EXECUTION COPY



                         SECOND AMENDMENT, dated as of December 23, 1996, to the
                    Credit Agreement,  dated as of December 19, 1995 and amended
                    as of May 15, 1996 (as so amended,  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 Parent  proposes to sell all the issued and  outstanding  shares of
common  stock of IMSAMET to IMCO  Recycling  Inc., a Delaware  corporation  (the
"Purchaser"), pursuant to the Stock Purchase Agreement, dated November 26, 1996,
 ---------
among the Purchaser, the Parent and IMSAMET. The Borrower has requested that the
Lenders  and the  Administrative  Agent agree to permit such sale and consent to
the  release of IMSAMET  and its  Subsidiaries  and SALTS from the  Subsidiaries
Guarantee, the Security Documents and the Subordination Agreement.

     (2) The  Borrower  has further  requested  that the  Lenders  agree to make
various changes in the covenants contained in subsection 7.1.

     (3) The parties  hereto have  agreed,  subject to the terms and  conditions
hereof,  to grant the requests of the Borrower and to amend the Credit Agreement
as provided herein.

     (4) 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.  Amendment To Subsection  1.1. The  definition of "Restricted
                    ----------------------------
Companies"  in  subsection  1.1 of the  Credit  Agreement  is hereby  amended by
deleting from the second line thereof the word "IMSAMET,".

<PAGE>

     SECTION 1.02.  Amendments To Subsection 2.6.
                    -----------------------------

     (a)  Subsection 2.6(a) of the Credit Agreement is hereby amended by adding
 the following sentence to the end thereof:

     "Notwithstanding  the  foregoing,  in  the  case  of the  Prepayment  Event
     consisting  of the sale by the Parent of the common  stock of IMSAMET,  the
     Revolving Credit Commitments shall be reduced upon the consummation of such
     sale to $65,000,000."

     (b)  Subsection  2.6(b) of the Credit  Agreement  is hereby  deleted in its
entirety and the following is substituted in lieu thereof:

          "(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."

     SECTION 1.03.  Amendment to Subsection  4.18(a).  Subsection 4.18(a) of the
                    -------------------------------  
Credit  Agreement  is  hereby  deleted  in its  entirety  and the  following  is
substituted in lieu thereof:

          "4.18 Collateral.  (a) Except as otherwise  provided for in subsection
                ----------
     6.9 with respect to  Subsidiaries  acquired after the Closing Date, (i) all
     of the shares of Capital Stock of each of the Parent's  Subsidiaries (other
     than (A) not more than 35% of the Capital Stock of each Foreign  Subsidiary
     and (B) until 60 days  after the  FINOVA  Financing  is  terminated  or any
     refinancing  thereof  permitted by the terms hereof is terminated,  all the
     Capital Stock of IMS Funding),  (ii) all  Intercompany  Notes issued to the
     Parent or any of its domestic  Subsidiaries  (other than Intercompany Notes
     issued to IMS  Funding)  and (iii) all  trade  accounts  receivable  of the
     Parent  and its  domestic  Subsidiaries  (other  than  (A)  trade  accounts
     receivable of IMS Funding and (B) trade  accounts  receivable to the extent
     excluded  by  the  Borrower   Security   Agreement)   are  pledged  to  the
     Administrative  Agent,  for the  ratable  benefit of the  Secured  Parties,
     pursuant  to a Pledge  Agreement,  a  Security  Agreement  or a  supplement
     thereto, as security for the Obligations."

     SECTION 1.04.  Amendments To Section 6.
                    ------------------------

     (a)  Subsection  6.1(c) of the Credit  Agreement  is hereby  amended by (i)
deleting  the words  "the  IMSAMET  Group,  (iii)" in the fifth and sixth  lines
thereof and (ii) by replacing "(iv)" in the sixth line thereof with "(iii)".

     (b) Subsection 6.2(c) of the Credit Agreement is hereby amended by deleting
the words ", the Imsamet Group" in the fourth line thereof.

     (c) Subsection 6.9(c) of the Credit Agreement is hereby amended by deleting
the text thereof in its entirety.

<PAGE>

     SECTION 1.05.  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
     second quarter of fiscal 1997                               1.95:1.00

     Third fiscal quarter of fiscal 1997                         2.00:1.00

     Fiscal quarters from and including fourth
     quarter of fiscal 1997 through and including
     first quarter of fiscal 1998                                2.10:1.00

<PAGE>
     Fiscal quarters from and including second
     quarter of fiscal 1998 through and including
     third quarter of fiscal 1998                                2.60:1.00

     Fourth quarter of fiscal 1998 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
     second quarter of fiscal 1997                               1.40:1.00

     Third fiscal quarter of fiscal 1997                         1.45:1.00

     Fiscal quarters from and including fourth
     quarter of fiscal 1997 through and including
     first quarter of fiscal 1998                                1.50:1.00

     Fiscal quarters from and including second
     quarter of fiscal 1998 through and including
     third quarter of fiscal 1998                                2.05:1.00

<PAGE>


     Fiscal quarters from and including fourth
     quarter of fiscal 1998 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 fiscal quarter of fiscal 1996                        5.50:1.00

     Fiscal quarters from and including first
     quarter of fiscal 1997 through and including
     third quarter of fiscal 1997                                4.80:1.00

     Fiscal quarters from and including fourth
     quarter of fiscal 1997 through and including
     first quarter of fiscal 1998                                4.75:1.00

     Fiscal quarters from and including second
     quarter of fiscal 1998 through and including
     third quarter of fiscal 1998                                4.00:1.00

     Fiscal quarters from and including fourth
     quarter of fiscal 1998 through and including
     third quarter of fiscal 1999                                3.75:1.00

<PAGE>


     Fourth quarter of fiscal 1999 and all fiscal
     quarters thereafter                                         3.50:1.00"

     (d) Subsection 7.2(f) of the Credit Agreement is hereby amended by deleting
the text  thereof in its  entirety  and  substituting  therefor  the phrase "(f)
[intentionally deleted];".

     (e) Subsection 7.4(g) of the Credit Agreement is hereby amended by deleting
the text  thereof in its  entirety  and  substituting  therefor  the phrase "(g)
[intentionally deleted].".

     (f) Subsection 7.6(j) of the Credit Agreement is hereby amended by deleting
the text  thereof in its  entirety  and  substituting  therefor  the phrase "(j)
[intentionally deleted].".

     (g)  Subsection  7.7(b)(iv)  of the Credit  Agreement is hereby  amended by
deleting the text thereof in its entirety and  substituting  therefor the phrase
"(iv) [intentionally deleted]; and".

     (h)  Subsection  7.9(g) of the Credit  Agreement  is hereby  deleted in its
entirety and the following is substituted in lieu thereof:

          "(g)  investments,  loans  and  advances  in  Unrestricted  Companies;
     provided   that  the   aggregate   amount  (in  cash,   property  or  other
     consideration)  of  investments,  loans and advances made after the Closing
     Date in: (i) IMS Funding  shall not exceed the greater of (A)  $100,000 and
     (B) the sum of (1) the aggregate amount of cash dividend  payments or other
     cash  distributions  paid  to the  Borrower  by IMS  Funding  and  (2)  the
     aggregate amount of cash payments made to the Borrower by IMS Funding under
     that  certain  Operation,  Maintenance  and  Lease  Agreement  between  the
     Borrower  and IMS  Funding,  dated as of March  31,  1993;  and (ii)  other
     Unrestricted  Companies shall not exceed $7,000,000;  provided further that
     all such loans and  advances  pursuant to this  subsection  7.9(g) shall be
     evidenced  by  Intercompany  Notes which are pledged to the  Administrative
     Agent for the ratable benefit of the Secured Parties, pursuant to the terms
     of  appropriate  Pledge  Agreements or  supplements  thereto,  and all such
     Intercompany Notes shall be covered by the Subordination Agreement;"

     (i)  Subsection  7.11 of the  Credit  Agreement  is hereby  amended  by (i)
deleting  the  phrase  "transactions  with  SALTS  in an  aggregate  amount  not
involving more than $500,000 at any time outstanding,  (b)" in the first, second
and third lines  thereof and (ii) by replacing  "(c)" in the fourth line thereof
with "(b)".

     SECTION 1.06. Release. The Lenders hereby (a) release and discharge (i) the
                   -------
pledge made by the Parent pursuant to the Parent Pledge  Agreement in respect of
(A) the capital  stock of IMSAMET and (B) the  Intercompany  Notes issued to the
Parent by IMSAMET, Imsamet of Utah and III, (ii) the pledge made by the Borrower
pursuant to the Borrower Pledge  Agreement in respect of the  Intercompany  Note
issued to the  Borrower  by III,  (iii) the pledge  made by TDS  pursuant to the
Subsidiaries  Pledge Agreement in respect of the Intercompany Note issued to TDS

<PAGE>

by IMSAMET,  (iv) the pledge made by IMSAMET pursuant to the Subsidiaries Pledge
Agreement  of the  capital  stock of  Imsamet  of Utah and III and (v)  IMSAMET,
Imsamet of Utah and III from their obligations under the Subsidiaries Guarantee,
the Subsidiaries Pledge Agreement,  the Subsidiaries  Security Agreement and the
Subordination  Agreement and (b) authorize the  Administrative  Agent to execute
and deliver the Release and Agreement in the form of Exhibit A hereto.

     SECTION 1.07.  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  Second  Amendment
Effective  Date (as defined in Section  1.08) with the same effect as if made on
and as of the date hereof or the Second  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 Second Amendment have been duly authorized by such party.

     (d)  This  Second  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  Second  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.

     (f) The assets of IMSAMET and its  Subsidiaries  represent less than 25% of
the total assets of the Parent and its Subsidiaries reported on the consolidated
balance sheet of the Parent and its  Subsidiaries  as of September 30, 1996, and
the operating  income,  revenue and EBITDA of IMSAMET and its Subsidiaries  each
represent  less  than  25%  of  the  operating   income,   revenue  and  EBITDA,
respectively,  of the Parent and its  Subsidiaries  reported on the consolidated

<PAGE>

statements of operations and cash flows of the Parent and its  Subsidiaries  for
the nine-month period ended September 30, 1996.

     (g) The Parent and the Borrower shall, upon the consummation of the sale of
the common stock of IMSAMET,  transfer an amount in immediately  available funds
equal  to  100%  of  the  Net  After-Tax  Cash  Proceeds  of  such  sale  to the
Administrative  Agent, to be applied by the Administrative  Agent to outstanding
Loans in accordance with Sections 2.6(d) and 2.13 of the Credit Agreement.

     SECTION 1.08.  Effectiveness.  This Second Amendment shall become effective
                    --------------  
only upon  satisfaction  of the  following  conditions  precedent on or prior to
January  31,  1997 (the  first  date upon  which  each such  condition  has been
satisfied being herein called the "Second Amendment Effective Date"):
                                   -------------------------------

     (a) The Administrative Agent shall have received duly executed counterparts
of (i) this Second  Amendment  which,  when taken together,  bear the authorized
signatures of the Borrower,  the Parent and the Lenders and (ii) the Release and
Agreement, in the form of Exhibit A hereto, which, when taken together, bear the
                          ---------
authorized  signatures of the Borrower,  the Parent,  IMSAMET,  Imsamet of Utah,
III, TDS and the Administrative Agent.

     (b) (i) The  representations  and  warranties set forth in Section 1.07 are
true and  correct  on and as of the Second  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 in full all fees and expenses  accrued and
payable as of the Second Amendment Effective Date under the Credit Agreement and
under the Fee Letter.

     (d) The Borrower  shall have paid to the  Administrative  Agent 100% of the
Net After-Tax  Cash  Proceeds of the sale of the common stock of IMSAMET,  which
proceeds shall be distributed to the Lenders in accordance  with Sections 2.6(d)
and 2.13 of the Credit Agreement.

     (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

<PAGE>

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
Second 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 1.09.  APPLICABLE LAW.  THIS SECOND AMENDMENT SHALL BE
                   --------------- 
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.

     SECTION 1.10. 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
Second  Amendment,  including,  but not  limited  to,  the  reasonable  fees and
disbursements  of counsel.  The  agreement  set forth in this Section 1.10 shall
survive the termination of this Second Amendment and the Credit Agreement.

     SECTION 1.11.  Counterparts.  This Second  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.

     SECTION 1.12.  Reference To And Effect On The Loan Documents.
                    ----------------------------------------------

     (a) On and after the Second 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 Second 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  Second  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.

     SECTION 1.13.  Waiver Of Notice Of IMSAMET Prepayment.  The Lenders hereby
                    -------------------------------------- 
waive any notice  required under Section 2.7 of the Credit  Agreement in respect
of the prepayment contemplated by Section 1.08(d) hereof.



<PAGE>


     IN WITNESS WHEREOF, the parties hereto have caused this Second 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: Treasurer


                              NATIONSBANK, N.A., as Administrative
                              Agent, as Issuing Lender, as Swingline Lender
                              and as a Lender


                              By: /s/Thomas J. Kane
                                 ------------------
                                 Title: Corporate Finance 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: General Manager

                              By: /s/Deanna C. Walker
                                 --------------------
                                 Title: Assistant Vice President