Longhai Steel Inc.: Exhibit 10.4 - Filed by newsfilecorp.com






Exhibit 10.4

LONGHAI STEEL INC. 

NOTICE OF STOCK OPTION GRANT 

	Name: Steve Ross 	Address: 


You have been granted an option (the “Option”) to
purchase common stock (“Shares”) of Longhai Steel Inc. (the
“Company”), subject to the terms and conditions of the attached Stock
Option Agreement, as follows: 

	 	Date of Grant: 	December 21, 2011 
	 	Vesting Commencement Date: 	December 21, 2011 
	 	Exercise Price per Share: 	$0.13 
	 	Total Number of Shares Granted: 	300,000 
	 	Total Exercise Price: 	$39,000 
	 	Type of Option: 	Non-Qualified Stock Option 
	 	Expiration Date: 	December 20, 2014 


Vesting Schedule: 

50% of the Option vests on January 1, 2012. The remaining
Option vests on December 31, 2012. Notwithstanding the foregoing, the Option
will become fully vested and exercisable upon a Change in Control.

Termination Period: 

To the extent vested, this Option will be exercisable for three
(3) months after the Termination Date, unless (i) termination is due to
Optionee’s death or Disability, in which case this Option will be exercisable
for twelve (12) months after the Termination Date or (ii) the Optionee is
Terminated for Cause, in which case this Option will terminate on the
Termination Date. In no event may this Option be exercised later than the
Expiration Date provided above. 




LONGHAI STEEL INC. 

STOCK OPTION AGREEMENT 

This STOCK OPTION AGREEMENT (“Agreement”),
dated as of the 21st day of December, 2011 is made by and between Longhai Steel
Inc., a Nevada corporation (the “Company”), and Steve Ross (the
“Optionee”). 

BACKGROUND 

The Company, acting through its Board of Directors (the
“Board”), approved the grant to the Optionee, effective as of the date
set forth above, of a stock option (“Option”) to purchase shares of the
common stock, par value $.001 per share (the “Shares”), of the Company at
the price (the “Exercise Price”) set forth in the attached Notice of
Stock Option Grant (which is expressly incorporated herein and made a part
hereof, the “Notice of Grant”), upon the terms and conditions hereinafter
set forth. 

NOW, THEREFORE, in consideration of the mutual promises
and undertakings hereinafter set forth, the parties hereto agree as follows:


1.     Grant of Option. On behalf of the Company, the Board
hereby grants to the Optionee an Option to purchase, subject to the terms and
conditions of this Agreement, that number of Shares of the Company set forth in
the Notice of Grant (the “Optioned Shares”), at an exercise price per
share equal to the Exercise Price set forth in the Notice of Grant, subject to
the terms and conditions of this Agreement. The Option is intended to be a
Non-Qualified Stock Option, meaning that it is not qualified as an “Incentive
Stock Option” as described in Section 422 of the Internal Revenue Code of 1986
(“Code”), as amended. 

2.     Term. The term of the Option commences on the date of
this Agreement and expires on the Expiration Date set forth in the Notice of
Grant unless otherwise terminated in accordance with the terms of the Notice of
Grant or this Agreement.

3.     Time of Exercise. Except as otherwise provided in
this section or unless accelerated in the discretion of the Board, the Option
will become exercisable during its term in accordance with the Vesting Schedule
set forth in the Notice of Grant. Shares as to which the Option becomes
exercisable may be purchased at any time prior to the expiration or termination
of the Option. 

(a) This Option will become fully vested and exercisable upon a
Change in Control. Prior to the closing of a transaction that would result in a
Change in Control, the Company will notify the Optionee in writing or
electronically that the Option will be exercisable (subject, however, to the
requirement that the Change in Control actually occur) for a period of time
determined by the Company in its sole discretion, and the Option will terminate
upon the expiration of such period for no consideration, unless otherwise
determined by the Company. 

4.     Termination of Option. 




(a) If the Optionee is Terminated for any reason except death
or Disability, then the Optionee may exercise the Option (i) only to the extent
that the Option would have been exercisable on the Termination Date and (ii) no
later than three months after the Termination Date, but in any event, no later
than the Expiration Date. 

(b) If the Optionee is Terminated because of the Optionee’s
death or Disability (or the Optionee dies within three months after a
Termination other than for Cause or because of Optionee’s Disability), then the
Option (i) may be exercised only to the extent that such Option would have been
exercisable by the Optionee on the Termination Date and (ii) must be exercised
by the Optionee (or the Optionee’s legal representative or authorized assignee)
no later than twelve months after the Termination Date, but in any event no
later than the Expiration Date. 

(c) Notwithstanding the provisions in paragraphs 4(b) and 4(c),
if the Optionee is Terminated for Cause, neither the Optionee, the Optionee’s
estate nor such other person who may then hold the Option will be entitled to
exercise the Option whatsoever, whether or not, after the Termination Date, the
Optionee may receive payment from the Company or any Parent, Subsidiary or
Affiliate of the Company for vacation pay, for services rendered prior to the
Termination Date, for services rendered for the day on which Termination occurs,
for salary in lieu of notice, for severance or for any other benefits;
provided, however, that the Board will give the Optionee an opportunity
to present to the Board evidence on the Optionees’s behalf that the provisions
of this paragraph 4(d) should not apply and, in the alternative, paragraph 4(b)
or 4(c) will apply. For the purpose of this paragraph 4(d), Termination will
occur on the date when the Company dispatches notice or advice to the Optionee
that the Optionee is Terminated. 

5.     Method of Exercise. This Option is exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the “Exercise
Notice”) or in a manner and pursuant to procedures as the Board may determine,
which will state the election to exercise the Option, the number of Shares for
which the Option is being exercised, and other representations and agreements as
may be required by the Company. The Exercise Notice will be accompanied by
payment of the aggregate Exercise Price as to all Shares being acquired,
together with any applicable tax withholding. This Option will be deemed to be
exercised upon receipt by the Company of a fully executed Exercise Notice
accompanied by the aggregate Exercise Price, together with any applicable tax
withholding.

6.     Method of Payment. Payment of the aggregate
Exercise Price may be by any of the following, or a combination thereof, at the
election of the Optionee:

(a) cash;

(b) check; 

(c) to the extent not prohibited by Section 402 of the
Sarbanes-Oxley Act of 2002, a promissory note; 

(d) to the extent not prohibited by Section 402 of the
Sarbanes-Oxley Act of 2002, surrender of other Shares which have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Shares being acquired;




(e) by asking the Company to withhold Shares from the total
Shares to be delivered upon exercise equal to the number of Shares having a
value equal to the aggregate Exercise Price of the Shares being acquired; 

(f) in accordance with any broker-assisted cashless exercise
procedures approved by the Company and as in effect from time to time; 

(g) any combination of the foregoing methods of payment; or


(h) other consideration and method of payment for the issuance
of Shares to the extent permitted by applicable laws. 

7.     Taxes.

(a) Withholding. Optionee agrees to arrange for the
satisfaction of all federal, state, local and foreign income and employment tax
withholding requirements applicable to the Option exercise. Optionee
acknowledges and agrees that the Company may refuse to honor the exercise and
refuse to deliver the Shares if withholding amounts are not delivered at the
time of exercise. 

(b) Code Section 409A. Under Code Section 409A, an
Option that vests after December 31, 2004 that was granted with a per Share
exercise price that is determined by the Internal Revenue Service (the “IRS”) to
be less than the Fair Market Value of a Share on the date of grant (a “discount
option”) may be considered “deferred compensation.” An Option that is a discount
option may result in (i) income recognition by the Optionee prior to the
exercise of the Option, (ii) an additional twenty percent (20%) tax, and (iii)
potential penalty and interest charges. Optionee acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share
exercise price of this Option equals or exceeds the fair market value of a Share
on the date of grant in a later examination. Optionee agrees that if the IRS
determines that the Option was granted with a per Share exercise price that was
less than the Fair Market Value of a Share on the date of grant, Optionee shall
be solely responsible for Optionee’s costs related to such a determination.


8.     Legal Compliance. Optionee may not exercise the
Option unless the exercise of the Option and the issuance of the Optioned Shares
comply with applicable law. The Company will be relieved of any liability with
respect to any delayed issuance of shares or its failure to issue shares if such
delay or failure is necessary to comply with applicable laws. 

9.     Adjustments Upon Changes in Capitalization. In
the event that any dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, or other change in the corporate structure of the Company affecting the
Shares occurs, the Board, in order to prevent diminution or enlargement of the
benefits or potential benefits intended to be made available under this Option,
will equitably adjust the number, class, and Exercise Price of Shares covered by
this Option to prevent enlargement or diminution of the value of this
Option.




Any such adjustment shall be done in a manner consistent with
Code Section 409A and Treasury Regulations section 1.409A -1 et seq. 

10.     Investment Representation and Legend of
Certificates. 

(a) The Optionee acknowledges and agrees that, for any period
in which a registration statement, with respect to the Option and/or Shares
under the Securities Act of 1933, as amended (the “Securities Act”), is not
effective, the Optionee will hold the Option and will purchase and/or own the
Optioned Shares for investment and not for resale or distribution. The Company
will have the right to place upon the face and/or reverse side of any stock
certificate or certificates evidencing the Optioned Shares such legend as the
Board may prescribe for the purpose of preventing disposition of such Optioned
Shares in violation of the Securities Act. 

(b) If a registration statement under the Securities Act is not
in effect with respect to the Shares issuable upon exercise, the Company may
require as a condition precedent that the Optionee, upon exercising the Option,
deliver to the Company a written representation and undertaking, satisfactory in
form and substance to the Company, that, among other things, the Optionee is
acquiring the Shares for his own account for investment and not with a view to
or for sale in connection with any distribution of the security.

11.     No Evidence of Employment or Service. Nothing
contained in this Agreement confers upon the Optionee any right to continue in
employment with the Company, its parent or any of its subsidiaries or interfere
in any way with the right of the Company, its parent or its subsidiaries
(subject to the terms of any separate agreement to the contrary) to terminate
the Optionee’s business relationship or to increase or decrease the Optionee’s
compensation at any time. 

12.     Non-Transferability of Option. This Option
may not be transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of the Optionee
only by the Optionee. The terms of this Agreement is binding upon the executors,
administrators, heirs, successors and assigns of the Optionee. 

13.     Specific Performance. The Optionee expressly agrees
that the Company will be irreparably damaged if the provisions of this Agreement
are not specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Optionee, the Company will,
in addition to all other remedies, be entitled to a temporary or permanent
injunction, without showing any actual damage, and/or decree for specific
performance, in accordance with the provisions hereof and thereof. The Board has
the power to determine what constitutes a breach or threatened breach of this
Agreement. Any such determinations will be final and conclusive and binding upon
the Optionee. 

14.     Notices. All notices or other communications which
are required or permitted hereunder will be in writing and sufficient if
personally delivered or sent by telecopy, sent by nationally-recognized
overnight courier, or sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:




(a) if to the Optionee, to the address (or telecopy number) set
forth on the Notice of Grant; and 

(b) if to the Company, to its principal executive office as
specified in any report filed by the Company with the Securities and Exchange
Commission or to such address as the Company may have specified to the Optionee
in writing, Attention: Corporate Secretary; 

or to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication will be deemed to have been given (i) when delivered, if
personally delivered, or when telecopied, if telecopied, (ii) on the first
Business Day (as hereinafter defined) after dispatch, if sent by
nationally-recognized overnight courier and (iii) on the third Business Day
following the date on which the piece of mail containing such communication is
posted, if sent by mail. As used herein, “Business Day” means a day that is not
a Saturday, Sunday or a day on which banking institutions in the city to which
the notice or communication is to be sent are not required to be open. 

15.     No Waiver. No waiver of any breach or condition of
this Agreement will be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature. 

16.     Optionee Undertaking. The Optionee agrees to
take whatever additional actions and execute whatever additional documents the
Company may in its reasonable judgment deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
the Optionee pursuant to the express provisions of this Agreement. 

17.     Definitions. For purposes of this Agreement and the
Notice of Grant, capitalized terms have the following meanings: 

(a) “Affiliate” means any entity or person that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, another entity, where “control” (including the terms
“controlled by” and “under common control with”) means the possession, directly
or indirectly, of the power to cause the direction of the management and
policies of the entity, whether through the ownership of voting securities, by
contract or otherwise. 

(b) “Cause” means (i) the conviction of the Optionee of a crime
involving a sentence of incarceration or of a felony with or without a sentence
of incarceration; (ii) the commission of an act by the Optionee constituting
fraud, embezzlement or other material financial dishonesty against the Company,
or of an act of moral turpitude which in the opinion of counsel to the Company
would constitute a crime under the laws of the United States or China (or any of
their state or local laws) and which, in case of any of the foregoing, in the
good faith judgment of the Company, is likely to cause harm to the business of
the Company, taken as a whole; (iii) the repeated refusal or failure by the
Optionee to use his reasonable and diligent efforts to follow the lawful and
reasonable directives of the Chief Executive Officer or Board with respect to a
matter or matters within the control of the Optionee; (iv) the Optionee’s
willful or gross neglect in carrying out his material duties and
responsibilities under any employment agreement with the Company; or (v) a
material breach by the Optionee of any provision of any employment agreement
with the Company. 




(c) “Change in Control” means the occurrence of any of the
following events: 

(i) Any “person” (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of the total
voting power represented by the Company's then outstanding voting securities;
and 

(ii) The consummation of the sale or
disposition by the Company of all or substantially all of the Company's assets;


(iii) A change in the composition of
the Board occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. “Incumbent Directors” means
directors who either (A) are Directors as of the effective date of the Plan, or
(B) are elected, or nominated for election, to the Board with the affirmative
votes of at least a majority of the Incumbent Directors at the time of such
election or nomination (but will not include an individual whose election or
nomination is in connection with an actual or threatened proxy contest relating
to the election of directors to the Company); or 

(iv) The consummation of a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity or its parent outstanding immediately after such merger or consolidation.


For the avoidance of doubt, a
transaction will not constitute a Change in Control if: (i) its sole purpose is
to change the state of the Company’s incorporation, or (ii) its sole purpose is
to create a holding company that will be owned in substantially the same
proportions by the persons who held the Company’s securities immediately before
such transaction. 

(d) “Disability” has the meaning provided in the Optionee’s
employment agreement. If “Disability” is not defined therein, “Disability” means
the inability of the Optionee to perform the duties of his position or any
substantially similar employment position by reason of a physical or mental
disability or infirmity for a continuous period of six months, as determined by
the Board. The date of such Disability will be the last day of such six-month
period or the date on which the Optionee submits such medical evidence,
satisfactory to the Company, that the Optionee has a physical or mental
disability or infirmity that will likely prevent the Optionee from performing
the Optionee’s work duties for a continuous period of six months or longer, as
the case may be.




(e) “Parent” means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain. 

(f) “Subsidiary” means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain. 

(g) “Termination” or “Terminated” means that the Optionee has
for any reason ceased to provide services as an employee, officer, director,
Optionee, independent contractor, or advisor to the Company or any Parent,
Subsidiary or Affiliate of the Company. The Optionee will not be deemed to have
ceased to provide services in the case of (i) sick leave, (ii) military leave,
or (iii) any other leave of absence approved by the Board, provided, that such
leave is for a period of not more than three months, unless reemployment or
reinstatement upon the expiration of such leave is provided by contract or
statute. In the case the Optionee is on an approved leave of absence, the Board
may suspend vesting of the Option while the Optionee is on leave from the
Company or any Parent, Subsidiary or Affiliate of the Company. The Board has the
sole discretion to determine whether the Optionee has ceased to provide services
and the applicable Termination Date. 

(h) “Termination Date” means the effective date of Termination,
as determined by the Board. 

18.     Interpretation. The Company intends that no payments
under this Agreement will be subject to the tax imposed by Code Section 409A.
This agreement will be interpreted and administered in a manner that avoids the
imposition of any increase in tax under Code section 409A(a)(1)(B), and any
ambiguities herein will be interpreted to satisfy the requirements of Code
section 409A or any exemption thereto.

19.     Governing Law. This Agreement is governed by, and
will be construed in accordance with, the laws of the State of Nevada applicable
to contracts made and to be wholly performed therein, without giving effect to
its conflicts of laws principles. 

20.     Counterparts; Facsimile Execution. This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original, but all of which together will constitute one and the
same instrument. Facsimile execution and delivery of this Agreement is legal,
valid and binding execution and delivery for all purposes. 

21.     Entire Agreement. This Agreement (including
the Notice of Grant and the Exercise Notice) constitute the entire agreement
between the parties with respect to the subject matter hereof, and supersedes
all previously written or oral negotiations, commitments, representations and
agreements with respect to the subject matter hereof, and may not be modified
adversely to the Optionee’s interest except by means of a writing signed by the
Company and Optionee.




22.     Severability. In the event one or more of the
provisions of this Agreement should, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability will not affect any other provisions of this Agreement, and
this Agreement will be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.

23.     WAIVER OF JURY TRIAL. THE OPTIONEE HEREBY
EXPRESSLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM
THEREIN. 

By Optionee’s signature and the signature of the
Company’s representative below, Optionee and the Company agree that this Option
is granted under and governed by the terms and conditions of this Agreement.
Optionee has reviewed this Agreement in its entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement.

LONGHAI STEEL INC. 

By: /s/ Chaojun
Wang                 

Name: Chaojun Wang 
Title: Chief Executive Officer 

OPTIONEE 

/s/ Steve
Ross                             
 
Steve Ross 




EXHIBIT A 

LONGHAI STEEL INC. 

EXERCISE NOTICE 

Longhai Steel Inc.
No. 1 Jingguang Road, Neiqiu County

Xingtai City, Hebei Province, 054000 
People’s Republic of China 

1.     Exercise of Option. Effective as of today,
________________, 20__, the undersigned (“Optionee”) hereby elects to
purchase ______________ shares of the common stock (the “Shares”) of
Longhai Steel Inc. (the “Company”) under the option (the “Option”) represented
by the Stock Option Agreement dated January 1, 2012 (the “Option Agreement”).


2.     Delivery of Payment. Optionee herewith delivers to
the Company the full purchase price for the Shares and any and all withholding
taxes due in connection with the exercise of the Option.

3.     Representations of Optionee. Optionee acknowledges
that Optionee has received, read and understood the Option Agreement and agrees
to abide by and be bound by its terms and conditions. 

4.     Rights as Stockholder. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the Shares, no right to vote or
receive dividends or any other rights as a stockholder will exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so
acquired will be issued to the Optionee as soon as practicable after exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date of issuance, except as provided in the
Option Agreement. 

5.     Tax Consultation. Optionee understands that Optionee
may suffer adverse tax consequences as a result of Optionee’s purchase or
disposition of the Shares. Optionee represents that Optionee has consulted with
any tax consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice. 

6.     Successors and Assigns. The Company may assign any of
its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice will inure to the benefit of the successors and assigns of the
Company. Subject to the restrictions on transfer herein set forth, this Exercise
Notice is binding upon Optionee and his or her heirs, executors, Boards,
successors and assigns. 




7.     Entire Agreement; Governing Law. The Option Agreement
and Notice of Grant are incorporated herein by reference. This Exercise Notice,
the Option Agreement, and Notice of Grant constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee’s interest except by means of a writing signed by the Company and
Optionee. This Exercise Notice is governed by the internal substantive laws, but
not the choice of law rules, of Nevada.

	Submitted by: 	Accepted by: 
	  	  
	Optionee 	LONGHAI STEEL INC. 
	  	  
	Signature 	Signature 
	______________________________	______________________________
	Print Name 	Print Name 
	Steve Ross 	  
	  	Address 
	  	No. 1 Jingguang Road, Neiqiu County 
	  	Xingtai City, Hebei Province, 054000 
	  	People’s Republic of China 
	  	  
	  	Date Received:
___________