Compensation Committee or Audit Committee Uses in Election of Directors Clause

Election of Directors

CHINA ENERGY RECOVERY, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:

Election of Directors. Upon the occurrence and during a continuation of an Event of Default (as set forth herein) and subject to provisions of Section 6.7 of the Loan Agreement and Note: (i) the holders of the majority of the shares of the Series B Preferred Stock, voting separately as a class, shall be entitled to elect a majority of the directors to the Board of Directors of the Corporation (the "Series B Preferred Stock Directors"); (ii) the holders of the majority of the shares of the Series B Preferred Stock, voting separately as a class, shall be entitled to establish the size of the Board of Directors, which right will be paramount to any other provision in the Certificate of Incorporation and the by-laws of the Corporation; (iii) the Board of Directors shall not establish any committee, or delegate any of its duties to any committee or group of directors or other persons which does not include at least a majority of the Series B Preferred Stock Directors, unless any one or more of the Series B Preferred Stock Directors is disqualified because of not being "independent" as such term is defined by any one of the Rules and Regulations of the Securities and Exchange Commission or exchange on which any of the securities of the Corporation are listed or admitted for trading; (iv) all decisions made by the Board of Directors with respect to audit functions and compensation issues or all decisions made by any Compensation Committee or Audit Committee (and any other committee established by the Board of Directors for similar purposes) shall be by unanimous vote of all the members thereof; (vi) at any stockholders meeting held for the purpose of electing or removing directors, the presence in person or by proxy of the holders of the majority of the shares of the Series B Preferred Stock then outstanding shall be required to constitute a quorum of the stockholders of the Corporation; (vii) a vacancy in the directorships that are elected by the holders of the Series B Preferred Stock shall be filled only by majority vote or written consent in lieu of a meeting of the shares of the Series B Preferred Stock; and (viii) any member of the Board of Directors elected by the holders of the Series B Preferred Stock (A) may only be removed by the majority vote of the shares of the Series B Preferred Stock voting thereon, and (B) may call a special meeting of the Board of Directors.