INVESTMENT MANAGEMENT TRUST AGREEMENT

 

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                     INVESTMENT MANAGEMENT TRUST AGREEMENT

 

 

                  This Agreement is made as of ________ ____, 2004 by and

between Chardan China Acquisition Corp. (the "Company") and American 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 Company's Registration Statement,

and in accordance with the Company's Certificate of Incorporation, $15,300,000

of the gross proceeds of the IPO ($17,595,000 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 (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 in a segregated trust account

("Trust Account") established by the Trustee at a branch of _________________

[INSERT 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;

 

                  (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

 

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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, 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 Company may participate in such action

with its own counsel; and

 

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

an annual fee of

 

 

 

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$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 faith and in the exercise of its own best judgment, except for

its gross negligence or willful misconduct. The Trustee may rely conclusively

and shall be protected in acting upon any order, notice, demand, certificate,

opinion or advice of counsel (including counsel chosen by the Trustee),

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

believed by the Trustee, in good faith, to be genuine and to be signed or

presented by the proper person or persons. The Trustee shall not be bound by any

notice or demand, or any waiver, modification, termination or rescission of this

agreement or any of the terms hereof, unless evidenced by a written instrument

delivered to the Trustee signed by the proper party or parties and, if the

duties or rights of the Trustee are affected, unless it shall give its prior

written consent thereto;

 

                  (g)   Verify the correctness of the information set forth in

the Registration Statement or to confirm or assure that any acquisition made by

the Company or any other action taken by it is as contemplated by the

Registration Statement; and

 

 

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                  (h)   Pay any taxes on behalf of the Trust Account (it being

expressly understood that the Property shall not be used to pay any such taxes

and that such taxes, if any, shall be paid by the Company from funds not held in

the Trust Account).

 

4.       Termination. This Agreement shall terminate as follows:

 

 

                  (a)   If the Trustee gives written notice to the Company that

it desires to resign under this Agreement, the Company shall use its reasonable

efforts to locate a successor trustee. At such time that the Company notifies

the Trustee that a successor trustee has been appointed by the Company and has

agreed to become subject to the terms of this Agreement, the Trustee shall

transfer the management of the Trust Account to the successor trustee, including

but not limited to the transfer of copies of the reports and statements relating

to the Trust Acco