LOAN AND SECURITY AGREEMENT

                          Dated as of November 16, 1999

                                      Among

                     THE FINANCIAL INSTITUTIONS NAMED HEREIN

                                 as the Lenders
                                 --------------

                                       and

                              BANK OF AMERICA, N.A.

                                  as the Agent
                                  ------------

                                       and

                        INTERNATIONAL MILL SERVICE, INC.

                                  as a Borrower
                                  -------------

                                       and

                                IMS ALABAMA, INC.

                                  as a Borrower
                                  -------------




<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
ARTICLE 1         INTERPRETATION OF THIS AGREEMENT                             1
                  1.1      Definitions                                         1
                  1.2      Accounting Terms                                   26
                  1.3      Interpretive Provisions                            27

ARTICLE 2         LOANS AND LETTERS OF CREDIT                                 28
                  2.1      Total Facility                                     28
                  2.2      Revolving Loans                                    28
                  2.3      [Reserved]                                         34
                  2.4      Letters of Credit                                  34
                  2.5      Bank Products                                      40

ARTICLE 3         INTEREST AND FEES                                           41
                  3.1      Interest                                           41
                  3.2      Continuation and Conversion Elections              41
                  3.3      Maximum Interest Rate                              43
                  3.4      Closing Fee                                        43
                  3.5      Unused Line Fee                                    43
                  3.6      Letter of Credit Fee                               43
                  3.7      Administration Fee                                 44

ARTICLE 4         PAYMENTS AND PREPAYMENTS                                    44
                  4.1      Revolving Loans                                    44
                  4.2      Termination of Facility                            44
                  4.3      Reserved                                           45
                  4.4      Reserved                                           45
                  4.5      Reserved                                           45
                  4.6      Payments by the Borrowers                          45
                  4.7      Payments as Revolving Loans                        45
                  4.8      Apportionment, Application and Reversal
                           of Payments                                        46
                  4.9      Indemnity for Returned Payments                    46
                  4.10     Agent's and Lenders'Books and Records;
                           Monthly Statements                                 47

ARTICLE 5         TAXES, YIELD PROTECTION AND ILLEGALITY                      47
                  5.1      Taxes                                              47
                  5.2      Illegality                                         48
                  5.3      Increased Costs and Reduction of Return            49
                  5.4      Funding Losses                                     49
                  5.5      Inability to Determine Rates                       50
                  5.6      Certificates of Lenders                            50

                                      -i-

<PAGE>

                                                                            Page
                                                                            ----
                  5.7      Survival                                           50

ARTICLE 6         COLLATERAL                                                  50
                  6.1      Grant of Security Interest                         50
                  6.2      Perfection and Protection of Security Interest     52
                  6.3      Location of Collateral                             53
                  6.4      Title to, Liens on, and Sale and Use of Collateral 53
                  6.5      Appraisals                                         53
                  6.6      Access and Examination; Confidentiality            53
                  6.7      Collateral Reporting                               54
                  6.8      Accounts                                           55
                  6.9      Collection of Accounts; Payments                   56
                  6.10     Inventory; Perpetual Inventory                     57
                  6.11     Equipment                                          57
                  6.12     Assigned Contracts                                 58
                  6.13     Documents, Instruments, and Chattel Paper          59
                  6.14     Right to Cure                                      59
                  6.15     Power of Attorney59
                  6.16     The Agent's and Lenders'Rights, Duties
                           and Liabilities                                    60

ARTICLE 7         BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES           60
                  7.1      Books and Records                                  60
                  7.2      Financial Information                              60
                  7.3      Notices to the Lenders                             64

ARTICLE 8         GENERAL WARRANTIES AND REPRESENTATIONS                      66
                  8.1      Authorization, Validity, and Enforceability
                           of this Agreement and the Loan Documents           66
                  8.2      Validity and Priority of Security Interest         67
                  8.3      Organization and Qualification                     68
                  8.4      Corporate Name; Prior Transactions                 68
                  8.5      Subsidiaries and Affiliates                        68
                  8.6      Financial Statements and Projections               68
                  8.7      Capitalization                                     69
                  8.8      Solvency                                           69
                  8.9      Debt                                               69
                  8.10     Distributions                                      69
                  8.11     Title to Property                                  69
                  8.12     Real Estate; Leases                                69
                  8.13     Proprietary Rights                                 69
                  8.14     Trade Names                                        70
                  8.15     Litigation                                         70
                  8.16     Restrictive Agreements                             70

                                      -ii-

<PAGE>

                                                                            Page
                                                                            ----
                  8.17     Labor Disputes                                     70
                  8.18     Environmental Laws                                 70
                  8.19     No Violation of Law                                72
                  8.20     No Default                                         72
                  8.21     ERISA Compliance                                   72
                  8.22     Taxes                                              72
                  8.23     Regulated Entities                                 72
                  8.24     Use of Proceeds; Margin Regulations                73
                  8.25     Copyrights, Patents, Trademarks and Licenses, etc  73
                  8.26     No Material Adverse Change                         73
                  8.27     Full Disclosure                                    73
                  8.28     Material Agreements                                73
                  8.29     Bank Accounts                                      74
                  8.30     Governmental Authorization                         74
                  8.31     Envirosource Letters of Credit                     74
                  8.32     No Liability for Senior Notes                      74

ARTICLE 9         AFFIRMATIVE AND NEGATIVE COVENANTS                          74
                  9.1      Taxes and Other Obligations                        74
                  9.2      Corporate Existence and Good Standing              75
                  9.3      Compliance with Law and Agreements;
                           Maintenance of Licenses                            75
                  9.4      Maintenance of Property                            75
                  9.5      Insurance                                          75
                  9.6      Intentionally Omitted                              76
                  9.7      Environmental Laws                                 76
                  9.8      Compliance with ERISA                              77
                  9.9      Mergers, Consolidations or Sales                   77
                  9.10     Distributions; Capital Change;
                           Restricted Investments                             78
                  9.11     Transactions Affecting Collateral or Obligations   78
                  9.12     Guaranties                                         78
                  9.13     Debt                                               78
                  9.14     Prepayment                                         78
                  9.15     Transactions with Affiliates                       78
                  9.16     Investment Banking and Finder's Fees               79
                  9.17     Reserved                                           79
                  9.18     Business Conducted                                 79
                  9.19     Liens                                              79
                  9.20     Sale and Leaseback Transactions                    79
                  9.21     New Subsidiaries                                   79
                  9.22     Fiscal Year                                        79
                  9.23     Capital Expenditures                               80
                  9.24     Operating Lease Obligations                        80
                  9.25     EBITDA                                             80

                                  -iii-

<PAGE>

                                                                            Page
                                                                            ----
                  9.26     Fixed Charge Coverage Ratios                       81
                  9.27     Use of Proceeds                                    81
                  9.28     Intentionally Omitted                              81
                  9.29     Conduct of Business by Limited                     81
                  9.30     Minimum Availability                               81
                  9.31     Further Assurances                                 81

ARTICLE 10                 CONDITIONS OF LENDING                              82
                  10.1     Conditions Precedent to Making of Loans
                           on the Closing Date                                82
                  10.2     Conditions Precedent to Each Loan                  83

ARTICLE 11                 DEFAULT; REMEDIES                                  84
                  11.1     Events of Default                                  84
                  11.2     Remedies                                           87

ARTICLE 12                 TERM AND TERMINATION                               88
                  12.1     Term and Termination                               88

ARTICLE 13                 AMENDMENTS; WAIVER; PARTICIPATIONS;
                           ASSIGNMENTS; SUCCESSORS                            88
                  13.1     Amendments and Waivers                             88
                  13.2     Assignments; Participations                        89

ARTICLE 14                 THE AGENT                                          91
                  14.1     Appointment and Authorization                      91
                  14.2     Delegation of Duties                               92
                  14.3     Liability of Agent                                 92
                  14.4     Reliance by Agent                                  92
                  14.5     Notice of Default                                  93
                  14.6     Credit Decision                                    93
                  14.7     Indemnification                                    93
                  14.8     Agent in Individual Capacity                       94
                  14.9     Successor Agent                                    94
                  14.10    Withholding Tax                                    94
                  14.11    Reserved                                           96
                  14.12    Collateral Matters                                 96
                  14.13    Restrictions on Actions by Lenders;
                           Sharing of Payments                                97
                  14.14    Agency for Perfection                              97
                  14.15    Payments by Agent to Lenders                       98
                  14.16    Concerning the Collateral and the
                           Related Loan Documents                             98
                  14.17    Field Audit and Examination Reports;
                           Disclaimer by Lenders                              98
                  14.18    Relation Among Lenders                             99

                                      -iv-

<PAGE>

                                                                            Page
                                                                            ----
ARTICLE 15                 MISCELLANEOUS                                      99
                  15.1     No Waivers; Cumulative Remedies                    99
                  15.2     Severability                                       99
                  15.3     Governing Law; Choice of Forum;
                           Service of Process; Jury Trial Waiver              99
                  15.4     Waiver of Jury Trial                              100
                  15.5     Survival of Representations and Warranties        101
                  15.6     Other Security and Guaranties                     101
                  15.7     Fees and Expenses                                 101
                  15.8     Notices                                           101
                  15.9     Waiver of Notices                                 102
                  15.10    Binding Effect                                    103
                  15.11    Indemnity of the Agent and the
                           Lenders by the Borrowers                          103
                  15.12    Joint and Several Liability                       104
                  15.13    Limitation of Liability                           105
                  15.14    Final Agreement                                   105
                  15.15    Counterparts                                      105
                  15.16    Captions                                          105
                  15.17    Right of Setoff                                   105
                  15.18    Replacement of Affected Lenders                   106

ARTICLE 16                 GUARANTY                                          107


                                      -v-

<PAGE>

                           LOAN AND SECURITY AGREEMENT

         Loan and Security  Agreement,  dated as of November 16, 1999, among the
financial  institutions  listed on the  signature  pages hereof (such  financial
institutions,  together  with  their  respective  successors  and  assigns,  are
referred to hereinafter each  individually as a "Lender" and collectively as the
"Lenders"),  Bank of America,  N.A.  (the  "Bank") with an office at 335 Madison
Avenue,  New York, N.Y., as agent for the Lenders (in its capacity as agent, the
"Agent"),  International Mill Service, Inc., ("IMS") a Pennsylvania corporation,
with offices at 1155 Business  Center  Drive,  Horsham,  PA  19044-3454  and IMS
Alabama, Inc. ("IMS AB"), a Delaware corporation,  with offices at 1155 Business
Center  Drive,  Horsham,  PA  19044-3454  (each,  a  "Borrower"  and jointly and
severally, the "Borrowers").

                               W I T N E S S E T H
                               - - - - - - - - - -

         WHEREAS,  the Borrowers have requested the Lenders to make available to
the  Borrowers a revolving  line of credit for loans and letters of credit in an
amount not to exceed  $40,000,000  in the aggregate  outstanding at any time and
which extensions of credit the Borrowers will use to refinance existing Debt for
Borrowed Money, for their working capital needs and general  business  purposes;
and

         WHEREAS,  the Lenders have agreed to make  available to the Borrowers a
revolving  credit  facility  upon the  terms  and  conditions  set forth in this
Agreement.

         NOW,   THEREFORE,   in  consideration  of  the  mutual  conditions  and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby  acknowledged,  the Lenders,  the Agent,  and the
Borrowers hereby agree as follows:


                                    ARTICLE l

                        INTERPRETATION OF THIS AGREEMENT
                        --------------------------------

   l.l Definitions.  As used herein:
       -----------

                  "Accounts"  means all of the Borrowers' now owned or hereafter
                   --------
acquired or arising  accounts,  as defined in the UCC,  including  any rights to
payment for the sale or lease of goods or rendition of services,  whether or not
they have been earned by performance.

                  "Account Debtor" means each  Person obligated in any way on or
                   --------------
in connection with an Account.

                   "ACH  Transactions"  means  any cash  management  or  related
                   ------------------
services  including the automatic  clearing  house transfer of funds by the Bank
for the account of either Borrower pursuant to agreement or overdrafts.

<PAGE>

                  "Affiliate"  means, as to any Person,  any other Person which,
                   ---------
directly or  indirectly,  is in control of, is controlled by, or is under common
control with,  such Person or which owns,  directly or  indirectly,  ten percent
(10%) or more of the outstanding  equity interest of such Person. A Person shall
be  deemed  to  control  another  Person if the  controlling  Person  possesses,
directly  or  indirectly,  the power to direct  or cause  the  direction  of the
management  and policies of the other Person,  whether  through the ownership of
voting securities, by contract, or otherwise.

                  "Affiliate  Guaranties"  means the  guaranties by Services and
                   ---------------------
Envirosource  of the  Obligations,  dated the  Closing  Date,  as amended and in
effect from time to time.

                  "Affiliate  Security  Agreements" means the Security Agreement
                   -------------------------------
made by Services to secure the Affiliate  Guaranty  made by Services,  dated the
Closing Date, as amended and in effect from time to time,  the Pledge  Agreement
made by Envirosource, dated the Closing Date, as amended and in effect from time
to time and the Pledge  Agreement  made by IMS AB,  dated the Closing  Date,  as
amended and in effect from time to time.

                  "Agent"  means the Bank,  solely in its  capacity as agent for
                   -----
the Lenders,  and any successor  agent  appointed in  accordance  with the terms
hereof.

                  "Agent Advances" has the meaning specified in Section 2.2(i).
                   --------------                                       ------

                  "Agent's  Liens" means the Liens in the Collateral  granted to
                   --------------
the Agent,  for the benefit of the  Lenders,  Bank,  and Agent  pursuant to this
Agreement and the other Loan Documents.

                  "Agent  Related  Persons"  means the Agent,  together with its
                   -----------------------
Affiliates, and the officers, directors, employees, agents and attorneys-in-fact
of such Agent and such Affiliates.

                  "Aggregate Revolver  Outstandings" means, at any time: the sum
                   --------------------------------
of (a) the unpaid  balance  of  Revolving  Loans,  (b) the  aggregate  amount of
Pending Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn
face amount of all outstanding  Letters of Credit,  and (d) the aggregate amount
of any unpaid reimbursement obligations in respect of Letters of Credit.

                  "Agreement" means this Loan and Security Agreement, as amended
                   ---------
and in effect from time to time.

                  "Anniversary Date" means each anniversary of the Closing Date.
                   ----------------

                  "Applicable  Margin" means with respect to any Loan, except as
                   ------------------
otherwise provided in the immediately  succeeding sentence, the amount set forth
below which  corresponds  to the Leverage Ratio set forth below for the four (4)
fiscal  quarter  period of IMS ended with the most recent fiscal  quarter of IMS
for which  the Agent  receives  the  financial  statements  and  Leverage  Ratio
Certificate  required below,  determined and adjusted as provided herein. On the
Closing  Date  and  thereafter  until  delivery  of IMS's  and its  Subsidiaries
financial  statements pursuant to Section 7.2(c) for IMS's fiscal quarter ending
September 30, 2000, the Libor Applicable Margin shall be 2.75% and the Base Rate

                                       2

<PAGE>

Applicable  Margin shall be 1.25% and each shall  thereafter  be adjusted  after
each delivery to the Agent of the quarterly financial  statements of IMS and its
Subsidiaries required pursuant to Section 7.2(c) for each quarter (commencing
                                            ------
with the quarter  ending  September 30, 2000)  together  with the  corresponding
Leverage Ratio Certificate for the four fiscal quarter period ending on the last
day of such fiscal  quarter,  each such  adjustment to be effective on the first
day of the first full calendar month after each such delivery.

                                        Libor Applicable           Base Rate
            Leverage Ratio                   Margin            Applicable Margin
            --------------                   ------            -----------------

             4.0                              2.25%                  .75%
             4.0 and  5.0                     2.50%                 1.00%
             5.0 and  6.0                     2.75%                 1.25%
             6.0 and  7.0                     3.00%                 1.50%
             7.0                              3.25%                 1.75%

                  Notwithstanding anything in this definition to the contrary in
the event that the Agent shall fail to receive any such financial statements and
the  related  Leverage  Ratio  Certificate  for any of the  first  three  fiscal
quarters in any Fiscal Year of IMS within fifty-five (55) days following the end
of such fiscal  quarter (or within  one-hundred  (100) days following the end of
the last fiscal quarter of each Fiscal Year),  then the Applicable Margin shall,
at the end of each such period,  as appropriate,  immediately and without notice
or  further  action be the  highest  Applicable  Margin  provided  herein  (such
Applicable Margin to be in effect until the first day of the first full calendar
month after the Agent receives the quarterly financial statements of IMS and its
Subsidiaries required under Section 7.2(c) for the most recent fiscal quarter of
                                    ------
IMS and the related Leverage Ratio Certificate).

                  "Assigned   Contracts"   means,   collectively,   all  of  the
                   --------------------
Borrowers' rights and remedies under, and all moneys and claims for money due or
to become due to the Borrowers  under those contracts set forth on Schedule 1.1,
and any  other  material  contracts,  and any and all  amendments,  supplements,
extensions,  and  renewals  thereof  including  all  rights  and  claims  of the
Borrowers  now or  hereafter  existing:  (i) under any  insurance,  indemnities,
warranties,  and guarantees provided for or arising out of or in connection with
any of the  foregoing  agreements;  (ii) for any  damages  arising out of or for
breach or default under or in connection  with any of the foregoing  contracts ;
(iii)  to all  other  amounts  from  time to time  paid or  payable  under or in
connection with any of the foregoing agreements;  or (iv) to exercise or enforce
any and all covenants, remedies, powers and privileges thereunder.

                  "Assignee" has the meaning specified in Section 13.2(a).
                   --------                                       -------

                                        3

<PAGE>

                  "Assignment  and  Acceptance" has  the  meaning  specified  in
                   ---------------------------
Section 13.2(a).
---------------

                  "Attorney  Costs"  means and  includes  all  reasonable  fees,
                   ---------------
expenses and disbursements of any law firm or other counsel engaged by the Agent
and the  reasonable  allocated  cost of internal legal services of the Agent and
all reasonable expenses and disbursements of internal counsel of the Agent.

                  "Availability"  means, at  any  time, (a) the  Borrowing  Base
                   ------------
minus (b) the Aggregate Revolver Outstandings.

                  "Bank"  means  Bank  of  America,  N.A.,  a  national  banking
                   ----
association, or any successor entity thereto.

                  "Bank  Products"  means any one or more of the following types
                   --------------
of services or facilities extended to the Borrowers by the Bank or any affiliate
of the Bank in reliance on the Bank's agreement to indemnify such affiliate: (i)
credit  cards;  (ii)  ACH  Transactions;  and  (iii)  Interest  Rate  Protection
Agreements.

                  "Bank  Product  Reserves"  means all reserves  which the Agent
                   -----------------------
from time to time  establishes in its sole discretion for the Bank Products then
provided or outstanding.

                  "Bankruptcy Code" means Title 11  of  the  United  States Code
                   ---------------
(11 U.S.C. ss. 101 et seq.).

                  "Base Rate" means, for any day, the rate of interest in effect
                   ---------
for such day as publicly  announced  from time to time by the Bank in Charlotte,
North  Carolina as its "prime  rate" (the  "prime  rate" being a rate set by the
Bank based upon various  factors  including the Bank's costs and desired return,
general economic conditions and other factors,  and is used as a prime point for
pricing  some  loans,  which may be priced at,  above,  or below such  announced
rate).  Any change in the prime rate  announced by the Bank shall take effect at
the opening of business on the day specified in the public  announcement of such
change.  Each  Interest  Rate  based  upon  the  Base  Rate  shall  be  adjusted
simultaneously with any change in the Base Rate.

                  "Base Rate Loans" means, collectively, the Base Rate Revolving
                   ---------------
Loans.

                  "Base Rate Revolving  Loan" means a Revolving  Loan during any
                   -------------------------
period in which it bears  interest  based on the Base Rate.

                  "Blocked  Account   Agreement"  means  an  agreement  among  a
                   ----------------------------
Borrower,  the Agent  and a  Clearing  Bank,  in form and  substance  reasonably
satisfactory to the Agent, concerning the collection of payments which represent
the proceeds of Accounts or of any other Collateral.

                  "Borrowing"   means  a  borrowing   hereunder   consisting  of
                   ---------
Revolving Loans made on the same day by the Lenders to a Borrower (or by Bank in
the case of a Borrowing funded by Non-Ratable Loans) or by the Agent in the case
of a Borrowing consisting of an Agent Advance.

                                       4

<PAGE>

                  "Borrowing  Base" means,  at any time,  an amount equal to (a)
                   ---------------
the lesser of (i) the Maximum Revolver Amount or (ii) the sum of (A) eighty-five
percent (85%) of the Net Amount of Eligible Accounts of IMS; plus (B) the lesser
of (I) $20,000,000 and (II) forty-five percent (45%) of the orderly  liquidation
value of Eligible  Equipment of IMS minus,  in each case, any amount included in
the  calculation  of  Borrowing  Base under  subsections  (C)(y) and  (D)(II)(y)
hereof;  plus (C) the sum of (x) eighty-five  percent (85%) of the Net Amount of
Eligible  Accounts of IMS AB plus (y)  forty-five  percent  (45%) of the orderly
liquidation  value of  Eligible  Equipment  of IMS AB;  plus (D)  solely for the
period  commencing  the Closing  Date  through  March 31, 2000 the lesser of (I)
$3,000,000 and (II) the sum of (x)  eighty-five  percent (85%) of the Net Amount
of Eligible Services  Accounts plus (y) forty-five  percent (45%) of the orderly
liquidation  value of Eligible  Services  Equipment minus (b) the sum of (i) the
Bank Product Reserve and (ii) all other reserves which the Agent deems necessary
in the exercise of its  reasonable  credit  judgment to maintain with respect to
the Borrowers'  account,  including  reserves for any amounts which the Agent or
any  Lender  may be  obligated  to pay in the  future  for  the  account  of the
Borrowers.

                  "Borrowing  Base   Certificate"   means  a  certificate  by  a
                   -----------------------------
Responsible  Officer of IMS,  substantially in the form of Exhibit B (or another
                                                           ---------
form  acceptable to the Agent)  setting forth the  calculation  of the Borrowing
Base,  including a calculation of each component thereof,  all in such detail as
shall be  satisfactory to the Agent.  All  calculations of the Borrowing Base in
connection  with  the  preparation  of  any  Borrowing  Base  Certificate  shall
originally be made by IMS and certified to the Agent;  provided,  that the Agent
shall have the right to review and adjust,  in the  exercise  of its  reasonable
credit judgment,  any such calculation (1) to reflect its reasonable estimate of
declines in value of any of the  Collateral  described  therein,  and (2) to the
extent that such calculation is not in accordance with this Agreement.

                  "Business  Day"  means  (a)  any day  that is not a  Saturday,
                   -------------
Sunday,  or a day on which  banks in New  York,  New  York or  Charlotte,  North
Carolina are  required or  permitted  to be closed,  and (b) with respect to all
notices, determinations, fundings and payments in connection with the LIBOR Rate
or LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) above
and that is also a day on which  trading in Dollars is carried on by and between
banks in the London interbank market.

                  "Capital Adequacy Regulation" means any guideline,  request or
                   ---------------------------
directive of any central bank or other Governmental Authority, or any other law,
rule or  regulation,  whether  or not  having  the force of law,  in each  case,
regarding capital adequacy of any bank or of any corporation controlling a bank.

                  "Capital  Expenditures" means all payments due (whether or not
                   ---------------------
paid) in respect of the cost of any fixed asset or improvement,  or replacement,
substitution,  or  addition  thereto,  which has a useful  life of more than one
year, including,  without limitation, those costs arising in connection with the
direct or  indirect  acquisition  of such asset by way of  increased  product or
service charges or in connection with a Capital Lease.

                                       5

<PAGE>

                  "Capital  Lease"  means any lease of  property  by a  Borrower
                   --------------
which,  in accordance  with GAAP,  should be reflected as a capital lease on the
balance sheet of such Borrower.

                  "Capital  Stock"  means any and all  shares,  partnership  and
                   --------------
other interests, rights to purchase,  warrants, options,  participation or other
equivalents of or interests in (however designated) the equity of a Person.

                  "Change of Control" means (a) IMS shall no longer  continue to
                   -----------------
own 100% of all classes of stock of IMS AB, Limited and Services  (other than as
a result of a merger of  Services  or IMS AB into  IMS),  (b) IU shall no longer
continue to own 100% of all classes of stock of IMS, (c)  Envirosource  shall no
longer  continue to own 100% of all classes of stock of IU, (d) the  acquisition
by any  "Person" or related  group  (within  the meaning of Section  13(d)(3) or
Section  14(d)(2) of the Exchange Act, or any  successor  provision to either of
the  foregoing,  including  any  "group"  acting for the  purpose of  acquiring,
holding or disposing of securities  within the meaning of Rule 13d-5(b)(1) under
the Exchange Act), other than Permitted Holders, in a single transaction or in a
related  series  of  transactions,  by way of  merger,  consolidation  or  other
business  combination or purchase of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act, or any successor provision), of Capital Stock
representing more than the greater of (i) 20% of the total voting power entitled
to vote in the election of the Board of Directors of  Envirosource or such other
Person  surviving the  transaction  and (ii) the total voting power (entitled to
vote in the  election of the Board of Directors  of  Envirosource  or such other
Person  surviving the  transaction) of the Principals;  (e) during any period of
two  consecutive  years,  individuals  who  at  the  beginning  of  such  period
constituted  the  Board of  Directors  of  Envirosource  (together  with any new
directors  whose  election by such board of  Directors or whose  nomination  for
election by the  shareholders of Envirosource  was approved by a vote of 66-2/3%
of the directors of Envirosource  then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously  so  approved)  cease for any reason to  constitute a majority of the
Board of Directors of  Envirosource  then in office or (f) a "Change of Control"
under and as defined in the Senior Notes Indentures shall have occurred.

                  "Clearing   Bank"   means  the  Bank  or  any  other   banking
                   ---------------
institution  with whom a Payment  Account  has been  established  pursuant  to a
Blocked Account Agreement.

                  "Closing Date" means the date of this Agreement.
                   ------------

                  "Closing Fee" has the meaning specified in Section 3.4.
                   -----------                               -----------

                  "Code"  means the Internal  Revenue  Code of 1986,  as amended
                   ----
from  time to time,  and any  successor  statute,  and  regulations  promulgated
thereunder.

                  "Collateral" has the meaning specified in Section 6.1.
                   ----------                               -----------

                  "Commitment"  means, at any time with respect to a Lender, the
                   ----------
principal  amount  set  forth  beside  such  Lender's  name  under  the  heading
"Commitment"  on the signature  pages of this Agreement or on the signature page

                                       6

<PAGE>

of the Assignment  and Acceptance  pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.2, as such Commitment
                                                ------------
may be adjusted from time to time in accordance  with the  provisions of Section
                                                                         -------
13.2, and "Commitments" means, collectively, the aggregate amount of the
----
commitments of all of the Lenders.

                  "Contaminant" means any waste, pollutant, hazardous substance,
                   -----------
toxic substance,  hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
  ----

                  "Credit Support" has the meaning specified in Section 2.4(a).
                   --------------                               --------------

                  "Debt"  means,   as  to  each   Borrower,   all   liabilities,
                   ----
obligations  and  indebtedness  of such  Borrower to any Person,  of any kind or
nature, now or hereafter owing,  arising,  due or payable,  howsoever evidenced,
created,  incurred,  acquired  or owing,  whether  primary,  secondary,  direct,
contingent,  fixed or otherwise, and including,  without in any way limiting the
generality of the foregoing:  (i) such Borrowers' liabilities and obligations to
trade creditors; (ii) all Obligations;  (iii) all obligations and liabilities of
any Person  secured by any Lien on the property of a Borrower,  even though such
Borrower  shall not have  assumed  or become  liable  for the  payment  thereof;
provided, however, that all such obligations and liabilities which are limited
--------   -------
in recourse to such property shall be included in Debt only to the extent of the
book  value of such  property  as would  be  shown  on a  balance  sheet of such
Borrower  prepared in accordance  with GAAP; (iv) all obligations or liabilities
created or arising  under any Capital Lease or  conditional  sale or other title
retention  agreement  with  respect  to  property  used or  acquired  by  either
Borrower,  even if the  rights  and  remedies  of the  lessor,  seller or lender
thereunder are limited to repossession of such property; provided, however, that
                                                         --------  -------
all such  obligations  and  liabilities  which are  limited in  recourse to such
property  shall be included in Debt only to the extent of the book value of such
property  as would be shown on a balance  sheet of either  Borrower  prepared in
accordance with GAAP; and (v) all obligations and liabilities under Guaranties.

                  "Debt For Borrowed  Money" means,  as to any Person,  Debt for
                   ------------------------
borrowed money or as evidenced by notes, bonds,  debentures or similar evidences
of any such Debt of such Person,  the deferred and unpaid  purchase price of any
property or business (other than trade accounts payable incurred in the ordinary
course of business and  constituting  current  liabilities)  and all obligations
under Capital Leases.

                  "Default"  means any  event or  circumstance  which,  with the
                   -------
giving of notice,  the lapse of time, or both,  would (if not cured or otherwise
remedied during such time) constitute an Event of Default.

                  "Defaulting Lender" has the meaning specified in
                   -----------------
Section 2.2(g)(ii).
------------------

                                       7

<PAGE>

                  "Default Rate" means a fluctuating  per annum interest rate at
                   ------------
all times equal to the sum of (a) the  otherwise  applicable  Interest Rate plus
(b) two percent (2%).  Each Default Rate shall be adjusted  simultaneously  with
any change in the applicable Interest Rate. In addition, with respect to Letters
of Credit,  the Default  Rate shall mean an increase in the Letter of Credit Fee
by two (2) percentage points.

<PAGE>

                  "Distribution"  means, in respect of any corporation:  (a) the
                   ------------
payment or making of any dividend or other  distribution  of property in respect
of  capital  stock  (or  any  options  or  warrants  for  such  stock)  of  such
corporation,  other  than  distributions  in  capital  stock (or any  options or
warrants  for such  stock) of the same  class;  or (b) the  redemption  or other
acquisition by such corporation of any capital stock (or any options or warrants
for such stock) of such corporation.

                  "DOL" means  the  United  States  Department of  Labor or  any
                   ---
successor department or agency.

                  "Dollar" and "$"  mean  dollars  in the lawful currency of the
                   ------       -
United States.

                  "EBITDA"  means,  with  respect  to any  fiscal  period of any
                   ------
Person,  such  Person's  net income  after  provision  for income taxes for such
fiscal  period,  as  determined  in  accordance  with GAAP and  reported  on the
Financial  Statements  for such period,  excluding  any and all of the following
included  in such  net  income:  (a) gain or loss  arising  from the sale of any
capital  assets;  (b) gain  arising  from any  write-up in the book value of any
asset;  (c) earnings of any Person,  substantially  all the assets of which have
been acquired by such Person in any manner, to the extent realized by such other
Person prior to the date of acquisition; (d) earnings of any Person other than a
wholly owned  Subsidiary in which such Person has an ownership  interest  unless
(and only to the extent) such earnings shall actually have been received by such
Person in the form of cash  distributions;  (e)  earnings of any Person to which
assets of such Person shall have been sold,  transferred or disposed of, or into
which such Person  shall have been  merged,  or which has been a party with such
Person to any consolidation or other form of  reorganization,  prior to the date
of such  transaction;  (f) gain arising from the  acquisition  of debt or equity
securities of such Person or from  cancellation or forgiveness of Debt; (g) gain
arising from  extraordinary  items or  non-recurring  items,  as  determined  in
accordance with GAAP, or from any other non-recurring transaction;  (h) non-cash
writedowns of fixed assets and (i) the sum of the  provisions  for income taxes,
interest expense,  depreciation and amortization expense, other non-cash charges
and the effect of  accounting  changes,  in each case to the extent  deducted in
determining net income for such period.

                  "Eligible  Accounts" means the Accounts which the Agent in the
                   ------------------
exercise  of its  reasonable  commercial  discretion  determines  to be Eligible
Accounts.  Without  limiting  the  discretion  of the Agent to  establish  other
criteria of  ineligibility  in  accordance  with the exercise of its  reasonable
commercial discretion, Eligible Accounts shall not, unless the Agent in its sole
discretion elects, include any Account:

                  (a) with respect to which more than 90 days have elapsed since
the date of the original invoice therefor or it is more than 60 days past due;

                                       8

<PAGE>

                  (b)  with  respect  to  which  any  of  the   representations,
warranties,  covenants,  and agreements contained in Section 6.8 are not or have
                                                     -----------
ceased to be complete and correct or have been breached;

                  (c) with  respect to which  Account (or any other  Account due
from such Account Debtor), in whole or in part, a check, promissory note, draft,
trade acceptance or other instrument for the payment of money has been received,
presented for payment and returned uncollected for any reason;

                  (d)  which  represents  a  progress  billing  (as  hereinafter
defined) or as to which a Borrower has extended the time for payment without the
consent of the Agent;  for the purposes  hereof,  "progress  billing"  means any
invoice  for goods  sold or leased or  services  rendered  under a  contract  or
agreement pursuant to which the Account Debtor's  obligation to pay such invoice
is conditioned upon a Borrower's completion of any further performance under the
contract or agreement;

                  (e) with  respect  to which  any one or more of the  following
events has  occurred to the Account  Debtor on such  Account:  death or judicial
declaration  of  incompetency  of an Account  Debtor who is an  individual;  the
filing  by  or  against  the  Account  Debtor  of  a  request  or  petition  for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt,  winding-up,  or other relief  under the  bankruptcy,  insolvency,  or
similar  laws of the  United  States,  any state or  territory  thereof,  or any
foreign  jurisdiction,  now or  hereafter  in effect;  the making of any general
assignment by the Account Debtor for the benefit of creditors;  the  appointment
of a receiver or trustee for the Account  Debtor or for any of the assets of the
Account  Debtor,  including,  without  limitation,  the appointment of or taking
possession by a  "custodian,"  as defined in the Federal  Bankruptcy  Code;  the
institution  by or against  the Account  Debtor of any other type of  insolvency
proceeding  (under the bankruptcy  laws of the United States or otherwise) or of
any  formal or  informal  proceeding  for the  dissolution  or  liquidation  of,
settlement of claims  against,  or winding up of affairs of, the Account Debtor;
the sale,  assignment,  or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment  generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account  Debtor as a
going concern;

                  (f) if fifty  percent  (50%) or more of the  aggregate  Dollar
amount of  outstanding  Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under clause (a) above;

                  (g) owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States or Canada;  or (ii) is not organized
under the laws of the United States or Canada or any state or province  thereof;
or (iii) is the government of any foreign country or sovereign  state, or of any
state, province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof; except
to the  extent  that such  Account  is  secured or payable by a letter of credit
satisfactory to the Agent in its discretion;

                                       9

<PAGE>

                  (h)  owed  by an  Account  Debtor  which  is an  Affiliate  or
employee of a Borrower;

                  (i) except as  provided in clause (k) below,  with  respect to
which either the perfection,  enforceability, or validity of the Agent's Lien in
such Account,  or the Agent's  right or ability to obtain direct  payment to the
Agent of the proceeds of such  Account,  is governed by any federal,  state,  or
local statutory requirements other than those of the UCC;

                  (j) owed by an  Account  Debtor to which  either  Borrower  is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account  Debtor,  unless the Account  Debtor has entered  into an  agreement
acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon
has disputed  liability or made any claim with respect to any other  Account due
from such  Account  Debtor;  but in each  such  case only to the  extent of such
indebtedness, setoff, recoupment, dispute, or claim;

                  (k) owed by the government of the United States of America, or
any department,  agency, public corporation,  or other instrumentality  thereof,
unless the Federal  Assignment of Claims Act of 1940, as amended (31 U.S.C.  ss.
3727 et seq.), and any other steps necessary to perfect the Agent's Lien
     -- ---
therein,  have been  complied with to the Agent's  satisfaction  with respect to
such Account;

                  (l)  owed  by any  state,  municipality,  or  other  political
subdivision of the United States of America, or any department,  agency,  public
corporation,  or other instrumentality  thereof to the extent that the aggregate
amount of all such Accounts is greater than $1,000,000;

                  (m) which  represents  a sale on a  bill-and-hold,  guaranteed
sale, sale and return,  sale on approval,  consignment,  or other  repurchase or
return basis;

                  (n)  which  is  evidenced  by  a  promissory   note  or  other
instrument or by chattel paper;

                  (o) if the Agent  believes,  in the exercise of its reasonable
credit judgment,  that the prospect of collection of such Account is impaired or
that the  Account may not be paid by reason of the  Account  Debtor's  financial
inability to pay;

                  (p) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business  Activities Report or similar
report in order to permit a Borrower to seek judicial  enforcement in such State
of payment of such Account, unless such Borrower has qualified to do business in
such state or has filed a Notice of  Business  Activities  Report or  equivalent
report for the then current year; or

                  (q) which arises out of a sale not made in the ordinary course
of a Borrower's business;

                                       10

<PAGE>

                  (r)  with  respect  to which  the  goods  giving  rise to such
Account  have not been  shipped  and  delivered  to and  accepted by the Account
Debtor or the services  giving rise to such  Account have not been  performed by
either  Borrower,  and, if applicable,  accepted by the Account  Debtor,  or the
Account Debtor revokes its acceptance of such goods or services;

                  (s)  owed by an  Account  Debtor  which  is  obligated  to the
Borrowers  respecting  Accounts the  aggregate  unpaid  balance of which exceeds
twenty percent (20%) (thirty-five percent (35%) with respect to Accounts of USX,
Inc.) of the aggregate  unpaid  balance of all Accounts owed to the Borrowers at
such time by all of the  Borrowers  Account  Debtors,  but only to the extent of
such excess;

                  (t)  which  arises  out of an  enforceable  contract  or order
which,  by its terms,  forbids,  restricts  or makes void or  unenforceable  the
granting of a Lien by either Borrower to the Agent with respect to such Account;
or

                  (u) which is not  subject to a first  priority  and  perfected
security interest in favor of the Agent for the benefit of the Lenders.

                  If any Account at any time  ceases to be an Eligible  Account,
then such Account shall  promptly be excluded from the  calculation  of Eligible
Accounts.

                  "Eligible  Assignee" means (a) a commercial  bank,  commercial
                   ------------------
finance  company or other asset based  lender,  having total assets in excess of
$1,000,000,000;  (b) any Lender listed on the signature page of this  Agreement;
(c) any  Affiliate  of any Lender;  and (d) if an Event of Default  exists,  any
Person reasonably acceptable to the Agent.

                  "Eligible  Equipment"  means  Equipment,   valued  at  orderly
                   -------------------
liquidation  value as determined by appraisers  acceptable to Agent,  or, if any
Equipment is subject to a purchase  option  granted to an Account  Debtor,  such
Equipment  shall be valued at the lower of such  appraised  orderly  liquidation
value and the purchase price option  therefor.  In each case Eligible  Equipment
shall be solely that Equipment  which the Agent,  in its  reasonable  commercial
discretion, determines to meet all of the following requirements:

                  (a) such Equipment is subject to the Agent's Liens,  which are
perfected  as to such  Equipment,  and is subject  to no other  Lien  whatsoever
(other than the Liens  described  in clause (d) of the  definition  of Permitted
Liens and that such  Permitted  Liens (i) are junior in  priority to the Agent's
Liens and (ii) do not impair  directly or indirectly the ability of the Agent to
realize on or obtain the full benefit of the Collateral),

                  (b) such Equipment is in good condition,  not  unmerchantable,
and meets all  standards  imposed  by any  applicable  governmental  agency,  or
department or division  thereof,  having  regulatory  authority over such goods,
their use or sale,

                                       11

<PAGE>

                  (c) such Equipment is currently  either usable or salable,  at
prices not less than the orderly  liquidation  value of such  Equipment  (as set
forth in the most recent appraisal or update thereof delivered to the Agent), in
the normal course of the applicable Borrower's business,

                  (d) such  Equipment  is located  within  the United  States or
Canada (and not in-transit from vendors or suppliers),

                  (e) if such  Equipment is located in a public  warehouse or in
possession  of a bailee or in a facility  leased by a  Borrower,  or operated by
another Person (other than an Account Debtor), the warehouseman,  or the bailee,
or the lessor or such other person has  delivered to the Agent,  if requested by
the Agent, a subordination  agreement in form and substance  satisfactory to the
Agent,

                  (f) if such Equipment contains or bears any Proprietary Rights
licensed to a Borrower by any Person,  the Agent shall be satisfied  that it may
sell  or  otherwise  dispose of  such Equipment  in  accordance  with Article 11
                                                                      ----------
without  infringing  the rights of the  licensor of such  Proprietary  Rights or
violating any contract with such licensor (and without  payment of any royalties
other than any  royalties  due with respect to the sale or  disposition  of such
Equipment pursuant to the existing license  agreement),  and, if the Agent deems
it necessary,  the  applicable  Borrower shall deliver to the Agent a consent or
sublicense  agreement  from  such  licensor  in form  and  substance  reasonably
acceptable to the Agent, and

                  (g)  such  Equipment  is not  determined  by the  Agent in its
reasonable commercial discretion, to be ineligible for any other reason.

                  If any Equipment at any time ceases to be Eligible  Equipment,
such  Equipment  shall  promptly be excluded  from the  calculation  of Eligible
Equipment.

                  "Eligible Services Accounts" means Accounts of Services, which
                   --------------------------
the Agent, in the exercise of its reasonable commercial  discretion,  would have
determined to have been Eligible  Accounts if such Accounts had been Accounts of
IMS.

                  "Eligible  Services  Equipment"  means  Equipment of Services,
                   -----------------------------
which the Agent, in the exercise of its reasonable commercial discretion,  would
have determined to have been Eligible Equipment if such Equipment had been owned
by a Borrower. Eligible Services Equipment shall be valued in the same manner as
Eligible Equipment.

                  "Environmental  Claims" means all claims, however asserted, by
                   ---------------------
any  Governmental  Authority or other  Person  alleging  potential  liability or
responsibility  for violation of any Environmental Law, or for release or injury
to the environment.

                  "Environmental  Laws" means all federal,  state or local laws,
                   -------------------
statutes, common law duties, rules, regulations,  ordinances and codes, together
with  all   administrative   orders,   directed  duties,   requests,   licenses,
authorizations and permits of, and agreements with, any Governmental  Authority,
in each case relating to environmental, health, safety and land use matters.

                                       12

<PAGE>

                  "Environmental Lien" means a Lien in favor of any Governmental
                   ------------------
Authority for (1) any liability under Environmental Laws, or (2) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.

                  "Environmental  Property  Transfer  Act" means any  applicable
                   --------------------------------------
requirement  of law  that  conditions,  restricts,  prohibits  or  requires  any
notification  or  disclosure  triggered  by the  closure of any  property or the
transfer,  sale or lease of any  property or deed or title for any  property for
environmental   reasons,   including,   but  not  limited   to,  any   so-called
"Environmental  Cleanup  Responsibility Acts" or "Responsible  Property Transfer
Acts."

                "Envirosource" means Envirosource, Inc., a Delaware corporation.
                 ------------

                  "Equipment"   means  all  of  the  Borrowers'  now  owned  and
                   ---------
hereafter acquired machinery, equipment, furniture,  furnishings,  fixtures, and
other tangible  personal property (except  Inventory),  including motor vehicles
with respect to which a certificate  of title has been issued,  aircraft,  dies,
tools,  jigs, and office equipment,  as well as all of the Borrowers' rights and
interests with respect to all of such types of property leased by a Borrower and
under all such leases  (including,  without  limitation,  options to  purchase);
together  with  all  present  and  future  additions  and  accessions   thereto,
replacements therefor,  component and auxiliary parts and supplies used or to be
used in connection therewith,  and all substitutes for any of the foregoing, and
all manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.

                  "ERISA" means the Employee  Retirement  Income Security Act of
                   -----
1974, and regulations promulgated thereunder.


                  "ERISA  Affiliate"  means any trade or business  (whether  or
                   ----------------
not  incorporated)  under common control with either Borrower within the meaning
of Section  414(b) or (c) of the Code (and  Sections  414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).

                  "ERISA  Event" means (a) a Reportable  Event with respect to a
                   ------------
Pension  Plan;  (b) a  withdrawal  by a Borrower or any ERISA  Affiliate  from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a  substantial  employer  (as  defined  in  Section  4001(a)(2)  of  ERISA) or a
cessation  of  operations  which is treated as such a withdrawal  under  Section
4062(e) of ERISA;  (c) a complete  or partial  withdrawal  by a Borrower  or any
ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer
Plan is in  reorganization;  (d) the filing of a notice of intent to  terminate,
the treatment of a Plan  amendment as a termination  under Section 4041 or 4041A
of ERISA, or the  commencement of proceedings by the PBGC to terminate a Pension
Plan or  Multi-employer  Plan; (e) the occurrence of an event or condition which
might  reasonably be expected to constitute  grounds under Section 4042 of ERISA
for the  termination  of, or the  appointment  of a trustee to  administer,  any
Pension Plan or  Multi-employer  Plan;  or (f) the  imposition  of any liability
under Title IV of ERISA,  other than for PBGC  premiums  due but not  delinquent
under Section 4007 of ERISA, upon a Borrower or any ERISA Affiliate.

                                       13

<PAGE>

                  "Event of Default" has the meaning specified in Section 11.1.
                   ----------------                               ------------

                  "Exchange Act" means the Securities  Exchange Act of 1934, and
                   ------------
regulations promulgated thereunder.

                  "Existing Credit Agreement" means the Credit Agreement,  dated
                   -------------------------
as of December 19, 1995,  among  Envirosource,  IMS, the lenders party  thereto,
Nationsbank, N.A., as Administrative Agent, and Credit Lyonnais New York Branch,
as syndication  Agent,  as the same has been amended,  supplemented or otherwise
modified from time to time.

                  "FDIC" means the Federal Deposit  Insurance  Corporation,  and
                   ----
any Governmental Authority succeeding to any of its principal functions.

                  "Federal  Funds Rate"  means,  for any day, the rate per annum
                   -------------------
(rounded  upwards,  if  necessary,  to the  nearest  1/100  of 1%)  equal to the
weighted  average of the rates on  overnight  Federal  funds  transactions  with
members of the Federal  Reserve System arranged by Federal funds brokers on such
day, as  published  by the Federal  Reserve Bank of New York on the Business Day
next succeeding  such day;  provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such  transactions  on
the next preceding Business Day as so published on the next succeeding  Business
Day, and (b) if no such rate is so published  on such next  succeeding  Business
Day,  the Federal  Funds Rate for such day shall be the average  rate charged to
the Bank on such day on such transactions as determined by the Agent.

                  "Federal  Reserve  Board"  means the Board of Governors of the
                   -----------------------
Federal Reserve System or any successor thereto.

                  "Fee  Letter"  means  the  letter  agreement  dated  as of the
                   -----------
Closing Date between the Borrowers and the Agent.

                  "Financial  Statements"  means,  according  to the  context in
                   ---------------------
which it is used,  the  financial  statements  referred to in Section 8.6 or any
                                                              -----------
other financial  statements required to be given to the Lenders pursuant to this
Agreement.

                  "Fiscal Year" means the  Borrowers'  fiscal year for financial
                   -----------
accounting  purposes.  The  current  Fiscal  Year of the  Borrowers  will end on
December 31, 1999.

                  "Fixed Assets" means the Equipment and Real Estate of the
                   ------------
Borrowers.

                  "Fixed  Charge  Coverage  Ratio"  means for any Person for any
                   ------------------------------
four fiscal quarter period ending on the date of determination, the ratio of (a)
EBITDA,  to (b) the sum of (i) total interest expense for such period (exclusive
of interest on Intercompany Accounts not paid in cash,  amortization of deferred
financing fees in connection  with this Agreement and  amortization  of deferred
financing  fees that were  accelerated  as a result  of the  termination  of the
Existing Credit Agreement), (ii) all payments on account of the principal amount
of any Debt for Borrowed  Money (other than the  Obligations  and the Debt under

                                       14

<PAGE>

the Existing  Credit  Agreement),  (iii) taxes accrued during such period,  (iv)
Capital  Expenditures  made during such period other than  Capital  Expenditures
that have been funded with Debt  permitted  pursuant to Section  9.13(e) and (v)
without  duplication of (i), (ii), (iii) and (iv) above, all interest expense of
Envirosource  in respect of the Senior  Notes for such  period to the extent the
cash  utilized  to make any  interest  payment on the Senior  Notes  during such
period  was  generated  by IMS or any of its  Subsidiaries,  all  Distributions,
Restricted  Investments,  repayments  of Debt,  management  fees  and all  other
transfers and payments made during such period by IMS or any of its Subsidiaries
to Parent, Envirosource or any other Affiliate of Envirosource other than IMS or
a subsidiary of IMS except for the repayment of $7,309,589 of insurance proceeds
received  prior to the Closing  Date by IMS and  repayment  of any  Intercompany
Accounts  constituting  advances  made to IMS after the Closing Date by a Person
other than IMS or any of its Subsidiaries.

                  "FS&C" means Freeman  Spogli & Company,  a California  general
                   ----
partnership, or Freeman Spogli & Company, Incorporated, a Delaware corporation.

                  "Funding Date" means the date on which a Borrowing occurs.
                   ------------

                  "GAAP" means  generally  accepted  accounting  principles  and
                   ----
practices set forth from time to time in the opinions and  pronouncements of the
Accounting  Principles  Board and the American  Institute  of  Certified  Public
Accountants  and  statements  and  pronouncements  of the  Financial  Accounting
Standards  Board (or agencies with similar  functions of comparable  stature and
authority within the U.S. accounting profession),  which are (subject to Section
1.2) applicable to the circumstances as of the date of determination.

                  "General Intangibles" means all of the Borrower's now owned or
                   -------------------
hereafter  acquired general  intangibles,  choses in action and causes of action
and all other  intangible  personal  property of the  Borrower of every kind and
nature  (other than  Accounts),  including,  without  limitation,  all  contract
rights,  Proprietary  Rights,  corporate or other business records,  inventions,
designs,  blueprints,  plans,  specifications,   patents,  patent  applications,
trademarks,  service marks,  trade names, trade secrets,  goodwill,  copyrights,
computer software,  customer lists,  registrations,  licenses,  franchises,  tax
refund claims, any funds which may become due to the Borrower in connection with
the termination of any Plan or other employee benefit plan or any rights thereto
and any other amounts  payable to the Borrower  from any Plan or other  employee
benefit  plan,  rights and  claims  against  carriers  and  shippers,  rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof,  proceeds of
insurance  covering  the  lives  of key  employees  on  which  the  Borrower  is
beneficiary,  and any letter of credit,  guarantee,  claim, security interest or
other security held by or granted to the Borrower.

                  "Governmental  Authority" means any nation or government,  any
                   -----------------------
state or other  political  subdivision  thereof,  any  central  bank (or similar
monetary or regulatory  authority)  thereof,  any entity  exercising  executive,
legislative,  judicial,  regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled,  through
stock or capital ownership or otherwise, by any of the foregoing.

                                       15

<PAGE>

                  "Guarantors"  means   Envirosource,   IU,  Services  and  each
                   ----------
Borrower.

                  "Guaranty" means, with respect to any Person,  all obligations
                   --------
of such Person which in any manner  directly or indirectly  guarantee or assure,
or  in  effect   guarantee  or  assure,   the  payment  or  performance  of  any
indebtedness, dividend or other obligations of any other Person (the "guaranteed
obligations"),  or assure  or in  effect  assure  the  holder of the  guaranteed
obligations  against loss in respect  thereof,  including  any such  obligations
incurred  through an agreement,  contingent  or  otherwise:  (a) to purchase the
guaranteed  obligations or any property constituting  security therefor;  (b) to
advance  or  supply  funds  for  the  purchase  or  payment  of  the  guaranteed
obligations or to maintain a working  capital or other balance sheet  condition;
or (c) to lease  property or to purchase any debt or equity  securities or other
property or services.

                  "IMS" has the meaning set forth in the first paragraph of this
                   ---
 Agreement.

                  "IMS AB" has the meaning set forth in the first paragraph of
                   ------
its Agreement.

                  "Intercompany  Accounts"  means all  assets  and  liabilities,
                   ----------------------
however arising, which are due to a Borrower from, which are due from a Borrower
to, or which  otherwise  arise from any  transaction  by such Borrower with, any
Affiliate.

                  "Interest Period" means, as to any LIBOR Rate Loan, the period
                   ---------------
commencing  on the Funding  Date of such Loan or on the  Continuation/Conversion
Date on which the Loan is converted  into or continued as a LIBOR Rate Loan, and
ending on the date one, two,  three or six months  thereafter as selected by the
applicable  Borrower in its Notice of Borrowing,  in the form attached hereto as
Exhibit A, or Notice of Continuation/Conversion, in the form attached hereto as
---------
Exhibit C provided that:
---------

                       (i) if any Interest  Period would  otherwise end on a day
that is not a Business  Day,  that  Interest  Period  shall be  extended  to the
following  Business  Day unless the result of such  extension  would be to carry
such Interest  Period into another  calendar month, in which event such Interest
Period shall end on the preceding Business Day;

                       (ii) any Interest Period  pertaining to a LIBOR Rate Loan
that begins on the last Business Day of a calendar  month (or on a day for which
there is no  numerically  corresponding  day in the calendar month at the end of
such Interest  Period) shall end on the last Business Day of the calendar  month
at the end of such Interest Period; and

                       (iii) no Interest  Period shall extend  beyond the Stated
Termination Date.

                  "Interest  Rate"  means  each  or any of the  interest  rates,
                   --------------
including the Default Rate, set forth in Section 3.1.
                                         -----------

                  "Interest  Rate  Protection  Agreement"  means (a) any and all
                   -------------------------------------
rate swap transactions, basis swaps, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts,  equity or equity index swaps or

                                       16

<PAGE>

options,  bond or bond price or bond index  swaps or options or forward  bond or
forward bond price or forward bond index  transactions,  interest  rate options,
forward foreign exchange  transactions,  cap transactions,  floor  transactions,
collar  transactions,  currency  swap  transactions,  cross-currency  rate  swap
transactions,  currency  options,  or  any  other  similar  transactions  or any
combination of any of the foregoing  (including any options to enter into any of
the foregoing), whether or not any such transaction is governed by or subject to
any  master  agreement,  or (b) any and all  transactions  of any kind,  and the
related  confirmations,  which are  subject to the terms and  conditions  of, or
governed by, any form of master agreement  published by the International  Swaps
and  Derivatives  Associations,  Inc., or any other master  agreement  (any such
master agreement,  together with any related  schedules,  as amended,  restated,
extended,  supplemented  or  otherwise  modified in writing from time to time, a
"Master Agreement"), including but not limited to any such obligations or
 -----------------
liabilities under any Master Agreement.

                  "Inventory"   means  all  of  the  Borrowers'  now  owned  and
                   ---------
hereafter acquired  inventory,  goods and merchandise,  wherever located,  to be
furnished under any contract of service or held for sale or lease,  all returned
goods,  raw  materials,  other  materials  and  supplies of any kind,  nature or
description  which are or might be consumed in each Borrower's  business or used
in connection with the packing, shipping,  advertising,  selling or finishing of
such goods,  merchandise and such other personal property,  and all documents of
title or other documents representing them.

                  "Investment Property" means all the Borrowers' right title and
                   -------------------
interest  in and  to  any  and  all:  (a)  securities  whether  certificated  or
uncertificated;  (b)  securities  entitlements;  (c)  securities  accounts;  (d)
commodity contracts; or (e) commodity accounts.

                  "IRS" means the Internal  Revenue Service and any Governmental
                   ---
Authority succeeding to any of its principal functions under the Code.

                  "IU"   means  IU   International   Corporation,   a   Delaware
                   --
corporation.

                  "Latest  Projections"  means:  (a) on  the  Closing  Date  and
                   -------------------
thereafter until the Agent receives new projections  pursuant to Section 7.2(f),
                                                                 --------------
the projections of the Borrowers'  financial  condition,  results of operations,
and cash  flow,  for the  period  commencing  on  January  1, 1999 and ending on
December 31, 1999 and delivered to the Agent prior to the Closing Date;  and (b)
thereafter,  the  projections  most recently  received by the Agent  pursuant to
Section 7.2(f).
--------------

                  "Lender"  and  "Lenders"  have the  meanings  specified in the
                   ------         -------
introductory  paragraph  hereof and shall include the Agent to the extent of any
Agent Advance  outstanding  and the Bank to the extent of any  Non-Ratable  Loan
outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be
             --------
taken into account in determining any Lender's Pro Rata Share.

                  "Letter of Credit"  means a letter of credit  issued or caused
                   ----------------
to be issued for the  account of a Borrower  pursuant  to Section  2.4 and those
                                                          ------------
letters of credit issued for the account of Envirosource,  set forth on Schedule
8.31 hereto, which are guaranteed by the Borrowers hereunder.

                                       17

<PAGE>

                  "Letter of Credit  Fee" has the meaning  specified  in Section
                   ---------------------                                 -------
3.6.
---

                  "Letter of Credit Issuer" means the Bank, any affiliate of the
                   -----------------------
Bank or any  other  financial  institution  that  issues  any  Letter  of Credit
pursuant to this Agreement.

                  "Leverage  Ratio" means,  for any four fiscal quarter  period,
                   ---------------
the  ratio  of (a) the sum of (i) the  average  amount  outstanding  of Debt for
Borrowed Money of IMS and its Subsidiaries for such period plus (ii) the average
outstanding  principal  amount of the Senior Notes for such period to (b) EBITDA
for IMS and its Subsidiaries for such period.

                  "Leverage  Ratio   Certificate"   means  a  certificate  of  a
                   -----------------------------
Responsible  Officer of IMS setting  forth the  Leverage  Ratio for the four (4)
fiscal  quarter  period of IMS ending on the last day of each fiscal  quarter of
IMS,  together with such supporting  documentation and calculations as the Agent
may reasonably request with respect to such Leverage Ratio.

                  "LIBOR Rate" means, for any Interest  Period,  with respect to
                   ----------
LIBOR Rate Loans,  the rate of  interest  per annum  determined  pursuant to the
following formula:

                  LIBOR Rate  =          Offshore Base Rate
                                 ------------------------------------
                                 1.00 - Eurodollar Reserve Percentage

                  Where:

                  "Offshore  Base Rate"  means the rate per annum  appearing  on
                   -------------------
Telerate Page 3750 (or any successor page) as the London interbank  offered rate
for deposits in Dollars at  approximately  11:00 a.m. (London time) two Business
Days prior to the first day of such  Interest  Period for a term  comparable  to
such Interest Period. If for any reason such rate is not available, the Offshore
Base Rate shall be, for any  Interest  Period,  the rate per annum  appearing on
Reuters  Screen LIBO Page as the London  interbank  offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
--------   -------
Page, the applicable rate shall be the arithmetic mean of all such rates. If for
any reason none of the  foregoing  rates is  available,  the Offshore  Base Rate
shall be, for any Interest Period, the rate per annum determined by Agent as the
rate of interest at which dollar deposits in the approximate amount of the LIBOR
Rate Loan  comprising  part of such  Borrowing  would be offered by the  Agent's
London  Branch to major banks in the offshore  dollar market at their request at
or about 11:00 a.m.  (London  time) two Business  Days prior to the first day of
such Interest Period for a term comparable to such Interest Period.

                  "Eurodollar  Reserve Percentage" means, for any day during any
                   ------------------------------
Interest Period, the reserve percentage (expressed as a decimal,  rounded upward
to the next  1/100th  of 1%) in effect on such day  applicable  to Lender  under
regulations  issued  from  time  to  time  by  the  Federal  Reserve  Board  for
determining   the  maximum   reserve   requirement   (including  any  emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities"). The Offshore Rate

                                       18

<PAGE>

for each outstanding  LIBOR Rate Loan shall be adjusted  automatically as of the
effective date of any change in the Eurodollar Reserve Percentage.

                  "LIBOR Rate Loans" means,  collectively,  the LIBOR  Revolving
                   ----------------
Loans.

                  "LIBOR  Revolving  Loan"  means a  Revolving  Loan  during any
                   ----------------------
period in which it bears interest based on the LIBOR Rate.

                  "Lien"  means:  (a)  any  interest  in  property  securing  an
                   ----
obligation  owed  to,  or a claim  by,  a Person  other  than  the  owner of the
property,  whether  such  interest  is  based on the  common  law,  statute,  or
contract, and including a security interest, charge, claim, or lien arising from
a  mortgage,  deed of trust,  encumbrance,  pledge,  hypothecation,  assignment,
deposit arrangement,  agreement,  security agreement,  conditional sale or trust
receipt or a lease,  consignment or bailment for security  purposes;  (b) to the
extent not included under clause (a), any reservation,  exception, encroachment,
easement, right-of-way,  covenant, condition,  restriction, lease or other title
exception or  encumbrance  affecting  property;  and (c) any contingent or other
agreement to provide any of the foregoing.

                  "Limited"  means  International  Mill  Services,   Limited,  a
                   -------
Canadian corporation.

                  "Loan Account" means the loan account of each Borrower,  which
                   ------------
account shall be maintained by the Agent.

                  "Loan  Documents"   means  this  Agreement,   the  Patent  and
                   ---------------
Trademark  Agreements,  the Mortgages (if any), the Parent  Guaranty,  Affiliate
Guaranties,  Affiliate  Security  Agreements,  Pledge  Agreement,  Parent Pledge
Agreement, the Fee Letter and any other agreements,  instruments,  and documents
heretofore,  now or hereafter  evidencing,  securing,  guaranteeing or otherwise
relating  to the  Obligations,  the  Collateral,  or  any  other  aspect  of the
transactions contemplated by this Agreement.

                  "Loans" means, collectively, all loans and  advances  provided
                   -----
for in Article 2.
       ---------

                  "Majority  Lenders"  means at any time Lenders  whose Pro Rata
                   -----------------
Shares  aggregate  more  than 50% as such  percentage  is  determined  under the
definition of Pro Rata Share set forth herein.

                  "Margin Stock" means "margin stock" as such term is defined in
                   ------------
Regulation T, U or X of the Federal Reserve Board.

                  "Master Agreement" has the meaning specified in the definition
                   ----------------
 of "Interest Rate Protection Agreement".

                  "Material  Adverse Effect" means (a) a material adverse change
                   ------------------------
in, or a material  adverse effect upon, the  operations,  business,  properties,
condition  (financial  or  otherwise)  or  prospects  of  the  Borrowers  or the

                                       19

<PAGE>

Collateral;  (b) a material impairment of the ability of any Borrower to perform
under any Loan  Document  and to avoid any Event of  Default;  or (c) a material
adverse effect upon the legality,  validity,  binding  effect or  enforceability
against any Borrower of any Loan Document.

                  "Maximum Revolver Amount" means $40,000,000.
                   -----------------------

                  "Mortgages"  means and includes any and all of the  mortgages,
                   ---------
deeds of trust, deeds to secure debt, assignments and other instruments executed
and  delivered  by a  Borrower  to or for the  benefit of the Agent by which the
Agent,  on  behalf  of the  Lenders,  acquires  a Lien on the Real  Estate  or a
collateral  assignment of a Borrower's interest under leases of Real Estate, and
all amendments, modifications and supplements thereto.

                  "Multi-employer Plan" means a "multi-employer plan" as defined
                   -------------------
in Section  4001(a)(3)  of ERISA  which is or was at any time during the current
year or the immediately  preceding six (6) years contributed to by a Borrower or
any ERISA Affiliate.

                  "Net  Amount of Eligible  Accounts"  means,  at any time,  the
                   ---------------------------------
gross amount of Eligible Accounts less sales,  excise or similar taxes, and less
returns,  discounts,  claims,  credits and  allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.

                  "Non-Ratable Loan" and "Non-Ratable Loans" have the meanings
                   ----------------       -----------------
specified in Section 2.2(h).

                  "Notice of  Borrowing"  has the meaning  specified  in Section
                   -------------------
2.2(b).

                  "Notice of Conversion/Continuation" has the meaning specified
                   ---------------------------------
in Section 3.2(b).

                  "Obligations"  means all present and future  loans,  advances,
                   -----------
liabilities, obligations, covenants, duties, and debts owing by the Borrowers to
the Agent and/or any Lender,  arising under or pursuant to this Agreement or any
of the other Loan  Documents,  whether or not  evidenced  by any note,  or other
instrument or document,  whether arising from an extension of credit, opening of
a letter of credit,  acceptance,  loan, guaranty,  indemnification or otherwise,
whether  direct or  indirect,  absolute  or  contingent,  due or to become  due,
primary or secondary,  as principal or guarantor,  and including all  principal,
interest,  charges,  expenses,  fees, attorneys' fees, filing fees and any other
sums  chargeable  to the  Borrowers  hereunder  or under any of the  other  Loan
Documents.   "Obligations"   includes,   without  limitation,   (a)  all  debts,
liabilities, and obligations now or hereafter arising from or in connection with
the  Letters of Credit and (b) all debts,  liabilities  and  obligations  now or
hereafter arising from or in connection with Bank Products.

                  "Other Taxes" means any present or future stamp or documentary
                   -----------
taxes or any other  excise or property  taxes,  charges or similar  levies which
arise  from any  payment  made  hereunder  or from the  execution,  delivery  or
registration  of, or otherwise with respect to, this Agreement or any other Loan
Documents.

                                       20

<PAGE>

                  "Parent" means IU.
                   ------

                  "Parent  Guaranty"  means the  guaranty  by the  Parent of the
                   ----------------
Obligations dated the Closing Date, as amended and in effect from time to time.

                  "Parent Pledge  Agreement"  means the Pledge Agreement made by
                   ------------------------
the Parent dated the Closing Date, as amended and in effect from time to time.

                  "Participant" means any Person who shall have been granted the
                   -----------
right by any Lender to  participate  in the  financing  provided  by such Lender
under this Agreement,  and who shall have entered into a participation agreement
in form and substance satisfactory to such Lender which does not violate Section
13.2(e) hereof.

                  "Passive Investor" means any Person or group of Persons (other
                   ----------------
than the  Principals)  that at all times reports its voting power and beneficial
ownership  of capital  stock of the Parent to the SEC on Schedule 13G or has the
right to do so.

                  "Patent  and  Trademark   Agreements"  means  the  Trademarks,
                   -----------------------------------
Copyrights and Patents Collateral  Assignment,  Security Agreement and Mortgage,
together with the  assignments  attached  thereto,  dated as of the date hereof,
executed and  delivered by the  Borrowers  and Services to the Agent to evidence
and perfect the  Agent's  security  interest  in the  Borrowers'  and  Services'
present and future patents, trademarks, and related licenses and rights, for the
benefit of the Agent and the Lenders.

                  "Payment Account" means each bank account established pursuant
                   ---------------
to Section  6.9,  to which the  proceeds of Accounts  and other  Collateral  are
   ------------
deposited  or  credited,  and which is  maintained  in the name of the Agent,  a
Borrower or Services,  as the Agent may  determine,  on terms  acceptable to the
Agent.

                  "PBGC" means the Pension  Benefit  Guaranty  Corporation or
                   ----
any  Governmental  Authority  succeeding to the functions thereof.

                  "PCBs" has the meaning specified in the definition of
                   ----
"Contaminant."

                  "Pending  Revolving  Loans" means,  at any time, the aggregate
                   -------------------------
principal  amount of all  Revolving  Loans  requested in any Notice of Borrowing
received by the Agent which have not yet been advanced.

                  "Pension  Plan"  means a pension  plan (as  defined in Section
                   -------------
3(2) of ERISA)  subject to Title IV of ERISA  which  either  Borrower  sponsors,
maintains,   or  to  which  it  makes,  is  making,  or  is  obligated  to  make
contributions, or in the case of a Multi-employer Plan has made contributions at
any time during the immediately preceding five (5) plan years.

                                       21

<PAGE>

                  "Permitted Holders" means the collective reference to the
                   -----------------
 Principals and any Passive Investor.

                  "Permitted Liens" means:
                   ---------------

                  (a)  Liens for taxes not  delinquent  or  statutory  Liens for
taxes in an amount not to exceed  $2,000,000  provided  that the payment of such
taxes  which  are due and  payable  is  being  contested  in good  faith  and by
appropriate  proceedings  diligently  pursued and as to which adequate financial
reserves have been  established on the applicable  Borrower's  books and records
and a stay of enforcement of any such Lien is in effect;

                  (b) the Agent's Liens;

                  (c) Liens  consisting of deposits made in the ordinary  course
of business in  connection  with,  or to secure  payment of,  obligations  under
worker's compensation, unemployment insurance, social security and other similar
laws, or to secure the performance of bids, tenders or contracts (other than for
the repayment of borrowed  money) or to secure  indemnity,  performance or other
similar bonds for the performance of bids,  tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory  obligations (other than
liens arising under ERISA or Environmental  Liens) or surety or appeal bonds, or
to secure indemnity,  performance or other similar bonds or Liens on proceeds of
insurance policies solely to secure payment of premiums under such policies;

                  (d) Liens  securing  the  claims or  demands  of  materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons, provided
                                                                     --------
that if any such Lien arises from the  nonpayment  of such claims or demand when
due, such claims or demands do not exceed $100,000 in the aggregate;

                  (e)  Liens   constituting   encumbrances   in  the  nature  of
reservations,  exceptions,  encroachments,  easements,  rights of way, covenants
running  with the land,  and other  similar  title  exceptions  or  encumbrances
affecting any Real Estate; provided that they do not in the aggregate materially
                           --------
detract from the value of the Real Estate or materially  interfere  with its use
in the ordinary conduct of the applicable Borrower's business;

                  (f) Liens arising from judgments and attachments in connection
with court proceedings provided that the attachment or enforcement of such Liens
would  not  result in an Event of  Default  hereunder  and such  Liens are being
contested in good faith by appropriate proceedings,  adequate reserves have been
set aside and no  material  Property  is subject  to a material  risk of loss or
forfeiture  and the  claims  in  respect  of such  Liens are  fully  covered  by
insurance  (subject  to  ordinary  and  customary  deductibles)  and a  stay  of
execution pending appeal or proceeding for review is in effect; and

                  (g) Liens listed on Schedule 9.19 hereof.

                                       22

<PAGE>

                  "Permitted Rentals" has the meaning specified in Section 9.24.
                   -----------------                               ------------

                  "Person"   means   any   individual,    sole   proprietorship,
                   ------
partnership,  limited liability company,  joint venture,  trust,  unincorporated
organization,  association,  corporation,  Governmental  Authority, or any other
entity.

                  "Plan"  means an employee  benefit plan (as defined in Section
                   ----
3(3) of ERISA)  which either  Borrower  sponsors or maintains or to which either
Borrower makes, is making,  or is obligated to make  contributions  and includes
any Pension Plan.

                  "Pledge  Agreement"  means the  Pledge  Agreement  made by IMS
                   -----------------
dated the Closing Date, as amended and in effect from time
to time.

                  "Principals"   means  (a)  FS&C  and  any  of  its  Affiliates
                   ----------
(provided that FS&C has the power,  directly or  indirectly,  to direct or cause
the direction of the  management  and policies of such  Affiliates)  and (b) any
member of the executive  management of  Envirosource  prior to the occurrence of
the circumstance constituting a potential Change of Control.

                  "Pro Rata Share" means,  with respect to a Lender,  a fraction
                   --------------
(expressed  as a  percentage),  the  numerator  of which is the  amount  of such
Lender's  Commitment  and the  denominator of which is the sum of the amounts of
all of  the  Lenders'  Commitments,  or if no  Commitments  are  outstanding,  a
fraction  (expressed as a  percentage),  the numerator of which is the amount of
Obligations  owed to such Lender and the  denominator  of which is the aggregate
amount of the Obligations  owed to the Lenders,  in each case giving effect to a
Lender's participation in Non-Ratable Loans and Agent Advances.

                  "Proprietary Rights" means all of the Borrowers' now owned and
                   ------------------
hereafter arising or acquired:  licenses,  franchises,  permits, patents, patent
rights,   copyrights,   works  which  are  the  subject  matter  of  copyrights,
trademarks,  service marks,  trade names,  trade styles,  patent,  trademark and
service mark  applications,  and all  licenses and rights  related to any of the
foregoing,  including those patents, trademarks,  service marks, trade names and
copyrights set forth on Schedule 8.13 hereto, and all other rights under any of
                        -------------
the foregoing, all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part  of any of the foregoing,  and all rights to sue for past,
present and future infringement of any of the foregoing.

                  "Purchase Money Liens" means purchase money mortgages or other
                   --------------------
purchase money Liens (including, without limitation, Capital Leases) in favor of
non-Affiliates  of the  Borrowers  upon any fixed or  capital  assets  hereafter
acquired by a Borrower  constituting  real  property  interests or machinery and
equipment, or purchase money mortgages (including,  without limitation,  Capital
Leases)  on any  such  assets  hereafter  acquired  or  existing  at the time of
acquisition of such assets by a Borrower, whether or not assumed, so long as (i)
any such Lien does not extend to or cover any other  asset of a  Borrower,  (ii)
such Lien secures only the  obligation  to pay the purchase  price of such asset
(or the  obligation  under such  Capital  Leases),  interest  thereon  and other
customary  incidental  obligations  relating thereto only, and (iii) the cost of
each such  acquisition  constitutes a Capital  Expenditure  permitted by Section

                                       23

<PAGE>

9.23(a)  hereunder  but is not part of the Capital  Expenditures  required to be
made under Section 9.23(b) hereunder.

                  "Real  Estate"  means all of the  Borrowers'  now or hereafter
                   ------------
owned or leased estates in real property,  including,  without  limitation,  all
fees,  leaseholds and future interests,  together with all of the Borrowers' now
or  hereafter  owned or leased  interests  in the  improvements  and  emblements
thereon, the fixtures attached thereto and the easements appurtenant thereto.

                  "Release" means a release, spill, emission,  leaking, pumping,
                   -------
injection, deposit, disposal,  discharge,  dispersal, leaching or migration of a
Contaminant  into the indoor or outdoor  environment  or into or out of any Real
Estate or other property,  including the movement of Contaminants  through or in
the air, soil, surface water, groundwater or Real Estate or other property.

                  "Rentals" has the meaning specified in Section 9.24.
                   -------                               ------------

                  "Reportable  Event"  means,  any of the  events  set  forth in
                   -----------------
Section  4043(b)  of ERISA or the  regulations  thereunder,  other than any such
event for which the 30-day  notice  requirement  under  ERISA has been waived in
regulations issued by the PBGC.

                  "Required  Lenders"  means at any time Lenders  whose Pro Rata
                   -----------------
Shares  aggregate more than 66 2/3% as such  percentage is determined  under the
definition of Pro Rata Share set forth herein.

                  "Requirement  of  Law"  means,  as  to  any  Person,  any  law
                   --------------------
(statutory  or  common),  treaty,  rule or  regulation  or  determination  of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the  Person or any of its  property  or to which  the  Person or any of its
property is subject.

                  "Responsible Officer" means the chief executive officer or the
                   -------------------
president of the applicable Borrower,  the chief financial officer, or any other
officer having  substantially  the same authority and  responsibility;  or, with
respect to  compliance  with  financial  covenants  and the  preparation  of the
Borrowing  Base  Certificate,  the chief  financial  officer,  the  treasurer or
controller of the applicable Borrower, or any other officer having substantially
the same authority and responsibility.

                  "Restricted  Investment"  means,  as  to  each  Borrower,  any
                   ----------------------
acquisition of property by such Borrower in exchange for cash or other property,
whether  in the  form  of an  acquisition  of  Capital  Stock,  debt,  or  other
indebtedness  or  obligation,  or the  purchase  or  acquisition  of  any  other
property, or a loan, advance, capital contribution, or subscription,  except the
following:  (a)  acquisitions  of  Equipment  to be used in the  business of the
Borrowers  so  long  as  the  acquisition  costs  thereof   constitute   Capital
Expenditures permitted hereunder;  (b) acquisitions of Inventory in the ordinary
course of business of the Borrowers; (c) acquisitions of current assets acquired
in the ordinary course of business of the Borrowers;  (d) direct  obligations of
the United States of America, or any agency thereof,  or obligations  guaranteed
by the United States of America, provided that such obligations mature within
                                 --------

                                       24

<PAGE>

one year from the date of acquisition  thereof; (e) acquisitions of certificates
of  deposit  maturing  within  one year from the date of  acquisition,  bankers'
acceptances,  Eurodollar bank deposits, or overnight bank deposits, in each case
issued by, created by, or with a bank or trust company  organized under the laws
of the United States or any state thereof having capital and surplus aggregating
at least  $100,000,000;  (f)  acquisitions of commercial paper given a rating of
"A2" or better by  Standard  & Poor's  Corporation  or "P2" or better by Moody's
Investors  Service,  Inc.  and  maturing  not more than 90 days from the date of
creation thereof;  (g) Interest Rate Protection  Agreements;  and (h) a one time
purchase of technology and related  rights in an amount not to exceed  $700,000;
provided that in the case of each  investment  set forth in clauses (d), (e) and
(f)  above,  such  investment  is  pledged  to the Agent for the  benefit of the
Lenders.

                  "Revolving Loans" has the meaning specified in Section 2.2 and
                   ---------------                               -----------
includes each Agent Advance and Non-Ratable Loan.

                  "SEC"  means  the  United  States   Securities   and  Exchange
                   ---
Commission   and   any   other   Governmental   Authority   succeeding   to  the
responsibilities thereof.

                  "Senior Notes" means the notes issued by Envirosource pursuant
                   ------------
to the Senior Notes Indentures.

                  "Senior  Notes  Indentures"  means (a) the  Indenture  made by
                   -------------------------
Envirosource dated as of July 1, 1993 providing for the issuance of $220,000,000
9 3/4% Senior Notes due 2003 and (b) the Indenture  made by  Envirosource  dated
September 30, 1997 providing for the issuance of $50,000,000 9 3/4% Senior Notes
due 2003.

                  "Services"  means IMS Steel  Services,  Inc.,  a  Pennsylvania
                   --------
corporation.

                  "Settlement" and "Settlement Date" have the meanings specified
                   ----------       ---------------
in Section 2.2(j)(i).
   -----------------

                  "Solvent"  means when used with  respect to any Person that at
                   -------
the time of determination:

                       (i) the assets of such Person,  at a fair valuation,  are
in excess of the total amount of its debts (including contingent liabilities);

                       (ii) the  present  fair  saleable  value of its assets is
greater than its probable  liability on its existing  debts as such debts become
absolute and matured;

                       (iii) it is then able and  expects  to be able to pay its
debts (including contingent debts and other commitments) as they mature; and

                       (iv) it has capital  sufficient  to carry on its business
as conducted and as proposed to be conducted.

                                       25

<PAGE>

For  purposes  of  determining  whether a Person is  Solvent,  the amount of any
contingent  liability  shall be computed as the amount that, in light of all the
facts and  circumstances  existing at such time,  represents the amount that can
reasonably be expected to become an actual or matured liability.

                  "Stated Termination Date" means March 31, 2003.
                   -----------------------

                  "Subsidiary" of a Person means any  corporation,  association,
                   ----------
partnership,  joint  venture or other  business  entity of which more than fifty
percent  (50%) of the voting  stock or other  equity  interests  (in the case of
Persons other than corporations),  is owned or controlled directly or indirectly
by  the  Person,  or one  or  more  of the  Subsidiaries  of  the  Person,  or a
combination thereof.  Unless the context otherwise clearly requires,  references
herein to a "Subsidiary" refer to a Subsidiary of IMS.

                  "Taxes"  means any and all  present or future  taxes,  levies,
                   -----
imposts, deductions,  charges or withholdings,  and all liabilities with respect
thereto,  excluding,  in the  case of each  Lender  and the  Agent,  such  taxes
(including  income  taxes or  franchise  taxes) as are imposed on or measured by
each  Lender's  net income by the  jurisdiction  (or any  political  subdivision
thereof)  under the laws of which such Lender or the Agent,  as the case may be,
is organized or maintains a lending office.

                  "Termination  Date"  means  the  earliest  to occur of (i) the
                   -----------------
Stated  Termination  Date, (ii) the date the Total Facility is terminated either
by the Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to
                             -----------
Section 11.2, and (iii) the date this Agreement is otherwise  terminated for any
------------
reason whatsoever.

                  "Total Facility" has the meaning specified in Section 2.1.
                   --------------

                  "UCC"  means the  Uniform  Commercial  Code (or any  successor
                   ---
statute)  of the State of New York or of any  other  state the laws of which are
required by Section 9-103 thereof to be applied in connection  with the issue of
perfection of security interests.

                  "Unfunded  Pension  Liability"  means  the  excess of a Plan's
                   ----------------------------
benefit  liabilities under Section  4001(a)(16) of ERISA, over the current value
of that Plan's assets,  determined in accordance with the  assumptions  used for
funding the Pension Plan pursuant to Section 412 of the Code for the  applicable
plan year.

                  "Unused Letter of Credit Subfacility" means an amount equal to
                   -----------------------------------
$10,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
            -----
Letters of Credit plus (b) the aggregate unpaid  reimbursement  obligations with
                  ----
respect to all Letters of Credit.

                  "Unused Line Fee" has the meaning specified in Section 3.5.
                   ---------------                               -----------

        1.2 Accounting  Terms.  Any accounting term used in this Agreement shall
            -----------------
have, unless otherwise  specifically  provided herein,  the meaning  customarily

                                       26

<PAGE>

given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied.  Financial Statements and other information required to
be  delivered by the  Borrowers to the Lenders  pursuant to Article VII shall be
prepared  in  accordance  with GAAP as in  effect on the date of such  Financial
Statements; amounts used for determining compliance with the covenants set forth
in Sections 9.23, 9.24, 9.25 and 9.26 and for calculating the Applicable  Margin
shall be computed in  accordance  with GAAP as in effect on the Closing Date. In
the event  GAAP as in effect  after the  Closing  Date  differs  from GAAP as in
effect on the Closing  Date in a manner  that  causes the amounts for  specified
items shown in the  Financial  Statements  or other  information  to differ from
amounts  for such  items  used in  determining  compliance  with  the  foregoing
covenants or in calculating the Applicable  Margin, the Borrowers will deliver a
statement reconciling such differences.

        1.3  Interpretive  Provisions.  (a) The  meanings  of defined  terms are
             -----------------------
equally applicable to the singular and plural forms of the defined terms.

             (b) The words  "hereof,"  "herein,"  "hereunder"  and similar words
refer to this Agreement as a whole and not to any  particular  provision of this
Agreement; and Subsection,  Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.

             (c) (i) The  term  "documents"  includes  any and all  instruments,
documents,  agreements,  certificates,  indentures,  notices and other writings,
however evidenced.

                  (ii) The term "including" is not limiting and means "including
without limitation."

                  (iii) In the  computation  of periods of time from a specified
date to a later  specified date, the word "from" means "from and including," the
words "to" and "until" each mean "to but excluding" and the word "through" means
"to and including."

             (d) Unless otherwise  expressly  provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be  construed  as  including  all  statutory  and  regulatory  provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.

             (e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.

             (f)  This  Agreement  and  other  Loan  Documents  may use  several
different  limitations,  tests or  measurements  to regulate the same or similar
matters.  All such limitations,  tests and measurements are cumulative and shall
each be performed in accordance with their terms.

             (g) This  Agreement and the other Loan  Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrowers
and the other parties,  and are the products of all parties.  Accordingly,  they

                                       27

<PAGE>

shall not be construed  against the Lenders or the Agent  merely  because of the
Agent's or Lenders' involvement in their preparation.


                                    ARTICLE 2
                           LOANS AND LETTERS OF CREDIT
                          ---------------------------

        2.1 Total  Facility.  Subject to all of the terms and conditions of this
            ---------------
Agreement, the Lenders severally agree to make available a total credit facility
of up to $40,000,000 (the "Total  Facility") for the Borrowers' use from time to
time during the term of this  Agreement and for the use of  Envirosource  to the
extent of the  Envirosource  Letters  of  Credit.  The Total  Facility  shall be
composed of a revolving line of credit consisting of Revolving Loans and Letters
of Credit up to the  Borrowing  Base,  as  described  in  Sections  2.2 and 2.4.
                                                          -------------     ---

        2.2  Revolving  Loans (a) Amounts.  Subject to the  satisfaction  of the
              ---------------     -------
conditions  precedent  set forth in Article 10, each Lender  severally,  but not
jointly, agrees, upon the applicableBorrower's  request from time to time on any
Business Day during the period from the Closing Date to the Termination Date, to
make  revolving  loans (the  "Revolving  Loans") to the  applicable  Borrower in
amounts not to exceed (except for the Bank with respect to Non-Ratable  Loans or
for the Agent with respect to Agent  Advances)  such  Lender's Pro Rata Share of
the Borrowing Base; provided that the Revolving Loans to IMS AB shall not exceed
an amount equal to clause  (a)(ii)(C) of the  definition of Borrowing  Base. The
Lenders,  however,  in their unanimous  discretion,  may elect to make Revolving
Loans or issue or  arrange  to have  issued  Letters  of Credit in excess of the
Availability on one or more occasions,  but if they do so, neither the Agent nor
the Lenders shall be deemed  thereby to have changed the limits of the Borrowing
Base or to be  obligated  to exceed  such limits on any other  occasion.  If the
Aggregate  Revolver  Outstandings  exceed the  Borrowing  Base,  the Lenders may
refuse  to make or  otherwise  restrict  the  making of  Revolving  Loans as the
Lenders determine until such excess has been eliminated,  subject to the Agent's
authority, in its sole discretion,  to make Agent Advances pursuant to the terms
of Section 2.2(i).
   -------------

             (b) Procedure for Borrowing.  (1) Each Borrowing shall be made upon
the applicable  Borrower's  irrevocable written notice delivered to the Agent in
the  form of a notice  of  borrowing  ("Notice  of  Borrowing"),  in the form of
Exhibit  A  hereto,  together  with  a  Borrowing  Base  Certificate  reflecting
----------
sufficient  Availability,  (which  must be  received by the Agent prior to 11:00
a.m. (New York City time) (i) three Business Days prior to the requested Funding
Date,  in the case of LIBOR Rate Loans and (ii) no later than 11:00 a.m.  on the
requested Funding Date, in the case of Base Rate Loans, specifying:

                       (A)  the  amount  of  the   Borrowing  and  the  Borrower
requesting the Borrowing;

                       (B) the requested Funding Date, which shall be a Business
Day;

                                       28

<PAGE>

                       (C) whether the Revolving  Loans requested are to be Base
Rate Revolving Loans or LIBOR Revolving Loans (and if not specified, it shall be
deemed a request for a Base Rate Revolving Loan); and

                       (D) the duration of the Interest  Period if the requested
Revolving  Loans are to be LIBOR  Revolving  Loans.  If the Notice of  Borrowing
fails to specify the duration of the Interest Period for any Borrowing comprised
of LIBOR Rate Loans, such Interest Period shall be one month;

provided,  however, that with respect to the Borrowing to be made on the Closing
--------   -------
Date, such Borrowings will consist of Base Rate Revolving Loans only.

                  (2) With respect to any request for Base Rate Revolving Loans,
in lieu of delivering the  above-described  Notice of Borrowing the Borrower may
give the Agent telephonic notice of such request by the required time, with such
telephonic  notice to be confirmed  in writing  within 24 hours of the giving of
such  notice  but the  Agent  at all  times  shall  be  entitled  to rely on the
telephonic notice in making such Revolving Loans, regardless of whether any such
confirmation is received by Agent.

                  (3) The Borrowers  shall have no right to request a LIBOR Rate
Loan while a Default or Event of Default has occurred and is continuing.

             (c) Reliance upon  Authority.  The  Borrowers  shall deliver to the
                 -----------------------
Agent,  prior to the Closing  Date, a writing  setting  forth the account of the
Borrowers  to which the Agent is  authorized  to  transfer  the  proceeds of the
Revolving Loans  requested  pursuant to this Section 2.2, which account shall be
                                             -----------
reasonably  satisfactory  to the  Agent.  The Agent  shall be  entitled  to rely
conclusively  on any Person's  request for  Revolving  Loans on behalf of either
Borrower,  the proceeds of which are to be transferred to the account  specified
by the Borrowers pursuant to the immediately preceding sentence, until the Agent
receives  written  notice from the Borrowers  that the proceeds of the Revolving
Loans are to be sent to a  different  account.  The Agent  shall have no duty to
verify the identity of any  individual  representing  him or herself as a person
authorized by any Borrower to make such requests on its behalf.

             (d) No  Liability.  The Agent shall not incur any  liability to the
                 ------------
Borrowers as a result of acting upon any notice  referred to in Sections  2.2(b)
                                                                ----------------
and (c),  which notice the Agent believes in good faith to have been given by an
    ---
officer or other person duly  authorized by the  Borrowers to request  Revolving
Loans on its behalf or for  otherwise  acting in good faith  under this  Section
                                                                         -------
2.2, and the crediting of Revolving Loans to the Borrowers' deposit account,  or
---
transmittal  to such Person as the Borrowers  shall direct,  shall  conclusively
establish  the  obligation  of the  Borrowers to repay such  Revolving  Loans as
provided herein.

             (e) Notice  Irrevocable.  Any Notice of  Borrowing  (or  telephonic
                 -------------------
notice in lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and
                                         --------------
the Borrowers shall be bound to borrow the funds requested therein in accordance
therewith.

                                       29

<PAGE>

             (f)  Agent's  Election.  Promptly  after  receipt  of a  Notice  of
                  -----------------
Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b), the
                                                             --------------
Agent shall elect,  in its  discretion,  (i) to have the terms of Section 2.2(g)
                                                                  --------------
apply  to  such  requested  Borrowing,  or (ii) to  request  the  Bank to make a
Non-Ratable  Loan  pursuant to the terms of Section  2.2(h) in the amount of the
                                            ---------------
requested Borrowing;  provided,  however,  that if the Bank declines in its sole
                      --------   -------
discretion to make a  Non-Ratable  Loan  pursuant to Section  2.2(h),  the Agent
                                                     ---------------
shall  elect  to have the  terms  of  Section  2.2(g)  apply  to such  requested
                                      ---------------
Borrowing.

             (g)  Making of  Revolving  Loans.  (i) In the event  that the Agent
                  ---------------------------
shall  elect  to have the  terms of this  Section  2.2(g)  apply to a  requested
                                          ---------------
Borrowing as described  in Section  2.2(f),  then  promptly  after  receipt of a
                           ---------------
Notice of Borrowing or telephonic  notice pursuant to Section 2.2(b),  the Agent
                                                      --------------
shall  notify the  Lenders  by  telecopy,  telephone  or other  similar  form of
transmission,  of the requested Borrowing.  Each Lender shall make the amount of
such Lender's Pro Rata Share of the requested  Borrowing  available to the Agent
in immediately  available  funds,  to such account of the Agent as the Agent may
designate,  not later than 12:00 noon (New York City time) on the  Funding  Date
applicable thereto.  After the Agent's receipt of the proceeds of such Revolving
Loans,  the Agent shall make the proceeds of such Revolving  Loans  available to
the applicable  Borrower on the applicable Funding Date by transferring same day
funds equal to the proceeds of such Revolving Loans received by the Agent to the
account of the Borrowers,  designated in writing by the Borrowers and acceptable
to the Agent; provided, however, that, subject to the second sentence of Section
2.2(a),  the  amount of  Revolving  Loans so made on any date  shall in no event
exceed the Availability on such date.

                  (ii)  Unless  the Agent  receives  notice  from a Lender on or
prior to the Closing  Date or, with respect to any  Borrowing  after the Closing
Date, at least one Business Day prior to the date of such  Borrowing,  that such
Lender will not make  available as and when required  hereunder to the Agent for
the account of the  applicable  Borrower  the amount of that  Lender's  Pro Rata
Share of the  Borrowing,  the Agent may  assume  that each  Lender has made such
amount available to the Agent in immediately available funds on the Funding Date
and the  Agent  may (but  shall  not be so  required),  in  reliance  upon  such
assumption,   make  available  to  the  applicable   Borrower  on  such  date  a
corresponding  amount.  If and to the extent any Lender  shall not have made its
full amount available to the Agent in immediately  available funds and the Agent
in such  circumstances  has made  available  to the Borrower  such amount,  that
Lender shall on the Business  Day  following  such Funding Date make such amount
available to the Agent,  together  with  interest at the Federal  Funds Rate for
each day during such period.  A notice by the Agent submitted to any Lender with
respect to amounts  owing  under this  subsection  shall be  conclusive,  absent
manifest error.  If such amount is so made available,  such payment to the Agent
shall  constitute  such  Lender's  Revolving  Loan  for  all  purposes  of  this
Agreement. If such amount is not made available to the Agent on the Business Day
following the Funding  Date,  the Agent will notify the  applicable  Borrower of
such  failure to fund and,  upon demand by the Agent,  the  applicable  Borrower
shall  pay such  amount  to the Agent for the  Agent's  account,  together  with
interest  thereon for each day elapsed  since the date of such  Borrowing,  at a
rate  per  annum  equal  to the  Interest  Rate  applicable  at the  time to the
Revolving Loans comprising such Borrowing. The failure of any Lender to make any

                                       30

<PAGE>

Revolving  Loan on any Funding Date (any such Lender,  prior to the cure of such
failure,  being  hereinafter  referred to as a  "Defaulting  Lender")  shall not
relieve any other Lender of any obligation hereunder to make a Revolving Loan on
such Funding  Date,  but no Lender shall be  responsible  for the failure of any
other Lender to make the  Revolving  Loan to be made by such other Lender on any
Funding Date.

                  (iii)  The Agent  shall  not be  obligated  to  transfer  to a
Defaulting  Lender any  payments  made by either  Borrower  to the Agent for the
Defaulting  Lender's  benefit;  nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shall
instead  be paid to or  retained  by the Agent.  The Agent may hold and,  in its
discretion,  re-lend to the applicable  Borrower the amount of all such payments
received  or  retained  by it for the  account of such  Defaulting  Lender.  Any
amounts so re-lent to the  applicable  Borrower  shall bear interest at the rate
applicable  to Base Rate  Revolving  Loans and for all  other  purposes  of this
Agreement shall be treated as if they were Revolving Loans,  provided,  however,
                                                             --------   -------
that for  purposes of voting or  consenting  to matters with respect to the Loan
Documents  and  determining  Pro Rata Shares,  such  Defaulting  Lender shall be
deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund
its Pro Rata Share of any  Borrowing  (A) such  Defaulting  Lender  shall not be
entitled to any portion of the Unused Line Fee and (B) the Unused Line Fee shall
accrue in favor of the  Lenders  which have  funded  their  respective  Pro Rata
Shares of such requested  Borrowing and shall be allocated among such performing
Lenders ratably based upon their relative Commitments. This Section shall remain
effective with respect to such Lender until such time as the  Defaulting  Lender
shall no longer be in default of any of its  obligations  under this  Agreement.
The terms of this Section shall not be construed to increase or otherwise affect
the  Commitment  of any  Lender,  or relieve or excuse  the  performance  by the
Borrowers of their duties and obligations hereunder.

             (h) Making of Non-Ratable  Loans.  (i) In the event the Agent shall
                 ----------------------------
elect,  with the consent of the Bank,  to have the terms of this Section  2.2(h)
                                                                 ---------------
apply to a requested  Borrowing as described in Section  2.2(f),  the Bank shall
                                                ---------------
make a Revolving  Loan in the amount of such  Borrowing (any such Revolving Loan
made solely by the Bank pursuant to this Section  2.2(h) being  referred to as a
                                         ---------------
"Non-Ratable  Loan" and such Revolving  Loans being referred to  collectively as
"Non-Ratable  Loans")  available to the applicable  Borrower on the Funding Date
applicable  thereto  by  transferring  same  day  funds  to an  account  of  the
applicable  Borrower,  designated  in writing  by the  applicable  Borrower  and
acceptable to the Agent. Each Non-Ratable Loan shall be subject to all the terms
and  conditions  applicable  to other  Revolving  Loans except that all payments
thereon  shall be payable to the Bank  solely for its own  account  (and for the
account  of the  holder  of any  participation  interest  with  respect  to such
Revolving  Loan).  The Agent shall not request the Bank to make any  Non-Ratable
Loan if (A) the Agent shall have  received  written  notice from any Lender that
one or more of the applicable  conditions precedent set forth in Article 10 will
                                                                 ----------
not be satisfied on the requested Funding Date for the applicable Borrowing,  or
(B) the requested  Borrowing would exceed the Availability on such Funding Date.
The Agent shall not  otherwise be required to determine  whether the  applicable
conditions  precedent  set  forth  in  Article  10 have  been  satisfied  or the
                                       -----------
requested Borrowing would exceed the Availability on the Funding Date applicable
thereto prior to making, in its sole discretion, any Non-Ratable Loan.

                                       31

<PAGE>

                  (ii) The  Non-Ratable  Loans  shall be secured by the  Agent's
Liens in and to the Collateral, shall constitute Revolving Loans and Obligations
hereunder, and shall bear interest at the rate applicable to the Revolving Loans
from time to time.

             (i) Agent Advances. (i) Subject to the limitations set forth in the
                 --------------
provisos contained in this Section 2.2(i), the Agent is hereby authorized by the
                           --------------
Borrowers and the Lenders, from time to time in the Agent's sole discretion, (A)
after the  occurrence  of a Default or an Event of  Default,  or (B) at any time
that any of the other  applicable  conditions  precedent set forth in Article 10
have not been  satisfied,  to make Base Rate Revolving Loans to the Borrowers on
behalf of the Lenders  which the Agent,  in its  reasonable  business  judgment,
deems necessary or desirable (1) to preserve or protect the  Collateral,  or any
portion  thereof,  (2) to enhance the  likelihood of, or maximize the amount of,
repayment  of the Loans and other  Obligations,  or (3) to pay any other  amount
chargeable to the Borrowers  pursuant to the terms of this Agreement,  including
costs,  fees and  expenses as  described  in Section  15.7 (any of the  advances
                                             -------------
described  in this  Section  2.2(i)  being  hereinafter  referred  to as  "Agent
                    ---------------
Advances");  provided,  that the  Required  Lenders  may at any time  revoke the
             --------
Agent's  authorization  contained in this Section 2.2(i) to make Agent Advances,
                                          --------------
any such revocation to be in writing and to become effective  prospectively upon
the Agent's receipt thereof;

                  (ii) The Agent  Advances  shall be  repayable  on  demand  and
secured  by  the  Agent's  Liens  in and to  the  Collateral,  shall  constitute
Revolving Loans and Obligations  hereunder,  and shall bear interest at the rate
applicable  to Base Rate  Revolving  Loans  from time to time.  The Agent  shall
notify each Lender in writing of each such Agent Advance.

             (j)  Settlement.  It is agreed that each Lender's funded portion of
                  ----------
the Revolving  Loans is intended by the Lenders to be equal at all times to such
Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such
agreement,  the Agent,  the Bank,  and the other Lenders agree (which  agreement
shall not be for the benefit of or enforceable  by the Borrowers)  that in order
to facilitate the administration of this Agreement and the other Loan Documents,
settlement among them as to the Revolving  Loans, the Non-Ratable  Loans and the
Agent  Advances  shall  take place on a periodic  basis in  accordance  with the
following provisions:

                  (i) The Agent shall request settlement ("Settlement") with the
Lenders on at least a weekly basis, or on a more frequent basis if so determined
by the  Agent,  (A) on behalf  of the Bank,  with  respect  to each  outstanding
Non-Ratable  Loan, (B) for itself,  with respect to each Agent Advance,  and (C)
with respect to collections  received, in each case, by notifying the Lenders of
such  requested  Settlement  by  telecopy,  telephone  or other  similar form of
transmission,  of such requested Settlement,  no later than 12:00 noon (New York
City time) on the date of such requested  Settlement  (the  "Settlement  Date").
Each Lender (other than the Bank, in the case of Non-Ratable Loans and the Agent
in the case of Agent  Advances)  shall make the amount of such Lender's Pro Rata
Share of the outstanding  principal  amount of the  Non-Ratable  Loans and Agent
Advances with respect to which  Settlement is requested  available to the Agent,
to such  account  of the Agent as the Agent may  designate,  not later than 3:00
p.m. (New York City time), on the Settlement Date applicable thereto,  which may
occur before or after the occurrence or during the  continuation of a Default or

                                       32

<PAGE>

an Event of Default and whether or not the applicable  conditions  precedent set
forth in Article 10 have then been satisfied. Such amounts made available to the
Agent shall be applied against the amounts of the applicable Non-Ratable Loan or
Agent Advance and,  together with the portion of such  Non-Ratable Loan or Agent
Advance  representing  the  Bank's  Pro Rata  Share  thereof,  shall  constitute
Revolving Loans of such Lenders. If any such amount is not made available to the
Agent by any Lender on the Settlement Date applicable  thereto,  the Agent shall
(A) on behalf of the Bank, with respect to each  outstanding  Non-Ratable  Loan,
and (B) for itself,  with  respect to each Agent  Advance be entitled to recover
such amount on demand from such Lender  together  with  interest  thereon at the
Federal  Funds Rate for the first  three (3) days from and after the  Settlement
Date and thereafter at the Interest Rate then applicable to the Revolving Loans.

                  (ii)  Notwithstanding  the  foregoing,  not more  than one (1)
Business  Day after  demand is made by the  Agent  (whether  before or after the
occurrence  of a Default or an Event of Default  and  regardless  of whether the
Agent has  requested a Settlement  with respect to a  Non-Ratable  Loan or Agent
Advance),  each other Lender (A) shall irrevocably and unconditionally  purchase
and  receive  from the Bank or the Agent,  as  applicable,  without  recourse or
warranty,  an undivided  interest and  participation in such Non-Ratable Loan or
Agent Advance equal to such Lender's Pro Rata Share of such  Non-Ratable Loan or
Agent Advance and (B) if Settlement has not previously  occurred with respect to
such  Non-Ratable  Loans or Agent  Advances,  upon  demand by Bank or Agent,  as
applicable,  shall pay to Bank or Agent, as applicable, as the purchase price of
such  participation  an  amount  equal to  one-hundred  percent  (100%)  of such
Lender's Pro Rata Share of such  Non-Ratable  Loans or Agent  Advances.  If such
amount is not in fact made available to the Agent by any Lender, the Agent shall
be entitled to recover  such  amount on demand  from such Lender  together  with
interest thereon at the Federal Funds Rate for the first three (3) days from and
after such demand and  thereafter at the Interest  Rate then  applicable to Base
Rate Revolving Loans.

                  (iii)  From and after the date,  if any,  on which any  Lender
purchases an undivided  interest and  participation  in any Non-Ratable  Loan or
Agent  Advance  pursuant  to  subsection  (ii) above,  the Agent shall  promptly
distribute  to such  Lender,  such  Lender's  Pro Rata Share of all  payments of
principal and interest and all proceeds of  Collateral  received by the Agent in
respect of such Non-Ratable Loan or Agent Advance.

                  (iv) Between  Settlement  Dates,  the Agent,  to the extent no
Agent Advances are outstanding,  may pay over to the Bank any payments  received
by the Agent,  which in  accordance  with the terms of this  Agreement  would be
applied to the reduction of the Revolving  Loans,  for application to the Bank's
Revolving  Loans including  Non-Ratable  Loans.  If, as of any Settlement  Date,
collections  received since the then immediately  preceding Settlement Date have
been applied to the Bank's  Revolving Loans (other than to Non-Ratable  Loans or
Agent  Advances  in which  such  Lender has not yet  funded  its  purchase  of a
participation  pursuant to clause  2.2(j)(ii)  above),  as  provided  for in the
previous  sentence,  the Bank  shall pay to the Agent  for the  accounts  of the
Lenders,  to be applied to the outstanding  Revolving Loans of such Lenders,  an
amount such that each Lender  shall,  upon receipt of such amount,  have,  as of
such  Settlement  Date,  its Pro Rata Share of the Revolving  Loans.  During the
period between Settlement Dates, the Bank with respect to Non-Ratable Loans, the
Agent with  respect  to Agent  Advances,  and each  Lender  with  respect to the

                                       33

<PAGE>

Revolving  Loans  other  than  Non-Ratable  Loans and Agent  Advances,  shall be
entitled  to  interest  at the  applicable  rate or  rates  payable  under  this
Agreement on the actual  average daily amount of funds employed by the Bank, the
Agent and the other Lenders.

             (k)  Notation.  The Agent shall  record on its books the  principal
                  --------
amount of the Revolving  Loans owing to each Lender,  including the  Non-Ratable
Loans owing to the Bank, and the Agent Advances owing to the Agent, from time to
time. In addition,  each Lender is authorized,  at such Lender's option, to note
the date and amount of each payment or  prepayment of principal of such Lender's
Revolving Loans in its books and records, including computer records, such books
and records  constituting  presumptive  evidence,  absent manifest error, of the
accuracy of the information contained therein.

             (l) Lenders'  Failure to Perform.  All Revolving  Loans (other than
                 ----------------------------
Non-Ratable   Loans  and  Agent   Advances)   shall  be  made  by  the   Lenders
simultaneously  and in accordance  with their Pro Rata Shares.  It is understood
that (i) no Lender shall be  responsible  for any failure by any other Lender to
perform its  obligation to make any  Revolving  Loans  hereunder,  nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any  other  Lender  to  perform  its  obligation  to make  any  Revolving  Loans
hereunder,  (ii) no failure by any Lender to perform its  obligation to make any
Revolving  Loans  hereunder shall excuse any other Lender from its obligation to
make any Revolving  Loans  hereunder,  and (iii) the  obligations of each Lender
hereunder shall be several, not joint and several.

        2.3 [Reserved].
            ----------

        2.4 Letters of Credit.
            -----------------

             (a) Agreement to Issue or Cause To Issue.  Subject to the terms and
                 ------------------------------------
conditions  of this  Agreement,  and in reliance  upon the  representations  and
warranties of the Borrowers  herein set forth, the Agent agrees (i) to cause the
Letter of  Credit  Issuer to issue for the  account  of a  Borrower  one or more
commercial/documentary  and standby letters of credit and to cause the Letter of
Credit Issuer to keep  outstanding  and not to require cash  collateral or other
credit  support  (other than the  guaranty  provided  for herein  secured by the
Collateral)  in respect of those  letters  of credit  issued for the  account of
Envirosource  set forth on  Schedule  8.31  hereto  (collectively,  "Letters  of
Credit") and/or (ii) to provide credit support or other  enhancement to a Letter
of Credit  Issuer  acceptable to Agent,  which issues  Letters of Credit for the
account of either Borrower (any such credit support or enhancement  being herein
referred to as a "Credit Support") in accordance with this Section 2.4 from time
to time  during the term of this  Agreement.  The letters of credit set forth in
Schedule 2.4 shall be Letters of Credit for all purposes hereunder.

             (b) Amounts;  Outside Expiration Date. The Agent shall not have any
                 ---------------------------------
obligation  to take steps to issue or cause to be issued any Letter of Credit or
to  provide  Credit  Support  for any  Letter of Credit at any time if:  (i) the
maximum  undrawn  amount of the  requested  Letter of Credit is greater than the
Unused  Letter of Credit  Subfacility  at such time;  (ii) the  maximum  undrawn
amount of the requested Letter of Credit and all commissions,  fees, and charges
due from the  Borrowers  in  connection  with the  opening  thereof  exceed  the

                                       34

<PAGE>

Availability  of the  Borrowers at such time; or (iii) such Letter of Credit has
an expiration  date later than thirty (30) days prior to the Stated  Termination
Date or more than  twelve  (12)  months  from the date of  issuance  for standby
letters of credit and 180 days for merchandise letters of credit;  provided that
standby  letters of credit may have  "evergreen"  clauses in form and  substance
satisfactory  to the  Agent  providing  for  automatic  annual  renewals  unless
terminated by the issuer  thereof by written  notice to the  beneficiary of such
Letter of Credit at least thirty days (120 days for  existing  Letters of Credit
outstanding on the Closing Date) prior to the then scheduled expiration date.

             (c)  Other  Conditions.   In  addition  to  being  subject  to  the
                  -----------------
satisfaction of the applicable conditions precedent contained in Article 10, the
obligation  of the Agent to issue or to cause to be issued  any Letter of Credit
or to  provide  Credit  Support  for any  Letter  of Credit  is  subject  to the
following conditions precedent having been satisfied in a manner satisfactory to
the Agent:

                  (1) The applicable Borrower shall have delivered to the Letter
of Credit  Issuer,  at such  times and in such  manner as such  Letter of Credit
Issuer may prescribe,  an application in form and substance satisfactory to such
Letter  of  Credit  Issuer  and  reasonably  satisfactory  to the  Agent for the
issuance  of the Letter of Credit and such other  documents  as may be  required
pursuant to the terms thereof,  and the form and terms of the proposed Letter of
Credit shall be  reasonably  satisfactory  to the Agent and the Letter of Credit
Issuer; and

                  (2) As of  the  date  of  issuance,  no  order  of any  court,
arbitrator  or  Governmental  Authority  shall purport by its terms to enjoin or
restrain money center banks generally from issuing letters of credit of the type
and in the  amount  of the  proposed  Letter  of  Credit,  and no  law,  rule or
regulation  applicable  to  money  center  banks  generally  and no  request  or
directive  (whether  or not  having  the  force of law)  from  any  Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed  Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.

             (d) Issuance of Letters of Credit.
                 -----------------------------

                  (1) Request for Issuance.  The applicable  Borrower shall give
                      --------------------
the Agent  three (3)  Business  Days  prior  written  notice of such  Borrower's
request for the issuance of a Letter of Credit. Such notice shall be irrevocable
and shall  specify the original  face amount of the Letter of Credit  requested,
the  effective  date  (which  date shall be a Business  Day) of issuance of such
requested  Letter of  Credit,  whether  such  Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire  (which  date shall be a Business  Day),  the  purpose  for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The applicable Borrower shall attach to such notice the proposed form of
the Letter of Credit.

                  (2) Responsibilities of the Agent;  Issuance.  The Agent shall
                      ----------------------------------------
determine,  as of the Business Day immediately preceding the requested effective
date of  issuance  of the  Letter of Credit  set  forth in the  notice  from the
applicable  Borrower  pursuant  to  Section  2.4(d)(1),  (A) the  amount  of the
                                    ------------------

                                       35

<PAGE>

applicable  Unused Letter of Credit  Subfacility and (B) the  Availability as of
such date. If (i) the undrawn  amount of the  requested  Letter of Credit is not
greater than the Unused Letter of Credit Subfacility and (ii) the amount of such
requested Letter of Credit and all  commissions,  fees, and charges due from the
Borrowers  in  connection   with  the  opening  thereof  would  not  exceed  the
Availability of the Borrowers,  the Agent shall, so long as the other conditions
hereof are met, cause the Letter of Credit Issuer to issue the requested  Letter
of Credit on such requested effective date of issuance.

                  (3) Notice of Issuance.  On each  Settlement  Date,  the Agent
                      ------------------
shall give notice to each Lender of the issuance of all Letters of Credit issued
since the last Settlement Date.

                  (4)  No  Extensions  or  Amendment.  The  Agent  shall  not be
                       -----------------------------
obligated to extend or amend any Letter of Credit  issued  hereunder  unless the
requirements  of this  Section 2.4 are met as though a new Letter of Credit were
                       -----------
being requested and issued.  With respect to any Letter of Credit which contains
any "evergreen" or automatic renewal  provision,  each Lender shall be deemed to
have  consented to any such  extension  or renewal  unless any such Lender shall
have  provided  to the  Agent,  not less than 30 days  prior to the last date on
which the applicable  issuer can in accordance  with the terms of the applicable
Letter of Credit  decline  to extend or renew  such  Letter of  Credit,  written
notice that it declines to consent to any such  extension or renewal;  provided,
that if all of the  requirements  of this  Section 2.4 are met and no Default or
                                           -----------
Event of  Default  exists,  no  Lender  shall  decline  to  consent  to any such
extension  or renewal.  Anything  contained  in this  Agreement  to the contrary
notwithstanding,  neither  the Letter of Credit  Issuer nor the Agent shall have
any  obligation  (a) to renew or extend  any  Letter of  Credit  issued  for the
account of  Envirosource  unless the Borrowers shall have certified to the Agent
that they have used  their  best  efforts  (without  having to pay any  material
amount in connection  therewith) to cause such Envirosource  Letter of Credit to
be  issued  for the  account  of a  Borrower  but  were  unable  to  obtain  the
beneficiary's  consent  or (b) to  increase  the  amount of any Letter of Credit
issued for the account of Envirosource.

             (e) Payments Pursuant to Letters of Credit.
                 --------------------------------------

                  (1)  Payment of Letter of Credit  Obligations.  The  Borrowers
                       ----------------------------------------
agree to reimburse immediately, without duplication, the Letter of Credit Issuer
for any draw  under any  Letter of Credit  and the Agent for the  account of the
Lenders upon any payment pursuant to any Credit Support immediately upon demand,
and to pay the Letter of Credit Issuer the amount of all other  obligations  and
other  amounts  payable to such Letter of Credit  Issuer under or in  connection
with any  Letter of Credit  immediately  when due,  irrespective  of any  claim,
setoff,  defense or other right which the Borrowers may have at any time against
such issuer or any other Person.

                  (2) Revolving Loans to Satisfy Reimbursement Obligations. Each
                      ----------------------------------------------------
drawing  under any Letter of Credit shall  constitute a request by the Borrowers
to the Agent for a Borrowing of a Base Rate Revolving Loan in the amount of such
drawing.  The Funding Date with respect to such  borrowing  shall be the date of
such drawing.

                                       36

<PAGE>

             (f) Participations.
                 --------------

                  (1) Purchase of  Participations.  Immediately upon issuance of
                      ---------------------------
any Letter of Credit in  accordance  with Section  2.4(d),  each Lender shall be
                                          ---------------
deemed to have  irrevocably and  unconditionally  purchased and received without
recourse or warranty,  an undivided  interest  and  participation  equal to such
Lender's  Pro Rata  Share of the face  amount  of such  Letter  of Credit or the
Credit Support provided through the Agent to the Letter of Credit Issuer, if not
the Agent, in connection  with the issuance of such Letter of Credit  (including
all obligations of the Borrowers with respect thereto, and any security therefor
or guaranty pertaining thereto).

                  (2) Sharing of Reimbursement Obligation Payments. Whenever the
                      --------------------------------------------
Agent  receives  a  payment  from the  Borrowers  on  account  of  reimbursement
obligations  in respect of a Letter of Credit or Credit  Support as to which the
Agent has  previously  received  for the account of the Letter of Credit  Issuer
thereof  payment from a Lender  pursuant to Section  2.4(e)(2),  the Agent shall
                                            ------------------
promptly  pay to such Lender such  Lender's  Pro Rata Share of such payment from
the  Borrowers in Dollars.  Each such payment  shall be made by the Agent on the
Business Day on which the Agent  receives  immediately  available  funds paid to
such Person pursuant to the immediately preceding sentence, if received prior to
12:00 noon (New York City time) on such  Business Day and  otherwise on the next
succeeding Business Day.

                  (3)  Documentation.  Upon the request of any Lender, the Agent
                       -------------
shall  furnish to such  Lender  copies of any  Letter of  Credit,  reimbursement
agreements  executed  in  connection  therewith,  application  for any Letter of
Credit  and  credit  support  or  enhancement  provided  through  the  Agent  in
connection  with  the  issuance  of  any  Letter  of  Credit,   and  such  other
documentation as may reasonably be requested by such Lender.

                  (4) Obligations Irrevocable. The obligations of each Lender to
                      -----------------------
make  payments to the Agent with respect to any Letter of Credit or with respect
to their  participation  therein or with respect to any Credit Support  provided
through  the Agent  with  respect  to a Letter of Credit or with  respect to the
Revolving  Loans made as a result of a drawing  under a Letter of Credit and the
obligations  of the Borrowers to make payments to the Agent,  for the account of
the Lenders, shall be irrevocable, not subject to any qualification or exception
whatsoever, including any of the following circumstances:

                       (i)  any  lack  of  validity  or  enforceability  of this
Agreement or any of the other Loan Documents;

                       (ii) the existence of any claim, setoff, defense or other
right which the Borrowers may have at any time against a beneficiary  named in a
Letter of Credit or any  transferee  of any  Letter of Credit (or any Person for
whom any such transferee may be acting),  any Lender,  the Agent,  the issuer of
such Letter of Credit,  or any other  Person,  whether in  connection  with this
Agreement,  any Letter of Credit,  the transactions  contemplated  herein or any
unrelated  transactions  (including  any  underlying  transactions  between  the
Borrowers  or any  other  Person  and the  beneficiary  named in any  Letter  of
Credit);

                                       37

<PAGE>

                       (iii)  any  draft,  certificate  or  any  other  document
presented under the Letter of Credit proving to be forged,  fraudulent,  invalid
or  insufficient  in any  respect  or any  statement  therein  being  untrue  or
inaccurate in any respect;

                       (iv) the  surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan Documents;

                       (v) the occurrence of any Default or Event of Default; or

                       (vi)  the  failure  of  the   Borrowers  to  satisfy  the
applicable conditions precedent set forth in Article 10.

             (g) Recovery or Avoidance of Payments.  In the event any payment by
                 ---------------------------------
or on behalf of the  Borrowers  received by the Agent with respect to any Letter
of Credit or Credit Support provided for any Letter of Credit and distributed by
the Agent to the Lenders on account of their respective  participations  therein
is thereafter set aside,  avoided or recovered from the Agent in connection with
any receivership,  liquidation or bankruptcy proceeding, the Lenders shall, upon
demand by the Agent,  pay to the Agent their  respective Pro Rata Shares of such
amount set aside,  avoided or  recovered,  together  with  interest  at the rate
required to be paid by the Agent upon the amount required to be repaid by it.

             (h) Indemnification; Exoneration; Power of Attorney.
                 -----------------------------------------------

                  (1)  Indemnification.   In  addition  to  amounts  payable  as
                       ---------------
elsewhere  provided in this Section 2.4, each Borrower hereby agrees to protect,
                            -----------
indemnify,  pay and save the Lenders and the Agent harmless from and against any
and all  claims,  demands,  liabilities,  damages,  losses,  costs,  charges and
expenses  (including  reasonable  attorneys' fees) which any Lender or the Agent
(other than the Bank in its capacity as Letter of Credit Issuer) may incur or be
subject to as a consequence,  direct or indirect,  of the issuance of any Letter
of Credit or the provision of any credit  support or  enhancement  in connection
therewith,  other than as a result of gross negligence or willful  misconduct by
the Agent or such Lender.  The agreement in this Section 2.4(h)(1) shall survive
payment of all Obligations.  Nothing  contained in this Agreement is intended to
limit the applicable  Borrower's  rights,  if any, with respect to the Letter of
Credit  Issuer which arise as a result of the letter of credit  application  and
related documents executed by and between the applicable Borrower and the Letter
of Credit Issuer.

                  (2)  Assumption  of  Risk  by  the  Borrowers.  As  among  the
                       ----------------------------------------
Borrowers,  the Lenders,  and the Agent,  the Borrowers  assume all risks of the
acts and  omissions  of, or  misuse of any of the  Letters  of  Credit  by,  the
respective  beneficiaries  of such Letters of Credit.  In furtherance and not in
limitation of the foregoing,  the Lenders and the Agent shall not be responsible
for: (A) the form, validity, sufficiency,  accuracy, genuineness or legal effect
of any document  submitted by any Person in connection  with the application for
and issuance of and presentation of drafts with respect to any of the Letters of
Credit,  even  if it  should  prove  to be  in  any  or  all  respects  invalid,

                                       38

<PAGE>

insufficient,  inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument  transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits  thereunder or proceeds  thereof,
in whole or in part,  which  may  prove to be  invalid  or  ineffective  for any
reason;  (C) the  failure of the  beneficiary  of any Letter of Credit to comply
duly with conditions  required in order to draw upon such Letter of Credit;  (D)
errors, omissions,  interruptions,  or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise,  whether or not they be
in cipher;  (E) errors in  interpretation  of technical  terms;  (F) any loss or
delay in the transmission or otherwise of any document  required in order make a
drawing  under  any  Letter  of  Credit  or of the  proceeds  thereof;  (G)  the
misapplication by the beneficiary of any Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (H) any consequences arising from causes
beyond the control of the Lenders or the Agent,  including  any act or omission,
whether  rightful  or  wrongful,  of any  present  or future de jure or de facto
                                                             -- ----    -- -----
Governmental  Authority.  None of the foregoing shall affect,  impair or prevent
the  vesting  of any  rights or powers of the  Agent or any  Lender  under  this
Section  2.4(h).  Nothing  contained in this  Agreement is intended to limit the
---------------
applicable  Borrower's  rights,  if any,  with  respect  to the Letter of Credit
Issuer which arise as a result of the letter of credit  application  and related
documents  executed  by and between the  applicable  Borrower  and the Letter of
Credit Issuer.

                  (3)  Exoneration.  In furtherance  and  extension,  and not in
                       -----------
limitation,  of the specific  provisions  set forth  above,  any action taken or
omitted  by the  Agent  or any  Lender  under or in  connection  with any of the
Letters of Credit or any related certificates, if taken or omitted in good faith
and not as a result of willful  misconduct  or gross  negligence by the Agent or
such Lender, shall not put the Agent or any Lender under any resulting liability
to the Borrowers or relieve the Borrowers of any of their obligations  hereunder
to any such Person.

                  (4) Indemnification by Lenders. The Lenders agree to indemnify
                      --------------------------
the Letter of Credit  Issuer (to the extent not  reimbursed by the Borrowers and
without  limiting  the  obligations  of  the  Borrowers  hereunder)  ratably  in
accordance with their  respective Pro Rata Shares,  for any and all liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  (including  attorneys'  fees) or  disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the Letter of
Credit  Issuer in any way  relating to or arising out of any Letter of Credit or
the  transactions  contemplated  thereby or any  action  taken or omitted by the
Letter  of Credit  Issuer  under any  Letter of Credit or any Loan  Document  in
connection  therewith;  provided  that no Lender  shall be liable for any of the
                        --------
foregoing  to the  extent  it  arises  from  the  gross  negligence  or  willful
misconduct of the Person to be indemnified. Without limitation of the foregoing,
each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand
for its Pro Rata Share of any costs or expenses  payable by the Borrowers to the
Letter of Credit  Issuer,  to the extent that the Letter of Credit Issuer is not
promptly reimbursed for such costs and expenses by the Borrowers.  The agreement
contained in this section shall survive payment in full of all Obligations.

                  (5)  Intentionally Omitted.

                                       39

<PAGE>

                  (6) Account Party. Each Borrower hereby authorizes and directs
                      -------------
any Letter of Credit Issuer to name such Borrower as the "Account Party" therein
and to deliver to the Agent all  instruments,  documents and other  writings and
property  received  by the  Letter of Credit  Issuer  pursuant  to the Letter of
Credit, and to accept and rely upon the Agent's instructions and agreements with
respect to all matters  arising in  connection  with the Letter of Credit or the
application therefor.

                  (7)  Intentionally Omitted.

             (i)   Supporting   Letter   of   Credit;   Cash   Collateral.   If,
                   ------------------------------------------------------
notwithstanding  the provisions of Section 2.4(b) and Section 12.1 any Letter of
                                   --------------     ------------
Credit is outstanding  upon the  termination of this  Agreement,  then upon such
termination the Borrowers shall deposit with the Agent,  for the ratable benefit
of the  Agent and the  Lenders,  with  respect  to each  Letter  of Credit  then
outstanding,  as the Majority Lenders, in their discretion shall specify, either
(A) a standby  letter of credit (a  "Supporting  Letter of  Credit") in form and
substance  satisfactory  to the Agent,  issued by an issuer  satisfactory to the
Agent in an amount equal to the greatest  amount for which such Letter of Credit
may be drawn plus any fees and expenses  associated  with such Letter of Credit,
under which  Supporting  Letter of Credit the Agent is entitled to draw  amounts
necessary to reimburse  the Agent and the Lenders for payments to be made by the
Agent and the Lenders  under such  Letter of Credit or under any Credit  Support
provided  through  the Agent  with  respect  thereto  and any fees and  expenses
associated  with such  Letter of  Credit,  or (B) cash in amounts  necessary  to
reimburse  the  Agent  and the  Lenders  for  payments  made by the Agent or the
Lenders under such Letter of Credit or under any Credit Support provided through
the Agent with respect  thereto and any fees and expenses  associated  with such
Letter of Credit.  Such Supporting  Letter of Credit or deposit of cash shall be
held by the Agent,  for the  ratable  benefit of the Agent and the  Lenders,  as
security for, and to provide for the payment of, the aggregate undrawn amount of
such Letters of Credit remaining outstanding.

        2.5 Bank Products.
            -------------

             The  Borrowers  may  request  and the  Bank  may,  in its  sole and
absolute  discretion,  arrange for the  Borrowers to obtain from the Bank or the
Bank's  Affiliates  Bank Products  although the Borrowers are not required to do
so. Each Borrower agrees to indemnify and hold the Bank and the Lenders harmless
from any and all costs and obligations now or hereafter  incurred by or owing to
any other  Person by the Bank or any of the  Lenders  or the  Bank's  Affiliates
arising  from or  related  to such Bank  Products;  provided,  however,  nothing
contained  herein is intended to limit such  Borrower's  rights,  if any,  which
arise as a result of the execution of documents by and between the Borrowers and
the Bank which relate to Bank Products.  The agreement contained in this section
shall survive  termination  of the  Agreement.  Each Borrower  acknowledges  and
agrees  that  the  obtaining  of Bank  Products  from  the  Bank  or the  Bank's
Affiliates (a) is in the sole and absolute  discretion of the Bank or the Bank's
Affiliates,  and (b) is subject to all rules and  regulations of the Bank or the
Bank's Affiliates.

                                       40

<PAGE>

                                    ARTICLE 3
                                INTEREST AND FEES

        3.1 Interest.
            --------

             (a) Interest Rates. All outstanding Obligations shall bear interest
on the unpaid  principal amount thereof  (including,  to the extent permitted by
law,  on  interest  thereon  not paid when due) from the date made until paid in
full in cash at a rate  determined  by  reference  to the Base Rate or the LIBOR
Rate and  Sections  3.1(a)(i)  or (ii),  as  applicable,  but not to exceed  the
Maximum Rate described in Section 3.3. Subject to the provisions of Section 3.2,
any of the Loans may be  converted  into,  or  continued  as, Base Rate Loans or
LIBOR Rate Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding  with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable thereto,  then those Loans shall be Base Rate Loans
and shall bear interest at a rate determined by reference to the Base Rate until
notice  to the  contrary  has been  given to the Agent in  accordance  with this
Agreement  and such notice has become  effective.  Except as otherwise  provided
herein, the outstanding Obligations shall bear interest as follows:

                  (i) For all Base Rate  Revolving  Loans and other  Obligations
(other than LIBOR Rate Loans) at a fluctuating  per annum rate equal to the Base
Rate plus the Applicable Margin;

                  (ii) For all LIBOR  Revolving  Loans at a per annum rate equal
to the LIBOR Rate plus the Applicable Margin.

Each change in the Base Rate shall be reflected in the interest  rate  described
in clause  (i)  above as of the  effective  date of such  change.  All  interest
charges  shall be  computed  on the basis of a year of 360 days and actual  days
elapsed (which results in more interest being paid than if computed on the basis
of a 365-day year).  Interest accrued on all Loans will be payable in arrears on
the first day of each month hereafter and on the Termination Date.

             (b) Default Rate. If any Event of Default  occurs and is continuing
and the Agent or the Majority Lenders in their discretion so elect,  then, while
any such Event of  Default is  outstanding,  all of the  Obligations  shall bear
interest at the Default Rate applicable thereto.

        3.2 Continuation and Conversion  Elections.  (a) Each Borrower may, upon
            --------------------------------------
irrevocable written notice to the Agent in accordance with Section 3.2(b):

                  (i) elect,  as of any  Business  Day, in the case of Base Rate
Loans to convert any such Loans made to such Borrower (or any part thereof in an
amount  not  less  than  $1,000,000,  or  that  is in an  integral  multiple  of
$1,000,000 in excess thereof) into LIBOR Rate Loans; or

                                       41

<PAGE>

                  (ii)  elect,  as of the  last day of the  applicable  Interest
Period,  to continue any LIBOR Rate Loans made to such Borrower  having Interest
Periods  expiring  on such day (or any part  thereof  in an amount not less than
$1,000,000, or that is in an integral multiple of $1,000,000 in excess thereof);

provided,  that if at any time the  aggregate  amount  of  LIBOR  Rate  Loans in
--------
respect of any Borrowing is reduced,  by payment,  prepayment,  or conversion of
part  thereof  to  be  less  than  $1,000,000,   such  LIBOR  Rate  Loans  shall
automatically convert into Base Rate Loans, and on and after such date the right
of such Borrower to continue  such Loans as, and convert such Loans into,  LIBOR
Rate Loans, as the case may be, shall  terminate,  and provided  further that if
the notice  shall fail to specify the  duration  of the  Interest  Period,  such
Interest Period shall be one month.

             (b)  The   applicable   Borrower   shall   deliver   a  notice   of
conversion/continuation  ("Notice of  Continuation/Conversion"),  in the form of
Exhibit C hereto,  to be  received  by the Agent not later than 11:00 a.m.  (New
---------
York   City   time)  at  least   three   Business   Days  in   advance   of  the
Continuation/Conversion Date, if the Loans are to be converted into or continued
as LIBOR Rate Loans and specifying:

                  (i) the proposed Continuation/Conversion Date;

                  (ii) the aggregate amount of Loans to be converted or renewed;

                  (iii) the type of Loans resulting from the proposed conversion
or continuation; and

                  (iv) the duration of the requested Interest Period.

             (c) If upon the  expiration  of any Interest  Period  applicable to
LIBOR Rate Loans,  the  applicable  Borrower  has failed to select  timely a new
Interest  Period to be applicable to LIBOR Rate Loans or if any Default or Event
of Default then exists, such Borrower shall be deemed to have elected to convert
such LIBOR Rate Loans into Base Rate Loans  effective as of the expiration  date
of such Interest Period.

             (d) The Agent will promptly  notify each Lender of its receipt of a
Notice of  Conversion/Continuation.  All conversions and continuations  shall be
made ratably  according to the respective  outstanding  principal amounts of the
Loans with respect to which the notice was given held by each Lender.

             (e) During the  existence  of a Default  or Event of  Default,  the
Borrowers  may not elect to have a Loan  converted  into or continued as a LIBOR
Rate Loan.

             (f) After giving effect to any conversion or continuation of Loans,
there may not be more than five different Interest Periods in effect hereunder.

                                       42

<PAGE>

        3.3 Maximum  Interest Rate. In no event shall any interest rate provided
            ----------------------
for  hereunder  exceed the maximum rate legally  chargeable  by any Lender under
applicable  law for such Lender with  respect to loans of the type  provided for
hereunder (the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation,  would have  exceeded the Maximum  Rate,  then the interest rate for
that month shall be the Maximum Rate,  and, if in future  months,  that interest
rate would  otherwise be less than the Maximum  Rate,  then that  interest  rate
shall remain at the Maximum Rate until such time as the amount of interest  paid
hereunder  equals the amount of interest  which would have been paid if the same
had not been  limited by the Maximum  Rate.  In the event that,  upon payment in
full of the Obligations,  the total amount of interest paid or accrued under the
terms of this  Agreement is less than the total amount of interest  which would,
but for this  Section  3.3,  have been paid or  accrued  if the  interest  rates
              ------------
otherwise set forth in this Agreement had at all times been in effect,  then the
Borrowers  shall, to the extent  permitted by applicable law, pay the Agent, for
the account of the  Lenders,  an amount equal to the excess of (a) the lesser of
(i) the amount of  interest  which would have been  charged if the Maximum  Rate
had,  at all times,  been in effect or (ii) the amount of  interest  which would
have accrued had the interest rates  otherwise set forth in this  Agreement,  at
all times,  been in effect  over (b) the  amount of  interest  actually  paid or
accrued  under  this  Agreement.   In  the  event  that  a  court  of  competent
jurisdiction  determines that the Agent and/or any Lender has received  interest
and other charges  hereunder in excess of the Maximum Rate, such excess shall be
deemed received on account of, and shall automatically be applied to reduce, the
Obligations  other than interest,  and if there are no Obligations  outstanding,
the Agent and/or such Lender shall refund to the Borrower such excess.

        3.4 Closing  Fee.  The  Borrowers  agree to pay the Agent those fees set
            ------------
forth in the Fee Letter to be paid on the  Closing  Date (the  "Closing  Fees"),
which Fees shall be fully earned on the Closing Date. The Agent, the Lenders and
the Borrowers  agree that the fees set forth in the Fee Letter shall be financed
by the Lenders as a Revolving Loan.

        3.5  Unused  Line Fee.  Until  the Loans  have been paid in full and the
             ----------------
Agreement terminated, the Borrowers agree to pay, on the first day of each month
and on the Termination  Date, to the Agent,  for the account of the Lenders,  in
accordance  with  their  respective  Pro Rata  Shares,  an unused  line fee (the
"Unused Line Fee") equal to  three-eighths  percent  (.375%) per annum times the
amount by which the  Maximum  Revolver  Amount  exceeded  the sum of the average
daily  outstanding  amount of Revolving Loans and the average daily undrawn face
amount of outstanding Letters of Credit,  during the immediately preceding month
or shorter  period if calculated on the  Termination  Date.  The Unused Line Fee
shall be computed on the basis of a 360-day  year for the actual  number of days
elapsed.  All  payments  received by the Agent shall be deemed to be credited to
the  Borrowers'  Loan  Accounts   immediately   upon  receipt  for  purposes  of
calculating the Unused Line Fee pursuant to this Section 3.5.
                                                 -----------

        3.6 Letter of Credit Fee. The Borrowers  agree to pay to the Agent,  for
            --------------------
the account of the Lenders, in accordance with their respective Pro Rata Shares,
for each  Letter of  Credit,  a fee (the  "Letter of Credit  Fee")  equal to the
product of (x) the  Applicable  Margin for LIBOR Rate Loans then in effect minus
 .5% multiplied by (y) the undrawn face amount of each Letter of Credit, plus all
                                                                        ----
out-of-pocket  costs, fees and expenses incurred by the Agent in connection with
the application  for,  processing of, issuance of, or amendment to any Letter of

                                       43

<PAGE>

Credit, which costs, fees and expenses shall include a "fronting fee" payable to
such issuer (which  "fronting fee" if the Bank is the Letter of Credit Issuer is
presently .5% of the face amount of each Letter of Credit); the Letter of Credit
Fee shall be payable monthly in arrears on the first day of each month following
any  month in which a Letter of Credit  was  issued  and/or in which a Letter of
Credit remains outstanding and on the Termination Date. The Letter of Credit Fee
shall be computed on the basis of a 360-day  year for the actual  number of days
elapsed.  On the Closing  Date,  in addition  to all other  applicable  fees and
expenses, the Borrowers will pay a fronting fee of .5% of the face amount of the
Envirosource Letters of Credit.

        3.7 Administration Fee. The Borrowers agree to pay to the Agent, for the
            ------------------
account  of the Agent,  an  administration  fee of $1,000 per month,  payable in
advance on the Closing Date (for the month in which the Closing Date occurs) and
on the first day of each month  thereafter  until this Loan  Agreement  has been
terminated and all Obligations paid in full.


                                    ARTICLE 4

                            PAYMENTS AND PREPAYMENTS
                            ------------------------

        4.1 Revolving Loans. The Borrowers shall repay the outstanding principal
            ---------------
balance of the Revolving Loans, plus all accrued but unpaid interest thereon and
all  other  Obligations  on the  Termination  Date.  The  Borrowers  may  prepay
Revolving  Loans  at any  time,  and  reborrow  subject  to the  terms  of  this
Agreement;  provided,  however,  that with respect to any LIBOR  Revolving Loans
            --------   -------
prepaid by the Borrowers  prior to the  expiration  date of the Interest  Period
applicable  thereto,  the  Borrowers  shall pay to the Agent for  account of the
Lenders the amounts described in Section 5.4. In addition,  and without limiting
                                 -----------
the  generality of the  foregoing,  upon demand the  Borrowers  shall pay to the
Agent, for account of the Lenders, the amount, without duplication, by which the
Aggregate  Revolver  Outstandings  (less the amount of Pending  Revolving Loans)
exceeds the Borrowing Base.

        4.2 Termination of Facility.  The Borrowers may terminate this Agreement
            -----------------------
upon at least  thirty (30)  Business  Days' notice to the Agent and the Lenders,
upon (a) the payment in full of all outstanding  Revolving Loans,  together with
accrued  interest  thereon and all other  Obligations,  and the cancellation and
return of all  outstanding  Letters  of  Credit,  (b) the  payment  of the early
termination fee set forth in the next sentence,  (c) the payment in full in cash
of all other Obligations  together with accrued interest  thereon,  and (d) with
respect to any LIBOR Rate Loans  prepaid  in  connection  with such  termination
prior to the expiration  date of the Interest  Period  applicable  thereto,  the
payment of the amounts described in Section 5.4. If this Agreement is terminated
                                    -----------
at any time prior to the  second  Anniversary  Date,  whether  pursuant  to this
Section or pursuant to Section 11.2, the Borrowers  shall pay to the Agent,  for
                       ------------
the account of the Lenders,  an early  termination  fee determined in accordance
with the following table:

                                       44

<PAGE>

Period during which early  termination  occurs       Early Termination Fee
----------------------------------------------       ---------------------
On or prior to the  first  Anniversary  Date         1% of  the  Total  Facility

After  the  first Anniversary  Date  but on
or  prior  to the  second Anniversary Date           .5% of the  Total Facility

provided,  however, that the early termination fee described in this Section 4.2
--------   -------                                                   -----------
shall not be payable in the event the Borrowers terminate this Agreement and pay
all Obligations utilizing the proceeds of a credit facility agented by the Bank.

        4.3   Reserved.
              --------

        4.4   Reserved.
              --------

        4.5   Reserved.
              --------

        4.6  Payments  by the  Borrowers.  (a)  All  payments  to be made by the
             ---------------------------
Borrowers shall be made without setoff,  recoupment or  counterclaim.  Except as
otherwise expressly provided herein, all payments by the Borrowers shall be made
to the Agent for the account of the Lenders,  at the account  designated  by the
Agent and shall be made in Dollars and in immediately  available funds, no later
than 3:00 p.m. (New York City time) on the date  specified  herein.  Any payment
received by the Agent later than 3:00 p.m.  (New York City time) shall be deemed
to have been received on the following Business Day and any applicable  interest
or fee shall continue to accrue.

             (b)  Subject  to the  provisions  set  forth in the  definition  of
"Interest  Period"  herein,  whenever  any  payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the  computation of interest
or fees, as the case may be.

             (c) Unless the Agent  receives  notice from the Borrowers  prior to
the date on which any payment is due to the Lenders that the Borrowers  will not
make such  payment in full as and when  required,  the Agent may assume that the
Borrowers  have  made  such  payment  in  full  to the  Agent  on  such  date in
immediately available funds and the Agent may (but shall not be so required), in
reliance  upon such  assumption,  distribute  to each Lender on such due date an
amount  equal to the  amount  then due such  Lender.  If and to the  extent  the
Borrowers  have not made such  payment in full to the Agent,  each Lender  shall
repay to the Agent on demand such amount  distributed  to such Lender,  together
with interest  thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.

        4.7 Payments as Revolving  Loans.  All payments of principal,  interest,
            ----------------------------
reimbursement  obligations in connection with Letters of Credit,  fees, premiums
and other sums  payable  hereunder,  including  all  reimbursement  for expenses
pursuant  to  Section  15.7,  may,  at the  option  of the  Agent,  in its  sole
              -------------
discretion,  subject  only to the terms of this  Section  4.7,  be paid from the
                                                 ------------
proceeds of Revolving Loans made hereunder,  whether made following a request by

                                       45

<PAGE>

the  Borrowers  pursuant to Section 2.2 or a deemed  request as provided in this
                            -----------
Section 4.7. The Borrowers hereby irrevocably  authorize the Agent to charge the
-----------
Loan  Account  for the  purpose  of paying  principal,  interest,  reimbursement
obligations in connection with Letters of Credit,  fees, premiums and other sums
payable hereunder,  including reimbursing expenses pursuant to Section 15.7, and
                                                               ------------
agrees that all such amounts charged shall constitute Revolving Loans (including
Non-Ratable  Loans and Agent Advances) and that all such Revolving Loans so made
shall be deemed to have been  requested  by  Borrowers  pursuant to Section 2.2;
                                                                    -----------
provided  that the Agent agrees to give the  Borrowers  notice prior to charging
the applicable Borrower's Loan Account for the reimbursement of any expenses due
to any third party.

        4.8 Apportionment,  Application and Reversal of Payments.  Principal and
            ----------------------------------------------------
interest payments shall be apportioned  ratably among the Lenders  (according to
the unpaid principal  balance of the Loans to which such payments relate held by
each  Lender) and  payments of the fees shall,  as  applicable,  be  apportioned
ratably among the Lenders.  All payments  shall be remitted to the Agent and all
such  payments not relating to principal or interest of specific  Loans,  or not
constituting  payment of specific  fees,  and all  proceeds of Accounts or other
Collateral  received  by the Agent,  shall be applied,  ratably,  subject to the
provisions of this  Agreement,  first,  to pay any fees,  indemnities or expense
                                -----
reimbursements  including  any amounts  relating to Bank Product then due to the
Agent from the Borrowers; second, to pay any fees or expense reimbursements then
                          ------
due to the Lenders from the Borrowers;  third, to pay interest due in respect of
                                        -----
all Revolving Loans, including Non-Ratable Loans and Agent Advances;  fourth, to
                                                                      ------
pay or prepay principal of the Non-Ratable  Loans and Agent Advances;  fifth, to
                                                                       -----
pay or prepay principal of the Revolving Loans (other than Non-Ratable Loans and
Agent  Advances) and unpaid  reimbursement  obligations in respect of Letters of
Credit;  and sixth,  to the payment of any other  Obligation due to the Agent or
             -----
any Lender by the Borrowers.  Notwithstanding anything to the contrary contained
in this  Agreement,  unless so directed by the Borrowers,  or unless an Event of
Default  is  outstanding,  neither  the Agent  nor any  Lender  shall  apply any
payments  which it  receives  to any LIBOR  Revolving  Loan,  except  (a) on the
expiration date of the Interest  Period  applicable to any such LIBOR Rate Loan,
or (b) in the event, and only to the extent,  that there are no outstanding Base
Rate  Revolving  Loans.  The Agent shall  promptly  distribute  to each  Lender,
pursuant to the applicable wire transfer  instructions received from each Lender
in writing, such funds as it may be entitled to receive, subject to a Settlement
delay as provided for in Section  2.2(j).  The Agent and the Lenders  shall have
                         ---------------
the continuing and exclusive  right to apply and reverse and reapply any and all
such proceeds and payments to any portion of the Obligations.

        4.9  Indemnity  for Returned  Payments.  If after receipt of any payment
             ---------------------------------
which is applied to the payment of all or any part of the Obligations, the Agent
or any Lender is for any reason  compelled to surrender such payment or proceeds
to any Person because such payment or  application  of proceeds is  invalidated,
declared  fraudulent,  set  aside,  determined  to  be  void  or  voidable  as a
preference,  impermissible  setoff,  or a diversion of trust  funds,  or for any
other  reason,  then the  Obligations  or part thereof  intended to be satisfied
shall be revived and continued and this  Agreement  shall continue in full force
as if such payment or proceeds had not been received by the Agent or such Lender
and the  Borrowers  shall be liable to pay to the  Agent  and the  Lenders,  and

                                       46

<PAGE>

hereby  does  indemnify  the  Agent and the  Lenders  and hold the Agent and the
Lenders  harmless  for the amount of such payment or proceeds  surrendered.  The
provisions of this Section 4.9 shall be and remain effective notwithstanding any
                   -----------
contrary action which may have been taken by the Agent or any Lender in reliance
upon such payment or  application of proceeds,  and any such contrary  action so
taken shall be without  prejudice to the Agent's and the  Lenders'  rights under
this Agreement and shall be deemed to have been conditioned upon such payment or
application of proceeds having become final and  irrevocable.  The provisions of
this Section 4.9 shall survive the termination of this Agreement.
     -----------

        4.10 Agent's and Lenders' Books and Records;  Monthly  Statements.  Each
             ------------------------------------------------------------
Borrower agrees that the Agent's and each Lender's books and records showing the
Obligations and the  transactions  pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably  presumptive proof thereof,  irrespective of whether
any Obligation is also evidenced by a promissory note or other  instrument.  The
Agent will provide to the Borrowers a monthly statement of Loans,  payments, and
other  transactions  pursuant to this Agreement.  Such statement shall be deemed
correct,  accurate,  and binding on the Borrowers and an account  stated (except
for reversals and reapplications of payments made as provided in Section 4.8 and
                                                                 -----------
corrections of errors discovered by the Agent),  unless the Borrowers notify the
Agent in writing to the contrary within thirty (30) days after such statement is
rendered.  In the event a timely  written  notice of  objections is given by the
Borrowers,  only  the  items  to  which  exception  is  expressly  made  will be
considered to be disputed by the Borrowers.


                                    ARTICLE 5

                     TAXES, YIELD PROTECTION AND ILLEGALITY
                     --------------------------------------

        5.1 Taxes.  (a) Any and all payments by the  Borrowers to each Lender or
            -----
the Agent under this  Agreement and any other Loan  Document  shall be made free
and clear of, and without  deduction or withholding  for any Taxes. In addition,
the Borrowers shall pay all Other Taxes.

             (b) Each Borrower agrees to indemnify and hold harmless each Lender
and the Agent for the full amount of Taxes or Other Taxes  (including  any Taxes
or Other  Taxes  imposed  by any  jurisdiction  on  amounts  payable  under this
Section) paid by the Lender or the Agent and any liability (including penalties,
interest,  additions  to tax and  expenses)  arising  therefrom  or with respect
thereto,  whether or not such Taxes or Other  Taxes  were  correctly  or legally
asserted.  Payment under this indemnification shall be made within 30 days after
the date the Lender or the Agent makes written demand therefor.

             (c) If the Borrowers shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable  hereunder to any
Lender or the Agent, then:

                  (i) the sum payable  shall be  increased  as necessary so that
after making all required deductions and withholdings  (including deductions and
withholdings  applicable  to  additional  sums payable  under this Section) such

                                       47

<PAGE>

Lender or the Agent,  as the case may be, receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;

                  (ii)  the   Borrowers   shall   make   such   deductions   and
withholdings;

                  (iii)  the Borrowers   shall pay  the full amount  deducted or
withheld to the relevant taxing authority or other authority in  accordance with
applicable law; and

                  (iv) the Borrowers  shall also pay to each Lender or the Agent
for the account of such Lender,  at the time  interest is paid,  all  additional
amounts  which the  respective  Lender  specifies  as  necessary to preserve the
after-tax  yield the Lender would have received if such Taxes or Other Taxes had
not been imposed.

             (d) Within 30 days after the date of any payment by any Borrower of
Taxes or Other Taxes,  such  Borrower  shall furnish the Agent the original or a
certified copy of a receipt  evidencing  payment  thereof,  or other evidence of
payment satisfactory to the Agent.

             (e) If any  Borrower is required to pay  additional  amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the  jurisdiction  of its lending  office so as to eliminate  any such
additional  payment by such Borrower which may thereafter accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.

             (f)  Notwithstanding  anything to the  contrary  contained  in this
Section 5.1, but subject to the following  sentence,  the Borrowers shall not be
obligated  to  gross-up  payments to be made to a Lender in respect of income or
similar  taxes  imposed by the United States if such Lender has not provided the
forms required to be provided pursuant to Section 14.10.  Borrowers agree to pay
additional  amounts  and to  indemnify  and  gross-up in the manner set forth in
Section 5.1(c)  (without regard to the  jurisdiction  requiring the deduction or
withholding) in respect of any amounts  deducted or withheld by them as a result
of any changes that are effective  after the Closing Date in any applicable law,
treaty, rule, regulation,  guideline or order, or in the interpretation thereof,
relating to the deducting or withholding of Taxes or Other Taxes.

        5.2 Illegality.  (a) If any Lender  determines that the  introduction of
            ----------
any  Requirement  of Law,  or any change in any  Requirement  of Law,  or in the
interpretation  or  administration  of any  Requirement  of  Law,  has  made  it
unlawful, or that any central bank or other Governmental  Authority has asserted
that it is unlawful,  for any Lender or its  applicable  lending  office to make
LIBOR Rate Loans, then, on notice thereof by the Lender to the Borrowers through
the Agent,  any  obligation  of that  Lender to make  LIBOR Rate Loans  shall be
suspended  until  the  Lender  notifies  the Agent  and the  Borrowers  that the
circumstances giving rise to such determination no longer exist.

             (b) If a Lender  determines  that it is unlawful  to  maintain  any
LIBOR Rate Loan, the Borrowers shall,  upon their receipt of notice of such fact
and demand  from such  Lender  (with a copy to the  Agent),  prepay in full such

                                       48

<PAGE>

LIBOR Rate Loans of that Lender then outstanding, together with interest accrued
thereon and amounts  required  under Section 5.4,  either on the last day of the
                                     -----------
Interest  Period thereof,  if the Lender may lawfully  continue to maintain such
LIBOR Rate Loans to such day,  or  immediately,  if the Lender may not  lawfully
continue to maintain  such LIBOR Rate Loan.  If the Borrowers are required to so
prepay  any  LIBOR  Rate  Loan,  then  concurrently  with such  prepayment,  the
Borrowers  shall  borrow  from  the  affected  Lender,  in the  amount  of  such
repayment, a Base Rate Loan.

        5.3  Increased  Costs  and  Reduction  of  Return.  (a)  If  any  Lender
             --------------------------------------------
determines  that due to  either  (i) the  introduction  of or any  change in the
interpretation  of any law or regulation  or (ii) the  compliance by that Lender
with any  guideline  or  request  from any  central  bank or other  Governmental
Authority (whether or not having the force of law), in each case adopted, issued
or becoming  effective  after the Closing Date (or in the event of any change in
any law or regulation,  from that in effect on the Closing Date), there shall be
any  increase in the cost to such Lender of agreeing to make or making,  funding
or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable for, and
shall from time to time,  upon demand  (with a copy of such demand to be sent to
the Agent), pay to the Agent for the account of such Lender,  additional amounts
as are sufficient to compensate such Lender for such increased costs.

             (b) If any Lender shall have determined  that (i) the  introduction
of any Capital  Adequacy  Regulation,  (ii) any change in any  Capital  Adequacy
Regulation,  (iii) any change in the  interpretation  or  administration  of any
Capital Adequacy Regulation by any central bank or other Governmental  Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any  corporation or other entity  controlling  the Lender with any
Capital Adequacy Regulation , in each case adopted, issued or becoming effective
after the Closing Date (or in the event of any change in any law or  regulation,
from that in effect on the Closing Date),  affects or would affect the amount of
capital  required or expected to be maintained by the Lender or any  corporation
or other  entity  controlling  the Lender and (taking  into  consideration  such
Lender's  or such  corporation's  or other  entity's  policies  with  respect to
capital  adequacy and such Lender's  desired return on capital)  determines that
the amount of such  capital is increased as a  consequence  of its  Commitments,
loans,  credits or obligations  under this Agreement,  then, upon demand of such
Lender to the  Borrowers  through  the  Agent,  the  Borrowers  shall pay to the
Lender,  from  time to time  as  specified  by the  Lender,  additional  amounts
sufficient to compensate the Lender for such increase.

             (c)  Any demand  made by any Lender  pursuant  to this  Section 5.3
                                                                     -----------
shall not cover any period more than 180 days prior to the date of demand.

        5.4 Funding  Losses.  The Borrowers shall reimburse each Lender and hold
            ---------------
each Lender  harmless  from any loss or expense  which the Lender may sustain or
incur as a consequence of:

             (a)  the failure of the Borrowers to   make on  a  timely basis any
payment of principal of any LIBOR Rate Loan;

                                       49

<PAGE>

             (b) the failure of the  Borrowers to borrow,  continue or convert a
Loan  after the  Borrower  has  given  (or is deemed to have  given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;

             (c) the prepayment or other payment  (including after  acceleration
thereof) of a LIBOR Rate Loan on a day that is not the last day of the  relevant
Interest Period;

including any such loss or expense  arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were  obtained.  Any demand made by
any Lender  pursuant to  subsections  (b) and (c) of this  Section 5.4 shall not
cover any period more than 180 days prior to the date of demand.

        5.5 Inability to Determine  Rates. If the Agent  determines that for any
            -----------------------------
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or
that the LIBOR Rate for any requested Interest Period with respect to a proposed
LIBOR Rate Loan does not  adequately  and fairly reflect the cost to the Lenders
of funding  such Loan,  the Agent will  promptly so notify the Borrower and each
Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate
Loans  hereunder  shall be  suspended  until the Agent  revokes  such  notice in
writing.  Upon receipt of such notice,  the  applicable  Borrower may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then submitted by them.
If such Borrower does not revoke such Notice, the Lenders shall make, convert or
continue the Loans, as proposed by the Borrower,  in the amount specified in the
applicable  notice  submitted  by such  Borrower,  but such Loans shall be made,
converted or continued as Base Rate Loans instead of LIBOR Rate Loans.

        5.6  Certificates  of  Lenders.  Any Lender  claiming  reimbursement  or
             -------------------------
compensation under this Article 5 shall deliver to the Borrowers (with a copy to
the Agent) a certificate  setting forth in reasonable  detail the amount payable
to the Lender hereunder and such certificate  shall be conclusive and binding on
the Borrowers in the absence of manifest error.

        5.7   Survival. The agreements  and obligations of the Borrowers in this
              --------
Article 5 shall survive the payment of all other Obligations.


                                    ARTICLE 6

                                   COLLATERAL
                                   ----------

        6.1 Grant of Security  Interest.  (a) As security  for all  Obligations,
            ---------------------------
each Borrower  hereby grants to the Agent,  for the benefit of the Agent and the
Lenders, a continuing  security interest in, lien on, assignment of and right of
setoff  against,  all of the  following  property  and assets of such  Borrower,
whether now owned or existing or hereafter  acquired or arising,  regardless  of
where located:

                                       50

<PAGE>

                  (i) all Accounts (including any credit enhancement therefor);

                  (ii) all Inventory;

                  (iii)  all  contract  rights,  letters  of  credit,   Assigned
Contracts, chattel paper, instruments, notes, documents, and documents of title;

                  (iv) all General Intangibles;

                  (v) all Equipment;

                  (vi) all Investment Property;

                  (vii)  all money, cash, cash equivalents, securities and other
property of any kind of the Borrower held directly or indirectly by the Agent or
any Lender;

                  (viii) all of such Borrower's deposit accounts,  credits,  and
balances with and other claims (other than litigation  claims) against the Agent
or any Lender or any of their Affiliates or any other financial institution with
which such Borrower maintains deposits, including any Payment Accounts;

                  (ix) all  books,  records  and other  property  related  to or
referring to any of the foregoing,  including books,  records,  account ledgers,
data  processing  records,  computer  software  and other  property  and General
Intangibles at any time evidencing or relating to any of the foregoing; and

                  (x) all accessions  to,  substitutions  for and  replacements,
products and proceeds of any of the  foregoing,  including,  but not limited to,
proceeds  of  any  insurance  policies,   claims  against  third  parties,   and
condemnation  or  requisition  payments  with  respect  to  all  or  any  of the
foregoing.

All of the foregoing,  together with the Real Estate covered by the  Mortgage(s)
(if any),  and all other  property  of the  Borrowers  in which the Agent or any
Lender may at any time be granted a Lien, is herein collectively  referred to as
the "Collateral."

             (b) Notwithstanding  anything to the contrary contained herein, the
foregoing grant of a security interest shall not include any rights or interests
in any General Intangible or contracts (including, without limitation,  Assigned
Contracts)  if and to the extent that (a) the terms of the  contract or document
creating or  evidencing  such General  Intangible  or contract  right  prohibits
assignment or encumbrance  thereof,  (b) the term prohibiting such assignment or
encumbrances is effective as a matter of law and (c) the term  prohibiting  such
assignment or  encumbrances  has not been waived or the consent of the necessary
party to the grant of such security interest to the Agent has not been obtained,
provided,  however, that all proceeds of any such General Intangible or contract
--------   -------
shall continue to be covered by the grant of a security interest.

                                       51

<PAGE>

             (c)  All  of  the  Obligations  shall  be  secured  by  all  of the
Collateral.

        6.2 Perfection and  Protection of Security  Interest.  (a) The Borrowers
            ------------------------------------------------
shall, at their expense, perform all steps requested by the Agent at any time to
perfect,  maintain,  protect,  and  enforce the Agent's  Liens,  including:  (i)
executing,  delivering  and/or filing and recording of Mortgage(s)  covering all
Real Property acquired by either Borrower after the Closing Date, the Patent and
Trademark   Agreements  and  executing  and  filing  financing  or  continuation
statements,  and amendments thereof,  in form and substance  satisfactory to the
Agent; (ii) delivering to the Agent the originals of all instruments, documents,
and chattel  paper,  and all other  Collateral of which the Agent  determines it
should  have  physical  possession  in order to perfect  and protect the Agent's
security  interest  therein,  duly  pledged,  endorsed  or assigned to the Agent
without  restriction;  (iii) delivering to the Agent warehouse receipts covering
any portion of the  Collateral  located in  warehouses  and for which  warehouse
receipts  are issued and, at the request of the Agent,  delivering  to the Agent
certificates  of title  covering  any portion of the  Collateral  acquired on or
after the Closing Date for which  certificates  of title have been issued;  (iv)
when an Event of Default exists, transferring Inventory to warehouses designated
by the  Agent;  (v)  placing  notations  on the  Borrowers'  books of account to
disclose the Agent's security interest; (vi) delivering to the Agent all letters
of credit on which either Borrower is named  beneficiary;  and (vii) taking such
other steps as are deemed  necessary  or  desirable by the Agent to maintain and
protect the Agent's Liens. To the extent  permitted by applicable law, the Agent
may file, without either Borrower's signature,  one or more financing statements
disclosing the Agent's Liens.  The Borrowers agree that a carbon,  photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing  statement.  Notwithstanding  anything contained in
this Agreement or any other Loan Document,  the Borrowers  shall not be required
to perfect the Agent's Liens in any patents  purchased as permitted under clause
(h) of the  definition of  Restricted  Investment to the extent such patents are
registered under the laws of any country other than the United States.

             (b) If any  Collateral is at any time in the  possession or control
of any  warehouseman,  bailee or any of either  Borrower's agents or processors,
then the Borrowers  shall notify the Agent thereof and shall,  at the request of
Agent,  notify such Person of the Agent's  security  interest in such Collateral
and instruct  such Person to hold all such  Collateral  for the Agent's  account
subject to the Agent's instructions. If at any time any Collateral is located on
any operating facility of either Borrower which is not owned by either Borrower,
then  the  Borrower  shall,  at  the  request  of  the  Agent,   obtain  written
subordinations,  in form and substance satisfactory to the Agent, of all present
and future  Liens to which the owner or lessor of such  premises may be entitled
to assert against the Collateral.

             (c) From  time to  time,  the  Borrowers  shall,  upon the  Agent's
request,  execute and deliver  confirmatory  written instruments pledging to the
Agent, for the ratable benefit of the Agent and the Lenders, the Collateral with
respect to the Borrowers,  but the Borrowers'  failure to do so shall not affect
or limit any security interest or any other rights of the Agent or any Lender in
and to the Collateral with respect to the Borrower. So long as this Agreement is
in effect and until all Obligations have been fully satisfied, the Agent's Liens
shall continue in full force and effect in all Collateral (whether or not deemed

                                       52

<PAGE>

eligible for the purpose of calculating the Availability or as the basis for any
advance, loan, extension of credit, or other financial accommodation).

        6.3 Location of Collateral.  The Borrowers  represent and warrant to the
            ----------------------
Agent and the Lenders  that:  (a) Schedule 6.3 is a correct and complete list of
                                  ------------
each Borrower's chief executive  office,  the location of its books and records,
the locations of the Collateral, and the locations of all of its other places of
business;  and (b) Schedule 6.3 correctly  identifies any of such facilities and
                   ------------
locations that are not owned by either  Borrower and sets forth the names of the
owners and lessors or sublessors of such facilities and locations. Each Borrower
covenants  and  agrees  that it will  not (i)  maintain  any  Collateral  at any
location  other than those  locations  listed for such Borrower on Schedule 6.3,
                                                                   ------------
(ii)  otherwise  change or add to any of such  locations,  or (iii)  change  the
location of its chief executive office from the location  identified in Schedule
                                                                        --------
6.3,  unless in each case it gives the Agent at least  fifteen  (15) days' prior
---
written notice  thereof and executes any and all financing  statements and other
documents that the Agent requests in connection therewith.

        6.4 Title to, Liens on, and Sale and Use of  Collateral.  Each  Borrower
            ---------------------------------------------------
represents  and  warrants to the Agent and the Lenders and agrees with the Agent
and the Lenders that: (a) all of the Collateral is and will continue to be owned
by such Borrowers free and clear of all Liens  whatsoever,  except for Permitted
Liens;  (b) the Agent's Liens in the Collateral will not be subject to any prior
Lien  except  for those  Liens  identified  in clauses  (c),  (d) and (e) of the
definition  of Permitted  Liens;  and (c) the  Borrowers  will use,  store,  and
maintain the Collateral  with all reasonable  care and will use such  Collateral
for lawful purposes only.

        6.5 Appraisals.  Whenever a Default or Event of Default  exists,  and at
            ----------
such other times not more frequently than once a year as the Agent requests, the
Borrowers  shall,  at their  expense and upon the Agent's  request,  provide the
Agent with appraisals or updates thereof of any or all of the Collateral from an
appraiser,  and prepared on a basis,  reasonably satisfactory to the Agent, such
appraisals and updates to include,  without limitation,  information required by
applicable law and regulation  and by the internal  policies of the Lenders.  In
addition to the foregoing,  if Borrowers'  Availability during any 30 day period
averages less than  $7,500,000,  at Agent's  request,  Borrowers shall, at their
expense,  provide the Agent with  appraisals or updates thereof of any or all of
the  Collateral  from  an  appraiser,   and  prepared  on  a  basis,  reasonably
satisfactory  to the Agent,  such  appraisals  and updates to  include,  without
limitation,  information  required by applicable  law and  regulation and by the
internal policies of the Lenders.

        6.6 Access and Examination;  Confidentiality. (a) The Agent, accompanied
            ----------------------------------------
by any Lender which so elects,  may at all reasonable times on reasonable notice
during  regular  business  hours  (and at any time  when a  Default  or Event of
Default exists and is continuing) have access to, examine,  audit, make extracts
from or copies of and inspect any or all of each Borrower's records,  files, and
books of account and the Collateral,  and discuss each  Borrower's  affairs with
such Borrower's officers and management. Each Borrower will deliver to the Agent
any instrument necessary for the Agent to obtain records from any service bureau
maintaining  records for such  Borrower.  The Agent may, and at the direction of
the  Majority  Lenders  shall,  at any time when a Default  or Event of  Default
exists,  and at the  Borrowers'  expense,  make copies of all of the  Borrowers'

                                       53

<PAGE>

books and records, or require the Borrowers to deliver such copies to the Agent.
The  Agent  may,  without  expense  to the  Agent,  use  such of the  Borrowers'
respective personnel,  supplies,  and Real Estate as may be reasonably necessary
for maintaining or enforcing the Agent's Liens.  The Agent shall have the right,
at any time,  in the Agent's  name or in the name of a nominee of the Agent,  to
verify  the  validity,  amount or any other  matter  relating  to the  Accounts,
Inventory, or other Collateral, by mail, telephone, or otherwise.

             (b) Each Borrower  agrees that,  subject to such  Borrower's  prior
consent for uses other than in a traditional tombstone,  which consent shall not
be  unreasonably  withheld  or  delayed,  the Agent and each Lender may use each
Borrower's  name in  advertising  and  promotional  material and in  conjunction
therewith  disclose  the  general  terms of this  Agreement.  The Agent and each
Lender  severally  agree to take normal and reasonable  precautions and exercise
due care to maintain  the  confidentiality  of all  information  provided to the
Agent or such Lender by or on behalf of the  Borrowers,  under this Agreement or
any other Loan Document,  except to the extent that such  information (i) was or
becomes  generally  available to the public other than as a result of disclosure
by  the  Agent  or  such  Lender,   or  (ii)  was  or  becomes  available  on  a
nonconfidential basis from a source other than the Borrowers, provided that such
source is not bound by a  confidentiality  agreement with the Borrowers known to
the Agent or such Lender;  provided,  however, that the Agent and any Lender may
                           --------   -------
disclose such  information  (1) at the request or pursuant to any requirement of
any  Governmental  Authority  to which the Agent or such Lender is subject or in
connection  with  an  examination  of the  Agent  or  such  Lender  by any  such
Governmental  Authority;  (2) pursuant to subpoena or other court  process;  (3)
when  required to do so in  accordance  with the  provisions  of any  applicable
Requirement of Law; (4) to the extent reasonably required in connection with any
litigation  or  proceeding  (including,  but  not  limited  to,  any  bankruptcy
proceeding) to which the Agent, any Lender or their respective Affiliates may be
party; (5) to the extent reasonably  required in connection with the exercise of
any remedy  hereunder  or under any other Loan  Document;  (6) to the Agent's or
such   Lender's   independent   auditors,   accountants,   attorneys  and  other
professional  advisors provided that the Agent or such Lender shall have advised
such  auditor,  accountant,  attorney,  or  other  professional  advisor  of the
confidential nature of such information;  (7) to any prospective  Participant or
Assignee under any Assignment and Acceptance, actual or potential, provided that
such  prospective  Participant  or  Assignee  agrees  to keep  such  information
confidential to the same extent required of the Agent and the Lenders hereunder;
(8) as expressly  permitted  under the terms of any other  document or agreement
regarding  confidentiality  to which either Borrower is party or is deemed party
with the Agent or such  Lender,  and (9) to its  Affiliates  who have  agreed to
maintain the confidentiality of such information to the same extent as the Agent
and the Lenders hereunder.

        6.7 Collateral Reporting. Each Borrower shall provide the Agent with the
            --------------------
following  documents at the following  times in form  satisfactory to the Agent:
(a) on a monthly  basis not later  than the  twelfth  day of each  month or more
frequently if requested by the Agent or provided by the Borrowers, a schedule of
such Borrower's and Services'  Accounts and a Borrowing Base Certificate,  as of
the prior  month end if such  Borrowing  Base  Certificate  was  delivered  on a
monthly  basis  and as of the date  specified  therein  if such  Borrowing  Base
certificate was provided on a more frequent than monthly basis; (b) on a monthly
basis,  by the  twelfth  day of the  following  month,  or  more  frequently  if

                                       54

<PAGE>

requested by Agent, an aging of such Borrower's and Services' Accounts, together
with a  reconciliation  to the previous  month's  aging of such  Borrower's  and
Services' Accounts and to such Borrower's and Services' general ledger; (c) on a
monthly basis by the fifteenth day of the following month, or more frequently if
requested by Agent, an aging of such Borrower's and Services'  accounts payable;
(d) if requested by the Agent,  on a monthly  basis by the  fifteenth day of the
following  month (or more  frequently  if  requested  by the  Agent),  Inventory
reports by category,  with additional  detail showing additions to and deletions
from  the  Inventory;  (e)  upon  reasonable  request,  copies  of  invoices  in
connection with such  Borrower's and Services'  Accounts,  customer  statements,
credit  memos,  remittance  advices and  reports,  deposit  slips,  shipping and
delivery documents in connection with such Borrower's and Services' Accounts and
for  Inventory and  Equipment  acquired by such  Borrower or Services,  purchase
orders and  invoices;  (f)  together  with the delivery of each  Borrowing  Base
Certificate,  a report of sales, collections and credits; (g) on a monthly basis
by the thirtieth day of the following month a report of equipment  purchases and
sales for such  month in excess of  $50,000  individually  and  $250,000  in the
aggregate,  such report to be in form,  substance and detail satisfactory to the
Agent;  (h) on a  quarterly  basis,  within  30 days  of the end of each  fiscal
quarter  of  Borrowers,  a report of all  equipment  purchases  and sales of the
Borrowers and Services  during such fiscal  quarter,  such report to be in form,
substance and detail satisfactory to the Agent; (i) upon request, a statement of
the balance of each of the Intercompany  Accounts;  (j) such other reports as to
the  Collateral  of the  Borrowers  and  Services as the Agent shall  reasonably
request from time to time; and (k) with the delivery of each of the foregoing, a
certificate  of the  Borrowers  and  Services  executed  by an  officer  thereof
certifying  as to the  accuracy and  completeness  of the  foregoing.  If any of
either Borrower's or Services' records or reports of the Collateral are prepared
by an accounting  service or other agent,  such Borrower hereby  authorizes such
service or agent to deliver such records,  reports, and related documents to the
Agent, for distribution to the Lenders.

        6.8 Accounts.  (a) Each Borrower  hereby  represents and warrants to the
            --------
Agent and the Lenders, with respect to such Borrower's Accounts and the Accounts
of  Services,  that:  (i) each  existing  Account  represents,  and each  future
Account, at the time of its creation,  will represent, a bona fide sale or lease
and delivery of goods by the  applicable  Borrower or Services,  or rendition of
services by the applicable  Borrower or Services,  in the ordinary course of the
applicable Borrower's or Services' business;  (ii) each existing Account is, and
each future  Account,  at the time of its  creation,  will be, for a  liquidated
amount  payable  by the  Account  Debtor  thereon  on the terms set forth in the
invoice therefor or in the schedule thereof delivered to the Agent,  without any
offset, deduction, defense, or counterclaim except those known to the applicable
Borrower or Services  and  disclosed  to the Agent and the Lenders to the extent
required to be disclosed  pursuant to this  Agreement;  (iii) no payment will be
received with respect to any Account, and no credit,  discount, or extension, or
agreement  therefor  will be granted on any  Account,  except as reported to the
Agent and the Lenders to the extent  required to be reported in accordance  with
this  Agreement;  (iv) each copy of an invoice  delivered to the Agent by either
Borrower or Services will be a genuine copy of the original  invoice sent to the
Account  Debtor  named  therein;  and (v) all  goods  described  in any  invoice
representing  a sale of goods will have been delivered to the Account Debtor and
all services of the  applicable  Borrower or Services  described in each invoice
will have been performed.

                                       55

<PAGE>

             (b) The  Borrowers  and  Services  shall not re-date any invoice or
sale or make sales on extended  dating beyond that  customary in the  Borrowers'
business or extend or modify any Account  other than  extensions of the time for
payment in the  normal  course of  business  and  consistent  with  prudent  and
historical business practices of the Borrowers. If either Borrower becomes aware
of any matter adversely  affecting the  collectability of any Account or Account
Debtor  involving  an  amount  greater  than  $250,000,   including  information
regarding the Account Debtor's creditworthiness,  the Borrowers will promptly so
advise the Agent.

             (c) The Borrowers  and Services  shall not accept any note or other
instrument  (except a check or other  instrument  for the  immediate  payment of
money)  with  respect to any  Account in excess of $25,000  without  the Agent's
written consent. If the Agent consents to the acceptance of any such instrument,
it shall be considered as evidence of the Account and not payment  thereof.  The
Borrowers will promptly deliver all such  instruments to the Agent,  endorsed by
the  applicable  Borrower  to the  Agent  in a manner  satisfactory  in form and
substance to the Agent.

             (d) The Borrowers and Services  shall notify the Agent  promptly of
all disputes and claims in excess of $250,000 with any Account Debtor, and agree
to settle,  contest,  or adjust such dispute or claim at no expense to the Agent
or any Lender.  No discount,  credit or  allowance  shall be granted to any such
Account Debtor without the Agent's prior written consent,  except for discounts,
credits and  allowances  made or given in the ordinary  course of the  Borrowers
business when no Event of Default exists  hereunder.  The Borrowers and Services
shall send the Agent a copy of each  credit  memorandum  in excess of $25,000 as
soon as issued.  The Agent may, and at the  direction  of the  Majority  Lenders
shall, at all times when an Event of Default exists hereunder,  settle or adjust
disputes and claims  directly  with  Account  Debtors for amounts and upon terms
which the Agent or the Majority Lenders, as applicable, shall consider advisable
and, in all cases, the Agent will credit the applicable  Borrower's Loan Account
with only the net amounts received by the Agent in payment of any Accounts.

        6.9  Collection  of Accounts;  Payments.  (a) The Borrowers and Services
             ----------------------------------
shall continue to maintain a lock-box  service for  collections of Accounts at a
Clearing Bank acceptable to the Agent and subject to a Blocked Account Agreement
and other  documentation  acceptable to Agent.  The Borrowers and Services shall
instruct  all  Account  Debtors to make all  payments  directly  to the  address
established for such service.  If,  notwithstanding  such  instructions,  either
Borrower or Services  receives any proceeds of Accounts,  it shall  receive such
payments as the Agent's trustee,  and shall immediately deliver such payments to
the Agent in their  original  form duly endorsed in blank or deposit them into a
Payment  Account,  as the Agent may  direct.  All  collections  received  in any
lock-box or Payment  Account or  directly by either  Borrower or Services or the
Agent,  and all funds in any  Payment  Account  or other  account  to which such
collections  are  deposited  shall be subject to the  Agent's  sole  control and
withdrawals by the Borrowers and Services  shall not be permitted.  The Agent or
the  Agent's  designee  may,  at any time  after the  occurrence  and during the
continuance  of an Event of Default,  notify  Account  Debtors that the Accounts
have been assigned to the Agent and of the Agent's  security  interest  therein,
and may collect them  directly and charge the  collection  costs and expenses to
the Loan  Account  as a  Revolving  Loan.  So long as an Event  of  Default  has
occurred and is continuing, the Borrowers, at the Agent's request, shall execute

                                       56

<PAGE>

and deliver to the Agent such  documents as the Agent shall require to grant the
Agent  access  to any post  office  box in which  collections  of  Accounts  are
received.

             (b) If sales of  Inventory  or  Equipment  are made or services are
rendered  for cash,  the  Borrowers  shall  immediately  deliver to the Agent or
deposit into a Payment Account the cash which the Borrowers or Services receive.

             (c) All payments including  immediately available funds received by
the Agent at a bank account  designated by it, will be the Agent's sole property
for its  benefit and the benefit of the Lenders and will be credited to the Loan
Account  (conditional  upon final  collection) on the Business Day of receipt if
received by wire  transfer  through the Federal  Reserve Bank wire system and on
the Business Day after receipt if received through an ACH transaction; provided,
                                                                       --------
however,  that such payments  shall be deemed to be credited to the Loan Account
-------
immediately  upon receipt for  purposes of (i)  determining  Availability,  (ii)
calculating  the unused line fee pursuant to Section 3.5, and (iii)  calculating
the amount of interest  accrued  thereon solely for purposes of determining  the
amount of interest to be  distributed  by the Agent to the Lenders  (but not the
amount of interest payable by the Borrowers).

        6.10  Inventory;  Perpetual  Inventory.  Each  Borrower  represents  and
              --------------------------------
warrants  to the Agent and the Lenders and agrees with the Agent and the Lenders
that all of the Inventory owned by the Borrowers is and will be held for sale or
lease, or to be furnished in connection  with the rendition of services,  in the
ordinary  course  of the  Borrowers'  business,  and is and will be fit for such
purposes.  Each  Borrower  will not,  without the prior  written  consent of the
Agent, acquire or accept any Inventory on consignment or approval. Each Borrower
agrees that all Inventory produced by the Borrowers in the United States will be
produced in  accordance  with the Federal Fair Labor  Standards  Act of 1938, as
amended, and all rules, regulations,  and orders thereunder.  The Borrowers will
not, without the Agent's written consent, sell any Inventory on a bill-and-hold,
guaranteed  sale,  sale and  return,  sale on  approval,  consignment,  or other
repurchase  or return  basis  other than sales on  consignment  not in excess of
$10,000 outstanding at any time.

        6.11  Equipment. (a)  Each Borrower represents and warrants to the Agent
              ---------
and the  Lenders  and  agrees  with the  Agent and the  Lenders  that all of the
Equipment  owned by the  Borrowers  and Services is and will be used or held for
use in the  Borrowers'  or Services'  business,  and is and will be fit for such
purposes.  Each  Borrower and Services  shall keep and maintain its Equipment in
good operating condition and repair (ordinary wear and tear excepted) and to the
extent  consistent  with prudent  business  practices  shall make all  necessary
replacements thereof.

             (b) The  Borrowers  and Services  shall not permit any Equipment to
become a fixture  with respect to real  property or to become an accession  with
respect to other  personal  property  with  respect  to which  real or  personal
property the Agent does not have a Lien.  The  Borrowers  and Services will not,
without the  Agent's  prior  written  consent,  alter or remove any  identifying
symbol or number on any of the  Borrowers' or Services'  Equipment  constituting
Collateral.  None  of the  Equipment  which  is  the  subject  of any  appraisal
delivered  to the Agent is covered by a  certificate  of title or required to be
covered by a  certificate  of title,  except for such  Equipment as to which the

                                       57

<PAGE>

Agent's Lien is noted thereon.  None of the Equipment is subject to any purchase
options  except as set forth on Schedule  6.11 or as agreed to in writing by the
Agent.

             (c) Except as  expressly  permitted  pursuant to Section  9.9,  the
Borrowers and Services  shall not,  without the Agent's  prior written  consent,
sell,  lease as a lessor,  or  otherwise  dispose  of any of the  Borrowers'  or
Services' Equipment;  provided, however, that the Borrowers and Services may (i)
                      --------  -------
dispose of obsolete, unusable or surplus Equipment having an orderly liquidation
value no greater than  $2,500,000 in the  aggregate in any Fiscal Year,  without
the Agent's  consent,  subject to the conditions set forth in the next sentence,
(ii)  lease  Equipment  to its  Account  Debtors in the  ordinary  course of its
business consistent with its historical  business  practices;  provided that the
Borrowers shall give notice to the Agent with respect to each lease of Equipment
for a term longer than six months and (iii) transfer equipment from one Borrower
to the other Borrower.  In the event any of such Equipment is sold,  transferred
or otherwise  disposed of pursuant to the proviso  contained in the  immediately
preceding sentence, then the Borrowers shall deliver all of the cash proceeds of
any such sale,  transfer or  disposition  to the Agent,  which proceeds shall be
applied to the  reduction  of the  Obligations.  Any lease of  Equipment  by the
Borrowers or Services to a customer  shall require that the Equipment  remain on
such  customer's  site or another site of such  customer as to which the Agent's
Liens have been fully perfected.

        6.12 Assigned  Contracts.  Each Borrower  shall fully perform all of its
             -------------------
obligations under each of the Assigned  Contracts,  and shall enforce all of its
rights and remedies  thereunder,  in each case, as it deems  appropriate  in its
business  judgment;  provided,  however,  that such Borrower  shall not take any
action or fail to take any action with respect to its Assigned  Contracts  which
would  cause the  termination  of a material  Assigned  Contract  except,  after
notification  to the  Agent,  following  a  breach  by the  other  party to such
Assigned  Contract.  Without  limiting the  generality  of the  foregoing,  each
Borrower shall take all action necessary or appropriate to permit, and shall not
take any action which would have any  materially  adverse  effect upon, the full
enforcement of all  indemnification  rights under its Assigned  Contracts.  Each
Borrower  shall  notify the Agent and the  Lenders in  writing,  promptly  after
either  Borrower  becomes aware  thereof,  of any event or fact which could give
rise to a material  claim by it for  indemnification  under any of its  Assigned
Contracts, and shall diligently pursue such right and report to the Agent on all
further developments with respect thereto.  Each Borrower shall deposit into the
Payment  Account  or  remit  directly  to  the  Agent  for  application  to  the
Obligations in such order as the Majority Lenders shall  determine,  all amounts
received  by the  Borrower  as  indemnification  or  otherwise  pursuant  to its
Assigned  Contracts.  If the  Borrowers  shall fail after the Agent's  demand to
pursue  diligently  any right under its  Assigned  Contracts,  or if an Event of
Default then exists, the Agent may, and at the direction of the Majority Lenders
shall,  directly enforce such right in its own or the applicable Borrower's name
and may enter into such  settlements or other agreements with respect thereto as
the Agent or the Majority Lenders, as applicable,  shall determine. In any suit,
proceeding  or action  brought by the Agent for the benefit of the Lenders under
any Assigned  Contract for any sum owing  thereunder or to enforce any provision
thereof,  each Borrower shall indemnify and hold the Agent and Lenders  harmless
from and against all expense,  loss or damage suffered by reason of any defense,
setoff,  counterclaims,  recoupment, or reduction of liability whatsoever of the
obligor  thereunder arising out of a breach by either Borrower of any obligation
thereunder or arising out of any other  agreement,  indebtedness or liability at

                                       58

<PAGE>

any time  owing  from  either  Borrower  to or in favor of such  obligor  or its
successors.   All  such  obligations  of  each  Borrower  shall  be  and  remain
enforceable only against the Borrowers and shall not be enforceable  against the
Agent or the Lenders. Notwithstanding any provision hereof to the contrary, each
Borrower  shall at all times  remain  liable to observe  and  perform all of its
duties and  obligations  under its  Assigned  Contracts,  and the Agent's or any
Lender's  exercise  of  any of  their  respective  rights  with  respect  to the
Collateral  shall  not  release  the  Borrowers  from  any of  such  duties  and
obligations.  Neither the Agent nor any Lender  shall be obligated to perform or
fulfill  any of the  applicable  Borrower's  duties  or  obligations  under  its
Assigned Contracts or to make any payment thereunder,  or to make any inquiry as
to the  nature  or  sufficiency  of  any  payment  or  property  received  by it
thereunder or the  sufficiency  of performance  by any party  thereunder,  or to
present  or file any claim,  or to take any  action to  collect  or enforce  any
performance, any payment of any amounts, or any delivery of any property.

        6.13 Documents, Instruments, and Chattel Paper. Each Borrower represents
             -----------------------------------------
and warrants to the Agent and the Lenders that (a) all  documents,  instruments,
and chattel paper describing,  evidencing,  or constituting Collateral,  and all
signatures  and  endorsements  thereon,  are and will be  complete,  valid,  and
genuine, and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the  applicable  Borrower,  free and clear of all
Liens other than Permitted Liens.

        6.14 Right to Cure. The Agent may, in its discretion,  and shall, at the
             -------------
direction of the Majority Lenders,  pay any amount or do any act required of the
Borrowers  hereunder  or under any other  Loan  Document  in order to  preserve,
protect,  maintain or enforce the  Obligations,  the  Collateral  or the Agent's
Liens therein,  and which the Borrowers fail to pay or do, including  payment of
any judgment against the Borrowers, any insurance premium, any warehouse charge,
any finishing or processing  charge,  any landlord's or bailee's claim,  and any
other Lien upon or with respect to the  Collateral.  All payments that the Agent
makes under this Section 6.14 and all out-of-pocket  costs and expenses that the
                 ------------
Agent pays or incurs in connection  with any action taken by it hereunder  shall
be charged to the applicable  Borrower's  Loan Account as a Revolving  Loan. Any
payment made or other action taken by the Agent under this Section 6.14 shall be
                                                           ------------
without  prejudice to any right to assert an Event of Default  hereunder  and to
proceed thereafter as herein provided.

        6.15 Power of Attorney.  Each Borrower hereby appoints the Agent and the
             -----------------
Agent's  designee as the Borrower's  attorney,  with power:  (a) to endorse such
Borrower's name on any checks, notes, acceptances,  money orders, or other forms
of payment or security  that come into the Agent's or any  Lender's  possession;
(b) to sign such  Borrower's  name on any  invoice,  bill of  lading,  warehouse
receipt or other document of title relating to any Collateral, on drafts against
customers,  on  assignments  of Accounts,  on notices of  assignment,  financing
statements and other public records and to file any such financing statements by
electronic  means with or without a  signature  as  authorized  or  required  by
applicable  law or filing  procedure;  (c) so long as any Event of  Default  has
occurred and is continuing,  to notify the post office authorities to change the
address for delivery of such  Borrower's  mail to an address  designated  by the
Agent and to receive,  open and dispose of all mail  addressed to such Borrower;
(d) to send  requests  for  verification  of  Accounts to  customers  or Account

                                       59

<PAGE>

Debtors;  and (e) to do all things  necessary to carry out this Agreement.  Each
Borrower ratifies and approves all acts of such attorney. None of the Lenders or
the Agent nor their  attorneys  will be liable for any acts or  omissions or for
any error of  judgment  or  mistake  of fact or law  except  for  their  willful
misconduct or gross negligence.  This power, being coupled with an interest,  is
irrevocable  until this Agreement has been terminated and the  Obligations  have
been fully satisfied.

        6.16 The Agent's  and  Lenders'  Rights,  Duties and  Liabilities.  Each
             ------------------------------------------------------------
Borrower assumes all  responsibility  and liability  arising from or relating to
the use, sale or other disposition of the Collateral.  The Obligations shall not
be  affected  by any  failure  of the  Agent or any  Lender to take any steps to
perfect  the Agent's  Liens or to collect or realize  upon the  Collateral,  nor
shall loss of or damage to the Collateral  release the Borrowers from any of the
Obligations.  Following the occurrence and  continuation of an Event of Default,
the Agent may (but  shall  not be  required  to),  and at the  direction  of the
Majority  Lenders shall,  without  notice to or consent from the Borrowers,  sue
upon or otherwise  collect,  extend the time for payment of, modify or amend the
terms of,  compromise or settle for cash,  credit,  or otherwise upon any terms,
grant other indulgences,  extensions,  renewals,  compositions, or releases, and
take or omit to take any  other  action  with  respect  to the  Collateral,  any
security  therefor,  any agreement  relating thereto,  any insurance  applicable
thereto,  or any Person liable  directly or indirectly in connection with any of
the foregoing,  without  discharging or otherwise affecting the liability of the
Borrowers for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Agent and/or any Lender and either Borrower.


                                   ARTICLE 7.

               BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
               -------------------------------------------------

        7.1 Books and  Records.  Each  Borrower  shall  maintain,  at all times,
            ------------------
correct and complete books, records and accounts in which complete,  correct and
timely  entries are made of its  transactions  in  accordance  with GAAP applied
consistently  with the audited  Financial  Statements  required to be  delivered
pursuant  to  Section  7.2(a).  Each  Borrower  shall,  by means of  appropriate
              ---------------
entries,  reflect  in  such  accounts  and in all  Financial  Statements  proper
liabilities and reserves for all taxes and proper provision for depreciation and
amortization  of  property  and bad debts,  all in  accordance  with GAAP.  Each
Borrower  shall  maintain  at all times  books  and  records  pertaining  to the
Collateral  in such  detail,  form and  scope as the Agent or any  Lender  shall
reasonably require,  including,  but not limited to, records of (a) all payments
received and all credits and  extensions  granted with respect to the  Accounts;
and (b) all other dealings affecting the Collateral.

        7.2 Financial Information.  Each Borrower shall promptly furnish to each
            ---------------------
Lender,  all such financial  information as the Agent shall reasonably  request.
Without limiting the foregoing, the Borrowers will furnish to the Agent and each
Lender, in such detail as the Agent or the Lenders shall request, the following:

             (a)  (i)  As soon as available, but in any event within one hundred
(100) days after the close of each Fiscal  Year,  consolidated  audited  balance
sheets,  and  statements of income and expense,  cash flow and of  stockholders'

                                       60

<PAGE>

equity for IMS and its  Subsidiaries  for such Fiscal Year, and the accompanying
notes thereto,  setting forth in each case in  comparative  form figures for the
previous Fiscal Year, and consolidating  unaudited balance sheets and statements
of income and expense for IMS and its  Subsidiaries for such Fiscal Year, all of
the  foregoing to be in  reasonable  detail,  fairly  presenting  the  financial
position and the results of operations of IMS and its consolidated  Subsidiaries
as at the date  thereof  and for the Fiscal  Year then  ended,  and  prepared in
accordance  with GAAP.  Such  statements  shall be examined in  accordance  with
generally  accepted  auditing  standards by and, in the case of such  statements
performed on a consolidated  basis,  accompanied by a report thereon unqualified
in any respect  (except for any  qualification  relating to the  accounting  for
Neoax  Investments,  Inc.  (which was merged into IMS on June 30,  1999) for any
period  prior to June 30,  1999 and any  qualification  to the effect that IMS's
current  independent  certified  public  accounts may rely on the work papers of
IMS's prior independent  certified public accountants) of independent  certified
public  accountants  selected by IMS and reasonably  satisfactory  to the Agent.
IMS,  simultaneously  with  retaining  such  independent  public  accountants to
conduct such annual audit, shall send a letter to such accountants,  with a copy
to the Agent and the Lenders, notifying such accountants that one of the primary
purposes for retaining such  accountants'  services and having audited financial
statements  prepared  by them is for use by the Agent and the  Lenders.  IMS and
each of its  Subsidiaries  hereby  authorizes the Agent to communicate  directly
with its certified public  accountants and, by this provision,  authorizes those
accountants to disclose to the Agent any and all financial  statements and other
supporting  financial  documents and schedules  relating to the Borrowers and to
discuss  directly with the Agent the finances and affairs of the Borrowers.  The
Agent  agrees  to give the  Borrowers  the  opportunity  to  participate  in any
discussion or other communication with IMS's accountants.

                  (ii) As soon as  available,  but in any event  within  ninety-
three  (93) days  after  the close of each  Fiscal  Year,  consolidated  audited
balance  sheets,  and  statements  of  income  and  expense,  cash  flow  and of
stockholders'  equity for Envirosource and its Subsidiaries for such Fiscal Year
and consolidating  unaudited balance sheets and statements of income and expense
for Envirosource and its Subsidiaries for such Fiscal Year, and the accompanying
notes  thereto,  setting  forth  in  each  case in  comparative  form  (for  the
consolidated  statements  only)  figures for the previous  Fiscal  Year,  all in
reasonable  detail,  fairly presenting the financial position and the results of
operations of  Envirosource  and its  consolidated  Subsidiaries  as at the date
thereof and for the Fiscal  Year then ended,  and  prepared in  accordance  with
GAAP.  Such statements  shall be examined in accordance with generally  accepted
auditing  standards  by  and,  in the  case of such  statements  performed  on a
consolidated  basis,  accompanied by a report thereon unqualified in any respect
(except for any qualification  relating to the accounting for Neoax Investments,
Inc.  (which was merged into the Borrower on June 30, 1999) for any period prior
to June 30, 1999 and any qualification to the effect that Envirosource's current
independent   certified   public   accountants   may  rely  on  work  papers  of
Envirosource's  prior independent  certified public  accountants) of independent
certified   public   accountants   selected  by   Envirosource   and  reasonably
satisfactory  to the Agent.  Envirosource,  simultaneously  with  retaining such
independent public accountants to conduct such annual audit, shall send a letter
to such  accountants,  with a copy to the Agent and the Lenders,  notifying such
accountants  that one of the primary  purposes for retaining  such  accountants'
services and having audited financial  statements prepared by them is for use by
the Agent and the Lenders.

                                       61

<PAGE>

             (b)  (i)  As soon as  available,  but  in any event not later  than
thirty  (30)  days  after  the end of each  month,  consolidated  condensed  and
consolidating unaudited balance sheets of IMS and its consolidated  Subsidiaries
as at the  end of such  month,  and  consolidated  condensed  and  consolidating
unaudited  statements  of  income  and  expense  for IMS  and  its  consolidated
Subsidiaries  for such month and for the period from the beginning of the Fiscal
Year to the end of such month, all in reasonable  detail,  fairly presenting the
financial  position  and  results  of  operations  of IMS and  its  consolidated
Subsidiaries  as at the date  thereof  and for such  periods,  and  prepared  in
accordance with GAAP applied  consistently with the audited Financial Statements
required to be delivered  pursuant to Section 7.2(a),  except for the absence of
                                      --------------
footnotes.  IMS shall  certify by a  certificate  signed by its chief  financial
officer that all such  statements  have been prepared in accordance  with GAAP ,
except for the  absence of  footnotes,  and  present  fairly,  subject to normal
year-end adjustments,  the Borrower's financial position as at the dates thereof
and its results of operations for the periods then ended, except for the absence
of footnotes.

                  (ii) As soon as  available,  but in any event  not later  than
thirty  (30)  days  after  the end of each  month,  consolidated  condensed  and
consolidating  unaudited  balance sheets of  Envirosourse  and its  consolidated
Subsidiaries  as at the  end of  such  month,  and  consolidated  condensed  and
consolidating  unaudited  statements of income and expense for  Envirosource and
its  consolidated  Subsidiaries  for  such  month  and for the  period  from the
beginning of the Fiscal Year to the end of such month, all in reasonable detail,
fairly   presenting  the  financial   position  and  results  of  operations  of
Envirosource  and its  consolidated  Subsidiaries as at the date thereof and for
such periods, and prepared in accordance with GAAP applied consistently with the
audited  Financial  Statements  required  to be  delivered  pursuant  to Section
                                                                         -------
7.2(a),  except for the absence of  footnotes.  Envirosource  shall certify by a
------
certificate  signed by its chief financial officer that all such statements have
been  prepared in  accordance  with GAAP and present  fairly,  subject to normal
year-end adjustments,  Envirosource's financial position as at the dates thereof
and its results of operations for the periods then ended, except for the absence
of footnotes.

             (c) (i) As soon as  available,  but in any event within  fifty-five
(55) days after the close of each fiscal  quarter other than the fourth  quarter
of a Fiscal Year,  consolidated  condensed and  consolidating  unaudited balance
sheets of IMS and its  consolidated  Subsidiaries as at the end of such quarter,
and consolidated condensed and consolidating  unaudited statements of income and
expense for IMS and its  Subsidiaries  for such  quarter and for the period from
the beginning of the Fiscal Year to the end of such  quarter,  all in reasonable
detail, fairly presenting the financial position and results of operation of IMS
and its  Subsidiaries  as at the date thereof and for such periods,  prepared in
accordance with GAAP consistent with the audited Financial  Statements  required
to be delivered pursuant to Section 7.2(a), except for the absence of footnotes.
                            --------------
IMS shall certify by a certificate  signed by its chief  financial  officer that
all such  statements  have been  prepared  in  accordance  with GAAP and present
fairly,  subject to normal year-end  adjustments,  IMS' financial position as at
the dates  thereof and its  results of  operations  for the periods  then ended,
except for the absence of footnotes.

                                       62

<PAGE>

                  (ii) As soon as  available,  but in any  event  within  forty-
eight (48) days  after the close of each  fiscal  quarter  other than the fourth
quarter of a Fiscal Year,  consolidated  condensed and  consolidating  unaudited
balance sheets of Envirosource and its  consolidated  Subsidiaries as at the end
of  such  quarter,  and  consolidated  condensed  and  consolidating   unaudited
statements of income and expense and  consolidated  statement of cash flows,  in
each case for  Envirosource  and its  Subsidiaries  for such quarter and for the
period from the beginning of the Fiscal Year to the end of such quarter,  all in
reasonable  detail,  fairly  presenting  the  financial  position and results of
operation of  Envirosource  and its  Subsidiaries as at the date thereof and for
such  periods,  prepared in  accordance  with GAAP  consistent  with the audited
Financial  Statements  required  to be  delivered  pursuant  to Section  7.2(a).
                                                                ---------------
Envirosource  shall  certify  by a  certificate  signed by its  chief  financial
officer that all such  statements have been prepared in accordance with GAAP and
present fairly, subject to normal year-end adjustments, Envirosource's financial
position as at the dates thereof and its results of  operations  for the periods
then ended.

             (d)  With  each  of  the  audited  Financial  Statements  delivered
pursuant to Section 7.2(a),  a certificate of the independent  certified  public
            --------------
accountants  that examined such  statement to the effect that they have reviewed
and are familiar  with this  Agreement  and that,  in examining  such  Financial
Statements,  they  did not  become  aware of any fact or  condition  which  then
constituted a Default or Event of Default with respect to a financial  covenant,
except for those, if any, described in reasonable detail in such certificate.

             (e) With each of the annual audited Financial  Statements delivered
pursuant to Section 7.2(a),  and within  forty-eight  (48) days after the end of
            --------------
each fiscal  quarter,  a certificate of the chief  financial  officer of IMS (i)
setting forth in reasonable  detail the calculations  required to establish that
the Borrowers  were in compliance  with the covenants set forth in Sections 9.23
through 9.26 during the period  covered in such  Financial  Statements and as at
the end thereof, and (ii) stating that, except as explained in reasonable detail
in  such  certificate,  (A) all of the  representations  and  warranties  of the
Borrowers  contained in this  Agreement and the other Loan Documents are correct
and complete in all material  respects as at the date of such  certificate as if
made at such time,  except for those that speak as of a particular day, (B) each
Borrower  is, at the date of such  certificate,  in  compliance  in all material
respects with all of its  respective  covenants and agreements in this Agreement
and the other Loan Documents,  (C) no Default or Event of Default then exists or
existed  during  the  period  covered  by  such  Financial  Statements  and  (D)
describing and analyzing in reasonable  detail  material  trends,  changes,  and
developments  in Financial  Statements.  If such  certificate  discloses  that a
representation  or warranty is not correct or  complete,  or that a covenant has
not been complied with, or that a Default or Event of Default existed or exists,
such certificate shall set forth what action the Borrowers have taken or propose
to take with respect thereto.

             (f) No later  than  thirty  (30) days after the  beginning  of each
Fiscal  Year,  annual  forecasts  (to include  forecasted  consolidated  balance
sheets,  statements of income and expenses and  statements of cash flow) for IMS
and its Subsidiaries as at the end of and for each month of such Fiscal Year.

                                       63

<PAGE>

             (g)  Intentionally omitted.

             (h) Promptly  upon the filing  thereof,  copies of all reports,  if
any, to or other documents filed by Envirosource or any of its Subsidiaries with
the Securities and Exchange  Commission under the Exchange Act, and all reports,
notices, or statements sent or received by the Parent or any of its Subsidiaries
to or from the holders of any equity interests of the Parent (other than routine
non-material  correspondence  sent  by  shareholders  of  the  Borrower  to  the
Borrower)  or  any  such  Subsidiary  or of  any  Debt  for  Borrowed  Money  of
Envirosource or any of its  Subsidiaries  registered under the Securities Act of
1933 or to or from the  trustee  under  any  indenture  under  which the same is
issued.

             (i) As soon as  available,  but in any event not later than 30 days
after the  Borrower's  receipt  thereof,  a copy of all  management  reports and
management  letters  prepared  for  IMS  by  any  independent  certified  public
accountants of IMS.

             (j) Promptly after their  preparation,  copies of any and all proxy
statements,   financial  statements,  and  reports  which  Envirosource  or  the
Borrowers makes available to its shareholders.

             (k)  At the request of the Agent,  promptly  after filing with  the
IRS, a copy of each tax return filed by IMS or by any of its Subsidiaries.

             (l) Such additional  information as the Agent and/or any Lender may
from time to time  reasonably  request  regarding  the  financial  and  business
affairs of IMS or any Subsidiary.

        7.3 Notices to the Lenders. The Borrowers shall notify the Agent and the
            ----------------------
Lenders in writing of the following matters at the following times:

             (a)  Promptly,  but in any event not later than three Business Days
after becoming aware of any Default or Event of Default.

             (b) Promptly,  but in any event not later than three  Business Days
after  becoming aware of the assertion by the holder of any capital stock of IMS
or of any  Subsidiary or of any Debt in excess of $500,000 that a default exists
with respect  thereto or that IMS or such  Subsidiary is not in compliance  with
the  terms  thereof,  or the  threat  or  commencement  by  such  holder  of any
enforcement action because of such asserted default or non-compliance.

             (c) Promptly,  but in any event not later than three  Business Days
after  becoming  aware  of  any  material   adverse  change  in  IMS's  and  its
Subsidiaries' (taken as a whole) business,  operations,  or condition (financial
or otherwise).

             (d) Promptly,  but in any event not later than three  Business Days
after becoming aware of any pending or threatened  action,  suit, or proceeding,
by any Person,  or any pending or  threatened  investigation  by a  Governmental
Authority, which could reasonably be expected to materially and adversely affect

                                       64

<PAGE>

the Collateral,  the repayment of the  Obligations,  the Agent's or any Lender's
rights  under the Loan  Documents,  or IMS's and its  Subsidiaries'  (taken as a
whole) property, business, operations, or condition (financial or otherwise).

             (e) Promptly,  but in any event not later than three  Business Days
after becoming aware of any pending or threatened strike, work stoppage,  unfair
labor  practice  claim,  or  other  labor  dispute  affecting  IMS or any of its
Subsidiaries  in a manner which could  reasonably be expected to have a Material
Adverse Effect.

             (f) Promptly,  but in any event not later than three  Business Days
after  becoming  aware of any  violation  of any law,  statute,  regulation,  or
ordinance of a  Governmental  Authority  affecting IMS or any  subsidiary  which
could reasonably be expected to have a Material Adverse Effect.

             (g) Promptly,  but in any event not later than three  Business Days
after receipt of any notice of any  violation by IMS or any of its  Subsidiaries
of any  Environmental  Law which could reasonably be expected to have a Material
Adverse Effect or that any  Governmental  Authority has asserted that IMS or any
Subsidiary is not in compliance with any  Environmental  Law or is investigating
IMS's or such  Subsidiary's  compliance  therewith and which, in either case, is
reasonably likely to give rise to liability in excess of $2,500,000.

             (h) Promptly,  but in any event not later than three  Business Days
after receipt of any written  notice that IMS or any of its  Subsidiaries  is or
may be liable to any Person as a result of the Release or threatened  Release of
any Contaminant or that IMS or any Subsidiary is subject to investigation by any
Governmental  Authority  evaluating  whether  any  remedial  action is needed to
respond to the Release or threatened Release of any Contaminant which, in either
case, is reasonably likely to give rise to liability in excess of $2,500,000.

             (i) Promptly,  but in any event not later than three  Business Days
after receipt of any written notice of the imposition of any Environmental  Lien
against any property of IMS or any of its Subsidiaries.

             (j) Any change in either Borrower's name, state of organization, or
form of  organization,  trade  names  under  which  either  Borrower  will  sell
Inventory or create Accounts, or to which instruments in payment of Accounts may
be made payable, in each case at least thirty (30) days prior thereto.

             (k)  Within  ten (10)  Business  Days  after  either  or any  ERISA
Affiliate  knows or has  reason  to know,  that an ERISA  Event or a  prohibited
transaction  (as  defined  in  Sections  406 of ERISA  and 4975 of the Code) has
occurred, and, when known, any action taken or threatened by the IRS, the DOL or
the PBGC with respect thereto.

             (l) Upon  request,  or, in the event  that such  filing  reflects a
significant change with respect to the matters covered thereby, within three (3)
Business  Days after the filing  thereof  with the PBGC,  the DOL or the IRS, as

                                       65

<PAGE>

applicable,  copies of the following: (i) each annual report (form 5500 series),
including  Schedule  B  thereto,  filed  with the PBGC,  the DOL or the IRS with
respect to each Plan,  (ii) a copy of each funding waiver request filed with the
PBGC,  the  DOL or the IRS  with  respect  to any  Plan  and all  communications
received by any Borrower or any ERISA  Affiliate  from the PBGC,  the DOL or the
IRS with  respect  to such  request,  and (iii) a copy of each  other  filing or
notice  filed with the PBGC,  the DOL or the IRS,  with  respect to each Plan of
either Borrower or any ERISA Affiliate.

             (m) Upon request,  copies of each actuarial  report for any Plan or
Multi-employer  Plan and annual report for any  Multi-employer  Plan; and within
three (3) Business  Days after receipt  thereof by either  Borrower or any ERISA
Affiliate,  copies of the following:  (i) any notices of the PBGC's intention to
terminate a Plan or to have a trustee  appointed to administer  such Plan;  (ii)
any  favorable or  unfavorable  determination  letter from the IRS regarding the
qualification  of a Plan under  Section  401(a) of the Code; or (iii) any notice
from a Multi-employer Plan regarding the imposition of withdrawal liability.

             (n) Within thirty (30) days after the occurrence  thereof:  (i) any
changes in the benefits of any existing Plan which  increase  either  Borrower's
annual costs with respect  thereto by an amount in excess of $1,000,000  greater
than that budgeted,  or the establishment of any new Plan or the commencement of
contributions  to any Plan to which either  Borrower or any ERISA  Affiliate was
not previously contributing; or (ii) any failure by either Borrower or any ERISA
Affiliate to make a required  installment  or any other  required  payment under
Section  412 of the Code on or  before  the due date  for  such  installment  or
payment.

             (o) Within  three (3) Business  Days after  either  Borrower or any
ERISA Affiliate knows or has reason to know that any of the following events has
or will occur:  (i) a Multi-employer  Plan has been or will be terminated;  (ii)
the administrator or plan sponsor of a Multi-employer  Plan intends to terminate
a  Multi-employer  Plan;  or (iii)  the PBGC has  instituted  or will  institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.

                  Each  notice  given  under this  Section  shall  describe  the
subject matter thereof in reasonable detail, and shall set forth the action that
either  Borrower,  any Subsidiary,  or any ERISA Affiliate,  as applicable,  has
taken or proposes to take with respect thereto.


                                    ARTICLE 8

                     GENERAL WARRANTIES AND REPRESENTATIONS
                     --------------------------------------

                  The  Borrowers  warrants and  represents  to the Agent and the
Lenders that except as hereafter  disclosed to and accepted by the Agent and the
Majority Lenders in writing:

        8.1  Authorization,  Validity,  and Enforceability of this Agreement and
             -------------------------------------------------------------------
the Loan  Documents.  Each  Borrower has the  corporate  power and  authority to
-------------------
execute,  deliver and perform this  Agreement and the other Loan  Documents,  to

                                       66

<PAGE>

incur  the  Obligations,  and to  grant to the  Agent  Liens  upon and  security
interests in the  Collateral.  Each Borrower has taken all  necessary  corporate
action  (including  obtaining  approval of its  stockholders  if  necessary)  to
authorize its  execution,  delivery,  and  performance of this Agreement and the
other Loan  Documents to which it is a party.  This Agreement and the other Loan
Documents have been duly executed and delivered by each Borrower, and constitute
the legal, valid and binding  obligations of each Borrower,  enforceable against
it in  accordance  with  their  respective  terms  without  defense,  setoff  or
counterclaim, except, with respect to enforceability, as affected by bankruptcy,
insolvency,  reorganization,  moratorium  or similar laws  affecting  creditors'
rights generally and general  principles of equity.  Each Borrower's  execution,
delivery,  and performance of this Agreement and the other Loan Documents do not
and will not  conflict  with,  or  constitute  a  violation  or  breach  of,  or
constitute a default under,  or result in the creation or imposition of any Lien
upon  the  property  of  either  Borrower  or  any  of  their   Subsidiaries  or
Envirosource by reason of the terms of (a) any contract,  mortgage, Lien, lease,
agreement,  indenture, or instrument to which either Borrower or Envirosource is
a party or which is binding upon it, (b) any  Requirement  of Law  applicable to
either  Borrower  or any of  their  Subsidiaries  or  Envirosource,  or (c)  the
certificate or articles of  incorporation  or by-laws of  Envirosource or any of
its Subsidiaries.

             Each Affiliate of IMS has the corporate power and authority to
execute,  deliver and perform the Loan Documents entered into by such Affiliate.
Each  Affiliate  of IMS has  taken all  necessary  corporate  action  (including
obtaining approval of its stockholders if necessary) to authorize its execution,
delivery,  and  performance of the Loan  Documents to which it is a party.  Such
Loan  Documents  have been duly executed and delivered by each Affiliate of IMS,
and constitute the legal, valid and binding  obligations of each such Affiliate,
enforceable  against  it in  accordance  with  their  respective  terms  without
defense,  setoff or counterclaim,  except,  with respect to  enforceability,  as
affected by bankruptcy, insolvency,  reorganization,  moratorium or similar laws
affecting  creditors'  rights  generally and general  principles of equity.  The
execution,  delivery,  and  performance  of the  Loan  Documents  by  each  such
Affiliate of IMS does not and will not conflict  with, or constitute a violation
or breach  of, or  constitute  a default  under,  or result in the  creation  or
imposition of any Lien upon any of their respective  properties by reason of the
terms of (a) any contract,  mortgage,  Lien,  lease,  agreement,  indenture,  or
instrument,  (b) any  Requirement of Law, or (c) the  certificate or articles of
incorporation or by-laws of Envirosource or any of its Subsidiaries.

        8.2 Validity and Priority of Security  Interest.  The provisions of this
            -------------------------------------------
Agreement and the other Loan  Documents  create legal and valid Liens on all the
Collateral in favor of the Agent,  for the ratable  benefit of the Agent and the
Lenders,  and such Liens  constitute  perfected and continuing  Liens on all the
Collateral  (other than motor vehicles covered by certificates of title owned by
IMS as of the Closing Date and motor vehicles  covered by  certificates of title
acquired by either Borrower after the Closing Date as to which the Agent has not
requested the notation of its Lien thereon at such time),  having  priority over
all other Liens on the Collateral,  except for those Liens identified in clauses
(c),  (d)  and  (e) of the  definition  of  Permitted  Liens  securing  all  the
Obligations, and enforceable against the Borrowers and all third parties.

                                       67

<PAGE>

        8.3 Organization and Qualification. Each Borrower and each Subsidiary of
            ------------------------------
either Borrower (a) is duly  incorporated  and organized and validly existing in
good standing under the laws of the state of its incorporation, (b) is qualified
to do  business  as a  foreign  corporation  and  is in  good  standing  in  the
jurisdictions  set forth on  Schedule  8.3 which are the only  jurisdictions  in
                             -------------
which  qualification  is  necessary in order for it to own or lease its property
and  conduct  its  business  other than in  jurisdictions  the  failure to be so
qualified  and in good  standing  would not  reasonably  be  expected  to have a
Material Adverse Effect and (c) has all requisite power and authority to conduct
its business and to own its property.

        8.4 Corporate Name; Prior Transactions.  Except as set forth on Schedule
            ----------------------------------
8.4, the Borrowers and Services have not,  during the past five (5) years,  been
known by or used any other corporate or fictitious  name, or been a party to any
merger or  consolidation,  or acquired all or substantially all of the assets of
any Person,  or acquired any of its property  outside of the ordinary  course of
business.

        8.5 Subsidiaries and Affiliates.  Schedule 8.5 is a correct and complete
            ---------------------------   ------------
list of the  name  and  relationship  to the  Borrowers  of each  and all of the
Borrowers'  Subsidiaries  and  other  Affiliates.  Each  Subsidiary  is (a) duly
incorporated  and organized and validly existing in good standing under the laws
of its state of  incorporation  set forth on Schedule  8.5, (b)  qualified to do
business as a foreign  corporation and in good standing in each  jurisdiction in
which the  failure to so  qualify or be in good  standing  could  reasonably  be
expected to have a material  adverse effect on any such  Subsidiary's  business,
operations,  prospects,  property, or condition (financial or otherwise) and (c)
has all  requisite  power and  authority  to conduct  its  business  and own its
property.  IMS Waylite,  Inc., formerly a Pennsylvania  corporation,  was merged
into IMS on June 30, 1999.

        8.6 Financial  Statements and Projections.  (a) IMS has delivered to the
            -------------------------------------
Agent and the Lenders  the  audited  balance  sheet and  related  statements  of
income,  retained earnings,  cash flows, and changes in stockholders  equity for
IMS and its  consolidated  Subsidiaries  as of December  31,  1998,  and for the
Fiscal  Year then ended,  accompanied  by the report  thereon of the  Borrower's
independent  certified  public  accountants at such time, Ernst & Young LLP. IMS
has also delivered to the Agent and the Lenders the unaudited  balance sheet and
related  statements  of  income  and  cash  flows  for IMS and its  consolidated
Subsidiaries as of June 30, 1999. Such financial  statements are attached hereto
as Exhibit D. All such  financial  statements  have been  prepared in accordance
   ---------
with GAAP and present  accurately  and fairly the financial  position of IMS and
its  consolidated  Subsidiaries  as at the dates  thereof  and their  results of
operations for the periods then ended.

             (b)  The Latest  Projections  when submitted to the Lenders as
required herein  represent the Borrowers' best estimate of the future  financial
performance of IMS and its  consolidated  Subsidiaries for the periods set forth
therein.  The  Latest  Projections  have  been  prepared  on  the  basis  of the
assumptions  set  forth  therein,  which  the  Borrowers  believe  are  fair and
reasonable in light of current and reasonably foreseeable business conditions at
the time submitted to the Lenders but are not guarantees of future performance.

                                       68

<PAGE>

        8.7  Capitalization.  IMS's  authorized  capital stock consists of 1,000
             --------------
shares of common  stock,  par value $1.00 per share,  of which 1,000  shares are
validly  issued and  outstanding,  fully paid and  non-assessable  and are owned
beneficially and of record by IU. IMS AB's authorized  capital stock consists of
1,000 shares of common stock,  par value $1.00 per share,  of which 1,000 shares
are validly issued and outstanding,  fully paid and non-assessable and are owned
beneficially and of record by IMS.

        8.8  Solvency.  As of the date of each  borrowing and each issuance of a
             --------
Letter of Credit  hereunder,  and after giving effect thereto,  each Borrower is
Solvent.

        8.9 Debt. On the Closing Date,  after giving effect to the making of the
            ----
Revolving Loans to be made on the Closing Date, IMS and its Subsidiaries have no
Debt, except (a) the Obligations,  (b) Debt described on Schedule 8.9, (c) trade
                                                         ------------
payables and other  contractual  obligations  arising in the ordinary  course of
business,  and (d) other Debt  existing on the Closing Date and reflected in the
Financial Statements attached hereto as Exhibit D.
                                        ---------

        8.10  Distributions.  Since July 31, 1999, except as expressly permitted
              -------------
pursuant to Section 9.10 of this Agreement,  no Distribution  has been declared,
paid, or made upon or in respect of any capital stock or other securities of IMS
or any of its Subsidiaries.

        8.11 Title to  Property.  Each  Borrower has good title in fee simple to
             ------------------
the Real Estate identified on Schedule 8.12 as owned by such Borrower,  and each
                              -------------
Borrower  has good,  indefeasible,  and  merchantable  title to all of its other
property  (including  the  assets  reflected  on the  June  30,  1999  Financial
Statements delivered to the Agent and the Lenders,  except as disposed of in the
ordinary  course of business since the date  thereof),  free of all Liens except
Permitted Liens.

        8.12 Real Estate;  Leases.  Schedule 8.12 sets forth,  as of the Closing
             --------------------   -------------
Date,  a correct and  complete  list of all Real Estate  owned by IMS and of any
real property owned by any of its Subsidiaries, all leases and subleases of real
or personal  property held by either Borrower as lessee or sublessee (other than
leases of personal  property as to which the Borrower is lessee or sublessee for
which the value of such personal property is less than $500,000), and all leases
and subleases of real or personal property held by either Borrower as lessor, or
sublessor.  Each of such  leases  and  subleases  is valid  and  enforceable  in
accordance with its terms and is in full force and effect, and no default by any
party to any such lease or sublease exists.

        8.13 Proprietary Rights. Schedule 8.13 sets forth a correct and complete
             ------------------  -------------
list of all of  each  Borrower's  Proprietary  Rights.  None of the  Proprietary
Rights is subject to any licensing  agreement or similar  arrangement  except as
set forth on Schedule 8.13. To the best of each  Borrower's  knowledge,  none of
             -------------
the  Proprietary  Rights  infringes  on or  conflicts  with any  other  Person's
property,  and to the  best of  each  Borrower's  knowledge  no  other  Person's
property  infringes on or conflicts with the  Proprietary  Rights,  in each case
which  infringement or conflict could  reasonably be expected to have a Material
Adverse Effect. The Proprietary Rights described on Schedule 8.13 constitute all
of the  property of such type  necessary to the current and  anticipated  future
conduct of each Borrower's business.

                                       69

<PAGE>

        8.14 Trade Names. All trade names or styles under which each Borrower or
             -----------
any of its  Subsidiaries  will sell  Inventory or create  Accounts,  or to which
instruments  in payment of Accounts may be made payable,  are listed on Schedule
                                                                        --------
8.14.
----

        8.15  Litigation.  Except as set  forth on  Schedule  8.15,  there is no
              ----------                            --------------
pending, or to the best of each Borrower's knowledge  threatened,  action, suit,
proceeding,  or  counterclaim  by any Person,  or to the best of each Borrower's
knowledge  investigation by any Governmental  Authority, or any basis for any of
the foregoing,  which could  reasonably be expected to cause a Material  Adverse
Effect.

        8.16 Restrictive Agreements. Neither Borrower is a party to any contract
             ----------------------
or agreement,  or subject to any charter or other corporate  restriction,  which
affects its  ability to execute,  deliver,  and perform the Loan  Documents  and
repay the Obligations or which could  reasonably be expected to cause a Material
Adverse Effect.

        8.17 Labor Disputes.  Except as set forth on Schedule 8.17, (a) there is
             --------------                          -------------
no collective bargaining agreement or other labor contract covering employees of
IMS or any of its Subsidiaries,  (b) no such collective  bargaining agreement or
other labor  contract is scheduled to expire during the term of this  Agreement,
which  expiration  could  reasonably  be  expected  to cause a Material  Adverse
Effect,  (c) to the best  knowledge  of each  Borrower,  no union or other labor
organization  is seeking  to  organize,  or to be  recognized  as, a  collective
bargaining  unit  of  employees  of IMS or any of its  Subsidiaries  or for  any
similar purpose,  which organization or recognition could reasonably be expected
to cause a Material Adverse Effect,  and (d) there is no pending or (to the best
of each Borrower's knowledge) threatened,  strike work stoppage, material unfair
labor  practice  claim,  or other labor dispute  against or affecting IMS or its
Subsidiaries or their  employees,  which could reasonably be expected to cause a
Material Adverse Effect.

        8.18 Environmental Laws. Except as otherwise disclosed on Schedule 8.18:
             ------------------                                   -------------

             (a) IMS and its Subsidiaries have complied in all respects with all
Environmental  Laws and neither IMS nor any  Subsidiary nor any of its presently
owned real property or presently conducted operations,  nor its previously owned
real property or prior  operations,  is subject to any enforcement order from or
liability agreement with any Governmental Authority or private Person respecting
(i) compliance with any Environmental Law or (ii) any potential  liabilities and
costs or remedial  action  arising from the Release or  threatened  Release of a
Contaminant, in each case which could reasonably be expected to cause a Material
Adverse Effect.

             (b) IMS and its  Subsidiaries  have obtained all permits  necessary
for their  current  operations  under  Environmental  Laws or have  applied  for
renewals  thereof,  and all such  permits are in good  standing  and IMS and its
Subsidiaries  are in compliance  with all material  terms and conditions of such
permits.

                                       70

<PAGE>

             (c)  Neither IMS nor any of its  Subsidiaries,  nor, to the best of
the Borrowers' knowledge,  any of its predecessors in interest, has in violation
of applicable law stored,  treated or disposed of any hazardous  waste,  in each
case which could reasonably be expected to cause a Material Adverse Effect.

             (d)  Neither  IMS  nor any of its  Subsidiaries  has  received  any
summons,  complaint, order or similar written notice that it is not currently in
compliance  with,  or that  any  Governmental  Authority  is  investigating  its
compliance  with, any  Environmental  Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant, in
each case which could reasonably be expected to cause a Material Adverse Effect.

             (e) To the best of the Borrowers' knowledge, none of the present or
past  operations  of the  Borrower  and its  Subsidiaries  is the subject of any
investigation  by any  Governmental  Authority  evaluating  whether any remedial
action is needed to respond to a Release or threatened Release of a Contaminant.

             (f) There is not now, nor to the best of the  Borrowers'  knowledge
has there ever been on or in the Real Estate:

                  (1)  any underground storage tanks or surface impoundments,

                  (2)  any asbestos-containing material, or

                  (3)  any  polychlorinated  biphenyls  (PCBs) used in hydraulic
oils,  electrical  transformers or other equipment,

in each case which could  reasonably  be  expected  to cause a Material  Adverse
Effect.

             (g)  Neither IMS nor any of its  Subsidiaries  has filed any notice
under any requirement of  Environmental  Law reporting a spill or accidental and
unpermitted Release or discharge of a Contaminant into the environment.

             (h) Neither IMS nor any of its  Subsidiaries  has entered  into any
negotiations or settlement agreements with any Person (including the prior owner
of  its  property)  imposing  obligations  or  liabilities  on IMS or any of its
Subsidiaries with respect to any remedial action in response to the Release of a
Contaminant  or  environmentally   related  claim,  in  each  case  which  could
reasonably be expected to cause a Material Adverse Effect.

             (i) None of the products  manufactured,  distributed or sold by IMS
or any of its Subsidiaries contain asbestos containing material.

             (j)  No Environmental Lien has attached to the Real Estate.

                                       71

<PAGE>

        8.19 No Violation of Law.  Neither IMS nor any of its Subsidiaries is in
             -------------------
violation of any law, statute, regulation, ordinance, judgment, order, or decree
applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.

        8.20 No Default.  Neither IMS nor any of its  Subsidiaries is in default
             ----------
with respect to any note, indenture,  loan agreement,  mortgage, lease, deed, or
other  agreement  to which IMS or such  Subsidiary  is a party or by which it is
bound,  which  default could  reasonably be expected to have a Material  Adverse
Effect.

        8.21 ERISA  Compliance.  Except as  specifically  disclosed  in Schedule
             -----------------                                          --------
8.21:
----

             (a) Each Plan is in  compliance  in all material  respects with the
applicable  provisions  of ERISA,  the Code and other federal or state law. Each
Plan which is intended to qualify under Section  401(a) of the Code has received
a favorable  determination  letter from the IRS and to the best knowledge of the
Borrowers,   nothing   has   occurred   which  would  cause  the  loss  of  such
qualification.  The  Borrowers and each ERISA  Affiliate  have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding  waiver or an extension  of any  amortization  period  pursuant to
Section 412 of the Code has been made with respect to any Plan.

             (b) There are no pending or, to the best  knowledge  of  Borrowers,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could  reasonably  be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary  responsibility  rules with respect to any Plan which
has  resulted or could  reasonably  be expected to result in a Material  Adverse
Effect.

             (c) No ERISA Event has occurred or is reasonably expected to occur;
no Pension Plan has any Unfunded  Pension  Liability;  neither the Borrowers nor
any ERISA Affiliate has incurred,  or reasonably expects to incur, any liability
under Title IV of ERISA with  respect to any Pension  Plan (other than  benefits
due under such Pension Plan and other than premiums due and not delinquent under
Section  4007 of ERISA);  neither  the  Borrowers  nor any ERISA  Affiliate  has
incurred,  or  reasonably  expects  to incur,  any  liability  (and no event has
occurred  which,  with the giving of notice under  Section 4219 of ERISA,  would
result in such liability)  under Section 4201 or 4243 of ERISA with respect to a
Multi-employer  Plan;  and neither the  Borrowers  nor any ERISA  Affiliate  has
engaged in a  transaction  that  could be subject to Section  4069 or 4212(c) of
ERISA.

        8.22  Taxes.  IMS and its  Subsidiaries  have filed all  federal and all
              -----
other material tax returns and reports  required to be filed,  and have paid all
federal and other taxes, assessments, fees and other governmental charges levied
or imposed upon them or their  properties,  income or assets  otherwise  due and
payable unless such unpaid taxes and  assessments  would  constitute a Permitted
Lien.

        8.23 Regulated Entities.  None of the Borrowers,  any Person controlling
             ------------------
the Borrowers, or any Subsidiary,  is an "Investment Company" within the meaning
of the  Investment  Company  Act of  1940.  The  Borrowers  are not  subject  to

                                       72

<PAGE>

regulation  under the Public  Utility  Holding  Company Act of 1935, the Federal
Power Act, the Interstate  Commerce Act, any state public utilities code or law,
or any other  federal or state  statute or  regulation  limiting  its ability to
incur indebtedness.

        8.24 Use of Proceeds; Margin Regulations.  The proceeds of the Loans are
             -----------------------------------
to be used for working capital and other general corporate purposes. Neither IMS
nor any  Subsidiary is engaged in the business of  purchasing or selling  Margin
Stock or  extending  credit for the purpose of  purchasing  or  carrying  Margin
Stock.

        8.25 Copyrights,  Patents,  Trademarks and Licenses,  etc. The Borrowers
             ----------------------------------------------------
own or are  licensed  or  otherwise  have the  right to use all of the  patents,
trademarks,  service marks,  trade names,  copyrights,  contractual  franchises,
licenses,  rights of way, authorizations and other rights that are necessary for
the operation of their businesses, without conflict with the rights of any other
Person,  except any conflict  which could not  reasonably  be expected to have a
Material  Adverse Effect.  To the best knowledge of the Borrowers,  no slogan or
other advertising device, product,  process,  method,  substance,  part or other
material now employed,  or now contemplated to be employed,  by the Borrowers or
any Subsidiary  infringes upon any rights held by any other Person.  No claim or
litigation  regarding  any of the  foregoing  is pending or  threatened,  and no
patent,  invention,  device,  application,  principle or any statute, law, rule,
regulation,  standard or code is pending or, to the knowledge of the  Borrowers,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.

        8.26 No Material Adverse Change. No material adverse change has occurred
             --------------------------
in the Borrowers' property,  business,  operations,  or conditions (financial or
otherwise) since the date of the Financial  Statements  delivered to the Lenders
for Borrower's  Fiscal Year ended December 31, 1998,  other than the non-renewal
of certain  contracts with customers,  which  non-renewals  have been previously
disclosed in writing to the Agent.  On the basis of a  comprehensive  review and
assessment  undertaken by IMS of Borrowers' computers and computer  applications
and  inquiry  made of  Borrowers'  material  suppliers,  vendors  and  customers
Borrowers  reasonably  believe that the "Year 2000  problem"  (that is, the risk
that  computers  and computer  applications  used by any Person may be unable to
recognize and perform properly date-sensitive  functions involving certain dates
prior to and any date  after  December  31,  1999) will not result in a Material
Adverse Effect.

        8.27 Full Disclosure.  None of the representations or warranties made by
             ---------------
IMS or any Subsidiary in the Loan Documents as of the date such  representations
and warranties are made or deemed made, and none of the statements  contained in
any exhibit,  report,  statement or certificate furnished by or on behalf of IMS
or any Subsidiary in connection with the Loan Documents  (including the offering
and disclosure  materials  delivered by or on behalf of IMS to the Lenders prior
to the Closing Date),  contains any untrue statement of a material fact or omits
any  material  fact  required  to be stated  therein  or  necessary  to make the
statements  made  therein,  in light of the  circumstances  under which they are
made, not misleading as of the time when made or delivered.

        8.28  Material  Agreements.  Except as set  forth in the next  sentence,
              --------------------
Schedule 8.28 hereto sets forth all agreements and contracts to which IMS or any
of its  Subsidiaries is a party or is bound as of the date hereof,  which create

                                       73

<PAGE>

revenue to the  Borrowers  or cost or  liability  to the  Borrowers in excess of
$1,500,000.  All  contracts  with  customers  are available to the Agent and the
Lenders upon request.

        8.29 Bank Accounts.  Schedule 8.29 contains a complete and accurate list
             -------------
of all  bank  accounts  maintained  by the  Borrowers  with  any  bank or  other
financial institution.

        8.30  Governmental  Authorization.   No  approval,  consent,  exemption,
              ---------------------------
authorization,   or  other  action  by,  or  notice  to,  or  filing  with,  any
Governmental  Authority or other  Person is necessary or required in  connection
with the execution,  delivery or performance by, or enforcement  against, IMS or
any of its  Subsidiaries of this Agreement or any other Loan Document other than
any filings  with  Governmental  Authorities  to perfect to Agent's  Lien on any
Collateral.

        8.31  Envirosource  Letters of Credit.  The Letters of Credit issued for
              -------------------------------
the account of Envirosource  that are Letters of Credit  hereunder are set forth
on Schedule 8.31 hereto.  IMS and its business  account for not less than ninety
percent  (90%) of the face amount of the  Letters of Credit with  respect to the
matters covered thereby.

        8.32  No  Liability  for  Senior  Notes.  Neither  IMS  nor  any  of its
              ---------------------------------
Subsidiaries  has any  liability  on or with  respect to the Senior Notes or the
Senior Notes Indentures.


                                    ARTICLE 9

                       AFFIRMATIVE AND NEGATIVE COVENANTS
                       ----------------------------------

                  The  Borrowers  covenant  to the Agent and each Lender that so
long  as any of the  Obligations  remain  outstanding  or this  Agreement  is in
effect:

        9.1 Taxes and Other Obligations.  IMS shall, and shall cause each of its
            ---------------------------
Subsidiaries to, (a) file when due all tax returns and other reports which it is
required to file;  (b) pay, or provide for the payment,  when due, of all taxes,
fees,  assessments  and  other  governmental  charges  against  it or  upon  its
property,  income and  franchises,  make all required  withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
provide to the Agent and the Lenders, upon request, satisfactory evidence of its
timely  compliance  with the  foregoing;  and (c) pay when due all material Debt
owed by it (other  than Debt for  Borrowed  Money as to which the failure to pay
would not constitute an Event of Default under Section  11.1(d) and all accounts
payable which shall be paid in accordance with industry norms) and all claims of
materialmen, mechanics, carriers, warehousemen,  landlords, processors and other
like Persons, and all other indebtedness owed by it and perform and discharge in
a timely manner all other obligations  undertaken by it; provided,  however,  so
                                                         --------   -------
long as the applicable  Borrower has notified the Agent in writing,  neither IMS
nor any of its Subsidiaries need pay any tax, fee,  assessment,  or governmental
charge, or claim of materialmen,  mechanics, carriers,  warehousemen,  landlords
and other like Persons that (i) it is  contesting  in good faith by  appropriate
proceedings diligently pursued, (ii) IMS or its Subsidiary,  as the case may be,

                                       74

<PAGE>

has  established  proper  reserves  for as provided  in GAAP,  and (iii) no Lien
(other than a Permitted Lien) results from such non-payment.

        9.2 Corporate  Existence and Good Standing.  IMS shall,  and shall cause
            --------------------------------------
each  of  its  Subsidiaries  to,  maintain  its  corporate   existence  and  its
qualification  and good  standing in all  jurisdictions  in which the failure to
maintain such existence and  qualification  or good standing could reasonably be
expected to have a Material Adverse Effect.

        9.3 Compliance  with Law and  Agreements;  Maintenance of Licenses.  IMS
            --------------------------------------------------------------
shall comply,  and shall cause each  Subsidiary to comply,  in all respects with
all Requirements of Law of any Governmental  Authority having  jurisdiction over
it or its business  (including  the Federal Fair Labor  Standards  Act),  except
where the failure to comply could not  reasonably be expected to have a Material
Adverse Effect.  IMS shall,  and shall cause each of its Subsidiaries to, obtain
and maintain all licenses, permits,  franchises, and governmental authorizations
necessary  to own its  property  and to conduct its business as conducted on the
Closing Date except where the failure to do so could not  reasonably be expected
to have a Material  Adverse  Effect.  The Borrowers  shall not modify,  amend or
alter their respective  certificate or article of incorporation  other than in a
manner which does not adversely affect the rights of the Lenders or the Agent.

        9.4  Maintenance  of  Property.  IMS shall,  and shall cause each of its
             -------------------------
Subsidiaries  to,  maintain  all of its  property  necessary  and  useful in the
conduct of its business,  in good operating condition and repair,  ordinary wear
and tear excepted.

        9.5  Insurance.  IMS  shall  maintain,  and  shall  cause  each  of  its
             ---------
Subsidiaries to maintain, with financially sound and reputable insurers having a
rating of at least AVII or better by Best Rating Guide,  insurance  against loss
or damage by fire with extended coverage; theft, burglary, pilferage and loss in
transit; public liability and third party property damage; larceny, embezzlement
or other criminal liability;  business interruption;  public liability and third
party  property  damage;  and such other  hazards  or of such other  types as is
customary for Persons engaged in the same or similar business,  as the Agent, in
its discretion,  shall specify, in amounts, and under policies acceptable to the
Agent and the Majority Lenders.  Without limiting the foregoing,  IMS shall also
maintain, and shall cause each of its Subsidiaries to maintain, flood insurance,
in the event the area in which any Real Estate covered by the Mortgages (if any)
and any of the  Equipment  located on such Real Estate is  designated  as "flood
prone" or a "flood  risk  area,"  (hereinafter  "SFHA")  as defined by the Flood
Disaster Protection Act of 1973, in an amount to be reasonably determined by the
Agent,  and shall comply with the additional  requirements of the National Flood
Insurance  Program as set forth in said Act. The  Borrowers  shall also maintain
flood insurance for its Equipment which is, at any time, located in a SFHA.

             (b) The Borrowers shall cause the Agent, for the ratable benefit of
the Agent and the Lenders,  to be named as secured  party or mortgagee  and sole
loss payee or additional  insured,  in a manner  acceptable  to the Agent.  Each
policy of insurance shall contain a clause or endorsement  requiring the insurer
to give not less than thirty (30) days' prior written notice to the Agent in the
event of  cancellation  of the policy for any reason  whatsoever and a clause or
endorsement  stating  that the  interest  of the Agent  shall not be impaired or

                                       75

<PAGE>

invalidated by any act or neglect of the Borrowers or any of their  Subsidiaries
or the owner of any Real Estate for purposes more  hazardous  than are permitted
by such policy.  All premiums for such insurance  shall be paid by the Borrowers
when due,  and  certificates  of  insurance  and,  upon  request  of the  Agent,
photocopies of the policies,  shall be delivered to the Agent.  If the Borrowers
fail to procure such  insurance or to pay the  premiums  therefor  when due, the
Agent may, and at the direction of the Majority  Lenders  shall,  do so from the
proceeds of Revolving Loans.

             (c) The Borrowers  shall promptly  notify the Agent and the Lenders
of any material loss,  damage, or destruction to the Collateral,  whether or not
covered by  insurance.  The Agent is hereby  authorized to collect all insurance
proceeds  in  respect  of  Collateral  directly  and to apply  or remit  them as
follows:

                  (i) With respect to insurance  proceeds relating to Collateral
other than Fixed  Assets,  after  deducting  from such  proceeds the  reasonable
expenses,  if any,  incurred by the Agent in the collection or handling thereof,
the  Agent  shall  apply  such  proceeds,  ratably,  to  the  reduction  of  the
Obligations in the order provided for in Section 4.8.
                                         -----------

                  (ii) With respect to insurance proceeds relating to Collateral
consisting of Fixed Assets,  after  deducting  from such proceeds the reasonable
expenses,  if any,  incurred by the Agent in the collection or handling thereof,
the  Agent  shall  apply  such  proceeds,  ratably,  to  the  reduction  of  the
Obligations, or at the option of the Majority Lenders, may permit or require the
Borrowers to use such money, or any part thereof, to replace, repair, restore or
rebuild the  relevant  Fixed Assets in a diligent  and  expeditious  manner with
materials and  workmanship of  substantially  the same quality as existed before
the loss, damage or destruction;  provided,  however, that so long as there does
                                  --------   -------
not then exist any Default or Event of Default, the Borrowers shall be permitted
to use insurance  proceeds relating to Collateral  consisting of Fixed Assets in
an aggregate  amount not to exceed $250,000 with respect to any  occurrence,  to
replace, repair, restore or rebuild the relevant Fixed Assets, in the manner set
forth in this sentence;  and provided,  further, that the Borrowers first (i) to
                             --------   -------
the extent  applicable,  provides the Agent and the Majority  Lenders with plans
and  specifications for any such repair or restoration which shall be reasonably
satisfactory to the Agent and the Majority Lenders and (ii)  demonstrates to the
reasonable  satisfaction  of the Agent and the  Majority  Lenders that the funds
available  to it will be  sufficient  to  complete  such  project  in the manner
provided therein.

        9.6 Intentionally Omitted

        9.7  Environmental  Laws.  (a) IMS  shall,  and shall  cause each of its
             -------------------
Subsidiaries to, conduct its business in compliance with all Environmental  Laws
applicable to it,  including  those relating to the generation,  handling,  use,
storage, and disposal of any Contaminant. IMS shall, and shall cause each of its
Subsidiaries  to,  take  prompt  and  appropriate   action  to  respond  to  any
non-compliance  with  Environmental Laws and shall regularly report to the Agent
on such response.

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<PAGE>

             (b) Without limiting the generality of the foregoing, the Borrowers
shall  submit to the Agent and the  Lenders  annually,  commencing  on the first
Anniversary  Date, and on each  Anniversary  Date  thereafter,  an update of the
status of each  environmental  compliance or liability  issue.  The Agent or any
Lender may request copies of technical reports prepared by the Borrowers and its
communications  with any Governmental  Authority to determine whether IMS or any
of its Subsidiaries is proceeding reasonably to correct, cure or contest in good
faith any alleged  non-compliance  or  environmental  liability.  The  Borrowers
shall,  at the Agent's or the Majority  Lenders'  request and at the  Borrowers'
expense,  (i) retain an  independent  environmental  engineer  acceptable to the
Agent  to  evaluate  the  site,  including  tests  if  appropriate,   where  the
non-compliance or alleged  non-compliance  with  Environmental Laws has occurred
and prepare and deliver to the Agent, in sufficient quantity for distribution by
the Agent to the Lenders, a report setting forth the results of such evaluation,
a proposed plan for responding to any environmental  problems described therein,
and an  estimate  of the costs  thereof,  and (ii)  provide to the Agent and the
Lenders  a  supplemental  report  of such  engineer  whenever  the  scope of the
environmental  problems, or the response thereto or the estimated costs thereof,
shall change in any material respect.

        9.8 Compliance with ERISA.  IMS shall, and shall cause each of its ERISA
            ---------------------
Affiliates  to: (a) maintain each Plan in  compliance  in all material  respects
with the  applicable  provisions  of ERISA,  the Code and other federal or state
law; (b) cause each Plan which is qualified  under Section 401(a) of the Code to
maintain such  qualification;  (c) make all required  contributions  to any Plan
subject to Section 412 of the Code;  (d) not engage in a prohibited  transaction
or violation of the fiduciary responsibility rules with respect to any Plan; and
(e) not engage in a transaction that could be subject to Section 4069 or 4212(c)
of ERISA.

        9.9  Mergers,  Consolidations  or  Sales.  Neither  IMS  nor  any of its
             -----------------------------------
Subsidiaries  shall enter into any  transaction  of merger,  reorganization,  or
consolidation,  or transfer, sell, assign, lease, or otherwise dispose of all or
any part of its property,  or wind up, liquidate or dissolve, or agree to do any
of the  foregoing,  except (i) for sales of Inventory in the ordinary  course of
its business,  (ii) for sales or other dispositions of Equipment in the ordinary
course of business  that are  obsolete,  surplus or no longer  useable by either
Borrower in its business as permitted  by Section  6.11,  (iii) for spot rentals
                                          -------------
and other leases of equipment to Account Debtors,  in each case, in the ordinary
course of business to the extent permitted under Section 6.11, (iv) for sales of
equipment  subject to purchase  options but only to the extent  permitted  under
Section 6.11, (v) for sale leaseback  transactions permitted under Section 9.20,
(vi) for sales,  leases,  assignments or other  transfers of equipment and other
tangible property,  contracts,  intangibles or similar assets to Envirosource or
Parent,  provided that (A) IMS determines in good faith that such disposition is
necessary  or  appropriate  to  accomplish a  reasonable  business  objective of
Envirosource and its Subsidiaries and such disposition is not disadvantageous to
the Lenders in any  material  respect and (B) the  aggregate  amount of all such
dispositions to Envirosource and Parent shall not exceed  $1,000,000,  (vii) for
transfers of Equipment  between  Borrowers and (viii) for the merger of Services
and/or  IMS AB  into  IMS.  The  inclusion  of  proceeds  in the  definition  of
Collateral shall not be deemed to constitute the Agent's or any Lender's consent
to any sale or other disposition of the Collateral except as expressly permitted
herein.

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<PAGE>

        9.10 Distributions;  Capital Change; Restricted Investments. Neither IMS
             ------------------------------------------------------
nor any of its Subsidiaries shall (i) directly or indirectly declare or make, or
incur any liability to make, any  Distribution,  except  Distributions to IMS by
its Subsidiaries, (ii) make any change in its capital structure which could have
a Material Adverse Effect or (iii) make any Restricted Investment other than the
incurrence  of trade  credit in the  ordinary  course of business  and loans and
advances  to Parent  and/or  Envirosource  to the  extent  that  such  loans and
advances are  evidenced by  intercompany  notes which are subject to the Agent's
Liens;  provided  that  so long as no  Event  of  Default  has  occurred  and is
continuing, (a) IMS and its Subsidiaries may declare and pay dividends to Parent
or  Envirosource,  (b) IMS may make loans to employees in the ordinary course of
business not to exceed an aggregate of $500,000 outstanding at any time, (c) IMS
may deposit  trust funds in the ordinary  course of its  business in  connection
with the closure of certain  properties,  such deposits not to exceed $1,000,000
in the aggregate at any time and (d) IMS may maintain its existing investment in
its  Subsidiaries  and may invest up to $25,000,000 in the aggregate in cash and
property in IMS AB after the Closing Date.

        9.11 Transactions  Affecting Collateral or Obligations.  Neither IMS nor
             -------------------------------------------------
any of its  Subsidiaries  shall  enter  into  any  transaction  which  would  be
reasonably expected to have a Material Adverse Effect.

        9.12  Guaranties.  Neither IMS nor any of its  Subsidiaries  shall make,
              ----------
issue, or become liable on any Guaranty, except Guaranties of the Obligations in
favor of the Agent and  Guaranties by IMS of  obligations of IMS AB and Services
in the ordinary course of business.

        9.13  Debt.  Neither  IMS nor any of its  Subsidiaries  shall  incur  or
              ----
maintain  any Debt,  other than:  (a) the  Obligations;  (b) trade  payables and
contractual  obligations  to  suppliers  and  customers  arising in the ordinary
course of business; (c) other Debt existing on the Closing Date and reflected in
the Financial  Statements  attached  hereto as Exhibit D; (d) Debt  described on
                                               ---------
Schedule 8.9; (e) Debt secured by Purchase  Money Liens;  (f) Debt borrowed from
------------
Affiliates after the Closing Date; (g) insurance premium financing;  (h) Debt in
respect of Guaranties  permitted  under Section 9.12; and (i) unsecured Debt for
Borrowed  Money  in  an  amount  not  to  exceed  $5,000,000  in  the  aggregate
outstanding at any time.

        9.14  Prepayment.   Neither  IMS  nor  any  of  its  Subsidiaries  shall
              ----------
voluntarily  prepay any Debt,  except (a) the Obligations in accordance with the
terms of this Agreement,  (b) trade Debt to take advantage of trade discounts in
the ordinary course of business and (c) prepayment of Intercompany Accounts.

        9.15 Transactions with Affiliates. Except as set forth below, and except
             ----------------------------
as expressly permitted pursuant to Sections 9.9(vi), 9.9(vii),  9.9(viii), 9.10,
9.12 and 9.13, neither IMS nor any of its Subsidiaries  shall,  sell,  transfer,
distribute,  or pay any money or  property,  including,  but not limited to, any
fees or  expenses  of any nature  (including,  but not  limited  to, any fees or
expenses for management services), to any Affiliate, or lend or advance money or
property to any Affiliate,  or invest in (by capital  contribution or otherwise)
or purchase or repurchase  any stock or  indebtedness,  or any property,  of any
Affiliate,  or become liable on any Guaranty of the indebtedness,  dividends, or

                                       78

<PAGE>

other  obligations of any  Affiliate.  Notwithstanding  the foregoing,  while no
Event of Default has occurred and is continuing,  IMS and its  Subsidiaries  may
engage in  transactions  with (a) Affiliates in the ordinary  course of business
consistent with past practices, in amounts and upon terms fully disclosed to the
Agent  and the  Lenders  (other  than  transactions  having a value of less than
$75,000 which need not be so  disclosed),  and no less  favorable to IMS and its
Subsidiaries  than would be obtained in a  comparable  arm's-length  transaction
with a third party who is not an  Affiliate  and (b) Limited  upon the terms and
conditions set forth on Schedule 9.15.
                        -------------

        9.16  Investment  Banking and Finder's Fees.  Neither IMS nor any of its
              -------------------------------------
Subsidiaries  shall  pay or agree to pay,  or  reimburse  any other  party  with
respect to, any investment banking or similar or related fee, underwriter's fee,
finder's fee, or broker's fee to any Person in connection  with this  Agreement.
The Borrowers  shall defend and indemnify the Agent and the Lenders  against and
hold them harmless from all claims of any Person that the Agent,  the Lenders or
the Borrowers are obligated to pay for any such fees, and all costs and expenses
(including  attorneys'  fees)  incurred  by  the  Agent  and/or  any  Lender  in
connection therewith.

        9.17  Reserved.
              --------

        9.18 Business  Conducted.  IMS shall not and shall not permit any of its
             -------------------
Subsidiaries  to, engage  directly or indirectly,  in any line of business other
than the  businesses  in which the Borrowers are engaged on the Closing Date and
businesses  reasonably  related  thereto.  IMS AB will conduct only the business
related to the contract between IMS and IPSCO,  Inc. for IPSCO's mill located in
Mobile,  Alabama, and business related thereto, which contract is to be assigned
to IMS AB.

        9.19 Liens. Neither IMS nor any of its Subsidiaries shall create, incur,
             -----
assume,  or  permit  to exist any Lien on any  property  now owned or  hereafter
acquired by any of them, except Permitted Liens.

        9.20  Sale  and  Leaseback  Transactions.  Neither  IMS  nor  any of its
              ----------------------------------
Subsidiaries shall, directly or indirectly,  enter into any arrangement with any
Person  providing for IMS or such  Subsidiary to lease or rent property that IMS
or such  Subsidiary  has sold or will sell or otherwise  transfer to such Person
unless any such transaction is permitted under all other  applicable  provisions
hereof  and  occurs  within  180 days  after  the  later of the date IMS or such
Subsidiary (a) acquired such property  subject to any such  transaction  and (b)
placed such property in service,  the net cash proceeds with respect to any such
transaction are applied to the Obligations, the applicable Borrower notifies the
Agent of each such transaction and upon the occurrence of any such  transaction,
no such property shall constitute Eligible Equipment.

        9.21 New Subsidiaries.  The Borrowers shall not, directly or indirectly,
             ----------------
organize,  create,  acquire or permit to exist any  Subsidiary  other than those
listed on Schedule 8.5.

        9.22 Fiscal Year. The Borrowers shall not change their Fiscal Year.
             -----------

                                       79

<PAGE>

        9.23 Capital  Expenditures.  (a) Neither IMS nor any of its Subsidiaries
             ---------------------
shall make or incur any Capital Expenditure if, after giving effect thereto, the
aggregate  amount of all Capital  Expenditures by IMS and its  Subsidiaries on a
consolidated  basis would  exceed  $25,000,000  for any Fiscal Year of Borrowers
plus,  commencing  with  Borrower's  Fiscal Year ending December 31, 2001, up to
$10,000,000 of any unutilized  Capital  Expenditure  amount from the immediately
preceding Fiscal Year.

             (b)  Borrowers  shall  continue  to make  Capital  Expenditures  to
maintain  their  Equipment  in  good  working  order,  and  shall  make  Capital
Expenditures of not less than $12,000,000 during each Fiscal Year.

        9.24  Operating   Lease   Obligations.   Neither  IMS  nor  any  of  its
              -------------------------------
Subsidiaries shall enter into, or suffer to exist, any lease of real or personal
property as lessee or sublessee  (other than a Capital Lease),  if, after giving
effect thereto, the aggregate amount of Rentals (as hereinafter defined) payable
by IMS and its  Subsidiaries  on a  consolidated  basis  in any  Fiscal  Year in
respect of such lease and all other such leases would exceed  $18,000,000  (such
amount being  referred to herein as  "Permitted  Rentals").  The term  "Rentals"
means all payments due from the lessee or  sublessee  under a lease,  including,
without  limitation,  basic rent,  percentage rent,  property taxes,  utility or
maintenance costs, and insurance premiums.

        9.25  EBITDA.  IMS and its  Subsidiaries  will not  permit  EBITDA  on a
              ------
consolidated  basis to fall  below the  following  amounts  for the four  fiscal
quarter period ending on the following dates:

                  Date                                        Minimum EBITDA
                  ----                                        --------------

                  09/30/99                                    52,000,000
                  12/31/99                                    53,000,000
                  03/31/00                                    52,000,000
                  06/30/00                                    48,500,000
                  09/30/00                                    44,500,000
                  12/31/00                                    44,500,000
                  03/31/01                                    43,500,000
                  06/30/01                                    44,000,000
                  09/30/01                                    44,000,000
                  12/31/01                                    46,000,000
                  03/31/02                                    47,000,000
                  06/30/02                                    48,000,000
                  09/30/02                                    49,000,000
                  12/31/02 and each fiscal quarter thereafter 50,000,000

                                       80

<PAGE>

        9.26  Fixed  Charge  Coverage  Ratios.  IMS  and its  Subsidiaries  will
              -------------------------------
maintain a Fixed Charge  Coverage Ratio on a consolidated  basis for each period
of four  consecutive  fiscal quarters ended at the end of the fiscal quarter set
forth  below of not less than the ratio set forth  below  opposite  such  fiscal
quarter:

                  Fiscal Quarter End                          Ratio
                  ------------------                          -----

                  09/30/99                                     .80
                  12/31/99                                     .93
                  03/31/00                                     .90
                  06/30/00                                     .85
                  09/30/00                                     .80
                  12/31/00                                     .80
                  03/31/01                                     .80
                  06/30/01                                     .83
                  09/30/01                                     .86
                  12/31/01 and each fiscal quarter thereafter 1.00

        9.27 Use of Proceeds.  IMS shall not, and shall not suffer or permit any
             ---------------
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i)
to  purchase  or  carry  Margin  Stock,  (ii) to repay  or  otherwise  refinance
indebtedness  of the  Borrowers  or others  incurred to purchase or carry Margin
Stock,  (iii) to extend  credit for the purpose of  purchasing  or carrying  any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.

        9.28  Intentionally Omitted.
              ---------------------

        9.29  Conduct of Business by Limited.  IMS shall  continue to enter into
              ------------------------------
all contracts with  customers  located in Canada and Limited shall solely act as
IMS's subcontractor.

        9.30  Minimum Availability.  The Borrowers  shall at all times  maintain
              --------------------
Availability of not less than $8,000,000.

        9.31 Further  Assurances.  The Borrowers  shall execute and deliver,  or
             -------------------
cause to be  executed  and  delivered,  to the Agent  and/or  the  Lenders  such
documents and agreements,  and shall take or cause to be taken such actions,  as
the Agent or any Lender may, from time to time,  reasonably request to carry out
the terms and conditions of this Agreement and the other Loan Documents.

                                       81

<PAGE>

                                   ARTICLE 10

                             CONDITIONS OF LENDING
                             ---------------------

        10.1  Conditions  Precedent to Making of Loans on the Closing Date.  The
              ------------------------------------------------------------
obligation  of the  Lenders to make the initial  Revolving  Loans on the Closing
Date,  and the  obligation  of the Agent to cause the Letter of Credit Issuer to
issue any Letter of Credit on the  Closing  Date are  subject  to the  following
conditions  precedent having been satisfied in a manner reasonably  satisfactory
to the Agent and each Lender:

             (a) This  Agreement  and the other Loan  Documents  shall have been
executed  by each  party  thereto  and the  Borrower  shall have  performed  and
complied with all covenants,  agreements and conditions contained herein and the
other Loan Documents  which are required to be performed or complied with by the
Borrowers before or on such Closing Date.

             (b) Upon making the Revolving  Loans on the Closing Date (including
such  Revolving  Loans made to finance fees or otherwise  as  reimbursement  for
fees,  costs and  expenses  then  payable  under this  Agreement),  causing  the
issuance or  continuation  of Letters of Credit and after  giving  effect to the
payment of all accounts payable and other amounts more than 30 days past due and
the amount of  interest  payable by  Envirosource  on  December  15, 1999 on the
Senior Notes,  the Borrowers  would have  Availability in an amount no less than
$12,400,000.

             (c) All  representations  and warranties  made hereunder and in the
other Loan Documents shall be true and correct as of the Closing Date as if made
on such date.

             (d) No Default or Event of Default shall exist on the Closing Date,
or would  exist  after  giving  effect to the Loans to be made,  the  Letters of
Credit to be issued and the Credit Support to be in place on such date.

             (e) The Agent and the Lenders  shall have received such opinions of
counsel for IMS and its  Subsidiaries  as the Agent or any Lender shall request,
each such opinion to be in a form,  scope,  and  substance  satisfactory  to the
Agent, the Lenders, and their respective counsel.

             (f)  IMS's  EBITDA on  a consolidated  basis for  the  first  eight
months of 1999 shall be not less than $30,000,000.

             (g)  The Agent shall have received:

                  (i) acknowledgment copies of proper financing statements, duly
filed on or before the Closing Date under the UCC of all jurisdictions  that the
Agent may deem necessary or desirable in order to perfect the Agent's Lien; and

                  (ii) duly executed UCC-3 Termination Statements and such other
instruments,  in form  and  substance  satisfactory  to the  Agent,  as shall be
necessary  to  terminate  and satisfy  all Liens on the  property of IMS and its
Subsidiaries except Permitted Liens.

                                       82

<PAGE>

             (h) The  Borrowers  shall  have paid all fees and  expenses  of the
Agent  and the  Attorney  Costs  incurred  in  connection  with  any of the Loan
Documents and the transactions contemplated thereby to the extent invoiced.

             (i) The Agent shall have received  evidence,  in form,  scope,  and
substance,  reasonably  satisfactory to the Agent, of all insurance  coverage as
required by this Agreement.

             (j) The Agent and the  Lenders  shall have had an  opportunity,  if
they so choose,  to examine the books of account and other  records and files of
the Borrowers  and to make copies  thereof,  and to conduct a pre-closing  audit
which shall include, without limitation, verification of Accounts, Equipment and
the Borrowing  Base,  and the results of such  examination  and audit shall have
been satisfactory to the Agent and the Lenders in all respects.

             (k) All proceedings  taken in connection with the execution of this
Agreement,  all other Loan  Documents  and all  documents  and  papers  relating
thereto shall be satisfactory in form, scope, and substance to the Agent and the
Lenders.

             The  acceptance  by the  Borrowers  of any Loans made or Letters of
Credit  issued on the Closing  Date shall be deemed to be a  representation  and
warranty made by the Borrower to the effect that all of the conditions precedent
to the making of such Loans or the  issuance of such Letters of Credit have been
satisfied,  with the same  effect as  delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Borrowers,  dated the Closing
Date, to such effect.

             Execution and delivery to the Agent by a Lender of a counterpart of
this  Agreement  shall  be  deemed  confirmation  by such  Lender  that  (i) all
conditions   precedent  in  this  Section  10.1  have  been   fulfilled  to  the
satisfaction  of such  Lender,  (ii) the  decision of such Lender to execute and
deliver to the Agent an executed  counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition  precedent set forth in this Section 10.1, and
(iii) all documents sent to such Lender for approval  consent,  or  satisfaction
were acceptable to such Lender.

        10.2 Conditions Precedent to Each Loan. The obligation of the Lenders to
             ---------------------------------
make each Loan,  including the initial  Revolving Loans on the Closing Date, and
the  obligation  of the Agent to cause the Letter of Credit  Issuer to issue any
Letter of Credit shall be subject to the further  conditions  precedent  that on
and as of the date of any such extension of credit:

             (a) the following  statements  shall be true, and the acceptance by
the  Borrowers  of any  extension of credit shall be deemed to be a statement to
the  effect  set  forth in  clauses  (i) and (ii),  with the same  effect as the
delivery to the Agent and the Lenders of a  certificate  signed by a Responsible
Officer, dated the date of such extension of credit, stating that:

                  (i)  The  representations  and  warranties  contained  in this
Agreement and the other Loan  Documents are correct in all material  respects on
and as of the date of such  extension of credit as though made on and as of such

                                       83

<PAGE>

date,  other  than  any such  representation  or  warranty  which  relates  to a
specified  prior date and except to the  extent the Agent and the  Lenders  have
been notified by any Borrower that any representation or warranty is not correct
and the Majority Lenders have explicitly waived in writing  compliance with such
representation or warranty; and

                  (ii) No event has occurred and is continuing,  or would result
from such  extension  of  credit,  which  constitutes  a Default  or an Event of
Default; and

                  (iii)  No Material Adverse Effect has occurred; and

             (b) The amount of the  Borrowing  Base shall be  sufficient to make
such  Revolving  Loans or issue such  Letters of Credit  without  exceeding  the
Availability, provided, however, that the foregoing conditions precedent are not
conditions to each Lender  participating in or reimbursing the Bank or the Agent
for such Lenders' Pro Rata Share of any  Non-Ratable  Loan or Agent Advance made
in accordance with the provisions of Sections 2.2(h), (i) and (j).


                                   ARTICLE 11

                               DEFAULT; REMEDIES
                               -----------------

        11.1 Events of Default.  It shall constitute an event of default ("Event
             -----------------
of Default") if any one or more of the following shall occur for any reason:

             (a)  any  failure  by the  Borrowers  to pay  the  principal  of or
interest or premium on any of the  Obligations  or any fee or other amount owing
hereunder when due, whether upon demand or otherwise;

             (b) any  representation  or  warranty  made or  deemed  made by the
Borrowers in this Agreement or by IMS or any of its  Subsidiaries  in any of the
other Loan Documents,  any Financial Statement,  or any certificate furnished by
IMS or any of its  Subsidiaries  at any time to the  Agent or any  Lender  shall
prove to be untrue in any material respect as of the date on which made,  deemed
made, or furnished;

             (c) (i) any default shall occur in the observance or performance of
any of the covenants and  agreements  contained in Article 6 (other than Section
6.7), Article 7 or Article 9 (other than Section 9.1) of this Agreement, or (ii)
any default shall occur in the observance or performance of Section 6.7 and such
default shall continue unremedied for 3 Business Days or (iii) any default shall
occur in the  observance  or  performance  of  Section  9.1 or any of the  other
covenants and agreements contained in this Agreement (other than as specified in
clause (a) or (c)(i) or (ii)), any other Loan Documents,  or any other agreement
entered  into at any time to which  IMS or any  Subsidiary  and the Agent or any
Lender are party  (including in respect of any Bank Products),  and such default
shall continue  unremedied  for 15 days after the occurrence  thereof or (iv) if
any such agreement or document shall  terminate  (other than in accordance  with
its terms or the terms  hereof or with the written  consent of the Agent and the

                                       84

<PAGE>

Majority Lenders) or become void or  unenforceable,  without the written consent
of the Agent and the Majority Lenders;

             (d) default  shall  occur  with  respect  to any  Debt For Borrowed
Money (other than the  Obligations)  in an  outstanding  principal  amount which
exceeds  $1,500,000,  or under any agreement or instrument  under or pursuant to
which any such Debt For Borrowed Money may have been issued,  created,  assumed,
or guaranteed by Envirosource,  Parent,  IMS or any of IMS's  Subsidiaries,  and
such default shall continue for more than the period of grace,  if any,  therein
specified,  if the  effect  thereof  (with or  without  the  giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of any
such Debt For Borrowed  Money to  accelerate,  the maturity of any such Debt For
Borrowed  Money;  or any such Debt For Borrowed  Money shall be declared due and
payable  or be  required  to be prepaid  (other  than by a  regularly  scheduled
required prepayment) prior to the stated maturity thereof;

             (e) Envirosource,  IU, IMS or any of IMS's  Subsidiaries  shall (i)
file a voluntary  petition  in  bankruptcy  or file a  voluntary  petition or an
answer or otherwise  commence any action or proceeding  seeking  reorganization,
arrangement  or  readjustment  of its  debts or for any other  relief  under the
federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
act or law, state or federal, now or hereafter existing,  or consent to, approve
of, or acquiesce in, any such petition, action or proceeding;  (ii) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator,  sequestrator,
custodian,  monitor, trustee or similar officer for it or for all or any part of
its property;  (iii) make an assignment for the benefit of creditors; or (iv) be
unable generally to pay its debts as they become due;

             (f) an involuntary petition or proposal shall be filed or an action
or  proceeding   otherwise   commenced  seeking   reorganization,   arrangement,
consolidation  or readjustment of the debts of  Envirosource,  IU, IMS or any of
IMS's Subsidiaries or for any other relief under the federal Bankruptcy Code, as
amended,  or under any  other  bankruptcy  or  insolvency  act or law,  state or
federal,  now or  hereafter  existing  and either (i) such  petition,  proposal,
action or proceeding shall not have been dismissed within a period of sixty (60)
days after its  commencement  or (ii) an order for relief against  Envirosource,
IU, IMS or such Subsidiary shall have been entered in such proceeding;

             (g) a  receiver,  assignee,  liquidator,  sequestrator,  custodian,
monitor,  trustee  or  similar  officer  for  Envirosource,  IMS or any of IMS's
Subsidiaries  or IU or for all or any part of its property shall be appointed or
a warrant of  attachment,  execution or similar  process shall be issued against
any part of the property of Envirosource, IU, IMS or any of IMS's Subsidiaries;

             (h) Envirosource, IU, IMS or any of IMS's Subsidiaries shall file a
certificate of dissolution  under  applicable  state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced  against it any action
or proceeding  for  dissolution,  winding-up or  liquidation,  or shall take any
corporate action in furtherance thereof;

                                       85

<PAGE>

             (i)  all or any  material  part  of the  property  of IMS  and  its
Subsidiaries  (taken  as  a  whole)  shall  be  nationalized,   expropriated  or
condemned,  seized or  otherwise  appropriated,  or  custody  or control of such
property  or of IMS or such  Subsidiary  shall be  assumed  by any  Governmental
Authority  or  any  court  of  competent  jurisdiction  at the  instance  of any
Governmental  Authority,   except  where  contested  in  good  faith  by  proper
proceedings diligently pursued where a stay of enforcement is in effect;

             (j) any guaranty of the Obligations shall be terminated, revoked or
declared void or invalid;

             (k) one or more judgments, orders, decrees or arbitration awards is
entered against Envirosource, Parent, IMS or any of IMS's Subsidiaries involving
in the  aggregate  liability as to any single or related or unrelated  series of
transactions, incidents or conditions, of $1,500,000 or more, and the same shall
remain  unsatisfied,  unvacated and unstayed  pending  appeal for a period of 30
days after the entry thereof;

             (l) any loss, theft,  damage or destruction of any item or items of
Collateral  or  other  property  of IMS or any  Subsidiary  occurs  which  could
reasonably be expected to cause a Material  Adverse Effect and is not adequately
covered by insurance;

             (m)  Intentionally Omitted.

             (n) there is filed against  Envirosource or any of its Subsidiaries
any criminal action,  suit or proceeding under any federal or state racketeering
statute  (including  the Racketeer  Influenced and Corrupt  Organization  Act of
1970), which action,  suit or proceeding (i) is not dismissed within one hundred
twenty  (120)  days,  and (ii) could  reasonably  be  expected  to result in the
confiscation or forfeiture of any material portion of the Collateral;

             (o) for any reason  other than the failure of the Agent to take any
action available to it to maintain perfection of the Agent's Liens,  pursuant to
the Loan  Documents,  any Loan Document ceases to be in full force and effect or
any Lien with respect to any material  portion of the Collateral  intended to be
secured thereby ceases to be, or is not, valid, perfected and prior to all other
Liens (other than Permitted Liens) or is terminated, revoked or declared void;

             (p) an ERISA Event shall  occur with  respect to a Pension  Plan or
Multi-employer Plan which has resulted or could reasonably be expected to result
in  liability  of the  Borrower  under  Title IV of ERISA to the  Pension  Plan,
Multi-employer  Plan or the PBGC in an  aggregate  amount in excess of $500,000;
(ii) the aggregate amount of Unfunded Pension  Liability among all Pension Plans
at any time exceeds  $500,000;  or (iii) the  Borrowers  or any ERISA  Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment  payment with respect to its withdrawal  liability under Section
4201 of ERISA under a  Multi-employer  Plan in an aggregate  amount in excess of
$500,000;

             (q)  there occurs a Change of Control; or

                                       86

<PAGE>

             (r) an Event of  Default  under  and as  defined  in  either of the
Senior Notes Indentures occurs.

        10.2 Remedies.  (a) If an Event of Default exists, the Agent may, in its
             --------
discretion,  and shall, at the direction of the Majority Lenders, do one or more
of the  following  at any time or times and in any order,  without  notice to or
demand on the Borrowers:  (i) reduce the Maximum Revolver Amount, or the advance
rates against Eligible Accounts and/or Eligible  Equipment used in computing the
Borrowing  Base,  or reduce one or more of the other  elements used in computing
the  Borrowing  Base;  (ii)  restrict the amount of or refuse to make  Revolving
Loans;  and (iii)  restrict  or refuse to  provide  Letters  of Credit or Credit
Support. If an Event of Default exists, the Agent shall, at the direction of the
Majority  Lenders,  do one or more of the following,  in addition to the actions
described  in the  preceding  sentence,  at any time or times and in any  order,
without notice to or demand on the Borrowers:  (A) terminate the Commitments and
this  Agreement;  (B) declare any or all  Obligations to be immediately  due and
payable;  provided,  however,  that upon the  occurrence of any Event of Default
          --------   -------
described in Sections 11.1(e),  11.1(f), 11.1(g), or 11.1(h) with respect to the
             ----------------   -------  -------     -------
Borrowers,  the Commitments shall  automatically and immediately  expire and all
Obligations  shall  automatically  become  immediately  due and payable  without
notice or demand of any kind; and (C) pursue its other rights and remedies under
the Loan Documents and applicable law.

             (b) If an Event of Default has occurred and is continuing:  (i) the
Agent shall have for the benefit of the Lenders, in addition to all other rights
of the Agent and the Lenders,  the rights and remedies of a secured  party under
the UCC; (ii) the Agent may, at any time,  take possession of the Collateral and
keep it on the Borrowers'  premises,  at no cost to the Agent or any Lender,  or
remove any part of it to such other place or places as the Agent may desire,  or
the Borrowers shall, upon the Agent's demand,  at the Borrowers' cost,  assemble
the  Collateral  and  make it  available  to the  Agent  at a  place  reasonably
convenient to the Agent; and (iii) the Agent may sell and deliver any Collateral
at public or private sales,  for cash, upon credit or otherwise,  at such prices
and upon such terms as the Agent deems advisable,  in its sole  discretion,  and
may,  if the Agent  deems it  reasonable,  postpone  or adjourn  any sale of the
Collateral by an announcement at the time and place of sale or of such postponed
or  adjourned  sale  without  giving a new  notice of sale.  Without  in any way
requiring notice to be given in the following manner,  each Borrower agrees that
any notice by the Agent of sale,  disposition or other intended action hereunder
or in  connection  herewith,  whether  required by the UCC or  otherwise,  shall
constitute  reasonable  notice  to such  Borrower  if such  notice  is mailed by
registered or certified mail, return receipt requested,  postage prepaid,  or is
delivered  personally against receipt,  at least five (5) Business Days prior to
such action to the Borrowers'  address specified in or pursuant to Section 15.8.
If any  Collateral  is sold on terms  other than  payment in full at the time of
sale,  no credit shall be given against the  Obligations  until the Agent or the
Lenders  receive  payment,  and if the buyer defaults in payment,  the Agent may
resell the Collateral without further notice to the Borrowers.  In the event the
Agent  seeks to take  possession  of all or any  portion  of the  Collateral  by
judicial process, each Borrower irrevocably waives: (A) the posting of any bond,
surety or security with respect thereto which might  otherwise be required;  (B)
any demand for  possession  prior to the  commencement  of any suit or action to
recover the Collateral; and (C) any requirement that the Agent retain possession
and not dispose of any  Collateral  until after  trial or final  judgment.  Each

                                       87

<PAGE>

Borrower  agrees  that the Agent has no  obligation  to  preserve  rights to the
Collateral or marshal any Collateral for the benefit of any Person. The Agent is
hereby  granted  a  license  or other  right to use,  without  charge,  upon the
occurrence  and during the  continuance  of an Event of Default,  the Borrower's
labels, patents,  copyrights,  name, trade secrets, trade names, trademarks, and
advertising  matter,  or any similar  property,  in  completing  production  of,
advertising  or selling  any  Collateral,  and the  Borrowers  rights  under all
licenses and all  franchise  agreements  shall inure to the Agent's  benefit for
such  purpose.  The  proceeds of sale shall be applied  first to all expenses of
sale,  including  attorneys' fees, and then to the  Obligations.  The Agent will
return any excess to the Borrowers and the Borrowers shall remain liable for any
deficiency.

             (c) If an Event of Default occurs and is continuing,  each Borrower
hereby  waives all rights to notice and  hearing  prior to the  exercise  by the
Agent of the Agent's rights to repossess the Collateral without judicial process
or to reply, attach or levy upon the Collateral without notice or hearing.


                                   ARTICLE 12

                              TERM AND TERMINATION
                              --------------------

        12.1 Term and  Termination.  The term of this Agreement shall end on the
             ---------------------
Stated  Termination Date. The Agent upon direction from the Majority Lenders may
terminate  this  Agreement  without  notice upon the  occurrence  of an Event of
Default. Upon the effective date of termination of this Agreement for any reason
whatsoever,  all Obligations  (including all unpaid principal,  accrued interest
and any  early  termination  or  prepayment  fees  or  penalties)  shall  become
immediately due and payable and the Borrowers shall immediately  arrange for the
cancellation and return of Letters of Credit then  outstanding.  Notwithstanding
the termination of this Agreement,  until all Obligations are indefeasibly  paid
and performed in full in cash, the Borrowers  shall remain bound by the terms of
this  Agreement and shall not be relieved of any of its  Obligations  hereunder,
and the  Agent and the  Lenders  shall  retain  all their  rights  and  remedies
hereunder  (including  the  Agent's  Liens in and all rights and  remedies  with
respect to all then existing and after-arising Collateral).


                                   ARTICLE 13

           AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
           -----------------------------------------------------------

        13.1 Amendments and Waivers.  No amendment or waiver of any provision of
             ----------------------
this  Agreement or any other Loan  Document,  and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing  and signed by the  Majority  Lenders (or by the Agent at the written
request of the Majority  Lenders) and the  Borrowers and then any such waiver or
consent  shall be effective  only in the specific  instance and for the specific
purpose for which given; provided,  however, that no such waiver,  amendment, or
                         --------   -------

                                       88

<PAGE>

consent shall, unless in writing and signed by all the Lenders and the Borrowers
and acknowledged by the Agent, do any of the following:

             (a)  increase or extend the Commitment of any Lender;

             (b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal,  interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;

             (c)  reduce the  principal  of, or the rate of  interest  specified
herein on any Loan, or any fees or other amounts payable  hereunder or under any
other Loan Document;

             (d) change the  percentage of the  Commitments  or of the aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;

             (e) increase any of the  percentages set forth in the definition of
the Borrowing Base;

             (f) amend this Section or any provision of the Agreement  providing
for consent or other action by all Lenders;

             (g) release Collateral other than as permitted by Section 14.12;
                                                               -------------

             (h) change the  definitions  of  "Majority  Lenders"  or  "Required
Lenders"; or

             (i)  increase the Maximum Revolver Amount;

provided, however, the Agent may, in its sole discretion and notwithstanding the
--------  -------
limitations  contained  in clauses (e) and (i) above,  Section 2.2 and any other
terms of the Agreement,  make Revolving Loans  (including  Agent Advances) in an
amount  not to exceed  10% of the  Borrowing  Base for a period not in excess of
thirty days in each instance and, provided further, that no amendment, waiver or
consent shall,  unless in writing and signed by the Agent,  affect the rights or
duties of the Agent under this Agreement or any other Loan Document.

        13.2   Assignments; Participations.
               ---------------------------

             (a) Any Lender may,  with the written  consent of the Agent  (which
consent shall not be unreasonably withheld),  assign and delegate to one or more
Eligible  Assignees  (provided  that no written  consent  of the Agent  shall be
required in  connection  with any  assignment  and  delegation by a Lender to an
Affiliate of such Lender) (each an "Assignee")  all, or any ratable part of all,
                                    --------
of the Loans,  the  Commitments  and the other  rights and  obligations  of such
Lender  hereunder,  in a minimum amount of $5,000,000  (provided that, unless an
assignor Lender has assigned and delegated all of its Loans and Commitments,  no
such assignment and/or delegation shall be permitted unless, after giving effect

                                       89

<PAGE>

thereto,  such  assignor  Lender  retains a  Commitment  in a minimum  amount of
$5,000,000); provided, however, that the Borrowers and the Agent may continue to
             --------  -------
deal solely and  directly  with such Lender in  connection  with the interest so
assigned to an Assignee  until (i) written notice of such  assignment,  together
with payment instructions, addresses and related information with respect to the
Assignee,  shall have been given to the  Borrowers  and the Agent by such Lender
and the Assignee;  (ii) such Lender and its Assignee shall have delivered to the
Borrowers  and the Agent an Assignment  and  Acceptance in the form of Exhibit E
                                                                       ---------
("Assignment  and  Acceptance");  and (iii) the assignor  Lender or Assignee has
  ---------------------------
paid to the Agent a processing fee in the amount of $3,000.

             (b) From and after the date that the Agent  notifies  the  assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the  above-referenced  processing  fee, (i) the Assignee  thereunder  shall be a
party hereto and, to the extent that rights and obligations,  including, but not
limited  to,  the  obligation  to  participate  in  Letters of Credit and Credit
Support have been  assigned to it pursuant to such  Assignment  and  Acceptance,
shall have the rights and obligations of a Lender under the Loan Documents,  and
(ii) the  assignor  Lender  shall,  to the extent  that  rights and  obligations
hereunder and under the other Loan  Documents  have been assigned by it pursuant
to such  Assignment and  Acceptance,  relinquish its rights and be released from
its  obligations  under this  Agreement  (and in the case of an  Assignment  and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and  obligations  under this  Agreement,  such Lender  shall cease to be a party
hereto).

             (c) By executing and delivering an Assignment and  Acceptance,  the
assigning  Lender  thereunder and the Assignee  thereunder  confirm to and agree
with each  other and the other  parties  hereto as  follows:  (i) other  than as
provided in such  Assignment  and  Acceptance,  such  assigning  Lender makes no
representation  or warranty  and assumes no  responsibility  with respect to any
statements,  warranties or  representations  made in or in connection  with this
Agreement or the execution,  legality,  validity,  enforceability,  genuineness,
sufficiency  or value of this  Agreement  or any other Loan  Document  furnished
pursuant hereto or the attachment,  perfection,  or priority of any Lien granted
by the  Borrowers  to the  Agent or any  Lender  in the  Collateral;  (ii)  such
assigning   Lender   makes  no   representation   or  warranty  and  assumes  no
responsibility  with respect to the financial  condition of the Borrowers or the
performance or observance by the Borrowers of any of its obligations  under this
Agreement  or any other Loan  Document  furnished  pursuant  hereto;  (iii) such
Assignee  confirms that it has received a copy of this Agreement,  together with
such other  documents and  information as it has deemed  appropriate to make its
own credit  analysis and decision to enter into such  Assignment and Acceptance;
(iv) such Assignee will, independently and without reliance upon the Agent, such
assigning  Lender  or  any  other  Lender,  and  based  on  such  documents  and
information as it shall deem  appropriate at the time,  continue to make its own
credit  decisions in taking or not taking action under this Agreement;  (v) such
Assignee  appoints and  authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this  Agreement as are delegated to the
Agent  by  the  terms  hereof,   together   with  such  powers,   including  the
discretionary rights and incidental power, as are reasonably incidental thereto;
and (vi) such  Assignee  agrees that it will  perform in  accordance  with their
terms all of the  obligations  which by the terms of this Agreement are required
to be performed by it as a Lender.

                                       90

<PAGE>

             (d)  Immediately  upon each  Assignee's  making its  processing fee
payment under the Assignment and  Acceptance,  this Agreement shall be deemed to
be amended to the  extent,  but only to the  extent,  necessary  to reflect  the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom.   The  Commitment  allocated  to  each  Assignee  shall  reduce  such
Commitments of the assigning Lender pro tanto.

             (e) Any  Lender  may at any  time  sell  to one or more  commercial
banks, financial institutions,  or other Persons not Affiliates of the Borrowers
(a "Participant")  participating  interests in any Loans, the Commitment of that
    -----------
Lender  and the  other  interests  of that  Lender  (the  "originating  Lender")
hereunder and under the other Loan Documents;  provided,  however,  that (i) the
                                               --------   -------
originating  Lender's  obligations  under this Agreement shall remain unchanged,
(ii) the originating  Lender shall remain solely responsible for the performance
of such  obligations,  (iii) the Borrowers and the Agent shall  continue to deal
solely  and  directly  with  the  originating  Lender  in  connection  with  the
originating  Lender's rights and obligations  under this Agreement and the other
Loan  Documents,  and (iv) no Lender shall  transfer or grant any  participating
interest under which the  Participant has rights to approve any amendment to, or
any  consent  or waiver  with  respect  to,  this  Agreement  or any other  Loan
Document, and all amounts payable by the Borrowers hereunder shall be determined
as if such  Lender  had not sold such  participation;  except  that,  if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each  Participant  shall be deemed to have the right of setoff in respect of its
participating  interest in amounts owing under this Agreement to the same extent
and  subject  to the  same  limitation  as if the  amount  of its  participating
interest were owing directly to it as a Lender under this Agreement.

             (f)  Notwithstanding  any other  provision in this  Agreement,  any
Lender may at any time  create a  security  interest  in, or pledge,  all or any
portion of its  rights  under and  interest  in this  Agreement  in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation  31 CFR  ss.203.14,  and such  Federal  Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.


                                   ARTICLE 14

                                   THE AGENT
                                   ---------

        14.1 Appointment and  Authorization.  Each Lender hereby  designates and
             ------------------------------
appoints Bank as its Agent under this Agreement and the other Loan Documents and
each Lender hereby  irrevocably  authorizes the Agent to take such action on its
behalf under the  provisions of this  Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this  Agreement or any other Loan  Document,  together with such
powers as are reasonably  incidental thereto. The Agent agrees to act as such on
the express  conditions  contained  in this Article 14. The  provisions  of this
                                            ----------
Article  14 are  solely for the  benefit  of the Agent and the  Lenders  and the
-----------
Borrowers  shall  have no  rights  as a third  party  beneficiary  of any of the
provisions  contained  herein.  Notwithstanding  any  provision  to the contrary

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<PAGE>

contained  elsewhere in this Agreement or in any other Loan Document,  the Agent
shall not have any duties or responsibilities,  except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities,  duties,
obligations or  liabilities  shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.  Without  limiting the generality
of the foregoing  sentence,  the use of the term "agent" in this  Agreement with
reference to the Agent is not intended to connote any fiduciary or other implied
(or express)  obligations  arising under agency  doctrine of any applicable law.
Instead,  such term is used merely as a matter of market custom, and is intended
to create or reflect only an  administrative  relationship  between  independent
contracting  parties.  Except as expressly otherwise provided in this Agreement,
the Agent shall have and may use its sole  discretion with respect to exercising
or refraining from exercising any  discretionary  rights or taking or refraining
from taking any actions which the Agent is expressly  entitled to take or assert
under  this  Agreement  and  the  other  Loan   Documents,   including  (a)  the
determination of the applicability of ineligibility criteria with respect to the
calculation of the Borrowing Base, (b) the making of Agent Advances  pursuant to
Section 2.2(i),  and (c) the exercise of remedies  pursuant to Section 11.2, and
--------------
any action so taken or not taken shall be deemed consented to by the Lenders.

        14.2 Delegation of Duties. The Agent may execute any of its duties under
             --------------------
this  Agreement or any other Loan  Document by or through  agents,  employees or
attorneys-in-fact  and shall be  entitled  to advice of counsel  concerning  all
matters  pertaining to such duties.  The Agent shall not be responsible  for the
negligence  or misconduct  of any agent or  attorney-in-fact  that it selects as
long as such selection was made without gross negligence or willful misconduct.

        14.3 Liability of Agent.  None of the Agent Related Persons shall (i) be
             ------------------
liable  for any  action  taken or omitted to be taken by any of them under or in
connection  with this  Agreement or any other Loan Document or the  transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be  responsible  in any manner to any of the  Lenders  for any  recital,
statement, representation or warranty made by IMS or any Subsidiary or Affiliate
of IMS, or any officer thereof, contained in this Agreement or in any other Loan
Document, or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection  with,  this
Agreement  or  any  other  Loan  Document,   or  the  validity,   effectiveness,
genuineness,  enforceability  or sufficiency of this Agreement or any other Loan
Document,  or for any  failure of the  Borrowers  or any other party to any Loan
Document to perform its  obligations  hereunder or thereunder.  No Agent Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the  observance  or  performance  of any of the  agreements  contained in, or
conditions  of, this  Agreement  or any other Loan  Document,  or to inspect the
properties, books or records of IMS or any of IMS's Subsidiaries or Affiliates.

        14.4 Reliance by Agent.  The Agent shall be entitled to rely,  and shall
             -----------------
be fully protected in relying, upon any writing,  resolution,  notice,  consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement  or other  document or  conversation  believed by it to be genuine and
correct and to have been signed,  sent or made by the proper  Person or Persons,
and upon  advice  and  statements  of legal  counsel  (including  counsel to the
Borrowers), independent accountants and other experts selected by the Agent. The
Agent shall be fully  justified  in failing or refusing to take any action under

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<PAGE>

this  Agreement or any other Loan  Document  unless it shall first  receive such
advice or concurrence of the Majority Lenders as it deems appropriate and, if it
so requests,  it shall first be indemnified to its  satisfaction  by the Lenders
against any and all  liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance  with a request or consent of the Majority
Lenders (or all Lenders if so required by Section 13.2) and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.

        14.5 Notice of Default.  The Agent shall not be deemed to have knowledge
             -----------------
or notice of the occurrence of any Default or Event of Default, unless the Agent
shall have received written notice from a Lender or either Borrower referring to
this  Agreement,  describing  such  Default or Event of Default and stating that
such notice is a "notice of  default."  The Agent will notify the Lenders of its
receipt of any such  notice.  The Agent shall take such  action with  respect to
such Default or Event of Default as may be requested by the Majority  Lenders in
accordance with Section 11; provided,  however,  that unless and until the Agent
                ----------  --------   -------
has received  any such  request,  the Agent may (but shall not be obligated  to)
take such  action,  or refrain  from taking such  action,  with  respect to such
Default or Event of Default as it shall deem advisable.

        14.6 Credit Decision.  Each Lender  acknowledges  that none of the Agent
             ---------------
Related Persons has made any  representation  or warranty to it, and that no act
by the Agent  hereinafter  taken,  including  any  review of the  affairs of the
Borrowers and their Affiliates, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made  its own  appraisal  of and  investigation  into the  business,  prospects,
operations,  property, financial and other condition and creditworthiness of the
Borrowers and their Affiliates, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this  Agreement  and  to  extend  credit  to the  Borrowers.  Each  Lender  also
represents  that  it  will,   independently   and  without   reliance  upon  any
Agent-Related  Person and based on such  documents and  information  as it shall
deem  appropriate  at the  time,  continue  to  make  its own  credit  analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents,  and to make such investigations as it deems necessary
to inform itself as to the business, prospects,  operations, property, financial
and other condition and  creditworthiness of the Borrowers.  Except for notices,
reports and other  documents  expressly  herein  required to be furnished to the
Lenders by the Agent,  the Agent  shall not have any duty or  responsibility  to
provide any Lender with any credit or other information concerning the business,
prospects,    operations,   property,   financial   and   other   condition   or
creditworthiness  of the Borrowers  which may come into the possession of any of
the Agent Related Persons.

        14.7  Indemnification.  Whether  or not  the  transactions  contemplated
              ---------------
hereby are  consummated,  the  Lenders  shall  indemnify  upon  demand the Agent
Related  Persons (to the extent not  reimbursed by or on behalf of the Borrowers
and without  limiting the obligation of the Borrowers to do so), pro rata,  from
and  against  any and all  Indemnified  Liabilities  as such term is  defined in

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<PAGE>

Section 15.11; provided, however, that no Lender shall be liable for the payment
               --------  -------
to the Agent  Related  Persons of any  portion of such  Indemnified  Liabilities
resulting  solely from such Person's  gross  negligence  or willful  misconduct.
Without limitation of the foregoing,  each Lender shall reimburse the Agent upon
demand for its ratable share of any costs or out-of-pocket  expenses  (including
Attorney  Costs)  incurred  by the  Agent in  connection  with the  preparation,
execution,  delivery,  administration,  modification,  amendment or  enforcement
(whether  through  negotiations,  legal  proceedings  or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document,  or any document  contemplated  by or referred to herein,  to the
extent that the Agent is not reimbursed for such expenses by or on behalf of the
Borrowers.  The  undertaking  in this Section  shall  survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.

        14.8 Agent in Individual Capacity.  The Bank and its Affiliates may make
             ----------------------------
loans to,  issue  letters of credit for the account of,  accept  deposits  from,
acquire equity interests in and generally engage in any kind of banking,  trust,
financial advisory, underwriting or other business with IMS and its Subsidiaries
and  Affiliates  as though  the Bank were not the Agent  hereunder  and  without
notice to or consent of the Lenders.  The Lenders  acknowledge that, pursuant to
such activities,  the Bank or its Affiliates may receive  information  regarding
the Borrowers or their Affiliates (including  information that may be subject to
confidentiality  obligations  in favor of the Borrowers or such  Affiliate)  and
acknowledge  that the Agent and the Bank shall be under no obligation to provide
such  information  to them.  With respect to its Loans,  the Bank shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent,  and the terms  "Lender" and "Lenders"
include the Bank in its individual capacity.

        14.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice
             ---------------
to the Lenders and the  Borrowers,  such  resignation  to be effective  upon the
acceptance of a successor  agent to its  appointment as Agent.  In the event the
Bank sells all of its Commitment and Revolving Loans as part of a sale, transfer
or other disposition by the Bank of substantially all of its loan portfolio, the
Bank shall  resign as Agent and such  purchaser or  transferee  shall become the
successor Agent hereunder. If the Agent resigns under this Agreement, subject to
the proviso in the preceding  sentence,  the Majority Lenders shall appoint from
among the Lenders a successor  agent for the Lenders.  If no successor  agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint,  after  consulting with the Lenders and the Borrowers,  a successor
agent  from  among  the  Lenders.  Upon the  acceptance  of its  appointment  as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the  retiring  Agent and the term  "Agent"  shall mean such
successor agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated.  After any retiring Agent's resignation hereunder as Agent,
the  provisions  of this Section 14 shall inure to its benefit as to any actions
                         ----------
taken or omitted to be taken by it while it was Agent under this Agreement.

        14.10  Withholding  Tax.  (a) If any Lender is a  "foreign  corporation,
               ----------------
partnership  or trust"  within the  meaning of the Code and such  Lender  claims
exemption  from, or a reduction of, U.S.  withholding tax under Sections 1441 or
1442 of the  Code,  such  Lender  agrees  with and in favor of the Agent and the
Borrowers, to deliver to the Agent and the Borrowers:

                                       94

<PAGE>

                  (i) if such Lender  claims an exemption  from,  or a reduction
of,  withholding  tax under a United States tax treaty,  properly  completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar year
and before the payment of any interest in each third  succeeding  calendar  year
during which interest may be paid under this Agreement;

                  (ii) if such  Lender  claims  that  interest  paid  under this
Agreement is exempt from United States withholding tax because it is effectively
connected  with a United  States trade or business of such Lender,  two properly
completed  and  executed  copies  of IRS Form 4224  before  the  payment  of any
interest is due in the first taxable year of such Lender and in each  succeeding
taxable  year of such  Lender  during  which  interest  may be paid  under  this
Agreement, and IRS Form W-9; and

                  (iii) such other  form or forms as may be  required  under the
Code or other laws of the United  States as a condition  to exemption  from,  or
reduction of, United States withholding tax.

Such Lender agrees to promptly  notify the Agent of any change in  circumstances
which would modify or render invalid any claimed exemption or reduction.

             (b)  If  any  Lender  claims   exemption  from,  or  reduction  of,
withholding  tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells,  assigns,  grants a participation in, or otherwise  transfers
all or part of the  Obligations  of the  Borrowers to such  Lender,  such Lender
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial  owner of Obligations of the Borrowers to such Lender.  To the extent
of such percentage  amount,  the Agent will treat such Lender's IRS Form 1001 as
no longer valid.

             (c) If any Lender claiming exemption from United States withholding
tax  by  filing  IRS  Form  4224  with  the  Agent  sells,  assigns,   grants  a
participation  in, or otherwise  transfers all or part of the Obligations of the
Borrowers to such Lender,  such Lender agrees to undertake  sole  responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.

             (d) If any Lender is  entitled  to a  reduction  in the  applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction.  If the forms or other documentation  required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any  interest  payment  to  such  Lender  not  providing  such  forms  or  other
documentation an amount equivalent to the applicable withholding tax.

             (e) If the IRS or any other  Governmental  Authority  of the United
States or other  jurisdiction  asserts a claim  that the Agent did not  properly
withhold tax from amounts paid to or for the account of any Lender  (because the
appropriate form was not delivered,  was not properly executed,  or because such
Lender failed to notify the Agent of a change in  circumstances  which  rendered

                                       95

<PAGE>

the exemption  from, or reduction of,  withholding tax  ineffective,  or for any
other reason) such Lender shall  indemnify the Agent fully for all amounts paid,
directly or indirectly,  by the Agent as tax or otherwise,  including  penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this  Section,  together  with all costs and expenses
(including  Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all  Obligations and the resignation or replacement
of the Agent.

        14.11  Reserved

        14.12  Collateral Matters.
               ------------------

             (a) The Lenders  hereby  irrevocably  authorize  the Agent,  at its
option  and in its  sole  discretion,  to  release  any  Agent's  Lien  upon any
Collateral  (i)  upon  the  termination  of  the  Commitments  and  payment  and
satisfaction in full by Borrowers of all Loans and reimbursement  obligations in
respect of Letters of Credit and  Credit  Support,  and the  termination  of all
outstanding  Letters of Credit (whether or not any of such  obligations are due)
and all other Obligations;  (ii) constituting property being sold or disposed of
if each Borrower  certifies to the Agent that the sale or disposition is made in
compliance  with  Section 9.9 (and the Agent may rely  conclusively  on any such
                  -----------
certificate,  without further inquiry); (iii) constituting property in which the
Borrowers  owned no  interest  at the time the Lien was  granted  or at any time
thereafter;  or (iv)  constituting  property  leased to a Borrower under a lease
which has  expired or been  terminated  in a  transaction  permitted  under this
Agreement.  Except as  provided  above,  the Agent will not  release  any of the
Agent's Liens without the prior written  authorization of the Lenders;  provided
                                                                        --------
that the Agent may, in its  discretion,  release the Agent's Liens on Collateral
valued in the aggregate  not in excess of $5,000,000  during any one year period
without the prior  written  authorization  of the  Lenders.  Upon request by the
Agent or the  Borrowers  at any time,  the Lenders  will  confirm in writing the
Agent's authority to release any Agent's Liens upon particular types or items of
Collateral pursuant to this Section 14.12.
                            -------------

             (b)  Upon  receipt  by  the  Agent  of any  authorization  required
pursuant  to Section  14.12(a)  from the  Lenders of the  Agent's  authority  to
             -----------------
release any Agent's Liens upon particular types or items of Collateral, and upon
at least five (5) Business  Days' prior written  request by the  Borrowers,  the
Agent  shall (and is hereby  irrevocably  authorized  by the Lenders to) execute
such  documents as may be necessary to evidence the release of the Agent's Liens
upon  such  Collateral;  provided,  however,  that (i) the  Agent  shall  not be
                         --------   -------
required to execute any such  document on terms which,  in the Agent's  opinion,
would  expose  the Agent to  liability  or create any  obligation  or entail any
consequence  other than the release of such Liens without  recourse or warranty,
and (ii) such release  shall not in any manner  discharge,  affect or impair the
Obligations or any Liens (other than those  expressly  being  released) upon (or
obligations  of the  Borrowers  in respect  of) all  interests  retained  by the
Borrowers,  including the proceeds of any sale,  all of which shall  continue to
constitute part of the Collateral.

             (c) The Agent  shall have no  obligation  whatsoever  to any of the
Lenders to assure  that the  Collateral  exists or is owned by a Borrower  or is
cared for,  protected  or insured or has been  encumbered,  or that the  Agent's

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<PAGE>

Liens  have been  properly  or  sufficiently  or  lawfully  created,  perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any  particular  manner  or under any duty of care,  disclosure  or
fidelity, or to continue exercising,  any of the rights,  authorities and powers
granted or  available  to the Agent  pursuant to any of the Loan  Documents,  it
being  understood  and agreed  that in respect  of the  Collateral,  or any act,
omission or event related  thereto,  the Agent may act in any manner it may deem
appropriate,  in its sole  discretion  given the  Agent's  own  interest  in the
Collateral  in its  capacity as one of the Lenders and that the Agent shall have
no other duty or liability whatsoever to any Lender as to any of the foregoing.

        14.13 Restrictions on Actions by Lenders;  Sharing of Payments. (a) Each
              --------------------------------------------------------
of the  Lenders  agrees that it shall not,  without  the express  consent of all
Lenders,  and that it shall,  during the continuance of an Event of Default,  to
the extent it is lawfully  entitled  to do so, upon the request of all  Lenders,
set off  against  the  Obligations,  any  amounts  owing by such  Lender  to any
Borrower or any accounts of any Borrower now or hereafter  maintained  with such
Lender.   Each  of  the  Lenders  further  agrees  that  it  shall  not,  unless
specifically  requested  to do so by the  Agent,  take or cause to be taken  any
action to enforce its rights  under this  Agreement  or against  the  Borrowers,
including the commencement of any legal or equitable  proceedings,  to foreclose
any  Lien  on,  or  otherwise  enforce  any  security  interest  in,  any of the
Collateral.

             (b) If at any  time  or  times  any  Lender  shall  receive  (i) by
payment,  foreclosure,  setoff or  otherwise,  any proceeds of Collateral or any
payments with respect to the Obligations of the Borrowers to such Lender arising
under,  or relating to, this Agreement or the other Loan  Documents,  except for
any such proceeds or payments received by such Lender from the Agent pursuant to
the terms of this  Agreement,  or (ii) payments from the Agent in excess of such
Lender's  ratable portion of all such  distributions  by the Agent,  such Lender
shall  promptly  (1) turn the same  over to the  Agent,  in kind,  and with such
endorsements  as may be required to negotiate the same to the Agent,  or in same
day  funds,  as  applicable,  for  the  account  of all of the  Lenders  and for
application to the Obligations in accordance  with the applicable  provisions of
this  Agreement,  or (2) purchase,  without  recourse or warranty,  an undivided
interest and  participation in the Obligations owed to the other Lenders so that
such excess payment  received  shall be applied  ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
                                       --------  -------
such excess  payment  received by the purchasing  party is thereafter  recovered
from it,  those  purchases of  participations  shall be rescinded in whole or in
part,  as  applicable,  and the  applicable  portion of the purchase  price paid
therefor shall be returned to such purchasing party, but without interest except
to the  extent  that  such  purchasing  party is  required  to pay  interest  in
connection with the recovery of the excess payment.

        14.14 Agency for  Perfection.  Each Lender  hereby  appoints  each other
              ----------------------
Lender as agent for the purpose of perfecting the Lenders'  security interest in
assets which,  in accordance  with Article 9 of the UCC can be perfected only by
possession.  Should any Lender (other than the Agent)  obtain  possession of any
such Collateral,  such Lender shall notify the Agent thereof, and, promptly upon
the Agent's  request  therefor shall deliver such  Collateral to the Agent or in
accordance with the Agent's instructions.

                                       97

<PAGE>

        14.15 Payments by Agent to Lenders. All payments to be made by the Agent
              ----------------------------
to the  Lenders  shall be made by bank wire  transfer  or  internal  transfer of
immediately   available   funds  to  each  Lender   pursuant  to  wire  transfer
instructions  delivered  in writing to the Agent on or prior to the Closing Date
(or if such Lender is an Assignee, on the applicable Assignment and Acceptance),
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to the Agent.  Concurrently with each such payment,
the  Agent  shall  identify  whether  such  payment  (or  any  portion  thereof)
represents principal, premium or interest on the Revolving Loans or otherwise.

        14.16  Concerning the Collateral  and the Related Loan  Documents.  Each
               ----------------------------------------------------------
Lender  authorizes  and directs the Agent to enter into this  Agreement  and the
other Loan  Documents,  for the ratable  benefit and obligation of the Agent and
the Lenders.  Each Lender  agrees that any action  taken by the Agent,  Majority
Lenders or Required Lenders, as applicable, in accordance with the terms of this
Agreement  or the other Loan  Documents,  and the  exercise  by the  Agent,  the
Majority Lenders,  or the Required Lenders,  as applicable,  of their respective
powers set forth  therein or herein,  together  with such other  powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.

        14.17 Field Audit and  Examination  Reports;  Disclaimer by Lenders.  By
              -------------------------------------------------------------
signing this Agreement, each Lender:

             (a) is deemed to have requested that the Agent furnish such Lender,
promptly after it becomes  available,  a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared or commissioned by
the Agent;

             (b) expressly agrees and acknowledges that neither the Bank nor the
Agent (i) makes any representation or warranty as to the accuracy of any Report,
or (ii) shall be liable for any information contained in any Report;

             (c)  expressly  agrees and  acknowledges  that the  Reports are not
comprehensive audits or examinations,  that the Agent or the Bank or other party
performing  any audit or  examination  will  inspect only  specific  information
regarding the Borrower and will rely significantly upon the Borrower's books and
records, as well as on representations of the Borrower's personnel;

             (d) agrees to keep all Reports  confidential  and  strictly for its
internal  use,  and not to  distribute  except to its  participants,  or use any
Report in any other manner; and

             (e) without  limiting the  generality of any other  indemnification
provision  contained in this  Agreement,  agrees:  (i) to hold the Agent and any
such other Lender  preparing or  commissioning a Report harmless from any action
the indemnifying Lender may take or conclusion the indemnifying Lender may reach
or  draw  from  any  Report  in  connection  with  any  loans  or  other  credit
accommodations  that  the  indemnifying  Lender  has  made  or may  make  to the
Borrower,  or the indemnifying  Lender's  participation  in, or the indemnifying
Lender's  purchase  of,  a loan or loans  of the  Borrower;  and (ii) to pay and
protect,  and  indemnify,  defend and hold the Agent and any such  other  Lender

                                       98

<PAGE>

preparing a Report harmless from and against, the claims, actions,  proceedings,
damages,  costs,  expenses and other amounts (including Attorney Costs) incurred
by the Agent and any such other Lender  preparing or  commissioning  a Report as
the direct or indirect  result of any third parties who might obtain all or part
of any Report through the indemnifying Lender.

        14.18  Relation   Among  Lenders.   The  Lenders  are  not  partners  or
               -------------------------
co-venturers,  and no Lender  shall be liable for the acts or  omissions  of, or
(except as otherwise  set forth herein in case of the Agent)  authorized  to act
for, any other Lender.


                                   ARTICLE 15

                                 MISCELLANEOUS
                                 -------------

        15.1. No Waivers;  Cumulative  Remedies.  No failure by the Agent or any
              ---------------------------------
Lender to exercise  any right,  remedy,  or option  under this  Agreement or any
present or future supplement thereto, or in any other agreement between or among
the  Borrowers  and the Agent  and/or any  Lender,  or delay by the Agent or any
Lender in exercising the same,  will operate as a waiver  thereof.  No waiver by
the Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically  stated. No waiver by the Agent or the Lenders on any
occasion  shall  affect  or  diminish  the  Agent's  and  each  Lender's  rights
thereafter to require  strict  performance  by the Borrowers of any provision of
this  Agreement.  The Agent and the Lenders may proceed  directly to collect the
Obligations  without any prior recourse to the Collateral.  The Agent's and each
Lender's rights under this Agreement will be cumulative and not exclusive of any
other right or remedy which the Agent or any Lender may have.

        15.2. Severability.  The illegality or unenforceability of any provision
              ------------
of this Agreement or any Loan Document or any  instrument or agreement  required
hereunder  shall not in any way affect or impair the legality or  enforceability
of the  remaining  provisions of this  Agreement or any  instrument or agreement
required hereunder.

        15.3.  Governing Law;  Choice of Forum;  Service of Process;  Jury Trial
               -----------------------------------------------------------------
Waiver.  THIS AGREEMENT  SHALL BE INTERPRETED  AND THE RIGHTS AND LIABILITIES OF
------
THE PARTIES HERETO  DETERMINED IN ACCORDANCE  WITH THE INTERNAL LAWS (AS OPPOSED
TO THE CONFLICT OF LAWS PROVISIONS  PROVIDED THAT PERFECTION ISSUES WITH RESPECT
TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE  CHOICE OR CONFLICT OF LAW
RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT
THE AGENT,  THE LENDERS AND THE BORROWERS  SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.

             (b) ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THIS  AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN  DISTRICT OF NEW YORK, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT AND THE LENDERS
CONSENTS,  FOR  ITSELF  AND IN RESPECT  OF ITS  PROPERTY,  TO THE  NON-EXCLUSIVE

                                       99

<PAGE>

JURISDICTION OF THOSE COURTS.  EACH OF THE BORROWERS,  THE AGENT AND THE LENDERS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON  CONVENIENS,  WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING:
(1) THE  AGENT AND THE  LENDERS  SHALL  HAVE THE  RIGHT TO BRING  ANY  ACTION OR
PROCEEDING  AGAINST THE  BORROWERS OR THEIR  PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION  THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO
REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE  OBLIGATIONS AND (2) EACH OF
THE PARTIES HERETO  ACKNOWLEDGES  THAT ANY APPEALS FROM THE COURTS  DESCRIBED IN
THE  IMMEDIATELY  PRECEDING  SENTENCE  MAY HAVE TO BE  HEARD BY A COURT  LOCATED
OUTSIDE THOSE JURISDICTIONS.

             (c) EACH OF THE BORROWERS HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED  MAIL (RETURN  RECEIPT  REQUESTED)  DIRECTED TO SUCH  BORROWER AT ITS
ADDRESS  SET FORTH IN  SECTION  15.8 AND  SERVICE  SO MADE SHALL BE DEEMED TO BE
COMPLETED  FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS.  NOTHING  CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.

        15.4.  WAIVER OF JURY TRIAL.  THE  BORROWERS,  THE LENDERS AND THE AGENT
               --------------------
EACH IRREVOCABLY  WAIVE THEIR RESPECTIVE  RIGHTS TO A TRIAL BY JURY OF ANY CLAIM
OR CAUSE OF ACTION  BASED UPON OR ARISING  OUT OF OR RELATED TO THIS  AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN
ANY ACTION,  PROCEEDING  OR OTHER  LITIGATION  OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES  AGAINST ANY OTHER PARTY OR ANY  AGENT-RELATED  PERSON,  PARTICIPANT  OR
ASSIGNEE,  WHETHER WITH RESPECT TO CONTRACT CLAIMS,  TORT CLAIMS,  OR OTHERWISE.
THE BORROWERS, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT  LIMITING THE
FOREGOING,  THE PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS  SECTION AS TO ANY ACTION,  COUNTERCLAIM  OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY  OF THIS  AGREEMENT OR THE OTHER LOAN  DOCUMENTS OR ANY PROVISION
HEREOF  OR  THEREOF.  THIS  WAIVER  SHALL  APPLY TO ANY  SUBSEQUENT  AMENDMENTS,
RENEWALS,  SUPPLEMENTS  OR  MODIFICATIONS  TO THIS  AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

                                      100

<PAGE>

        15.5.   Survival  of   Representations   and  Warranties.   All  of  the
                ------------------------------------------------
representations  and  warranties  of each Borrower  contained in this  Agreement
shall survive the execution,  delivery,  and acceptance  thereof by the parties,
notwithstanding  any  investigation  by  the  Agent  or  the  Lenders  or  their
respective agents.

        15.6. Other Security and Guaranties.  The Agent,  may, without notice or
              -----------------------------
demand and without affecting each Borrower's obligations hereunder, from time to
time: (a) take from any Person and hold  collateral  (other than the Collateral)
for the payment of all or any part of the Obligations  and exchange,  enforce or
release  such  collateral  or any  part  thereof;  and (b)  accept  and hold any
endorsement  or  guaranty of payment of all or any part of the  Obligations  and
release or  substitute  any such  endorser or  guarantor,  or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations,  or any other Person in any way obligated to pay all or
any part of the Obligations.

        15.7. Fees and Expenses.  Each Borrower agrees to pay to the Agent,  for
              -----------------
its benefit,  on demand,  all  reasonable  costs and expenses that Agent pays or
incurs  in   connection   with  the   negotiation,   preparation,   syndication,
consummation, administration,  enforcement, and termination of this Agreement or
any of the other Loan Documents,  including:  (a) Attorney Costs;  (b) costs and
expenses   (including   reasonable   attorneys'   and   paralegals'   fees   and
disbursements) for any amendment,  supplement,  waiver,  consent,  or subsequent
closing in connection with the Loan Documents and the transactions  contemplated
thereby;  (c) costs and expenses of lien and title searches and title insurance;
(d) taxes,  fees and other charges for  recording the Mortgage (if any),  filing
financing statements and continuations,  and other actions to perfect,  protect,
and continue the Agent's Liens (including  reasonable costs and expenses paid or
incurred by the Agent in connection  with the  consummation  of Agreement);  (e)
sums paid or  incurred  to pay any  amount or take any  action  required  of the
Borrowers  under the Loan  Documents that the Borrowers fail to pay or take; (f)
costs of appraisals, inspections, and verifications of the Collateral, including
travel,  lodging, and meals for inspections of the Collateral and the Borrower's
operations  by the  Agent  plus the  Agent's  then  customary  charge  for field
examinations  and audits and the  preparation of reports thereof (such charge is
currently  $750 per day (or portion  thereof)  for each agent or employee of the
Agent with respect to each field  examination or audit);  (g) costs and expenses
of forwarding loan proceeds,  collecting checks and other items of payment,  and
establishing  and  maintaining  Payment  Accounts and lock boxes;  (h) costs and
expenses of preserving and protecting the Collateral; and (i) costs and expenses
(including reasonable attorneys' and paralegals' fees and disbursements) paid or
incurred to obtain payment of the Obligations,  enforce the Agent's Liens,  sell
or otherwise  realize upon the Collateral,  and otherwise enforce the provisions
of the Loan  Documents,  or to defend any claims made or threatened  against the
Agent  or  any  Lender  arising  out  of the  transactions  contemplated  hereby
(including preparations for and consultations  concerning any such matters). The
foregoing  shall not be  construed  to limit any  other  provisions  of the Loan
Documents  regarding costs and expenses to be paid by the Borrowers.  All of the
foregoing  costs and expenses shall be charged to the Borrowers Loan Accounts as
Revolving Loans as described in Section 4.7.
                                -----------

        15.8 Notices. Except as otherwise provided herein, all notices,  demands
             -------
and requests  that any party is required or elects to give to any other shall be
in  writing,  or by a  telecommunications  device  capable of creating a written

                                      101

<PAGE>

record,  and any such notice shall become  effective (a) upon personal  delivery
thereof,  including,  but not limited to, delivery by overnight mail and courier
service,  (b) four (4) days  after it shall  have been  mailed by United  States
mail, first class, certified or registered,  with postage prepaid, or (c) in the
case of notice by such a telecommunications  device, when properly  transmitted,
in each case addressed to the party to be notified as follows:

                  If to the Agent or to the Bank:

                           Bank of America, N.A.
                           40 East 52nd Street
                           2nd Floor
                           New York, NY 10022
                           Attention: Regional Manager
                           Telecopy No. (212) 836-5169

                           with copies to:

                           Bank of America, N.A.
                           335 Madison Avenue
                           New York, NY 10017
                           Attention: Girolamo M. Saccone, Esq.

                  If to the Borrowers:

                           International Mill Service, Inc.
                           1155 Business Center Drive
                           Horsham, PA  19044-345,

                           and

                           IMS Alabama, Inc.
                           1155 Business Center Drive
                           Horsham, PA  19044-3454

or to such other  address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand,  request,  consent,
approval,  declaration or other communication to the persons designated above to
receive  copies shall not  adversely  affect the  effectiveness  of such notice,
demand, request, consent, approval, declaration or other communication.

        15.9 Waiver of Notices. Unless otherwise expressly provided herein, each
             -----------------
Borrower waives presentment,  and notice of demand or dishonor and protest as to
any  instrument,  notice of intent to accelerate the  Obligations  and notice of
acceleration of the  Obligations,  as well as any and all other notices to which
it might  otherwise be entitled.  No notice to or demand on the Borrowers  which

                                      102

<PAGE>

the Agent or any Lender may elect to give shall  entitle the Borrowers to any or
further notice or demand in the same, similar or other circumstances.

        15.10 Binding Effect.  The provisions of this Agreement shall be binding
              --------------
upon and inure to the benefit of the respective representatives, successors, and
assigns of the parties hereto; provided, however, that no interest herein may be
assigned by the Borrowers  without  prior written  consent of the Agent and each
Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if
such  Persons  so  agree,  inure to any  party  acquiring  any  interest  in the
Obligations or any part thereof.

        15.11 Indemnity of the Agent and the Lenders by the Borrowers.
              -------------------------------------------------------

             (a)  Each  Borrower  agrees  to  defend,  indemnify  and  hold  the
Agent-Related  Persons,  and each  Lender and each of its  respective  officers,
directors, employees, counsel, agents and attorneysinfact (each, an "Indemnified
                                                                     -----------
Person") harmless from and against any and all liabilities, obligations, losses,
------
damages,  penalties,  actions,  judgments,  suits, costs, charges,  expenses and
disbursements  (including Attorney Costs) of any kind or nature whatsoever which
may at any time (including at any time following  repayment of the Loans and the
termination,  resignation  or  replacement  of the Agent or  replacement  of any
Lender) be imposed on,  incurred  by or asserted  against any such Person in any
way relating to or arising out of this Agreement or any document contemplated by
or referred to herein,  or the transactions  contemplated  hereby, or any action
taken or  omitted  by any such  Person  under or in  connection  with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including  any  Insolvency  Proceeding or appellate  proceeding)  related to or
arising out of this Agreement,  any other Loan Document, or the Loans or the use
of the  proceeds  thereof,  whether  or not any  Indemnified  Person  is a party
thereto  (all  the  foregoing,  collectively,  the  "Indemnified  Liabilities");
                                                     ------------------------
provided,  that Borrowers shall have no obligation  hereunder to any Indemnified
Person with respect to Indemnified  Liabilities  resulting solely from the gross
negligence or willful  misconduct of such Indemnified  Person. The agreements in
this Section shall survive payment of all other Obligations.

             (b) Each Borrower agrees to indemnify, defend and hold harmless the
Agent and the Lenders from any loss or liability  directly or indirectly arising
out  of  the  use,  generation,   manufacture,   production,  storage,  release,
threatened  release,  discharge,  disposal or presence of a hazardous  substance
relating to the Borrowers operations,  business or property. This indemnity will
apply  whether  the  hazardous  substance  is on,  under or about the  Borrowers
property  or  operations  or property  leased to the  Borrowers.  The  indemnity
includes but is not limited to attorneys'  fees.  The  indemnity  extends to the
Agent and the Lenders, their parents, affiliates,  subsidiaries and all of their
directors,  officers,  employees,  agents,  successors,  attorneys  and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic,"  "hazardous,"  "pollutant," or "contaminant"
or a similar  designation  or regulation  under any federal,  state or local law
(whether  under common law,  statute,  regulation  or  otherwise) or judicial or
administrative  interpretation of such, including petroleum or natural gas. This
indemnity will survive repayment of all other Obligations.

                                      103

<PAGE>

        15.12 Joint and Several Liability. Each Borrower shall be liable for all
              ---------------------------
amounts due to the Agent and/or any Lender under this  Agreement,  regardless of
which Borrower  actually  receives Loans or other extensions of credit hereunder
or the amount of such  Loans  received  or the manner in which the Agent  and/or
such Lender  accounts for such Loans or other  extensions of credit on its books
and records.  Each Borrower's  Obligations with respect to Loans made to it, and
the  Borrower's  Obligations  arising  as a  result  of the  joint  and  several
liability of the  Borrowers  hereunder,  with respect to Loans made to the other
Borrower  hereunder,  shall be separate and distinct  obligations,  but all such
Obligations shall be primary obligations of each Borrower.

             Each  Borrower's  Obligations  arising as a result of the joint and
several  liability  of the  Borrowers  hereunder  with respect to Loans or other
extensions of credit made to the other Borrower  hereunder shall, to the fullest
extent  permitted by law, be  unconditional  irrespective of (i) the validity or
enforceability,  avoidance  or  subordination  of the  Obligations  of the other
Borrower or of any promissory note or other document  evidencing all or any part
of the  Obligations  of the other  Borrower,  (ii) the absence of any attempt to
collect the Obligations  from the other Borrower,  any other  guarantor,  or any
other security therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension,  forbearance or granting of any indulgence
by the Agent and/or any Lender with respect to any  provision of any  instrument
evidencing the  Obligations of the other Borrower,  or any part thereof,  or any
other agreement now or hereafter executed by the other Borrower and delivered to
the Agent and/or any Lender,  (iv) the failure by the Agent and/or any Lender to
take any steps to perfect and maintain its security  interest in, or to preserve
its rights to, any  security  or  collateral  for the  Obligations  of the other
Borrower,  (v) the  Agent's  and/or any  Lender's  election,  in any  proceeding
instituted under the Bankruptcy  Code, of the application of Section  1111(b)(2)
of the Bankruptcy  Code,  (vi) any borrowing or grant of a security  interest by
the other Borrower, as debtor-in-possession  under Section 364 of the Bankruptcy
Code,  (vii) the  disallowance  of all or any portion of the Agent's  and/or any
Lender's  claim(s) for the repayment of the  Obligations  of the other  Borrower
under  Section 502 of the  Bankruptcy  Code,  or (viii) any other  circumstances
which might constitute a legal or equitable  discharge or defense of a guarantor
or of the other Borrower. With respect to each Borrower's Obligations arising as
a result of the joint and several  liability  of the  Borrowers  hereunder  with
respect  to Loans or other  extensions  of  credit  made to the  other  Borrower
hereunder,  such Borrower waives,  until the Obligations shall have been paid in
full and the Loan Agreement shall have been terminated, any right to enforce any
right of  subrogation or any remedy which the Agent and/or any Lender now has or
may hereafter have against the Borrower, any endorser or any guarantor of all or
any part of the  Obligations,  and any benefit of, and any right to  participate
in, any  security or  collateral  given to the Agent and/or any Lender to secure
payment of the  Obligations or any other  liability of the other Borrower to the
Agent and/or any Lender.

             Upon the  occurrence  and  during the  continuance  of any Event of
Default,  the Agent may proceed  directly and at once,  without notice,  against
each  Borrower to collect and  recover  the full  amount,  or any portion of the
Obligations,  without first  proceeding  against the other Borrower or any other
Person, or against any security or collateral for the Obligations. Each Borrower
consents and agrees that the Agent shall be under no  obligation  to marshal any
assets in favor of such  Borrower  or against or in payment of any or all of the
Obligations.

                                      104

<PAGE>

        15.13  Limitation of Liability.  NO CLAIM  MAY BE MADE BY THE BORROWERS,
               -----------------------
ANY LENDER OR OTHER PERSON  AGAINST THE AGENT,  ANY LENDER,  OR THE  AFFILIATES,
DIRECTORS,  OFFICERS,  OFFICERS,  EMPLOYEES,  OR  AGENTS  OF ANY OF THEM FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR
BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO
THE TRANSACTIONS  CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT,  OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,  AND THE BORROWERS
AND EACH LENDER  HEREBY  WAIVE,  RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR
SUCH  DAMAGES,  WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR  SUSPECTED TO
EXIST IN ITS FAVOR.

        15.14 Final  Agreement.  This Agreement and the other Loan Documents are
              ----------------
intended by the Borrowers,  the Agent and the Lenders to be the final, complete,
and  exclusive   expression  of  the  agreement  between  them.  This  Agreement
supersedes any and all prior oral or written agreements  relating to the subject
matter hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made,  except by
a written  agreement  signed by the Borrowers and a duly  authorized  officer of
each of the Agent and the requisite Lenders.

        15.15  Counterparts.  This  Agreement  may be  executed in any number of
               ------------
counterparts,  and by the Agent,  each  Lender  and the  Borrowers  in  separate
counterparts,  each of  which  shall  be an  original,  but all of  which  shall
together constitute one and the same agreement;  signature pages may be detached
from multiple separate counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same document.

        15.16  Captions.  The  captions  contained  in  this  Agreement  are for
               --------
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.

        15.17 Right of Setoff.  In  addition  to any rights and  remedies of the
              ---------------
Lenders  provided by law,  if an Event of Default  exists or the Loans have been
accelerated,  each  Lender  is  authorized  at any time  and from  time to time,
without  prior  notice to the  Borrowers,  any such notice  being  waived by the
Borrowers to the fullest  extent  permitted by law, to set off and apply any and
all deposits (general or special,  time or demand,  provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of either  Borrower  against  any and all  Obligations
owing to such Lender, now or hereafter existing,  irrespective of whether or not
the Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such  Obligations  may be  contingent  or unmatured.  Each
Lender  agrees  promptly  to notify the  Borrowers  and the Agent after any such
setoff and application made by such Lender; provided,  however, that the failure
to  give  such  notice  shall  not  affect  the  validity  of  such  setoff  and
application.  NOTWITHSTANDING THE FOREGOING,  NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF,  BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT  ACCOUNT OR PROPERTY

                                      105

<PAGE>

OF THE BORROWER  HELD OR  MAINTAINED  BY SUCH LENDER  WITHOUT THE PRIOR  WRITTEN
UNANIMOUS CONSENT OF THE LENDERS.

        15.18  Replacement  of Affected  Lenders.  If any Lender (other than the
               ---------------------------------
Agent) (x) is owed a material  amount of  increased  costs under  Section 5.3 or
ceases to be obligated to make Libor Rate Loans as a result of the  operation of
Section  5.2,  (y)  refuses to consent to  certain  proposed  changes,  waivers,
discharges  or  terminations  with  respect  to this  Agreement  which have been
approved  by the  Majority  Lenders  as  provided  in  Section  13.1 or (z) is a
Defaulting  Lender,  then the Borrowers  shall have the right,  if no Default or
Event of Default then exists or will exist  immediately  after giving  effect to
the respective replacement,  to replace such Lender (the "Replaced Lender") with
one  or  more  Eligible  Assignees  (collectively,   the  "Replacement  Lender")
acceptable to the Agent; provided that:
                         --------

                  (i) at the time of any  replacement  pursuant to this  Section
15.17, the Replacement Lender shall enter into one or more assignment agreements
pursuant to Section 13.2 hereof pursuant to which the  Replacement  Lender shall
acquire all of the  Commitments  and  outstanding  Loans and  participations  in
Letters of Credit,  of the Replaced Lender and, in connection  therewith,  shall
pay to (x) the Replaced  Lender in respect thereof an amount equal to the sum of
(A) the principal of, and all accrued interest on, all outstanding  Loans of the
Replaced  Lender,  (B) an amount equal to all unpaid  reimbursement  obligations
that have been funded by (and not reimbursed to) such Replaced Lender,  together
with all then unpaid  interest  with respect  thereto at such time,  and (C) all
accrued,  but theretofore  unpaid,  fees owing to the Replaced  Lender,  (y) the
Letter of Credit Issuer an amount equal to such Replaced Lender's Pro Rata Share
of any unpaid reimbursement obligations under any Letter of Credit to the extent
such  amount  was not  theretofore  funded by such  Replaced  Lender and (z) the
Agent, the processing fee set forth in Section 13.2(a);

                  (ii) all  obligations  of the Borrowers  owing to the Replaced
Lender  (other than those  specifically  described  in  preceding  clause (i) in
respect of which the  assignment  purchase  price has been,  or is  concurrently
being,  paid)  shall be paid by the  Borrower  in full to such  Replaced  Lender
concurrently with such replacement; and

                  (iii)  upon  the  execution  of  the   respective   assignment
documentation  pursuant  to  preceding  clause  (i) and the  payment  of amounts
referred to in  preceding  clauses (i) and (ii),  the  Replacement  Lender shall
become a Lender  hereunder  and the Replaced  Lender shall cease to constitute a
Lender  hereunder,  except with respect to  indemnification  provisions  of this
Agreement and the other Loan Documents,  which shall survive as to such Replaced
Lender.

                                      106

<PAGE>

                                   ARTICLE 16

                                    GUARANTY
                                    --------

             Each Borrower unconditionally  guarantees, as a primary obligor and
not  merely as a surety,  the due and  punctual  payment of all  amounts  now or
hereafter  owing by  Envirosource to the Bank under or in respect of the Letters
of Credit  listed on  Schedule  8.31  hereto and all  renewals,  extensions  and
amendments thereto,  including without limitation, all reimbursement obligations
under  or  with  respect  to such  Letters  of  Credit  (the  "Envirosource  L/C
Obligations") when and as due, whether at maturity,  by acceleration,  by notice
or prepayment or otherwise.  Each Borrower  further agrees that the Envirosource
L/C Obligations may be extended and renewed, in whole or in part, without notice
to or further  assent from it, and that it will remain bound upon its  guarantee
notwithstanding any extension or renewal of any Envirosource L/C Obligations.

             To the  fullest  extent  permitted  by law,  each  Borrower  waives
presentment  to, demand of payment from and protest to Envirosource or any other
Person of any of the  Obligations,  and also waives  notice of acceptance of its
guarantee and notice of protest for nonpayment.  To the fullest extent permitted
by law, the obligations of each Borrower  hereunder shall not be affected by (a)
the failure of the Agent or any Lender or the Letter of Credit  Issuer to assert
any claim or demand or to enforce any right or remedy  against  Envirosource  or
any other Person under the provisions of this Agreement or any of the other Loan
Documents or otherwise; (b) any rescission, waiver, amendment or modification of
any of the  terms  or  provisions  of  this  Agreement,  any of the  other  Loan
Documents, any guarantee or any other agreement; (c) the release of any security
held  by the  Agent  or any  Lender  or the  Letter  of  Credit  Issuer  for the
Obligations or any of them; or (d) the failure of the Agent or any Lender or the
Letter  of Credit  Issuer to  exercise  any  right or remedy  against  any other
Person.

             Each  Borrower  further  agrees that its  guarantee  constitutes  a
guarantee  of payment  when due and not of  collection,  and waives any right to
require  that any  resort  be had by the Agent or any  Lender  or the  Letter of
Credit Issuer to any security (if any) held for payment of the  Envirosource L/C
Obligations  or to any balance of any deposit  account or credit on the books of
the Agent or any Lender or the Letter of Credit  Issuer in favor of any Borrower
or any other Person.

             To the fullest  extent  permitted by law, the  obligations  of each
Borrower hereunder shall not be subject to any reduction, limitation, impairment
or  termination  for any reason,  including,  without  limitation,  any claim of
waiver, release,  surrender,  alteration or compromise, and shall not be subject
to any  defense  (other  than  payment  and  performance  in  full)  or  setoff,
counterclaim,  recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Envirosource L/C Obligations or otherwise.
Without  limiting  the  generality  of  the  foregoing,  to the  fullest  extent
permitted  by law,  the  obligations  of each  Borrower  hereunder  shall not be
discharged or impaired or otherwise  affected by the failure of the Agent or any
Lender  to  assert  any claim or demand or to  enforce  any  remedy  under  this
Agreement  or  under  any  other  Loan  Document,  any  guarantee  or any  other
agreement,  by any  waiver or  modification  of any  provision  thereof,  by any
default,  failure or delay,  willful or  otherwise,  in the  performance  of the
Envirosource L/C Obligations, or by any other act or omission which may or might
in any  manner or to any  extent  vary the risk of the  Borrowers  or  otherwise

                                      107

<PAGE>

operate as a discharge of a Borrower as a matter of law or equity.

             Each Borrower  further agrees that its guarantee  shall continue to
be effective or be  reinstated,  as the case may be, if at any time payment,  or
any part thereof, of principal or of interest on any Envirosource L/C Obligation
is  rescinded  or must  otherwise  be returned by the Agent or any Lender or the
Letter of Credit Issuer upon the bankruptcy or reorganization of Envirosource or
any of its Subsidiaries.

             Each Borrower  hereby waives and  releases,  until the  Obligations
shall have been paid in full and the Loan Agreement shall have been  terminated,
all rights of subrogation against each Person and its property and all rights of
indemnification,  contribution  and  reimbursement  from  each  Person  and  its
property,  in each case in connection  with this guarantee and any payments made
hereunder,  and  regardless  of whether  such rights  arise by operation of law,
pursuant to contract or otherwise.

             The Envirosource L/C Obligations constitute part of the Obligations
and are secured by the Collateral.

                            [SIGNATURE PAGE FOLLOWS]


                                      108

<PAGE>




             IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written. "BORROWER" AND "GUARANTOR"

                                             INTERNATIONAL MILL SERVICES, INC.


                                             By /s/JOHN C. HEENAN
                                                -----------------
                                             Title: Senior Vice President / CFO

                                             "BORROWER"AND "GUARANTOR"

                                             IMS ALABAMA, INC.


                                             By /s/JOHN C. HEENAN
                                                -----------------
                                             Title: Senior Vice President / CFO

                                             "AGENT"

                                             Bank of America, N.A., as the Agent


                                             By /s/PATRICK J. WILSON
                                                --------------------
                                                          Senior, Vice President

Commitment:  $40,000,000                     "LENDERS"
Pro Rata Share:  100%
                                             Bank of America, N.A., as a Lender


                                             By /s/PATRICK J. WILSON
                                                --------------------
                                                          Senior, Vice President