Document:

Unassociated Document

    

      EXHIBIT
4.6

       

      COMMON
STOCK PURCHASE WARRANT

      

      LONGHAI
STEEL INC.

       

      
        
          	
                  Warrant
      Shares: _______

                	
                  Initial
      Exercise Date: _______ __,
      20__         
  

                

        

      

       

      THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, _____________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on the four (4) year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from Longhai Steel Inc., a
Nevada corporation (the “Company”), up to
______ shares (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under this
Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

       

      Section 1. 
           Definitions. 
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Prospectus (the “Prospectus”),
declared effective as of the ________ __, 2010.

       

      Section 2. 
           Exercise.

       

      a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received  payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank or, if available, pursuant to the cashless exercise procedure specified in
Section 2(c) below.  Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the Company. 
Partial exercises of this Warrant resulting in purchases of a portion of the
total number of Warrant Shares available hereunder shall have the effect of
lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased.  The
Holder and the Company shall maintain records showing the number of Warrant
Shares purchased and the date of such purchases.  The Company shall deliver
any objection to any Notice of Exercise Form within 1 Business Day of receipt of
such notice.  In the event of any dispute or discrepancy, the records of
the Holder shall be controlling and determinative in the absence of manifest
error. The Holder and any
assignee, by acceptance of this Warrant, acknowledge and agree that, by reason
of the provisions of this paragraph, following the purchase of a portion of the
Warrant Shares hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on the face
hereof.

      
        
           

        

        
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      b)           Exercise Price. 
The exercise price per share of the Common Stock under this Warrant shall be
$____, subject to
adjustment hereunder (the “Exercise
Price”).

       

      c)           Cashless
Exercise.  If at any time after the earlier of (i) the one year
anniversary of the effective date of the Prospectus and (ii) the completion of
the then-applicable holding period required by Rule 144, or any successor
provision then in effect, there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant
Shares by the Holder, then this Warrant may also be exercised, in whole or in
part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:

       

      
        
          	
                	
                  (A)

                	
                  =
      the volume weighted average price (“VWAP”) on the Trading Day immediately
      preceding the date on which Holder elects to exercise this Warrant by
      means of a “cashless exercise,” as set forth in the applicable Notice of
      Exercise;

                

        

      

      

      
        
          	
                	
                  (B)

                	
                  =
      the Exercise Price of this Warrant, as adjusted hereunder;
    and

                

        

      

      

      
        
          	
                	
                  (X)

                	
                  =
      the number of Warrant Shares that would be issuable upon exercise of this
      Warrant in accordance with the terms of this Warrant if such exercise were
      by means of a cash exercise rather than a cashless
    exercise.

                

        

      

      

      
           
d)           Mechanics of
Exercise.

      

      
        
           

        

        
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      i. 
    Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder shall be
transmitted by the Transfer Agent to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the
Company is then a participant in such system and either (A) there is an
effective Registration Statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by the Holder or (B) the shares are eligible
for resale by the Holder without volume or manner-of-sale limitations pursuant
to Rule 144, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise by the date that is three (3) Trading Days
after the latest of (A) the delivery to the Company of the Notice of Exercise
Form, (B) surrender of this Warrant (if required), and (C) payment of the
aggregate Exercise Price as set forth above (including by cashless exercise, if
permitted) (such date, the “Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on the
first date on which all of the foregoing have been delivered to the
Company.  The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of
such shares, having been paid.  If the Company fails for any reason to
deliver to the Holder certificates evidencing the Warrant Shares subject to a
Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to
the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000
of Warrant Shares subject to such exercise (based on the VWAP of the Common
Stock on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are delivered or Holder rescinds
such exercise.

       

      ii. 
        Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in part,
the Company shall, at the request of a Holder and upon surrender of this Warrant
certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

       

      iii. 
       Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

      
        
           

        

        
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      iv. 
       Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In addition
to any other rights available to the Holder, if the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to an exercise on or before the Warrant
Share Delivery Date, and if after such date the Holder is required by its broker
to purchase (in an open market transaction or otherwise) or the Holder’s
brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares which the Holder
anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (2) the
price at which the sell order giving rise to such purchase obligation was
executed, and (B) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued
had the Company timely complied with its exercise and delivery obligations
hereunder.  For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
exercise of shares of Common Stock with an aggregate sale price giving rise to
such purchase obligation of $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In and, upon request of the Company,
evidence of the amount of such loss.  Nothing herein shall limit a Holder’s
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

       

      v. 
       No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant.  As to any fraction of a
share which the Holder would otherwise be entitled to purchase upon such
exercise, the Company shall, at its election, either pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price or round up to the next whole share.

       

      vi. 
       Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be made
without charge to the Holder for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Holder or in such name or names as may be directed by the
Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental
thereto.

      
        
           

        

        
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      vii. 
       Closing of
Books.  The Company will not close its stockholder books or records
in any manner that prevents the timely exercise of this Warrant, pursuant to the
terms hereof.

       

      e)           Holder’s Exercise
Limitations.  The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below).  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other  Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 2(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, it being acknowledged by the Holder that the Company is not
representing to the Holder that such calculation is in compliance with Section
13(d) of the Exchange Act and the Holder is solely responsible for any schedules
required to be filed in accordance therewith.   To the extent that the
limitation contained in this Section 2(e) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the submission of
a Notice of Exercise shall be deemed to be the Holder’s determination of whether
this Warrant is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination.   In addition, a determination as to any group status
as contemplated above shall be determined in accordance with Section 13(d) of
the Exchange Act and the rules and regulations promulgated thereunder.  For
purposes of this Section 2(e), in determining the number of outstanding shares
of Common Stock, a Holder may rely on the number of outstanding shares of Common
Stock as reflected in (A) the Company’s most recent periodic or annual report
filed with the Commission, as the case may be, (B) a more recent public
announcement by the Company or (C) a more recent written notice by the Company
or the Transfer Agent setting forth the number of shares of Common Stock
outstanding.  Upon the written or oral request of a Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding.  In any case, the number
of outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its Affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.  The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  The Holder, upon not less
than 61 days’ prior notice to the Company, may increase or decrease the
Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 2(e) shall continue to apply. 
Any such increase or decrease will not be effective until the 61st day
after such notice is delivered to the Company.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

      
        
           

        

        
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      Section 3. 
           Certain
Adjustments.

       

      a)           Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

      
        
           

        

        
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      b)           Removed and
Reserved.

      

      c)           Pro Rata
Distributions.  If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock, then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness or rights
or warrants so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either
case the adjustments shall be described in a statement provided to the Holder of
the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.

      
        
           

        

        
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      d)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, (i) the
Company, directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company, directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of its
assets in one or a series of related transactions, (iii) any, direct or
indirect, purchase offer, tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to sell, tender or exchange their shares for other securities, cash or
property and has been accepted by the holders of 50% or more of the outstanding
Common Stock, (iv) the Company, directly or indirectly, in one or more related
transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property, (v) the Company, directly or indirectly, in one or more related
transactions consummates a stock or share purchase agreement or other business
combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person
acquires more than 50% of the outstanding shares of Common Stock (not including
any shares of Common Stock 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) (each a
“Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant).  For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction.  Notwithstanding anything to the contrary, in the event of a
Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
transaction” as defined in Rule 13e-3 under the Exchange Act, or (3) a
Fundamental Transaction involving a person or entity not traded on a national
securities exchange, the Company or any Successor Entity (as defined below)
shall, at the Holder’s option, exercisable at any time concurrently with, or
within 30 days after, the consummation of the Fundamental Transaction, purchase
this Warrant from the Holder by paying to the Holder an amount of cash equal to
the Black Scholes Value of the remaining unexercised portion of this Warrant on
the date of the consummation of such Fundamental Transaction.  “Black Scholes Value”
means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) 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, (C) 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
such Fundamental Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date.  The Company shall cause any
successor entity in a Fundamental Transaction in which the Company is not the
survivor (the “Successor Entity”) to
assume in writing all of the obligations of the Company under this Warrant and
the other Transaction Documents in accordance with the provisions of this
Section 3(d) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the
holder of this Warrant, 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 which is exercisable for a
corresponding number of shares of capital stock of such Successor Entity (or its
parent entity) 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 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),
and which is reasonably satisfactory in form and substance to the Holder. Upon
the occurrence of any such Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
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.

      
        
           

        

        
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      e)           Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

       

      f)           Notice to
Holder.

       

      i. 
    Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.

      
        
           

        

        
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      ii. 
         Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.  To the extent that any
notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K.  The Holder shall remain entitled to exercise this Warrant
during the period commencing on the date of such notice to the effective date of
the event triggering such notice  except as may otherwise be expressly
set forth herein.

       

      Section 4. 
           Transfer of
Warrant.

       

      
        a)          
Detachability.  This
Warrant may trade separately from the Common Stock comprising the Company's
Units
beginning on the 50th day
after the effective date of the Registration Statement (the “Detachment Date”).
Prior to
the Detachment Date, this Warrant may be transferred or exchanged only together
with the Unit in
which such Warrant is included, and only for the purpose of effecting, or in
conjunction with, a
transfer or exchange of such Unit. Furthermore, each transfer of a Unit on the
register relating to such Units shall
operate also to transfer the Warrants included in such Unit. From and after the
Detachment Date, this
Section 4(a) will have no further force and effect.

         

      

      b)           Transferability. 
Subject to compliance with any applicable securities laws and the conditions set
forth in Section 4(e) hereof, this Warrant and all rights hereunder (including,
without limitation, any registration rights) are transferable, in whole or in
part, upon surrender of this Warrant at the principal office of the Company or
its designated agent, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its
agent or attorney and funds sufficient to pay any transfer taxes payable upon
the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to the
assignor a new Warrant evidencing the portion of this Warrant not so assigned,
and this Warrant shall promptly be cancelled.  The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      c)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance with
Section 4(b), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the Initial Exercise Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

       

      d)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof for the purpose of any exercise hereof or any distribution to the Holder,
and for all other purposes, absent actual notice to the contrary.

       

      e)           Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with
any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective
registration statement under the Securities
Act and under applicable state securities
or blue sky laws or (ii) eligible for
resale without volume or manner-of-sale restrictions or current public
information requirements pursuant to Rule 144, the Company may require, as a condition of allowing
such transfer, that the Holder or transferee of this Warrant, as the case
may be, agree in writing to be bound, with
respect to the transferred securities, by the provisions of this
Warrant.

       

      f)           Representation by the
Holder.  The Holder, by the acceptance hereof, represents and
warrants that it is acquiring this Warrant and, upon any exercise hereof, will
acquire the Warrant Shares issuable upon such exercise, for its own account and
not with a view to or for distributing or reselling such Warrant Shares or any
part thereof in violation of the Securities Act or any applicable state
securities law, except pursuant to sales registered or exempted under the
Securities Act.

       

      Section 5. 
           Miscellaneous.

       

      a)           No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to any
voting rights, dividends or other rights as a stockholder of the Company prior
to the exercise hereof as set forth in Section 2(d)(i).

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

       

      c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of any
action or the expiration of any right required or granted herein shall not be a
Business Day, then, such action may be taken or such right may be exercised on
the next succeeding Business Day.

       

      d)           Authorized
Shares.

       

      The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants that
its issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant.  The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of the Trading Market upon which the Common Stock may be
listed.  The Company covenants that all Warrant Shares which may be issued
upon the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant and payment for such
Warrant Shares in accordance herewith, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

       

      Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, 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, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the Company
will (i) not increase the par value of any Warrant Shares above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

      Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

       

      e)           Jurisdiction. The
validity, interpretation, and performance of this Agreement and of the Warrants
shall be governed in all respects by the laws of the State of New York, without
giving effect to conflicts of law principles that would result in the
application of the substantive laws of another jurisdiction.

       

      f)           Restrictions. 
The Holder acknowledges that the Warrant Shares acquired upon the exercise of
this Warrant, if not registered and the Holder does not utilize cashless
exercise, will have restrictions upon resale imposed by state and federal
securities laws.

       

      g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to exercise
any right hereunder on the part of Holder shall operate as a waiver of such
right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

       

      h)           Notices.  Any
notice, statement or demand authorized by this Agreement to be given or made by
the Transfer Agent or by the holder of any Warrant to or on the Company shall be
sufficiently given when so delivered if by hand or overnight delivery or if sent
by certified mail or private courier service within five days after deposit of
such notice, postage prepaid, addressed (until another address is filed in
writing by the Company with the Transfer Agent), as follows:

       

      Longhai
Steel Inc.

      No. 1
Jingguang Road

      Neiqiu
County, Xingtai City, Hebei Province, China

      Attn: Dr.
Eberhard Kornotzki, CFO

      

      Any
notice, statement or demand authorized by this Agreement to be given or made by
the holder of any Warrant or by the Company to or on the Transfer Agent shall be
sufficiently given when so delivered if by hand or overnight delivery or if sent
by certified mail or private courier service within five days after deposit of
such notice, postage prepaid, addressed (until another address is filed in
writing by the Transfer Agent with the Company), as follows:

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

      Pacific
Stock Transfer, LLC

      4045
South Spencer Street

      Suite
403, Las Vegas, NV 89119

      

      i)        
   Limitation of
Liability.  No provision hereof, in the absence of any affirmative
action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any
liability of Holder for the purchase price of any Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

       

      j)       
    Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be
adequate.

       

      k)     
      Successors and
Assigns.  Subject to applicable securities laws, this Warrant and
the rights and obligations evidenced hereby shall inure to the benefit of and be
binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder.  The provisions of this Warrant
are intended to be for the benefit of any Holder from time to time of this
Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.

       

      l)       
    Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and the Holder.

       

      m)           Severability. 
Wherever possible, each provision of this Warrant shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Warrant.

       

      n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

       

      ********************

      

      (Signature
Pages Follow)

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

       

      IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.
 

      
        
          
            
              
                
                  
                    
                      
                        
                          	
                                  LONGHAI
      STEEL INC.

                                
	 	 
	
                                  By:

                                	 
	 	
                                  Name:

                                  Title:

                                

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      

      NOTICE
OF EXERCISE

      

      TO:           LONGHAI STEEL
INC.

      

      (1) The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

       

      (2) Payment
shall take the form of (check applicable box):

       

      [  ]
in lawful money of the United States; or

       

      [ ] [if
permitted] the cancellation of such number of Warrant Shares as is necessary, in
accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection
2(c).

       

      (3) Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

       

      _______________________________

       

      The
Warrant Shares shall be delivered to the following DWAC Account Number or by
physical delivery of a certificate to:

      

      _______________________________

      

      _______________________________

      

      _______________________________

       

      [SIGNATURE
OF HOLDER]

      

      Name of
Investing Entity:
______________________________________________________________________________

      Signature of Authorized Signatory of
Investing Entity:
________________________________________________________

      Name of
Authorized Signatory:
__________________________________________________________________________

      Title of
Authorized Signatory:
___________________________________________________________________________

      Date:
_______________________________________________________________________________________________

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      ASSIGNMENT
FORM

      

      (To
assign the foregoing warrant, execute

      this form
and supply required information.

      Do not
use this form to exercise the warrant.)

       

      FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

       

      _______________________________________________
whose address is

      

      _______________________________________________________________.

       

      _______________________________________________________________

      

      Dated:  ______________,
_______

       

      Holder’s
Signature:       _____________________________

      

      Holder’s
Address:        _____________________________

       

       _____________________________

       

      Signature
Guaranteed:  ___________________________________________

      

      

      NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing
Warrant.MAKE
GOOD ESCROW AGREEMENT

     

    This Make Good Escrow Agreement (the
"Make Good Agreement"),
dated effective as of December _______, 2010, is entered into by and among the
following parties:

     

    
      	
            	
              (1)

            	
              Longhai
      Steel Inc., a Nevada corporation (the "Company"),

            

    

     

    
      	
            	
              (2)

            	
              Merry
      Success Limited, a BVI company (the “Make Good
      Pledgor”),

            

    

     

    
      	
            	
              (3)

            	
              Mr.
      Chaojun Wang, the Chief Executive Officer and Chairman of the Company
      (“Mr.
      Wang”),

            

    

     

    
      	
            	
              (4)

            	
              Mr.
      Jinhai Guo, the sole shareholder of the Make Good Pledgor (("Mr. Guo", collectively
      with Mr. Wang,
      each a
      "Guarantor", and collectively, the
      "Guarantors"),

            

    

     

    
      	
            	
              (5)

            	
              Ladenburg
      Thalmann & Co. Inc. as Investor agent (“Investor
      Agent”)

            

    

     

    
      	
            	
              (6)

            	
              Escrow,
      LLC, as escrow agent ("Escrow Agent"),
      and

            

    

     

    
      	
            	
              (7)

            	
              Pacific
      Stock Transfer Company, or such other entity hereafter retained by the
      Company as its stock transfer agent as specified in a writing from the
      Company to the Escrow Agent, as transfer agent,  (“Transfer
      Agent”).

            

    

     

     

    BACKGROUND

     

    The Investor Agent and the Company have
entered into an Underwriting Agreement, dated ______, 2010 (the "Underwriting Agreement"), for
the Company's underwriting offering (the "Offering") of
securities.  As an inducement to investors (the “Investors”) to participate in
the Offering and as set forth in the Underwriting Agreement, the Make Good
Pledgor has agreed to place certain shares of the Company’s common stock, par
value $0.001 per share (the “Common Stock”) owned by him
into escrow for the benefit of the Investors in the event the Company fails to
satisfy certain financial thresholds. Mr. Guo is the sole shareholder of the
Make Good Pledgor, and Mr. Wang entered into a call option agreement with Mr.
Guo on March 18, 2010, pursuant to which Mr. Wang was granted an option to
acquire all of the equity interests of the Make Good Pledgor for fixed
consideration within the next three years. Pursuant to the requirements of the
Underwriting Agreement, each of Mr. Guo being the sole shareholder of the Make
Good Pledgor, and Mr. Wang, being the beneficial owner of the Make Good Pledgor,
has agreed to act as a guarantor pursuant to the terms and conditions of this
Make Good Agreement to guarantee the Make Good Pledgor’s performance of this
Make Good Agreement.

     

    Pursuant to the requirements of the
Underwriting Agreement, the Company and Make Good Pledgor have agreed to
establish an escrow on the terms and conditions set forth in this Make Good
Agreement.  The Escrow Agent has agreed to act as escrow agent
pursuant to the terms and conditions of this Make Good Agreement.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    All capitalized terms used but not
defined herein which are defined in the Underwriting Agreement shall have the
respective meanings given to such terms in the Underwriting
Agreement.

     

    AGREEMENT

     

    NOW, THEREFORE, in consideration of the
mutual promises of the parties and the terms and conditions hereof, the parties
hereby agree as follows:

     

    1. Appointment of Escrow
Agent. The Make Good Pledgor and the Company hereby appoint Escrow Agent
to act as Escrow Agent in accordance with the terms and conditions set forth in
this Make Good Agreement, and Escrow Agent hereby accepts such appointment and
agrees to act as Escrow Agent in accordance with such terms and
conditions.

     

    2. Establishment of
Escrow.

     

    (i)
Effective as of the execution of this Make Good Agreement, the Make Good Pledgor
has instructed the Transfer Agent to deliver the Escrow Shares (as defined in
this Section 2) as provided herein, and the Escrow Agent acknowledges such
instruction and agrees to perform the actions set forth in this Section
2.  As of the date hereof, the Transfer Agent will note the
limitations on the Escrow Shares described in this Section 2.  Within
fifteen (15) Trading Days following the date hereof, the Transfer Agent shall
deliver, or cause to be delivered, to the Escrow Agent certificates evidencing
an aggregate of 2,550,165 shares of the Company’s
Common Stock, as equitably
adjusted for any stock splits, stock combinations, stock dividends or similar
transactions (the "Escrow Shares").
..  The Make Good Pledgor hereby irrevocably agrees that, other than in
accordance with this Make Good Agreement, the Make Good Pledgor will not offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, or
announce the offering of any of the Escrow Shares (including any securities
convertible into, or exchangeable for, or representing the rights to receive
Escrow Shares).  In furtherance thereof, the Company has advised the
Transfer Agent, and the Transfer agent agrees, (x) to place a stop order on all
Escrow Shares which shall expire on the date the Escrow Shares are cancelled or
returned to the Make Good Pledgor, (y) not to process any attempts by any Make
Good Pledgor to resell or transfer any Escrow Shares before the date the Escrow
Shares should be cancelled or returned to the Make Good Pledgor, or otherwise in
violation of this Make Good Agreement.  The Company shall notify the
Investor Agent as soon as the Escrow Shares have been deposited with the Escrow
Agent.  Following delivery of the Escrow Shares, the Make Good Pledgor
shall not be required to deliver any additional securities or other property to
the Escrow Agent or the Investors under any circumstances unless the Make Good
Pledgor otherwise agrees in a separate written instrument.

     

    (ii) The
Guarantors each hereby, jointly and severally, provide to the Investor Agent a
guarantee to secure the Make Good Pledgor’s performance of its obligations under
this Make Good Agreement, indemnify and hold harmless the Investor Agent and any
of its principals, partners, agents, employees and affiliates from and against any
expenses, including reasonable attorneys' fees and disbursements, damages or
losses suffered by the Investor Agent in connection with any claim or demand,
which, in any way, directly or indirectly, arises out of or relates to this Make
Good Agreement or the obligations of the Make Good Pledgor hereunder.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    3. Representations of Make Good Pledgor
and the
Company and the
Guarantors.  The Make Good
Pledgor (as to itself and its Escrowed Shares) and the Company (as to itself)
and each Guarantor (as to himself and the Make Good Pledgor), severally but not
jointly, hereby represents and warrants to the Investor Agent as
follows:

     

    (i) All
of the Escrow Shares are validly issued, fully paid and nonassessable shares of
the Company, and free and clear of all Liens.

     

    (ii) Performance of this Make
Good Agreement and compliance with the provisions hereof will not violate any
provision of any applicable law and will not conflict with or result in any
breach of any of the terms, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of any Lien upon any of the
properties or assets of Make Good Pledgor pursuant to the terms of any
indenture, mortgage, deed of trust or other agreement or instrument binding upon
Make Good Pledgor or such properties or assets, other than such breaches,
defaults or Liens which would not have a material adverse effect taken as a
whole.

     

    (iii) The
Make Good Pledgor has carefully considered and understands its obligations and
rights under this Make Good Agreement, and in furtherance thereof (x) has
consulted with its legal and other advisors with respect thereto and (y) hereby
forever waives and agrees that it may not assert any equitable defenses in any
Proceeding involving the Escrow Shares.

     

    4. Make Good
Shares.

     

    a.           In
the event that the After Tax Net Income (as defined below) reported in the
Annual Report of the Company for the fiscal year ending December 31, 2011, as
filed with the Securities and Exchange Commission (the “Commission”) on Form
10-K (or such other form appropriate for such purpose as promulgated by the
Commission) (the “2010 Annual
Report”) is less than $12,480,000 (the “2011 Guaranteed ATNI”), the
Escrow Agent (on behalf of the Make Good Pledgor) will have the Escrow Shares cancelled by
the Transfer Agent.

     

    For
purposes hereof, “After Tax Net
Income” shall mean the
Company’s operating income after taxes for the fiscal year ending
December 31, 2011
determined in accordance with GAAP as reported in the 2010 Annual Report but
shall exclude any accounting effect (positive or negative) caused by the Escrow
Shares or the return or cancellation thereof, including any potential derivative
liability.

     

    The Escrow Shares shall be cancelled or
returned to the Make Good Pledgor within 10 Business Days after the date which the 2011 Annual report is
filed with the Commission.  The Investor Agent will deliver to the
Escrow Agent (with a copy to the Company) a copy of the 2010 Annual Report,
together with the calculation of whether the 2011 Guaranteed ATNI has been
achieved.  The Escrow Agent need only rely on such letters from
Investor Agent and will disregard any contrary or further calculations or
instructions in such regard delivered by or on behalf of the
Company.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    b.           In the event that the After Tax
Net Income reported in the 2011 Annual Report is equal to or greater than the
2011 Guaranteed ATNI, the Escrow
Shares shall be returned to the Make Good Pledgor in accordance with this Make Good
Agreement.  

     

    c.           Pursuant
to Section 4(a), if the Investor Agent delivers a notice to the Escrow Agent
that the Escrow Shares are to be cancelled, then the Escrow Agent shall
immediately forward the Escrow Shares to the Company’s Transfer Agent for
cancellation. If a notice from the Investor Agent pursuant to Section 4(a)
indicates that the Escrow Shares are to be returned to the Make Good Pledgor,
then the Escrow Agent will promptly deliver the Escrow Shares to the Make Good
Pledgor in accordance with instructions provided by the Make Good Pledgor at
such time.

     

    5. Notice of
Filings.  The Company agrees to promptly provide the Investor
Agent with written notice of the filing with the Commission of any financial
statements or reports referenced herein.

     

    6.
Interpleader.  Should any controversy arise among the parties
hereto with respect to this Make Good Agreement or with respect to the right to
receive the Escrow Shares, Escrow Agent and/or the Investor Agent shall have the
right to consult and hire counsel and/or to institute an appropriate
interpleader action to determine the rights of the parties. Escrow Agent and/or
the Investor Agent are also each hereby authorized to institute an appropriate
interpleader action upon receipt of a written letter of direction executed by
the parties so directing either Escrow Agent or the Investor Agent. If Escrow
Agent or the Investor Agent is directed to institute an appropriate interpleader
action, it shall institute such action not prior to thirty (30) days after
receipt of such letter of direction and not later than sixty (60) days after
such date. Any interpleader action instituted in accordance with this Section 7
shall be filed in any court of competent jurisdiction in the State of New York,
and the Escrow Shares in dispute shall be deposited with the court and in such
event Escrow Agent and the Investor Agent shall be relieved of and discharged
from any and all obligations and liabilities under and pursuant to this Make
Good Agreement with respect to the Escrow Shares and any other obligations
hereunder. 

     

    7. Exculpation and Indemnification of
Escrow Agent and the Investor Agent.

     

    a.           Escrow
Agent is not a party to, and is not bound by or charged with notice of any
agreement out of which this escrow may arise.  Escrow Agent acts under
this Make Good Agreement as a depositary only and is not responsible or liable
in any manner whatsoever for the sufficiency, correctness, genuineness or
validity of the subject matter of the escrow, or any part thereof, or for the
form or execution of any notice given by any other party hereunder, or for the
identity or authority of any person executing any such notice. Escrow Agent will
have no duties or responsibilities other than those expressly set forth
herein.  Escrow Agent will be under no liability to anyone by reason
of any failure on the part of any party hereto (other than Escrow Agent) or any
maker, endorser or other signatory of any document to perform such person's or
entity's obligations hereunder or under any such document.  Except for
this Make Good Agreement and instructions to Escrow Agent pursuant to the terms
of this Make Good Agreement, Escrow Agent will not be obligated to recognize any
agreement between or among any or all of the persons or entities referred to
herein, notwithstanding its knowledge thereof.  The Investor Agent’s
sole obligation under this Make Good Agreement is to provide written instruction
to Escrow Agent (following such time as the Company files certain periodic
financial reports as specified in Section 4 hereof) directing the distribution
of the Escrow Shares.  The Investor Agent will provide such written
instructions upon review of the relevant After Tax Net Income and Earnings Per
Share amount reported in such periodic financial reports as specified in Section
4 hereof.  The Investor Agent is not charged with any obligation to
conduct any investigation into the financial reports or make any other
investigation related thereto.  In the event of any actual or alleged
mistake or fraud of the Company, its auditors or any other person in connection
with such financial reports of the Company, the Investor Agent shall have no
obligation or liability to any party hereunder.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    b.           Neither
the Escrow Agent nor Investor Agent will be liable for any action taken or
omitted by it, or any action suffered by it to be taken or omitted, absent gross
negligence or willful misconduct.  The Escrow Agent and Investor Agent
may each rely conclusively on, and will be protected in acting upon, any order,
notice, demand, certificate, or opinion or advice of counsel (including counsel
chosen by Escrow Agent or Investor Agent, as applicable), statement, instrument,
report or other paper or document (not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth and
acceptability of any information therein contained) which is reasonably believed
by Escrow Agent or Investor Agent, as applicable, to be genuine and to be signed
or presented by the proper person or persons.  The duties and
responsibilities of the Escrow Agent and Investor Agent, as the case may be,
hereunder shall be determined solely by the express provisions of this Make Good
Agreement and no other or further duties or responsibilities shall be implied,
including, but not limited to, any obligation under or imposed by any laws of
the State of New York upon fiduciaries.  NEITHER THE ESCROW AGENT NOR
INVESTOR AGENT SHALL BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES,
LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN
DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY
RESULTED FROM THE ESCROW AGENT’S OR INVESTOR AGENT'S, AS THE CASE MAY BE, GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST
PROFITS), EVEN IF THE ESCROW AGENT OR INVESTOR AGENT, AS APPLICABLE, HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM
OF ACTION.

     

    c.           The
Company and the Make Good Pledgor each hereby, jointly and severally, indemnify
and hold harmless each of Escrow Agent, the Investor Agent and any of their
principals, partners, agents, employees and affiliates from and against any
expenses, including reasonable attorneys' fees and disbursements, damages or
losses suffered by Escrow Agent or the Investor Agent in connection with any
claim or demand, which, in any way, directly or indirectly, arises out of or
relates to this Make Good Agreement or the services of Escrow Agent or the
Investor Agent hereunder; except, that if Escrow Agent or the Investor Agent is
guilty of willful misconduct or gross negligence under this Make Good Agreement,
then Escrow Agent or the Investor Agent, as the case may be, will bear all
losses, damages and expenses arising as a result of its own willful misconduct
or gross negligence.  Promptly after the receipt by Escrow Agent or
the Investor Agent of notice of any such demand or claim or the commencement of
any action, suit or proceeding relating to such demand or claim, Escrow Agent or
the Investor Agent, as the case may be, will notify the other parties hereto in
writing.  For the purposes hereof, the terms "expense" and "loss" will
include all amounts paid or payable to satisfy any such claim or demand, or in
settlement of any such claim, demand, action, suit or proceeding settled with
the express written consent of the parties hereto, and all costs and expenses,
including, but not limited to, reasonable attorneys' fees and disbursements,
paid or incurred in investigating or defending against any such claim, demand,
action, suit or proceeding.  The provisions of this Section 8 shall
survive the termination of this Make Good Agreement, and the resignation or
removal of the Escrow Agent.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    8. Compensation of Escrow
Agent.  Escrow Agent shall be entitled to compensation for its
services as stated in the fee schedule attached hereto as Exhibit A, which
compensation shall be paid by the Company. The fee agreed upon for the services
rendered hereunder is intended as full compensation for Escrow Agent's services
as contemplated by this Make Good Agreement; provided, however, that in the
event that Escrow Agent renders any material service not contemplated in this
Make Good Agreement, or there is any assignment of interest in the subject
matter of this Make Good Agreement, or any material modification hereof, or if
any material controversy arises hereunder, or Escrow Agent is made a party to
any litigation pertaining to this Make Good Agreement, or the subject matter
hereof, then Escrow Agent shall be reasonably compensated by the Company for
such extraordinary services and reimbursed for all costs and expenses, including
reasonable attorney's fees, occasioned by any delay, controversy, litigation or
event, and the same shall be recoverable from the Company.  Prior to
incurring any costs and/or expenses in connection with the foregoing sentence,
Escrow Agent shall be required to provide written notice to the Company of such
costs and/or expenses and the relevancy thereof and Escrow Agent shall not be
permitted to incur any such costs and/or expenses which are not related to
litigation prior to receiving written approval from the Company, which approval
shall not be unreasonably withheld.

     

    9. Resignation of Escrow
Agent.  At any time, upon ten (10) Business Days' written
notice to the Company and the Investors, Escrow Agent may resign and be
discharged from its duties as Escrow Agent hereunder. As soon as practicable
after its resignation, Escrow Agent will promptly turn over to a successor
escrow agent appointed by the Company the Escrow Shares held hereunder upon
presentation of a document appointing the new escrow agent and evidencing its
acceptance thereof.  If, by the end of the 10-Business Day period
following the giving of notice of resignation by Escrow Agent, the Company shall
have failed to appoint a successor escrow agent, Escrow Agent shall deposit the
Escrow Shares as directed by the Investor Agent with the understanding that such
Escrow Shares will continue to be subject to the provisions of this Make Good
Agreement.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    10. Records.  Escrow
Agent shall maintain accurate records of all transactions
hereunder.  Promptly after the termination of this Make Good Agreement
or as may reasonably be requested by the parties hereto from time to time before
such termination, Escrow Agent shall provide the parties hereto, as the case may
be, with a complete copy of such records, certified by Escrow Agent to be a
complete and accurate account of all such transactions.  The
authorized representatives of each of the parties hereto shall have access to
such books and records at all reasonable times during normal business hours upon
reasonable notice to Escrow Agent and at the requesting party’s
expense.

     

    11. Notice.  All
notices, communications and instructions required or desired to be given under
this Make Good Agreement must be in writing and shall be deemed to be duly given
if sent by registered or certified mail, return receipt requested, or overnight
courier, to the addresses listed on the signature pages hereto.

     

    12. Execution in
Counterparts.  This Make Good Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     

    13. Assignment and
Modification.  This Make Good Agreement and the rights and
obligations hereunder of the Company may be assigned by the Company only
following the prior written consent of Investors holding a majority of the
Shares issued at Closing under the Underwriting Agreement.  This Make
Good Agreement and the rights and obligations hereunder of the Escrow Agent may
be assigned by the Escrow Agent only with the prior consent of the Company and
the Investor Agent.  This Make Good Agreement and the rights and
obligations hereunder of the Make Good Pledgor may not be assigned by any Make
Good Pledgor.  Subject to the requirements under federal and state
securities laws, an Investor may assign its rights under this Make Good
Agreement without any consent from any other party. This Make Good Agreement may
not be changed orally or modified, amended or supplemented without an express
written agreement executed by the Escrow Agent, the Company, the Make Good
Pledgor and the Investor Agent (upon consent of the Investors holding a majority
of the Shares issued at Closing under the Underwriting Agreement). This Make
Good Agreement is binding upon and intended to be for the sole benefit of the
parties hereto and their respective successors, heirs and permitted assigns, and
none of the provisions of this Make Good Agreement are intended to be, nor shall
they be construed to be, for the benefit of any third person.  No
portion of the Escrow Shares shall be subject to interference or control by any
creditor of any party hereto, or be subject to being taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of any
such party hereto prior to the disbursement thereof to such party hereto in
accordance with the provisions of this Make Good Agreement.

     

    14.  Applicable
Law.  This Make Good Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York. The
representations and warranties contained in this Make Good Agreement shall
survive the execution and delivery hereof and any investigations made by any
party. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Make Good Agreement shall be commenced exclusively in the state and federal
courts sitting in the City of New York, Borough of Manhattan (the “New York
Courts”).  Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith, and hereby irrevocably waives, and
agrees not to assert in any such proceeding, any claim that it is not personally
subject to the jurisdiction of any such New York Court, or that such proceeding
has been commenced in an improper or inconvenient forum. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Make Good Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof.  Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by
law.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    15. Headings.  The
headings contained in this Make Good Agreement are for convenience of reference
only and shall not affect the construction of this Make Good
Agreement.

     

    16. Attorneys'
Fees.  If any action at law or in equity, including an action
for declaratory relief, is brought to enforce or interpret the provisions of
this Make Good Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees from the other party (unless such other party is the
Escrow Agent), which fees may be set by the court in the trial of such action or
may be enforced in a separate action brought for that purpose, and which fees
shall be in addition to any other relief that may be awarded.

     

    17. Merger or
Consolidation.  Any corporation or association into which the
Escrow Agent may be converted or merged, or with which it may be consolidated,
or to which it may sell or transfer all or substantially all of its corporate
trust business and assets as a whole or substantially as a whole, or any
corporation or association resulting from any such conversion, sale, merger,
consolidation or transfer to which the Escrow Agent is a party, shall be and
become the successor escrow agent under this Make Good Agreement and shall have
and succeed to the rights, powers, duties, immunities and privileges as its
predecessor, without the execution or filing of any instrument or paper or the
performance of any further act.

     

    

     

     

     [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

     

     

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

     

    IN WITNESS WHEREOF, the parties have
duly executed this Make Good Agreement as of the date set forth opposite their
respective names.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	 
      	 
      	 	 
      	 
	 
      	
                                                      COMPANY:

                                                    	 
	 	 	 
	 
      	
                                                      LONGHAI
      STEEL INC.

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      By:

                                                    	 	
                                                        
      

                                                    	 
	 
      	 
      	 	
                                                      Name:
      Chaojun Wang

                                                    	 
	 
      	 
      	 	
                                                      Title:
      Chief Executive Officer

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      Address:

                                                    	 	
                                                      No.
      1 Jingguang Road, Neiqiu

                                                    	 
	 
      	 
      	 	
                                                      County,
      Xingtai City, Hebei

                                                    	 
	 
      	 
      	 	
                                                      Province,
      China 054000

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      Attn.:
      Chaojun Wang

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      MAKE
      GOOD PLEDGOR:

                                                    	 
	 	 	 
	 
      	
                                                      Merry
      Success Limited

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      By:

                                                    	 	
                                                        
      

                                                    	 
	 
      	 
      	 	
                                                      Name:
      Jinhai Guo

                                                    	 
	 
      	 
      	 	
                                                      Title:
      Director

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      GUARANTOR:

                                                    	 
	 	 	 
	 
      	
                                                      MR.
      CHAOJUN WANG

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      By:

                                                    	 	
                                                        
      

                                                    	 
	 
      	 
      	 	
                                                      Name:
      Chaojun Wang

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      GUARANTOR:

                                                    	 
	 	 	 
	 
      	
                                                      MR.
      JINHAI GUO

                                                    	 
	 
      	 
      	 	 
      	 
	 
      	
                                                      By:

                                                    	 	
                                                        
      

                                                    	 
	 
      	 
      	 	
                                                      Name:
      Jinhai Guo

                                                    	 

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
 

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    [REMAINDER
OF THIS PAGE INTENTIONALLY LEFT BLANK -

     SIGNATURE
PAGE FOR OTHER PARTIES FOLLOWS]

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    [Signature
page to Make Good Escrow Agreement]

    

     

     

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
 

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      	 
      	
                                                              ESCROW
      AGENT:

                                                            	 
	 	 	 
	 
      	
                                                              ESCROW,
      LLC, as Escrow Agent

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              By:

                                                            	 	
                                                                
      

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Name:
      Johnnie L. Zarecor

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Title:
      Vice President

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              Address:
      

                                                            	 	173
      Keith St.	 
	 
      	
                                                               

                                                            	 	
                                                              Warrenton,
      VA 20186

                                                            	 
	 
      	
                                                              Facsimile:
      (540) 347-2291

                                                            	 
	 
      	
                                                              Attn.:
      Johnnie Zarecor

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              LADENBURG
      THALMANN & CO. INC.

                                                            
	 	 	 
	 
      	
                                                              as
      Investor Agent

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              By:

                                                            	 	
                                                               
      

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Name:

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Title:

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              Address:

                                                            	 	 
      	 
	 
      	 
      	 	 
      	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              Facsimile:

                                                            	 
	 
      	
                                                              Attn.:

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              TRANSFER
      AGENT:

                                                            	 
	 	 	 
	 
      	
                                                              PACIFIC
      STOCK TRANSFER 

                                                              COMPANY,
      as Transfer Agent

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              By:

                                                            	 	
                                                               
      

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Name:

                                                            	 
	 
      	
                                                               

                                                            	 	
                                                              Title:

                                                            	 
	 
      	 
      	 	 
      	 
	 
      	
                                                              Address:

                                                            	 
	 
      	
                                                              Facsimile:

                                                            	 
	 
      	
                                                              Attn.:

                                                            	 

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

     [Signature
page to Make Good Escrow Agreement]

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    Exhibit
A

    

    ESCROW AGENT FEE
SCHEDULE

    

    

    Documentation
Fee: $4,000.00

    Delivery
Fee: $500.00

    

    Total
Fees: $4,500.00

    

    

    

    

    

    
      
         

      

      
        12

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