<PAGE>
 
                              SECURITY AGREEMENT
                              -----------------

THIS SECURITY AGREEMENT ("Agreement") is made this 3rd day of October, 1997, by
                          ---------
and between Sheffield Steel Corporation, a Delaware corporation ("Debtor"),
                                                                  ------
whose business address is 220 North Jefferson Street, Sand Springs, Oklahoma
74063 and Heller Financial, Inc., a Delaware corporation ("Secured Party"),
                                                           -------------
whose address is Commercial Equipment Finance Division, 500 West Monroe Street,
Chicago, Illinois 60661.

                                   WITNESSETH:

1. Secure Payment. To secure payment of indebtedness in the principal sum of up
   --------------
to Four Million and 00/ 100 Dollars ($4,000,000.00), as evidenced by a note or
notes executed and delivered by Debtor to Secured Party (the "Notes") and any
                                                              -----
obligations arising under this Agreement, and also to secure any other
indebtedness or liability of Debtor to Secured Party, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising
and no matter how acquired by Secured Party, including all future advances or
loans which may be made at the option of Secured Party (all the foregoing
hereinafter called the "Indebtedness"), Debtor hereby grants and conveys to
                        ------------
Secured Party a first priority continuing lien and security interest in the
personal property described on any schedule(s) now or hereafter attached to or
made a part hereof by reference hereto (the "Schedules"), all products and
                                             ---------
proceeds (including insurance proceeds) thereof, if any, and all substitutions,
replacements, attachments, additions, and accessions thereto (all of the
foregoing hereinafter called the "Collateral.") The Schedules may be
                                  ----------
supplemented from time to time to evidence the Collateral subject to this
Agreement.

Debtor shall request in writing each advance of principal under the Notes, which
request shall be satisfactory to Secured Party in form and substance. Each
advance shall be on and subject to the terms and conditions set forth in this
Agreement and shall otherwise be at Secured Party's sole discretion. Each Note
shall be in an amount not less than $100,000.00. No principal advance under any
Notes shall be made after July 31, 1998, and each advance shall reduce, dollar
for dollar, the amount that may be advanced under the Notes in the aggregate.
Amounts advanced and repaid may not be reborrowed.

2. Representations, Warranties and Covenants. Except as otherwise provided, each
   -----------------------------------------
representation and warranty made by Debtor in this Agreement shall be true,
correct and complete as of the date of this Agreement and as of the date of each
advance of funds under a Note. Debtor hereby represents, warrants and covenants
as follows:

   (a) Perform Obligations. Debtor shall pay as and when due all Indebtedness
       -------------------
secured by this Agreement and perform all of the obligations contained in this
Agreement according to its terms. Debtor shall use the loan proceeds for
business uses and not for personal, family, household, or agricultural uses.

   (b) Perfection. This Agreement and all necessary Uniform Commercial Code
       ----------
filings together create a valid, perfected and first priority continuing lien
and security interest in the 

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Collateral, securing the payment and performance of the Indebtedness, and all
filings and other actions necessary or desirable to create, perfect and protect
such security interest have been or will be duly taken.

   (c) Collateral Free and Clear. Except as may be set forth on a Schedule,
       -------------------------
the Collateral is and shall remain free and clear of all liens, claims, charges,
encumbrances and other security interests of any kind (other than the security
interest granted hereby). Debtor shall defend the title to the Collateral
against all persons and against all claims and demands whatsoever.

   (d) Possession and Operating Order of the Collateral. Debtor shall retain
       ------------------------------------------------
possession of the Collateral at all times and shall not sell, exchange, assign,
loan, deliver, lease, mortgage, or otherwise dispose of the Collateral or any
part thereof without the prior written consent of Secured Party. Debtor shall at
all times keep the Collateral at the location[s] specified on the Schedules
(except for removals thereof in the usual course of business for temporary
periods). At Debtor's sole cost and expense, Debtor shall keep the Collateral in
good repair and condition and shall not misuse, abuse, waste or otherwise allow
it to deteriorate, except for normal wear and tear. Secured Party may verify any
Collateral in any reasonable manner which Secured Party may consider
appropriate, and Debtor shall furnish all reasonable assistance and information
and perform any acts which Secured Party may reasonably request in connection
therewith.

   (e) Insurance. Debtor shall insure the Collateral against loss by fire
       ---------
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed One Hundred
Thousand and 00/100 Dollars ($100,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an amount
of at least Five Million and 00/100 Dollars ($5,000,000.00) per occurrence or
such greater amount as may comply with general industry standards, or in such
other amounts as Secured Party may otherwise require. All policies of insurance
required hereunder shall be in such form, amounts, and with such companies as
Secured Party may approve; shall provide for at least thirty (30) days prior
written notice to Secured Party prior to any modification or cancellation
thereof; shall name Secured Party as loss payee or additional insured, as
applicable, and shall be payable to Debtor and Secured Party as their interests
may appear; shall waive any claim for premium against Secured Party; and shall
provide that no breach of warranty or representation or act or omission of
Debtor shall terminate, limit or affect the insurers' liability to Secured
Party. Certificates of insurance or policies evidencing the insurance required
hereunder along with satisfactory proof of the payment of the premiums therefor
shall be delivered to Secured Party. Debtor shall give immediate written notice
to Secured Party and to insurers of loss or damage to the Collateral and shall
promptly file proofs of loss with insurers. Debtor hereby irrevocably appoints
Secured Party as Debtor's attorney-in-fact, coupled with an interest, for the
purpose of obtaining, adjusting and canceling any such insurance and endorsing
settlement drafts. Debtor hereby assigns to Secured Party, as additional
security for the Indebtedness, all sums which may become payable under such
insurance.

       In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need 

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<PAGE>
 
not, protect Debtor's interests. The coverage purchased by Secured Party may not
pay any claim made by Debtor or any claim that is made against Debtor in
connection with the Collateral. Debtor may later cancel any insurance purchased
by Secured Party, but only after providing Secured Party with evidence that
Debtor has obtained insurance as required by this Agreement. If Secured Party
purchases insurance for the Collateral, Debtor will be responsible for the costs
of that insurance, including interest and other charges imposed by Secured Party
in connection with the placement of the insurance, until the effective date of
the cancellation or expiration of the insurance. The costs of the insurance may
be added to the Indebtedness. The costs of the insurance may be more than the
cost of insurance Debtor is able to obtain on its own.

   (f) If Collateral Attaches to Real Estate. If the Collateral or any part
       -------------------------------------
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. Debtor shall, on demand of Secured Party, furnish
Secured Party with a disclaimer or waiver of any interest in any such Collateral
satisfactory to Secured Party and signed by all persons having an interest in
the real estate. Notwithstanding the foregoing, the Collateral shall remain
personal property and shall not be affixed to realty without the prior written
consent of Secured Party.

   (g) Financial Statements. Debtor shall furnish to Secured Party, as soon as
       --------------------
practicable, and in any event within sixty (60) days after the end of each
fiscal quarter of Debtor and each guarantor of all or any part of the
Indebtedness (each, a "Guarantor"), respectively, Debtor's and each Guarantor's
                       ---------
unaudited financial statements including in each instance, balance sheets,
income statements, and statements of cash flow, on a consolidated and
consolidating basis, as appropriate, and separate profit and loss statements as
of and for the quarterly period then ended and for the respective person's
fiscal year to date, prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). Debtor shall also furnish to Secured
                                   ----
Party, as soon as practicable, and in any event within ninety (90) days after
the end of each fiscal year of Debtor and each Guarantor, respectively, Debtor's
and each Guarantor's annual audited financial statements, including balance
sheets, income statements and statements of cash flow for the fiscal year then
ended, on a consolidated and consolidating basis, as appropriate, which have
been prepared by its independent accountants in accordance with GAAP. Such
audited financial statements shall be accompanied by the independent
accountant's opinion, which opinion shall be in form generally recognized as
"unqualified".

   (h) Authorization. Debtor is now, and will at all times remain, duly
       -------------
licensed, qualified to do business and in good standing in every jurisdiction
where failure to be so licensed or qualified and in good standing would have a
material adverse effect on its business, properties or assets. The execution and
delivery of this Agreement, the Notes the commitment executed by the parties, if
any, (to the extent not inconsistent herewith) and any other documents and
instruments executed contemporaneously with or delivered pursuant to this
Agreement and the Notes, all as amended from time to time (collectively the
"Loan Documents"), have been duly authorized by Debtor and constitute the legal,
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valid, and binding obligations of Debtor, enforceable against Debtor in
accordance with their respective terms. Debtor shall preserve and maintain its
existence and shall not wind up its affairs or otherwise dissolve. Debtor shall
not, without thirty (30) days prior written notice to Secured Party, (1) change
its name or so change its structure such that any financing statement or other
record notice becomes 

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<PAGE>
 
misleading or (2) change its principal place of business or chief executive or
accounting offices from the address stated herein.

   (i) Litigation. Except as disclosed by Debtor on a Schedule, there are no
       ----------
judgments outstanding against or affecting Debtor, its officers, directors or
affiliates or any part of the Collateral and there are no actions, charges,
claims, demands, suits, proceedings, or investigations pending or threatened
against Debtor or otherwise affecting any part of the Collateral ("Litigation").
                                                                   ----------
Debtor shall furnish to Secured Party all information regarding any material
Litigation as Secured Party shall reasonably request and in any event shall
promptly notify Secured Party in writing of any Litigation against it which if
decided against it would materially and adversely affect the finances or
operations of Debtor. For the purposes of this subsection 2(i), Five Hundred
Thousand and 00/100 Dollars ($500,000.00) shall be deemed material.

   (j) No Conflicts. Debtor is not in violation of any material term or
       ------------
provision of its by-laws, or of any material agreement or instrument, decree,
order, or any statute, rule, or governmental regulation applicable to it. The
execution, delivery, and performance of the Loan Documents do not and will not
violate, constitute a default under, or otherwise conflict with any such term or
provision or result in the creation of any security interest, lien, charge, or
encumbrance upon any of the properties or assets of Debtor, except for the
security interest created hereunder.

   (k) Compliance with Laws. Debtor shall use and maintain the Collateral in
       --------------------
accordance with all applicable laws, regulations, ordinances, and codes and
shall otherwise comply in all material respects with all applicable laws, rules,
and regulations and duly observe all valid requirements of all governmental
authorities, and all statutes, rules and regulations relating to its business as
now in effect and which may be imposed in the future.

   (l) Taxes. Debtor has timely filed all tax returns (federal, state, local,
       -----
and foreign) required to be filed by it and has paid or established reserves for
all taxes, assessments, fees, and other governmental charges in respect of its
properties, assets, income and franchises. Debtor shall promptly file, pay and
discharge all taxes, assessments, license fees (related to the Collateral) and
other governmental charges prior to the date on which penalties are attached
thereto, establish adequate reserves for the payments of such taxes,
assessments, and other governmental charges and make all required withholding
and other tax deposits, and, upon request, provide Secured Party with receipts
or other proof that any or all of such taxes, assessments, license fees or
governmental charges have been paid in a timely fashion; provided, however, that
nothing contained herein shall require the payment of any tax, assessment, or
other governmental charge so long as its validity is being diligently contested
in good faith and by appropriate proceedings diligently conducted and Debtor has
established cash reserves therefor in accordance with GAAP. Should any stamp,
excise, or other tax, including mortgage, conveyance, deed, intangible, or
recording taxes become payable in connection with or respect of any of the Loan
Documents, Debtor shall pay the same (including interest and penalties, if any)
and shall hold Secured Party harmless with respect thereto.

   (m) Environmental Laws/Compliance. Except as disclosed by Debtor on a
       -----------------------------
Schedule, Debtor (1) has not received any claim, summons, complaint, order, or
other notice that it is 

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<PAGE>
 
not in compliance with, or that any public authority is investigating its
compliance with, any federal, state, and local laws, rules, regulations, orders,
and decrees relating to pollution, hazardous substances, waste, disposal or the
protection of human health or safety, plant life or animal life, natural
resources or the environment, all as amended from time to time (collectively,
"Environmental Laws"), (2) has no knowledge of any material violation of any
Environmental Laws on or about its assets or property, and (3) is not under any
current clean up or other remediation program or order. Debtor has obtained all
environmental, health and safety permits necessary for the operation of Debtor's
business. Debtor is and shall remain in compliance, in all respects, with the
terms and conditions of all permits and with all applicable Environmental Laws.
Debtor shall provide Secured Party, promptly following receipt, copies of any
correspondence, notice, complaint, order, or other document that it receives
asserting or alleging a circumstance or condition which requires or may require
a cleanup, removal, remedial action or other response by or on the part of
Debtor under any Environmental Laws, or which seeks damages or civil, criminal
or punitive penalties from Debtor for an alleged violation of any Environmental
Laws. Debtor will promptly notify Secured Party of any release, spill or
material change in the nature or extent of any hazardous substances or
contaminants used, transported or stored by Debtor or any subsidiary of Debtor,
and allow no material change in the use thereof or of Debtor's operations that
would increase in any material amount the risk of violation of any Environmental
Laws without the express prior written approval of Secured Party.

   (n) Regulations. No proceeds of the loans or any other financial
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accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.

   (o) Books and Records. Debtor shall maintain, at all times, true and
       -----------------
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
relating to the Collateral.

   (p) Setoff. Without limiting any other right of Secured Party, whenever
       ------
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, but shall not be obligated to, set off and apply against any and all
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party, whether or not the obligation to pay such monies owed by Secured Party is
then due. An election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.

   (q) Standard of Care; Notice of Claims. Debtor acknowledges and agrees that
       ----------------------------------
Secured Party shall not be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law other than as a sole and direct result of
Secured Party's gross negligence or willful misconduct. Debtor shall give
Secured Party written notice of any action or inaction by Secured Party or any
agent or attorney of Secured Party that may give rise to a claim against 

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<PAGE>
 
Secured Party or any agent or attorney of Secured Party or that may be a defense
to payment of the Indebtedness or performance hereunder for any reason,
including commission of a tort (subject, in any event, to the first sentence of
this paragraph) or violation of any contractual duty or duty implied by law.
Debtor agrees that unless such notice is fully given as promptly as possible
(and in any event within thirty (30) days) after Debtor has knowledge, or with
the exercise of reasonable diligence should have had knowledge, of any such
action or inaction, Debtor shall not assert, and Debtor shall be deemed to have
waived, any claim or defense arising therefrom.

   (r) Indemnity. Debtor shall indemnify, defend and hold Secured Party, its
       ---------
parent, affiliates, officers, directors, agents, employees, consultants, persons
engaged by Secured Party to evaluate or monitor the Collateral, auditors and
attorneys harmless from and against any loss, cost, expense (including
reasonable attorneys' fees and costs and any consultants' or other experts' fees
and expenses), damage, penalty, fine, claim, lien, suit, judgment or liability
of every kind and nature arising directly or indirectly out of (i) any Loan
Document, (ii) the ownership, possession, lease, operation, use, condition,
sale, return, or other disposition of the Collateral, except to the extent the
loss, expense, damage or liability arises solely and directly from Secured
Party's gross negligence or willful misconduct, (iii) any Environmental Laws,
and (iv) the enforcement by Secured Party of its rights or remedies hereunder.
Any payments required to be made hereunder shall be due and payable on demand.

   (s) Payments Set Aside. If any payment is made to Secured Party or Secured
       ------------------
Party enforces its security interest or exercises its right of set off, and such
payment or part, or any proceeds of such enforcement or set off are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Indebtedness or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set off had not occurred.

   (t) Expenses and Attorneys' Fees. Debtor shall be liable for all charges,
       ----------------------------
costs, expenses and attorneys' fees incurred by Secured Party (including
allocated costs of internal counsel): (i) in perfecting, defending, protecting
or terminating its security interest in the Collateral, or any part thereof;
(ii) in the negotiation, execution, delivery, administration, amendment or
enforcement of the Loan Documents or the collection of any amounts due under any
Note or other Loan Document; (iii) in any lawsuit or other legal proceeding in
any way connected with any of the Loan Documents, including any contract or tort
or other actions, any arbitration or other alternative dispute resolution
proceeding, all appeals and judgment enforcement actions and any bankruptcy
proceeding (including any relief from stay and/or adequate protection motions,
cash collateral disputes, assumption/rejection motions and disputes or
objections to any proposed disclosure statement or reorganization plan).

   (u) Complete Information. No representation or warranty made by Debtor in
       --------------------
any Loan Document and no other document or statement now or hereafter furnished
to Secured Party by or on behalf of Debtor contains or will contain any
misstatement of a material fact or omit to state any material fact which would
make the statements contained therein misleading. Except as expressly set forth
in the Schedules, there is no fact known to Debtor that has or 

                                       6
<PAGE>
 
could have a materially adverse affect on the business, operation, condition
(financial or otherwise), performance, properties or prospects of Debtor or
Debtor's ability to timely pay all of the Indebtedness and perform all of its
other obligations contained in or secured by this Agreement.

     (v)  Collateral Documentation. Debtor shall deliver to Secured Party prior
          ------------------------
to any advance, satisfactory documentation regarding the Collateral to be
financed, including such invoices, canceled checks evidencing payments, or other
documentation as may be reasonably requested by Secured Party. Additionally,
Debtor shall satisfy Secured Party that Debtor's (i) business and financial
information is as has been represented and there has been no material change in
Debtor's business, financial condition, or operations and (ii) Fixed Charge
Coverage Ratio equals or exceeds 1.1 to 1.0 on a trailing four quarter basis. In
this Agreement, (i) "Fixed Charge Coverage Ratio" shall be calculated on a
consolidated basis in accordance with GAAP and means Debtor's Adjusted EBITDA
divided by Fixed Charges, (ii) "Adjusted EBITDA" means earnings before interest,
taxes, depreciation, non-cash post-retirement expenses and amortization less
Maintenance Capex, (iii) "Maintenance Capex" means capital expenditures of
$625,000 per quarter, and (iv) "Fixed Charges" means the sum of Debtor's current
maturities of long-term debt plus interest expense plus taxes.

     (w)  Letter of Credit. As a condition to any advance hereunder and as
          ----------------
further security for the Indebtedness, Debtor shall cause a financial
institution acceptable to Secured Party to issue, for the benefit of Secured
Party, an irrevocable letter of credit (the "Letter of Credit") in form and
substance satisfactory to Secured Party and in an amount equal to twenty-five
percent (25%) of each advance. The Letter of Credit will provide that, upon the
occurrence of any Event of Default, Secured Party may draw under the Letter of
Credit. Amounts drawn under the Letter of Credit may be applied by Secured Party
against the outstanding Indebtedness. The Letter of Credit amount shall be
reduced by 50% at such time as Debtor's Fixed Charge Coverage Ratio (as defined
in Section 2(v) hereof) measured on a trailing four quarter basis (beginning
with the quarter ended April 30, 1997) equals or exceeds 1.30 to 1.0, provided
that such 50% reduction shall not occur prior to April 30, 1998. The Letter of
Credit will be canceled at such time, after December 31, 1998, as Debtor's Fixed
Charge Coverage Ratio measured on a trailing four quarter basis (beginning with
the quarter ended April 30, 1997) equals or exceeds 1.50 to 1.0. Notwithstanding
the preceding sentence, the Letter of Credit will not be canceled unless, in
addition to the requirements of the preceding sentence, Debtor shall have
reported positive net income in at least four of the six immediately preceding
fiscal quarters, beginning with the quarter ended April 30, 1997. If the amount
of the Letter of Credit exceeds the amount of the Indebtedness at any time, then
Secured Party will allow the Letter of Credit to be amended so as to reduce the
required amount of the Letter of Credit to the amount of the Indebtedness then
outstanding.

     (x)  Restricted Payments. If any Event of Default exists (or would exist
          -------------------
as a result of any payment described in this subsection (x)), Debtor will not
and will not permit any of its subsidiaries directly or indirectly to declare,
order, pay, make or set apart any sum for (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Debtor or any of its subsidiaries now or hereafter outstanding, except (A) a
dividend payable solely in shares of that class of stock to the holders of that
class; or (B) subsidiaries of Debtor may make payments with respect to their
stock provided that such stock is 100% owned by Debtor; (ii) any redemption,
conversion, exchange, retirement, sinking fund or 

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<PAGE>
 
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Debtor or any of its subsidiaries now or
hereafter outstanding; and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its subsidiaries now or
hereafter outstanding; provided Debtor's wholly-owned subsidiaries may make
payments and distributions to Debtor.

3. Prepayment. Upon forty-five (45) days prior written notice to Secured Party,
   ----------
Debtor may prepay in whole, but not in part, the then entire unpaid principal
balance of any Note, together with all accrued and unpaid interest thereon to
the date of such prepayment, provided that in addition to such prepayment,
Debtor shall pay any and all other sums then due under any of the Loan
Documents, including any Note.

4. Events of Default. If any one of the following events (each of which is
   -----------------
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
                  ----------------
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, misleading or inaccurate, (c) Debtor or any Guarantor breaches or
defaults in the performance of any other agreement or covenant under any Loan
Document other than those contained in subsections 2(b) and 2(e) hereof and such
breaches or defaults are not cured within thirty (30) days after Debtor knew or
should have known of the occurrence (provided that the thirty (30) day cure
period shall not apply to the extent any breach or default is not curable in
Secured Party's opinion), or (d) Debtor or any Guarantor breaches or defaults in
the performance of any covenant contained in subsections 2(b) and 2(e) hereof,
or (e) Debtor or any Guarantor breaches or defaults in the payment or
performance of any debt or other obligation owed by it to Secured Party or any
affiliate of Secured Party, and Secured Party has (without being obligated to do
so) declared such event, an Event of Default hereunder, or (f) Debtor breaches
or defaults in the payment or performance of any debt or other obligation,
whether now or hereafter existing, with an outstanding principal balance in
excess of One Million and 00/100 Dollars ($1,000,000.00), and the same is
subsequently accelerated, or (g) there shall be a change in the beneficial
ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Debtor or any Guarantor (a "change of
                                                                ---------
control"), or there is any merger, consolidation, dissolution, liquidation,
-------
winding up or sale or other transfer of all or substantially all of the assets
of Debtor or any Guarantor pursuant to which there is a change of control or
cessation of Debtor or the Guarantor or the business of either, or (h) any money
judgment is entered or filed against Debtor or any Guarantor in excess of One
Million and 00/100 Dollars ($1,000,000.00), or (i) Debtor or any Guarantor shall
file a voluntary petition in bankruptcy, shall apply for or permit the
appointment by consent or acquiescence of a receiver, conservator,
administrator, custodian or trustee for itself or all or a substantial part of
its property, shall make an assignment for the benefit of creditors or shall be
unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (j) there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar process against all or any substantial part of its property; unless, in
each case, such petition, appointment or process

                                       8
<PAGE>
 
is fully bonded against, vacated or dismissed within forty-five (45) days from
its effective date, but no later than ten (10) days prior to any proposed
disposition of any assets pursuant to any such proceeding, or (k) if there is a
material adverse change in the business or financial condition or prospects of
Debtor, or any Guarantor, in an amount exceeding One Million Dollars
($1,000,000.00) as determined by Secured Party, then, and in any such event,
Secured Party shall have the right to exercise any one or more of the remedies
hereinafter provided.

5.   Remedies. Upon the occurrence of an Event of Default, in addition to all
     --------
rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; or
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS, IF ANY, TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store and repair the
Collateral so removed and sell any or all of the Collateral at a public or
private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made, it being understood and agreed
that Secured Party may be a buyer at any such sale and Debtor may not, either
directly or indirectly, be a buyer at any such sale. The requirements, if any,
for reasonable notice will be met if such notice is mailed postage prepaid to
Debtor at its address shown above, at least five (5) days before the time of
sale or disposition. After any such sale or disposition, Debtor shall be liable
for any deficiency of the Indebtedness remaining unpaid, with interest thereon
at the rate set forth in the related Notes.

6.   Cumulative Remedies/Marshaling. All remedies of Secured Party hereunder are
     ------------------------------
cumulative, are in addition to any other remedies provided for by law or in
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by Debtor
or any third party in favor of Secured Party, all of which may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed an election of such remedy or to preclude the
exercise of any other remedy. No failure on the part of Secured Party to
exercise, and no delay in exercising any right or remedy, shall operate as a
waiver thereof or in any way modify or be deemed to modify the terms of this
Agreement or any other Loan Document or the Indebtedness, nor shall any single
or partial exercise by Secured Party of any right or remedy preclude any other
or further exercise of the same or any other right or remedy. Secured Party
shall not be under any obligation to marshal any assets in favor of Debtor, any
Guarantor or any other person or against or in payment of any or all of the
Indebtedness.

7.   Assignment. Secured Party may transfer or assign all or any part of the
     ----------
Indebtedness and the Loan Documents without releasing Debtor or the Collateral,
and upon such transfer or assignment the assignee or holder shall be entitled to
all the rights, powers, privileges and 

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<PAGE>
 
remedies of Secured Party to the extent assigned or transferred. The obligations
of Debtor shall not be subject, as against any such assignee or transferee, to
any defense, set-off, or counter-claim available to Debtor against Secured Party
and any such defense, set-off, or counter-claim may be asserted only against
Secured Party.

8.   Time is of the Essence. Time and manner of performance by Debtor of its
     ----------------------
duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtor upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of Debtor's default.

9.   Enforcement. This Agreement shall be governed by and construed in
     -----------
accordance with the internal laws and decisions of the State of Illinois,
without regard to principles of conflicts of law. At Secured Party's election
and without limiting Secured Party's right to commence an action in any other
jurisdiction, Debtor hereby submits to the exclusive jurisdiction and venue of
any court (federal, state or local) having situs within the State of Illinois,
expressly waives personal service of process and consents to service by
certified mail, postage prepaid, directed to the last known address of Debtor,
which service shall be deemed completed within ten (10) days after the date of
mailing thereof.

10.  Further Assurance; Notice. Debtor shall, at its expense, execute and
     -------------------------
deliver such documents and do such further acts as Secured Party may from time
to time reasonably require to assure and confirm the rights created or intended
to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtor agrees to execute any instrument or instruments necessary or
expedient for filing, recording, perfecting, notifying, foreclosing, and/or
liquidating of Secured Party's interest in the Collateral upon request of, and
as determined by, Secured Party, and Debtor hereby specifically authorizes
Secured Party to prepare and file Uniform Commercial Code financing statements
and other documents and to execute same for and on behalf of Debtor as Debtor's
attorney-in-fact, irrevocably and coupled with an interest, for such purposes.
All notices required or otherwise given by either party shall be in writing and
shall be delivered by hand, by registered or certified first class United States
mail, return receipt requested, or by overnight courier to the other party at
its address stated herein or at such other address as the other party may from
time to time designate by written notice. All notices shall be deemed given when
received, when delivery is refused or when returned for failure to be called
for. Each provision of this Agreement shall remain in full force and effect
until all of the Indebtedness is fully, finally and indefeasibly satisfied and,
notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Debtor and Secured Party set forth in Sections 2(p), 2(r),
2(s), 2(t), 9 and 12 shall survive the full, final and indefeasible satisfaction
of the Indebtedness.

11.  Joint and Several Obligation. If this Agreement is executed by more than
     ----------------------------
one person as Debtor, each such Debtor hereby acknowledges it is jointly and
severally liable for and 

                                       10
<PAGE>
 
unconditionally guarantees the prompt and full payment and performance of all
obligations of each other Debtor hereunder and under the other Loan Documents.

12.  Waiver of Jury Trial. Debtor and Secured Party hereby waive their
     --------------------
respective rights to a jury trial of any claim or cause of action based upon or
arising in connection with any of the Loan Documents. Debtor and Secured Party
acknowledge that this waiver is a material inducement to enter into a business
relationship, that each has already relied on the waiver in entering into the
Loan Documents, and that each will continue to rely on the waiver in their
related future dealings. Debtor and Secured Party further warrant and represent
that each has reviewed this waiver with its legal counsel and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel.

13.  Complete Agreement. The Loan Documents embody the entire agreement among
     ------------------
the parties hereto superseding all prior commitments, agreements,
representations, and understandings, whether written or oral relating to the
subject matter hereof, and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. The Loan Documents may not be altered, modified or terminated in
any manner except by a writing duly signed by the parties thereto. Debtor and
Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall remain
in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
Schedules are incorporated herein by this reference and made a part hereof.

IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Agreement as
of the day and year first above written.

HELLER FINANCIAL, INC.,                     SHEFFIELD STEEL
a Delaware corporation                      CORPORATION,
                                            a Delaware corporation
                           
By: David G. Roeder                         By:  Stephen R. Johnson
   ----------------------------                ------------------------------
Name:  David G. Roeder                      Name: Stephen R. Johnson   
     --------------------------                  ----------------------------
Title:  Vice President                      Title:  Vice President and 
      -------------------------                   ---------------------------
                                                      Chief Financial Officer
                                                  ---------------------------

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