INVESTMENT MANAGEMENT TRUST AGREEMENT -------------------------------------

 

 

                  INVESTMENT MANAGEMENT TRUST AGREEMENT

                  -------------------------------------

 

 

            This  Agreement  is made as of  _____________,  2005 by and  between

Chardan  China  Acquisition  Corp.  II (the  "Company")  and  Continental  Stock

Transfer & Trust Company ("Trustee").

 

            WHEREAS,  the  Company's  registration  statement  on Form S-1,  No.

333-_______  ("Registration  Statement"),  for its  initial  public  offering of

securities  ("IPO")  has been  declared  effective  as of the date hereof by the

Securities and Exchange Commission ("Effective Date"); and

 

            WHEREAS,   EarlyBirdCapital,   Inc.   ("EBC")   is   acting  as  the

representative of the underwriters in the IPO; and

 

            WHEREAS,  as  described  in  the  Registration  Statement,   and  in

accordance with the Company's  Certificate of Incorporation,  $20,640,000 of the

gross proceeds of the IPO ($23,736,000 if the underwriters over-allotment option

is exercised in full) will be delivered to the Trustee to be deposited  and held

in a trust  account  for the  benefit  of the  Company  and the  holders  of the

Company's  common  stock,  par  value  $.0001  per  share,  issued in the IPO as

hereinafter  provided  and in the event the Units are  registered  in  Colorado,

pursuant to Section 11-51-302(6) of the Colorado Revised Statutes. A copy of the

Colorado  Statute is  attached  hereto and made a part  hereof (the amount to be

delivered  to the  Trustee  will be referred  to herein as the  "Property";  the

stockholders  for whose  benefit the  Trustee  shall hold the  Property  will be

referred to as the "Public  Stockholders,"  and the Public  Stockholders and the

Company will be referred to together as the "Beneficiaries"); and

 

            WHEREAS,  the  Company  and the  Trustee  desire to enter  into this

Agreement  to set forth the terms and  conditions  pursuant to which the Trustee

shall hold the Property;

 

            IT IS AGREED:

 

1.    Agreements  and  Covenants  of  Trustee.  The  Trustee  hereby  agrees and

covenants to:

 

            (a) Hold the Property in trust for the  Beneficiaries  in accordance

with the terms of this Agreement, including the terms of Section 11-51-302(6) of

the  Colorado   Statute,   in  a  segregated  trust  account  ("Trust  Account")

established by the Trustee at a branch of JPMorgan Chase NY Bank selected by the

Trustee;

 

            (b) Manage,  supervise and administer  the Trust Account  subject to

the terms and conditions set forth herein;

 

            (c) In a timely  manner,  upon the  instruction  of the Company,  to

invest and reinvest the Property in any  "Government  Security." As used herein,

Government Security means any Treasury Bill issued by the United States,  having

a maturity of one hundred and eighty days or less;

 

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            (d) Collect and receive,  when due, all principal and income arising

from the Property,  which shall become part of the  "Property,"  as such term is

used herein;

 

            (e) Notify the  Company of all  communications  received  by it with

respect to any Property requiring action by the Company;

 

            (f)  Supply  any  necessary  information  or  documents  as  may  be

requested by the Company in connection with the Company's preparation of the tax

returns for the Trust Account;

 

            (g)  Participate  in  any  plan  or  proceeding  for  protecting  or

enforcing  any  right or  interest  arising  from the  Property  if, as and when

instructed by the Company to do so;

 

            (h) Render to the  Company and to EBC,  and to such other  person as

the Company may instruct,  monthly  written  statements of the activities of and

amounts in the Trust Account  reflecting all receipts and  disbursements  of the

Trust Account; and

 

            (i) Commence  liquidation of the Trust Account only after receipt of

and only in accordance with the terms of a letter ("Termination  Letter"),  in a

form  substantially  similar  to that  attached  hereto as  either  Exhibit A or

Exhibit B, signed on behalf of the Company by its  President  or Chairman of the

Board and Secretary or Assistant Secretary,  and complete the liquidation of the

Trust Account and  distribute the Property in the Trust Account only as directed

in the Termination Letter and the other documents referred to therein.

 

2.    Agreements  and  Covenants of the Company.  The Company  hereby agrees and

covenants to:

 

            (a) Give all  instructions  to the  Trustee  hereunder  in  writing,

signed by the Company's President or Chairman of the Board. In addition,  except

with  respect to its duties under  paragraph  1(i) above,  the Trustee  shall be

entitled  to rely on,  and shall be  protected  in  relying  on,  any  verbal or

telephonic  advice or instruction which it in good faith believes to be given by

any one of the persons authorized above to give written  instructions,  provided

that the Company shall promptly confirm such instructions in writing;

 

            (b) Hold the Trustee  harmless  and  indemnify  the Trustee from and

against,   any  and  all  expenses,   including   reasonable  counsel  fees  and

disbursements,  or loss suffered by the Trustee in  connection  with any action,

suit or other proceeding  brought against the Trustee involving any claim, or in

connection with any claim or demand which in any way arises out of or relates to

this Agreement,  the services of the Trustee  hereunder,  or the Property or any

income earned from  investment  of the Property,  except for expenses and losses

resulting from the Trustee's gross  negligence or willful  misconduct.  Promptly

after  the  receipt  by  the  Trustee  of  notice  of  demand  or  claim  or the

commencement  of any action,  suit or proceeding,  pursuant to which the Trustee

intends  to seek  indemnification  under  this  paragraph,  it shall  notify the

Company in writing of such claim  (hereinafter  referred to as the  "Indemnified

Claim").  The  Trustee  shall have the right to conduct  and manage the  defense

against such  Indemnified  Claim,  provided,  that the Trustee  shall obtain the

consent of the Company with respect to the  selection of counsel,  which consent

shall not be  unreasonably  withheld.  The  Trustee  may not agree to settle any

Indemnified Claim without the prior written consent of the Company.  The Company

may participate in such action with its own counsel; and

 

                                       2

<PAGE>

 

            (c) Pay the  Trustee  an  initial  acceptance  fee of $1,000  and an

annual fee of $3,000 (it being expressly  understood that the Property shall not

be used to pay  such  fee).  The  Company  shall  pay the  Trustee  the  initial

acceptance  fee  and  first  year's  fee at the  consummation  of  the  IPO  and

thereafter on the anniversary of the Effective Date. The Trustee shall refund to

the Company the fee (on a pro rata basis) with  respect to any period  after the

liquidation  of the Trust Fund.  The Company  shall not be  responsible  for any

other fees or charges of the Trustee except as may be provided in paragraph 2(b)

hereof (it being  expressly  understood  that the Property  shall not be used to

make any payments to the Trustee under such paragraph).

 

3.    Limitations  of  Liability.  The Trustee shall have no  responsibility  or

liability to:

 

            (a) Take any  action  with  respect to the  Property,  other than as

directed in  paragraph 1 hereof and the Trustee  shall have no  liability to any

party except for  liability  arising out of its own gross  negligence or willful

misconduct;

 

            (b) Institute any proceeding for the collection of any principal and

income  arising from, or  institute,  appear in or defend any  proceeding of any

kind with  respect  to,  any of the  Property  unless  and  until it shall  have

received instructions from the Company given as provided herein to do so and the

Company  shall have  advanced or  guaranteed  to it funds  sufficient to pay any

expenses incident thereto;

 

            (c) Change the investment of any Property,  other than in compliance

with paragraph 1(c);

 

            (d) Refund any depreciation in principal of any Property;

 

            (e)  Assume  that the  authority  of any  person  designated  by the

Company to give  instructions  hereunder shall not be continuing unless provided

otherwise  in such  designation,  or unless the Company  shall have  delivered a

written revocation of such authority to the Trustee;

 

            (f) The other parties  hereto or to anyone else for any action taken

or omitted by it, or any action  suffered by it to be taken or omitted,  in good