Summary of CHINA ENERGY RECOVERY, INC.

Item 1.01 - Entry into a Material Definitive Agreement

On May 21, 2009, China Energy Recovery, Inc., a Delaware corporation ("Company"), together with its subsidiaries, CER Energy Recovery (Shanghai) Co., Ltd. ("Borrower") and CER (Hong Kong) Holdings Limited ("Paying Agent") entered into a series of agreements for an unsecured term loan arrangement with Hold And Opt Investments Limited, a Bahamian company (the "Term Loan Note and Agreement"). The proceeds of this loan will be for the construction of a new plant to be located in China for the production of the Company products, including the purchase of land for the plant, buildings, equipment and for the facilitating of financing loans from one or more in-China banks and institutional lenders.

The Borrower is permitted to draw down up to $5,000,000 in principal amount under the terms of the Term Loan Note and Agreement, within six months of the making. Any amount borrowed will bear interest at 9.5%, payable every six months, calculated and compounded quarterly. Each draw is due twenty-four months after the draw down date, together with any accrued and unpaid interest. The Borrower may pre-pay the note, from time to time, at its option, and must repay the loan on the happening of certain specified events, upon receipt of notice from the lender. Principal sums repaid may not be reborrowed. Repayments on demand of the lender may only be made commencing May 21, 2011, upon the closing of a capital raising financing, other than from a Chinese institutional lender, and then only up to 50% of the proceeds. The lender may also require repayment of all the then principal outstanding, without premium or penalty, together with any accrued and unpaid interest upon the following: (i) the sale by the Company of the plant being financed (whether as an asset, license, lease or equity transaction or similar arrangement whereby the title, operations or control of the plant is transferred) to any person or entity that is not a controlled entity, affiliate or subsidiary of the Company, (ii) any of abandonment or non-completion of the building, failure to obtain the commissioning of the plant or ceasing the operation of the plant by the Company, (iii) sale of all or substantially all of the assets of the Company, (iv) a change of control of the Company, where the change of control represents a 50% or greater change of the direct and/or beneficial ownership of the voting stock for any reason or by any means, in a single or series of related transactions, (v) any merger, combination or continuation of the Company where the Company is not the surviving entity or there is a change of control, or (vi) if Mr. Qinghuan Wu, the current Chief Executive Officer and Chairman of the Board of the Company, does not hold those positions (for any reason, whether because of resignation, retirement or change of duties or otherwise) at any time during the time that any of the principal or interest is outstanding or due and payable.

The amounts due under the loan are convertible into common stock of the Company, at $1.80 per share, up until 90 days before a due date, or at any time in the event an event of default is continuing. In the event of default in the payment of principal or interest, the conversion rate will be determined by a formula, based on the net asset value per share as set forth in the latest available financial statements prior to the date of conversion or as determined by the board of directors and lender if such financial statements are not available. The conversion rate is subject to adjustment for stock splits, reverse stock splits, stock dividends and reorganizations affecting the common stock of the Company, and for mergers and acquisition transactions were the Company is not the surviving entity.

The note contains typical events of default provisions for non-payment and reorganization and bankruptcy events. In the event that the amounts due in default are in excess of $1,000,000, the holder of the note will be permitted to exercise its rights under a series of preferred stock, created at the inception of the loan facility. This stock, the Class B Preferred Stock, gives the holder the right to have on the board of directors a majority of the directors, and approval rights over fundamental transactions, such as capital raising, sale of assets and issuance of shares of common stock and other securities.

The Company, Borrower and Paying Agent agree to comply with certain covenants. The Company is obligated to maintain its reporting status under the United States securities laws, not engage in any merger or other acquisition transaction without the permission of the lender, and otherwise maintain its properties and operate its business in the regular course. The lender has the right of first refusal to provide any debt or equity financing to be undertaken by the Company that is for capital raising purposes on the same terms as bona fide offer by any lender or investor while any of the principal or interest is outstanding and due. If the holder fails to accept in writing any bona fide third party proposal within thirty (30) business days after receipt of a written notice from the Company containing such proposal, then the holder shall have no claim or right with respect to any such financing contained in any such notice. If, thereafter, such proposal is modified in any material respect, the Company shall adopt the same procedure as with respect to the original proposed financing.

The lender was issued a transferable warrant providing the right to purchase from the Company, at any time from May 21, 2009 until May 21, 2014, up to an aggregate of 1,388,889 shares of the Company's common stock at an initial exercise price (subject to adjustment) of $1.80 per share. The warrant has a cashless exercise provision if the shares issuable under the warrant are not registered for resale.

The Company has also entered into a registration rights agreement covering the shares that may be issued on conversion of the note and exercise of the warrant. The lender is provided three demand rights and unlimited piggyback rights. The rights are subject to SEC and underwriter cutback requirements, and the rights terminate if the shares may be sold without registration. There are no stated liquidated damages for the failure to complete a registration obligation.