activities (49,345) 7,809
------- -----
CASH AND CASH EQUIVALENTS
Decrease during the period (1,087) (1,069)
Beginning of year 9,678 8,367
----- -----
End of period $ 8,591 $ 7,298
========= ==========
See notes to condensed consolidated financial statements.
<PAGE>
NOTE A. BASIS OF PRESENTATION
- ------- ---------------------
The accompanying unaudited condensed consolidated 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 B)
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997. The
condensed consolidated balance sheet at December 31, 1996 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, 1996.
Certain amounts reported in the prior year have been reclassified for
comparative purposes.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which will change the method for computing earnings per
share starting in the fourth quarter of 1997. The new method would have resulted
in the same per share amounts in both the 1997 and 1996 periods.
NOTE B. UNUSUAL CHARGES
- ------- ---------------
In the first quarter of 1996, the Company initiated a reorganization to improve
productivity and reduce costs. The reorganization consisted principally of
consolidating all the Company's headquarters functions in a single office. The
Company's corporate headquarters in Stamford, Connecticut and the Treatment &
Disposal Services segment's headquarters in Horsham, Pennsylvania were closed by
mid-1996 and their activities moved to the International Mill Service
headquarters building, also in Horsham. Approximately 50 positions were
eliminated, mostly in the Treatment & Disposal Services segment. To cover the
cost of these and related charges, the Company provided $4.4 million in 1996, of
which $1.2 million was provided in the second quarter and $3.7 million was
provided in the six months ended June 30, 1996.
First quarter 1996 unusual charges also included $.9 million to settle the last
disputed matter from the Company's 1993 restructuring.
<PAGE>
NOTE B. UNUSUAL CHARGES -- Continued
- ------- ----------------------------
After taxes, 1996 unusual charges amounted to a $.02 per share loss in the
quarter and, together with the gain from retiring Class G preferred stock (Note
E), amounted to a net $.07 loss per share in the six month period.
NOTE C. SALE OF IMSAMET
- ------- ---------------
In January 1997 the Company sold the capital stock of IMSAMET, Inc., a
wholly-owned subsidiary that performed recycling and waste management services
for the aluminum industry, for $58 million realizing a pre-tax gain of $19.6
million. After a deferred income tax charge, the gain amounted to $8.3 million
or $.20 per share. The proceeds from the sale were used to repay $56 million of
revolving credit borrowings and expenses related to the transaction. The gain
from the sale in 1997 and IMSAMET's 1996 results have been classified as
discontinued operations. IMSAMET revenues for the 1996 three and six month
periods were $9,866,000 and $18,879,000.
NOTE D. ALEXANDER MILL SERVICES ACQUISITION
- ------- -----------------------------------
The Company purchased Alexander Mill Services, Inc., a metal reclamation company
serving the mini-mill sector of the steel industry, in May 1996. Pro forma
results of operations, as if this transaction occurred at the beginning of 1996,
are as follows (in thousands, except per share amount):
Six months ended
June 30, 1996
-------------
Pro forma revenues $ 109,920
Pro forma net loss (2,623)
Pro forma net loss per share $ (.07)
The pro forma information is not necessarily indicative of the results that
would have occurred had the transaction taken place at the beginning of 1996.
NOTE E. OTHER INFORMATION
- ------- -----------------
As of June 30, 1997, $44 million of revolving credit borrowings and $6.6 million
of standby letters of credit were outstanding under the Company's $65 million
bank credit facility.
<PAGE>
NOTE E. OTHER INFORMATION -- Continued
- ------- ------------------------------
During the six months ended June 30, 1997 and 1996, the Company paid interest of
$14.6 million and $13.5 million and made cash income tax payments, net of
refunds, of $.4 million and $.5 million.
In the first quarter of 1996, the Company retired 236,120 shares of Class G
redeemable preferred stock for $33.1 million, resulting in a $250,000 retirement
gain.
NOTE F. COMMITMENTS AND CONTINGENCIES
- ------- -----------------------------
As of June 30, 1997, the Company has commitments to spend $8.9 million for
equipment additions and improvements to waste treatment facilities.
At June 30, 1997, the Company was contingently liable for $6.6 million of
letters of credit outstanding under its bank credit agreement, including $5.1
million that secure liabilities already reflected in the condensed consolidated
balance sheet.
To secure its obligations to close its landfills and perform post-closure
monitoring and maintenance procedures, the Company must make payments into
closure trust funds. Based on current regulations, planned improvements to waste
treatment facilities and permitted capacity, such payments are expected to
amount to approximately $1.7 million in 1997 and $2.7 million in 1998, including
the reinvestment of Idaho trust fund earnings that the Company includes in
interest income. Thereafter, such payments are not expected to exceed the
reinvestment of trust fund earnings, based on current requirements.
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
<PAGE>
NOTE F. COMMITMENTS AND CONTINGENCIES -- Continued
- ------- ------------------------------------------
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 additional environmental compliance requirements
could have a material adverse effect on the Company's results of operations or
financial condition, but the Company is unable to predict any such future
requirements. 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.
--------------------------
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30
Three months 1997
ended better/(worse)
June 30, than 1996
-------- ---------
1997 1996 Amount %
---- ---- ------ -
(Dollars in millions)
Revenues
Industrial Environmental Services $ 46,574 $ 44,990 $ 1,584 3.5 %
Treatment & Disposal Services 10,657 7,556 3,101 41.0 %
------ ----- -----
$ 57,231 $ 52,546 $ 4,685 8.9 %
======== ======== ========
Gross Profit
Industrial Environmental Services $ 11,775 $ 12,772 $ (997) (7.8)%
Treatment & Disposal Services 1,447 313 1,134 362.3 %
----- --- -----
$ 13,222 $ 13,085 $ 137 1.0 %
======== ======== ========
Operating Income
Industrial Environmental Services $ 7,790 $ 8,903 $ (1,113) (12.5)%
Treatment & Disposal Services 91 (828) 919 -
Corporate headquarters (1,044) (605) (439) (72.6)%
Unusual charges (1,240) 1,240 -
----- ------ -----
$ 6,837 $ 6,230 $ 607 9.7 %
======== ======== ========
Industrial Environmental Services revenues increased as compared to the
1996 second quarter due to strong production at most of our steel industry
customer sites. The Company's May 1996 acquisition of Alexander Mill Services,
Inc. contributed $2.7 million to revenues in the current quarter as compared
with $1.3 million in the prior year. These revenue improvements more than offset
revenue reductions resulting from an ongoing strike (which was settled in
mid-August) by a major steel industry customer's employees that started in the
1996 fourth quarter, the rearrangement of production facilities due to an
ownership change at another customer's steel mill, and the mid-1996 loss of a
steel industry customer that accounted for $2 million of revenues in the 1996
second quarter. Treatment & Disposal Services revenues increased significantly
in the 1997 second quarter as compared to the 1996 quarter due to a sharp
increase in the volumes of electric arc furnace dust (a hazardous waste produced
by steel mini-mills) stabilized at the Company's Ohio and Idaho treatment
facilities.
Industrial Environmental Services gross profit decreased primarily due to
the strike, the temporary impact of the ownership change and the difference
between the gross profit from the Alexander Mill Services sites and the prior
year gross profit from the customer that was lost in mid-1996. Treatment &
Disposal Services gross profit increased due to the increase in electric arc
furnace dust disposal volumes.
<PAGE>
Selling, general and administrative expenses increased as compared to the
1996 second quarter, primarily because cost savings realized as a result of the
1996 reorganization (discussed in the next paragraph) were largely offset by an
increase in legal fees and expenses, which are expected to decline in the
future.
The unusual charge of $1.2 million in the second quarter of 1996 relates to
the Company's 1996 headquarters reorganization. (See Note B for a description.)
Total interest expense was $.6 million lower in the second quarter of 1997
as compared to 1996 due to lower debt levels. In the first quarter of 1997, the
Company paid down $56 million of debt with proceeds from the sale of its IMSAMET
subsidiary. Interest expense in the 1997 statement of operations is $.2 million
higher than in the prior year because $.8 million of 1996 interest expense has
been allocated to discontinued operations.
Current income tax expense includes state and Canadian income taxes
payable. During the 1997 second quarter, the Company revised its estimated
income tax rate for the year, which increased the deferred tax benefit for the
quarter by $383,000. During the 1996 second quarter, the Company revised its
estimated income tax rate for the year, which decreased the deferred tax benefit
for the quarter by $259,000.
The Company sold its IMSAMET subsidiary in January 1997. Accordingly,
IMSAMET's 1996 results have been classified as discontinued operations.
Due to the factors described above, 1997 net income was $7,000 as compared
with the 1996 net loss of $.5 million.
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 of that
year.
<PAGE>
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30
Six months 1997
ended better/(worse)
June 30, than 1996
-------- ---------
1997 1996 Amount %
---- ---- ------ -
(Dollars in millions)
Revenues
Industrial Environmental Services $ 90,552 $ 90,300 $ 252 .3 %
Treatment & Disposal Services 21,276 15,204 6,072 39.9 %
------ ------ -----
$ 111,828 $ 105,504 $ 6,324 6.0 %
========= ========= =======
Gross Profit
Industrial Environmental Services $ 21,294 $ 24,729 $(3,435) (13.9)%
Treatment & Disposal Services 2,747 401 2,346 585.0 %
----- --- -----
$ 24,041 $ 25,130 $(1,089) (4.3)%
========= ========= =======
Operating Income
Industrial Environmental Services $ 13,426 $ 16,982 $(3,556) (20.9)%
Treatment & Disposal Services 32 (2,251) 2,283 -
Corporate headquarters (2,553) (1,407) (1,146) (81.4)%
Unusual charges (4,640) 4,640 -
----- ------ -----
$ 10,905 $ 8,684 $ 2,221 25.6 %
========= ========= =======
Industrial Environmental Services revenues in the first half of 1997 were
comparable to the same period in 1996. Most steel industry customer sites
reported strong production. Alexander Mill Services, Inc., acquired in May 1996,
contributed $5.1 million to revenues in the first six months as compared to $1.3
million in the prior year. However, as outlined in the three month discussion,
these revenue increases were largely offset by revenue reductions resulting from
a strike (which was settled in mid-August) by a major steel industry customer's
employees, another customer's rearrangement of production facilities due to an
ownership change, and the mid-1996 loss of a steel industry customer that
accounted for $4.2 million of revenues in the first half of 1996. Treatment &
Disposal Services revenues increased significantly in the first six months of
1997 as compared to the same period in 1996 due to a sharp increase in the
volumes of electric arc furnace dust stabilized at the Company's Ohio and Idaho
treatment facilities.
Industrial Environmental Services gross profit decreased for the reasons
outlined in the three month discussion. Treatment & Disposal Services gross
profit increased due to the increase in electric arc furnace dust disposal
volumes.
Selling, general and administrative expenses increased as compared to the
first half of 1996, primarily because cost savings realized as a result of the
1996 reorganization (discussed in the next paragraph) were largely offset by an
increase in legal fees and expenses, which are expected to decline in future.
<PAGE>
Unusual charges of $4.6 million in the first half of 1996 included $3.7
million for the Company's 1996 headquarters reorganization (see Note B for a
description) and $.9 million to settle the last disputed matter from the
Company's 1993 restructuring.
Total interest expense was $.6 million lower in the first half of 1997 as
compared to the same period in 1996 due to lower debt levels. As outlined in the
three month discussion, the Company paid down $56 million of debt with proceeds
from the sale of its IMSAMET subsidiary in the first quarter of 1997. Interest
expense in the 1997 statement of operations is $1 million higher than in 1996
because $1.6 million has been allocated to discontinued operations in the prior
year.
Current income tax expense includes state and Canadian income taxes
payable.
The Company sold its IMSAMET subsidiary in January 1997 for an after-tax
gain of $8.3 million or $.20 per share. Accordingly, the gain from the sale in
1997 and IMSAMET's 1996 results have been classified as discontinued operations.
Due to the factors described above, including discontinued operations, 1997
net income was $7 million compared with the 1996 net loss of $3.1 million.
Class G preferred stock dividend requirements in 1996 were reduced due to
the retirement of almost all of the outstanding shares in the 1996 first
quarter, which resulted in a $.3 million retirement gain.
DEFERRED INCOME TAXES
The Company has determined that it is more likely than not that it will
earn enough taxable income to realize the $17.1 million of deferred tax assets
in its balance sheet over the next several years. Realization of this amount
will require cumulative taxable earnings of approximately $49 million. When the
consolidated results of continuing operations for the three most recent fiscal
years are adjusted by (1) excluding unusual items, and (2) adding back goodwill
amortization (which is not deductible for tax purposes), the pre-tax earnings,
as adjusted, total over $33 million and average $11 million annually. On this
basis, the Company would realize $17.1 million of deferred tax assets within
approximately four and one-half years. On the other hand, because its net
operating loss carryforwards expire well into the future, the Company would also
realize $17.1 million of deferred tax assets if, counting only profitable years,
it earns $49 million of taxable income during the fifteen year period ending in
2012, so long as the cumulative amount of such earnings reaches at least $16
million by 2005, $27 million by 2006, $36 million by 2008, $45 million by 2009,
and $48 million by 2010.
<PAGE>
In making its determination that it is more likely than not that it will
earn enough taxable income to realize $17.1 million of net deferred tax assets,
the Company considered (1) its cumulative consolidated results of operations for
the three most recent fiscal years and the first six months of 1997, (2) the
reduction in interest expense obtained by applying the IMSAMET net proceeds to
reduce debt, (3) ongoing cost savings achieved with its 1996 reorganization, and
(4) profit improvements from treating increased volumes of electric arc furnace
dust with its proprietary Super Detox technology. Factors which could negatively
affect this determination would include (1) loss of a major customer or
customers, (2) prolonged work stoppages at major customers, (3) a major decline
in United States steel industry production, and (4) a material decrease in the
level of electric arc furnace dust currently treated with the Company's
proprietary Super Detox technology.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding of
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.
The Company expects 1997 capital expenditures of $25 to $30 million,
primarily for equipment replacements, new services, development of additional
landfill capacity and improvements to waste treatment facilities. Through June
30, 1997, the Company spent $14.7 million for capital additions and is committed
for an additional $8.9 million, some of which will not be spent until 1998.
Treatment & Disposal Services' landfill permits require it to fund closure
and post-closure monitoring and maintenance obligations by making essentially
non-refundable trust fund payments. Based on current regulations, planned
improvements to waste treatment facilities and permitted capacity, such payments
are expected to be approximately $1.7 million in 1997 and $2.7 million in 1998,
including the reinvestment of Idaho trust fund earnings that the Company
includes in interest income. Thereafter, such payments are not expected to
exceed the reinvestment of trust fund earnings, based on current requirements.
The consolidated balance sheet reflects negative working capital of $.4
million at June 30, 1997, including a $1.3 million accrued liability for
estimated reorganization and restructuring costs. Scheduled debt repayments in
the last half of 1997 total $2.1 million.
<PAGE>
Upon the sale of IMSAMET, the Company applied the net proceeds to pay down
bank borrowings, and also reduced the amount of its bank credit facility to $65
million of revolving credit borrowing and letter of credit capacity. As of June
30, 1997, revolving credit borrowings amounted to $44 million and $6.6 million
of standby letters of credit were outstanding. The bank facility was amended to
accommodate the sale of IMSAMET and to change the financial covenants that
require the Company to meet certain financial ratios and tests during 1997 and
1998. Although improved operating results will be required during the remainder
of 1997, the Company believes that it will be able to meet its financial
covenant requirements. To remain in compliance beyond 1998, the Company will
most likely need to obtain further adjustments to the required financial ratios
and tests throughout the remaining term of the facility. The $65 million amount
of the credit facility declines by 12.5% in each of January 1999 and 2000 and
the credit facility terminates in January 2001.
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.
Subsequent to June 30, 1997 the Company used approximately $7.3 million of
its cash on hand to pay obligations, including resolution of a disputed matter,
related to the 1988 acquisition of IU International Corporation.
Because its businesses are environmentally-oriented, and therefore highly
regulated, the Company is subject to violations alleged by environmental
regulators and, occasionally, fines. Such violations and fines have not had, and
are not expected to have, a material impact on the Company's business. It is
possible that the future imposition of additional environmental compliance
requirements could have a material adverse effect on the Company's results of
operations or financial condition, but the Company is unable to predict any such
future requirements.
<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 19, 1997. Three matters were acted upon at
such meeting.
a. The amendment to 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: 34,481,705 for; 79,088 against; 20,408
abstain; 0 broker non-votes.
b. Three Members of Class B of the Board of Directors were
elected. The tabulation of the votes cast with respect to each
such director is as follows:
Wallace B. John M. J. Frederick
Askins Roth Simmons
------ ---- -------
For 34,481,961 34,495,922 34,496,384
Against 0 0 0
Withheld 99,240 85,279 84,817
Abstain 0 0 0
Broker
Non-Vote 0 0 0
c. The Company's selection of Ernst & Young as its
independent public accountants for the fiscal year ending
December 31, 1997 was ratified and approved by the Company's
stockholders. The votes cast with respect to this item were as
follows: 34,482,889 for; 78,490 against; 19,822 abstain; 0 broker
non-votes.
ITEM 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
--------
3.1 - Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Appendix A (pages A-1 to
A-3) to the Company's Proxy Statement filed April 29, 1996, in
respect of its 1996 Annual Meeting of Stockholders (File No. 1-1363)).
3.2* - Amendment of Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Page 2 to the Company's Proxy
Statement filed April 30, 1997, in respect of its 1997 Annual Meeting
of Stockholders (File No. 1-1363))
3.3 - 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)).
3.4 - 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)).
3.5* - By-Law Amendment Adopted March 26, 1997 By Unanimous Written Consent
of the Board of Directors, Effective June 19, 1997.
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).
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 - Loan Agreement, dated as of June 1, 1994, 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).
4.10 - 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)).
4.11 - 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)).
4.12 - 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
(incorporated herein by reference to Exhibit 4.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996 (File No. 1-1363)).
4.13 - Second Amendment, dated as of December 23, 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 (incorporated herein by reference to Exhibit 4.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-1363)).
4.14*- Third Amendment, effective as of June 30, 1997, 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,
payable to the Company, 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 (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)).
10.3 - Promissory Notes of Aarne Anderson, George E. Fuehrer and Mr.
Guzzetti, dated as of April 1, 1993, payable to the Company, amending
and replacing the Promissory Notes dated January 13, 1989, April 1,
1991 and April 1, 1992 (incorporated herein by reference to Exhibit
10.17 to Post-Effective Amendment No. 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
(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 Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (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)).
10.12 - Employment Agreement, dated November 5, 1996, between the Company
and Aarne Anderson (incorporated herein by reference to Exhibit 10.12
to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363)).
10.13 - Employment Agreement, dated November 5, 1996, between the Company
and William B. Davis (incorporated herein by reference to Exhibit
10.13 to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1996 (File No. 1-1363)).
10.14 - Employment Agreement, dated November 5, 1996, between the Company
and James C. Hull (incorporated herein by reference to Exhibit 10.14
to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363))
10.15 - Stock Purchase Agreement, dated November 26, 1996, by and among
IMCO Recycling Inc., IMSAMET, Inc. and EnviroSource, Inc.
(incorporated herein by reference to Exhibit 10.1 to the Company's
Form 8-K filed January 21, 1997 (File No. 1-1363)).
10.16 - Amendment No. 1, dated as of January 21, 1997, to Stock Purchase
Agreement, dated November 26, 1996, by and among IMCO Recycling Inc.,
IMSAMET, Inc. and EnviroSource, Inc. (incorporated herein by reference
to Exhibit 10.2 to the Company's Form 8-K filed January 21, 1997 (File
No. 1-1363))
* Filed Herewith
(b) Reports on Form 8-K.
-------------------
During the quarter ended June 30, 1997, 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, 1997
ENVIROSOURCE, INC.
By:/s/ James C. Hull
-----------------
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Number Exhibit Page
3.5 By-Law Amendment Adopted March 26, EXHIBIT 1
1997 By Unanimous Written Consent
of the Board of Directors, Effective
June 19, 1997.
4.14 Third Amendment, effective as of June EXHIBIT 2
30, 1997, 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.
ENVIROSOURCE, INC.
BY-LAW AMENDMENT ADOPTED MARCH 26, 1997
BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS
EFFECTIVE JUNE 19, 1997
RESOLVED, that, effective immediately and automatically upon the
approval of the Charter Amendment, the By-Laws of the
Corporation be, and they hereby are, amended by: (1)
deleting the first sentence of Article II, Section 2,
thereof in its entirety, and (2) inserting in lieu thereof
the following new first sentence of Article II, Section 2,
to read in its entirety as follows:
The Board of Directors of the Corporation shall consist
of nine directors, provided that the Board of Directors
may from time to time by resolution fix a different
number of directors as comprising the full Board of
Directors.
<PAGE>
THIRD AMENDMENT, dated effective as of June 30, 1997,
to the Credit Agreement, dated as of December 19, 1995 (as amended to
the date hereof, 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.
PRELIMINARY STATEMENTS:
(1) The Borrower has requested that the Lenders agree to make various
changes in the Loan Documents.
(2) The parties hereto have agreed, subject to the terms and conditions
hereof, to grant the requests of the Borrower and to amend the Loan
Documents as provided herein.
(3) 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 7.
-----------------------
(a) Subsection 7.1(a) of the Credit Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
"(a) Interest Coverage. Permit the ratio of (i) EBITDA for the Reference
-------- --------
Period with respect to the last day of any fiscal quarter of the Parent referred
to below to (ii) Consolidated Interest Expense for such Reference Period to be
less than the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Ratio
-------------- -----
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
third quarter of fiscal 1996 2.25:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1996 through and including
first quarter of fiscal 1997 1.95:1.00
Fiscal quarters from and including second
quarter of fiscal 1997 through and including
third quarter of fiscal 1997 1.75:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 1.85:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
first quarter of fiscal 1999 2.15:1.00
Second quarter of fiscal 1999 and all fiscal
quarters thereafter 3.00:1.00
(b) Subsection 7.1(c) of the Credit Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
"(c) Debt Service Coverage. Permit the ratio of (i) EBITDA for
---- ------- ---------
the Reference Period with respect to the last day of any fiscal quarter of
the Parent referred to below, plus any income tax refunds received by the
Parent and its Subsidiaries during such Reference Period, plus (without
duplication) IU Cash Inflows received by the Parent and its Subsidiaries
during such Reference Period, less (without duplication) IU Cash Outflows
from the Parent and its Subsidiaries during such Reference Period, less
Cash Taxes for such Reference Period, less (without duplication) Landfill
Permit Expenditures during such Reference Period, less Closure Trust Fund
Payments during such Reference Period to (ii) Consolidated Interest Expense
for such Reference Period, plus scheduled principal payments under
Indebtedness of the Parent and its Subsidiaries for such Reference Period
to be less than the ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Ratio
-------------- -----
Fiscal quarters from and including fourth
quarter of fiscal 1995 through and including
third quarter of fiscal 1996 1.35:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1996 through and including
first quarter of fiscal 1997 1.40:1.00
Fiscal quarters from and including second
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 1.05:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
first quarter of fiscal 1999 1.60:1.00
Fiscal quarters from and including second
quarter of fiscal 1999 through and including
third quarter of fiscal 1999 2.45:1.00
Fourth quarter of fiscal 1999 and all fiscal
quarters thereafter 2.50:1.00"
(c) Subsection 7.1(d) of the Credit Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
"(d) Debt to EBITDA Ratio. Permit the ratio of (i) Consolidated Total Debt
--------------------
as of the last day of any fiscal quarter of the Parent referred to below to (ii)
EBITDA for the Reference Period with respect to such day to be more than the
ratio set forth below opposite such fiscal quarter:
Fiscal Quarter Ratio
-------------- -----
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 quarter of fiscal 1996 5.50:1.00
First quarter of fiscal 1997 4.80:1.00
Fiscal quarters from and including second
quarter of fiscal 1997 through and including
third quarter of fiscal 1998 5.70:1.00
Fiscal quarters from and including fourth
quarter of fiscal 1998 through and including
first quarter of fiscal 1999 4.70:1.00
Fiscal quarters from and including second
quarter of fiscal 1999 through and including
third quarter of fiscal 1999 3.75:1.00
Fourth quarter of fiscal 1999 and all fiscal
quarters thereafter 3.50:1.00"
SECTION 1.02. Addition of Section 6.11. The following is hereby added as
-------------------------
Section 6.11 of the Credit Agreement:
"6.11 Machinery, Equipment and Rolling Stock. By October 31, 1997, the
----------------------------------------
Parent and the Borrower will cause the Security Documents to be amended in form
and substance satisfactory to the Administrative Agent, and will take any and
all other actions that are necessary, or that are advisable in the reasonable
opinion of the Administrative Agent or any Lender, so as to grant to the
Administrative Agent for the benefit of the Secured Parties a security interest
in all machinery, equipment, motor vehicles and other rolling stock of the
Parent and its Subsidiaries (including all items of machinery, equipment, tools,
parts, supplies, furnishings and fixtures of every kind, whether affixed to
real property or not, as well as all automobiles, trucks, vehicles and rolling
stock of every description, trailers, handling and delivery equipment, all
additions to, substitutions for, replacements of or accessions to any of
the foregoing, all attachments, components, parts (including spare parts)
and accessories whether installed thereon or affixed thereto and all fuel for
any thereof). All such security interests shall be first priority security
interests, except to the extent that Liens are permitted by the terms of
Section 7.3 of the Credit Agreement. Additionally, by October 31, 1997,
the Parent and the Borrower will cause Uniform Commercial Code financing
statements to be filed by the Parent and its Subsidiaries in all applicable
jurisdictions, will cause the lien of the Security Documents to be noted
on the certificates of title for motor vehicles or other rolling stock of the
Parent and its Subsidiaries and will take any and all other actions that are
necessary, or that are advisable in the reasonable opinion of the Administrative
Agent or any Lender, so as to perfect such security interests in the collateral
described on Exhibit A attached hereto (collectively, the "Perfected
Collateral"). In connection with the foregoing, the Parent shall, and shall
cause its Subsidiaries to, deliver to the Administrative Agent such
documents, legal opinions, instruments and certificates as it shall reasonably
request and such documents, legal opinions, instruments and certificates shall
be reasonably satisfactory, both in form and substance, to the Administrative
Agent and its counsel. All corporate and other proceedings taken or to be taken
in connection with the foregoing and all documents incidental thereto,
whether or not referred to herein, shall be satisfactory in form and substance
to the Administrative Agent and its counsel. Notwithstanding anything to the
contrary contained herein, the Borrower and its Subsidiaries shall not be
required to perfect security interests granted to the Administrative Agent in
the Perfected Collateral that, in the aggregate, has a book value of less than
$3,000,000. Administrative Agent and Lenders agree to release any such security
interests provided for herein in property sold by the Borrower or any Subsidiary
in connection with any transaction permitted by the Credit Agreement, including,
without limitation, Section 7.12."
SECTION 1.03. Amendment of Section 7.9. Section 7.9 of the Credit Agreement
------------------------
is hereby amended by the deletion of the word "and" at the end of paragraph (h)
thereof, by the deletion of the period at the end of paragraph (i) thereof and
the substitution of a semi-colon in lieu thereof, by the addition to Section
7.9(f) after "10,000,000" of the phrase "(plus the amount of any investment
specifically permitted by Sections 7.9(j) through (m))", and by the addition of
the following new paragraphs at the end of such Section:
(j) equity investments in Envirosafe Services of Idaho, Inc. and
Envirosafe Services of Ohio, Inc. (and equity investments in such Persons'
direct or indirect parent which are ultimately contributed to such Persons)
made by converting to equity all or any portion of the Indebtedness of such
Persons outstanding on June 30, 1997, which is represented by Intercompany
Notes outstanding on such date; provided that any such investment is made
--------
solely by contributing such Indebtedness on the books of the holder of such
Indebtedness and not through any cash transaction;
(k) the contribution by Conversion Systems, Inc. of all or
substantially all of its assets (and related liabilities), other than those
related to its Super Detox(R) business, to a newly-formed Wholly Owned
Subsidiary of Conversion Systems, Inc.;provided that(i) such Wholly Owned
Subsidiary is a Restricted Company and (ii) no investment shall be
permitted under this paragraph (k) after the initial contribution of assets
to such Wholly Owned Subsidiary;
(l) equity investments in Envirosafe Services of Idaho, Inc. (and
equity investments in such Person's direct or indirect parent which are
immediately contributed to such Person) made after June 30, 1997; provided
that(i) such equity investments (A) shall not exceed an aggregate amount of
$10,000,000 at any one time outstanding and (B) shall not be made in
connection with any acquisition of common stock, property, business or
assets of any Person and (ii) Envirosafe Services of Idaho, Inc. shall be a
Restricted Company; and
(m) equity investments in Envirosafe Services of Ohio, Inc. (and
equity investments in such Person's direct or indirect parent which are
immediately contributed to such Person) made after June 30, 1997; provided
that (i) such equity investments (A) shall not exceed an aggregate amount
of $10,000,000 at any one time outstanding and (B) shall not be made in
connection with any acquisition of common stock, property, business or
assets of any Person and (ii) Envirosafe Services of Ohio, Inc. shall be a
Restricted Company.
SECTION 1.04. Representations and Warranties. The Parent and the Borrower
------------------------------
hereby represent and warrant to 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
Third 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 Third 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 Third Amendment have been duly authorized by such
party.
(d) This Third 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 Third 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 Third Amendment shall become effective
-------------
only upon satisfaction of the following conditions precedent on or prior to
June 30, 1997 (the first date upon which each such condition has been satisfied
being herein called the "Third Amendment Effective Date"):
(a) The Administrative Agent shall have received duly executed
counterparts of this Third Amendment which, when taken together, bear
the authorized signatures of the Borrower, the Parent and the Required
Lenders.
(b) (i) The representations and warranties set forth in Section
1.04 shall be true and correct on and as of the Third Amendment Effective
Date, (ii) no Default or Event of Default has occurred or is continuing
and (iii) there shall not be any action pending or any judgment, order or
decree in effect which is likely to restrain, prevent or impose
materially adverse conditions upon performance by any Loan Party of its
obligations under the Loan Documents.
(c) The Borrower shall have paid to each Lender which shall have
delivered an executed counterpart of this Third Amendment an amendment
fee equal to 0.50% of the total Revolving Credit Commitment (whether
used or unused) of such Lender.
(d) The Borrower shall have paid in full all fees and reasonable
expenses payable as of the Third Amendment Effective Date in connection
with the Credit Agreement and the other Loan Documents.
(e) The Administrative Agent shall have received from each of the
Guarantors duly executed Consents, in the form attached hereto as Exhibit
B, 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 Administrative Agent shall have received such other
documents, legal opinions, instruments and certificates as it shall
reasonably request and such other documents, legal opinions, instruments
and certificates shall be satisfactory in form and substance to the
Administrative Agent and its counsel. All corporate and other proceedings
taken or to be taken in connection with this Third Amendment and all
documents incidental thereto, whether or not referred to herein, shall be
satisfactory in form and substance to the Administrative Agent and its
counsel.
SECTION 1.06. APPLICABLE LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.07. Fees; Expenses. On or prior to June 30, 1997, the Borrower
---------------
shall pay to each Lender which shall deliver an executed counterpart of this
Third Amendment an amendment fee equal to 0.50% of the total Revolving Credit
Commitment (whether used or unused) of such Lender. 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 Third Amendment, including, but not limited to, the
reasonable fees and disbursements of counsel. The agreements set forth in this
Section 1.07 shall survive the termination of this Third Amendment and the
Credit Agreement.
SECTION 1.08. Counterparts. This Third 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 Third 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 Third 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) Except as specifically provided above, the execution, delivery and
effectiveness of this Third 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 Third Amendment to
be duly executed by their duly authorized officers, all as of the date first
above written.
INTERNATIONAL MILL SERVICE, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSOURCE, INC.
By:/s/ William B. Davis
--------------------
Title: Vice President & Treasurer
NATIONSBANK, N.A., as Administrative
Agent, as Issuing Lender, as Swingline Lender
and as a Lender
By:/s/ Thomas J. Kane
------------------
Title: Corporate Financial Officer
CREDIT LYONNAIS NEW YORK BRANCH, as
Syndication Agent and as a Lender
By:/s/ Attila Koc
--------------
Title: Vice President
BANQUE PARIBAS, as a Lender
By:/s/ Pierre-Jean de Filippis
---------------------------
Title: Assistant Vice President
By:/s/ Deanna C. Walker
--------------------
Title: Assistant Vice President
<PAGE>
EXHIBIT A
All backhoes, pallet carriers, slag pot carriers, slab carriers, ladle
carriers, cranes, excavators, graders, fork lifts, rubber tired loaders, tracked
loaders, scrap container pallets, slag processing plants, railroad equipment,
scales, scarfing machines, shears, road sweepers, crawler dozer tractors,
off-highway trucks and vacuum trucks.
<PAGE>
EXHIBIT B
CONSENT
Dated as of June 30, 1997
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 Third
Amendment, hereby consents to the Third 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 Third 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 prior to the
date of and by the Third Amendment and (ii) the Security Documents (as defined
in the Credit Agreement referred to in the foregoing Third 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).
ALEXANDER MILL SERVICES, INC.
By:/s/ William B. Davis
--------------------
Title: Vice President
C. BREWER TERMINALS, INC.
By:/s/ William B. Davis
--------------------
Title: Vice President
CONVERSION SYSTEMS, INC.
By:/s/ William B. Davis
--------------------
Title: Vice President
<PAGE>
ENVIROSOURCE MANAGEMENT SYSTEMS, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSOURCE MANAGEMENT CORP.
By:/s/ William B. Davis
--------------------
Title: Vice President & Treasurer
ENVIROSOURCE TECHNICAL SERVICES, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSAFE SERVICES OF IDAHO, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSAFE SERVICES OF NORTH AMERICA, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSAFE SERVICES OF OHIO, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSAFE SERVICES OF TEXAS, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
ENVIROSOURCE CORP.
By:/s/ William B. Davis
--------------------
Title: Vice President & Treasurer
ENVIROSOURCE TREATMENT & DISPOSAL SERVICES, INC.
By:/s/ William B. Davis
---------------------
Title: Treasurer
ETDS, INC.
By:/s/ Leon Z. Heller
------------------
Title: Chairman of the Board
FOX HUNT FARMS, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
IU INTERNATIONAL CORPORATION
By:/s/ Thomas J. Mallon
--------------------
Title: Vice President
IU NORTH AMERICA FINANCE, INC.
By:/s/ Leon Z. Heller
------------------
Title: Chairman of the Board
IU NORTH AMERICA, INC.
By:/s/ Leon Z. Heller
------------------
Title: Chairman of the Board
MARCUS HOOK PROCESSING, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
McGRAW CONSTRUCTION COMPANY, INC.
By:/s/ William B. Davis
--------------------
Title: Treasurer
NEOAX INVESTMENT CORP.
By:/s/ Leon Z. Heller
------------------
Title: Chairman of the Board
NOSROC CORP.
By:/s/ William B. Davis
--------------------
Title: Treasurer
SONCOR CORP.
By:/s/ Leon Z. Heller
-------------------
Title: Chairman of the Board
WAYLITE CORPORATION
By:/s/ William B. Davis
--------------------
Title: Treasurer
<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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,591
<SECURITIES> 0
<RECEIVABLES> 34,882
<ALLOWANCES> 1,004
<INVENTORY> 0
<CURRENT-ASSETS> 50,704
<PP&E> 281,987
<DEPRECIATION> 138,304
<TOTAL-ASSETS> 415,988
<CURRENT-LIABILITIES> 51,111
<BONDS> 276,784
0
0
<COMMON> 2,018
<OTHER-SE> 44,089
<TOTAL-LIABILITY-AND-EQUITY> 415,988
<SALES> 0
<TOTAL-REVENUES> 111,828
<CGS> 0
<TOTAL-COSTS> 87,787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,417
<INCOME-PRETAX> (3,012)
<INCOME-TAX> (1,681)
<INCOME-CONTINUING> (1,331)
<DISCONTINUED> 8,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,969
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
