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                                                                   EXHIBIT 10.10


                              SETTLEMENT AGREEMENT

                                  by and among

                              KAISER VENTURES INC.

                               KSC RECOVERY, INC.

                       KAISER STEEL LAND DEVELOPMENT, INC.
                                       and

                        CALIFORNIA STEEL INDUSTRIES, INC.

                                   dated as of

                                  JUNE 1, 1995
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                              SETTLEMENT AGREEMENT

            THIS SETTLEMENT AGREEMENT is entered into as of June 1, 1995, by and
among KAISER VENTURES INC., a Delaware corporation ("KAISER"), KSC RECOVERY,
INC., a Delaware corporation ("RECOVERY"), KAISER STEEL LAND DEVELOPMENT, INC.,
a Delaware corporation ("DEVELOPMENT") and CALIFORNIA STEEL INDUSTRIES, INC., a
Delaware corporation ("CSI"). This Agreement is made, without any party hereto
admitting any liability or fact or conceding any question of law, except as
specifically provided herein, in full compromise and final settlement of all
claims among the parties including, but not limited to, the differences and
causes of action arising in or related to the disputes and matters in litigation
described below.

                                    RECITALS

            A. From 1942 until 1983, Kaiser Steel Corporation operated a large
steel production and processing facility on approximately 2,000 acres of land
near Fontana, California owned by Kaiser Steel Corporation (the "FONTANA
PROPERTY"). Pursuant to an Agreement of Purchase and Sale entered into effective
as of August 17, 1984 (the "1984 AGREEMENT"), CSI purchased approximately 378
acres of the FONTANA PROPERTY. In 1988 and
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1989, CSI acquired from third parties approximately 43 and 29 acres,
respectively, of property previously owned by Kaiser Steel Corporation and
comprising a portion of the FONTANA PROPERTY. The 378, 43 and 29 acres of the
FONTANA PROPERTY formerly owned by Kaiser Steel Corporation and now owned by CSI
are hereinafter collectively referred to as the "CSI PROPERTY." Certain portions
of the FONTANA PROPERTY retained by KAISER following the sale of the CSI
PROPERTY to CSI and described on the map attached hereto as Exhibit "1" are
hereinafter referred to as the KAISER PROPERTY.

            B. Since the August 17, 1984 sale, Kaiser Steel Corporation and its
successors have supplied utility services, water and other services to CSI
through a series of contractual arrangements with CSI, the most recent of which
was dated August 1, 1991, known as the "SERVICES AGREEMENT." A number of
disputes have arisen as between CSI and KAISER under the SERVICES AGREEMENT
including, but not limited to, the following:

                  1. Whether CSI is liable for costs incurred by KAISER for the
installation of secondary containment with respect to KAISER's industrial
wastewater pretreatment plant, utility lines and storage tanks (the "SECONDARY
CONTAINMENT MATTERS");

                  2. Whether CSI is liable for all potential fines, penalties,
fees, charges and costs relating to the SECONDARY CONTAINMENT MATTERS;


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                  3. Whether CSI is liable to reimburse KAISER for all potential
fines, penalties, fees, charges and/or costs that KAISER may incur or be liable
for as a result of notices of violation or orders of corrective action
previously issued by the Chino Basin Municipal Water District or that may
hereafter be issued by the Chino Basin Municipal Water District (the "NOV and
OCA MATTERS");

                  4. Whether CSI is liable to reimburse KAISER for KAISER's
costs associated with the closure of KAISER's industrial wastewater pretreatment
plant (the "CLOSURE COST MATTERS");

                  5. Whether CSI is liable to reimburse KAISER for any costs
that KAISER may incur with respect to the closure or remediation of the Chemwest
ferrous chloride plant (the "CHEMWEST MATTERS");

                  6. Whether CSI is liable to reimburse KAISER for any costs
that KAISER may incur with respect to permit fees, remediation expenses and
compliance with permit requirements regarding discharges from CSI in the
vicinity of Mulberry Ditch and its related structures including, but not limited
to, the Mulberry Pond currently located upon property owned by John Boruchen
(the "MULBERRY DITCH MATTERS");

                  7. Whether CSI is liable to reimburse KAISER for any costs
that KAISER may incur with respect to its compliance with the Salt Offset
Agreement (the "SALT OFFSET AGREEMENT") between KAISER and the California State
Regional Water Quality


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Control Board/Santa Ana Region (the "RWQCB") and Cleanup and Abatement Orders
87-121 and 91-40 issued against KAISER by the RWQCB (the "SALT OFFSET MATTERS");

                  8. Whether CSI is liable to reimburse KAISER for any costs
that KAISER may incur for replenishment fees to the Chino Basin Municipal Water
District or corresponding fees that may be owed to the Fontana Mutual Water
Company, Fontana Union Water Company or Cucamonga County Water District for
water furnished to CSI by KAISER under the SERVICES AGREEMENT (the "WATER
MATTERS");

                  9. Whether CSI is liable to reimburse KAISER for any
incidental expenses that KAISER may incur as a result of KAISER's ceasing to
provide utility services to CSI (the "TRANSITIONAL MATTERS"); and

                  10. Whether CSI is liable to reimburse Kaiser for standby
charges assessed to KAISER by the Chino Basin Municipal Water District (the
"STANDBY CHARGES").

            C. On February 11, 1987, Kaiser Steel Corporation filed a petition
with the United States Bankruptcy Court for the District of Colorado (the
"BANKRUPTCY COURT"), initiating proceedings pursuant to chapter 11 of the
Bankruptcy Code (11 U.S.C. ss. 101 et seq.). Such proceedings were conducted by
and before the Honorable Charles E. Matheson, United States Bankruptcy Judge,
and are entitled In re Kaiser Steel Corporation, Case No. 87 B 01552 E (Jointly
Administered) (the


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"BANKRUPTCY CASE"). On October 4, 1988, the BANKRUPTCY COURT entered an order
confirming Kaiser Steel Corporation's Second Amended Joint Plan of
Reorganization, As Modified (the "PLAN").

            D. CSI filed a proof of claim in the BANKRUPTCY CASE which, as
amended, sought the allowance of a claim in a sum in excess of $54 million. That
claim was premised upon certain alleged property damage on and under the CSI
PROPERTY allegedly caused by Kaiser Steel Corporation. CSI has expended, and
will in the future expend, certain sums for the purpose of investigating and
remediating the forgoing property damage. CSI currently asserts that its
expenses and damages for property damage substantially exceed $54 million.
Pursuant to the terms of the PLAN, RECOVERY has assumed the administration of
Kaiser Steel Corporation's bankruptcy estate and the filing and prosecution of
objections to claims filed in the BANKRUPTCY CASE. RECOVERY disputes both the
merits and the amount of CSI's claim and has initiated a contested matter in the
BANKRUPTCY CASE by filing an objection to CSI's proof of claim. That contested
matter is presently pending before the BANKRUPTCY COURT.

            E. CSI asserts that certain of its claims against KAISER were not
discharged by the order confirming the PLAN. KAISER contends that all of CSI's
claims were discharged. The BANKRUPTCY COURT has previously ruled that CSI's
claims were discharged, but that ruling is not final and remains subject to
appeal.


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            F. KAISER is currently pursuing the recovery of certain monies from
certain general liability insurance carriers (the "INSURERS") as a result, in
part, of the alleged property damage on or under the FONTANA PROPERTY, including
the CSI PROPERTY, and other properties, in the matter of Kaiser Steel Resources,
Inc. v. Accident & Casualty Insurance Company of Winterthur, et al., San
Francisco County Superior Court Case No. 906233 (the "INSURANCE LITIGATION").
CSI asserts that it is entitled to a share of the proceeds of the INSURANCE
LITIGATION, to pursue the INSURERS independently for coverage under KAISER's
policies of insurance, or that it should be assigned the right to separately
pursue the INSURERS. KAISER disputes the foregoing contentions of CSI.

            G. A number of other disputes have arisen between the parties as a
result of the 1984 sale. These disputes include, but are not limited to, the
following:

                  1. The non-agricultural overlying water rights and water
storage contracts to which CSI and KAISER are entitled as a result of CSI's
acquisition of the CSI PROPERTY,

                  2. Whether, and to what extent, the Court ought to adopt the
findings of the Referee appointed by the Court in the proceeding initiated by
CSI and the Chino Basin Watermaster on or about August 25, 1992 captioned "Joint
Motion to Interpret, Enforce, Carry-out, Modify, Amend or Amplify the Judgment
Herein,"


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                  3. The correct interpretation of the judgment (the "1978
JUDGMENT") entered in the matter of Chino Basin Municipal Water District v. City
of Chino, et al., San Bernardino County Superior Court Case No. RCV 51010 (the
"WATER CASE"), as it refers to the 2,930.274 acre feet per year of the safe
yield as identified at line 9 of Exhibit "D" to the 1978 JUDGMENT (the "WATER
RIGHTS"),

                  4. The purposes for which the WATER RIGHTS may be used under
the 1978 JUDGMENT,

                  5. CSI's and KAISER's performance under the SERVICES
AGREEMENT,

                  6. CSI's and KAISER's operations on their own property and the
impacts of those operations on the other's property,

                  7. The relationship of CSI and KAISER as respects their
attempts to comply with governmental regulatory requirements concerning the
investigation and remediation of alleged property damage on or under their
properties, and

                  8. Other matters relating to CSI's and KAISER's properties and
their responsibilities therefor.

            H. There are numerous railroad tracks on the FONTANA PROPERTY,
including the CSI PROPERTY. The respective rights and obligations of each of CSI
and KAISER with respect to those railroad tracks are enumerated in an
"Agreement" dated August 17, 1987 by and between CSI and Kaiser Steel
Corporation (the


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"RAILROAD AGREEMENT") and an agreement dated November 20, 1990 by and between
CSI, KAISER, Southern Pacific Transportation Company and The Atchison, Topeka
and Santa Fe Railway Company (the "FOUR PARTY AGREEMENT").

            I. Pursuant to the terms of the RAILROAD AGREEMENT and the FOUR
PARTY AGREEMENT, KAISER desires to exercise its right to abandon railway track
numbers 1000 and 1400, providing The Atchison, Topeka and Santa Fe Railway
Company (the "SANTA FE") with access to the CSI PROPERTY from the Santa Fe Lead
Track and to afford the SANTA FE with alternative railway access to the CSI
PROPERTY through track numbers 1200 and 1209. CSI will not oppose KAISER's
abandonment of track numbers 1000 and 1400, subject to the terms and conditions
of this SETTLEMENT AGREEMENT.

            J. Finally, CSI has sought to promote the enactment of legislation
with respect to governmental regulation of the CSI PROPERTY and the KAISER
PROPERTY which, if enacted, would impact upon the rights of the other parties to
this SETTLEMENT AGREEMENT.

            K. The purpose of this SETTLEMENT AGREEMENT is to settle all claims
and disputes between and among the parties, without any party admitting to any
liability or fact and to provide for the continuing relationship between KAISER
and CSI with respect to their various properties and operations.

      NOW, THEREFORE, IN CONSIDERATION OF THE PRECEDING RECITALS AND THE MUTUAL
COVENANTS HEREINAFTER CONTAINED, AND FOR OTHER


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GOOD AND VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED BY ALL
PARTIES, THE PARTIES AGREE AS FOLLOWS:

            l. Appointment of Escrow.

                  Concurrently with their execution of this SETTLEMENT
AGREEMENT, the parties hereto shall execute escrow instructions, in the form
attached hereto as Exhibit "2," (the "ESCROW INSTRUCTIONS") appointing State
Street Bank and Trust of California, N.A. ("ESCROW HOLDER") to act as the escrow
holder under the terms of this SETTLEMENT AGREEMENT.

            2. Bankruptcy Proceedings.

                  a. Allowance of Claim. Concurrently with their execution of
this SETTLEMENT AGREEMENT, the parties hereto will execute a "Stipulation to
Allowance of CSI Claim" (the "STIPULATION") in the form attached hereto as
Exhibit "3." Upon the satisfaction or written waiver of the conditions set forth
at Paragraphs 8(a) and 8(b) hereof, RECOVERY shall request that the BANKRUPTCY
COURT enter an order approving the STIPULATION, allowing CSI's claim in the
BANKRUPTCY CASE as described in the STIPULATION, and directing that RECOVERY
disburse to CSI the cash and stock to which CSI is entitled, under the terms of
the STIPULATION and the PLAN, based upon the amount of the claim provided for in
the STIPULATION. KAISER agrees that, upon CSI's request, it will reasonably
assist CSI in selling the shares of KAISER stock received by CSI under the terms
of the STIPULATION and the PLAN.


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                  b. Assignment of Bankruptcy Distribution(s). CSI hereby
directs RECOVERY to pay any cash, and to deliver any stock, that CSI may be
entitled to receive under the STIPULATION or the PLAN to ESCROW HOLDER, who
shall hold and deliver possession of such property pursuant to the ESCROW
INSTRUCTIONS.

                  c. Recognition of Discharge. CSI agrees, irrevocably and
forever, to refrain from any and all claims or assertions that KAISER's
obligation to reimburse CSI for any expenses, damages or liabilities incurred,
or to be incurred, by CSI with respect to the investigation, remediation and
existence of any substances released on or under the FONTANA PROPERTY prior to
October 4, 1988 were not discharged by the order confirming the PLAN in the
BANKRUPTCY CASE, except with respect to those obligations expressly assumed by
KAISER under the terms of this SETTLEMENT AGREEMENT and the exhibits hereto.

            3. Millsite Water Rights.

                  a. Recognition of Water Claims. Concurrently with their
execution of this SETTLEMENT AGREEMENT, the parties shall execute the Water
Rights Agreement attached hereto as Exhibit "4" (the "WATER RIGHTS AGREEMENT")
for the purpose of acknowledging CSI's interests in certain portions of the
WATER RIGHTS (the "CSI WATER RIGHTS") and KAISER's interests in certain portions
of the WATER RIGHTS (the "KAISER WATER RIGHTS").


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                  b. Title with respect to the CSI WATER RIGHTS. Subject to the
1978 JUDGMENT and the continuing jurisdiction in the WATER CASE, KAISER warrants
to CSI as follows:

                        (1) That, as of August 17, 1984, KAISER owned the
FONTANA PROPERTY and the WATER RIGHTS;

                        (2) That KAISER has not conveyed, leased, assigned,
licensed, sold, transferred, pledged, mortgaged, or encumbered the CSI WATER
RIGHTS, except to CSI as acknowledged in this AGREEMENT and the WATER RIGHTS
AGREEMENT;

                        (3) That KAISER has not received any assessment as
provided by paragraph 55 of the 1978 JUDGMENT, which it has not paid;

                        (4) That the CSI WATER RIGHTS have not been lost by
virtue of a written election filed with the Chino Basin Watermaster (the
"WATERMASTER") or by order of the Court in the WATER CASE, as provided by
paragraph 61 of the 1978 JUDGMENT;

                        (5) Subject to the relationship between CSI and KAISER
under the SERVICES AGREEMENT, the CSI WATER RIGHTS have not been changed in the
character of the use as provided by paragraph 43 of the 1978 JUDGMENT;

                        (6) That the CSI WATER RIGHTS have not been the subject
of an agency agreement, as provided by paragraph 6, Exhibit "G" of the 1978
JUDGMENT; and

                        (7) That KAISER has done nothing, and has no knowledge
as to any action taken by any other party, to impair


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the exercise by CSI of voting rights in the Overlying Non Agricultural Pool and
Advisory Committee in accordance with its ownership of the CSI WATER RIGHTS.

                  c. Title with respect to Local Storage Agreement Nos. 9.0 and
9.1. Subject to the 1978 JUDGMENT and the continuing jurisdiction in the WATER
CASE, KAISER warrants to CSI that:

                        (1) KAISER has not defaulted under the terms of Local
Storage Agreements Nos. 9.0 and 9.1 and that those agreements have not been
assigned to any party other than: (a) to CSI, as provided for in this AGREEMENT
and the WATER RIGHTS AGREEMENT and (b) as set forth in the SALT OFFSET
AGREEMENT; and

                        (2) The termination of Local Storage Agreements Nos. 9.0
and 9.1 according to their terms shall not effect CSI's entitlement to the
stored water referred to at paragraph 2(c) of the WATER RIGHTS ACKNOWLEDGEMENT.

                  d. Indemnification. KAISER will defend CSI against any and all
third party claims, demands, actions, liabilities or allegations of any kind
based upon or relating to a fact or alleged fact that is not consistent with
paragraphs 3(b) and 3(c) above; and KAISER will indemnify and hold CSI harmless
from any loss incurred by CSI as a consequence of such a third party claim,
demand, action, liability or allegation. As used herein, the term "third party
claim" refers to claims asserted by any party, other than CSI and KAISER.


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            4. Industrial Water and Sewage Lines.

                  a. Recognition of Title to Industrial Waste and Sewage Lines.
Concurrently with its execution of this SETTLEMENT AGREEMENT, KAISER shall
execute and deliver to ESCROW HOLDER a "Corporation Quitclaim Deed," in the form
attached hereto as Exhibit "5," (the "QUITCLAIM") for the purpose of recognizing
CSI's title in and to the sewage, stormwater and industrial water lines on or
underlying CSI's property and adjacent public rights of way (the "LINES"),
acquired by CSI pursuant to the 1984 AGREEMENT, subject to KAISER's
non-exclusive right of use as described in paragraph 4(c) hereof.

                  b. Allocation of responsibility for LINES. CSI will assume
all responsibility and liability for the LINES, to the extent that they are
located on or under the CSI PROPERTY and to the extent that they connect the CSI
PROPERTY to KAISER's wastewater treatment plants located south of San Bernardino
Avenue, to the point at which the LINES enter the KAISER PROPERTY, from and
after the date upon which it receives the QUITCLAIM.

                  c. Amendment of Reservations and Exceptions. Concurrently with
their execution of this SETTLEMENT AGREEMENT, CSI and KAISER shall execute an
"Amendment to Part B of Exhibit A to Grant Deed-Reservations and Exceptions in
Favor of Grantor" (the "RESERVATION"), in the form attached hereto as Exhibit
"6," for the purpose of granting to KAISER, its successors, assigns


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and tenants certain non-exclusive rights with respect to the use of the LINES.

            5. Discharge Units.

                  a. Recognition of title to Discharge Capacity Units.
Concurrently with its execution of this SETTLEMENT AGREEMENT, KAISER shall
execute and deliver to ESCROW HOLDER an "Application for Assignment of Capacity
Contracts" in the form attached hereto as Exhibit "7" (the "ASSIGNMENT")
effectuating the ministerial act of confirming CSI's entitlement to twenty-seven
(27) discharge units in the Chino Basin Municipal Water District non-reclaimable
waste system pursuant to the 1984 AGREEMENT and the ordinances of the Chino
Basin Municipal Water District.

                  b. Reimbursement of Minimum Volumetric Charges. Following the
conclusion of any administrative appeal therefrom, CSI shall reimburse Kaiser
for any minimum volumetric charges with respect to the twenty-seven (27)
discharge units referred to in paragraph 5(a), above, that Kaiser is required
to pay to the Chino Basin Municipal Water District for the period from August 1,
1994 through the conclusion of said administrative appeal. Kaiser shall
prosecute an administrative appeal from such charges, at its sole cost and
expense. In the event that Kaiser fails to prosecute such administrative appeal,
CSI may do so in Kaiser's name, with the costs of such appeal to be deducted
from any amounts otherwise payable to Kaiser pursuant to the


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provisions of this paragraph 5(b). Notwithstanding anything herein to the
contrary, in no event shall CSI's liability under this paragraph exceed the sum
of $137,880.00 plus the sum of $12,271.50 per month from June 1, 1995 through
the earlier of: (i) date upon which the administrative appeal is concluded or
October 31, 1995. The amounts payable pursuant to this paragraph shall be
payable solely from the proceeds of the INSURANCE LITIGATION to be paid to CSI,
or received by CSI, pursuant to paragraph 9(a)(4) of this SETTLEMENT AGREEMENT.
In the event that the foregoing funds are insufficient to pay all or any portion
of the amounts payable pursuant to this paragraph 5(b), then CSI shall not be
obligated to pay any deficiency remaining after application of the payments
required hereunder. In the event that KAISER becomes entitled to obtain a refund
of the foregoing standby charges after it has received the sums due pursuant to
this paragraph, KAISER shall remit said refund to CSI immediately upon its
receipt of same.

            6. Payments to ESCROW HOLDER.

                  CSI shall pay to KAISER, through ESCROW HOLDER, in the manner,
at the time, and from the funds referred to herein, in settlement of all of the
matters described in the recitals to this SETTLEMENT AGREEMENT, the following
amounts:

                  a. Within seven (7) days following the execution of this
SETTLEMENT AGREEMENT, the sum of $256,500.00;


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                  b. The minimum sum of $2,730,000 and the maximum sum of
$3,250,000 as follows:

                        (1) Upon CSI's receipt of cash distributions pursuant to
the PLAN, CSI shall pay to ESCROW HOLDER the amount of cash so distributed up to
the sum of $600,000.00;

                        (2) Upon CSI's receipt of the proceeds of the sale of
stock distributed to CSI pursuant to the PLAN and to be delivered to ESCROW
HOLDER pursuant to this SETTLEMENT AGREEMENT and the ESCROW INSTRUCTIONS, CSI
shall pay to ESCROW HOLDER the amount of sales proceeds received by it; and

                        (3) Within ninety days following the distribution of
stock to CSI pursuant to the PLAN, CSI shall pay to ESCROW HOLDER an amount
equal to the average of the "bid" and "asked" price of said stock for the five
trading days preceding the day that such stock is distributed to CSI, less any
sums paid to ESCROW HOLDER pursuant to paragraph 6(b)(2) hereof.

                        (4) In the event that the sum of the payments made by
CSI to ESCROW HOLDER pursuant to paragraphs 6(b)(l), 6(b)(2) and 6(b)(3) hereof
do not exceed $2,730,000.00 within ninety days following distribution of the
stock to CSI, then CSI shall immediately pay to ESCROW HOLDER an amount
sufficient to bring the total of said payments to $2,730,000.00.

                        (5) In no event shall the sum of the payments made to
ESCROW HOLDER pursuant to subparagraphs 6(b)(1), 6(b)(2) and 6(b)(3) hereof
exceed the sum of $3,250,000.00.


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                  c. In the event that ESCROW HOLDER has received less than the
sum of $3,250,000.00 pursuant to paragraph 6(b) hereof, the difference between
$3,250,000.00 and the amounts paid pursuant to said paragraph (the "REMAINING
OBLIGATION") shall be paid by CSI to ESCROW HOLDER from the following funds,
upon CSI's receipt of those funds:

                        (1) Any cash distribution received by CSI pursuant to
the PLAN in excess of $600,000.00; and

                        (2) Any funds received by CSI pursuant to paragraph 9 of
this SETTLEMENT AGREEMENT.

                        (3) In the event that the foregoing funds are
insufficient to pay all or any portion of the REMAINING OBLIGATION, then CSI
shall not be obligated to pay any deficiency remaining after application of the
payments required hereunder. It is the intention of the parties that CSI's
obligation to pay the REMAINING OBLIGATION is to be without recourse to CSI or
to any assets of CSI except for the funds specified in paragraph 6(c) of this
SETTLEMENT AGREEMENT.

            7. Allocation of environmental responsibility.

                  a. Groundwater. Concurrently with their execution of this
SETTLEMENT AGREEMENT, CSI and KAISER shall execute a "Groundwater Indemnity
Agreement" in the' form attached hereto as Exhibit "8" (the "GROUNDWATER
INDEMNITY AGREEMENT") for the purpose of allocating financial responsibility as
between


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them with respect to any groundwater contamination that may exist, or in the
future exist, at the FONTANA PROPERTY.

                  b. Soil. CSI acknowledges that, as a result of the provisions
of this SETTLEMENT AGREEMENT, it is releasing KAISER from any responsibility
that it may otherwise have for any expenses, damages or liabilities incurred or
to be incurred with respect to the investigation, remediation or existence of
any substances released on or in the soil on the CSI PROPERTY as may exist on
the date of this SETTLEMENT AGREEMENT or as the soil of the CSI PROPERTY may be
affected by releases predating this SETTLEMENT AGREEMENT. KAISER acknowledges
that, as a result of the provisions of this SETTLEMENT AGREEMENT, it is
releasing CSI from any responsibility that it may otherwise have for any
expenses, damages or liabilities incurred or to be incurred with respect to the
investigation, remediation or existence of any substances released on or in the
soil on the KAISER PROPERTY as may exist on the date of this SETTLEMENT
AGREEMENT or as the soil of the KAISER PROPERTY may be affected by releases
predating this SETTLEMENT AGREEMENT.

                  c. Third Parties. CSI agrees that it will stop all current
efforts, and forever refrain in the future from any further efforts or attempts,
to have the State of California, the Environmental Protection Agency of the
United States or any other third party assert claims against any of DEVELOPMENT,
RECOVERY or KAISER for the investigation or remediation of the FONTANA


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PROPERTY, or in any way related to the investigation or remediation of the
FONTANA PROPERTY, with respect to any alleged contamination on, under or around
the FONTANA PROPERTY prior to the date of this SETTLEMENT AGREEMENT.
DEVELOPMENT, KAISER and RECOVERY agree that they, and each of them, will stop
all current efforts, and forever refrain in the future from any further efforts
or attempts, to have the State of California, the Environmental Protection
Agency of the United States or any other third party assert claims against CSI
for the investigation or remediation of the FONTANA PROPERTY, or in any way
related to the investigation or remediation of the FONTANA PROPERTY, with
respect to any alleged contamination on, under or around the FONTANA PROPERTY
prior to the date of this SETTLEMENT AGREEMENT. Nothing contained herein shall
be construed so as to: (a) preclude or restrict CSI and KAISER, or either of
them, from dealing with the State of California, the Environmental Protection
Agency of the United States or any other third party with respect to the
environmental condition of their own properties, (b) preclude or restrict CSI
and KAISER, or either of them, from participating in remediation districts with
respect to contamination that they, or either of them, may have released, or (c)
preclude or restrict CSI and KAISER, or either of them, in such discussions as
they may have with any governmental regulatory agency, from referring to the
condition or status of the other's property, or such agreements as may have been
made,


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or may in the future be made, with respect to the investigation and remediation
of the other's property.

            8. Conditions.

                  The parties hereto agree that this SETTLEMENT AGREEMENT shall
cease to be of any force or effect unless the following events occur on or
before 180 days following the date upon which the last of the parties hereto
executes this SETTLEMENT AGREEMENT or such date thereafter as may be mutually
agreed upon by the parties to this SETTLEMENT AGREEMENT:

                  a. Watermaster approval.

                        (1) The WATERMASTER shall approve the execution and
implementation of the WATER RIGHTS AGREEMENT without the assessment or payment
of any replenishment charges; or,

                        (2) If the WATERMASTER levies replenishment charges,
then either CSI or KAISER may, but has no obligation to, pay such charges and
proceed with the implementation of this SETTLEMENT AGREEMENT; or

                        (3) If neither CSI nor KAISER elects to unilaterally pay
said charges, and if CSI and KAISER do not agree upon a sharing of the
replenishment charges, then either or both of CSI or KAISER may petition a court
of competent jurisdiction for an order determining that such charges need not be
paid, and, upon the entry of such an order and such order becoming final, this
condition shall be deemed satisfied; or


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                        (4) If neither CSI nor KAISER elects to unilaterally pay
said charges, and if CSI and KAISER do not agree upon a sharing of the
replenishment charges, then either or both of CSI or KAISER may petition a court
of competent jurisdiction for an order determining that such charges need not be
paid, and, should the court enter an order directing the payment of a
replenishment fee, then either CSI or KAISER may, but have no obligation to, pay
such charges and proceed with the implementation of this SETTLEMENT AGREEMENT;

                  b. Court approval. The San Bernardino County Superior Court
approve the WATER RIGHTS AGREEMENT in the WATER CASE; and

                  c. BANKRUPTCY COURT approval. The BANKRUPTCY COURT enter an
order approving the STIPULATION as described at paragraph 2(a), above.

            9. INSURANCE LITIGATION.

                  a. Application of Recoveries. Any recovery that is received by
KAISER as a result of the INSURANCE LITIGATION shall be treated as follows:

                        (1) First, KAISER shall retain any recovery in an amount
equal to all expenses incurred by KAISER in pursuing the INSURANCE LITIGATION
and its settlement, including recovery of all legal fees, non-refundable
retainers and expenses which KAISER has paid, or is obligated to pay, to its
counsel, its experts, its consultants, or others in connection with the


                                      -22-
<PAGE>

INSURANCE LITIGATION, but excluding any sums spent solely for the purpose of
investigating or remediating any environmental property damage on, under or
around the FONTANA PROPERTY. Within 30 days following CSI's written request
therefore, KAISER will provide to CSI a written accounting to establish the
amounts of these past and future payments. In no event shall the foregoing
expenses exceed the sum of $5,000,000.00.

                        (2) Second, Kaiser shall retain an amount equal to the
amounts paid by it in defending against CSI's environmental property damage
claims, including matters relating to CSI's objections to the SALT OFFSET
AGREEMENT; provided however that such amounts shall not exceed the sum of
$850,000.00. Within 30 days following CSI's written request therefore, KAISER
will provide to CSI a written accounting to establish the amount of the
foregoing payments.

                        (3) Third, following recovery of the amounts set forth
in paragraph 9(a)(1) and 9(a)(2), above, KAISER shall retain the sum of
$5,204,000.00.

                        (4) Fourth, following the amounts set forth in
paragraphs 9(a)(1), 9(a)(2) and 9(a)(3), above, one-third (1/3) of any excess
proceeds shall be paid to CSI and two-thirds (2/3) of any excess proceeds shall
be paid to KAISER.

                  b. Maintenance of Litigation. KAISER will remain in charge of
all aspects of the INSURANCE LITIGATION, as well as the settlement negotiations,
and will retain the sole


                                      -23-
<PAGE>

decision making authority as to the acceptance or rejection of settlement
proposals, the strategy of litigation and all other decisions affecting or
relating to the INSURANCE LITIGATION. CSI shall not take any action against the
insurance carriers or the insurance policies involved in the INSURANCE
LITIGATION. Upon request by CSI, KAISER will inform CSI of the status of the
INSURANCE LITIGATION and any settlement discussions that may have taken place,
provided however that KAISER is not required to waive or violate any
attorney-client privilege in making such disclosures and CSI acknowledges that
KAISER may withhold any information the disclosure of which would require it to
waive or violate any attorney-client privilege.

                  c. Non-Assignment of policies or claims. CSI and KAISER
acknowledge that KAISER's obligations hereunder constitute a present assignment
of a portion of the monies that KAISER may recover by virtue of the INSURANCE
LITIGATION and are not, in any manner, an assignment of any interest in or to
any insurance policy or claim. KAISER acknowledges that, to the extent that any
resolution of the INSURANCE LITIGATION requires it to assume any liability under
the relevant insurance policies, such liability will be exclusively that of
KAISER and that under no circumstances will CSI assume such liability or KAISER
receive any credit against the sums to be paid to CSI as provided for herein
based upon its assumption of such liability.


                                      -24-
<PAGE>

            10. Service Agreement Matters.

                  a. Acid Waste Treatment Plant. KAISER will hold CSI harmless
and indemnify CSI from any closure or post-closure costs associated with
KAISER's acid waste treatment plant located south of San Bernardino Avenue and
its related facilities, except to the extent set forth in paragraph 10(b) below.
CSI will hold KAISER harmless from, and indemnify KAISER against, any closure or
post-closure costs associated with the pipelines on the CSI PROPERTY and
underneath San Bernardino Avenue connecting CSI's plant to the foregoing acid
waste treatment plant.

                  b. Fines and Assessments. Pursuant to the terms of the
SERVICES AGREEMENT, CSI will pay to KAISER, within thirty days of written
notice, an amount equal to any sums that KAISER is obligated to pay for any
costs, fines or other expenses relating to secondary containment matters at
KAISER's acid waste treatment facility based upon, or related to, the operations
of said facility prior to May 3, 1994, limited to a maximum amount of
$100,000.00. KAISER acknowledges that, except as provided herein and as may have
been previously paid by CSI, CSI is not obliged to pay any sums to KAISER,
pursuant to the SERVICES AGREEMENT, or otherwise, on account of any fines or
assessments resulting from the operation or condition of said facility; such
fines or assessments will be the sole responsibility of KAISER,


                                      -25-
<PAGE>

and KAISER will indemnify and hold CSI harmless against such fines and
assessments.

                  c. SERVICES AGREEMENT. Concurrently with their execution of
this SETTLEMENT AGREEMENT, KAISER and CSI shall execute an "Amended Services
Agreement" in the form attached hereto as Exhibit "9."

                  d. Railroad Track.

                        (1) Abandonment of Track. In accordance with the
provisions of paragraph 12(a) of the RAILROAD AGREEMENT, CSI shall not object to
the abandonment of those portions of track numbers 1000 and 1400 on the FONTANA
PROPERTY, other than the CSI PROPERTY, as shown by the dotted line labeled "6
Track to be removed and salvaged" on the map attached hereto as Exhibit "10"
provided that:

                              (a) KAISER constructs, at KAISER's expense, such
additional "track," as that term is defined in the RAILROAD AGREEMENT, and
related equipment, so as to provide access to the SANTA FE to track numbers 1200
and 1209 on the CSI PROPERTY from the Santa Fe Lead Tracks. Such access shall be
at least equal in quality to the access to track numbers 1000 and 1400 currently
provided to the SANTA FE, such that the SANTA FE shall be able to operate trains
of at least equal size and weight, and at least equal speed, upon the new
tracks to be constructed pursuant to this paragraph as the SANTA FE currently
operates upon tracks 1000 and 1400. Such tracks shall be


                                      -26-
<PAGE>

constructed generally along the boldface line labeled "2 New Lead Track" on the
map attached hereto as Exhibit "10."

                              (b) KAISER obtains the written consent of each of
the parties to the FOUR PARTY AGREEMENT to an amendment to that agreement
providing the SANTA FE with the right to make use of tracks 1200 and 1209.

                        (2) Upgrading of Track. In the event that CSI desires to
upgrade any portion of the railroad track referred to in paragraph 10(d)(1)
beyond a condition required to operate trains of equal size and weight, and at
least at equal speed, upon the new tracks to be constructed pursuant to
paragraph 10(d)(1), any additional expense incurred as a result of such
upgrading shall be borne by CSI.

                        (3) Sharing of Track. Provided that CSI receives at
least 90 days notice thereof, KAISER shall have the right to preclude CSI from
making use of the railroad tracks on KAISER's property on up to twelve days per
year on six weekends per year, 8 hours per day.

                        (4) Transportation Committee. Within ten days following
the effectiveness of this SETTLEMENT AGREEMENT, CSI and KAISER will appoint a
Transportation Committee consisting of two or fewer representatives from each of
KAISER and CSI. The Transportation Committee shall meet to attempt to schedule
trains during periods of activity on the KAISER PROPERTY so as to minimize any
conflicts between CSI's use of the railroad tracks


                                      -27-
<PAGE>

on the KAISER PROPERTY and the activities being conducted on the KAISER
PROPERTY. However, nothing contained herein is intended to limit, restrict or
modify CSI's right to make use of those tracks, except as expressly set forth in
paragraph 10(d)(3) of this SETTLEMENT AGREEMENT.

                        (5) Continued Validity of RAILROAD AGREEMENT and FOUR
PARTY AGREEMENT. Notwithstanding the releases provided for in this SETTLEMENT
AGREEMENT, the RAILROAD AGREEMENT and the FOUR PARTY AGREEMENT shall remain in
full force and effect.

                  e. Utilities Committee. Within 10 days following the execution
of the SETTLEMENT AGREEMENT, CSI and KAISER will appoint a Utilities Committee
consisting of two or fewer representatives from each of KAISER and CSI. The
Utilities Committee shall address the issues of separation of utilities, such as
water, electricity and sewer service, which will be affected by the termination
of the existing SERVICES AGREEMENT, coordination of the removal of the East
Ladder railroad track, and such other matters as the parties may determine to be
appropriate or convenient in connection with the efforts of the parties to
obtain independent utility services for each of KAISER and CSI.

            11. Mutual Releases.

                  Conditioned upon the occurrence of each of the conditions set
forth in paragraph 8 hereof, and subject to their respective rights and
obligations under the Terms of this


                                      -28-
<PAGE>

SETTLEMENT AGREEMENT and each of the agreements to be executed pursuant to this
SETTLEMENT AGREEMENT, KAISER, RECOVERY AND DEVELOPMENT, on the one hand, and
CSI, on the other, do hereby fully, completely, finally and forever release,
relinquish and discharge each other and their respective subsidiaries,
affiliates, officers, directors, predecessors, agents, employees, attorney's,
successors and assigns of and from any and all claims, actions, causes of
action, demands, rights, debts, agreements, promises, liabilities, damages,
accountings, costs and expenses, whether known or unknown, suspected or
unsuspected, of every nature whatsoever which any of them have or may have
against the other, arising directly or indirectly out of any agreement,
transaction, fact, act or omission whatsoever, whether known or unknown,
howsoever and wheresoever occurring prior to the date hereof, being hereinafter
referred to as the "RELEASED CLAIMS."

                  It is the intention of the parties to this release that this
SETTLEMENT AGREEMENT shall be effective as a full and final accord and
satisfaction and release of each and every RELEASED CLAIM. In furtherance of
this intention, the parties to this release, and each of them, acknowledge that
they are familiar with Section 1542 of the Civil Code of the State of
California, which provides as follows:


                                      -29-
<PAGE>

                  A general release does not extend to
                  claims which the creditor does not know or
                  suspect to exist in his favor at the time
                  of executing a release, which, if known by
                  him, must have materially affected his
                  Settlement with the debtor.

                  The parties to this release, and each of them, hereby waive
and relinquish all of the rights and benefits which any of them has, or may
have, under Section 1542 of the Civil Code of the State of California (as well
as any similar rights and benefits which they may have by virtue of any statute
or rule of law in any other state or territory of the United States). The
parties to this release, and each of them, hereby acknowledge that they may
hereafter discover facts in addition to, or different from, those which they now
know or believe to be true with respect to the subject matter of this SETTLEMENT
AGREEMENT and the RELEASED CLAIMS, but that notwithstanding the foregoing, it is
their intention hereby to fully, finally, completely and forever settle and
release each, every and all RELEASED CLAIMS, and that in furtherance of such
intention, the releases herein given shall be and remain in effect as full and
complete general releases, notwithstanding the discovery or existence of any
such additional or different facts.

                  The parties to this release, and each of them, hereby warrant
and represent to each other that, as to any RELEASED CLAIM, each of them is the
sole and absolute owner thereof, free and clear of all of the rights and
interest therein


                                      -30-
<PAGE>

and has the right, ability and sole power to release such RELEASED CLAIM.

            12. Future Cooperation.

                  CSI and KAISER acknowledge that it is difficult, if not
impossible, for CSI and KAISER to determine, at this time, the precise uses to
which each of them may put their property or the impact of such potential uses
upon the other. However, CSI and KAISER each acknowledge that the assistance and
cooperation of the other would be of material benefit to their use and enjoyment
of their properties. As a result, each of CSI and KAISER agree, upon the written
request of the other, to assist and cooperate with the other, subject to the
following: (a) such assistance and cooperation must not unreasonably interfere
with the existing operations of the party whose assistance or cooperation is
sought, or such future operations as are reasonably contemplated by that party,
(b) such assistance or cooperation shall not require the party whose assistance
or cooperation is sought to expend any funds, (c) such assistance or cooperation
shall not require the party whose assistance or cooperation is sought to violate
or waive any attorney-client, attorney work-product, trade secret or similar
privilege regarding the confidentiality of information held by such party, and
(d) the party whose assistance or cooperation is sought may condition such
assistance or cooperation upon such terms as that party may reasonably
determine, such as the procurement of


                                      -31-
<PAGE>

adequate insurance or the provision of an indemnification against liability by
reason of such assistance or cooperation. The only criterion relevant to
determining whether the refusal of a party to assist or cooperate, or whether a
condition placed upon such assistance or cooperation, is, or was, reasonable
shall be the burden placed upon that party by the request for assistance or
cooperation. By way of example only, such assistance and cooperation may
include, but is not necessarily limited to: (a) the granting of non-exclusive
licenses, (b) sharing information concerning the environmental condition of
their properties, (c) jointly petitioning governmental or quasi-governmental
agencies, such as the WATERMASTER or (d) providing temporary access to their
properties.

            13. Disclaimer of Warranties.

                  EXCEPT AS OTHERWISE PROVIDED HEREIN, THE TRANSFER OF ANY
ASSETS BY KAISER PURSUANT TO THIS SETTLEMENT AGREEMENT SHALL BE WITHOUT ANY
REPRESENTATION OR WARRANTY (IMPLIED OR OTHERWISE) AS TO THE MERCHANTABILITY OF
ANY OF THE ACQUIRED ASSETS OR THEIR FITNESS FOR ANY PURPOSE OR ANY OTHER MATTER.
IT IS UNDERSTOOD AND AGREED THAT CSI SHALL HAVE INSPECTED THE ACQUIRED ASSETS
AND SATISFIED ITSELF AS TO THEIR PHYSICAL CONDITION, AND THAT, SUBJECT TO THE
TERMS OF THIS SETTLEMENT AGREEMENT, CSI SHALL ACCEPT ALL OF THE SAME IN THEIR
"AS IS, WHERE IS" CONDITION. IN ADDITION, EXCEPT AS OTHERWISE PROVIDED HEREIN,
KAISER SHALL MAKE NO ADDITIONAL WARRANTY OR


                                      -32-
<PAGE>

REPRESENTATION (IMPLIED OR OTHERWISE) AS TO THE ACCURACY OR COMPLETENESS OF ANY
DATA, INFORMATION, OR MATERIALS HERETOFORE OR HEREAFTER FURNISHED CSI IN
CONNECTION WITH THE COMPANY, OR AS TO THE QUALITY OR CAPACITY OF THE ACQUIRED
ASSETS.

            14. Arbitration.

                  Any dispute between CSI, on the one hand, and KAISER or
RECOVERY, on the other, shall be submitted to arbitration upon the written
request of one of the parties after service of such request on the other party.
It is the intent of the parties that all future disputes between them be subject
to arbitration, including, but not limited to, the following:

                  a. Any dispute concerning the implementation, performance or
interpretation of this SETTLEMENT AGREEMENT or the exhibits hereto;

                  b. Any dispute concerning the parties' ongoing operations and
their impact upon each other;

                  c. Any dispute over the future activities of KAISER and CSI
and their impact upon each other; and

                  d. Any dispute concerning their respective properties.

                  Notwithstanding the foregoing, in the event that either party
hereto desires to obtain interlocutor injunctive relief against any other party
hereto, such party may institute litigation in a court of proper jurisdiction
and may, under otherwise appropriate circumstances, obtain a temporary


                                      -33-
<PAGE>

restraining order, preliminary injunction or any functionally equivalent relief
pending an adjudication on the merits of that party's claim in arbitration.
However, other than ruling upon a party's request for such relief, such court
shall not rule upon the merits of that party's claims, but shall stay
prosecution of such action pending completion of arbitration proceedings in
accordance with the terms of this SETTLEMENT AGREEMENT.

                  Upon the giving and the receipt of a written request of one of
the parties for arbitration, the parties may agree to appoint a single
arbitrator to hear and decide the dispute. If they cannot agree upon a single
arbitrator, there shall be three arbitrators, one named in writing by KAISER,
one named by CSI, each submitting their name within 10 days of the date of the
written request of the party or parties requesting arbitration, and a third
arbitrator chosen by the two arbitrators appointed by the parties. Should any
party to such arbitration refuse or neglect to join in the appointment of the
arbitrator(s) or to furnish the arbitrator(s) with any papers or information
demanded, the arbitrator(s) may proceed ex parte.

                  A hearing on the matter to be arbitrated shall take place
before the arbitrator(s) at the location, time and place selected by the
arbitrator(s). The arbitrator(s) shall determine the procedures to be followed
in the arbitration, including, but not limited to: (a) whether the parties shall
be entitled to conduct discovery and, if so, the nature and amount


                                      -34-
<PAGE>

of such discovery and (b) the manner in which evidence shall be submitted to the
arbitrator(s). The arbitrator(s) shall select the location, time and place of
the arbitration hearing promptly and shall give each party written notice of the
place and time of the arbitration hearing at least 10 days before the date
selected. At the hearing, any relevant evidence may be presented by any party.
The parties may waive application of the formal rules of evidence applicable to
judicial proceedings, in which case evidence may be admitted or excluded in the
sole discretion of the arbitrator(s). The arbitrator(s) shall hear and determine
the matter and shall execute and acknowledge a decision in writing and cause a
copy of the decision to be delivered to each of the parties. If there is only
one arbitrator, his or her decision shall be binding and conclusive on the
parties, and if there are three arbitrators, the decision of any two shall be
binding and conclusive on the parties.

                  A judgment confirming the decision of the arbitrator(s) may be
given by any Court having jurisdiction, or such court as may vacate, modify, or
correct the decision, in accordance with the prevailing provisions of the
California Arbitration Act or any successor statute. The costs of the
arbitration shall be borne by the losing party, or shall be borne in such
proportions as the arbitrator(s) may determine.


                                      -35-
<PAGE>

            15. Authority.

                  Each of the parties represents to the other parties that it
has full legal authority to enter into, execute, deliver and perform this
SETTLEMENT AGREEMENT and that the persons who have signed this SETTLEMENT
AGREEMENT on its behalf have been duly authorized to sign and deliver this
SETTLEMENT AGREEMENT by proper action of its board of directors. Each of the
parties further represents to the other parties that the execution and delivery
of this SETTLEMENT AGREEMENT and compliance with the provisions hereof will not
conflict with its duties under or constitute a breach of or default under any
law, administrative regulation, court decree, resolution, article of
incorporation, bylaws or other agreement to which it is subject or by which it
is bound.

            16. Representations and Modifications.

                  Any oral representations concerning this SETTLEMENT AGREEMENT
shall be of no force or effect and no party hereto is relying upon any oral
representation of any other party hereto in entering into this SETTLEMENT
AGREEMENT. This SETTLEMENT AGREEMENT may only be amended or modified by a
subsequent amendment or modification in writing, executed by all of the parties
hereto affected by that amendment or modification, which expresses, by its
terms, an intention to modify this SETTLEMENT AGREEMENT.


                                      -36-
<PAGE>

            17. Covenant of Good Faith and Fair Dealing.

                  The parties acknowledge and agree that their performance of
their obligations pursuant to this SETTLEMENT AGREEMENT shall be undertaken in
good faith, and that they shall deal fairly with each other.

            18. Severability.

                  Nothing contained in this SETTLEMENT AGREEMENT shall be
construed so as to require the commission of any act contrary to law, and
wherever there is any conflict between any provision contained herein and any
present or future statute, law, ordinance or regulation, contrary to which the
parties have no legal right to contract, such statute, law, ordinance or
regulation shall prevail, but the affected provisions of this SETTLEMENT
AGREEMENT shall be curtailed and limited only to the extent necessary to bring
them within the requirements of such statute, law, ordinance or regulation
without invalidating or affecting the remaining provisions of this SETTLEMENT
AGREEMENT.

            19. Further Assurances.

                  Each of the parties hereto shall execute and deliver any and
all additional papers, documents, and other assurances, and shall do any and all
acts and things reasonably necessary in connection with the performance of its
obligations hereunder and to carry out the intent of the parties, and to correct
or modify in good faith any errors or omissions which shall subsequently be
discovered.


                                      -37-
<PAGE>

            20. Successors and Assigns.

                  This SETTLEMENT AGREEMENT and all exhibits hereto shall be
binding on the parties hereto and upon any of their subsidiaries, successors or
assigns, including any successors in title to the KAISER PROPERTY and the CSI
PROPERTY, in whole or in part.

            21. Integration.

                  This SETTLEMENT AGREEMENT, and its exhibits, constitutes the
final and complete agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior or contemporaneous negotiations,
promises, covenants, agreements or representations concerning any matters
directly, indirectly or collaterally related to the subject matter of this
SETTLEMENT AGREEMENT. The parties hereto have expressly and intentionally
included in this SETTLEMENT AGREEMENT all collateral or additional agreements
which may, in any manner, touch or relate to any of the subject matter of this
SETTLEMENT AGREEMENT and, therefore, all promises, covenants and agreements,
collateral or otherwise, are included herein. It is the intention of the parties
to this SETTLEMENT AGREEMENT that it shall constitute an integration of all
their agreements, and each understands that in the event of any subsequent
litigation, controversy or dispute concerning any of its terms, conditions or
provisions, no party hereto shall be permitted to offer or introduce any oral or
extrinsic evidence concerning any other


                                      -38-
<PAGE>

collateral or oral agreement between the parties not included herein.

            22. Notices.

                  Any and all notices between the parties provided for or
permitted under this SETTLEMENT AGREEMENT, or by law, shall be in writing and
shall be deemed duly served when personally delivered to a party, or, in lieu of
such personal service, when deposited in the United States mail, certified,
postage prepaid, addressed to such party at the following addresses:

                  a.       If to CSI:

                           California Steel Industries, Inc.
                           14000 San Bernardino Avenue
                           P.O. Box 5080
                           Fontana, California
                           Attention:  Mr. James Declusin

                           with a copy to:

                           Morgan, Lewis & Bockius
                           801 South Grand Avenue
                           22nd Floor
                           Los Angeles, California 90017
                           Attention:  Richard W. Esterkin, Esq.

                  b.       If to KAISER, RECOVERY or DEVELOPMENT:

                           Kaiser Ventures, Inc.
                           3633 East Inland Empire Blvd.
                           Suite 850
                           Ontario, California 91764
                           Attention:  Terry L. Cook, Esq.


                                      -39-
<PAGE>

                           with a copy to:

                           Lindquist, Vennum & Christensen
                           600 17th Street
                           Suite 2125
                           Denver, Colorado 80202-5401
                           Attention: Craig A. Christensen, Esq.

or to such other place as may from time to time be specified in a notice to each
of the parties hereto given pursuant to this paragraph as the address for
service of notice on such party. For the purposes of this SETTLEMENT AGREEMENT,
delivery by facsimile shall be deemed to be personal delivery of any notice
hereunder.

            23. Attorney's Fees.

                  In the event there is any dispute concerning the terms of this
SETTLEMENT AGREEMENT, or the performance of any party hereto pursuant to the
terms of this SETTLEMENT AGREEMENT, and any party hereto retains counsel for the
purpose of enforcing any of the provisions of this SETTLEMENT AGREEMENT, or
asserting the terms of this SETTLEMENT AGREEMENT in defense of any suit or
arbitration proceeding filed against said party, the prevailing party in such a
dispute shall be entitled to recover, in addition to any other remedy to which
such party may be entitled, all of its costs and attorney's fees incurred in
connection with the dispute, irrespective of whether or not a lawsuit or
arbitration proceeding is actually commenced or prosecuted to conclusion.


                                      -40-
<PAGE>

            24. Time.

                  Time is of the essence in the performance of the terms hereof.

            25. Counterparts.

                  This SETTLEMENT AGREEMENT may be signed in counterparts and
shall be binding upon the parties hereto as if all of said parties executed the
original hereof.

            26. Waiver.

                  No waiver by any party hereto of any provision hereof shall be
deemed to be a waiver of any other provision hereof or of any subsequent breach
of the same or any other provision hereof.

            27. Construction of SETTLEMENT AGREEMENT.

                  This SETTLEMENT AGREEMENT shall be liberally construed to
effectuate the intention of the parties. In determining the meaning of, or
resolving any ambiguity with respect to, any word, phrase or provision of this
SETTLEMENT AGREEMENT, neither this SETTLEMENT AGREEMENT nor any uncertainty or
ambiguity herein shall be construed or resolved against any party (including the
party primarily responsible for the drafting and preparation of this SETTLEMENT
AGREEMENT), under any rule of construction or otherwise, it being expressly
understood and agreed that each of the parties has at all times been
independently advised by its own attorney and that the parties


                                      -41-
<PAGE>

have had an equal opportunity to participate in the drafting of this SETTLEMENT
AGREEMENT.

            28. Choice of Laws.

                  This SETTLEMENT AGREEMENT shall be governed by and construed
in accordance with the Constitution and the internal laws of the State of
California, and applicable provisions of the Constitution and laws of the United
States of America.

            29. Captions

                  The captions or headings in this SETTLEMENT AGREEMENT are for
convenience only and in no way define, limit or describe the scope or intent of
any provision or paragraph of this SETTLEMENT AGREEMENT.

            IN WITNESS WHEREOF, the parties have caused this SETTLEMENT
AGREEMENT to be executed as of the date first above written.

                                       KAISER VENTURES INC.

                                       By: /s/ Daniel N. Larson
                                           -------------------------------------
                                           President

                                       By: /s/ Terry L. Cook
                                           -------------------------------------
                                           Secretary


                                       KSC RECOVERY, INC.

                                       By: /s/ Terry L. Cook
                                           -------------------------------------
                                           President

(Signatures continued to next page)


                                      -42-
<PAGE>

                                       By: /s/ Paul E. Shampay
                                           -------------------------------------
                                           Secretary


                                       KAISER STEEL DEVELOPMENT, INC.

                                       By: /s/ Daniel N. Larson
                                           -------------------------------------
                                           President

                                       By: /s/ Terry L. Cook
                                           -------------------------------------
                                           Secretary


                                       CALIFORNIA STEEL INDUSTRIES, INC.

                                       By: /s/ Marcus Mota e Silva
                                           -------------------------------------
                                           President

                                       By: /s/ Matthew MacFadden
                                           -------------------------------------
                                           Secretary

Approved as to form:

                                           MORGAN, LEWIS & BOCKIUS

                                           By: /s/ Richard W. Esterkin
                                               ---------------------------------
                                                      Richard W. Esterkin
                                           801 South Grand Avenue
                                           Suite 2200
                                           Los Angeles, California 90017
                                           Telephone: (213) 612-2500

                                           ATTORNEYS FOR CALIFORNIA STEEL
                                           INDUSTRIES, INC.

(Signatures continued to next page)


                                      -43-
<PAGE>

                                           LINDQUIST, VENNUM & CHRISTENSEN
                                           P.L.L.P

                                           By /s/ Craig A Christensen
                                              ----------------------------------
                                                     Craig A Christensen
                                           600 Seventeenth Street
                                           Suite 212 South
                                           Denver, Colorado  80202-5401
                                           Telephone: (303) 573-5900

                                           ATTORNEYS FOR KAISER VENTURES INC.
                                           AND KSC RECOVERY, INC.


                                      -44-
<PAGE>

                                       CALIFORNIA STEEL INDUSTRIES, INC.

                                       By:
                                           -------------------------------------
                                           President

                                       By:
                                           -------------------------------------
                                           Secretary


                                       STATE STREET BANK & TRUST OF CALIFORNIA,
                                       N.A.

                                       By:
                                           -------------------------------------

Approved as to form:

                                           MORGAN, LEWIS & BOCKIUS

                                           By:
                                              ----------------------------------
                                                 Richard W. Esterkin
                                           801 South Grand Avenue
                                           Suite 2200
                                           Los Angeles, California 90017
                                           Telephone: (213) 612-2500

                                           ATTORNEYS FOR CALIFORNIA STEEL
                                           INDUSTRIES, INC.


                                           LINDQUIST, VENNUM & CHRISTENSEN
                                           P.L.L.P.

                                           By
                                              ----------------------------------
                                                  Craig A. Christensen
                                           600 Seventeenth Street
                                           Suite 2125 South
                                           Denver, Colorado 80202-5401
                                           Telephone: (303) 573-5900

                                           ATTORNEYS FOR KAISER VENTURES, INC.
                                           AND KSC RECOVERY, INC.


                                       12
<PAGE>

[LOGO]                                         CALIFORNIA STEEL INDUSTRIES, INC.
--------------------------------------------------------------------------------
                                      14000 San Bernardino Avenue, P.O. Box 5080
                                                       Fontana, California 92335
                                                     Telex 201239 (909) 350-6300

      January 22, 1999

      Alan Bick
      Gibson, Dunn & Crutcher LLP
      Jamboree Center
      4 Park Plaza
      Irvine, CA 92614

      Dear Alan:

      Please find enclosed the Exhibits pertaining to the Settlement agreement
      between Kaiser and CSI that I forwarded to you.

      If you have any questions, please contact me at (909) 350-6205.

      Sincerely,


      /s/ Pat Morin

      Pat Morin, C.P.A.
      California Steel Industries, Inc.
<PAGE>

                                     [MAP]

      MAP SOURCE U.S.G.S 7.5' Quadrangle, Fontana, Guasti, California, 1981

--------------------------------------------------------------------------------
                                 KAISER PROPERTY
--------------------------------------------------------------------------------
<PAGE>

                               ESCROW INSTRUCTIONS

            These Escrow Instructions are entered into as of June 1, 1995, by
and among KAISER VENTURES, INC., a Delaware Corporation ("KAISER"), KSC
RECOVERY, INC., a Delaware Corporation ("RECOVERY"), CALIFORNIA STEEL
INDUSTRIES, INC., a Delaware Corporation ("CSI"), and State Street Bank & Trust
of California, N.A. ("ESCROW HOLDER").

                                    RECITALS

            A. Concurrently herewith, CSI, KAISER, Kaiser Steel Development,
Inc. and RECOVERY are entering into a Settlement Agreement for the purpose of
resolving various disputes between them as described therein (the "SETTLEMENT
AGREEMENT").

            B. Pursuant to the terms of the SETTLEMENT AGREEMENT, the parties to
these Escrow Instructions desire to enter into these Escrow Instructions (the
"ESCROW INSTRUCTIONS") for the purpose of effectuating the SETTLEMENT AGREEMENT.

            It is therefore agreed as follows:

            1. Incorporation of standard escrow instructions.

                  ESCROW HOLDER's standard form of escrow instructions are
attached hereto as Exhibit "A" and are incorporated herein by this reference as
though set forth in full hereat. Except as explicitly provided herein to the
contrary,
<PAGE>

CSI, KAISER, RECOVERY and ESCROW HOLDER agree to be bound by said escrow
instructions.

            2. Incorporation of defined terms.

                  Except as explicitly set forth herein, each of the terms
defined in the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT
used in these ESCROW INSTRUCTIONS shall have the meaning ascribed to them in the
SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT.

            3. Interest bearing accounts.

                  All funds deposited herein shall be held by ESCROW HOLDER in
interest bearing accounts with the interest on such deposits to accrue to the
benefit of the party entitled to receive such funds.

            4. Deposit of documents with ESCROW HOLDER.

                  a. Documents to be deposited by CSI.

                        (1) Initial Payment. At the time prescribed in paragraph
6(a) of the SETTLEMENT AGREEMENT, CSI shall deposit with ESCROW HOLDER the sum
of $256,500.00 pursuant to that paragraph.

                        (2) Other Payments. At the times prescribed in
paragraphs 6(b) and 6(c) of the SETTLEMENT AGREEMENT, CSI shall deposit with
ESCROW HOLDER any amounts due pursuant to those paragraphs.

                        (3) RESERVATION. Concurrently with its execution of the
SETTLEMENT AGREEMENT, pursuant to paragraph 4(c)


                                        2
<PAGE>

of the SETTLEMENT AGREEMENT, CSI shall execute and deliver the RESERVATION to
ESCROW HOLDER.

                        (4) Notice of satisfaction of conditions. Within five
days following the satisfaction of the conditions to the effectiveness of the
SETTLEMENT AGREEMENT set forth at paragraph 8 of the SETTLEMENT AGREEMENT, CSI
shall execute and deliver to ESCROW HOLDER a notice stating that those
conditions have been fulfilled.

                        (5) ESCROW HOLDER's fees. CSI shall pay to ESCROW HOLDER
one-half (1/2) of ESCROW HOLDER's fees and expenses.

                  b. Documents to be deposited by KAISER.

                        (1) QUITCLAIM. Concurrently with its execution of the
SETTLEMENT AGREEMENT, pursuant to paragraph 4(a) of the SETTLEMENT AGREEMENT,
KAISER shall execute and deliver the QUITCLAIM to ESCROW HOLDER.

                        (2) ASSIGNMENT. Concurrently with its execution of the
SETTLEMENT AGREEMENT, pursuant to paragraph 5(a) of the SETTLEMENT AGREEMENT,
KAISER shall execute and deliver the ASSIGNMENT to ESCROW HOLDER.

                        (3) WATER RIGHTS ACKNOWLEDGMENT. Concurrently with its
execution of the WATER RIGHTS AGREEMENT, pursuant to paragraph 3 of the WATER
RIGHTS AGREEMENT, KAISER shall execute and deliver the WATER RIGHTS
ACKNOWLEDGEMENT to ESCROW HOLDER.


                                        3
<PAGE>

                        (4) RESERVATION. Concurrently with its execution of the
SETTLEMENT AGREEMENT, pursuant to paragraph 4(c) of the SETTLEMENT AGREEMENT,
KAISER shall execute and deliver the RESERVATION to ESCROW HOLDER.

                        (5) Proceeds of INSURANCE LITIGATION. Upon its receipt
of any proceeds of the INSURANCE LITIGATION to which CSI is entitled pursuant to
paragraph 9(a)(4) of the SETTLEMENT AGREEMENT, KAISER shall deposit such
proceeds with ESCROW HOLDER.

                        (6) Notice of satisfaction of conditions. Within five
days following the satisfaction of the conditions to the effectiveness of the
SETTLEMENT AGREEMENT set forth at paragraph 8 of the SETTLEMENT AGREEMENT,
KAISER shall execute and deliver to ESCROW HOLDER a notice stating that those
conditions have been fulfilled.

                        (7) ESCROW HOLDER's Fees. KAISER shall pay to ESCROW
HOLDER one-half (1/2) of ESCROW HOLDER's fees and expenses.

                  c. Documents to be Deposited by RECOVERY

                        At the times prescribed in the STIPULATION, RECOVERY
shall deposit with ESCROW HOLDER the cash and stock to which CSI is entitled
pursuant to the terms of the STIPULATION and the PLAN.

            5. Delivery of documents and funds by ESCROW HOLDER

                  a. Funds and documents to be delivered to KAISER. Provided
that ESCROW HOLDER has received the documents


                                        4
<PAGE>

described in paragraphs 3(b)(1) - (4) of these ESCROW INSTRUCTIONS, and has
received written notice from both CSI and KAISER of the satisfaction of the
conditions to the effectiveness of the SETTLEMENT AGREEMENT, at the times
described below, ESCROW HOLDER shall deliver the following funds to KAISER:

                        (1) Proceeds of Initial Payment. At such time as ESCROW
HOLDER has received the payment required pursuant to paragraph 6(a)(1) of the
SETTLEMENT AGREEMENT, ESCROW HOLDER shall deliver the sum of $256,500.00 to
KAISER in satisfaction of CSI's obligations under paragraph 6(a) of the
SETTLEMENT AGREEMENT.

                        (2) Proceeds of Bankruptcy Claim. At such time as ESCROW
HOLDER receives those cash payments to which CSI is entitled pursuant to the
terms of the STIPULATION and the PLAN, the proceeds from the sale of the stock
to be distributed to CSI pursuant to the terms of the STIPULATION and the PLAN
or the cash payments required pursuant to paragraphs 6(b)(3) and 6(4) of the
SETTLEMENT AGREEMENT, ESCROW HOLDER shall deliver such cash to KAISER to the
extent necessary to satisfy CSI's obligations pursuant to paragraphs 6(b) and
6(c)(1) of the SETTLEMENT AGREEMENT.

                        (3) Proceeds of other payments. In the event that ESCROW
HOLDER receives any funds pursuant to paragraph 4(b)(5) of these ESCROW
INSTRUCTIONS, ESCROW HOLDER shall


                                        5
<PAGE>

distribute such funds to KAISER, immediately upon ESCROW HOLDER'S receipt
thereof, as follows:

                              (a) First, to the extent necessary to satisfy
CSI's obligations under paragraph 6(c) of the SETTLEMENT AGREEMENT, in
satisfaction of such obligations, and

                              (b) Second, to the extent necessary to satisfy
CSI's obligations under paragraph 6(b) of the SETTLEMENT AGREEMENT, in
satisfaction of such obligations.

                  b. Documents to be delivered to CSI. Following ESCROW HOLDER's
receipt or a written notice from each of CSI and KAISER that the conditions to
the effectiveness of the SETTLEMENT AGREEMENT have been satisfied, ESCROW HOLDER
shall deliver the following documents to CSI at the times set forth below:

                        (1) ASSIGNMENT. At such time as ESCROW HOLDER has
received the ASSIGNMENT from KAISER, ESCROW HOLDER shall deliver the ASSIGNMENT
to CSI.

                        (2) QUITCLAIM. At such time as ESCROW HOLDER has
received the QUITCLAIM from KAISER, ESCROW HOLDER shall deliver the QUITCLAIM to
CSI.

                        (3) Cash. ESCROW HOLDER shall deliver to CSI any cash
received by ESCROW HOLDER from RECOVERY, from KAISER or resulting from the
proceeds of stock held for CSI's account in excess of those sums to which
KAISER is entitled pursuant to paragraph 6 of the SETTLEMENT AGREEMENT.


                                        6
<PAGE>

                  c. Stock.

                        (1) Delivery of stock to third parties. In the event
that CSI determines to sell the stock deposited with ESCROW HOLDER by RECOVERY
during the term of this escrow, ESCROW HOLDER shall deliver possession, to such
party as CSI may designate, of all, or any portion, of said stock, as directed
by CSI, upon ESCROW HOLDER's receipt of a sum equal to the proceeds of such
sale, less any costs of such sale, such as sales commissions and escrow fees.

                        (2) Disposition of sales proceeds. In the event that
ESCROW HOLDER receives any proceeds from the sale of the stock deposited with
ESCROW HOLDER by RECOVERY, ESCROW HOLDER shall deliver such proceeds to KAISER,
to the extent necessary to satisfy CSI's obligation pursuant to paragraph 6(b)
of the SETTLEMENT AGREEMENT. Any remaining proceeds shall be paid to CSI.

                        (3) Disposition of stock. In the event that CSI does not
sell all of the stock deposited with ESCROW HOLDER by RECOVERY within ninety
days of said deposit, then ESCROW HOLDER shall deliver to CSI any portion of
said stock that has not been sold after ESCROW HOLDER has received a sum equal
to that required by paragraph 6(b) of the SETTLEMENT AGREEMENT.

            6. Notices.

                  Any and all notices between the parties provided for or
permitted under these ESCROW INSTRUCTIONS, or by law,


                                        7
<PAGE>

shall be in writing and shall be deemed duly served when personally delivered to
a party, or, in lieu of such personal service, when deposited in the United
States mail, certified, postage prepaid, addressed to such party at the
following addresses:

                   a.  If to CSI:

                           California Steel Industries, Inc.
                           14000 San Bernardino Avenue
                           P.O. Box 5080
                           Fontana, California
                           Attention:  Mr. James Declusin

                           with a copy to:

                           Morgan, Lewis & Bockius
                           801 South Grand Avenue
                           22nd Floor
                           Los Angeles, California 90017
                           Attention:  Richard W. Esterkin, Esq.

                  b.   If to KAISER:

                           Kaiser Recovery, Inc.
                           3633 East Inland Empire Blvd.
                           Suite 850
                           Ontario, California 91764
                           Attention:  Terry L. Cook, Esq

                           with a copy to:

                           Lindquist, Vennum & Christensen
                           600 17th Street
                           Suite 2125
                           Denver, Colorado 80202-5401
                           Attention:  Craig A. Christensen, Esq.

                  c.   If to ESCROW HOLDER:

                           State Street Bank and Trust Company of
                           California, N.A.
                           725 South Figueroa Street
                           Suite 3100
                           Los Angeles, California 90017
                           Attention:  Corporate Trust Department


                                        8
<PAGE>

or to such other place as may from time to time be specified in a notice to each
of the parties hereto given pursuant to this paragraph as the address for
service of notice on such party.

            7. Attorney's Fees.

                  In the event there is any dispute concerning the terms of
these ESCROW INSTRUCTIONS or the performance of any party hereto pursuant to the
terms of these ESCROW INSTRUCTIONS, and any party hereto retains counsel for the
purpose of enforcing any of the provisions of these ESCROW INSTRUCTIONS or
asserting the terms of these ESCROW INSTRUCTIONS in defense of any suit filed
against said party, the prevailing party in such a dispute shall be entitled to
recover, in addition to any other remedy to which such party may be entitled,
all of its costs and attorney's fees incurred in connection with the dispute
irrespective of whether or not a lawsuit is actually commenced or prosecuted to
conclusion.

            8. Integration.

                  These ESCROW INSTRUCTIONS, the SETTLEMENT AGREEMENT and the
exhibits to the SETTLEMENT AGREEMENT constitute the final and complete agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior or contemporaneous negotiations, promises, covenants, agreements or
representations concerning any matters directly, indirectly or collaterally
related to the subject matter of these ESCROW INSTRUCTIONS. The parties hereto
have expressly and

                                        9
<PAGE>

intentionally included in these ESCROW INSTRUCTIONS, the SETTLEMENT AGREEMENT
and the exhibits to the SETTLEMENT AGREEMENT all collateral or additional
agreements which may, in any manner, touch or relate to any of the subject
matter of these ESCROW INSTRUCTIONS and, therefore, all promises, covenants and
agreements, collateral or otherwise, are included herein or therein. It is the
intention of the parties to these ESCROW INSTRUCTIONS that they, together with
the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT shall
constitute an integration of all their agreements, and each understands that in
the event of any subsequent litigation, controversy or dispute concerning any of
its terms, conditions or provisions, no party hereto shall be permitted to offer
or introduce any oral or extrinsic evidence concerning any other collateral or
oral agreement between the parties not included herein or therein.

            9. Time.

                  Time is of the essence in the performance of the terms hereof.

            10 Counterparts.

                  These ESCROW INSTRUCTIONS may be signed in counterparts and
shall be binding upon the parties hereto as if all of said parties executed the
original hereof.

            11. Waiver.

                  No waiver by any party hereto of any provision hereof shall be
deemed to be a waiver of any other provision


                                       10
<PAGE>

hereof or of any subsequent breach of the same or any other provision hereof.

            12. Amendment.

                  These ESCROW INSTRUCTIONS cannot be amended or modified except
by a writing executed by the parties hereto which expresses, by its terms, an
intention to modify these ESCROW INSTRUCTIONS.

            13. Successors.

                  These ESCROW INSTRUCTIONS shall be binding upon and inure to
the benefit of, and be enforceable by, the parties hereto and their respective
administrators, trustees, executors, personal representatives, successors and
permitted assigns.

            IN WITNESS WHEREOF, the parties hereto have executed these ESCROW
INSTRUCTIONS as of the day and year set forth above.

                                      KAISER VENTURES, INC.

                                      By:
                                          --------------------------------
                                          President

                                      By:
                                          --------------------------------
                                          Secretary


                                      KSC RECOVERY, INC.

                                      By:
                                          --------------------------------
                                          President

                                      By:
                                          --------------------------------
                                          Secretary


                                       11
<PAGE>

                                                          MARKED TO SHOW CHANGES

                                   Exhibit "A"

                               ESCROW INSTRUCTIONS

STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
725 South Grand Avenue
Suite 3100
Los Angeles, California 90017
Attention: Corporate Trust Department

These Escrow Instructions are attached as Exhibit "A" to that certain Escrow
Agreement dated as of June 1, 1995 ("The Escrow Agreement") among Kaiser
Ventures, Inc., a Delaware corporation ("Kaiser"), KSC Recovery, Inc., a
Delaware corporation ("Recovery"), California Steel Industries, Inc., a Delaware
Corporation ("CSI") and State Street Bank and Trust Company of California, N.A.,
as Escrow Holder (the "Escrow Holder"). Capitalized terms not otherwise defined
herein shall have the meaning assigned to them in the Escrow Agreement.

            1. Acceptance of Appointment. State Street Bank and Trust Company of
California, N.A. hereby accepts its appointment as "Escrow Holder" under the
Escrow Agreement upon the terms and conditions set forth herein.

            2. Termination of Escrow. In the event that the conditions of the
Escrow Agreement have not been complied with at the expiration of the time
provided for therein, the Escrow Holder shall keep the escrow open and shall
complete performance of the Escrow Agreement at the earliest possible date
thereafter, unless any of the other parties to the Escrow Agreement have made
written demand upon the Escrow Holder for the return of the funds and/or
instruments deposited by such person. If the Escrow Holder receives such a
demand, the Escrow Holder may withhold and stop all further proceedings under
the Escrow Agreement, without liability to any person or party to the Escrow
Agreement, until cancellation instructions, in writing and signed by all parties
to the Escrow Agreement, have been delivered to the Escrow Holder. Upon receipt
of such cancellation instructions, the Escrow Holder shall disburse the escrowed
funds and instruments, less the fees (including a reasonable cancellation fee)
and expenses of the Escrow Holder, in accordance with such cancellation
instructions.

            3. Investment of Funds. The Escrow Holder shall invest the funds it
holds under the Escrow Agreement in accordance with the instructions of the
party entitled to receive such funds; provided, that in the absence of written
instructions, the Escrow Holder shall invest the funds in its internal money
market account ("IMMA"). The Escrow Holder shall have the right to liquidate any
investments held in order to provide funds necessary to make required payments
under the
<PAGE>

Escrow Agreement. The Escrow Holder shall not have any liability for any loss
sustained as a result of any investment made pursuant to the instructions of the
parties hereto or as a result of any liquidation of any investment prior to its
maturity.

            4. Disbursements. Unless otherwise instructed in writing prior to
the date of disbursement, all disbursements of funds and/or instruments shall be
made by U.S. mail to the designated parties at the addresses set forth in the
Escrow Agreement.

            5. Disposal of Files. The Escrow Holder is authorized to destroy or
otherwise dispose of any and all documents, papers, instructions, correspondence
and other material pertaining to the Escrow Agreement at the expiration of five
years from the date of close of the escrow or the cancellation of the escrow
without liability; provided, that the Escrow Accent shall give notice of its
intent to the parties to the Escrow Agreement and such parties shall have the
opportunity to review and make copies of the documents to be destroyed. If
within 10 Business Days after such notice is given, the Escrow Holder has not
received a request from a party to review the documents to be disposed of, the
Escrow Holder may proceed with such destruction or disposal.

            6. Taxes. The Escrow Holder shall not be responsible for the payment
of any taxes, charges or governmental levies associated with the investment of
funds, transfer of stock or transfer of documents contemplated by the Escrow
Agreement.

            7. Reliance on Instructions. The Escrow Holder may rely, and shall
be protected in acting or refraining from acting, upon any written notice,
instruction or request furnished to it under the Escrow Agreement and believed
by it to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Holder shall be under no duty to inquire into or investigate
the validity, accuracy, or content of any such document. The Escrow Holder shall
have no duty to solicit any payments which may be required from any party under
the Escrow Agreement.

            8. Limitation of Liability. The Escrow Holder shall not be liable
for any action taken or omitted by it in good faith unless a court of competent
jurisdiction determines that the Escrow Holder's negligence or willful
misconduct was the cause of any loss to any of the other parties to the Escrow
Agreement. The Escrow Holder may consult with counsel of its own choice and
shall have full and complete authorization and protection for any action taken
or omitted by it hereunder in good faith and in accordance with the opinion of
such counsel. Anything in the Escrow Agreement to the contrary notwithstanding,
in no event shall the Escrow Holder be liable for special, indirect,
<PAGE>

incidental, or consequential losses or damages of any kind whatsoever
(including, but not limited to, lost profits), even if the Escrow Holder has
been advised in advance of the likelihood of such losses or damages and
regardless of the form of action.

            9. Resignation. The Escrow Holder may resign and be discharged from
its duties or obligations hereunder by giving notice in writing of such
resignation specifying a date when such resignation shall take effect, which
date shall be no sooner than thirty (30) days after provision of such notice to
the other parties to the Escrow Agreement. The escrow shall not terminate on
such resignation. Any successor escrow holder appointed shall, upon manifesting
acceptance of such appointment by countersigning a copy of the Escrow Agreement,
become and be the Escrow Holder under the Escrow Agreement, with the same
powers, duties, and authorities which such successor would have had if
originally named in the Escrow Agreement as Escrow Holder. Notwithstanding its
resignation and discharge, the resigning Escrow Holder hereby agrees to follow
any instructions the other parties hereto may give it directing transfer of the
funds, stock and documents held under the Escrow Agreement to the successor
Escrow Holder.

            10. Escrow Holder's Fees. The other parties to the Escrow Agreement
shall promptly (i) pay the Escrow Holder for the services to be rendered under
the Escrow Agreement, at the rates and in the percentages set forth in Exhibit A
attached hereto, and (ii) pay or reimburse the Escrow Holder upon request for
all reasonable expenses, disbursements and advances, including reasonable
attorneys' fees, incurred or made by it in connection with the preparation,
execution, performance, delivery, modification and termination of the Escrow
Agreement.

            11. Indemnification. The other parties to the Escrow Agreement
hereby agree, jointly and severally, to indemnify the Escrow Holder for, and to
hold it harmless against, any loss, liability, or expense arising out of or in
connection with the Escrow Agreement and the carrying out of its duties
thereunder or upon the cancellation thereof, including the costs and expenses of
defending itself against any claim of liability, except as a result of the
Escrow Holder's negligence or wilful misconduct.

            12. Conflicting Demands. If conflicting demands are made on the
Escrow Holder by the parties to the Escrow Agreement, or notice is served upon
the Escrow Holder in connection with any legal action arising out of the Escrow
Agreement, the Escrow Holder shall not be required to take any further action
with respect to the Escrow Agreement, but may stop all further proceedings
without liability to any person or party to the Escrow Agreement. The Escrow
Holder may bring suit in interpleader or for declaratory relief as to its rights
and


                                       -3-
<PAGE>

obligations under the Escrow Agreement. If the Escrow Holder is required to
respond to any legal summons or proceedings or if any action in interpleader or
for declaratory relief is brought by the Escrow Holder, the other parties to the
Escrow Agreement jointly and severally agree to pay all costs, expense and
reasonable attorney's fees expended or incurred by the Escrow Holder.

            13. No Implied Duties. The duties and responsibilities of the Escrow
Holder hereunder shall be determined solely by the express provisions of the
Escrow Agreement, and no other or further duties or responsibilities shall be
implied. The Escrow Holder shall not have any liability under, nor any duty to
inquire into the terms and provisions of any agreement or instructions, other
than as outlined in the Escrow Agreement.

            14. Funds Transfer Instructions. In the event funds transfer
instructions are given, whether oral or written, the Escrow Holder is authorized
to seek confirmation of such instructions by telephone call-back to the person
or persons designated on Exhibit B hereto, and the Escrow Holder may rely upon
the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed only
in a writing actually received and acknowledged by the Escrow Holder. The
parties to the Escrow Agreement acknowledge that such security procedure is
commercially reasonable.


                                       -4-
<PAGE>

                                    EXHIBIT A

                                      FEES

Escrow Fee -      $4,000.00 (this Escrow Fee is to be shared equally by Kaiser
                  and CSI)

Investment Fees - $25.00 per trade for book-entry securities $50.00 per trade
                  for securities requiring physical delivery (these investments
                  fees shall be paid in each case by the party requesting the
                  investments


                                       -5-
<PAGE>

                                   EXHIBIT B

                      TELEPHONE NUMBER(S) FOR CALL-BACKS
          PERSON(S) DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS

Kaiser:

James F. Verhey
Vice President-Finance and
Chief Financial Officer

(909) 483-8513

CSI:

Ira Frazer, Esq.
909) 350-6010


                                       -6-
<PAGE>

                      IN THE UNITED STATES BANKRUPTCY COURT

                          FOR THE DISTRICT OF COLORADO

In re                                          )        Chapter 11 Proceedings
                                               )
COTTONWOOD CANYON LAND CO.,                    )        Case No. 87 B 1552 E
KAISER STEEL CORPORATION,                      )        Case No. 87 B 1553 E
KAISER STEEL TUBING, INC.,                     )        Case No. 87 B 1705 E
KT REALTY INCORPORATED,                        )        Case No. 87 B 1707 E
MYERS DRUM COMPANY,                            )        Case No. 87 B 1708 E
LAKE TAMARISK DEVELOPMENT CORP.,               )        Case No. 87 B 1709 E
UNION STEEL COMPANY,                           )        Case No. 87 B 1710 E
                                               )
Reorganized Debtors.                           )        (Jointly Administered as
________________________________________       )        Case No. 87 B 1552 E)

--------------------------------------------------------------------------------

                          STIPULATION TO ORDER ALLOWING
                      CLAIM OF CALIFORNIA STEEL INDUSTRIES

      THIS STIPULATION ALLOWING CLAIM OF CALIFORNIA STEEL INDUSTRIES (the
"STIPULATION") is entered into as of the 1st day of July, 1994, by and among KSC
RECOVERY, INC., a Delaware corporation ("RECOVERY"), and CALIFORNIA STEEL
INDUSTRIES, INC., a California corporation ("CSI") with reference to the
following facts:

                                    RECITALS

      A. From 1942 until 1983, Kaiser Steel Corporation ("KSC") operated a large
steel production and processing facility on approximately 2,000 acres of land
near Fontana, California owned by KSC (the "FONTANA PROPERTY"). Pursuant to an
Agreement of
<PAGE>

Purchase and Sale entered into effective as of August 17, 1984, CSI purchased
approximately 378 acres of the Fontana Property (the "CSI PROPERTY").

      B. Prior to the sale of the CSI PROPERTY to CSI, as a result of KAISER'S
prior operations on the CSI PROPERTY, the CSI PROPERTY allegedly became
contaminated with a variety of industrial byproducts.

      C. On February 11, 1987, KSC filed a petition with the United States
Bankruptcy Court for the District of Colorado (the "BANKRUPTCY COURT"),
initiating proceedings pursuant to chapter 11 of the Bankruptcy Code (11 U.S.C.
ss. 101 et seq.). Such proceedings were conducted by and before the Honorable
Charles E. Matheson, United States Bankruptcy Judge, and are entitled "In re
Kaiser Steel Corporation, Case No. 87 B 01552 E (Jointly Administered)" (the
"BANKRUPTCY CASE").

      D. On October 4, 1988, the BANKRUPTCY COURT entered an order confirming
KSC's Second Amended Joint Plan of Reorganization, As Modified (the "PLAN").
Pursuant to the terms of the PLAN, RECOVERY is charged with filing and
prosecuting objections to any claims filed in the BANKRUPTCY CASE.

      E. On or about January 12, 1988, CSI filed a proof of claim in the
BANKRUPTCY CASE asserting that KSC was liable to CSI for the sum of $165,825.68
theretofore expended by CSI, and an unstated amount for future expenditures that
CSI anticipated, in investigating and remediating the contamination placed in
and under the CSI PROPERTY by KSC (the "PROOF OF CLAIM"). On


                                       -2-
<PAGE>

November 6, 1989, RECOVERY filed an objection to the PROOF OF CLAIM.

      F. On February 19, 1992, CSI amended the PROOF OF CLAIM to assert that the
damages caused to CSI by the contamination placed in and under the CSI PROPERTY
by KSC exceeded the sum of $54 million. On March 5, 1992, RECOVERY filed an
objection to the PROOF OF CLAIM, as amended. The contested matter initiated by
the foregoing objections to the PROOF OF CLAIM is presently pending before the
BANKRUPTCY COURT.

      G. CSI asserts that its claims were not discharged by the order confirming
the PLAN. RECOVERY contends that all of CSI's claims were discharged. The
BANKRUPTCY COURT has previously ruled that CSI's claims were discharged, but
that ruling is not final and remains subject to appeal.

      H. In order to eliminate the uncertainty inherent in the litigation of the
allowability and amount of the PROOF OF CLAIM, as well as to avoid the
expenditure of further costs of litigation, the parties hereto now wish to
resolve the disputes between them concerning the allowability and amount of
CSI's claims against KSC, as well as whether those claims were discharged by the
BANKRUPTCY COURT'S order confirming the PLAN.

      IT IS THEREFORE STIPULATED as follows:

      l. Allowance of claim.

            The PROOF OF CLAIM shall be allowed in the sum of $27.5 million and
shall receive a distribution under the PLAN as a Class 4A claim based upon its
allowance in said amount.

      2. Distribution under PLAN.


                                       -3-
<PAGE>

            Within ten (10) days following the date upon which this STIPULATION
becomes effective, RECOVERY shall disburse to CSI, as an initial distribution on
account of its allowed claim, the minimum sum of $1,500,000.00 in cash and at
least 281,509 shares of stock in Kaiser Resources Inc., the reorganized debtor
under the PLAN. Thereafter, RECOVERY shall distribute to CSI such additional
property as CSI may be entitled to receive under the PLAN at the time and in the
manner described in the PLAN.

      3. Effective date of STIPULATION.

            This STIPULATION shall become effective ten (10) days following the
entry of an order of the BANKRUPTCY COURT approving this STIPULATION, allowing
the PROOF OF CLAIM as provided herein and directing RECOVERY to make the
distributions to CSI described herein and required under the PLAN unless a party
in interest files a notice of appeal from such order and obtains a stay of such
order on or before ten (10) days following the entry of such order. In the event
that a party in interest files a notice of appeal from such order and obtains a
stay of such order on or before ten (10) days following the entry of such order,
this STIPULATION shall become effective upon the entry of a final order
approving this STIPULATION, allowing the PROOF OF CLAIM as provided herein and
directing RECOVERY to make the distributions to CSI described herein and
required under the PLAN. In the event that the effective date of this
STIPULATION shall fail to occur on or before __________, then, at the option of
either party hereto, exercised by providing written notice to the other party


                                       -4-
<PAGE>

hereto in the manner prescribed for notice herein, this STIPULATION shall be of
no further force or effect.

      4. Notices.

            Any and all notices between the parties provided for or permitted
under this STIPULATION, or by law, shall be in writing and shall be deemed duly
served when personally delivered to a party, or, in lieu of such personal
service, when deposited in the United States mail, certified, postage prepaid,
addressed to such party at the following addresses:

                    A.       If to CSI:
                             California Steel Industries, Inc.
                             14000 San Bernardino Avenue
                             P.O. Box 5080
                             Fontana, California
                             Attention:  Mr. James Declusin

                             with a copy to:

                             Morgan, Lewis & Bockius
                             801 South Grand Avenue
                             22nd Floor
                             Los Angeles, California 90017
                             Attention:  Richard W. Esterkin, Esq.

                    B.       If to KAISER:
                             Kaiser Recovery, Inc.
                             3633 East Inland Empire Blvd.
                             Suite 850
                             Ontario, California 91764
                             Attention:  Terry L. Cook, Esq.

                             with a copy to:

                             Lindquist, Vennum & Christensen
                             600 17th Street
                             Suite 2125
                             Denver, Colorado 80202-5401
                             Attention:  Craig A. Christensen, Esq.

or to such other place as may from time to time be specified in a notice to each
of the parties hereto given pursuant to this paragraph as the address for
service of notice on such party.


                                       -5-
<PAGE>

            5. Time.

      Time is of the essence in the performance of the terms hereof.

            6. Waiver.

      No waiver by any party hereto of any provision hereof shall be deemed to
be a waiver of any other provision hereof or of any subsequent breach of the
same or any other provision hereof.

            7. Amendment.

      This STIPULATION cannot be amended or modified except by a writing
executed by the parties hereto which expresses, by its terms, an intention to
modify this STIPULATION.

            8. Successors.

      This STIPULATION shall be binding upon and inure to the benefit of, and
be enforceable by, the parties hereto and their respective administrators,
trustees, executors, personal representatives, successors and permitted assigns.

            IN WITNESS WHEREOF, the parties hereto have executed this
STIPULATION as of the day and year set forth above.

                                        LINDQUIST, VENNUM & CHRISTENSEN
                                        CRAIG A. CHRISTENSEN

                                        By:
                                            ------------------------------------
                                                   Craig A. Christensen,
                                        Attorneys for Kaiser Recovery, Inc.


                                        MORGAN, LEWIS & BOCKIUS
                                        RICHARD W. ESTERKIN

                                        By:
                                            ------------------------------------
                                                  Richard W. Esterkin
                                        Attorneys for California Steel
                                        Industries, Inc.


                                       -6-
<PAGE>

                             WATER RIGHTS AGREEMENT

      This WATER RIGHTS AGREEMENT is entered into as of June 1, 1995, by and
between Kaiser Ventures Inc. ("KAISER") and California Steel Industries, Inc.
("CSI") with reference to the following facts:

                                    RECITALS

            A. From 1942 until 1983, Kaiser Steel Corporation operated a large
steel production and processing facility on approximately 2,000 acres of land
near Fontana, California, owned by Kaiser Steel Corporation (the "FONTANA
PROPERTY"). Pursuant to an Agreement of Purchase and Sale entered into effective
as of August 17, 1984, CSI purchased approximately 378 acres of the FONTANA
PROPERTY. In 1988 and 1989, CSI acquired from third parties approximately 43 and
29 acres, respectively, of property previously owned by Kaiser Steel Corporation
and comprising a portion of the FONTANA PROPERTY. The 378, 43 and 29 acres of
the FONTANA PROPERTY formerly owned by Kaiser Steel Corporation and now owned by
CSI are hereinafter collectively referred to as the "CSI PROPERTY."

            B. Pursuant to the judgment (the "1978 JUDGMENT") in Chino Basin
Municipal Water District v. City of Chino, et al., San Bernardino Superior
Court, Case No. RCV 51010 (the "WATER
<PAGE>

CASE"), non-agricultural overlying rights to the beneficial use of 2,930.274
acre-feet of water annually from the safe yield of the Chino groundwater basin
was decreed as set forth at page 60, line 9 of Exhibit "D" to the 1978 JUDGMENT
(the "WATER RIGHTS"). The WATER RIGHTS are more specifically described in
Section II.B.8 and Exhibits "D" and "G" of the 1978 JUDGMENT.

            C. From 1984 through the date of this WATER RIGHTS AGREEMENT, CSI
has operated a steel processing plant on the CSI PROPERTY. From 1984 through the
date of this WATER RIGHTS AGREEMENT, KAISER delivered water to CSI pursuant to
certain utility services agreements.

            D. On or about August 25, 1992, CSI and the Chino Basin Watermaster
(the "WATERMASTER") filed a "Joint Motion to Interpret, Enforce, Carry-out,
Modify, Amend or Amplify the Judgment Herein" in the WATER CASE (the "JOINT
MOTION"). KAISER disputed CSI's and WATERMASTER's claims in the JOINT MOTION.
The Court referred the JOINT MOTION to a Special Referee for the preparation of
a report and recommendation. Although the Special Referee's report has been
filed with the Court, no final order on the JOINT MOTION has been entered by the
Court.

            E. On or about March 25, 1993, CSI filed "California Steel
Industries, Inc.'s Notice of Motion to Interpret, Enforce, Carry-out, Modify,
Amend, or Amplify Paragraph 7, Page 66 of Exhibit G of the 1978 Judgment" (the
"EXHIBIT G MOTION"). KAISER Disputed CSI's claims in the EXHIBIT G MOTION. The
Court


                                       -2-
<PAGE>

has not ruled on the EXHIBIT G MOTION pending its ruling on the JOINT MOTION.

            F. On October 21, 1993, the California Regional Water Quality
Control Board, Santa Ana Region (the "RWQCB") adopted Resolution No. 93-72,
which allowed KAISER to fulfill certain groundwater remediation obligations
described therein by participating in a desalter project being undertaken by the
Santa Ana Watershed Project Authority pursuant to the terms of a Salt Offset
Agreement (the "SALT OFFSET AGREEMENT"). CSI objected to the Resolution and, on
or about March 10, 1994, brought an action to contest the Resolution and the
SALT OFFSET AGREEMENT, such action being entitled California Steel Industries,
Inc. v. California Regional Water Quality Control Board, Santa Ana Region, San
Bernardino County Superior Court Case No. SCV 10862 (the "SALT OFFSET ACTION").
The SALT OFFSET ACTION has been dismissed.

            G. KAISER has entered into Chino Basin Local Storage Agreements 9.0
and 9.1, which permit the storage of a total of 30,000 acre feet of overlying
water rights carried over from preceding years. As of June 30, 1994, 21,046.61
acre feet of water were in storage under those contracts and 2,930.274 acre-feet
of water was held as carryover water. Those contracts have expired and, as of
the date of this WATER RIGHTS AGREEMENT, KAISER is attempting to renew or to
replace those contracts. As used herein, the term "LOCAL STORAGE AGREEMENTS"
refers to Local


                                       -3-
<PAGE>

Storage Agreements 9.0 and 9.1, as well as to any renewals or replacements of
those agreements that KAISER may obtain.

            H. Concurrently with their execution of this WATER RIGHTS AGREEMENT,
the parties are entering into a "Settlement Agreement" for the purpose of
resolving a number of disputes as between them (the "SETTLEMENT AGREEMENT").

            I. The parties would like to compromise and settle their disputes
concerning CSI's and KAISER's entitlement to certain of the WATER RIGHTS and the
proposed amendments to the Watermaster Rules and Regulations currently being
litigated in the WATER CASE as a result of the JOINT MOTION and the EXHIBIT G
MOTION.

            In compromise of the disputes between the parties regarding the
ownership and use of the WATER RIGHTS, including all carryover and storage
rights associated therewith, and in consideration of the mutual promises set
forth in the SETTLEMENT AGREEMENT and in this WATER RIGHTS AGREEMENT, the
parties agree as follows:

            1. Incorporation of defined terms.

                  Except as explicitly set forth herein, each of the terms
defined in the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT
used in this WATER RIGHTS AGREEMENT shall have the meaning ascribed to them in
the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT.


                                       -4-
<PAGE>

            2. Appointment of Escrow.

                  Concurrently with their execution of this WATER RIGHTS
AGREEMENT, the parties hereto shall execute escrow instructions, in the form
attached to the SETTLEMENT AGREEMENT as Exhibit "2," appointing State Street
Bank and Trust of California, N.A. ("ESCROW HOLDER") to act as the escrow holder
under the terms of this WATER RIGHTS AGREEMENT.

            3. Allocation of WATER RIGHTS.

                  In compromise of the disputes between the parties, including
their claimed entitlement to beneficially use the WATER RIGHTS and carryover and
storage rights associated therewith, and in consideration of the mutual
covenants set forth in the SETTLEMENT AGREEMENT, concurrently with their
execution of this WATER RIGHTS AGREEMENT, KAISER and CSI shall execute and
deliver to ESCROW HOLDER a "Water Rights Acknowledgment" in the form attached
hereto as Exhibit "A" (the "WATER RIGHTS ACKNOWLEDGMENT"). Within seven (7) days
of this WATER RIGHTS AGREEMENT becoming effective, ESCROW HOLDER shall deliver
the WATER RIGHTS ACKNOWLEDGMENT to CSI, which may then record the WATER RIGHTS
ACKNOWLEDGMENT in the Official Records of the County Recorder of San Bernardino
County, California and otherwise proceed in accordance with the 1978 JUDGMENT by
filing the WATER RIGHTS ACKNOWLEDGMENT with WATERMASTER.


                                       -5-
<PAGE>

            4. ASSIGNMENT of WATER RIGHTS.

                  Immediately after executing this WATER RIGHTS AGREEMENT, the
parties will jointly undertake to enter into an appropriate agency agreement,
pursuant to Paragraph 6 of Exhibit "G" of the 1978 JUDGMENT, and the rules and
regulations of WATERMASTER, and consistent with the provisions of this WATER
RIGHTS AGREEMENT and the WATER RIGHTS ACKNOWLEDGEMENT respecting the use and
priorities of the "Joint Water Rights" described in the WATER RIGHTS
ACKNOWLEDGMENT (the "JOINT WATER RIGHTS"), with the San Gabriel Valley Water
Company (the "WATER COMPANY"), pursuant to which:

                  a. the PARTIES shall assign the JOINT WATER RIGHTS to the
WATER COMPANY for a period ending upon June 30, 2005, and

                  b. the WATER COMPANY shall:

                        (1) provide water service to the overlying lands of CSI
and KAISER, subject to the provisions of paragraph 4(b)(1) of the WATER RIGHTS
ACKNOWLEDGMENT, and

                        (2) pay to KAISER an amount equal to at least 90% of the
then-current replenishment charge for the CHINO BASIN for such portion of the
JOINT WATER RIGHTS as may be used by CSI or KAISER.

                  In the event such an agency agreement is not consummated with
the WATER COMPANY, CSI shall pay KAISER an amount equal to 90% of the
then-current replenishment charge for


                                       -6-
<PAGE>

the CHINO BASIN for all or any portion of the JOINT WATER RIGHTS used by CSI on
its lands.

            5. Agreement to be delivered to WATERMASTER.

                  A copy of this WATER RIGHTS AGREEMENT and of the WATER RIGHT
ACKNOWLEDGMENT shall be delivered to WATERMASTER by CSI and KAISER, with
directions to modify WATERMASTER's records in accordance therewith. CSI and
KAISER shall jointly request that WATERMASTER correct its records to reflect the
allocation of water set forth in the WATER RIGHTS ACKNOWLEDGMENT.

            6. Acknowledgment of source of water delivered to CSI by KAISER.

                  CSI and KAISER agree that, from 1984 through 1994, all of the
water delivered to CSI by KAISER was derived from either KAISER's rights as a
shareholder of Fontana Union Mutual Water Company or from the "CSI Water Rights"
as described in the WATER RIGHTS ACKNOWLEDGMENT (the "CSI WATER RIGHTS"), or
both. To the extent that the water produced and delivered by KAISER to CSI was
derived from the CSI WATER RIGHTS, or CSI's stored water resulting from the CSI
WATER RIGHTS, such water was delivered by KAISER to CSI at CSI's request and on
CSI's behalf.

            7. Effect of WATER RIGHTS AGREEMENT upon prior water charges.

                  Notwithstanding the provisions of this WATER RIGHTS AGREEMENT
and the WATER RIGHTS ACKNOWLEDGMENT, neither KAISER nor CSI shall be entitled to
any adjustments to previously


                                       -7-
<PAGE>

billed rates and charges for past deliveries of water to CSI by KAISER.

            8. (1) WATER RIGHTS defined by 1978 JUDGMENT.

                  The WATER RIGHTS are subject to the provisions of the 1978
JUDGMENT, which defines and limits their use. Nothing in this WATER RIGHTS
AGREEMENT or the WATER RIGHTS ACKNOWLEDGMENT is intended to change or modify the
nature or use of the WATER RIGHTS in a manner inconsistent with the 1978
JUDGMENT.

            9. Performance of SALT OFFSET AGREEMENT.

                  a. KAISER acknowledges its obligations, pursuant to the terms
of the SALT OFFSET AGREEMENT, to abandon to the WATERMASTER 1,000 acre-feet of
water a year for 25 years to satisfy the replenishment obligation of the SAWPA
desalter project. KAISER and CSI agree that KAISER'S obligation to abandon water
to WATERMASTER hereunder shall be an obligation expressly made for the benefit
of WATERMASTER and enforceable by WATERMASTER pursuant to the continuing
jurisdiction of the Court under the 1978 JUDGMENT. The parties agree that the
obligations of KAISER to WATERMASTER under this agreement shall be binding upon
KAISER's successors and assigns.

                  b. In partial satisfaction of its obligations under the SALT
OFFSET AGREEMENT, on or before December 1, 1995, KAISER shall irrevocably
abandon to the WATERMASTER at least 18,000 acre feet of its stored water for the
purpose of


                                       -8-
<PAGE>

satisfying the replenishment obligation of the SAWPA desalter project.

                  c. To the extent that CSI does not make use of the JOINT WATER
RIGHTS, as defined in the WATER RIGHTS ACKNOWLEDGMENT, during the INTERIM
PERIOD, as defined therein, KAISER shall either:

                        (1) irrevocably abandon said water to the WATERMASTER
for the purpose of satisfying the replenishment obligation of the SAWPA desalter
project or

                        (2) store said water under the LOCAL STORAGE AGREEMENTS
and account for the storage of such water separately from the remainder of the
water stored under the LOCAL STORAGE AGREEMENTS.

                  d. To the extent that KAISER has not already fulfilled all of
its obligations to provide water to the SAWPA desalter project, during the FINAL
PERIOD, as that term is defined in the WATER RIGHTS ACKNOWLEDGMENT, KAISER shall
either:

                        (1) irrevocably abandon to the WATERMASTER for the
purpose of satisfying the replenishment obligation of the SAWPA desalter project
the water to which it is entitled by reason of the JOINT WATER RIGHTS or

                        (2) store said water under the LOCAL STORAGE AGREEMENTS
and account for the storage of such water separately from the remainder of the
water stored under the LOCAL STORAGE AGREEMENTS.


                                       -9-
<PAGE>

                  e. To the extent that KAISER elects to store water as provided
at paragraphs 9(c)(2) and 9(d)(2) of this WATER RIGHTS AGREEMENT, KAISER shall
abandon a sufficient quantity of said water to the WATERMASTER for the purpose
of satisfying the replenishment obligation of the SAWPA desalter project, at or
before the time that it is obligated to provide such water under the SALT OFFSET
AGREEMENT, so as to satisfy its obligations under the SALT OFFSET AGREEMENT at
or before the time that said obligations are due.

            10. Court approval of WATER RIGHTS AGREEMENT. Within thirty days
following their execution of this WATER RIGHTS AGREEMENT, the PARTIES shall
jointly petition the court having jurisdiction over the WATER CASE for an order:

                  a. approving this WATER RIGHTS AGREEMENT,

                  b. decreeing CSI's exclusive right to the beneficial use of
the CSI WATER RIGHTS and the parties' mutual rights to the beneficial use of the
JOINT WATER RIGHTS as provided in the WATER RIGHTS ACKNOWLEDGMENT, and

                  c. approving KAISER's abandonment of 18,000 acre feet of its
stored water to the WATERMASTER for the SAWPA desalter project as described at
paragraph 9(b) if this WATER RIGHTS AGREEMENT.

Pending the entry of such an order, the parties shall request that the court
having jurisdiction over the WATER CASE stay all proceedings with respect to the
JOINT MOTION and the EXHIBIT G


                                      -10-
<PAGE>

MOTION. Upon the entry of a final order as set forth above, and all of the
conditions to the effectiveness of the SETTLEMENT AGREEMENT having been
satisfied, CSI shall execute a "Notice of Withdrawal of Motion" with respect to
the JOINT MOTION and the EXHIBIT G MOTION in the form attached hereto as Exhibit
"B".

            11. Condition to effectiveness of WATER RIGHTS AGREEMENT.

                  This WATER RIGHTS AGREEMENT shall become effective upon the
entry of an order of the Court in the WATER CASE approving this WATER RIGHTS
AGREEMENT as provided herein.

            12. Advice of counsel.

                  The PARTIES represent and warrant that they have sought and
obtained the advice and counsel of their attorneys with respect to this WATER
RIGHTS AGREEMENT.

            13. Amendment.

                  This WATER RIGHTS AGREEMENT cannot be modified except by
written document signed by all of the PARTIES.

            14. Choice of laws.

                  This WATER RIGHTS AGREEMENT shall in all respects be
interpreted, enforced, and governed by and under the internal laws of the State
of California.

            15. Interpretation of WATER RIGHTS AGREEMENT.

                  This WATER RIGHTS AGREEMENT has been mutually drafted. The
language of this WATER RIGHTS AGREEMENT shall be


                                      -11-
<PAGE>

construed as a whole according to a fair meaning, and not strictly for or
against any of the parties.

            16. Costs.

                  The parties shall each bear their own respective attorneys'
fees and costs in connection with the JOINT MOTION, the EXHIBIT G MOTION and the
preparation of this WATER RIGHTS AGREEMENT.

            17. Attorney's fees.

                  In the event that either of the parties breaches this WATER
RIGHTS AGREEMENT, the breaching party or parties shall pay each prevailing party
all costs of any action or proceeding for damages and/or enforcement, including
reasonable attorney's fees and costs.

            18. Integration.

                  This WATER RIGHTS AGREEMENT is part of the SETTLEMENT
AGREEMENT and is subject to its terms and conditions. Except as explicitly set
forth in the SETTLEMENT AGREEMENT, this WATER RIGHTS AGREEMENT constitutes the
final and complete agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior or contemporaneous negotiations,
promises, covenants, agreements or representations concerning any matters
directly, indirectly or collaterally related to the subject matter of this WATER
RIGHTS AGREEMENT. The parties hereto have expressly and intentionally included
in this WATER RIGHTS AGREEMENT and the SETTLEMENT AGREEMENT all


                                      -12-
<PAGE>

collateral or additional agreements which may, in any manner, touch or relate to
any of the subject matter of this WATER RIGHTS AGREEMENT and, therefore, all
promises, covenants and agreements, collateral or otherwise, are included herein
and therein. It is the intention of the parties to this WATER RIGHTS AGREEMENT
that it and the SETTLEMENT AGREEMENT shall constitute an integration of all
their agreements, and each understands that in the event of any subsequent
litigation, controversy or dispute concerning any of its terms, conditions or
provisions, no party hereto shall be permitted to offer or introduce any oral or
extrinsic evidence concerning any other collateral or oral agreement between the
parties not included herein or in the SETTLEMENT AGREEMENT.

            19. Counterparts.

                  This WATER RIGHTS AGREEMENT may be executed in counterparts by
the PARTIES and shall become effective and binding at such time as all of the
PARTIES have signed a counterpart of this WATER RIGHTS AGREEMENT.

                  WHEREFORE, the parties hereto have executed this WATER RIGHTS
AGREEMENT as of the date and year set forth above.

Dated: ____________, 1995                  KAISER VENTURES INC.

                                           By: _____________________________


Dated: ____________, 1995                  CALIFORNIA STEEL INDUSTRIES, INC.

                                           By: _____________________________

(Signatures continued to next page)


                                      -13-
<PAGE>

APPROVED AS TO FORM:

Dated: _______________, 1995               BEST, BEST & KRIEGER

                                           By: _____________________________
                                               Arthur L. Littleworth
                                               Anne T. Thomas
                                               Gene Tanaka
                                               Attorneys for KAISER
                                               Ventures, Inc.


Dated: _______________, 1995               LAW OFFICES OF JOHN D. MUSICK, JR.
                                           AND ASSOCIATES

                                           By: _____________________________
                                               John D. Musick,, Jr.
                                               Attorneys for California Steel
                                               Industries, Inc.


                                      -14-
<PAGE>

                           WATER RIGHTS ACKNOWLEDGMENT

            This Water Rights Acknowledgment (the "WATER RIGHTS ACKNOWLEDGMENT")
is entered into as of June 1, 1995, by and between Kaiser Ventures, Inc.
("KAISER") and California Steel Industries, Inc. ("CSI").

                                    RECITALS

            A. From 1942 until 1983, Kaiser Steel Corporation operated a large
steel production and processing facility on approximately 2,000 acres of land
near Fontana, California, owned by Kaiser Steel Corporation (the "FONTANA
PROPERTY"). Pursuant to an Agreement of Purchase and Sale entered into effective
as of August 17, 1984, CSI purchased approximately 378 acres of the FONTANA
PROPERTY. In 1988 and 1989, CSI acquired from third parties approximately 43 and
29 acres, respectively, of property previously owned by Kaiser Steel Corporation
and comprising a portion of the FONTANA PROPERTY. The 378, 43 and 29 acres of
the FONTANA PROPERTY formerly owned by Kaiser Steel Corporation and now owned by
CSI are hereinafter collectively referred to as the "CSI PROPERTY."

            B. Pursuant to the judgment (the "1978 JUDGMENT") in Chino Basin
Municipal Water District v. City of Chino. et al., San Bernardino Superior
Court, Case No. RCV 51010 (the "WATER
<PAGE>

CASE"), non-agricultural overlying rights to the beneficial use of 2,930.274
acre feet of water annually from the safe yield of the Chino groundwater basin
was decreed as set forth at page 60, line 9 of Exhibit "D" to the 1978 JUDGMENT
(the "WATER RIGHTS"). The WATER RIGHTS are more specifically described in
Section II.B.8 and Exhibits "D" and "G" of the 1978 JUDGMENT.

            C. KAISER has entered into Chino Basin Local Storage Agreements 9.0
and 9.1, which permit the storage of a total of 30,000 acre feet of overlying
water rights carried over from preceding years. As of June 30, 1994, 21,046.61
acre feet of water were in storage under those contracts and 2,930.274 acre-feet
of water was held as carryover water. Those contracts have expired and, as of
the date of this WATER RIGHTS ACKNOWLEDGMENT, KAISER is attempting to renew or
to replace those contracts. As used herein, the term "LOCAL STORAGE AGREEMENTS"
refers to Local Storage Agreements 9.0 and 9.1, as well as to any renewals or
replacements of those agreements that KAISER may obtain.

            D. From 1984 through the date of this WATER RIGHTS ACKNOWLEDGMENT,
CSI has operated a steel processing plant on the CSI PROPERTY. From 1984 through
the date of this WATER RIGHTS. ACKNOWLEDGMENT, KAISER delivered water to CSI
pursuant to certain utility services agreements.

            E. On or about August 25, 1992, CSI and the Chino Basin Watermaster
(the "WATERMASTER") filed a "Joint Motion to Interpret, Enforce, Carry-out,
Modify, Amend or Amplify the


                                        2
<PAGE>

Judgment Herein" in the WATER CASE (the "JOINT MOTION"). KAISER disputed CSI's
claims in the JOINT MOTION.

            F. On or about March 25, 1993, CSI filed "California Steel
Industries, Inc.'s Notice of Motion to Interpret, Enforce, Carry-out, Modify,
Amend, or Amplify Paragraph 7, Page 66 of Exhibit G of the 1978 Judgment" (the
"EXHIBIT G MOTION"). KAISER disputed CSI's claims in the EXHIBIT G MOTION. The
Court has not ruled on the EXHIBIT G MOTION.

            G. On October 21, 1993, the California Regional Water Quality
Control Board, Santa Ana Region (the "RWQCB") adopted Resolution No. 93-72,
which was intended to allow KAISER to fulfill certain groundwater remediation
obligations described therein by participating in a desalter project being
undertaken by the Santa Ana Watershed Project Authority pursuant to the terms of
a "Salt Offset Agreement" (the "SALT OFFSET AGREEMENT"). CSI objected to the
SALT OFFSET AGREEMENT and filed a petition for a writ of mandate, which has now
been dismissed.

            H. Concurrently with their execution of this WATER RIGHTS
ACKNOWLEDGMENT, the parties are entering into a "Settlement Agreement" (the
"SETTLEMENT AGREEMENT") and a Ground Water Indemnity Agreement (the "GROUNDWATER
INDEMNITY AGREEMENT"), for the purposes of resolving certain disputes and
allocating certain liabilities and potential liabilities as between them, and a
"Water Rights Agreement," for the purpose of resolving their disputes relating
to the WATER RIGHTS and


                                        3
<PAGE>

carryover and storage rights associated therewith (the "WATER RIGHTS
AGREEMENT"). The PARTIES are entering into this WATER RIGHTS ACKNOWLEDGMENT for
the purpose of effectuating the foregoing Agreements.

            IT IS THEREFORE agreed that:

            1. Incorporation of defined terms.

                  Except as explicitly set forth herein, each of the terms
defined in the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT
used in this WATER RIGHTS ACKNOWLEDGMENT shall have the meaning ascribed to them
in the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT.

            2. Acknowledgment of CSI WATER RIGHTS.

                  KAISER hereby recognizes CSI's sole ownership and exclusive
right to use the following portions of the WATER RIGHTS and formally
relinquishes any right title, claims or interest in said portions of the WATER
RIGHTS to CSI:

                  a. 1000 acre feet annually of the decreed WATER RIGHTS as of
August 17, 1984, including all right, title and interest to carried-over and
stored water resulting from an under exercise of those rights occurring on and
after August 17, 1984;

                  b. 300 acre feet annually of the decreed WATER RIGHTS as of
July 1, 1995, including all right, title and interest to carried-over and stored
water resulting from an under exercise of those rights occurring on and after
July 1, 1995;


                                        4
<PAGE>

                  c. The unused balance of the 1000 acre feet of the decreed
WATER RIGHTS referred to at paragraph 2(a), above, consisting of 510.14 acre
feet of existing storage, as of June 30, 1994, held under the LOCAL STORAGE
AGREEMENTS; and

                  d. 3024.09 acre feet of KAISER's capacity storage right under
the LOCAL STORAGE AGREEMENTS, which provide, or it is anticipated will provide,
for a total storage capacity of 30,000.00 acre feet.

            3. Acknowledgment of KAISER WATER RIGHTS.

                  CSI hereby recognizes KAISER's sole ownership and exclusive
right to use the following portions of the WATER RIGHTS and formally
relinquishes any right title, claims or interest in said portions of the WATER
RIGHTS to KAISER:

                  a. 2930.274 acre feet annually of the decreed WATER RIGHTS,
including all right, title and interest to carried-over and stored water
resulting from an under exercise of those rights from the date of the entry of
the 1978 JUDGMENT through August 17, 1984;

                  b. 1000 acre feet annually of the decreed WATER RIGHTS,
including all right, title and interest to carried-over and stored water
resulting from an under exercise of those rights, effective August 17, 1984, and
at all times thereafter;

                  c. 21,535.44 acre feet of stored water, as of June 30, 1994,
held under the LOCAL STORAGE AGREEMENTS with WATERMASTER;


                                        5
<PAGE>

                  d. 1,930.274 acre-feet of carried over water: and

                  e. 26,975.91 acre feet of the capacity storage right in the
LOCAL STORAGE AGREEMENTS.

            4. Acknowledgment of Joint WATER RIGHTS.

            KAISER and CSI acknowledge that they have jointly held ownership of
the following WATER RIGHTS:

                  a. 930.274 acre feet annually of the decreed WATER RIGHTS,
including all right title and interest to carried-over and stored water
resulting from an under exercise of those rights, effective August 17, 1984 and
continuing through and including June 30, 1995; provided that KAISER had the
exclusive right to the use of the foregoing water, together with the rights to
carried-over and storage water resulting from the under exercise of those
rights.

                  b. 630.274 acre feet annually of the decreed WATER RIGHTS,
including all right, title and interest to carried-over and stored water
resulting from an under exercise of those rights, effective July 1, 1995 (the
"JOINT WATER RIGHTS"); provided that:

                        (1) Interim Period.

                              CSI shall have the first priority for use of the
JOINT WATER RIGHTS on its lands from July 1, 1995 through June 30, 2005 (the
"INTERIM PERIOD"), provided it first puts to use the 1,300 acre-feet referred to
at paragraphs 2(a)


                                        6
<PAGE>

and 2(b) of this WATER RIGHTS ACKNOWLEDGMENT plus any water in CSI's carry-over
and/or storage account. KAISER shall have the right to use any portion of the
JOINT WATER RIGHTS not used by CSI during the INTERIM PERIOD. KAISER shall have
the exclusive right to carry over and store for its benefit, including
satisfaction of its obligations under the SALT OFFSET AGREEMENT, any unexercised
portion of the JOINT WATER RIGHTS during the INTERIM PERIOD.

                        (2) July 1, 2005 and thereafter.

                        KAISER shall have the first priority for the use of the
JOINT WATER RIGHTS on the KAISER PROPERTY, or in fulfillment of its obligations
under the SALT OFFSET AGREEMENT, from July 1, 2005 and thereafter (the "FINAL
PERIOD"), provided: (1) with respect to its use to fulfill its obligations under
the SALT OFFSET AGREEMENT, KAISER shall first exhaust any water it may have in
its storage account and then shall have put to beneficial use on the KAISER
PROPERTY, or used in fulfillment of its salt offset obligations, its right to
the 1000 acre feet of water referred to in paragraph 3(b) above before making
any use of the JOINT WATER RIGHTS and (2) with respect to its use on the KAISER
PROPERTY, KAISER shall first exhaust its right to the 1000 acre feet referred to
at paragraph 3(b) above and then any water that it may have in its storage
account before making any use of the JOINT WATER RIGHTS. CSI shall have the
right to use any portion of the JOINT WATER R1GHTS not used by KAISER during the


                                        7
<PAGE>

FINAL PERIOD. KAISER shall have the right to carry over and store for its sole
benefit any unexercised portion of the JOINT WATER RIGHTS during the FINAL
PERIOD.

                        (3) KAISER's use of the JOINT WATER RIGHTS, and any
water carried over and stored for KAISER'S benefit as a result of the JOINT
WATER RIGHTS, is subject to KAISER's obligations under the WATER RIGHTS
AGREEMENT.

Dated: _________________, 1995               KAISER VENTURES, INC.

                                             By:________________________________


Dated: _________________, 1995               CALIFORNIA STEEL INDUSTRIES, INC.

                                             By:________________________________

APPROVED AS TO FORM:

Dated: _________________, 1995               BEST, BEST & KRIEGER

                                             By:________________________________
                                                 Arthur L. Littleworth
                                                 Anne T. Thomas
                                                 Gene Tanaka
                                                 Attorneys for KAISER
                                                 Ventures, Inc.


Dated: _________________, 1995               LAW OFFICES OF JOHN D. MUSICK, JR.
                                             AND ASSOCIATES

                                             By:________________________________
                                                John D. Musick, Jr.
                                                Attorneys for California Steel
                                                Industries, Inc.


                                        8
<PAGE>

STATE OF CALIFORNIA

COUNTY OF LOS ANGELES

On _____________, 1995 before me, ______________________, personally appeared
________________________ personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person(s) whose names are subscribed to the
within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.

                                              WITNESS my hand and official seal.


                                              ----------------------------------
                                              Signature of Notary Public


                                        9
<PAGE>

John Musick, Jr.
  and Associates
2049 Century Park East
Suite 1100
Los Angeles, CA  90067
(310) 552-1974

Attorneys for:
Intervenor California Steel
Industries, Inc.

                    SUPERIOR COURT OF THE STATE OF CALIFORNIA

                            COUNTY OF SAN BERNARDINO

                                  WEST DISTRICT

CHINO BASIN MUNICIPAL WATER DISTRICT,     )
                                          )
                                          )        Case No. RCV 51010
             Plaintiff,                   )
                                          )        NOTICE OF WITHDRAWAL
         v.                               )        OF MOTION
                                          )
CITY OF CHINO, ET AL.,                    )
                                          )
             Defendants.                  )

TO ALL PARTIES AND THEIR ATTORNEYS:

      Notice is hereby given that Intervenor California Steel Industries, Inc.
("CSI") does hereby withdraw from the Joint Motion filed on or about August 25,
1992 with Plaintiff Chino Basin Municipal Water District as Chino Basin
Watermaster, and entitled "Joint Motion to Interpret, Enforce, Carryout, Modify,
Amend, or Amplify the Judgment Herein."

      Notice is further given that CSI does hereby withdraw and dismiss its
Motion filed on or about March 25, 1993 and entitled


                                      -1-
<PAGE>

"Motion to Interpret, Enforce, Carryout, Modify, Amend, or Amplify Paragraph 7,
Page 66 of Exhibit G of the Judgment."

Dated:__________________

                                                THE LAW OFFICES OF JOHN D.
                                                MUSICK, JR. AND ASSOCIATES

                                                By:
                                                    ----------------------------
                                                    Attorneys for California
                                                    Steel Industries, Inc.
<PAGE>

                 RECORDING REQUEST

          California Steel Industries, Inc.
          14000 San Bernardino Avenue
          Fontana, California 92335
          Attn:

          AND WHEN RECORDED MAIL TO

          California Steel Industries, Inc.
Name      14000 San Bernardino Avenue
          Fontana, California 92335
Street    Attn:
Address

City &
State     __________________________________
                 MAIL TAX STATEMENTS TO

          California Steel Industries, Inc.
Name      14000 San Bernardino Avenue
          Fontana, California 92335
Street    Attn:
Address

City &
State     __________________________________

--------------------SPACE ABOVE THIS LINE FOR RECORDER'S USE--------------------

[ILLEGIBLE]                Corporation Quitclaim Deed
[ILLEGIBLE]                       [ILLEGIBLE]
--------------------------------------------------------------------------------

The undersigned grantor(s) declares(s):
Documentary transfer tax is $ 0.
(       ) computed on full value of property conveyed, or
(       ) computed on full value less value of liens and encumbrances remaining
          at time of sale.
(       ) Unincorporated area: (      ) City of _______________________, and

FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,

Kaiser Resources Inc., ("Grantor")

a corporation organized under the laws of the State of Delaware

hereby REMISES, RELEASES AND QUITCLAIMS to
California Steal Industries, Inc., a California corporation ("Grantee")

the following described real property in the unicorporated area Country of San
Bernardino                  , State of California:

                        See Exhibit "A" and Exhibit "1"
                                attached hereto.

In Witness Whereof, said corporation has caused its corporation name and seal
to be affixed hereto and this instrument to be executed by its ______________
President and _____________ Secretary thereunto duly authorized.

Dated: ________________________________    Kaiser Resources Inc., a Delaware
                                           Corporation

STATE OF CALIFORNIA                   )    By __________________________________
COUNTY OF ____________________________) SS                             President
                                      )    By __________________________________
On _________________ before me, the                                    Secretary
undersigned, a Notary Public in and for
said State, personally appeared ________
________________________________________
personally known to me or proved to me
on the basis of satisfactory evidence to
be the person who executed the within
instrument as the ______________________
President, and _________________________
________________________________________
personally known to be or proved to me
on the basis of satisfactory evidence to
be the person who executed the within
instrument as the ______________________
Secretary of the Corporation that
executed the within instrument and
acknowledged to me that such corporation
executed the within instrument pursuant
to its by-laws or a resolution of its
board of directors. WITNESS my hand and
official seal.

Signature ______________________________

                                                                     [ILLEGIBLE]
--------------------------------------------------------------------------------

Title Order No._________________________ Escrow or Loan No. ____________________

--------------------------------------------------------------------------------
                     MAIL TAX STATEMENTS AS DIRECTED ABOVE
<PAGE>

                                  EXHIBIT "A"

Any and all interest of Grantor in and to all pipes, pipelines, conduits or
other facilities (the "Pipelines") used to convey or drain sewage, industrial
wastes or surface water on, under or over that certain real property described
in Exhibit "1" attached hereto.

                                    * * * *

This quitclaim is being made to settle a dispute between Grantor and Grantee
with respect to the ownership of the above described Pipelines. Grantee claims
such Pipelines were already conveyed by Grantor to Grantee pursuant to the terms
of that certain Grant Deed recorded on August 20, 1984 as Instrument No.
94-197915 in the Official Records of San Bernardino County, California. The
purpose of this Quitclaim Deed is to eliminate any ambiguity that may exist
concerning the ownership of said Pipelines.


                                       -1-
<PAGE>

                                  EXHIBIT "1"

Parcel 2 on Parcel Map 8682 as recorded in Book 89 of Parcel Maps, Pages 37
through 43, inclusive, Records of San Bernardino County, California.


                                       -2-
<PAGE>

RECORDING REQUESTED BY:

Richard W. Esterkin
Morgan, Lewis & Bockius
801 South Grand Avenue
22nd Floor
Los Angeles, California 90017

AND WHEN RECORDED MAIL TO:

Richard W. Esterkin
Morgan, Lewis & Bockius
801 South Grand Avenue
22nd Floor
Los Angeles, California 90017

--------------------------------------------------------------------------------

                AMENDMENT TO PART B OF EXHIBIT A TO GRANT DEED -
                       AND EXCEPTIONS IN FAVOR OF GRANTOR

            This Amendment to Part B of Exhibit A to Grant Deed - Reservations
and Exceptions in Favor of Grantor (the "Amendment") is made as of this first
day of June, 1995 by and between Kaiser Ventures Inc. ("Kaiser"), a Delaware
corporation, successor-in-interest to Kaiser Steel Corporation ("KSC"), and
California Steel Industries, Inc., a Delaware corporation ("CSI"), with respect
to the following facts and circumstances.

                                 R E C I T A L S

            A. On August 20, 1984, KSC conveyed to CSI certain real property
situated in the County of San Bernardino, State of California. Said real
property was conveyed pursuant to that certain grant deed (the "Kaiser-CSI Grant
Deed") recorded on August 20, 1984, as Instrument No. 84-197915 in the Official
Records of San Bernardino County.

            B. Exhibit A to the Kaiser-CSI Grant Deed contained, in addition to
the legal description of the real property being conveyed, certain reservations
of easements and other exceptions which were set forth in Part B to said Exhibit
A, entitled "Reservations and Exceptions in Favor of Grantor" (referred to
hereinafter as the "Reservations and Exceptions").

            C. Kaiser and CSI now desire to amend the Reservations and
Exceptions to reflect certain new agreements between the parties.
<PAGE>

            NOW, THEREFORE in view of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, the parties
agree as follows:

            1. The Reservations and Exceptions, set forth in Part B of Exhibit A
to the Kaiser-CSI Grant Deed, are hereby amended as follows:

                  a. Paragraph 1 of Part B of Exhibit A to the Kaiser-CSI Grant
Deed is hereby deleted in its entirety.

                  b. Paragraph 2 of Part B of Exhibit A to the Kaiser-CSI Grant
Deed is hereby deleted in its entirety as the easements provided for therein
have expired in accordance with their terms.

                  c. Paragraph 3(a) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is hereby deleted in its entirety as the easements provided for
therein have expired in accordance with their terms.

                  d. Paragraph 3(b) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment.

                  e. The rights reserved by Grantor pursuant to paragraph 3(c)
of Part B of Exhibit A to the Kaiser-CSI Grant Deed are hereby limited such
that, from and after the date of this Amendment, Grantor shall have the
following rights, and only the following rights, by reason of said paragraph:

                        (1) An easement for the use of all sanitary sewer lines,
both surface and subsurface, and all replacements or substitutions therefore,
for purposes of conveying or draining sewage generated by Kaiser or its lessees
from any area owned by Kaiser lying north of the Servient Tenement. CSI shall
repair, maintain or replace, as necessary, such sewer lines in accordance with
the following terms and conditions: (A) any such repair, maintenance or
replacement shall be performed in a manner which will allow Kaiser to continue
to use such sewer lines as repaired, maintained or replaced; (B) CSI shall have
no obligation to repair, replace, upgrade or improve such sewer lines so as to
provide Kaiser with any sewage disposal capacity in excess of the capacity used
by Kaiser as of the date of this Amendment; (C) to the extent there is sewage
disposal capacity in excess of that presently used by CSI and Kaiser, CSI shall
have priority over Kaiser to any such excess capacity. Such easement shall
expire immediately and automatically without any act by any party as soon as CSI
ceases to have its sewage treated at the Kaiser Sewage Treatment Plant as
defined in the Amended Services Agreement referred to subparagraph 4(d) below;
provided that CSI
<PAGE>

shall provide KAISER with one year written notice of its intention to cease
having its sewage treated at the Kaiser Sewage Treatment Plant.

                        (2) a nonexclusive easement for all ditches and storm
water drains existing as of August 17, 1984, and all replacements or
substitutions therefore, for purposes of conveying or draining surface water
from any area lying north of the Servient Tenement.

                  f. The rights reserved by Grantor pursuant to paragraph 3(d)
of Part B of Exhibit A to the Kaiser-CSI Grant Deed are hereby limited such
that, from and after the date of this Amendment, Grantor shall have a
nonexclusive easement for use of all electrical and other utility transmission
facilities existing as of August 17, 1984 and all replacements or substitutions
therefor, and no other rights, by reason of said paragraph.

                  g. Paragraph 3(e) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment.

                  h. Paragraphs 4(a) and 4(b) of Part B of Exhibit A to the
Kaiser-CSI Grant Deed are not affected by this Amendment.

                  i. Paragraph 4(c) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment, except to the extent that:

                        (1) this Amendment recognizes that the easements granted
under paragraph B(3)(a) of Part B of Exhibit A to the Kaiser-CSI Grant Deed have
expired according to their terms, and

                        (2) this Amendment limits the term of the easement
granted under paragraph B(3)(c) of Part B of Exhibit A to the Kaiser-CSI Grant
Deed as provided at paragraph 1(e) of this Amendment.

                  j. Paragraph 4(d) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment, except that the parties
acknowledge that it was their intent in said paragraph that the reference
therein to "Exhibit B to the Services Agreement of even date between Grantor and
Grantee" included all extensions and replacements of said agreement including,
but not limited to, Exhibit B to the Amended Services Agreement dated as of
January 1, 1995 between Kaiser Ventures, Inc. and California Steel Industries,
Inc. being executed


                                       3
<PAGE>

concurrently with this Amendment, and all extensions and replacements of Part B
of Exhibit A to the Kaiser-CSI Grant Deed.

                  k. Paragraph 4(e) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment.

                  1. Paragraph 5(a) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is hereby deleted in its entirety since such easement has expired in
accordance with its terms.

                  m. Paragraph 5(b) of Part B of Exhibit A to the Kaiser-CSI
Grant Deed is not affected by this Amendment.

            2. Except as amended hereby, the Reservations and Exceptions shall
remain in full force and effect.

            3. Notices.

                  Any and all notices between the parties provided for or
permitted under this Amendment, or by law, shall be in writing and shall be
deemed duly served when personally delivered to a party, or, in lieu of such
personal service, when deposited in the United States mail, certified, postage
prepaid, addressed to such party at the following addresses:

                            a.   If to CSI:
                                 California Steel Industries, Inc.
                                 14000 San Bernardino Avenue
                                 P.O. Box 5080
                                 Fontana, California
                                 Attention:  Mr. James Declusin

                                 with a copy to:

                                 Morgan, Lewis & Bockius
                                 801 South Grand Avenue
                                 22nd Floor
                                 Los Angeles, California 90017
                                 Attention:  Richard W. Esterkin, Esq.

                            b.   If to KAISER or RECOVERY:

                                 Kaiser Ventures  Inc.
                                 3633 East Inland Empire Blvd.
                                 Suite 850
                                 Ontario, California 91764
                                 Attention:  Terry L. Cook, Esq.


                                        4
<PAGE>

                                 with a copy to:

                                 Lindquist, Vennum & Christensen
                                 600 17th Street
                                 Suite 2125
                                 Denver, Colorado 80202-5401
                                 Attention: Craig A. Christensen, Esq.

or to such other place as may from time to time be specified in a notice to each
of the parties hereto given pursuant to this paragraph as the address for
service of notice on such party. For the purposes of this Amendment, delivery by
facsimile shall be deemed to be personal delivery of any notice hereunder.

                  IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed as of the date and year first above written.

                                   KAISER VENTURES  INC.,
                                   a Delaware Corporation

                                   By: /s/ Daniel N. Larson
                                       -------------------------------------
                                              President

                                   By: /s/ Terry L. Cook
                                       -------------------------------------
                                              Secretary


                                   CALIFORNIA STEEL INDUSTRIES, INC.,
                                   a Delaware Corporation

                                   By: /s/ Marcus Mota e Silva
                                       -------------------------------------
                                              President

                                   By: /s/ Matthew MacFadden
                                       -------------------------------------
                                              Secretary


                                       5
<PAGE>

APPLICATION FOR ASSIGNMENT OF CAPACITY CONTRACT

TO:   Chino Basin Municipal Water District

      9400 Cherry Avenue
      Building A
      Fontana, California 92335

      The undersigned hereby make application for assignment of contracts for
capacity in Chino Basin Municipal Water District's non-reclaimable industrial
wastewater system pursuant to Ordinance NO. 52 as adopted July 1, 1992, and as
said Ordinance has been amended to date.

1.    Name of Assignor: Kaiser Resources, Inc. ("KRI"), sucessor in interest to
                        Kaiser Steel Corporation ("KSC").

      Address: 8300 Utica Avenue, Ranche Cucamonga, California 91730
      Name of Assignee: California Steel Industries, Inc. ("CSI")
      Address: 14000 San Bernardino Ave., Fontana, California 92335

2.    Assignor's contact: Rob Kurtman
      Address: 8300 Utica Avenue, Ranche Cucamonga, California 91730
      Telephone: (909) 948-3143
      Assignee's contact: Dennis Poulsen
      Address: 14000 San Bernardino Ave., Fontana, California 92335
      Telephone: (909) 380-4300

3.    Number of capacity units currently held by Assignor: 43 units in three
      contracts dated August 29, 1968, September 23, 1970 and May 3, 1970.

      Number of capacity units to be assigned: 27 units in two contracts dated
      August 22, 1968 and September 22, 1970.

One capacity unit equals 45 gallons per minute maximum in
instantaneous flow.

4.    Date assignment of capacity required: October 31, 1995

5.    Assignor does not hold or plan to obtain Option Agreements.
<PAGE>

6.    Assignee's industry that will create non-reclaimable wastewater:

      Steel manufacturing

7.    A brief description of Assignee's industrial process that will
      create non-reclaimable wastewater:

      steel manufacturing which utilizes hydraulic fluids from operations,
      cooling waters and rolling solutions resulting in acid rinse wastewater,
      spent pickle liquor, and alkaline wastewater, which are part of the
      process to produce hot rolled steel sheets and coils, cold rolled steel
      sheets and coils, plate and galvanized rolled steel sheets and coils.

8.    The address to which said assignment of capacity contracts will be
      appurtenant:

      14000 San Bernardino Ave.
      Fontana, California 92335

9.    The legal description and map of the real property to which the assigned
      capacity contracts will be appurtenant is set forth on Exhibits A and B.

10.   The "Existing Industry Permit for Industrial Wastewater Discharge",
      "Additional Information Questionnaire" and the "Industrial Wastewater
      Critical Parameter Report Form" are already on file.


                                   ASSIGNOR: KAISER VENTURES INC.
                                             ----------------------------------


                                   BY: /s/ Daniel N. Larson Pres. - CEO
                                       ----------------------------------------


                                   DATE: October 5, 1995
                                         --------------------------------------


                                   ASSIGNEE:
                                             ----------------------------------

                                   BY: /s/ Marcus Mota e Silva
                                       ----------------------------------------


                                   DATE:
                                         --------------------------------------
<PAGE>

                                   EXHIBIT A

All of the real property owned by California Steel Industries comprising of
approximately 450 acres located on the north and south side of San Bernardino
Avenue in the County of San Bernardino, State of California described more
specifically as follows:

      Parcel 2 of Parcel Map 8682 in Book 89 of Parcel Maps, Pages 37 through
      43, Records of San Bernardino County, California

AND

      Lot 1008 and a portion of Lot 1009, Semi-tropic Land and Water Company in
      the County of San Bernardino, State of California, as per plat recorded in
      Book 11 of Maps, page 12, records of said County, lying north of the
      following described line:

      Commencing at the northeast corner of said Lot 1008, said point being the
      intersection of the centerlines of San Bernardino Avenue and Calabash
      Avenue: thence along the centerline of Calabash Avenue south 0 (degree)
      07' 38" west, 1035.93 feet to the point of beginning: thence on a line
      parallel to the centerline of San Bernardino Avenue, south 89 (degree) 45'
      53" west, 1410.51 feet to the west line of said Lot 1009.

      Together with that portion of Mulberry Avenue, 30 feet wide, adjoining
      said lots on the west, extending from a line 168.07 feet south of the
      center line of San Bernardino Avenue, to a line 40 feet north of the north
      line of Colton Avenue as delineated on the above described map, as said
      Avenue was vacated by the Board of Supervisors of the County of San
      Bernardino by document recorded in Book 4220, page 576, Official Records.

      Note: Areas and distances are computed to street centers.

AND

      Parcel A:

      Parcel 1 and Parcel 2 of Parcel Map. No 9818, as per plat recorded in Book
      104 of Parcel Maps, pages 88 to 91, inclusive records of the County
      Recorder of San Bernardino County, California.
<PAGE>

      Parcel B:

      The following easements which were reserved in that certain Grant Deed,
      dated August 17, 1984, wherein Grantor is the Grantor and California Steel
      Industries, Inc. is the Grantee, which Grant Deed was recorded in the
      records of the County Recorder of San Bernardino County, California, on
      August 29, 1984, as instrument No. 84-197915, Official Records, but only
      to the extent necessary to serve the buildings which are presently located
      on Parcel 1 and Parcel 2 of Parcel Map No. 9818, in the County of San
      Bernardino, State of California, and up to 700,000 square feet of
      additional buildings on such parcels:

      (A) The easement described in subparagraph B.3(c) of Exhibit "A" of such
      Grant Deed;

      (B) The easements described in subparagraph B.3(d) of Exhibit "A" of such
      Grant Deed;

      Parcel C:

      A nonexclusive easement, in the County San Bernardino, State of
      California, for the use of all sanitary sewer, domestic water and
      electrical transmission facilities which (A) now exist on the following
      described real property and (B) which serve the real property described in
      Parcel "A" above.

      The following real property is affected by the aforementioned easement:

      Parcel 1 and Parcel 3 of Parcel Map 8682, as recorded in Parcel Map No.
      89, pages 37 through 43, inclusive, records of San Bernardino County,
      California.

      The aforementioned easement is appurtenant to the real property described
      in Parcel "A" above, and was granted by an instrument recorded May 16,
      1986 as instrument No. 86-128269, Official Records.

      Parcel D:

      A nonexclusive easement in the County of San Bernardino, State of
      California, for the use of all storm drain facilities which (A) now exist
      on the following described real property and (D) which serve the real
      property described in Parcel "A" above.

      The following real property is affected by the aforementioned easement:
<PAGE>

      All of that certain real property owned on the date hereof by Kaiser Steel
      Corporation, (1) or any of its subsidiaries, lying south of San Bernardino
      Avenue, north of Valley Boulevard (Colton Avenue), west of Cherry Avenue
      and east of Calabash, within an unincorporated portion of San Bernardino
      County near the City of Fontana California.

      The aforementioned easement is appurtenant to the real property described
      in Parcel "A" above, and was granted by an instrument recorded May 16,
      1986 as instrument No. 86-128269 Official Records.

      A more visual description of the property herein described is attached as
      Exhibit B for your convenience.

------------
(1) Kaiser Steel Corporation ("KSC") is now known as Kaiser Resources, Inc.
("KRI").  This language was taken from a deed of the property to California
Steel Industries, Inc. dating to the time when KRI was known as KSC.
<PAGE>

                                   [FLOOR MAP]

                                    EXHIBIT B
<PAGE>

                         GROUNDWATER INDEMNITY AGREEMENT

      This GROUNDWATER INDEMNITY AGREEMENT is entered into as of June 1, 1995,
by and between Kaiser Ventures Inc. ("KAISER") and California Steel Industries,
Inc. ("CSI") with reference to the following facts:

                                    RECITALS

            A. From 1942 until 1983, Kaiser Steel Corporation operated a large
steel production and processing facility on approximately 2,000 acres of land
near Fontana, California, owned by Kaiser Steel Corporation (the "FONTANA
PROPERTY"). Pursuant to an Agreement of Purchase and Sale entered into effective
as of August 17, 1984, CSI purchased approximately 378 acres of the FONTANA
PROPERTY. In 1988 and 1989, CSI acquired from third parties approximately 43 and
29 acres, respectively, of property previously owned by Kaiser Steel Corporation
and comprising a portion of the FONTANA PROPERTY. The 378, 43 and 29 acres of
the FONTANA PROPERTY formerly owned by KAISER Steel Corporation and now owned by
CSI are hereinafter collectively referred to as the "CSI PROPERTY."

            B. As a result of the operations of Kaiser Steel Corporation at the
FONTANA PROPERTY, various contaminants may have been released into the
environment, including the soil underlying portions of the CSI PROPERTY.
<PAGE>

            C. On or about November 16, 1992, CSI and the California State
Department of Toxic Substances Control ("DTSC") entered into a "Voluntary
Enforceable Agreement" (the "VEA"). The VEA establishes a procedure pursuant to
which CSI will investigate the type and extent of the contamination present at
the CSI PROPERTY and, if necessary, remediate the CSI PROPERTY. At this time, it
is unclear whether DTSC will require CSI to investigate or remediate the
groundwater underlying the CSI PROPERTY.

            D. Pursuant to the Judgment in Chino Basin Municipal Water District
v. City of Chino. et al., San Bernardino Superior Court, Case No. RCV 51010 (the
"1978 JUDGMENT"), non-agricultural overlying rights to the beneficial use of
2,930.274 acre-feet of water annually from the safe yield of the Chino
groundwater basin (the "CHINO BASIN") was decreed as set forth at page 60, line
9 of Exhibit "D" to the 1978 JUDGMENT (the "WATER RIGHTS"). The WATER RIGHTS are
more specifically described in Section II.B.8 and Exhibits "D" and "G" of the
1978 JUDGMENT.

            E. On August 26, 1987, the California State Regional Water Quality
Control Board, Santa Ana Region (the "RWQCB"), pursuant to its authority under
Section 13304 of the California Water Code, issued Cleanup and Abatement Order
("CAO") No. 87-121, which required KAISER to investigate groundwater in the
vicinity of the FONTANA PROPERTY. As a result of the investigation undertaken by
KAISER pursuant to that order, and


                                       -2-
<PAGE>

other investigations undertaken by KAISER prior to the issuance of that order, a
plume of groundwater containing elevated levels of total dissolved solids
("TDS"), total organic compounds ("TOC") and sulfates was discovered to be
emanating from the FONTANA PROPERTY (the "PLUME").

            F. The Santa Ana Watershed Project Authority ("SAWPA") has
undertaken a project to remove excess salt from the groundwater of the CHINO
BASIN by means of the construction and operation of one or more desalting
plants, to be located in the lower CHINO BASIN, which would remove excess salts
from the groundwater, dispose of the resulting brines in the Santa Ana Regional
Interceptor ("SARI") line, and make the reclaimed ground water available for
use.

            G. KAISER has proposed that it fulfill its groundwater remediation
obligations imposed by CAO No. 87-121 and RWCQB Order No. 91-40, which modifies
Order No. 87-121, by participating in SAWPA's desalter project, both by making a
onetime cash contribution for the benefit of the desalter and also by assigning
or abandoning to the Chino Basin Water District as Chino Basin Watermaster
("WATERMASTER"), over a period of 25 years, 25,000 acre-feet of water derived
from the WATER RIGHTS.

            H. On March 5, 1993, the RWQCB adopted Resolution No. 93-19, which
was intended to discharge CAO No. 87-121 and Order No. 91-40 and to allow KAISER
to fulfill its groundwater remediation obligations imposed therein by
participating in


                                       -3-
<PAGE>

SAWPA's desalter project. Resolution No. 93-19 was made contingent on the
approval, prior to September 5, 1993, by the Superior Court of San Bernardino
County of certain rules and regulations of WATERMASTER, which would allow the
assignment or abandonment of stored water by KAISER to the WATERMASTER for the
benefit of the desalter project.

            I. CSI objected to the salt-offset agreement set forth in Resolution
No. 93-19, and brought an action against the RWQCB entitled California Steel
Industries, Inc. v. California Regional Water Quality Control Board/Santa Ana
Region, San Bernardino Superior Court, Case No. SCV 04837. Subsequently, the
Court did not timely approve the necessary WATERMASTER rules and regulations to
permit the abandonment or assignment of water from KAISER to the WATERMASTER for
the benefit of the desalter, and Resolution 93-19 expired by its terms on
September 5, 1993.

            J. On October 21, 1993, the RWQCB adopted Resolution No. 93-72,
which was intended to discharge CAO No. 87-121 and CAO No. 91-40, and allow
KAISER to fulfill its groundwater remediation obligations with respect to PLUME,
by participating in SAWPA's desalter project pursuant to the terms of an
agreement with the RWQCB (the "SALT OFFSET AGREEMENT").

            K. CSI has entered into a "Settlement Agreement and Optional
Guarantee of Performance" with the RWQCB, which provides, in substance, that, if
KAISER defaults under the SALT OFFSET AGREEMENT and the RWQCB issues a cleanup
and abatement


                                       -4-
<PAGE>

order to CSI, CSI will have the option of assuming KAISER's unsatisfied
obligations under the SALT OFFSET AGREEMENT in full satisfaction of CSI's
obligations, if any, to investigate and remediate the PLUME (the "GUARANTY").

            L. Concurrently with their execution of this GROUNDWATER INDEMNITY
AGREEMENT, the PARTIES are entering into a Settlement Agreement for the purpose
of resolving a number of disputes as between them (the "SETTLEMENT AGREEMENT").

            M. The PARTIES would like to compromise and settle their disputes
and provide for the allocation of responsibility as between them with respect to
any groundwater contamination that later may be found to have originated from
any portion of the FONTANA PROPERTY.

            IT IS THEREFORE AGREED as follows:

            1. Incorporation of defined terms.

            Except as explicitly set forth herein, each of the terms defined in
the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT used in
this GROUNDWATER INDEMNITY AGREEMENT shall have the meaning ascribed to them in
the SETTLEMENT AGREEMENT and the exhibits to the SETTLEMENT AGREEMENT.

            2. Allocation of groundwater liability.

                  a. KAISER shall indemnify and hold CSI harmless against any
liability, expense or damage arising from any claim concerning any of the
following:


                                       -5-
<PAGE>

                        (1) the PLUME,

                        (2) any groundwater contamination that originated from
any portion of the KAISER PROPERTY, and

                        (3) any groundwater contamination caused by the element
chrome originally released by KAISER in, under or on the FONTANA PROPERTY.

                  b. CSI shall indemnify and hold KAISER harmless against any
liability, expense or damage arising from any claim concerning any groundwater
contamination that originated from any portion of the CSI PROPERTY except for
either of the following:

                        (1) the PLUME, or

                        (2) any groundwater contamination caused by the element
chrome originally released by KAISER in, under or on the FONTANA PROPERTY.

                  c. Notwithstanding the foregoing, in the event that either CSI
or KAISER engage in any groundwater investigation, the party engaging in such
investigation shall bear the cost of such investigation unless and until it is
determined that there exists contamination in the groundwater such that the
party conducting such investigation would be entitled to indemnification under
the provisions of paragraphs 2(a) or 2(b), above. From and after that date, the
party required to indemnify the party who conducted the groundwater
investigation shall reimburse the party who conducted the


                                       -6-
<PAGE>

groundwater investigation for the costs of such investigation incurred after
that date.

                  d. The indemnification obligations provided for herein shall
include any expenses incurred by either CSI or KAISER for the purpose of
remediating the matters referred to herein as well as any liability that either
CSI or KAISER may have to any third party by reason of such matters. The
indemnification obligations provided for herein shall exclude any depreciation
in the value of the parties' respective properties as well as any obligation to
reimburse a party for any increased general, administrative overhead costs that
such party may incur by reason of any groundwater contamination that may exist,
such as salary reimbursement for the time spent by employees of the parties in
connection with groundwater investigation or remediation activities.

                  e. As used in this paragraph 2, the term "claim" refers to any
assertion by any third party that either of CSI or KAISER are liable to such
third party as a result of the matters described herein and to any expenses that
either of CSI or KAISER may incur for the purpose of remediating any groundwater
contamination as the result of the assertion of such claim.

            3. Representations and warranties.

                  a. KAISER represents and warrants that:

                        (1) it is unaware of any groundwater contamination that
it reasonably believes would require


                                       -7-
<PAGE>

investigation or remediation emanating from the FONTANA PROPERTY, other than the
PLUME.

                        (2) it intends to perform its obligations under the SALT
OFFSET AGREEMENT by providing a portion of the water to which it is entitled by
reason of the KAISER WATER RIGHTS to the SAWPA desalter project, and

                        (3) it has sought and obtained the advice of counsel
with respect to the provisions of this GROUNDWATER INDEMNITY AGREEMENT.

                  b. CSI represents and warrants that:

                        (1) it is unaware of any groundwater contamination that
it reasonably believes would require investigation or remediation emanating from
the KAISER PROPERTY or the CSI PROPERTY, other than the PLUME,

                        (2) it is unaware of any groundwater test results
indicating the presence of chrome in groundwater in, under or emanating from the
FONTANA PROPERTY, other than as reported by Montgomery Engineers to KAISER, and

                        (3) it has sought and obtained the advice of counsel
with respect to the provisions of this GROUNDWATER INDEMNITY AGREEMENT.

            4. Dismissal of litigation.

                  Within seven days following the effective date of this
GROUNDWATER INDEMNITY AGREEMENT as provided in paragraph 6, below, CSI shall
file a dismissal, with prejudice, of Case No.


                                       -8-
<PAGE>

SCV 04837 in the form attached hereto as Exhibit "A." Each party to the
foregoing case shall bear their own costs and attorneys' fees incurred with
respect to that case.

            5. Future assurances.

                  Subject to its right to assert its rights with respect to the
CSI WATER RIGHTS, CSI agrees:

                  a. to cease, desist, and refrain from any and all present or
future efforts, undertakings, attempts, actions, allocations, claims, petitions,
writs, or any court action, or actions in any forum whatsoever, which directly
or indirectly interferes, obstructs, hinders, prevents, impedes, delays or
interrupts performance of Resolution No. 93-72 or the SALT-OFFSET AGREEMENT,
including the assignment or abandonment of water rights for the benefit of the
SAWPA desalter program and the consummation of the SAWPA agreement;

                  b. not to challenge or oppose the action of the Advisory
Committee of the WATERMASTER, the WATERMASTER or the Court having jurisdiction
over the 1978 JUDGMENT implementing the assignment or abandonment of the WATER
RIGHTS for the benefit of the desalter project; and

                  c. to refrain from all efforts to interfere with CAO No.
87-121 and Order 91-40, any efforts before the legislature, any efforts before
any other courts, forums or public or private entities of any sort, or any and
all efforts to interfere with KAISER's water usage, diversion, sale or


                                       -9-
<PAGE>

consumption in any manner, shape or form for the purpose of permitting KAISER to
comply with its obligations under Order No. 93-72 and the SALT OFFSET AGREEMENT.
Nothing contained herein shall preclude CSI from entering into, and exercising
its rights under, the GUARANTY.

            6. Conditions to effectiveness.

                  This GROUNDWATER INDEMNITY AGREEMENT shall be effective upon
the SETTLEMENT AGREEMENT becoming effective.

            7. Amendment.

                  This GROUNDWATER INDEMNITY AGREEMENT cannot be modified except
by written documents signed by all of the PARTIES.

            8. Choice of laws.

                  This GROUNDWATER INDEMNITY AGREEMENT shall in all respects be
interpreted, enforced, and governed by and under the internal laws of the State
of California.

            9. Construction.

                  This GROUNDWATER INDEMNITY AGREEMENT has been mutually
drafted. The language of this GROUNDWATER INDEMNITY AGREEMENT shall be construed
as a whole according to a fair meaning, and not strictly for or against any of
the PARTIES.

            10. Attorney's fees.

                  In the event that any Agreeing Party breaches this GROUNDWATER
INDEMNITY AGREEMENT, the breaching party or parties shall pay each prevailing
party all costs of any action or


                                      -10-
<PAGE>

preceding for damages and/or enforcement, including reasonable attorneys' fees
and costs.

            11. Integration.

                  This GROUNDWATER INDEMNITY AGREEMENT is part of the SETTLEMENT
AGREEMENT and is subject to its terms and conditions. Except as explicitly set
forth in the SETTLEMENT AGREEMENT, this GROUNDWATER INDEMNITY AGREEMENT
constitutes the final and complete agreement of the parties hereto with respect
to the subject matter hereof and supersedes all prior or contemporaneous
negotiations, promises, covenants, agreements or representations concerning any
matters directly, indirectly or collaterally related to the subject matter of
this GROUNDWATER INDEMNITY AGREEMENT. The parties hereto have expressly and
intentionally included in this GROUNDWATER INDEMNITY AGREEMENT and the
SETTLEMENT AGREEMENT all collateral or additional agreements which may, in any
manner, touch or relate to any of the subject matter of this GROUNDWATER
INDEMNITY AGREEMENT and, therefore, all promises, covenants and agreements,
collateral or otherwise, are included herein and therein. It is the intention of
the parties to this GROUNDWATER INDEMNITY AGREEMENT that it and the SETTLEMENT
AGREEMENT shall constitute an integration of all their agreements, and each
understands that in the event of any subsequent litigation, controversy or
dispute concerning any of its terms, conditions or provisions, no party hereto
shall be permitted to offer or introduce any oral or extrinsic evidence


                                      -11-
<PAGE>

concerning any other collateral or oral agreement between the parties not
included herein or in the SETTLEMENT AGREEMENT.

            12. Waiver.

                  No waiver by any party hereto of any provision hereof shall
be deemed to be a waiver of any other provision hereof or of any subsequent
breach of the same or any other provision hereof.

            13. Successors.

                  This GROUNDWATER INDEMNITY AGREEMENT shall be binding upon and
inure to the benefit of, and be enforceable by, the parties hereto and their
respective administrators, trustees, executors, personal representatives,
successors and permitted assigns.

            14. Counterparts.

                  This GROUNDWATER INDEMNITY AGREEMENT may be executed in
counterparts by the PARTIES and shall become effective and binding at such time
as all of the PARTIES have signed a counterpart of this GROUNDWATER INDEMNITY
AGREEMENT.

            WHEREFORE, the parties hereto have executed this GROUNDWATER
INDEMNITY AGREEMENT as of the date and year set forth above.

Dated: October 5, 1995              KAISER VENTURES INC.


                                    By: /s/ Daniel N. Larson
                                        ------------------------

(Signatures Continued-Next Page)


                                      -12-
<PAGE>

Dated: _______, 1994                 CALIFORNIA STEEL INDUSTRIES, INC.

                                     By: /s/ Marcus Mota e Silva
                                        ------------------------


APPROVED AS TO FORM AND CONTENT:

Dated: Oct. 17, 1995                 BEST, BEST & KRIEGER

                                     By: /s/ Arthur L. Littleworth
                                        --------------------------
                                        Arthur L. Littleworth
                                        Anne T. Thomas
                                        Gene Tanaka
                                        Attorneys for KAISER
                                        Ventures, Inc.


Dated: Oct. 24, 1995                 LAW OFFICES OF JOHN D. MUSICK, JR.
                                     and ASSOCIATES

                                     By: /s/ John D. Musick
                                        ------------------------
                                        John D. Musick, Jr.
                                        Attorneys for California
                                        Steel Industries, Inc.


                                      -13-
<PAGE>

                           AMENDED SERVICES AGREEMENT

                           dated as of January 1, 1995

                                     between

                              KAISER VENTURES INC.

                                       and

                        CALIFORNIA STEEL INDUSTRIES, INC.
<PAGE>

                           AMENDED SERVICES AGREEMENT

            THIS AMENDED SERVICES AGREEMENT ("Agreement") is dated and effective
as of January 1, 1995 between KAISER VENTURES INC., a Delaware corporation
("Kaiser"), and CALIFORNIA STEEL INDUSTRIES, INC., a Delaware corporation
("CSI").

                                  WITNESSETH:

            WHEREAS, in July 1984, CSI purchased from Kaiser Steel Corporation
("KSC"), predecessor in interest to Kaiser, certain land (described as Parcel 2
of Parcel Map 8682 as recorded in Book 89 of Parcel Maps, Pages 37 through 43,
Records of San Bernardino County, California) and subsequently CSI has acquired
adjacent parcels and the improvements thereon (collectively, the "CSI
Property"); and

            WHEREAS, Kaiser is successor to certain property (the "Kaiser
Property") formerly owned by KSC which is adjacent to the CSI Property; and

            WHEREAS, since 1984, Kaiser and CSI (hereinafter at times referred
to collectively as the "Parties" or individually as a "Party") have entered into
a series of services agreements, with the last such agreement dated August 1,
1991 (the "Prior Agreement"), whereby CSI purchased certain utilities and
services from Kaiser; and

            WHEREAS, the Prior Agreement has lapsed and Kaiser and CSI wish to
provide one another certain utilities and services for use with respect to the
Kaiser Property and the CSI Property, as the case may be.

            NOW, THEREFORE, in consideration of the covenants herein set forth,
the Parties agree as follows:

1. Utilities: Services.

            a. Kaiser and CSI shall furnish, in accordance with Exhibit A
hereto, certain utilities and services to one another for use at the Kaiser
Property and the CSI Property.

            b. Kaiser and CSI shall not be liable to one another for failure to
furnish facilities and other services to the Kaiser Property and the CSI
Property in accordance with Exhibit A, hereto if the failure results from (i)
acts of God, (ii) strikes, lockouts or other labor disputes, (iii) the making of
repairs, alterations or improvements, (iv) inability to secure a proper supply
of utilities, labor or services, or (v) any cause beyond
<PAGE>

Kaiser's or CSI's reasonable control (a "Force Majeure Event"). Kaiser or CSI,
as the case may be, shall use reasonable efforts to remedy any Force Majeure
Event, provided that neither Party shall have any obligation to resolve any
obligation or dispute except on terms acceptable to it in its sole discretion

            c. Under no circumstances whatsoever shall either Party be liable to
the other for loss of profits or any other consequential damages caused by
Kaiser's or CSI's failure to furnish utilities and services with respect to the
CSI Property or the Kaiser Property in accordance with Exhibit A hereto. If any
utilities to be furnished by Kaiser or CSI hereunder are rationed by
governmental authority, public utility or other entity, Kaiser or CSI, as the
case may be, may apportion such utilities in any reasonable manner without
liability to the other. Except as otherwise set forth in this Agreement, no
failure to furnish utilities and no apportionment of utilities hereunder shall
affect either Party's obligations under this Agreement.

2. Term.

            Except as provided at paragraph II(C) of Exhibit "B" hereto, the
term of this Agreement shall begin on the date hereof and shall terminate on
July 31, 1996 unless sooner terminated as provided herein.

3. Parents.

            a. All amounts payable by CSI to Kaiser hereunder shall be paid
within the time periods set forth in Exhibit A and without deduction or offset,
at Kaiser's address for notice hereunder or as Kaiser may otherwise direct.

            b. All amounts payable by Kaiser to CSI hereunder shall be paid
within the time periods set forth in Exhibit A and without deduction or offset,
at CSI's address for notice hereunder or as CSI may otherwise direct.

4. Use and Operation.

            a. This Agreement and the obligations hereunder have been
specifically tailored to the unique relationship between, and the respective
capacities of, Kaiser and CSI and, therefore, may not be assigned by CSI or
Kaiser either voluntarily or by operation of law without the other Party's prior
written consent, which will not be unreasonably withheld.

            b. Notwithstanding the foregoing, CSI or Kaiser may provide a
portion of the services received by it hereunder to a


                                        2
<PAGE>

lessee or purchaser of a portion or the CSI Property or the Kaiser Property, as
the case may be, provided that (i) use of the leased or purchased premises for
the purposes specified in the lease will not materially increase either Party's
obligations hereunder, (ii) the lease or purchase agreement expressly
incorporates, for the benefit of Kaiser or CSI, as the case may be, provisions
substantially identical to Sections 1.b, 1.c. 5.c and 6 hereof, and (iii) CSI or
Kaiser may adjust the prices payable under this Agreement to reflect any
increased cost of providing services to the other as a result of such use.
Nothing in this Agreement shall obligate Kaiser or CSI to provide services
directly to any such purchaser or lessee or shall make any such purchaser or
lessee a third party beneficiary of this Agreement.

5. Insurance.

            a. CSI and Kaiser, at their own expense, shall maintain, during the
term of this Agreement, the following policies of insurance in such amounts as
is each Party's ordinary and customary business practice:

            i.   Commercial General Liability
            ii.  Automobile and Property Damage Liability
            iii. Worker's Compensation Insurance

            b. Kaiser and CSI shall, upon demand, provide the other Party with
proof of the coverage required in Subsection 5.a above.

            c. Kaiser and CSI each hereby releases from liability and waive any
rights of recovery against the other and the shareholders, directors, officers,
employees, attorneys, contractors, agents and affiliates of the other, for any
loss arising out of personal injury or property damage on, in or about the CSI
Property or the Kaiser Property, or out of the ownership, use, occupancy or
maintenance of the CSI Property or the Kaiser Property, to the extent the loss
is covered by insurance. Each Party shall give notice to its insurance carriers
that the foregoing mutual release and waiver is contained in this Agreement.

6. Indemnity: Exculpation.

            a. In the provision of services under this Agreement, Kaiser and CSI
shall indemnify, defend, protect and hold one another harmless against and from
(i) any loss or liability for personal injury or property damage arising in, on
or about the CSI Property or the Kaiser Property, or out of the ownership, use,
occupancy or maintenance of the CSI Property or the Kaiser


                                        3
<PAGE>

Property, except to the extent such loss or liability is a direct result of
Kaiser's or CSI's gross negligence; (ii) any violation of this Agreement by
Kaiser or CSI; and (iii) any act or omission of Kaiser or CSI, or their
employees, agents, contractors or invitees.

            b. Kaiser, as a material part of the consideration to CSI, hereby
assumes all risk of personal injury or property damage arising in, on or about
the Kaiser Property, or out of the ownership, use, occupancy or maintenance of
the Kaiser Property, from any cause.

            c. CSI, as a material part of the consideration to Kaiser, hereby
assumes all risk of personal injury or property damage arising in, on or about
the CSI Property, or out of the ownership, use, occupancy or maintenance of the
CSI Property, from any cause.

            d. References to "Kaiser" and "CSI" in Sections 6.a, 6.b and 6.c
shall be deemed to include Kaiser's and CSI's subsidiaries, shareholders,
directors, officers, employees, attorneys, contractors, agents and affiliates,
successors and assigns.

7. Default.

            a. The occurrence of any one or more of the following events shall
constitute a default ("Default") hereunder:

                  i. The failure by Kaiser or CSI to make when due any payment
required of such Party hereunder, if such failure continues for a period of five
(5) business days after written notice thereof from either Party to the
defaulting Party.

                  ii. The failure by Kaiser or CSI to perform or observe any
covenant or condition of this Agreement to be performed or observed by such
Party other than those described in clause 7.a.i above, if such failure
continues for a period of thirty (30) calendar days after written notice thereof
from either Party to the defaulting Party; provided, however, that if the
nature of the obligation is such that a period of more than 30 days is
reasonably required for cure, then there shall be no Default so long as such
Party commences the cure, within the 30-day period and thereafter diligently
pursues it to completion.

                  iii. The filing by or against Kaiser or CSI of a petition to
have such Party adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against such Party, the same is dismissed within sixty (60)
days); or the


                                        4
<PAGE>

appointment of a trustee or receiver to take possession of, or the attachment or
other judicial seizure of, substantially all of such Party's assets located at
the CSI Property or the Kaiser Property, as the case may be, if the right to
take possession or the seizure is not terminated within sixty 60) days.

            b. If a Default by either Party occurs, the non-defaulting Party
may, at any time thereafter, with or without notice (except, for notices
required by law) or demand and without limiting such non-defaulting Party in the
exercise of any other right or remedy:

                  i. Terminate this Agreement; and

                  ii. Pursue any other remedy now or hereafter available to such
non-defaulting Party.

            c. If either Kaiser or CSI, after notice from the other Party, fails
to make a payment or perform any other act required hereunder (whether or not a
Default has occurred), the notifying Party may make such payment or perform such
other act to the extent such Party may reasonably deem desirable. The defaulting
Party shall reimburse the non-defaulting Party on demand for any costs
(including attorneys' fees) the non-defaulting Party incurs in connection
therewith. No such action by the non-defaulting Party shall cure or waive the
other Party's default.

            d. Arbitration.

                  i. Demand. Any dispute between CSI, on the one hand, and
Kaiser, on the other, shall be submitted to arbitration upon the written request
of one of the Parties after service of such request on the other Party. It is
the intent of the Parties that all future disputes between them concerning the
implementation, performance or interpretation of this Agreement or the exhibits
hereto be subject to binding arbitration.

                  ii. Interlocutor Injunctive Relief. Notwithstanding the
foregoing, in the event that either Party hereto desires to obtain interlocutory
injunctive relief against the other Party hereto, such Party may institute
litigation in a court of proper jurisdiction and may, under otherwise
appropriate circumstances, obtain a temporary restraining order, preliminary
injunction or any functionally equivalent relief pending an adjudication in
arbitration on the merits of that Party's claim. However, other than ruling upon
a Party's request for such relief, such court shall not rule upon the merits of
that Party's claims, but shall stay prosecution of such action pending


                                        5
<PAGE>

completion of arbitration proceedings in accordance with the terms of this
Agreement.

                  iii. Arbitrators. Upon the giving and the receipt of a written
request of one of the Parties for arbitration, the Parties may agree to
appoint a single arbitrator to hear and decide the dispute. If they cannot agree
upon a single arbitrator, there shall be three arbitrators, one named in writing
by Kaiser, one named by CSI, each submitting their name within 10 days of the
date of the written request of the Party requesting arbitration, and a third
arbitrator chosen by the two arbitrators appointed by the Parties. Should any
Party to such arbitration refuse or neglect to join in the appointment of the
arbitrator(s) or to furnish the arbitrator(s) with any papers or information
demanded, the arbitrator(s) may proceed ex parte.

                  iv. Location: Procedures. A hearing on the matter to be
arbitrated shall take place before the arbitrator(s) at the location, time and
place in San Bernardino County, California, selected by the arbitrator(s). The
arbitrator(s) shall determine the procedures to be followed in the arbitration,
including, but not limited to: (a) whether the Parties shall be entitled to
conduct discovery and, if so, the nature and amount of such discovery and (b)
the manner in which evidence shall be submitted to the arbitrator(s). The
arbitrator(s) shall select the location, time and place of the arbitration
hearing promptly and shall give each Party written notice of the place and time
of the arbitration hearing at least 10 days before the date selected. At the
hearing, any relevant evidence may be presented by either Party. The Parties may
waive application of the formal rules of evidence applicable to judicial
proceedings, in which case evidence may be admitted or excluded in the sole
discretion of the arbitrator(s).

                  v. Decision. The arbitrator(s) shall hear and determine the
matter and shall execute and acknowledge a decision in writing and cause a copy
of the decision to be delivered to each of the Parties. If there is only one
arbitrator, his or her decision shall be binding and conclusive on the Parties,
and if there are three arbitrators, the decision of any two shall be binding and
conclusive on the Parties.

                  A judgment confirming the decision of the arbitrator(s) may be
given by any court having jurisdiction, or such court may vacate, modify, or
correct the decision, in accordance with the prevailing provisions of the
California Arbitration Act or any successor statute. The costs of the
arbitration shall be borne by the losing Party, or shall be borne in such
proportions as the arbitrator(s) may determine.


                                        6
<PAGE>

                  vi. Service. Any petition to compel arbitration or to appoint
a neutral arbitrator pursuant to this Section 7.d or to confirm, correct or
vacate a decision or award under this Section and responses thereto, and any
notices relating thereto or to the arbitration may be served in the manner
provided for notices in Section 8.a.

8. General Provisions.

            a. Notice. Any demand, consent or notice required or permitted to be
given hereunder shall be in writing, shall be given by personal delivery or by
certified U.S. mail, return receipt requested, addressed to Kaiser or to CSI at
their respective addresses given below, and shall be effective on receipt (or if
rejected, shall be effective and deemed received on the date of rejection).
Either Party may by notice to the other specify a different address in the
United States for notice purposes.

                  (1)   If to CSI:

                        California Steel Industries, Inc.
                        14000 San Bernardino Avenue
                        P.O. Box 5080
                        Fontana, California
                        Attention: Mr. James Declusin

                        with a copy to:

                        Morgan, Lewis & Bockius
                        801 South Grand Avenue
                        22nd Floor
                        Los Angeles, California 90017
                        Attention: Richard W. Esterkin, Esq.

                  (2)   If to Kaiser:

                        Kaiser Ventures Inc.
                        3633 East Inland Empire Blvd.
                        Suite 850
                        Ontario, California 91764
                        Attention: Terry L. Cook, Esq.


                                        7
<PAGE>

                        with a copy to:

                        Lindquist, Vennum & Christensen
                        600 17th Street
                        Suite 2125
                        Denver, Colorado 80202-5401
                        Attention: Craig A. Christensen, Esq.

            b. Waiver. No waiver by Kaiser or CSI of any provision hereof shall
be deemed a waiver of any other provision or of any subsequent breach of the
same provision. The acceptance of any payment hereunder by Kaiser or CSI shall
not be a waiver of any preceding breach by the other of any provision hereof,
other than the failure of CSI or Kaiser to pay the particular payment so
accepted, regardless of Kaiser's or CSI's knowledge, as the case may be, of the
preceding breach at the time of acceptance.

            c. Attorney's Fees. In the event there is any dispute concerning the
terms of this Agreement, or the performance of any Party pursuant to the terms
of this Agreement, and any Party retains counsel for the purpose of enforcing
any of the provisions of this Agreement, or asserting the terms of this
Agreement in defense of any suit or arbitration proceeding filed against said
Party, the prevailing Party in such a dispute shall be entitled to recover, in
addition to any other remedy to which such Party may be entitled, all of its
reasonable costs and reasonable attorney's fees incurred in connection with the
dispute, irrespective of whether or not a lawsuit or arbitration proceeding is
actually commenced or prosecuted to conclusion.

            d. Entry Inspection. Upon reasonable notice, Kaiser's or CSI's duly
authorized agents shall have the right to enter the CSI Property or the Kaiser
Property, as the case may be, and the facilities thereon for the purpose of
inspecting the same in connection with the utilities and services furnished in
accordance with this Agreement.

            e. Choice of Law. This Agreement shall be governed by the laws of
the State of California.

9. Authority.

            Kaiser and CSI represent and warrant that each one has the legal
ability to enter into and fully perform the provisions of this Agreement.


                                        8
<PAGE>

            IN WITNESS THEREOF, this Services Agreement has been executed as of
the date first set forth above.


                                          KAISER VENTURES INC.

                                          By: /s/ Daniel N. Larson
                                              ------------------------
                                              President

                                          By: /s/ Terry L. Cook
                                              ------------------------
                                              Secretary


                                          CALIFORNIA STEEL  INDUSTRIES, INC.

                                          By: /s/ Marcus Mota e Silva
                                              ------------------------
                                              President

                                          By: /s/ Matthew MacFadden
                                              ------------------------
                                              Secretary

Approved as to form:

                                                MORGAN, LEWIS & BOCKIUS

                                                By: /s/ Richard W. Esterkin
                                                    --------------------------
                                                    Richard W. Esterkin
                                                801 South Grand Avenue
                                                Suite 2200
                                                Los Angeles, California 90017
                                                Telephone: (213) 612-2500

                                                ATTORNEYS FOR CALIFORNIA STEEL
                                                INDUSTRIES, INC.

(Signatures continued to next page)


                                        9
<PAGE>

                                          LINDQUIST, VENNUM & CHRISTENSEN
                                          P.L.L.P.

                                          By: /s/ Craig Christensen
                                              ------------------------
                                                Craig Christensen
                                          600 Seventeenth Street
                                          Suite 2125 South
                                          Denver, Colorado  80202-5401
                                          Telephone: (303) 573 5900
                                          ATTORNEYS FOR KAISER-VENTURES INC.


                                       10
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

                             UTILITIES AND SERVICES

I. General Provisions.

      A. General.

            l. Except as expressly provided herein, CSI shall furnish all
utilities and services necessary or appropriate for CSI's operations at the CSI
Property and Kaiser shall furnish all utilities and services necessary or
appropriate for Kaiser's operations at the Kaiser Property. Except as expressly
provided herein, neither Party has any obligation to furnish or make available
to the other any services or utilities.

            2. Each Party shall maintain all utility and service facilities
within the CSI Property or the Kaiser Property, as the case may be, which are
used to service the CSI Property or the Kaiser Property, or premises of third
parties to which Kaiser or CSI furnishes utilities and services as provided in
this Agreement.

            3. Each Party's responsibility for failure to deliver the quantities
or quality of the utilities and services specified by this Agreement will be
limited to the prompt restoration of such utility or service to its specified
quantity and/or quality as soon as is reasonably possible after notice from the
other Party and after the cause of such failure is removed. Except as may be due
to Kaiser's or CSI's willful intent or gross negligence, neither Party will be
responsible for any damage to the other caused by any such utilities so
delivered. In any event, the Parties' liability is subject to the limitations
set forth in Sections 1.b and 6 of this Agreement.

            4. Subject to the terms and conditions set forth in this Agreement,
Kaiser shall provide to CSI the following utilities and services:

                  a.    Treatment of sewage water for recycling into CSI's
                        industrial makeup water system as set forth in Section
                        II below.

                  b.    Required maintenance of appropriate discharge permits as
                        set forth in Section III below.
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement


            5. Subject to the terms and conditions set forth in this Agreement,
CSI shall provide to Kaiser the following utilities and services:

                  a.    Electrical energy as set forth in Section IV below.

                  b.    Required maintenance of appropriate discharge permits as
                        set forth in Section III below.

Charges for such utilities and services shall be as specified herein.

      B. General Operating Conditions.

            1. Kaiser's or CSI's obligation to provide utilities and services
hereunder is expressly conditioned on each Party's ability to maintain necessary
permits or contractual entitlements for its operations in connection therewith,
and upon Kaiser or CSI obtaining authority from the agencies or other entities
involved to serve the other Party using Kaiser's or CSI's permits and
entitlements, as the case may be, which each Party shall use reasonable efforts
to maintain or obtain.

            2. Both Kaiser and CSI shall comply with all applicable statutes,
regulations, rules and ordinances regarding air quality, water quality, and
hazardous or toxic waste, substances, or materials, and any other applicable
statutes, regulations, rules and ordinances regarding the environment
(collectively, "Environmental Laws"), as well as with the terms of all permits,
governmental authorizations and the like applying to the Parties' usage of the
utilities and services supplied hereunder. Each Party (the "Indemnifying Party")
hereby agrees to indemnify, defend, protect and hold harmless the other Party
from all liabilities, damages, fines, costs of remedial action, civil penalties,
and the like, on account of or resulting from any liability arising from any
violation by the Indemnifying Party of, any Environmental Law. However, each
Party is responsible for reviewing the actual provisions of all permits
applicable to such services and utilities, including without limitation permits
issued pursuant to Environmental Laws, and for operating in a manner consistent
with such provisions.

            3. CSI and Kaiser shall each comply with requirements of the federal
Clean Water Act for notification of the National Response Center (and with the
notice requirements of other applicable federal, state and local statutes,
rules, regulations


                                        2
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

and ordinances) of any reportable release or a hazardous substance, material, or
pollutant, and each party agrees to provide contemporaneous notice of any such
reportable release to the other where such release occurs with respect to or in
connection with any services or utilities provided hereunder.

            4. In the event either Party is in default of any of its operational
obligations under this Exhibit A, either Party may notify the defaulting Party's
on-site operating management. If the situation is not corrected within
seventy-two (72) hours following such notification, Kaiser or CSI, as the case
may be, following notice to the other, in its sole discretion, may take any
actions which it deems necessary to insure compliance with applicable permit,
statutory, regulatory or contractual requirements, including, without
limitation, expending such sums as are reasonably necessary to achieve such
compliance. In the event that either Party would suffer substantial damage by
reason of such a default prior to the expiration of the foregoing seventy-two
(72) hour notice period, either Party shall be entitled to take whatever
immediate actions it deems necessary in order to protect its respective systems
and property and/or to insure such compliance. All costs expended by a Party for
the purpose of curing the other Party's default as provided herein shall be for
the other Party's account, provided that the Party so charged is in actual
violation. Each Party hereto hereby grants a right to enter upon their property
to the other Party hereto for the purpose of taking actions in compliance with
the provisions of this paragraph.

            5. Kaiser and CSI shall adhere to such reasonable procedures as each
may specify for notifying the other's designated personnel of unusual
occurrences or potentially dangerous conditions arising in the conduct of
day-to-day operations which may affect either Party or the provision of services
and utilities under this Agreement.

            6. The Parties shall at all times cooperate with each other to the
end that the operations of CSI and Kaiser hereunder generally can co-function on
a reasonable basis. To that end, the Parties agree that they will exchange the
names and the phone numbers of personnel to be contacted on a 24-hour-per-day
basis. It is also recognized that it is essential that any upset in any system
subject to this Agreement be communicated to the other Party at the earliest
possible time. The Parties will communicate as far ahead of time as possible
concerning planned outages or suspected trouble in the systems or property of
each Party. CSI and Kaiser shall comply with the reasonable


                                        3
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

directions of each other as to the nature and scope of their respective
operations which affect, directly or indirectly, the utilities or services being
provided under this Exhibit A.

            7. Kaiser and CSI shall have the right to furnish the utilities and
services to be furnished to one another hereunder to third parties on properties
in the vicinity of the CSI Property or the Kaiser Property, and to use all
easements reserved in the CSI Property or the Kaiser Property for this purpose,
if in accordance with applicable permits. If, during the term of this Agreement,
by reason of any cause whatsoever, the supply of such utilities and services
shall not be sufficient to supply CSI or Kaiser, as the case may be, and such
other parties, the Party supplying such utility, upon reasonable written notice
to the other, shall have the right at such times to distribute such services pro
rata, and for the purpose of doing so may establish and enforce such reasonable
rules and regulations as may be necessary and expedient.

            8. Subject to Section 1.c of this Agreement, CSI and Kaiser shall be
responsible for any damage to each other's facilities or property caused by the
other Party, and for all costs and expenses incurred by the Party whose
facilities have been damaged in repairing all such damage, as well as for
down-time of such facilities and other expenses incurred by the damaged Party,
due to CSI's or Kaiser's failure to comply with its obligations as set forth in
this Exhibit A.

            9. Receipt of any invoice pursuant to this Agreement shall be deemed
to have occurred within five days of mailing of such invoice. All such costs,
expenses and charges shall bear interest from the date paid by Kaiser or CSI to
third parties, or otherwise from the due date as provided herein, at a per annum
rate equal to the lesser of the prime rate established by the Bank of America as
it varies from time to time, plus three percent (3%), until paid, or the maximum
rate permitted by law.

II. SANITARY SEWERS AND SEWAGE TREATMENT PLANT

      A. Operation and Maintenance. Kaiser agrees to treat sanitary sewage from
the CSI Property at Kaiser's treatment facility (the "Sewage Treatment Plant")
and to provide treated effluent from the Sewage Treatment Plant to CSI for use
in the CSI industrial water system. Kaiser shall operate, maintain and repair
the Sewage Treatment Plant, except that CSI personnel shall monitor operation of
the Sewage Treatment Plant during swing and graveyard shifts at CSI's expense.


                                        4
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

            1. CSI shall be responsible for maintenance and repair of the
sanitary sewers within the CSI Property and must obtain Kaiser's approval,
which will not be unreasonably withheld, for additional connections or
discharges to such sanitary sewers.

            2. Discharges to the sanitary sewers by CSI, Kaiser and any tenant
of CSI or Kaiser discharging wastes to the sanitary sewer system will be limited
to toilets, personnel clean-up areas and showers and shall not include
industrial wastes or any cooling water discharges.

      B. Service Costs. CSI shall pay to Kaiser the following sums for treatment
of CSI's sanitary sewage and provision of industrial makeup water:

            1. Effective February 1, 1995, and continuing through and including
July 1, 1995, $15,000.00 per month, payable in advance on the first of each
month,

            2. Effective August 1, 1995, and continuing through and including
July 1, 1996, $17,000.00 per month, payable in advance on the first of each
month,

            3. Effective August 1, 1996 and continuing through the remainder of
the term of this Agreement, the sum of $17,000.00 plus the "CPI Increase," as
that term is defined at paragraph II(B)(5) below, per month.

            4. Except as provided in paragraphs II(B)(6) and II(B)(7) hereof,
80% of all labor and reasonable maintenance expenses incurred by Kaiser in the
operation of its sewage treatment plant.

All such charges will be payable within fifteen (15) days of billing by Kaiser.
"Reasonable maintenance expenses" payable by CSI shall include only the
following: (a) electrical expenses, (b) expenses incurred to purchase chemicals
used in the treatment of sewage and (c) expenses incurred to repair or replace
existing equipment at the sewage treatment plant in a cumulative amount not to
exceed the sum of $10,000.00 per year for the period August 1, 1994 through July
31, 1996 and the sum of $10,000.00 plus the "CPI Increase," as that term is
defined at paragraph II(B)(5) below, per year. Under no circumstances shall
"reasonable maintenance expenses" include any expenses designed solely to
upgrade the operations or to increase the current capacity of the Sewage
Treatment Plant.


                                        5
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

            5. As used in paragraph II(B)(3) hereof, the term "CPI Increase"
means the product obtained by multiplying the sum of $17,000.00 by a fraction,
the numerator of which is the Index, as defined below, published nearest but
prior to the Adjustment Date and the denominator of which is the Index published
nearest but prior to August 1, 1995. As used in paragraph II(B)(4) thereof, the
term "CPI Increase" means the product obtained by multiplying the sum of
$10,000.00 by a fraction, the numerator of which is the Index, as defined below,
published nearest but prior to the Adjustment Date and the denominator of which
is the Index published nearest but prior to August 1, 1995. As used herein the
term "Index" refers to the Consumer Price Index for Urban Wage Earners and
Clerical Workers, U.S. City Average, All Items, 1967 equals 100], published by
the Bureau of Labor Statistics of the United States Department of Labor. As used
herein the term "Adjustment Date" refers to August 1, 1996 and to August 1 of
each year thereafter during the term of this agreement.

            6. In the event that Kaiser's sewage treatment plant requires
repairs costing in excess of $500.00, Kaiser shall provide such notice to CSI of
the need for such repairs as is reasonable under the circumstances. Thereafter,
CSI shall, within such time as is reasonable under the circumstances, provide
Kaiser with a notice either stating that CSI desires to complete such repairs
itself, in which event CSI shall thereafter diligently prosecute such repairs to
their completion, or that CSI desires Kaiser to complete such repairs, in which
event, subject to the limitation contained in paragraph II(B)(3) hereof, Kaiser
shall diligently prosecute such repairs to their completion. In the event that
CSI completes such repairs, Kaiser shall pay to CSI, within fifteen (15) days of
billing by CSI, 20% of the cost of such repairs.

            7. Kaiser shall not have the right to assess CSI for expenses which
are designed to enhance the sewage treatment plant or leave Kaiser with an asset
in significantly better condition or of a significantly greater value than it
currently has. In the event that Kaiser is required to expend monies to maintain
the sewage treatment plant in excess of those provided for herein and Kaiser
elects not to expend its funds for that purpose, then Kaiser shall provide CSI
with a notice in writing specifying the maintenance that it desires to perform,
the cost of such maintenance and requesting that CSI pay to Kaiser 80% of the
cost of such maintenance. In the event that CSI fails to pay to Kaiser such cost
within 60 days of such notice, then Kaiser may, but is not required to,
terminate this agreement insofar as it


                                        6
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

provides for Kaiser's treatment of CSI's sewage and cease treating CSI's sewage.

      C. Term. Kaiser's obligation to provide sewage treatment and industrial
wastewater pursuant to the terms of this agreement shall terminate on the later
of: (1) August 1, 1996 or (2) following 18 months written notice by either CSI
or Kaiser to the other of that party's election to terminate Kaiser's obligation
to provide sewage treatment and industrial wastewater pursuant to the terms of
this agreement.

      D. Discharge: Effluent Quality. CSI shall be responsible for any of its
improper discharges to the sanitary sewers on the CSI Property and the Sewage
Treatment Plant, and for all costs, damages and down-time which result
therefrom. CSI shall bear the risk that the Sewage Treatment Plant effluent
delivered to the CSI industrial water system does not meet the quality
requirements set forth in Subsection II.E below; provided, however, that CSI
shall not be required to accept such effluent where the failure to meet the
quality requirements in Subsection II.E is due to the negligent operation of the
Sewage Treatment Plant by Kaiser or Kaiser's failure to adequately maintain and
repair such facility ("non-conforming effluent").

            In the event that Kaiser delivers non-conforming effluent to CSI for
use in the industrial water system, without limiting any of its remedies, CSI
shall be entitled to return such effluent to the Sewage Treatment Plant and
Kaiser shall, at its sole expense (including direct and indirect labor costs and
reasonable maintenance expenses), retreat the non-conforming effluent and
redeliver such effluent to CSI for use in the industrial water system.

      E. Quality of Sewage Treatment Effluent. Based on historical data, it is
expected that the increment in certain chemical constituents in excess of those
found in the domestic water supply will fall within the following limits:


                                        7
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

Constituent                         Unit                               Range
-----------                         ----                               -----
Filtrable Residue                   mg/L                               75-130
(TDS)
   (dried at 180(degrees))

Calcium (Ca)                        mg/L                               0-120

Magnesium (Mg)                      mg/L                               0-2

Sulfate (SO4)                       mg/L                               20-40

Chloride (Cl)                       mg/L                               20-40

            In addition, it is expected that the following constituents will be
present in the Sewage Treatment Plant effluent in the indicated ranges:

Constituent                         Unit                               Range
-----------                         ----                               -----
Ammonia (N)                         mg/L                               0.2-4.0

BOD5                                mg/L                               0.7-10

COD                                 mg/L                               15-40

Suspended Solids                    mg/L                               2-15

pH                                                                     6.3-7.5

III. STORMWATER DRAINAGE SYSTEM

      A. Kaiser shall be responsible for maintaining the portions of the
stormwater drainage system (the "Stormwater System") located on the Kaiser
Property and preventing Unauthorized Discharges, as defined in Subsection III.C.
below, into the Stormwater System from the Kaiser Property. CSI shall be
responsible for maintaining the portions of the Stormwater System located on the
CSI Property and for preventing any Unauthorized Discharges into the Stormwater
System from the CSI Property. CSI or Kaiser shall also be responsible for the
cleanup of any release of hazardous waste or material that enters the Stormwater
System from the CSI Property or the Kaiser Property, respectively.


                                        8
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

      B. Kaiser shall not develop its property to the north of the CSI Property
such that the rainwater runoff from that property into the Stormwater System on
the CSI Property is either substantially increased or concentrated so as to
exceed the capacity of the Stormwater System on the CSI Property.

      C. Kaiser currently holds, but is in the process of terminating, a NPDES
permit governing the quality of rainwater runoff leaving the Fontana Property
and other property and discharging to flood control channels through Mulberry
Ditch (the "Mulberry Ditch Permit"). Because approximately half of the drainage
area controlled by the Mulberry Ditch Permit is under CSI's control, while the
other half is under Kaiser's control, CSI shall reimburse Kaiser for fifty
percent (50%) of the reasonable costs of maintaining the Mulberry Ditch Permit,
including expenditures incurred for the purpose of complying with permit
conditions, including without limitation, monitoring costs (collectively,
"Compliance Costs"). In the event that CSI obtains a NPDES permit governing
rainwater runoff from the CSI Property discharging to the flood control channels
through Mulberry Ditch and Kaiser relinquishes the Mulberry Ditch Permit and
obtains a new individual NPDES permit, each party shall bear its own costs of
compliance.

      D. CSI and Kaiser shall prevent the release or discharge of process
industrial water or other wastewater into the Stormwater System. Neither Kaiser
nor CSI shall discharge into the portions of the Stormwater System located on
the CSI Property, or portions of the Stormwater System located outside the CSI
Property, any effluent which exceeds the discharge limitations established by
the Mulberry Ditch Permit, as it now exists or as it may be modified in the
future, or any such limitations established by any NPDES permit that may be
obtained by CSI as described in Subsection III.C, above ("Unauthorized
Discharges").

IV. ELECTRICAL UTILITIES

      A. CSI shall remain a customer of Southern California Edison ("SCE") for
the three existing lines connecting to the existing four 66 KV substations on
the CSI Property. CSI will use billing meters owned by SCE as the basis of
determining the charges to Kaiser for Kaiser's electrical energy usage. Such
determination shall be made from the amounts of electrical energy usage showing
on the SCE meters and the amounts of electrical energy used at the CSI Property
as determined from CSI meters. The charges for Kaiser's energy usage shall then
be billed to


                                        9
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

Kaiser by CSI for Kaiser's portion of charges for the electrical energy used and
miscellaneous charges.

            l. In order that both Parties may avail themselves of the most
economical rate provided by SCE (presently the I6 tariff), CSI shall maintain
certain equipment supplied by SCE located in the Plate Mill Motor room. Such
equipment wi11 be used by SCE to notify CSI that the total electrical load to
both the Kaiser Property and the CSI Property must be reduced to five (5)
megawatts (or to such other lower amount mutually agreed upon by the Parties)
within the 30-minute period following such notification. Such reduced load shall
be measured over a fifteen (15) minute interval. CSI shall be responsible for
monitoring such equipment for an interruption notification from SCE and then to
cause the electrical demand (the "load") to be reduced to meet the
reduced-demand requirement. CSI and Kaiser shall jointly develop a procedure by
which CSI will notify Kaiser of any interruption as described herein and Kaiser
shall assist in reducing the load.

                  a. CSI agrees to pay and hold Kaiser free and harmless from
any and all penalties assessed by SCE for any failure to meet the reduced level
of five (5) megawatts required by the I6 tariff (the "firm service level").

                  b. Kaiser agrees to release CSI from any claim arising from or
in connection with the interruption of power as required or caused by SCE.
Kaiser further agrees to notify any lessee on the Kaiser Property that uses
electricity supplied via CSI equipment of the terms of this Agreement with
respect to electrical utilities, and to obtain from any such lessee the release
of CSI from any claim arising from or in connection with the interruption of
power as required or caused by SCE. The provisions of this subparagraph IV.A.l.b
shall apply to any firm service level negotiated by CSI pursuant to subparagraph
IV.A.3. below.

            2. CSI reserves the right, upon six (6) months' notice to Kaiser, to
discontinue furnishing electrical energy to Kaiser as set forth in this
Agreement. In the event that CSI elects to discontinue furnishing such
electrical energy to Kaiser, then Kaiser shall be responsible for arranging to
become a SCE customer or to obtain electrical energy from such other source of
electricity as it deems appropriate.

            3. CSI shall have the right to negotiate with SCE for the reduction
of the firm service level to and including zero


                                       10
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

megawatts. In the event of any such reduction, CSI shall pay and hold Kaiser
free and harmless from any and all penalties assessed by SCE as a result of any
failure to meet the reduced firm service level.

            4. Payments by Kaiser to CSI for the cost of electrical energy
provided hereunder shall be payable within fifteen (15) days of billing by CSI.

      B. CSI shall be responsible for maintenance and calibration of all
internal meters within the CSI Property that are necessary for proper billing of
Kaiser. Kaiser shall be entitled to co-read the meters necessary for such
billing. Kaiser shall cooperate with CSI to resolve problems in billing;
however, if Kaiser contends that SCE's billing is incorrect, CSI shall only be
required to assist Kaiser in making SCE aware of the contended discrepancy. In
any event, SCE's final billing for the period in dispute will be used by CSI as
the final basis of charges to Kaiser by CSI for such period.

V. MISCELLANEOUS PROVISIONS

      A. Discharge Conditions. CSI and Kaiser shall keep wastewater discharges
from the Stormwater System, the sanitary sewers, and the Sewage Treatment Plant.

      B. Mutual Use of Fire Hydrants. In the event of a fire on the CSI Property
or on the Kaiser Property in the vicinity of the CSI Property, the nearest fire
hydrants on either the CSI Property or the Kaiser Property may be used
regardless of the location of the fire. However, if CSI uses a hydrant as a
source of water for non-fire use, the hydrant must be from a line within the CSI
Property, and if Kaiser uses a hydrant as a source of water for non-fire use,
the hydrant must be from a line on the Kaiser Property. There will be no charge
or cost to the other for any water used in fighting any fire.

      C. Relocation. In the event that Kaiser intends to develop or sell any
portion of the Kaiser Property on which is located the CSI equipment described
in Subsections V.C.1 and V.C.2 below, CSI shall, at its expense, relocate the
same to the CSI Property, a public right of way or (with Kaiser's consent, which
shall not be unreasonably withheld) another route on the Kaiser Property. CSI
shall effect such relocation within six (6) months after receiving written
notice of Kaiser's intent to develop or sell such portion of the Kaiser
Property.


                                       11
<PAGE>

                                                                    Exhibit A to
                                                      Amended Services Agreement

            1. The CSI domestic water line serving the Oregon Steel Mill.

            2. The electrical power line entering the Kaiser Property from the
CSI Property before returning to the CSI Property to service CSI cooling towers.

      D. Reasonable Rules of Operation. Kaiser and CSI each may establish such
reasonable rules pertaining to the other Party's operations as may be required
to properly operate the systems furnishing utilities and service hereunder. CSI
and Kaiser shall cooperate with each other in developing and complying with all
such rules so as to ensure the safest and most trouble-free operation of such
systems for the benefit of both Parties.


                                       12
<PAGE>

                                      [MAP]

R RESOURCES, INC.                                 CM ENGINEERING ASSOCIATE, INC.