AGREEMENT OF LIMITED PARTNERSHIP OF CHAPARRAL STEEL MIDLOTHIAN, LP

1.1

Definitions. Unless the context requires otherwise, the following terms shall have the meanings specified in this Section 1.1:

1.1.1

Act: The Delaware Revised Uniform Limited Partnership Act.

1.1.2

Additional Capital Contributions: The additional capital contributions described in Section 3.4.

1.1.3

Adjusted Capital Account Deficit: With respect to any Partner, the deficit balance, if any, in such Partner’s Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments:

(a)

Credit to such Capital Account any amounts which such Partner (1) is obligated to restore to the Partnership upon liquidation of its interest in the Partnership (or which is so treated pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law or (2) is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (3) the Partner’s share (as determined under Code Section 752) of any recourse indebtedness of the Partnership to the extent that such indebtedness could not be repaid out of the Partnership’s assets if all of the Partnership’s assets were sold at their respective Book Values as of the end of the Fiscal Year or other period and the proceeds from the sales were used to pay the Partnership’s liabilities; and

(b)

Debit to such Capital Account the items described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2) (ii)(d)(6) of the Regulations.

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith. For purposes of clause (a)(3) above, the amounts computed pursuant to clause (a)(1) above for each Partner shall be considered to be proceeds from the sale of the assets of the Partnership to the extent such amounts would be available to satisfy (directly or indirectly) the indebtedness specified in clause (a)(3).

1.1.4

Affiliate: With respect to any Person, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Person in question. As used herein, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or interests, by contract, or otherwise.

1.1.5

Agreement: This Agreement of Limited Partnership of Chaparral Steel Midlothian, LP and any amendments hereto.

1.1.6

Bankruptcy: A Person shall be deemed bankrupt if:

(a)

any proceeding is commenced against such Person as “debtor” for any relief under bankruptcy or insolvency laws, or laws relating to the relief of debtors, reorganizations, arrangements, compositions, or extensions and such proceeding is not dismissed within sixty (60) days after such proceeding has commenced, or

(b)

such Person commences any proceeding for relief under bankruptcy or insolvency laws or laws relating to the relief of debtors, reorganizations, arrangements, compositions, or extensions.

1.1.7

Book Value: With respect to any asset, the asset’s adjusted basis for federal income tax purposes, except as follows:

(a)

the initial Book Value of any asset contributed (or deemed contributed under Regulations Section 1.708-1(b)(1)(iv)) by a Partner to the Partnership shall be the asset’s gross fair market value at the time of the contribution;

(b)

the Book Value of all Partnership assets shall be adjusted to equal their respective gross fair market values, as determined by the General Partner in its reasonable judgment:

(i)

if the General Partner reasonably determines an adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership as of (1) the

acquisition of an additional interest in the Partnership by any new or existing Partner in exchange for more than a de minimis capital contribution, or (2) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership; and

(ii)

as of the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);

(c)

the Book Value of any Partnership asset distributed to any Partner will be the gross fair market value of the asset on the date of distribution; and

(d)

the Book Values of Partnership assets will be increased or decreased to reflect any adjustment to the adjusted basis of the assets under Code Sections 734(b) or 743(b), but only to the extent that the adjustment is taken into account in determining Capital Accounts under Regulations Section 1.704-1(b)(2)(iv)(m), provided that Book Values will not be adjusted hereunder to the extent that the General Partner determines that an adjustment under clause (b) is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment under this clause (d).

1.1.8

Capital Account: The capital account of a Partner established and maintained in accordance with Section 5.1.

1.1.9

Capital Contributions: With respect to any Partner, the amount of money actually contributed (or deemed contributed pursuant to Regulations Section 1.704-1(b)(2)(iv)(c)) to the Partnership and the initial Book Value of any property (other than money) contributed to the Partnership with respect to the interest in the Partnership held by that Partner (net of any liabilities secured by such property that the Partnership is considered to assume or to take subject to Code Section 752). Any reference in this Agreement to the Capital Contribution of a Partner will include a Capital Contribution made by any prior Partner with respect to the Partnership interest of the Partner.

1.1.10

Capital Transaction: The sale, exchange or other disposition of all or any portion of the property of the Partnership other than in the ordinary course of business of the Partnership. Capital Transactions include the financing

or refinancing of Partnership property which creates excess funds not needed for Operations and which funds, in the opinion of the General Partner, are available for distribution to the Partners.

1.1.11

Code: The United States Internal Revenue Code of 1986, as now existing or hereafter amended. References to sections of the Code include successor provisions to those sections.

1.1.12

Depreciation: For each taxable year or other period, an amount equal to the depreciation, amortization or other cost recovery deduction allowable with respect to an asset for the year or other period, except that if the Book Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of the year or other period, Depreciation will be an amount which bears the same ratio to the beginning Book Value as the federal income tax depreciation, amortization or other cost recovery deduction for the year or other period bears to the beginning adjusted tax basis, provided that if the federal income tax depreciation, amortization, or other cost recovery deduction for the year or other period is zero, Depreciation will be determined with reference to the beginning Book Value using any reasonable method selected by the General Partner.

1.1.13

Fiscal Year: The period commencing on June 1 of each year and ending on May 31 of such year.

1.1.14

General Partner: Chaparral Steel Texas, Inc., a Delaware corporation.

1.1.15

Gross Income: For each Fiscal Year or other period, an amount equal to the Partnership’s gross income as determined for federal income tax purposes for such Fiscal Year or period but computed with the adjustments specified in Section 1.1.20(a) and (c).

1.1.16

Initial Capital Contributions: The Capital Contributions of the General Partner made pursuant to Section 3.1 and the Limited Partners made pursuant to Sections 3.2 and 3.3.

1.1.17

Limited Partners: Chaparral Steel Company, a Delaware corporation, the transferees pursuant to the Initial Transfer and Subsequent Transfer as defined in Section 7.2.2 hereof, and any other Person who is admitted to the Partnership as a Limited Partner and shown as a Limited Partner on the books and records of the Partnership.

1.1.18

Net Cash Flow: All cash funds from operations of the Partnership on hand or on deposit from time to time after (i) payment of all operating expenses payable as of the date in question, (ii) provision for payment of all outstanding and unpaid Partnership obligations due and payable as of the date in question or within sixty (60) days thereafter, and (iii) the establishment of such reasonable reserves as the General Partner, in its sole discretion, deems appropriate for the operating needs of the Partnership. “Net Cash Flow” shall not include or reflect any proceeds received or expenses incurred in connection with a Capital Transaction.

1.1.19

Net Proceeds of a Capital Transaction: The net proceeds received by the Partnership in connection with a Capital Transaction after payment of all costs and expenses incurred by the Partnership in connection with such Capital Transaction, including, without limitation, brokers’ commissions, loan fees, other closing costs, the cost of any alteration, improvement, restoration or repair of Partnership assets necessitated by or incurred in connection with such Capital Transaction, any reserves that the General Partner believes in good faith should be established and the payment of any loans owed by the Partnership to any of the Partners, plus any other loans that should be appropriately paid, as determined by the General Partner in its reasonable discretion.

1.1.20

Net Profit and Net Loss: For each Fiscal Year or other period, an amount equal to the Partnership’s taxable income or loss for such Fiscal Year or period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss) with the following adjustments:

(a)

any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Profit or Net Loss shall be added to such taxable income or loss;

(b)

any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Net Profit or Net Loss shall be subtracted from such taxable income or loss;

(c)

gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Book Value of such property notwithstanding that the Book Value of such asset differs from its adjusted tax basis;

(d)

gain or loss resulting from any adjustment pursuant to Section 1.1.7(b) shall be taken into account as gain or loss from disposition of the asset for purposes of computing Net Profit or Net Loss hereunder;

(e)

gain or loss resulting from any adjustment attributable to an in-kind distribution of assets to any Partner pursuant to Sections 5.2 shall be taken into account as gain or loss from disposition of the asset for purposes of computing Net Profit or Net Loss hereunder;

(f)

in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year or other period as determined under Regulations Section 1.704-1(b)(2)(iv)(g)(3);

(g)

the amount of any Gross Income specially allocated to the Partners pursuant to Sections 4.7 through 4.9 and 4.14 shall not be included as income or revenue; and

(h)

any amount allocated pursuant to Sections 4.11 through 4.14 shall not be included as a gain, loss or deduction.

1.1.21

Net Profit and Net Loss from Capital Transactions: Net Profit and Net Loss including only those items of income, gain, loss and deduction relating to Capital Transactions.

1.1.22

Net Profit and Net Loss from Operations: Net Profit and Net Loss excluding those items of income, gain, loss and deduction related solely to Capital Transactions.

1.1.23

Nonrecourse Deductions: Losses, deductions or Code Section 705(a)(2)(B) expenditures attributable to Nonrecourse Liabilities of the Partnership. The amount of Nonrecourse Deductions for any Fiscal Year or other period shall be determined in accordance with the provisions of Regulations Section 1.704-2(c).

1.1.24

Nonrecourse Liability: A nonrecourse liability as defined in Regulations Section 1.752-1(a)(2).

1.1.25

Operations: All operations and activities of the Partnership other than those related to or consisting of a Capital Transaction.

1.1.26

Partner: A Partner of the Partnership, including the General Partner and the Limited Partner.

1.1.27

Partner Nonrecourse Debt: Any Nonrecourse Liability of the Partnership for which any Partner or related person bears the economic risk of loss under Regulations Section 1.752-2.

1.1.28

Partner Nonrecourse Debt Minimum Gain: The minimum gain attributable to Partner Nonrecourse Debt as determined under Regulations Section 1.704-2(i)(3).

1.1.29

Partner Nonrecourse Deductions: Partnership losses, deductions or Code Section 705(a)(2)(B) expenditures attributable to a particular Partner Nonrecourse Debt. The amount of Partner Nonrecourse Deductions for any Fiscal Year or other period shall be determined in accordance with the provisions of Regulations Section 1.704-2(i)(2).

1.1.30

Partnership: Chaparral Steel Midlothian, LP, a Delaware limited partnership.

1.1.31

Partnership Certificate: The certificate of limited partnership of the Partnership filed in conformance with the Act.

1.1.32

Partnership Minimum Gain: The amount computed under Regulations Section 1.704-2(d)(1) with respect to the Partnership’s Nonrecourse Liabilities.

1.1.33

Partnership Percentage or Percentages: The percentages of the Partners as follows:

1.1.34

Partnership Term: The period of duration of the Partnership, as set forth in Section 2.5.

1.1.35

Person: Any individual, partnership, corporation, trust or other legal entity.

1.1.36

Regulations: The Income Tax Regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

1.1.37

Tax Matters Partner: The General Partner.

1.1.38

Transfer: Any sale, assignment, transfer, lease or other disposal of property, including without limitation, an interest in the Partnership.

1.2

References. Unless otherwise specified herein, references in this Agreement to “Section,” “Subsection,” “Article,” or “Exhibit” refer to the sections, subsections, articles, or exhibits in this Agreement.

2.1

Formation of the Limited Partnership. The General Partner and the Limited Partner hereby form the Partnership as a limited partnership pursuant to and in accordance with the provisions of the Act.

2.2

Partnership Name. The business of the Partnership will be conducted under the name Chaparral Steel Midlothian, LP or such other name or names as the General Partner may determine.

2.3

Purpose. The purpose of the Partnership is to (i) manufacture and market steel products; (ii) own, manage, operate, mortgage, sell and otherwise deal with the assets of the Partnership; and, (iii) engage in such other activities as the General Partner shall deem appropriate, to the extent such activities may be carried on under applicable law and are not prohibited by the terms and provisions of this Agreement.

2.4

Principal and Registered Office. The principal office of the Partnership is at 300 Ward Road, Midlothian, Texas 76065. The General Partner has a business office at the Partnership’s principal office. The registered office of the Partnership is at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 and The Corporation Trust Center is the registered agent of the Partnership. The General Partner may change the principal or registered office or registered agent of the Partnership from time to time. The General Partner may establish, maintain and abandon one or more additional places of business for the Partnership.

2.5

Term of the Partnership. The term of the Partnership shall commence upon the filing and recording of the Partnership Certificate, and shall continue until December 31, 2046, unless earlier terminated pursuant to the terms of this Agreement.

3.1

Initial Capital Contributions of General Partner. Upon the formation of the Partnership, the General Partner has contributed $10.00 to the Partnership. Following the formation the General Partner shall contribute one percent (1%) of the manufacturing and operating assets previously held by Chaparral Steel Company (to consist of cash and receivables) to the Partnership. The General Partner shall not otherwise be required to make additional contributions to the Partnership except as provided in Sections 3.4 and 5.5.

3.2

Initial Capital Contribution of Limited Partner. Upon the formation of the Partnership, the Limited Partner has contributed $990.00 to the Partnership. Following the formation Chaparral Steel Company shall convey to the Partnership as a contribution on behalf of the Limited Partner ninety-nine percent (99%) of the manufacturing and operating assets of Chaparral Steel Company. Such conveyance shall be in lieu of a conveyance to Chaparral Steel Holdings, Inc., a conveyance by Chaparral Steel Holdings, Inc. to Chaparral Steel Trust, and a conveyance by Chaparral Steel Trust to the Partnership. The Limited Partner shall not be required to make additional contributions to the Partnership except as specified in Sections 3.4 and 5.5.

3.3

Authorization of Partner Loans. Subject to the limitations herein and to other agreements of the Partnership, the General Partner from time to time may cause the Partnership to borrow required amounts from one or more Partners or their Affiliates. Loans made by Partners or Affiliates under this Section 3.3 will not be considered a contribution to the capital of the Partnership, but will constitute indebtedness of the Partnership to the advancing Partner or Affiliate, payable from the first available net cash flow of the Partnership unless otherwise agreed by the lending Partner or Affiliate and, to the extent still unpaid, upon the termination and liquidation of the Partnership. Each loan by a Partner or Affiliate will bear simple interest compounded annually on the unpaid principal balance at the interest rate approved by the General Partner. The Partners will not be personally liable for loans made by Partners or Affiliates under this Section 3.3 or be obligated to make contributions to the capital of the Partnership to repay those loans. Loans made by Partners or Affiliates under this Section 3.3 will be payable only from the assets of the Partnership.

3.4

Additional Capital Contributions. The Partners may make Additional Capital Contributions to the Partnership from time to time as may be required to meet the demands of the business of the Partnership. The Partners shall contribute such Additional Capital Contributions in cash in proportion to the Partners’ Partnership Percentages.

4.1

Distribution of Net Cash Flow. Net Cash Flow shall be distributed among the Partners in accordance with their Partnership Percentages at such times and in such amounts as shall be determined by the General Partner.

4.2

Distribution of Net Proceeds of a Capital Transaction. Net Proceeds of a Capital Transaction shall be distributed among the Partners in accordance with their Partnership Percentages at such times and in such total amounts as shall be determined by the General Partner.

4.3

Return of and Interest on Capital Contributions. No Partner is entitled to the return of his Capital Contributions or his Capital Account or to be paid interest in respect of either his Capital Account or any Capital Contribution made by him to the Partnership except as provided in this Agreement.

4.4

Payments. The amount of any distribution or payment to a Partner whether pursuant to Article 4 or Article 9 hereof may be made in cash or in-kind or partially in cash and partially in-kind in the reasonable discretion of the General Partner or the liquidating trustees, as the case may be, less reasonable reserves established in the reasonable discretion of the General Partner or the liquidating trustees, as the case may be, for known or unknown liabilities of the Partnership.

4.5

In-Kind Distributions. All distributions of assets in-kind shall be made at Book Value as determined pursuant to Section 5.3 and shall be distributed to the Partners in the same manner as a distribution of Net Proceeds of a Capital Transaction would have been made if such assets had been sold. The Net Profit or Net Loss resulting from distribution will be allocated in accordance with Section 4.6.3 or Section 4.6.4, as the case may be.

4.6

Allocations of Net Profit and Net Loss.

4.6.1

Net Profit From Operations.

(a)

If any Net Loss has been allocated to the Partners pursuant to Section 4.6.2 or Section 4.6.4, then Net Profit from Operations shall first be allocated to the Partners, in the same proportions as such Net Loss was allocated, until each Partner’s Capital Account balance equals what it would have been had there been no such allocation of Net Loss.

(b)

After any allocation required pursuant to Section 4.6.1(a), Net Profit from Operations shall be allocated among the Partners in accordance with their Partnership Percentages.

4.6.2

Net Loss From Operations.

(a)

If any Net Profit has been allocated to the Partners pursuant to Section 4.6.1 or Section 4.6.3, then Net Loss from Operations shall first be allocated to the Partners, in the same proportions as such Net Profit was allocated, until each Partner’s Capital Account balance equals what it would have been had there been no such allocation of Net Profit.

(b)

After any allocation required pursuant to Section 4.6.2(a) Net Loss from Operations shall be allocated among the Partners in proportion to their Capital Accounts until such Capital Account balances equal zero.

(c)

After any allocation required pursuant to Section 4.6.2(b), Net Loss from Operations shall be allocated to the General Partner.

4.6.3

Net Profit From Capital Transactions.

(a)

If any Net Loss has been allocated to the Partners pursuant to Section 4.6.2 or Section 4.6.4, then Net Profit from Capital Transactions shall first be allocated to the Partners, in the same proportions as such Net Loss was allocated, until each Partner’s Capital Account balance equals what it would have been had there been no such allocation of Net Loss.

(b)

After any allocation required pursuant to Section 4.6.3(a), Net Profit from Capital Transactions shall be allocated among the Partners in accordance with their Partnership Percentages.

4.6.4

Net Loss From Capital Transactions.

(a)

If any Net Profit has been allocated to the Partners pursuant to Section 4.6.1 or Section 4.6.3, then Net Loss from Capital Transactions shall first be allocated to the Partners, in the same proportions as such Net Profit was