ex4-2.htm


     

    
      

      

    

    
      Exhibit
4.2

       [FORM
OF WARRANT]

       

      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.

       

      CHINA
ARMCO METALS, INC.

       

      Warrant
To Purchase Common Stock

       

      Warrant
No.:                                           

      Date of
Issuance: April [___], 2010 (“Issuance Date”)

       

      China Armco Metals, Inc., a Nevada corporation (the “Company”), hereby certifies
that, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, ______________, the registered holder hereof or its
permitted assigns (the “Holder”), is entitled, subject
to the terms set forth below, to purchase from the Company, at the Exercise
Price (as defined below) then in effect, upon exercise of this Warrant to
Purchase Common Stock (including any Warrants to Purchase Common Stock issued in
exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the 181st day
following the Issuance Date (the “Initial Exercise Date”), but
not after 11:59 p.m., New York time, on the Expiration Date (as defined below),
[______________]1 (subject to adjustment as provided herein)
fully paid and nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). Except as
otherwise defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. This Warrant is
one of the Warrants to Purchase Common Stock (the “SPA Warrants”) issued pursuant
to Section 1 of that certain Securities Purchase Agreement, dated as of April
20, 2010, by and among the Company and the investors (the “Buyers”) referred to therein
(the “Securities Purchase
Agreement”).

       

      
        	
                1.  

              	
                EXERCISE OF
      WARRANT.

              


      

       

      (a) Mechanics of
Exercise. Subject
to the terms and conditions hereof (including, without limitation, the
limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder on
any day on or after the Initial Exercise Date, in whole or in part, by delivery
(whether via facsimile or otherwise) of a written notice, in the form attached
hereto as Exhibit A (the
“Exercise Notice”), of
the Holder’s election to exercise this Warrant. Within one (1) Trading Day
following an exercise of this Warrant as aforesaid, the Holder shall deliver
payment to the Company of an amount equal to the Exercise Price in effect on the
date of such exercise multiplied by the number of Warrant Shares as to which
this Warrant was so exercised (the “Aggregate Exercise Price”) in
cash or via wire transfer of immediately available funds if the Holder did not
notify the Company in such Exercise Notice that such exercise was
made

       

      

        

      

        
        1  100%
warrant coverage.

         

      


      
        
           


        

        
          - 1
-

          
            

          

        

        
           


        

      


      pursuant
to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the
original of this Warrant in order to effect an exercise hereunder. Execution and
delivery of an Exercise Notice with respect to less than all of the Warrant
Shares shall have the same effect as cancellation of the original of this
Warrant and issuance of a new Warrant evidencing the right to purchase the
remaining number of Warrant Shares. Execution and delivery of an Exercise Notice
for all of the then-remaining Warrant Shares shall have the same effect as
cancellation of the original of this Warrant after delivery of the Warrant
Shares in accordance with the terms hereof. On or before the first (1st)
Trading Day following the date on which the Company has received an Exercise
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation of receipt of such Exercise Notice to the Holder and the Company’s
transfer agent (the “Transfer
Agent”). On or before the third (3rd)
Trading Day following the date on which the Company has received such Exercise
Notice, the Company shall (X) provided that the Transfer Agent is participating
in The Depository Trust Company (“DTC”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer
Program, issue and deliver to the Holder or, at the Holder’s instruction
pursuant to the Exercise Notice, the Holder’s agent or designee, in each case,
sent by reputable overnight courier to the address as specified in the
applicable Exercise Notice, a certificate, registered in the Company’s share
register in the name of the Holder or its designee (as indicated in the
applicable Exercise Notice), for the number of shares of Common Stock to which
the Holder is entitled pursuant to such exercise. Upon delivery of an Exercise
Notice, the Holder shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date such Warrant Shares are credited to the
Holder’s DTC account or the date of delivery of the certificates evidencing such
Warrant Shares (as the case may be). If this Warrant is submitted in connection
with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by
this Warrant submitted for exercise is greater than the number of Warrant Shares
being acquired upon an exercise, then, at the request of the Holder, the Company
shall as soon as practicable and in no event later than three (3) Business Days
after any exercise and at its own expense, issue and deliver to the Holder (or
its designee) a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this
Warrant, less the number of Warrant Shares with respect to which this Warrant is
exercised. No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock to be
issued shall be rounded up to the nearest whole number. The Company shall pay
any and all taxes which may be payable with respect to the issuance and delivery
of Warrant Shares upon exercise of this Warrant.

       

      (b) Exercise
Price. For
purposes of this Warrant, “Exercise Price” means $7.50, subject to adjustment
as provided herein.

       

      (c) Company’s Failure to Timely
Deliver Securities. If
within five (5) Trading Days after the Company’s receipt of the applicable
Exercise Notice, the Company shall fail to issue and deliver a certificate to
the Holder and register such shares of Common Stock on the Company’s share
register or credit the Holder’s balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise hereunder (as the case may be), and if on or after such fifth (5th)
Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of shares of Common Stock issuable upon such exercise that the Holder
anticipated receiving from the Company, then, in addition to all other remedies
available to the Holder, the Company shall, within five (5) Business Days after
the Holder’s request and in the Holder’s discretion, either (i) pay cash to the
Holder in an amount equal to the Holder’s total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In Price”), at
which point the Company’s obligation to deliver such certificate or credit the
Holder’s balance account with DTC for the number of shares of

       


      
        
           


        

        
          - 2
-

          
            

          

        

        
           


        

      


      Common
Stock to which the Holder is entitled upon the Holder’s exercise hereunder (as
the case may be) (and to issue such shares of Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s exercise hereunder (as the case may be) and
pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock times (B)
the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the date of the applicable Exercise Notice.

       

      (d) Cashless
Exercise.
Notwithstanding anything contained herein to the contrary (other than Section 1(f) below), if at any
time after the six-month anniversary of the Closing Date there is no effective
Registration Statement (as defined in the Securities Purchase Agreement)
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then the Holder may, in its sole discretion, exercise this
Warrant in whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such exercise the “Net
Number” of shares of Common Stock determined according to the following formula
(a “Cashless
Exercise”):

       

      Net Number = (A x B) - (A x
C)

       

      B

       

      For purposes of the foregoing
formula:

       

      A= the
total number of shares with respect to which this Warrant is then being
exercised.

       

      B= as
applicable: (i) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the date of the applicable Exercise Notice if such
Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that
is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading
Day prior to the opening of “regular trading hours” (as defined in Rule
600(b)(64) of Regulation NMS promulgated under the federal securities laws) on
such Trading Day, (ii) the Bid Price of the Common Stock as of the time of the
Holder’s execution of the applicable Exercise Notice if such Exercise Notice is
executed during “regular trading hours” on a Trading Day and is delivered within
two (2) hours thereafter pursuant to Section 1(a) hereof and (iii) the Closing Sale Price of the
Common Stock on the date of the applicable Exercise Notice if the date of such
Exercise Notice is a Trading Day and such Exercise Notice is both executed and
delivered pursuant to Section 1(a) hereof after the close of “regular trading hours”
on such Trading Day.

       

      
        	
                 
      

              	
                C=
      the Exercise Price then in effect for the applicable Warrant Shares at the
      time of such exercise.

              


      

       

      (e) Disputes.  In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the number of Warrant Shares to be issued pursuant to
the terms hereof, the Company shall promptly issue to the Holder the number of
Warrant Shares that are not disputed and resolve such dispute in accordance with
Section 13.

       

      (f) Beneficial Ownership.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
shall not be exercisable by the Holder hereof to the extent (but only to the
extent) that the Holder or any of its affiliates would beneficially own in
excess of 4.9% (the “Maximum
Percentage”) of the Common Stock.

       


      
        
           


        

        
          - 3
-

          
            

          

        

        
           


        

      


      To the
extent the above limitation applies, the determination of whether this Warrant
shall be exercisable (vis-à-vis other convertible, exercisable or exchangeable
securities owned by the Holder or any of its affiliates) and of which such
securities shall be exercisable (as among all such securities owned by the
Holder) shall, subject to such Maximum Percentage limitation, be determined on
the basis of the first submission to the Company for conversion, exercise or
exchange (as the case may be). No prior inability to exercise this Warrant
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination
of exercisability. For the purposes of this paragraph, beneficial ownership and
all determinations and calculations (including, without limitation, with respect
to calculations of percentage ownership) shall be determined in accordance with
Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement)
and the rules and regulations promulgated thereunder. The provisions of this
paragraph shall be implemented in a manner otherwise than in strict conformity
with the terms of this paragraph to correct this paragraph (or any portion
hereof) which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this paragraph shall apply
to a successor Holder of this Warrant. The holders of Common Stock shall be
third party beneficiaries of this paragraph and the Company may not waive this
paragraph without the consent of holders of a majority of its Common Stock. For
any reason at any time, upon the written or oral request of the Holder, the
Company shall within one (1) Business Day confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding, including by
virtue of any prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation, pursuant to this
Warrant or securities issued pursuant to the Securities Purchase
Agreement.

       

      (g) Insufficient Authorized
Shares. The
Company shall at all times keep reserved for issuance under this Warrant a
number of shares of Common Stock as shall be necessary to satisfy the Company’s
obligation to issue shares of Common Stock hereunder (without regard to any
limitation otherwise contained herein with respect to the number of shares of
Common Stock that may be acquirable upon exercise of this Warrant). If,
notwithstanding the foregoing, and not in limitation thereof, at any time while
any of the SPA Warrants remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon exercise of the SPA Warrants at
least a number of shares of Common Stock equal to the number of shares of Common
Stock as shall from time to time be necessary to effect the exercise of all of
the SPA Warrants then outstanding (the “Required Reserve Amount”) (an
“Authorized Share
Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for all
the SPA Warrants then outstanding. Without limiting the generality of the
foregoing sentence, as soon as practicable after the date of the occurrence of
an Authorized Share Failure, but in no event later than sixty (60) days after
the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

       

      2. ADJUSTMENT
OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and number
of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 2.

       

      (a) Stock Dividends and
Splits. Without
limiting any provision of Section 4, if the
Company, at any time on or after the date of the Securities Purchase Agreement,
(i) pays a stock dividend on one or more classes of its then outstanding shares
of Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock,

       


      
        
           


        

        
          - 4
-

          
            

          

        

        
           


        

      


      (ii)
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its then outstanding shares of Common Stock into a larger
number of shares or (iii) combines (by combination, reverse stock split or
otherwise) one or more classes of its then outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event.  Any adjustment made pursuant to clause
(i) of this paragraph shall become effective immediately after the record date
for the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
paragraph occurs during the period that an Exercise Price is calculated
hereunder, then the calculation of such Exercise Price shall be adjusted
appropriately to reflect such event.

       

      (b) [RESERVED]

       

      (c) Number of Warrant
Shares.
Simultaneously with any adjustment to the Exercise Price pursuant to paragraph
(a) of this Section 2, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Exercise Price in effect immediately prior to such
adjustment (without regard to any limitations on exercise contained
herein).

       

      (d) Other
Events. In the
event that the Company (or any Subsidiary thereof) shall take any action to
which the provisions hereof are not strictly applicable, or, if applicable,
would not operate to protect the Holder from dilution or if any event occurs of
the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company’s
board of directors shall in good faith determine and implement an appropriate
adjustment in the Exercise Price and the number of Warrant Shares (if
applicable) so as to protect the rights of the Holder, provided that no such
adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the
number of Warrant Shares as otherwise determined pursuant to this Section 2, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.

       

      (e) Calculations. All
calculations under this Section 2 shall be made by
rounding to the nearest cent or the nearest 1/100th of a
share, as applicable. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock.

       

      3. RIGHTS UPON DISTRIBUTION OF
ASSETS. In addition to any adjustments pursuant to Section 2 above, if the Company shall declare or make any
dividend or other distribution of its assets (or rights to acquire its assets)
to holders of shares of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a “Distribution”), at any time
after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to participate in such Distribution to the same extent that the Holder
would have participated therein if the Holder had held the number of shares of
Common Stock acquirable upon complete exercise of this Warrant (without regard
to any limitations on exercise hereof, including without
limitation,

       


      
        
           


        

        
          - 5
-

          
            

          

        

        
           


        

      


      the
Maximum Percentage) immediately before the date on which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the
Holder’s right to participate in any such Distributions would result in the
Holder exceeding the Maximum Percentage, then the Holder shall not be entitled
to participate in such Distribution to such extent (or the beneficial ownership
of any such shares of Common Stock as a result of such Distribution to such
extent) and such Distribution to such extent shall be held in abeyance for the
benefit of the Holder until such time, if ever, as its right thereto would not
result in the Holder exceeding the Maximum Percentage).

       

      
        	
                4.  

              	
                PURCHASE RIGHTS;
      FUNDAMENTAL TRANSACTIONS.

              


      

       

      (a) Purchase
Rights.  In
addition to any adjustments pursuant to Section 2
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase
Rights”), then the Holder will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
Holder could have acquired if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations on exercise hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of shares of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder’s right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of
such Purchase Right to such extent) and such Purchase Right to such extent shall
be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum
Percentage).

       

      (b) Fundamental
Transactions.  The
Company shall not enter into or be party to a Fundamental Transaction
unless  the Successor Entity assumes in writing all of the obligations of
the Company under this Warrant and the other Transaction Documents (as defined
in the Securities Purchase Agreement) in accordance with the provisions of this
Section 4(b),
including agreements to deliver to the Holder in exchange for this Warrant a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to this Warrant, including, without limitation,
which is exercisable for a corresponding number of shares of capital stock
equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking
into account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital stock, such
adjustments to the number of shares of capital stock and such exercise price
being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental
Transaction).  Upon the consummation of each Fundamental Transaction,
the Successor Entity shall succeed to, and be substituted for (so that from and
after the date of the applicable Fundamental Transaction, the provisions of this
Warrant and the other Transaction Documents referring to the “Company” shall
refer instead to the Successor Entity), and may exercise every right and power
of the Company and shall assume all of the obligations of the Company under this
Warrant and the other Transaction Documents with the same effect as if such
Successor Entity had been named as the Company herein. Upon consummation of each
Fundamental Transaction, the Successor Entity shall deliver to the Holder
confirmation that there shall be issued upon exercise of this Warrant at any
time after the consummation of the applicable Fundamental Transaction, in lieu
of the shares of Common Stock (or other securities, cash, assets or other
property (except such items still issuable under Sections 3 and 4(a) above, which shall continue to be receivable
thereafter))

       


      
        
           


        

        
          - 6
-

          
            

          

        

        
           


        

      


      issuable
upon the exercise of this Warrant prior to the applicable Fundamental
Transaction, such shares of publicly traded common stock (or its equivalent) of
the Successor Entity (including its Parent Entity) which the Holder would have
been entitled to receive upon the happening of the applicable Fundamental
Transaction had this Warrant been exercised immediately prior to the applicable
Fundamental Transaction (without regard to any limitations on the exercise of
this Warrant), as adjusted in accordance with the provisions of this
Warrant.  In addition to and not in substitution for any other rights
hereunder, prior to the consummation of each Fundamental Transaction pursuant to
which holders of shares of Common Stock are entitled to receive securities or
other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company
shall make appropriate provision to insure that the Holder will thereafter have
the right to receive upon an exercise of this Warrant at any time after the
consummation of the applicable Fundamental Transaction but prior to the
Expiration Date, in lieu of the shares of the Common Stock (or other securities,
cash, assets or other property (except such items still issuable under Sections
3 and 4(a) above, which shall continue to be receivable
thereafter)) issuable upon the exercise of the Warrant prior to such Fundamental
Transaction, such shares of stock, securities, cash, assets or any other
property whatsoever (including warrants or other purchase or subscription
rights) which the Holder would have been entitled to receive upon the happening
of the applicable Fundamental Transaction had this Warrant been exercised
immediately prior to the applicable Fundamental Transaction (without regard to
any limitations on the exercise of this Warrant).

       

      (c) Black Scholes
Value.
Notwithstanding the foregoing and the provisions of Section 4(b) above, in the event
of a Fundamental Transaction (including, without limitation, a Fundamental
Transaction that occurs prior to the Initial Exercise Date) that is (1) an all
cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under
the 1934 Act, or (3) a Fundamental Transaction involving a Person not traded on
a national securities exchange, if the Holder has not exercised this Warrant in
full prior to the consummation of such Fundamental Transaction, at the request
of the Holder delivered before the thirtieth (30th) day
after the consummation of such Fundamental Transaction, the Company or the
Successor Entity (as the case may be) shall purchase this Warrant from the
Holder on the date of such request by paying to the Holder cash in an amount
equal to the Black Scholes Value of the unexercised portion of this Warrant that
remained on the date of the consummation of such Fundamental
Transaction.

      


      (d) Application. The
provisions of this Section 4 shall apply similarly
and equally to successive Fundamental Transactions and Corporate Events and
shall be applied as if this Warrant (and any such subsequent warrants) were
fully exercisable and without regard to any limitations on the exercise of this
Warrant (provided that the Holder shall continue to be entitled to the benefit
of the Maximum Percentage, applied however with respect to shares of capital
stock registered under the 1934 Act and thereafter receivable upon exercise of
this Warrant (or any such other warrant)).

       

      5. NONCIRCUMVENTION.  The
Company hereby covenants and agrees that the Company will not, by amendment of
its Articles of Incorporation (as defined in the Securities Purchase Agreement),
Bylaws (as defined in the Securities Purchase Agreement) or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, and will at all times in good faith carry out all the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant, and
(iii) shall, so long as any of the SPA Warrants are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the exercise of the
SPA Warrants, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the exercise of the SPA Warrants then outstanding
(without regard to any limitations on exercise).

       


      
        
           


        

        
          - 7
-

          
            

          

        

        
           


        

      


      


       

      6. WARRANT HOLDER NOT DEEMED A
STOCKHOLDER. Except as otherwise specifically provided herein, the
Holder, solely in its capacity as a holder of this Warrant, shall not be
entitled to vote or receive dividends or be deemed the holder of share capital
of the Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the Holder, solely in its capacity as the Holder of
this Warrant, any of the rights of a stockholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive dividends
or subscription rights, or otherwise, prior to the issuance to the Holder of the
Warrant Shares which it is then entitled to receive upon the due exercise of
this Warrant.  In addition, nothing contained in this Warrant shall be
construed as imposing any liabilities on the Holder to purchase any securities
(upon exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 6, the
Company shall provide the Holder with copies of the same notices and other
information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.

       

      7. REISSUANCE OF
WARRANTS.

       

      (a) Transfer of
Warrant. If this
Warrant is to be transferred, the Holder shall surrender this Warrant to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Warrant (in accordance with Section 7(d)), registered as the
Holder may request, representing the right to purchase the number of Warrant
Shares being transferred by the Holder and, if less than the total number of
Warrant Shares then underlying this Warrant is being transferred, a new Warrant
(in accordance with Section 7(d)) to the Holder representing the right to purchase
the number of Warrant Shares not being transferred.

       

      (b) Lost, Stolen or Mutilated
Warrant. Upon
receipt by the Company of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant (as to which a written
certification and the indemnification contemplated below shall suffice as such
evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant
Shares then underlying this Warrant.

       

      (c) Exchangeable for Multiple
Warrants. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the
principal office of the Company, for a new Warrant or Warrants (in accordance
with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, no warrants for fractional
shares of Common Stock shall be given.

       

      (d) Issuance of New
Warrants.
Whenever the Company is required to issue a new Warrant pursuant to the terms of
this Warrant, such new Warrant (i) shall be of like tenor with this Warrant,
(ii) shall represent, as indicated on the face of such new Warrant, the right to
purchase the Warrant Shares then underlying this Warrant (or in the case of a
new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as indicated on the face of such new Warrant which is the same as the
Issuance Date, and (iv) shall have the same rights and conditions as this
Warrant.

       


      
        
           


        

        
          - 8
-

          
            

          

        

        
           


        

      


      


       

      8. NOTICES.  Whenever
notice is required to be given under this Warrant, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Warrant, including in
reasonable detail a description of such action and the reason therefor. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon each adjustment of the Exercise Price and the
number of Warrant Shares, setting forth in reasonable detail, and certifying,
the calculation of such adjustment(s) and (ii) at least fifteen (15) days prior
to the date on which the Company closes its books or takes a record (A) with
respect to any dividend or distribution upon the shares of Common Stock, (B)
with respect to any grants, issuances or sales of any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
to holders of shares of Common Stock or (C) for determining rights to vote with
respect to any Fundamental Transaction, dissolution or liquidation, provided in
each case that such information shall be made known to the public prior to or in
conjunction with such notice being provided to the Holder and (iii) at least ten
(10) Trading Days prior to the consummation of any Fundamental
Transaction.  To the extent that any notice provided hereunder
constitutes, or contains, material, non-public information regarding the Company
or any of its subsidiaries, the Company shall simultaneously file such notice
with the SEC (as defined in the Securities Purchase Agreement) pursuant to a
Current Report on Form 8-K. It is expressly understood and agreed that the time
of execution specified by the Holder in each Exercise Notice shall be definitive
and may not be disputed or challenged by the Company.

       

      9. AMENDMENT AND
WAIVER.  Except as otherwise provided herein, the provisions of
this Warrant (other than Section 1(f)) may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Holder. The Holder shall be entitled, at its option, to the benefit of any
amendment of (i) any other similar warrant issued under the Securities Purchase
Agreement or (ii) any other similar warrant. No waiver shall be effective unless
it is in writing and signed by an authorized representative of the waiving
party.

       

      10. SEVERABILITY.  If
any provision of this Warrant is prohibited by law or otherwise determined to be
invalid or unenforceable by a court of competent jurisdiction, the provision
that would otherwise be prohibited, invalid or unenforceable shall be deemed
amended to apply to the broadest extent that it would be valid and enforceable,
and the invalidity or unenforceability of such provision shall not affect the
validity of the remaining provisions of this Warrant so long as this Warrant as
so modified continues to express, without material change, the original
intentions of the parties as to the subject matter hereof and the prohibited
nature, invalidity or unenforceability of the provision(s) in question does not
substantially impair the respective expectations or reciprocal obligations of
the parties or the practical realization of the benefits that would otherwise be
conferred upon the parties. The parties will endeavor in good faith negotiations
to replace the prohibited, invalid or unenforceable provision(s) with a valid
provision(s), the effect of which comes as close as possible to that of the
prohibited, invalid or unenforceable provision(s).

       

      11. GOVERNING LAW. This
Warrant shall be governed by and construed and enforced in accor­dance with,
and all questions concerning the construction, validity, interpretation and
performance of this Warrant shall be governed by, the internal laws of the State
of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York.

       


      
        
           


        

        
          - 9
-

          
            

          

        

        
           


        

      


      


       

      12. CONSTRUCTION;
HEADINGS. This Warrant shall be deemed to be jointly drafted by the
Company and the Holder and shall not be construed against any Person as the
drafter hereof.  The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant. Terms used in this Warrant but defined in the other Transaction
Documents shall have the meanings ascribed to such terms on the Closing Date (as
defined in the Securities Purchase Agreement) in such other Transaction
Documents unless otherwise consented to in writing by the Holder.

       

      13. DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Exercise Price, the
Closing Sale Price, the Bid Price or fair market value or the arithmetic
calculation of the Warrant Shares (as the case may be), the Company or the
Holder (as the case may be) shall submit the disputed determinations or
arithmetic calculations (as the case may be) via facsimile (i) within two (2)
Business Days after receipt of the applicable notice giving rise to such dispute
to the Company or the Holder (as the case may be) or (ii) if no notice gave rise
to such dispute, at any time after the Holder learned of the circumstances
giving rise to such dispute.  If the Holder and the Company are unable
to agree upon such determination or calculation (as the case may be) of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value or
the number of Warrant Shares (as the case may be) within three (3) Business Days
of such disputed determination or arithmetic calculation being submitted to the
Company or the Holder (as the case may be), then the Company shall, within two
(2) Business Days submit via facsimile (a) the disputed determination of the
Exercise Price, the Closing Sale Price, the Bid Price or fair market value (as
the case may be) to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant (as the case
may be) to perform the determinations or calculations (as the case may be) and
notify the Company and the Holder of the results no later than ten (10) Business
Days from the time it receives such disputed determinations or calculations (as
the case may be). Such investment bank’s or accountant’s determination or
calculation (as the case may be) shall be binding upon all parties absent
demonstrable error.

       

      14. REMEDIES, CHARACTERIZATION,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Warrant shall be cumulative and in addition to all other remedies
available under this Warrant and the other Transaction Documents, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the right of the Holder to pursue actual
damages for any failure by the Company to comply with the terms of this Warrant.
The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, exercises and the like
(and the computation thereof) shall be the amounts to be received by the Holder
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holder and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the holder of this Warrant shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the
Company’s compliance with the terms and conditions of this Warrant (including,
without limitation, compliance with Section 2
hereof). The issuance of shares and certificates for shares as contemplated
hereby upon the exercise of this Warrant shall be made without charge to the
Holder or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder or its agent on its
behalf.

       


      
        
           


        

        
          - 10
-

          
            

          

        

        
           


        

      


      


       

      15. TRANSFER. This
Warrant may be offered for sale, sold, transferred or assigned without the
consent of the Company, except as may otherwise be required by Section 2(g) of
the Securities Purchase Agreement.

       

      16. CERTAIN
DEFINITIONS.  For purposes of this Warrant, the following terms
shall have the following meanings:

       

      (a) “Bid Price” means, for any
security as of the particular time of determination, the bid price for such
security on the Principal Market as reported by Bloomberg as of such time of
determination, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the bid price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg as of such time of determination, or
if the foregoing does not apply, the bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg as of such time of determination, or, if no bid price is
reported for such security by Bloomberg as of such time of determination, the
average of the bid prices of any market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.) as of such time of determination. If the Bid Price cannot be calculated
for a security as of the particular time of determination on any of the
foregoing bases, the Bid Price of such security as of such time of determination
shall be the fair market value as mutually determined by the Company and the
Holder. If the Company and the Holder are unable to agree upon the fair market
value of such security, then such dispute shall be resolved in accordance with
the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such
period.

       

      (b) [RESERVED]

       

      (c) “Black Scholes Value” means the
value of this Warrant based on the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg determined as of the day of consummation of
the applicable Fundamental Transaction for pricing purposes and reflecting (i) a
risk-free interest rate corresponding to the U.S. Treasury rate for a period
equal to the remaining term of this Warrant as of the date of the Holder’s
request pursuant to Section 4(c), (ii) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the HVT function on Bloomberg as of the Trading Day immediately following the
public announcement of the applicable Fundamental Transaction and, if
applicable, (iii) the underlying price per share used in such calculation shall
be the sum of the price per share being offered in cash, if any, plus the value
of any non-cash consideration, if any, being offered in the applicable
Fundamental Transaction.

       

      (d) “Bloomberg” means Bloomberg,
L.P.

       

      (e) “Business Day” means any day
other than Saturday, Sunday or other day on which commercial banks in The City
of New York are authorized or required by law to remain closed.

       

      (f) “Closing Sale Price” means, for
any security as of any date, the last closing trade price for such security on
the Principal Market, as reported by Bloomberg, or, if the Principal Market
begins to operate on an extended hours basis and does not designate the closing
trade price, then the last trade price of such security prior to 4:00:00 p.m.,
New York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
trade price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing does not apply, the last trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last trade price is reported for such security
by Bloomberg, the average of the ask prices of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).

       


      
        
           


        

        
          - 11
-

          
            

          

        

        
           


        

      


       If
the Closing Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Sale Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then such dispute shall be resolved in accordance
with the procedures in Section 13. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such
period.

       

      (g) “Common Stock” means
(i) the Company’s shares of common stock, $0.001 par value per share, and
(ii) any capital stock into which such common stock shall have been changed or
any share capital resulting from a reclassification of such common
stock.

       

      (h) “Convertible Securities” means
any stock or other security (other than Options) that is at any time and under
any circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock.

       

      (i) “Eligible Market” means The New
York Stock Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market,
the Nasdaq Capital Market or the Principal Market.

       

      (j) “Expiration Date” means the
date that is the five-year
anniversary of the Initial Exercise Date or, if such date falls on a day
other than a Business Day or on which trading does not take place on the
Principal Market (a “Holiday”), the next date that
is not a Holiday.

       

      (k) “Fundamental Transaction” means
that (i) the Company or any of its Subsidiaries shall, directly or indirectly,
in one or more related transactions, (1) consolidate or merge with or into
(whether or not the Company or any of its Subsidiaries is the surviving
corporation) any other Person, or (2) sell, lease, license, assign, transfer,
convey or otherwise dispose of all or substantially all of its respective
properties or assets to any other Person, or (3) allow any other Person to make
a purchase, tender or exchange offer that is accepted by the holders of more
than 50% of the outstanding shares of Voting Stock of the Company (not including
any shares of Voting Stock of the Company held by the Person or Persons making
or party to, or associated or affiliated with the Persons making or party to,
such purchase, tender or exchange offer), or (4) consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other Person whereby such other Person acquires more than 50% of the outstanding
shares of Voting Stock of the Company (not including any shares of Voting Stock
of the Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (5) reorganize,
recapitalize or reclassify the Common Stock, or (ii) any “person” or “group” (as
these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act
and the rules and regulations promulgated thereunder) is or shall become the
“beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, of 50% of the aggregate ordinary voting power represented by issued
and outstanding Voting Stock of the Company.

       

      (l) “Options” means any rights,
warrants or options to subscribe for or purchase shares of Common Stock or
Convertible Securities.

       

      (m) “Parent Entity” of a Person
means an entity that, directly or indirectly, controls the applicable Person and
whose common stock or equivalent equity security is quoted or listed on an
Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent Entity with the largest public market capitalization as of the
date of consummation of the Fundamental Transaction.

       

      (n) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization, any other entity or a government or any
department or agency thereof.

       


      
        
           


        

        
          - 12
-

          
            

          

        

        
           


        

      


      


       

      (o) “Principal Market” means the
NYSE Amex.

       

      (p) “Successor Entity” means the
Person (or, if so elected by the Holder, the Parent Entity) formed by, resulting
from or surviving any Fundamental Transaction or the Person (or, if so elected
by the Holder, the Parent Entity) with which such Fundamental Transaction shall
have been entered into.

       

      (q) “Trading Day” means any day on
which the Common Stock is traded on the Principal Market, or, if the Principal
Market is not the principal trading market for the Common Stock, then on the
principal securities exchange or securities market on which the Common Stock is
then traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York time) unless such
day is otherwise designated as a Trading Day in writing by the
Holder.

       

      (r) “Voting Stock” of a Person
means capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

       

      (s) “VWAP” means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If VWAP cannot be calculated for such security on such date on any of the
foregoing bases, the VWAP of such security on such date shall be the fair market
value as mutually determined by the Company and the Holder. If the Company and
the Holder are unable to agree upon the fair market value of such security, then
such dispute shall be resolved in accordance with the procedures in Section 13. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.

       

      [signature page
follows]

       


      
        
           


        

        
          - 13
-

          
            

          

        

        
           


        

      


      IN WITNESS WHEREOF, the
Company has caused this Warrant to Purchase Common Stock to be duly executed as
of the Issuance Date set out above.

       

      CHINA
ARMCO METALS, INC.

       

                                                                                     
By:____________________________________

      Name:

      Title:

       


      
        
           


        

        
          - 14
-

          
            

          

        

        
           


        

      


      EXHIBIT
A

       

      EXERCISE
NOTICE

      TO
BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

      WARRANT
TO PURCHASE COMMON STOCK

       

      CHINA
ARMCO METALS, INC.

       

      The
undersigned holder hereby exercises the right to purchase _________________ of
the shares of Common Stock (“Warrant Shares”) of China
Armco Metals, Inc., a Nevada corporation (the “Company”), evidenced by
Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

       

      1.           Form of Exercise
Price.  The Holder intends that payment of the Exercise Price
shall be made as:

       

      
        	
                 
      

              	
                ____________

              	
                a
      “Cash
      Exercise” with respect to _________________ Warrant Shares;
      and/or

              


      

       

      
        	
                 
      

              	
                ____________

              	
                a
      “Cashless
      Exercise” with respect to _______________ Warrant
      Shares.

              


      

       

      In the
event that the Holder has elected a Cashless Exercise with respect to some or
all of the Warrant Shares to be issued pursuant hereto, the Holder hereby
represents and warrants that (i) this Exercise Notice was executed by the Holder
at __________ [a.m.][p.m.] on the date set forth below and (ii) if applicable,
the Bid Price as of such time of execution of this Exercise Notice was
$________.

       

      2.           Payment of Exercise
Price. In the event that the Holder has elected a Cash Exercise with
respect to some or all of the Warrant Shares to be issued pursuant hereto, the
Holder shall pay the Aggregate Exercise Price in the sum of $___________________
to the Company in accordance with the terms of the Warrant.

       

      3.           Delivery of Warrant
Shares.  The Company shall deliver to Holder, or its designee
or agent as specified below, __________ Warrant Shares in accordance with the
terms of the Warrant.  Delivery shall be made to Holder, or for its
benefit, to the following address:

       

      _______________________

      _______________________

      Date:
_______________ __, ______

       

      


         Name
of Registered Holder

       

      By:        ______________   

      Name:

      Title:

       


      
        
           


        

        
          - 15
-

          
            

          

        

        
           


        

      


      ACKNOWLEDGMENT

       

      The
Company hereby acknowledges this Exercise Notice and hereby directs
______________ to issue the above indicated number of shares of Common Stock in
accordance with the Transfer Agent Instructions dated _________, 20__, from the
Company and acknowledged and agreed to by _______________.

       

      CHINA
ARMCO METALS, INC.

      


      


                                                                                     
By:____________________________________

      Name:

      Title:

       

      



      
        
           


        

        
          - 16
-