Document:

EXHIBIT 10.3

                       LETTER OF CREDIT FACILITY AGREEMENT

                                     between

                            OREGON STEEL MILLS, INC.,
                                  as Applicant

                                       and

                         U.S. BANK NATIONAL ASSOCIATION,
                                    as Issuer

                         TOTAL COMMITMENT -- $25,000,000

                                 MARCH 29, 2005

<PAGE>

                                    CONTENTS

<TABLE>
<S>             <C>                                                                        <C>
ARTICLE I.      DEFINITIONS............................................................    1
     1.1        DEFINED TERMS..........................................................    1
     1.2        HEADINGS...............................................................    7
     1.3        GENERAL DEFINITIONAL PROVISIONS........................................    7

ARTICLE II.     FACILITY; ISSUER COMPENSATION..........................................    8
     2.1        LETTER OF CREDIT FACILITY..............................................    8
     2.2        REIMBURSEMENT..........................................................    8
     2.3        FEES; INTEREST.........................................................    9
     2.4        CHANGE OF CIRCUMSTANCES................................................    9
     2.5        TAXES; PAYMENTS........................................................    11
     2.6        DUTY TO MITIGATE.......................................................    12

ARTICLE III.    REPRESENTATIONS AND WARRANTIES.........................................    12
     3.1        LEGAL STATUS...........................................................    12
     3.2        DUE AUTHORIZATION; NO VIOLATION........................................    12
     3.3        APPROVALS; REGULATION..................................................    12
     3.4        VALIDITY; ENFORCEABILITY...............................................    13
     3.5        TAXES..................................................................    13
     3.6        LITIGATION, LABOR CONTROVERSIES........................................    13
     3.7        ERISA COMPLIANCE.......................................................    13
     3.8        ENVIRONMENTAL MATTERS..................................................    14
     3.9        NO DEFAULTS............................................................    14
     3.10       SOLVENCY...............................................................    14
     3.11       COMPLIANCE WITH LAW....................................................    14
     3.12       INSURANCE..............................................................    14
     3.13       TRUTH, ACCURACY OF INFORMATION.........................................    15

ARTICLE IV.     SECURITY...............................................................    15
     4.1        THE ACCOUNT............................................................    15

ARTICLE V.      CONDITIONS.............................................................    15
     5.1        CONDITIONS OF INITIAL ISSUANCE OF LETTER OF CREDIT.....................    15
     5.2        CONDITIONS OF EACH EXTENSION OF CREDIT.................................    16

ARTICLE VI.     COVENANTS..............................................................    17
     6.1        PAYMENTS...............................................................    17
     6.2        ACCOUNTING RECORDS.....................................................    17
     6.3        FINANCIAL INFORMATION AND REPORTS......................................    17
     6.4        COMPLIANCE.............................................................    18
     6.5        TAXES..................................................................    18
     6.6        NOTICE TO ISSUER.......................................................    18
     6.7        FURTHER ASSURANCES.....................................................    18
</TABLE>

                                                                          PAGE i
<PAGE>

<TABLE>
<S>             <C>                                                                        <C>
ARTICLE VII.    EVENTS OF DEFAULT......................................................    18
     7.1        EVENTS OF DEFAULT......................................................    18
     7.2        REMEDIES...............................................................    20

ARTICLE VIII.   MISCELLANEOUS..........................................................    20
     8.1        NOTICES................................................................    20
     8.2        EXPENSES; INDEMNITY; DAMAGE WAIVER.....................................    21
     8.3        SUCCESSORS AND ASSIGNS.................................................    22
     8.4        NO WAIVER; CUMULATIVE REMEDIES.........................................    22
     8.5        SETOFF.................................................................    22
     8.6        AMENDMENT; COUNTERPARTS; INTEGRATION; EFFECTIVENESS....................    23
     8.7        NO THIRD PARTY BENEFICIARIES...........................................    23
     8.8        TIME...................................................................    23
     8.9        SEVERABILITY OF PROVISIONS.............................................    23
     8.10       CONFIDENTIALITY........................................................    23
     8.11       GOVERNING LAW..........................................................    24
     8.12       USA PATRIOT ACT NOTICE.................................................    24
     8.13       SUBMISSION TO JURISDICTION.............................................    25
     8.14       WAIVER OF JURY TRIAL...................................................    25
     8.15       OREGON STATUTORY NOTICE................................................    25
</TABLE>

                                                                         PAGE ii
<PAGE>

                       LETTER OF CREDIT FACILITY AGREEMENT

        THIS LETTER OF CREDIT FACILITY AGREEMENT is entered into as of March 29,
2005, by and between OREGON STEEL MILLS, INC., a Delaware corporation
("Applicant") and U.S. BANK NATIONAL ASSOCIATION ("Issuer").

                                    RECITALS

        Applicant has requested the letter of credit facility described herein
from Issuer, and Issuer has agreed to provide said letter of credit facility to
Applicant on the terms and conditions contained herein.

        NOW, THEREFORE, in consideration of the mutual covenants and promises of
the parties contained herein, Issuer and Applicant hereby agree as follows:

ARTICLE I.      DEFINITIONS

        1.1     DEFINED TERMS

        All terms defined above shall have the meanings set forth above. The
following terms shall have the meanings set forth below:

        "Account" means account no. 436000336 established by Applicant with U.S.
Bank National Association acting through its Money Center Department.

        "Account Control Agreement" means that certain Account Control Agreement
of even date herewith among Applicant, Issuer and U.S. Bank National Association
acting through its Money Center Department for the purpose of perfecting
Issuer's security interest in the Account granted hereby.

        "Agreement" means this Letter of Credit Facility Agreement as amended,
modified or supplemented from time to time.

        "Applicable Rate" means, at any date, the lesser of (a) the Highest
Lawful Rate or (b) a per annum rate equal to the Base Rate in effect on such
date, plus, if an Event of Default is continuing on such date, 250 basis points.

        "Available Credit" means, at any time, the amount by which (a) the
lesser of (i) 95% of the amount in the Account or (ii) the Commitment Amount is
greater than (b) the total of the Obligations.

        "Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time, including
(unless the context otherwise requires) any rules or regulations promulgated
thereunder.

                                                                          PAGE 1
<PAGE>

        "Base Rate" means, for any day, an interest rate per annum equal to the
rate of interest most recently announced by Issuer at its principal office as
its prime rate, with each change in the prime rate to be effective on the date
such change is publicly announced as effective.

        "Benefit Arrangement" means at an employee benefit plan within the
meaning of Section 3(3) of ERISA that is not a Plan or a Multiemployer Plan and
that is maintained or otherwise contributed to by any member of the ERISA Group.

        "Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required to be closed in Portland,
Oregon or New York, New York.

        "Change in Law" means the occurrence, after the date of this Agreement,
of any of the following: (a) the adoption or taking effect of any Governmental
Rule, (b) any change in any Governmental Rule or in the administration,
interpretation or application thereof by any Governmental Authority or (c) the
making or issuance of any request, guideline or directive (whether or not having
the force of law) by any Governmental Authority.

        "Change of Control" means the occurrence of any of the following events:

(a)     any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended), other than
Applicant's employee stock ownership plan, is or becomes the beneficial owner,
directly or indirectly, of more than 30% of the total voting stock of Applicant
(measured by voting power rather than number of shares);

(b)     Applicant (whether in one transaction or a series of related
transactions) consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of Applicant to any person, or any person
consolidates with, or merges with or into Applicant, in any such event pursuant
to one transaction or a series of related transactions in which the outstanding
voting stock of Applicant is converted into or exchanged for cash, securities or
other property, other than any such transaction where:

                (i)     the outstanding voting stock of Applicant is converted
        into or exchanged for voting stock (other than redeemable capital stock)
        of the surviving or transferee corporation, cash, securities and other
        property, or a combination thereof; and

                (ii)    immediately after such transaction no "person" or
        "group" (as such terms are used in Section 13(d) and 14(d) of the
        Securities Exchange Act of 1934, as amended), other than Applicant's
        employee stock ownership plan, is the beneficial owner, directly or
        indirectly, of more than 30% of the total voting stock of the

                                                                          PAGE 2
<PAGE>

        surviving or transferee corporation (measured by voting power rather
        than number of shares); provided, however, that in the event of a merger
        in which the voting stock of Applicant in exchange for voting stock of a
        holding company which owns all of the outstanding capital stock of
        Applicant immediately after the merger, a Change of Control shall not be
        deemed to occur solely as a result of such ownership of the Applicant by
        such holding company and such holding company shall be deemed to be the
        surviving corporation in the merger for purposes of determining whether
        a Change of Control has occurred.

(c)     at any time during any consecutive two-year period, individuals who at
the beginning of such period constituted the board of directors of Applicant
(together with any new directors whose election by such board of directors or
whose nomination for election by the stockholder of Applicant was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Applicant then in office; or

(d)     Applicant is liquidated or dissolved or adopts a plan of liquidation.

        "Closing Date" means the date of this Agreement.

        "Commitment Amount" means $25,000,000.

        "Contaminant" means any pollutant, hazardous substance, toxic substance,
hazardous waste or other substance regulated or forming the basis of liability
under any Environmental Law.

        "Default" means (i) an Event of Default, (ii) an event or condition that
with the giving of notice or the passage of time, or both, would constitute an
Event of Default, or (iii) the filing against Applicant of a petition commencing
an involuntary case under the Bankruptcy Code.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time, including (unless the context otherwise
requires) any rules or regulations promulgated thereunder.

        "ERISA Event" means (a) a Reportable Event with respect to a Plan; (b) a
withdrawal by any member of the ERISA Group from a Plan subject to Section 4063
of ERISA during a plan year in which it was a substantial employer (as defined
in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial
withdrawal by any member of the ERISA Group from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the filing of a
notice of intent to terminate, the treatment of a Plan amendment as a
termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Plan or Multiemployer Plan; (e) an event
or

                                                                          PAGE 3
<PAGE>

condition which constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon any member of the ERISA Group.

        "ERISA Group" means Applicant and all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Applicant, are treated as a single employer
under Section 414 of the Code.

        "Environmental Law" means all federal, state and local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to the regulation or protection of the environment.

        "Event of Default" has the meaning set forth in Section 7.1 hereof.

        "Excluded Taxes" means, with respect to Issuer or any other recipient of
any payment to be made by or on account of any obligation of Applicant
hereunder, taxes imposed on or measured by its overall net income (however
denominated), and franchise taxes imposed on it (in lieu of net income taxes),
by the jurisdiction (or any political subdivision thereof) under the laws of
which such recipient is organized or in which its principal office is located.

        "Federal Funds Rate" means, for any day, the weighted average of the per
annum rates on overnight Federal funds transactions with member banks of the
Federal Reserve System arranged by Federal funds brokers as published by the
Federal Reserve Bank of New York for such day (or, if such rate is not so
published for any day, the average rate quoted to Issuer on such day by three
Federal funds brokers of recognized standing selected by Issuer).

        "GAAP" means generally accepted accounting principles as in effect in
the United States from time to time, consistently applied.

        "Governmental Authority" means the government of the United States of
America or any other nation, or of any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government (including any supra-national bodies such as the European Union or
the European Central Bank).

        "Governmental Rule" means any applicable law, rule, regulation, treaty
ordinance, order, code interpretation, judgment, decree, directive, guideline,
policy or similar form of decision of any Governmental Authority.

                                                                          PAGE 4
<PAGE>

        "Highest Lawful Rate" means, at the particular time in question, the
maximum rate of interest which, under applicable law, Issuer is then permitted
to charge Applicant on the applicable Obligations, and if the maximum rate
changes at any time, the Highest Lawful Rate shall increase or decrease, as the
case may be, as of the effective time of each such change, without notice to
Applicant.

        "Indemnified Taxes" means Taxes other than Excluded Taxes.

        "Indemnitees" has the meaning set forth in Section 8.2(b) hereof.

        "Legal Fees" means expenses and reasonable fees of counsel for Issuer or
any Indemnitee (including time charges and disbursements for attorneys who are
employees of Issuer), whether incurred in connection with document preparation,
negotiations, at the trial or appellate level, in an arbitration or
administrative proceeding, in bankruptcy or otherwise.

        "Letter of Credit" means a letter of credit issued by Issuer pursuant to
Section 2.1 hereof (as such letter of credit may be amended, renewed and/or
extended by Issuer), and the terms of which (unless Issuer otherwise elects) are
governed by the Uniform Customs and Practice for Documentary Credits most
recently published by the International Chamber of Commerce.

        "Letter of Credit Documents" means this Agreement, the Account Control
Agreement and each other agreement, note, notice, document, contract or
instrument to which any Applicant now or hereafter is a party and that is
required by Issuer in connection with the Obligations.

        "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or other),
security interest, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever, including, without limitation, any
conditional sale or other title retention agreement or the interest of a lessor
under a capital lease, synthetic lease, tax retention operating lease, financing
lease or any lease having substantially the same economic effect as a
conditional sale, title retention agreement or similar arrangement.

        "Material Adverse Effect" means a material adverse effect on (a) the
condition (financial or otherwise), business, performance, operations or
properties of Applicant and its subsidiaries on a consolidated basis, (b) the
ability of Applicant to perform its obligations under any of the Letter of
Credit Documents, or (c) the rights and remedies of Issuer under any of the
Letter of Credit Documents.

        "Maturity Date" means the first anniversary of the Closing Date.

        "Multiemployer Plan" means any employee pension benefit plan within the
meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions, including for these purposes any
Person which ceased to be a member of the ERISA Group during such five year
period.

                                                                          PAGE 5
<PAGE>

        "Obligations" means all of Applicant's obligations under the Letter of
Credit Documents, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, including, without limitation,
all interest that accrues after the commencement of any case or proceeding by or
against Applicant under the Bankruptcy Code, whether or not allowed in such case
or proceeding.

        "Other Taxes" means all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made under any Letter of Credit Document or from the execution, delivery
or enforcement of, or otherwise with respect to, any Letter of Credit Document.

        "PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

        "Permit" means any permit, approval, authorization, license, variance or
permission required from a Governmental Authority under an applicable
Governmental Rule.

        "Person" means an individual, partnership, corporation (including,
without limitation, a business trust), joint stock company, limited liability
company, trust, unincorporated association, joint venture or other entity, or a
Governmental Authority.

        "Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.

        "Related Party" means, with respect to any Person, any affiliate of such
Person or any partner, director, officer, employee, agent or advisor of such
Person of any of such Person's affiliates.

        "Release" means, as to any Person, any unpermitted spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of a Contaminant into the environment and any "release" as defined
in the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et seq.).

        "Remedial Action" means all actions required to clean up, remove,
prevent or minimize a Release or threat of Release or to perform pre-remedial
studies and investigations and post-remedial monitoring and care.

                                                                          PAGE 6
<PAGE>

        "Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA, other than events for which the 30 day notice period has been waived.

        "Responsible Officer" means any one of Applicant's President and CEO, VP
Finance and CFO, Corporate Controller, Treasurer or Assistant Treasurer.

        "Taxes" means all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority, including any interest, additions to tax or penalties
applicable thereto.

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

        1.2     HEADINGS

        Headings in this Agreement and each of the other Letter of Credit
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.

        1.3     GENERAL DEFINITIONAL PROVISIONS

        The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
"include," "includes" and "including" shall be deemed to be followed by the
phrase "without limitation." The word "will" shall be construed to have the same
meaning and effect as the word "shall." Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein," "hereof"
and "hereunder," and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement, (e) any reference to any law or regulation herein shall, unless
otherwise specified, refer to such law or regulation as amended, modified or
supplemented from time to time and (f) the words "asset" and "property" shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.

                                                                          PAGE 7
<PAGE>

ARTICLE II.     FACILITY; ISSUER COMPENSATION

        2.1     LETTER OF CREDIT FACILITY

        (a)     On the terms and subject to the conditions contained in this
Agreement, Issuer shall issue one or more Letters of Credit before the Maturity
Date at the request of Applicant for the account of Applicant from time to time;
provided, however, that Issuer shall not issue any Letter of Credit if:

                (i)     one or more of the applicable conditions contained in
        Article V is not then satisfied;

                (ii)    the face amount of the requested Letter of Credit
        exceeds the Available Credit; or

                (iii)   any order, judgment or decree of any Governmental
        Authority or arbitrator of which Issuer is aware shall purport by its
        terms to enjoin or restrain Issuer from issuing such Letter of Credit or
        any Governmental Rule shall prohibit, or request that Issuer refrain
        from, the issuance of letters of credit generally or such Letter of
        Credit in particular or shall impose upon Issuer with respect to such
        Letter of Credit any restriction or reserve or capital requirement (for
        which Issuer is not otherwise compensated) not in effect on the Closing
        Date or result in any loss, cost or expense which (A) was not
        applicable, in effect or known to Issuer on the Closing Date and which
        Issuer in good faith deems material to it, and (B) the reimbursement of
        which is not provided for hereunder.

        (b)     Applicant may request that Issuer issue a Letter of Credit only
by submitting a letter of credit application on Issuer's standard form not later
than 10:00 a.m. (Portland time) at least two Business Days prior to the
requested date of issuance. In no event shall the expiry date of any Letter of
Credit fall after the first anniversary of the Maturity Date. The expiry date
for a standby Letter of Credit may not be more than one year after its date of
issuance, and the expiry date for a commercial (documentary) Letter of Credit
may not be more than 180 days after its date of issuance.

        2.2     REIMBURSEMENT

        (a)     If Issuer makes a payment under a Letter of Credit and is not
reimbursed in the manner contemplated by Section 2.2(b), Applicant shall
reimburse Issuer the amount so paid (even if, under laws applicable to the
rights of the beneficiary of such Letter of Credit, beneficiary's request for
payment was validly presented after expiry of such Letter of Credit) in the
currency expressed in such Letter of Credit, together with interest at the
Applicable Rate from the date Issuer made such payment to the date Applicant
pays such reimbursement. Applicant shall pay such reimbursement in immediately
available funds within three Business Days of Issuer's demand for reimbursement.

                                                                          PAGE 8
<PAGE>

        (b)     Upon issuance of a commercial (documentary) Letter of Credit,
Issuer may exercise its right under Section 3(c) of the Account Control
Agreement and instruct the "Holder" (as defined in the Account Control
Agreement) to invest an amount equal to the face amount of such Letter of Credit
in an U.S. Bank savings account ("Liquid Investment"). Immediately upon a draw
being made under a commercial (documentary) Letter of Credit, Issuer may
instruct the Holder to pay to Issuer from the Liquid Investment an amount
sufficient to reimburse Issuer for the amount paid by Issuer under such draw.

        2.3     FEES; INTEREST

        (a)     Applicant shall pay Issuer the following fees with respect to
standby Letters of Credit, each of which shall be nonrefundable even if a
standby Letter of Credit is terminated or canceled before its stated expiration
date:

                (i)     upon the issuance of a standby Letter of Credit or the
        issuance of an amendment increasing the face amount of a standby Letter
        of Credit, a letter of credit fronting fee equal to the greater of (A)
        $100 or (B) the face amount thereof (or, with respect to an amendment
        increasing the face amount, the increase in the face amount only)
        multiplied by 0.125%;

                (ii)    quarterly, in arrears, on the first Business Day of each
        calendar quarter and upon expiration, surrender or other termination of
        the last standby Letter of Credit outstanding, a letter of credit fee
        equal to the average, aggregate undrawn face amount of all outstanding
        Letters of Credit during the preceding calendar quarter multiplied by
        0.50% per annum; and

                (iii)   upon the occurrence of any other activity with respect
        to a standby Letter of Credit, a fee determined in accordance with
        Issuer's standard fees and charges then in effect for such activity, and
        such fees will be billed by Issuer to Applicant monthly and shall be
        payable in accordance with the terms stated on such billings.

        (b)     Applicant shall pay Issuer fees with respect to commercial
(documentary) Letters of Credit determined in accordance with Issuer's standard
fees and charges then in effect with respect to commercial (documentary) letters
of credit.

        (c)     All amounts payable by Applicant not paid when due shall bear
interest at the Applicable Rate from the date due until paid in immediately
available funds.

        (d)     All interest and per annum fees shall be computed on the basis
of a 360-day year, actual days elapsed.

                                                                          PAGE 9
<PAGE>

        2.4     CHANGE OF CIRCUMSTANCES

        (a)     Increased Costs Generally. If any Change in Law shall:

                (i)     impose, modify or deem applicable any reserve, special
        deposit, compulsory loan, insurance charge or similar requirement
        against assets of, deposits with or for the account of, or credit
        extended or participated in by, Issuer;

                (ii)    subject Issuer to any tax of any kind whatsoever with
        respect to this Agreement or any Letter of Credit, or change the basis
        of taxation of payments to Issuer in respect thereof (except for
        Indemnified Taxes or Other Taxes covered by Section 2.5 and the
        imposition of, or any change in the rate of, any Excluded Tax payable by
        Issuer); or

                (iii)   impose on Issuer any other condition, cost or expense
        affecting this Agreement or any Letter of Credit;

and the result of any of the foregoing shall be to increase the cost to Issuer
of issuing or maintaining any Letter of Credit (or of maintaining its obligation
to issue any Letter of Credit), or to reduce the amount of any sum received or
receivable by Issuer hereunder then, upon Issuer's request, Applicant will pay
to Issuer such additional amount as will compensate Issuer for such additional
costs incurred or reduction suffered.

        (b)     Capital Requirements. If Issuer determines that any Change in
Law affecting Issuer or Issuer's holding company regarding capital requirements
has or would have the effect of reducing the rate of return on Issuer's capital
or on the capital of Issuer's holding company as a consequence of this Agreement
or Issuer's commitment to issue Letters of Credit to a level below that which
Issuer or Issuer's holding company could have achieved but for such Change in
Law (taking into consideration Issuer's policies and the policies of Issuer's
holding company with respect to capital adequacy) by an amount Issuer deems to
be material, then from time to time Applicant will pay to Issuer such additional
amount as will compensate Issuer or Issuer's holding company for any such
reduction suffered.

        (c)     Certificates for Reimbursement. A certificate of Issuer setting
forth the amount necessary to compensate Issuer or its holding company, as the
case may be, as specified in Section 2.4(a) or (b) and setting forth in
reasonable detail the basis of the calculation and delivered to Applicant shall
be conclusive absent manifest error. Applicant shall pay Issuer the amount shown
as due on any such certificate within 10 days after receipt thereof.

        (d)     Delay in Requests. Issuer's failure or delay in demanding
compensation pursuant to this Section 2.4 shall not constitute a waiver of
Issuer's right to demand such compensation, provided that Applicant shall not be
required to compensate Issuer pursuant to this Section 2.4 for any increased
costs incurred or reductions suffered more than nine months prior to the date
that Issuer notifies Applicant of the Change in Law giving rise to such
increased costs or reductions and of Issuer's intention to claim compensation
therefor (except that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the nine-month period referred to above shall
be extended to include the period of retroactive effect thereof).

                                                                         PAGE 10
<PAGE>

        2.5     TAXES; PAYMENTS

        (a)     Payments Free of Taxes. Any and all payments by or on account of
any obligation of Applicant under any Letter of Credit Document shall be made
free and clear of and without reduction or withholding for any Indemnified Taxes
or Other Taxes, provided that if Applicant is required by Governmental Rule to
deduct any Indemnified Taxes (including any Other Taxes) from such payments,
then (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.5) Issuer receives an amount equal to the sum it
would have received had no such deductions been made, (ii) Applicant shall make
such deductions and (iii) Applicant shall timely pay the full amount deducted to
the relevant Governmental Authority in accordance with applicable law.

        (b)     Payment of Other Taxes by Applicant. Without limiting the
provisions of Section 2.5(a), Applicant shall timely pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

        (c)     Indemnification by Applicant. Applicant shall indemnify Issuer,
within 10 days after demand therefor, for the full amount of any Indemnified
Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section 2.5) paid by
Issuer and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority.
A certificate as to the amount of such payment or liability delivered to
Applicant by Issuer shall be conclusive absent manifest error.

        (d)     Evidence of Payments. As soon as practicable after any payment
of Indemnified Taxes or Other Taxes by Applicant to a Governmental Authority,
Applicant shall deliver to Issuer the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of the
return reporting such payment or other evidence of such payment reasonably
satisfactory to Issuer.

        (e)     Reversal of Payments. If after receipt of any payment of any of
the Obligations or application of the proceeds of any collateral to any of the
Obligations Issuer is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or application of proceeds shall be reinstated and continue and
this Agreement shall continue in full force and effect as if such payment or
application of proceeds had not been received or applied by Issuer. Applicant
hereby indemnifies and holds Issuer harmless for the amount of any such payments
or proceeds surrendered or returned. This Section 2.5 shall remain effective
notwithstanding any contrary action which may be taken by Issuer in reliance
upon such payment or proceeds. This Section 2.5 shall survive the payment in
full and performance of all of Applicant's other Obligations.

                                                                         PAGE 11
<PAGE>

        2.6     DUTY TO MITIGATE

        If Issuer claims any additional amount payable pursuant to either
Section 2.4 or Section 2.5, Issuer, at Applicant's expense, shall use reasonable
efforts (consistent with Governmental Rules) to file any certificate or document
reasonably requested by Applicant if the making of such filing would avoid the
need for, or reduce the amount of, any such additional amounts that may
thereafter accrue or avoid the circumstances giving rise to such additional
amounts and would not, in the sole determination of Issuer, require it to incur
additional costs or be otherwise disadvantageous to Issuer.

ARTICLE III.    REPRESENTATIONS AND WARRANTIES

        Applicant makes the following representations and warranties to Issuer,
which representations and warranties shall survive the execution of this
Agreement:

        3.1     LEGAL STATUS

        Applicant is a corporation validly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification,
and has full power and authority and holds all Permits and other approvals
necessary to enter into and perform the Obligations and to own and hold under
lease its property and to conduct its business substantially as currently
conducted by it, except where the failure to have so qualified or have such
power and authority could not reasonably be expected to have a Material Adverse
Effect.

        3.2     DUE AUTHORIZATION; NO VIOLATION

        Applicant's execution, delivery and performance of the Letter of Credit
Documents executed or to be executed by it are within its powers, have been duly
authorized by all necessary action, and do not (a) contravene its certificate of
incorporation or by-laws; (b) contravene any contractual restriction or
Governmental Rule binding on or affecting it; or (c) result in, or require the
creation or imposition of, any Lien on its property, except Liens for the
benefit of Issuer; in the case of clauses (b) and (c), which could reasonably be
likely to have a Material Adverse Effect.

        3.3     APPROVALS; REGULATION

        No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority or other Person is required for the due
execution, delivery or performance by Applicant of the Letter of Credit
Documents to which it is a party. Applicant is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended, or a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

                                                                         PAGE 12
<PAGE>

        3.4     VALIDITY; ENFORCEABILITY

        The Letter of Credit Documents executed by Applicant constitute the
legal, valid and binding obligations of Applicant enforceable in accordance with
their respective terms.

        3.5     TAXES

        Applicant has filed, or caused to be filed, all federal, state, local
and foreign tax returns required to be filed by it, and has paid, or caused to
be paid, all taxes as are shown on such returns, or on any assessment received
by it, to the extent that such taxes have become due, except as otherwise
contested in good faith. Applicant has set aside proper amounts on its books,
determined in accordance with GAAP, for the payment of all taxes for the years
that have not been audited by the respective tax authorities and for taxes being
contested by it.

        3.6     LITIGATION, LABOR CONTROVERSIES

        Except as specifically disclosed in its public filings with the
Securities and Exchange Commission, there is no pending or, to the knowledge of
Applicant, threatened litigation, action, proceeding, or labor controversy
affecting Applicant, or any of its property, assets or revenues, which could
reasonably be expected to have a Material Adverse Effect.

        3.7     ERISA COMPLIANCE

        (a)     Each Benefit Arrangement and Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
Governmental Rules. Each Benefit Arrangement and Plan that is intended to
qualify under Section 401(a) of the Code has received a favorable determination
letter from the IRS. Each member of the ERISA Group have made all required
contributions to each Plan, and no application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the Code has
been made with respect to any Plan.

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

        (c)     Except as specifically disclosed in its public filings with the
Securities and Exchange Commission: (i) No ERISA Event has occurred or is
reasonably expected to occur; (ii) no Plan has any Unfunded Pension Liability;
(iii) no member of the ERISA Group has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) no member of
the ERISA Group has incurred, or reasonably expects to incur, any liability (and
no event has occurred which, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with
respect to a Multiemployer Plan; and (v) no member of the ERISA Group has
engaged in a transaction that could be subject to Sections 4069 or 4212(c) of
ERISA.

                                                                         PAGE 13
<PAGE>

        3.8     ENVIRONMENTAL MATTERS

        Applicant conducts in the ordinary course of business a review of the
effect of existing Environmental Laws on its business, operations and
properties, and as a result thereof Applicant has reasonably concluded that,
except as specifically disclosed in its public filings with the Securities and
Exchange Commission, it is in compliance in all material respects with all
Environmental Laws applicable to it, other than such noncompliance as in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
Except as specifically disclosed in its public filings with the Securities and
Exchange Commission: (i) Applicant has not received written notice that it is
the subject of any federal or state investigation evaluating whether any
Remedial Action is needed, except for such notices received that in the
aggregate do not refer to Remedial Actions that could reasonably be expected to
result in a Material Adverse Effect; and (ii) there have been no Releases by it
that could reasonably be expected to result in a Material Adverse Effect.

        3.9     NO DEFAULTS

        Except as specifically disclosed in its public filings with the
Securities and Exchange Commission, no facts or circumstances exist which would
constitute a breach of any obligation, representation or warranty of Applicant
hereunder if this Agreement were in effect immediately prior to Applicant's
execution hereof.

        3.10    SOLVENCY

        Applicant has received consideration that is the reasonably equivalent
value of the obligations and liabilities that it has incurred to Issuer.
Applicant is not insolvent as defined in any Governmental Rule, nor will it be
rendered insolvent by the execution and delivery of this Agreement or the other
Letter of Credit Documents. Applicant does not intend to, nor does it believe
that it will, incur debts beyond its ability to pay them as they mature.
Applicant has capital sufficient to carry on its business and transactions and
all business and transactions in which it is about to engage.

        3.11    COMPLIANCE WITH LAW

        Except as specifically disclosed in its public filings with the
Securities and Exchange Commission, Applicant is in compliance with all
Governmental Rules, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.

        3.12    INSURANCE

        All current policies of insurance of any kind or nature owned by or
issued to Applicant, including policies of fire, theft, product liability,
public liability, property damage,

                                                                         PAGE 14
<PAGE>

other casualty, employee fidelity, workers' compensation and employee health and
welfare insurance, are in full force and effect and are of a nature and provide
such coverage as is sufficient and as is customarily carried by companies owning
and operating properties similar to Applicant's properties.

        3.13    TRUTH, ACCURACY OF INFORMATION

        All factual information taken as a whole furnished by Applicant to
Issuer in connection with the Letter of Credit Documents is accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the information
furnished, in light of the circumstances under which furnished, not misleading
(it being recognized that the projections and forecasts provided by Applicant
are not to be viewed as facts and that actual results during the period covered
by any such projections and forecasts may differ from the projected or
forecasted results).

ARTICLE IV.     SECURITY

        4.1     THE ACCOUNT

        As security for the prompt payment and performance of the Obligations,
Applicant hereby grants Issuer a first priority security interest in the
Account, all interest and other investment income earned thereon, all other
property from time to time in the Account and all proceeds of the foregoing.
Contemporaneously herewith, Applicant, Issuer and U.S. Bank National Association
acting through its Money Center Department have entered into the Account Control
Agreement.

ARTICLE V.      CONDITIONS

        5.1     CONDITIONS OF INITIAL ISSUANCE OF LETTER OF CREDIT

        The obligation of Issuer to issue any Letter of Credit is subject to the
fulfillment to Issuer's satisfaction of all of the following conditions:

        (a)     Documentation. Issuer shall have received, in form and substance
satisfactory to it, each of the following duly executed:

                (i)     this Agreement and the Account Control Agreement;

                (ii)    a certificate of Applicant's secretary or assistant
        secretary dated as of the Closing Date as to: (A) resolutions of its
        board of directors or executive committee then in full force and effect
        authorizing the execution, delivery and performance of each of the
        Letter of Credit Documents to be executed by it; and (B) the incumbency
        and signatures of those of its officers authorized to act with respect
        to the Letter of Credit Documents to be executed by it;

                                                                         PAGE 15
<PAGE>

                (iii)   from the Secretary of State of Delaware, with respect to
        Issuer, a certificate of existence and a certified copy of its
        certificate of incorporation;

                (iv)    evidence satisfactory to Issuer that Applicant's credit
        facility with Textron Financial Corporation has been terminated;

                (v)     an opinion of Applicant's counsel as to such matters as
        Issuer shall reasonably require; and

                (vi)    such other documents as Issuer may reasonably require.

        (b)     Financial Condition. There is no event or circumstance that can
reasonably be expected to have a Material Adverse Effect.

        (c)     Fees and Expenses. Applicant shall have paid all fees and
invoiced costs and expenses then due pursuant to the terms of this Agreement.

        5.2     CONDITIONS OF EACH EXTENSION OF CREDIT

        The obligation of Issuer to issue any Letter of Credit contemplated by
this Agreement is subject to the further conditions precedent that:

        (a)     the following statements shall be true on the date of such
issuance, both before and after giving effect thereto, and the acceptance by the
beneficiary of such Letter of Credit shall constitute a representation and
warranty by Applicant that on the date of such issuance such statements are
true:

                (i)     the representations and warranties of Applicant
        contained in the Letter of Credit Documents are correct in all material
        respects on and as of such date as though made on and as of such date
        or, as to those representations and warranties limited by their terms to
        a specified date, were correct in all material respects on and as of
        such date; and

                (ii)    no Default is continuing or would result from the Letter
        of Credit being issued;

        (b)     the issuance of such Letter of Credit on such date does not
violate any Governmental Rule and is not enjoined, temporarily, preliminarily or
permanently;

        (c)     Issuer shall have received such additional documents,
information and materials as Issuer may reasonably request; and

        (d)     no event or circumstance exists that can reasonably be expected
to have a Material Adverse Effect.

                                                                         PAGE 16
<PAGE>

ARTICLE VI.     COVENANTS

        Applicant covenants that until performance and payment in full, in cash
of all Obligations, Applicant shall:

        6.1     PAYMENTS

        Pay all liabilities due under any of the Letter of Credit Documents at
the times and place and in the manner specified therein (after giving effect to
all applicable grace periods).

        6.2     ACCOUNTING RECORDS

        Keep accurate books and records of its financial affairs sufficient to
permit the preparation of financial statements therefrom in accordance with
GAAP.

        6.3     FINANCIAL INFORMATION AND REPORTS

        Provide to Issuer the following, in form and detail reasonably
satisfactory to Issuer (provided that Applicant shall not be required to comply
with the obligations and clauses (i) and (ii) below to the extent that such
financial statements are made publicly available in filings with the Securities
and Exchange Commission within such time periods):

                (i)     as soon as available, but not later than 90 days after
        and as of the end of each fiscal year, audited consolidated financial
        statements of Applicant and its subsidiaries, prepared in accordance
        with GAAP and certified by an independent certified public accountant
        acceptable to Issuer, together with such accountant's unqualified
        opinion with respect thereto;

                (ii)    as soon as available, but not later than 45 days after
        and as of the end of the first three fiscal quarters of each fiscal
        year, consolidated balance sheets of Applicant and its subsidiaries as
        of the end of such fiscal quarter and consolidated statements of
        earnings and cash flow of Applicant and its subsidiaries for such fiscal
        quarter prepared in accordance with GAAP (subject to normal year-end
        adjustments and, if Applicant so elects, without footnotes) together
        with a comparison of Applicant's financial condition for such fiscal
        quarter and year-to-date with the corresponding fiscal quarter and
        year-to-date in the immediately preceding fiscal year;

                (iii)   not later than 45 days after the end of each fiscal
        quarter, a certificate of a Responsible Officer stating that no Default
        existed at any time during such quarter, except for those events or
        conditions, if any, described in such certificate in reasonable detail,
        together with a statement of any action taken or proposed to be taken
        with respect thereto; and

                (iv)    from time to time such other information as Issuer may
        reasonably request.

                                                                         PAGE 17
<PAGE>

        6.4     COMPLIANCE

        Preserve and maintain all licenses, Permits, governmental approvals,
rights, privileges, franchises and general intangibles necessary for the conduct
of its business and comply in all material respects with all Governmental Rules,
other than, in either event, such failure to do so the consequences of which in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.

        6.5     TAXES

        Pay and discharge when due any and all Taxes, except (a) such as
Applicant may in good faith contest or as to which a bona fide dispute may arise
and for which Applicant has made provision for adequate reserves in accordance
with GAAP, or (b) where the failure to do so could not reasonably be expected to
have a Material Adverse Effect.

        6.6     NOTICE TO ISSUER

        Promptly give notice to Issuer in reasonable detail of (a) the
occurrence of any Default or (b) any litigation pending or threatened in writing
against Applicant with claims in excess of $25,000,000.

        6.7     FURTHER ASSURANCES

        At Issuer's request at any time and from time to time, duly execute and
deliver such further agreements, documents and instruments, and do or cause to
be done such further acts as may reasonably be necessary or proper to effectuate
the provisions or purposes of the Letter of Credit Documents, at Applicant's
expense.

ARTICLE VII.    EVENTS OF DEFAULT

        7.1     EVENTS OF DEFAULT

        The occurrence of any of the following shall constitute an "Event of
Default" under this Agreement:

        (a)     Applicant shall fail to pay when due any amount payable under
any of the Letter of Credit Documents;

        (b)     any financial statement or certificate furnished to Issuer in
connection with, or any representation or warranty made by Applicant under, any
of the Letter of Credit Documents shall prove to be false or misleading in any
material respect when furnished or made;

        (c)     Applicant shall fail to provide any certificate, report or other
information which it is required to provide pursuant to Section 6.3 on the date
specified in Section 6.3; provided that unless Applicant has previously failed
to provide any required certificate, report

                                                                         PAGE 18
<PAGE>

or other information by the required date on one previous occasion within the
preceding twelve months such failure shall be considered an Event of Default
only if Applicant fails to provide such certificate, report or other information
within five Business Days of the earlier of (i) the date Applicant has knowledge
of its failure to so provide such certificate, report or other information, or
(ii) the date Issuer, notifies Applicant of such failure;

        (d)     any default by Applicant in the performance of or compliance
with any obligation, agreement or other provision contained in any Letter of
Credit Document (other than those referred to in subsections (a) through (c)
above) for 30 days after written notice thereof has been given to Applicant by
Issuer;

        (e)     any default by Applicant in the payment or performance of any
obligation under the terms of any contract or instrument (other than any of the
Letter of Credit Documents) evidencing any indebtedness or liability in excess
of $35,000,000 ("Material Contract") if such default has not been cured to the
satisfaction of the affected creditor or waived by such creditor within any
applicable cure period provided under the contract or instrument if the effect
of such event or circumstance is to accelerate or to permit the acceleration of
the maturity of such indebtedness or liability; or any indebtedness or liability
under any Material Contract is declared due or required to be prepaid (other
than by a regularly scheduled required prepayment) prior to the stated maturity
thereof;

        (f)     Applicant shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally be unable to or fail to pay
its debts as they become due, or shall make a general assignment for the benefit
of creditors; Applicant shall file a voluntary petition in bankruptcy, or seek
to effect a plan or other arrangement with creditors or any other relief under
the Bankruptcy Code, or under any state or other Federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
other Federal law relating to bankruptcy, reorganization or other relief for
debtors is filed or commenced against Applicant and is not dismissed, stayed or
vacated within 60 days thereafter; Applicant shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Applicant shall be adjudicated a bankrupt, or an order for relief
shall be entered by any court of competent jurisdiction under the Bankruptcy
Code or any other applicable state or Federal law relating to bankruptcy,
reorganization or other relief for debtors; or Applicant takes any corporate
action authorizing, or in furtherance of, any of the foregoing;

        (h)     any Change of Control;

        (i)     the amount of the Obligations exceeds 95% of the amount in the
Account for five Business Days after written notice thereof has been given by
Issuer to Applicant;

        (j)     any Letter of Credit Document shall (except in accordance with
its terms), in whole or in any material part, terminate, cease to be effective
or cease to be the legally valid, binding and enforceable obligation of
Applicant; Applicant, directly or indirectly, contests in any manner such
effectiveness, validity, binding nature or enforceability; or any Lien securing
any Obligation, in whole or in any material part, ceases to be a perfected first
priority Lien.

                                                                         PAGE 19
<PAGE>

        7.2     REMEDIES

        During the continuance of any Event of Default, Issuer (i) may by
written notice to Applicant, terminate the obligations of Issuer to issue any
Letter of Credit or extend any further credit under any of the Letter of Credit
Documents, (ii) exercise all of the rights and remedies of a secured party under
the Uniform Commercial Code, (iii) declare all or any part of the Obligations to
be immediately due and payable without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived by Applicant,
and/or (iv) pursue any other right or remedy contained in the Letter of Credit
Documents and/or any other action or remedy available at law or in equity, all
of which rights and remedies shall be cumulative and nonexclusive to the extent
permitted by law. Upon the occurrence or existence of any Event of Default
described in Section 7.1(f) hereof, immediately and without notice, (A) the
obligations, if any, of Issuer to issue any Letter of Credit or extend any
further credit under any of the Letter of Credit Documents shall automatically
cease and terminate, and (B) all indebtedness of Applicant under the Letter of
Credit Documents shall automatically become immediately due and payable, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by Applicant.

ARTICLE VIII.   MISCELLANEOUS

        8.1     NOTICES

                Any notice required or permitted to be given hereunder will be
in writing, will be addressed to the party to be notified at the address set
forth below, or at such other address as each party may designate for itself
from time to time by notice hereunder, and will be deemed to have been validly
given (i) five days following deposit in the United States mail, with proper
first-class postage prepaid, (ii) the next Business Day after notice was
delivered to a regularly scheduled overnight delivery carrier, or (iii) upon
receipt of notice given by fax, or personal delivery:

                To Applicant:    Oregon Steel Mills, Inc.
                                 1000 SW Broadway, Suite 2200
                                 Portland, Oregon  97205
                                 Attn:  Jeff Stewart
                                 Fax No.:  (503) 978-4870

                                                                         PAGE 20
<PAGE>

                To Issuer:       U.S. Bank National Association
                                 National Corporate Banking
                                 PD-OR-P4CB
                                 555 SW Oak Street, Suite 400
                                 Portland, Oregon  97204
                                 Attn:  Scott J. Bell
                                 Fax No.:  (503) 275-5428

        8.2     EXPENSES; INDEMNITY; DAMAGE WAIVER

        (a)     Costs and Expenses. Applicant shall pay (i) all reasonable
out-of-pocket expenses (including Legal Fees) incurred by Issuer in connection
with the preparation, negotiation, execution, delivery and administration of the
Letter of Credit Documents or any amendments, modifications or waivers of the
provisions thereof (whether or not the transactions contemplated thereby shall
be consummated), and (ii) all reasonable out-of-pocket expenses (including Legal
Fees) incurred by Issuer in connection with the enforcement or protection of its
rights in connection with the Letter of Credit Documents and the Obligations,
including those incurred during any workout, restructuring or negotiations in
respect of the Obligations.

        (b)     Indemnification by Applicant. Applicant shall indemnify Issuer
(and any sub-agent thereof) and each Related Party of Issuer (each such Person
being called an "Indemnitee") against, and hold each Indemnitee harmless from,
any and all losses, claims, damages, liabilities and related expenses (including
Legal Fees) incurred by any Indemnitee or asserted against any Indemnitee by any
third party or by Applicant arising out of, in connection with, or as a result
of (i) the execution or delivery of any Letter of Credit Document, the
performance by the parties hereto of their respective obligations thereunder or
the consummation of the transactions contemplated thereby, (ii) the use or
proposed use of any Letter of Credit, or (iii) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory, whether brought by a third
party or by Applicant, and regardless of whether any Indemnitee is a party
thereto, provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses (x) are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross negligence or
willful misconduct of such Indemnitee or (y) result from a claim brought by
Applicant against an Indemnitee for breach in bad faith of such Indemnitee's
obligations under any Letter of Credit Document, if Applicant has obtained a
final and nonappealable judgment in its favor on such claim as determined by a
court of competent jurisdiction.

        (c)     Waiver of Consequential Damages, Etc. To the fullest extent
permitted by applicable law, Applicant shall not assert, and hereby waives, any
claim against any Indemnitee on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages)
arising out of, in connection with, or as a result of, any Letter of Credit
Document or any agreement or instrument contemplated thereby, the transactions
contemplated thereby or the use any Letter of Credit.

                                                                         PAGE 21
<PAGE>

        (d)     Payments. All amounts due under this Section 8.2 shall be
payable promptly upon demand therefor.

        (e)     Survival. This Section 8.2 shall survive the payment in full and
performance of all of Applicant's other Obligations.

        8.3     SUCCESSORS AND ASSIGNS

        The Letter of Credit Documents shall be binding upon and inure to the
benefit of the successors and assigns of the parties; provided, however, that
Applicant may not assign or otherwise transfer its interest or obligations
hereunder. Issuer may sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in, Issuer's rights and benefits under
each of the Letter of Credit Documents to any of Issuer's affiliates and, with
the prior written consent of Applicant (which consent will not be unreasonably
withheld or delayed), to any bank, financial institution or institutional
lender.

        8.4     NO WAIVER; CUMULATIVE REMEDIES

        No failure on the part of Issuer to exercise, and no delay in
exercising, any right, power, privilege or remedy under any Letter of Credit
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude any other or
further exercise thereof or the exercise of any other right, power, privilege or
remedy. The rights and remedies under the Letter of Credit Documents are
cumulative and not exclusive of any rights, powers, privileges and remedies that
may otherwise be available to Issuer.

        8.5     SETOFF

        If an Event of Default is continuing, Issuer and each of its affiliates
is hereby authorized at any time and from time to time, to the fullest extent
permitted by applicable law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final, in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by
Issuer or any such affiliate to or for the credit or the account of Applicant
against any and all of the Obligations, irrespective of whether or not Issuer
shall have made any demand under any Letter of Credit Document and although such
Obligations may be contingent or unmatured. The rights of Issuer and its
affiliates under this Section 8.5 are in addition to other rights and remedies
(including other rights of setoff) that Issuer or its affiliates may have.
Issuer shall endeavor to notify Applicant promptly after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application.

                                                                         PAGE 22
<PAGE>

        8.6     AMENDMENT; COUNTERPARTS; INTEGRATION; EFFECTIVENESS

        The Letter of Credit Documents may be amended or modified only by a
written document executed by the parties hereto. This Agreement may be executed
in counterparts (and by different parties hereto in different counterparts),
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract. The Letter of Credit Documents constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. This Agreement shall become effective
when it has been executed by Issuer and when Issuer shall have received
counterparts hereof that, when taken together, bear the signatures of each of
the other parties hereto.

        8.7     NO THIRD PARTY BENEFICIARIES

        This Agreement is made and entered into for the sole protection and
benefit of the parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party beneficiary of, or
have any direct or indirect cause of action or claim in connection with, this
Agreement or any other of the Letter of Credit Documents to which it is not a
party.

        8.8     TIME

        Time is of the essence of each and every provision of this Agreement and
each other of the Letter of Credit Documents.

        8.9     SEVERABILITY OF PROVISIONS

        If any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision or any remaining provisions of this Agreement.

        8.10    CONFIDENTIALITY

        Issuer agrees to maintain the confidentiality of the Information (as
defined below), except that Information may be disclosed (a) to its affiliates
and to its and its affiliates' respective directors, officers, employees,
agents, advisors and other representatives (it being understood that the Persons
to whom such disclosure is made will be informed of the confidential nature of
such Information and instructed to keep such Information confidential), (b) to
the extent requested by any regulatory authority purporting to have jurisdiction
over it (including any self-regulatory authority, such as the National
Association of Insurance Commissioners), (c) to the extent required by any
Governmental Rule or by any subpoena or similar legal process, (d) to any other
party hereto, (e) in connection with the exercise of any remedies under any Loan
Document or any action or proceeding relating to any Loan Document or the
enforcement of rights thereunder, (f) subject to an agreement containing

                                                                         PAGE 23
<PAGE>

provisions substantially the same as those of this Section 8.10, to (i) any
assignee of or participant in, or any prospective assignee of or participant in,
any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any swap or derivative transaction
relating to Applicant and its obligations, (g) with the consent of Applicant or
(h) to the extent such Information (x) becomes publicly available other than as
a result of a breach of this Section 8.10 or (y) becomes available to Issuer or
any of its affiliates on a nonconfidential basis from a source other than
Applicant.

        For purposes of this Section 8.10, "Information" means all information
received from Applicant relating to Applicant or its business, other than any
such information that is available to Issuer on a nonconfidential basis prior to
disclosure by Applicant, provided that, in the case of information received from
Applicant after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 8.10 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

        Notwithstanding anything herein to the contrary, "Information" shall not
include, and Issuer may disclose to any and all Persons, without limitation of
any kind, (a) any information with respect to the U.S. federal and state income
tax treatment of the transactions contemplated hereby and any facts that may be
relevant to understanding such tax treatment, which facts shall not include for
this purpose the names of the parties or any other Person named herein, or
information that would permit identification of the parties or such other
Persons, or any pricing terms or other nonpublic business or financial
information that is unrelated to such tax treatment or facts, and (b) all
materials of any kind (including opinions or other tax analyses) that are
provided to Issuer relating to such tax treatment or facts.

        8.11    GOVERNING LAW

        This Agreement shall be governed by and construed in accordance with the
laws of the State of Oregon, excluding any conflicts of law rule or principle
that might otherwise refer construction or interpretation of this Agreement to
the substantive law of another jurisdiction.

        8.12    USA PATRIOT ACT NOTICE

        Issuer hereby notifies Applicant that pursuant to the requirements of
the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) ("Act"), Issuer is required to obtain, verify and record information that
identifies Applicant, which information includes Applicant's name, address and
other information that will allow Issuer to identify Applicant in accordance
with the Act.

                                                                         PAGE 24
<PAGE>

        8.13    SUBMISSION TO JURISDICTION

        APPLICANT AND ISSUER EACH HEREBY: (A) SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF OREGON AND THE FEDERAL COURTS OF THE UNITED STATES FOR
THE DISTRICT OF OREGON FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO ANY OF THE LETTER OF CREDIT DOCUMENTS; (B) AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH COURTS; (C) IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY
APPLICABLE LAW) ANY OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING
OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING
COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM; AND (D) AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PERMITTED BY LAW.

        8.14    WAIVER OF JURY TRIAL

        APPLICANT AND ISSUER EACH, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OF THE OTHER LETTER OF CREDIT DOCUMENTS OR ANY
OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND/OR ANY OF THE OTHER LETTER OF
CREDIT DOCUMENTS. A COPY OF THIS SECTION MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY
COURT.

        8.15    OREGON STATUTORY NOTICE

        UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY
ISSUER CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL,
FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE APPLICANT'S RESIDENCE MUST
BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY ISSUER TO BE ENFORCEABLE.

                                                                         PAGE 25
<PAGE>

        IN WITNESS WHEREOF, this Letter of Credit Facility Agreement has been
duly executed as of the date first written above.

                                        OREGON STEEL MILLS, INC.

                                        By:      /s/ L. RAY ADAMS
                                                 -------------------------------
                                        Title:   CF0

                                        U.S. BANK NATIONAL ASSOCIATION

                                        By:      /s/ SCOTT J. BELL
                                                 -------------------------------
                                        Title:   SVP

                                                                         PAGE 26Exhibit 10.1

SECOND AMENDMENT

          THIS SECOND AMENDMENT (this “Amendment”) dated as of January 25, 2005 is entered into among REGAL-BELOIT CORPORATION (the “Company”), various financial institutions, BANK OF AMERICA, N.A., as Syndication Agent, and M&I MARSHALL & ILSLEY BANK, as Administrative Agent.

W I T N E S S E T H:

          WHEREAS, the Company, various financial institutions (the “Banks”), the Syndication Agent and the Administrative Agent are parties to an Amended and Restated Credit Agreement dated as of May 5, 2004 (as previously amended, the “Credit Agreement”; capitalized terms used but not defined herein have the respective meanings given to them in the Credit Agreement); and

          WHEREAS, the parties hereto desire to amend the Credit Agreement as hereinafter set forth;

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

          SECTION 1.     AMENDMENT TO CREDIT AGREEMENT.  Effective on the Amendment Effective Date (as defined below), Section 10.9(d) the Credit Agreement is amended by replacing the reference to “35% of Tangible Net Worth as of the last day of the immediately preceding Fiscal Year” with “$50,000,000”.

          SECTION 2.     REPRESENTATIONS AND WARRANTIES.  The Company represents and warrants to the Banks and the Administrative Agent that:

          2.1     Authorization; No Conflict.  The execution and delivery by the Company of this Amendment and the performance by the Company of its obligations under the Credit Agreement as amended hereby (as so amended, the “Amended Credit Agreement”) have been duly authorized by all necessary corporate action (including any necessary shareholder action), have received all necessary governmental approval (if any shall be required), and do not and will not (a) violate any provision of law or any order, decree or judgment of any court or other government agency which is binding on the Company or any Guarantor, (b) contravene or conflict with, or result in a breach of, any provision of the certificate of incorporation, partnership agreement, by-laws or other organizational documents of the Company or any Guarantor or of any agreement, indenture, instrument or
other document which is binding on the Company, any Guarantor or any other Subsidiary or (c) result in, or require, the creation or imposition of any Lien on any property of the Company, any Guarantor or any other Subsidiary.

          2.2     Validity and Binding Nature.  This Amendment has been duly executed and delivered by the Company, and this Amendment and the Amended Credit Agreement are legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

          2.3     Reaffirmation of Warranties.  The warranties contained in Section 9 of the Amended Credit Agreement are true and correct on the date of this Amendment, except to the extent that such warranties solely relate to an earlier date.

          SECTION 3.     CONDITIONS PRECEDENT.  This Amendment shall become effective on the date (the “Amendment Effective Date”) on which the Administrative Agent has received the following:

          3.1     Counterparts.  Executed counterparts of this Amendment from the Company and the Required Banks.

          3.2     Confirmation.  A confirmation, substantially in the form of Attachment 1 hereto, executed by each Loan Party.

          SECTION 4.      Miscellaneous.

          4.1     Expenses.  The Company agrees to pay on demand all reasonable costs and expenses of the Administrative Agent and the Syndication Agent (including fees, charges and expenses of counsel for the Administrative Agent and the Syndication Agent) in connection with the preparation, negotiation, execution and delivery of this Amendment and all other instruments or documents provided for herein or delivered or to be delivered hereunder or in connection herewith.  All obligations provided in this Section 4.1 shall survive any termination of this Amendment and the Amended Credit Agreement.

          4.2     Captions.  Section captions used in this Amendment are for convenience only and shall not affect the construction of this Amendment.

          4.3     Governing Law.  THIS AMENDMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.  Wherever possible each provision of this Amendment shall be interpreted in such manner as to be effective and valid under applicable laws, but if any provision of this Amendment shall be prohibited by or invalid under such laws, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.

          4.4     Counterparts.  This Amendment may be executed in any number of counterparts, and by the parties hereto on the same or separate counterparts, and each such counterpart, when executed and delivered, shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Amendment.  A counterpart hereof (or a signature page hereto) delivered by facsimile shall be effective as an original.

          4.5     References to Credit Agreement.  Except as herein amended, the Credit Agreement shall remain in full force and effect and is hereby ratified in all respects.  On and after the effectiveness of the amendment to the Credit Agreement accomplished hereby, each reference in the Amended Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import, and each reference to the Credit Agreement in any Note and in any other agreement, document or other instrument executed and delivered pursuant to the Credit Agreement, shall mean and be a reference to the Amended Credit Agreement.

          4.6     Successors and Assigns.  This Amendment shall be binding upon the parties hereto and their respective successors and assigns, and shall inure to the sole benefit of the parties hereto and the successors and assigns of the Administrative Agent and the Banks.

          IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first above written.

	
   
  	
  
REGAL-BELOIT CORPORATION
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ KENNETH F. KAPLAN
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Title:
  	
  
Vice President, Treasurer   and Secretary
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
   
  	
  
M&I MARSHALL & ILSLEY BANK, as   Administrative Agent, Issuing Bank, Swing Line Bank and as a Bank
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ JAMES R. MILLER
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Title:  
  	
  
Vice President
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ STEPHEN F. GEIMER
  
	
   
  	
  
 
  	
  

  
	
  
 
  	
  
Title:
  	
  
Senior Vice President
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
BANK OF AMERICA, N.A., as Syndication Agent and as a Bank
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ MARK R. MOTUELLE
  
	
   
  	
  
 
  	
  

  
	
  
 
  	
  
Title:
  	
  
Vice President
  

ATTACHMENT 1
 CONFIRMATION

January 25, 2005

To the Agents and the Banks under
      and as defined in the Credit
      Agreement referred to below

          Re: Regal-Beloit Corporation

Ladies and Gentlemen:

          Please refer to the Second Amendment dated as of the date hereof (the “Amendment”) to the Amended and Restated Credit Agreement dated as of May 5, 2004 (as amended, the “Credit  Agreement”) among Regal-Beloit Corporation, various financial institutions, Bank of America, N.A., as Syndication Agent, and M&I Marshall & Ilsley Bank, as Administrative Agent.  Capitalized terms not defined herein are used as defined in the Credit Agreement. 

          Each of the undersigned hereby confirms to the Agents and the Banks that, after giving effect to the Amendment, each Loan Document to which such undersigned is a party continues in full force and effect and is the legal, valid and binding obligation of such undersigned, enforceable against such undersigned in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

          IN WITNESS WHEREOF, each of the undersigned has caused this Confirmation to be executed and delivered by its duly authorized representative as of the date first above written.

	
  
 
  	
  
REGAL-BELOIT CORPORATION
  
	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ KENNETH F. KAPLAN
  
	
  
 
  	
  
 
  	
  

  
	
  
 
  	
  
Title: 
  	
  
Vice President, Treasurer   and Secretary
  
	
   
  	
  
 
  	
  
 
  
	
  
 
  	
  
 
  	
  
 
  
	
  
 
  	
  
LEESON ELECTRIC CORPORATION
  
	
  
 
  	
  
HUB CITY, INC.
  
	
  
 
  	
  
MARATHON ELECTRIC MANUFACTURING CORPORATION
  
	
  
 
  	
  
 
  
	
  
 
  	
  
By:
  	
  
/s/ KENNETH F. KAPLAN
  
	
   
  	
   
  	
  

  
	
   
  	
  Name: 
  	
  Kenneth F. Kaplan
  
	
   
  	
  Title:
  	
  Secretary and Treasurer

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00084-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00084-of-00352.parquet"}]]