8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

      FORM 8-K

      CURRENT REPORT

      Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 8, 2003

       POWER EFFICIENCY CORPORATION
      (Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)	0-31805 Commission File Number	22-3337365 (IRS Employer Identification No.)
4220 Varsity Drive, Suite E, Ann Arbor, Michigan (Address of principal executive offices)		48108 (Zip Code)

Registrant’s telephone number, including area code: (734) 975-9111

N/A
     (Former name or former address, if changed since last report)

INFORMATION TO BE INCLUDED IN THE REPORT

Item 1.  Changes in Control of Registrant.

(a)     Two recent events have caused a change in control of Power Efficiency Corporation, a Delaware corporation (the “Registrant” or the “Company”). These events have caused Summit Energy Ventures, LLC (“Summit”), a private equity firm specializing in energy related technologies and one of Power Efficiency’s shareholders, to obtain voting control of the Registrant.

Summit purchased 2,346,233 shares of Series A-1 Convertible Preferred Stock from the Registrant in June of 2002. The shares of Series A Preferred Stock vote together with the Common Stock as a single class. The initial conversion rate allowed Summit to convert its Series A-1 Convertible Preferred Stock into Common Stock at the rate of two shares of Common Stock for each share of Series A-1 Convertible Preferred Stock. However, according to the terms of this transaction, Summit’s ability to vote its shares was limited. Summit was only entitled to vote such number of shares of Series A-1 Convertible Preferred Stock that equaled 28% of the outstanding shares of Common Stock entitled to vote on the date of such stockholder vote.

On May 8, 2003, the Registrant entered into a financing transaction whereby Summit provided the Registrant with a $1,000,000 line of credit (as more fully described in Item 2). As part of that transaction, the limitation on Summit’s ability to vote its shares described above was removed. As a result, each share of Series A-1 Convertible Preferred Stock is entitled to such number of votes equal to the number of shares of Common Stock each share of Series A-1 Convertible Preferred Stock is convertible into.

The second event that increased Summit’s voting power was the Registrant’s issuance of Common Stock in a private placement. The Registrant has recently entered into a stock purchase agreement whereby the Registrant agreed to sell shares to a foreign company in sales exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation S. These sales are to take place at various times and at various prices. The price per share will in no case be less than $0.25. The lowest price at which stock has been sold so far has been approximately $0.25 per share. The terms of the Series A-1 Convertible Preferred Stock owned by Summit provide for an adjustment of the conversion price in the event the Registrant issues stock at a price less than $0.53 per share. As a result of the sale of stock at approximately $0.25, each share of Series A-1 Convertible Preferred Stock is now convertible into approximately 4.25 shares of Common Stock. This change in the conversion ratio also increases the voting power of the Series A-1 Convertible Preferred Stock to approximately 4.25 votes per share.

The shares of Series A Preferred Stock vote together with the Common Stock as a single class. As a result of these two recent events, the voting power of the Series A-1 Convertible Preferred Stock held by Summit entitles Summit to approximately 58 percent of the votes that may be cast.

Item 2.  Acquisition or Disposition of Assets.

Line of Credit Financing

On May 8, 2003, the Registrant closed on a line of credit (the “Financing”) from Summit. Pursuant to the terms of the revolving credit note entered into between the Registrant and Summit (the “Note”), the Registrant received a $1 million line of credit from Summit. Summit is a major stockholder of the Registrant and is entitled to appoint three of the Registrant’s eight directors. The Financing was unanimously approved by the five non-Summit directors with the Summit directors abstaining. The significant transaction documents executed in the Financing are attached as Exhibits.

Security Interest. To secure the repayment of the outstanding balance (including all principal, interest and fees) due under the Note, the Registrant granted Summit a security interest in all of the Registrant’s assets, both tangible and intangible. The outstanding balance of the Note is due on the earlier of (i) December 31, 2003, or (ii) at such time that an event of default occurs. The following conditions, among other things, would constitute an event of default:

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1) the Bankruptcy of the Registrant or the commencement of any similar proceeding;

2) the inability of the Registrant to pay its debts as they become due;

3) the occurrence of an event that has a material adverse effect on the business, property, operations, prospects or condition (financial or otherwise);

4) it is discovered that any representation, warranty or certification made by the Registrant to Summit in connection with the Financing was false or misleading in any material respect;

5) the Registrant fails to provide Summit unaudited financials each month demonstrating that the Registrant is not in default under the Note; and

6) the Registrant fails to meet certain financial covenants made in the Note.

The financial covenants referenced in item 6 above require the following:

            (i)      For the period from May 1, 2003 up to and including June 30, 2003, the Registrant shall cause its Contributed Capital (as defined below) to equal or exceed $351,000;

            (ii)      For the period from July 1, 2003 up to and including July 31, 2003, the Registrant shall cause its Contributed Capital to equal or exceed $315,000;

            (iii)     For each calendar month during the period from and including August 1, 2003 to the date on which all of the obligations of the Registrant under this Note shall have been paid in full and the Total Commitment shall have expired, the Registrant shall cause its Contributed Capital to equal or exceed $331,000; provided that (A) if, during the periods specified in Section (i) and Section (ii), the Registrant’s Contributed Capital exceeds $351,000 and $315,000, respectively, then the Registrant may carry over the amounts of such excess to succeeding calendar months for purposes of calculating the Registrant’s Contributed Capital for such succeeding calendar months; and (B) in any given calendar month after July 31, 2003, the Registrant’s Contributed Capital exceeds $331,000, then the amount of such excess may be carried over to succeeding calendar months for purposes of calculating the Registrant’s Contributed Capital for such succeeding calendar months;

            (iv)     Until such time as all of the obligations of the Registrant under this Note shall have been paid in full and the Total Commitment shall have expired, the Registrant shall not permit its operating expenses in any given calendar month to exceed $305,000.

      “Contributed Capital” means, for any given period, the sum of the Gross Margin of the Registrant for that period plus the Equity Revenue of the Registrant for that period. “Gross Margin” shall mean the gross operating revenue of the Registrant for the applicable period less the cost of goods sold (determined in accordance with Generally Accepted Accounting Principles) for that period. “Equity Revenue” shall mean the total sum of equity raised by the Registrant in the applicable period through the sale of its common stock by means of private placements and/or Regulation S offerings.

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Convertibility. Summit has the ability at any time to give the Registrant notice of its desire to convert any portion of the balance of the Note into Series A-1 Convertible Preferred Stock. At that time, the Registrant will have seven days to repay Summit the amount Summit has indicated it desires to convert. In the event that the amount is not repaid in seven days, Summit will receive Series A-1 Convertible Preferred Stock. The conversion features of the Note and the Series A-1 Convertible Preferred Stock work together so that Summit would effectively be getting the right to acquire Common Stock at $0.183 per share.

Also upon conversion, the warrant the Registrant issued to Summit in June of 2002 would be expanded. Currently, according to the terms of the Warrant, Summit has the right to purchase such number of shares of stock in the Registrant that would give Summit a 51% interest in the Registrant. Upon conversion, the warrant would be expanded to give Summit the right to purchase an approximately 60% interest in the Registrant. The purchase price of the shares purchasable under the warrant is determined by a formula which is a function of the Registrant’s earnings and may be zero.

Fees and Interest on the Note. As consideration for the line of credit, the Registrant paid Summit a $50,000 fee which was paid with the proceeds of the Registrant’s first draw under the Note. The first draw was in the amount of $250,000 and occurred on May 9, 2003. The outstanding balance on the Note accrues interest at 15%.

Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

Item 7(a) Financial Statements:

Not applicable.

Item 7(b) Pro Forma Financial Information:

Not applicable.

Item 7(c) Exhibits:

The following exhibits are filed as part of this report:

Description of Document		Location
4.1	Certificate of Designation dated June 13, 2002.	*
4.2	Certificate of Amendment of Certificate of Designation of Series A Convertible Preferred Stock of Power Efficiency Corporation.	Filed herewith
10.1	Revolving Credit Note dated May 8, 2003.	Filed herewith
10.2	Security Agreement dated May 8, 2003.	Filed herewith
10.3	Stock Purchase Warrant dated June 14, 2002.	*
10.4	Certificate of Amendment of Warrant.	Filed herewith

*Previously filed by the Registrant as an Exhibit on Form 8-K, on June 18, 2002.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.

POWER EFFICIENCY CORPORATION
(Registrant)

By:   /s/  Raymond J. Skiptunis                                         
       Raymond J. Skiptunis, President & CEO

Date: May 23, 2003

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EX-4.2

Exhibit 4.2

                            CERTIFICATE OF AMENDMENT

                                       OF

                           CERTIFICATE OF DESIGNATION

                                       OF

                      SERIES A CONVERTIBLE PREFERRED STOCK

                                       OF

                          POWER EFFICIENCY CORPORATION

    Power Efficiency Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:

    That the Board of Directors of said corporation, pursuant to Section 242
of the Delaware General Corporation Law, adopted the following resolutions
amending the Certificate of Designation of Series A Convertible Preferred
Stock of Power Efficiency Corporation:

    FIRST:  RESOLVED, that pursuant to the authority vested in the Board of
Directors, the Certificate of Designation of Series A Convertible Preferred
Stock of Power Efficiency Corporation is hereby amended so that, as amended,
Section 1 shall read as follows:

    1.  Designation of Series of Preferred Stock. Of the 10,000,000 undesignated
shares of the Company's authorized Preferred Stock, (i) 3,366,844 shares shall
be designated and known as "Series A-1 Convertible Preferred Stock," par value
$0.001 per share (the "Series A-1") and (ii) 6,633,156 shares shall be
designated and known as "Series A-2 Convertible Preferred Stock," par value
$0.001 per share (the "Series A-2") (collectively the Series A-1 and the
Series A-2 shall be referred to herein as the "Series A Preferred Stock").

    SECOND:  RESOLVED, that pursuant to the authority vested in the Board of
Directors, the Certificate of Designation of Series A Convertible Preferred
Stock of Power Efficiency Corporation is hereby amended so that, as amended,
Section 5.1 shall read as follows:

    5.1  Each holder of outstanding shares of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A Preferred Stock held of record by such
holder are convertible immediately prior to the record date for the
determination of stockholders entitled to vote (as adjusted from time to time
pursuant to Section 6 hereof) at each meeting of stockholders of the Company
(and written actions of stockholders in lieu of meetings) with respect to any
and all matters presented to the stockholders of the Company for their action
or consideration. Except as provided by law, the holders of shares of Series A
Preferred Stock shall vote together with the holders of Common Stock as a
single class on all matters on which holders of Common Stock shall have a
right to vote.






    THIRD: RESOLVED, that pursuant to the authority vested in the Board of
           Directors, the Certificate of Designation of Series A Convertible
           Preferred Stock of Power Efficiency Corporation is hereby amended so
           that, as amended, Section 6.4.3 shall read as follows:

    6.4.3 Issue of Options and Convertible Securities Deemed Issuance of
Additional Shares of Common Stock. If the Company at any time or from time to
time after the Original Issue Date shall issue any Options or Convertible
Securities (other than the Revolving Credit Note dated May 8, 2003 issued by the
Company to Summit Energy Ventures, LLC) or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, issuable upon the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:

    (A) no further adjustment in the applicable Conversion Prices shall be made
upon the subsequent issue of Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities; and

    (B) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase in the consideration payable
to the Company, or decrease in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the applicable Conversion
Prices computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities, provided
that no adjustment pursuant to this clause (B) shall have the effect of
increasing the Conversion Prices to an amount that exceeds the lower of (i) the
applicable Conversion Prices on the original adjustment date, or (ii) the
Conversion Prices that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date.


                                       2



    FOURTH: RESOLVED, that pursuant to the authority vested in the Board of
            Directors, the Certificate of Designation of Series A Convertible
            Preferred Stock of Power Efficiency Corporation is hereby amended so
            that, as amended, Section 6.4.4 shall read as follows:

    6.4.4 Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock. In the event the Company shall, after the Original Issue Date,
issue Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 6.4.3), without consideration or
for a consideration per share less than either of the Conversion Prices (the
"New Conversion Price") in effect on the date of, and immediately prior to such
issue, then and in such event, the applicable Conversion Prices shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
tenth of a cent) equal to the New Conversion Price. In the event that any
portion of the Revolving Credit Note issued by the Company to Summit Energy
Ventures, LLC, dated May 8, 2003, is converted into Series A-1 Preferred Stock,
the Series A-1 Conversion Price shall be reduced to a price equal to $0.183. In
no case, however, will such conversion cause the Series A-1 Conversion Price to
be raised if such Conversion Price was below $0.183 prior to the conversion of
the Revolving Credit Note. An adjustment made to the Series A-1 Conversion Price
due to the conversion of the Revolving Credit Note does not lock the Series A-1
Conversion Price at $0.183 and such Conversion Price may be reduced below $0.183
as provide elsewhere in this Article 6.

    IN WITNESS WHEREOF, Power Efficiency Corporation has caused this certificate
to be signed by Raymond J. Skiptunis, its President and Chief Executive Officer,
this 8th day of May 2003.

                                           POWER EFFICIENCY CORPORATION


                                           By:__________________________________


                                           Raymond J. Skiptunis, President & CEO



ACKNOWLEDGED:

By:__________________________________

Timothy Franzen, Secretary


                                       3

EX-10.1

Exhibit 10.1

                                                                 EXECUTION COPY

                             REVOLVING CREDIT NOTE

Principal Amount: $1,000,000                           Palm Desert, California
                                                                   May 8, 2003


    FOR VALUE RECEIVED, Power Efficiency Corporation, a Delaware corporation
(the "Borrower") hereby promises to pay to Summit Energy Ventures, LLC, a
Delaware limited liability company (the "Lender"), by wire transfer of
immediately available United States federal funds to the Lender's designated
account or, if the Lender so agrees, by the Borrower's check, the aggregate
principal sum of $1,000,000, or such lesser aggregate amount as is advanced
and outstanding (each such advance, a "Loan") pursuant to the provisions of
this Revolving Credit Note (this "Note"), together with interest in like money
on the unpaid principal balance of each Loan for the period from and including
the date of such Loan to but excluding the date such Loan is paid in full
(whether as stated, by acceleration or otherwise) at the rate of 15% per
annum. Interest shall be simple interest and calculated on the basis of a 360-
day year consisting of twelve 30-day months. Accrued interest on each Loan
shall be payable (a) upon the payment or prepayment of each Loan (but only on
the principal amount so paid or prepaid) and (b) on the Maturity Date (as
defined below). All principal then outstanding, and all interest, fees,
charges, and other amounts owing under this Note and then unpaid shall be due
and payable on December 31, 2003 (the "Maturity Date"). All payments on or in
respect of this Note shall be made to the Lender without set-off or
counterclaim and free and clear of and without deductions of any kind.

    This Note is secured by, and entitled to the benefits of, the Security
Agreement dated of even date with this Note between the Borrower and the
Lender (the "Security Agreement").

    In this Note, the following terms shall have the following respective
meanings:

     "Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks are authorized to close under the laws of the
State of New York.

    "Default" shall mean an event that with notice or lapse of time or both
would become an Event of Default (as defined below).

    "Material Adverse Condition" shall mean a material adverse effect on the
business, property, operations, prospects or condition (financial or
otherwise) of the Borrower and its subsidiaries, taken as a whole.





    1.  Borrowings. The Lender agrees, subject to the terms and conditions of
this Note, to make Loans to the Borrower, from time to time during the period
from the date of this Note up to and including December 19, 2003 (the
"Commitment Termination Date"), in an aggregate principal amount not to exceed
at any time $1,000,000 (the "Total Commitment"). Unpaid interest and fees
shall be considered when calculating the Total Commitment. The initial Loan
under this Note shall be in the amount of $250,000. Each subsequent Loan under
this Note shall be in an amount that is an integral multiple of $50,000 and is
not, in the aggregate, less than $100,000 or more than $200,000. The Borrower
shall give the Lender written request for each Loan: (a) in the case of the
first Loan under this Note, at least two (2) Business Days, and (b) in the
case of all subsequent Loans, at least seven (7) Business Days, prior to the
date on which the Borrower wishes the Lender to fund such Loan; provided that
in no event shall the Borrower be permitted to request more than one Loan in
any given calendar month. Upon receipt of such written request for a Loan, the
Lender shall make each requested Loan available to the Borrower, in
immediately available funds by wire transfer to the account designated by the
Borrower on its request for a Loan, on the Business Day designated by the
Borrower in its notice.

    The Borrower hereby authorizes the Lender to endorse on the Schedule
annexed to this Note the principal amount of each Loan made to the Borrower
and all payments of principal and interest in respect of each such Loan, which
endorsements shall, in the absence of manifest error, be conclusive; provided,
however, that the failure to make such notation with respect to any Loan or
payment shall not limit or otherwise affect the obligations of the Borrower
hereunder.

    2.  Optional Prepayment; Premium. The Borrower may prepay the principal and
interest due on any Loan, at any time, in whole or in part, without penalty or
premium. Subject to the terms and conditions of this Note, during the period
from the date of this Note up to and including the Commitment Termination Date,
the Borrower may borrow, repay and reborrow the amount of the Total Commitment
by means of Loans; provided that in no event shall the Borrower be permitted to
request more than one Loan in any given calendar month.

    3.  Conversion. The Lender may at any time prior to Maturity Date give the
Borrower written notice (the "Conversion Notice") of its desire to convert, in
full or in part, the outstanding balance of all principal and interest on the
Loans and all other amounts owing to the Lender under this Note and the other
Basic Documents (such amount being the "Conversion Amount") into fully paid
and nonassessable shares of the Series A-1 Preferred Stock, par value $0.001
per share, of the Borrower (the "Stock"), on the basis of one share of Stock
for each $1.065538 (the "Conversion Price") of the Conversion Amount.

    The Conversion Notice shall set forth (a) the Conversion Price, (b) the
number of shares of Stock representing the Conversion Amount, (c) the date on
which the Conversion shall take place, which date shall not, in any event, be
less than seven days after the date of the Conversion Notice (the "Conversion
Date") and (d) instructions for delivery of the applicable number of shares of
Stock to the Lender.

    Upon receipt of the Conversion Notice from the Lender, the Borrower shall
have seven days to repay in full the Conversion Amount. If the Borrower does
not pay the Conversion Amount within that seven-day period, then on the
Conversion Date:


                                       2



    (i) the Conversion Amount shall convert into Stock;

    (ii) the Total Commitment shall automatically be reduced by the amount of
principal on the Loans reflected in the Conversion Amount (which principal
amount shall be set forth in the Conversion Notice);

    (iii) the Conversion Amount so converted into Stock shall be deemed to
constitute a partial prepayment of the amounts of principal and interest on
the Loans and other amounts owing by the Borrower to the Lender under this
Note and the other Basic Documents, thereby reducing the obligations of the
Borrower to the Lender by the Conversion Amount; and

    (iv) the Lender shall become the holder of record of the shares of Stock
represented by the Stock certificates to be delivered by the Borrower pursuant
to this Section 3.

    As soon as practicable after the Conversion Date (and in any event no
later than 10 Business Days after the Conversion Date), the Borrower shall
deliver to the Lender the Stock certificates representing the number of shares
of Stock issuable pursuant to the Conversion Notice.

    Notwithstanding any other provisions of this Section 3 to the contrary, in
the event of a conversion under this Section 3, this Note, the Security
Agreement and all other Basic Documents shall remain in full force and effect.

    4.  Lending Fee. Concurrently with the first Loan made under this Note, the
Borrower shall be obligated to pay to the Lender a lending fee in the amount
of $50,000 (the "Lending Fee"). The Lending Fee shall be deducted by the
Lender from the amount of the initial Loan made under this Note.

    5.  Notices. Unless otherwise indicated differently, all notices, requests,
reports, information or demands which either party may desire or may be
required to give to the other party shall be in writing and shall be
personally delivered, sent by facsimile, by a reliable overnight mail delivery
service providing a receipt or by first-class certified or registered United
States mail, postage prepaid return receipt requested, and sent to the
receiving party at its address appearing below or at such other address as
that party shall designate to the other party by written notice; (provided,
however, notices to the Lender requesting disbursements need not be sent by
certified United States mail):

If to the Borrower:    Ray Skiptunis
                       Power Efficiency Corporation
                       75-153 Merle Drive, Suite B
                       Palm Desert, CA 92211

                                       3



If to the Lender:      Steven Strasser
                       Summit Energy Ventures, LLC
                       P.O. Box 7387
                       Bellevue, WA 98008



    All notices, requests, reports, information or demands so given shall be
deemed effective upon receipt or, if mailed, upon receipt or the expiration of
the third day following the date of mailing, which ever occurs first, except
that any notice of change in address shall be effective only upon receipt by
the party to whom said notice is addressed.

    6.  Maximum Interest Rate. Notwithstanding the provisions of this Note, if
the rate of interest payable under this Note is limited by law, the interest
payable under this Note shall be the lesser of (a) the amount calculated at
the rate set forth in this Note and (b) the maximum interest permitted by law.
If, however, interest is paid under this Note in excess of the maximum rate of
interest permitted by law, any interest so paid which exceeds that maximum
rate shall automatically be considered a payment of principal and shall
automatically be applied in reduction of principal due on this Note to the
extent of the excess. The provisions of this Section 6 shall survive the
termination of this Note.

    7.  Covenants. The Borrower covenants and agrees with the Lender that, so
long as the Total Commitment is outstanding and until payment in full of all
obligations of the Borrower under this Note:

    (a) Financial Statements. On the fifth Business Day of each calendar
month, the Borrower shall furnish to the Lender:

         (i) unaudited financial statements of the Borrower setting forth
reasonably detailed information and calculations demonstrating compliance with
Section 7(j);

         (ii) unaudited financial statements of the Borrower with respect to the
immediately preceding calendar month; and

         (iii) a certificate of the chief financial officer of the Borrower
certifying (A) as to the accuracy and completeness of the financial statements
delivered pursuant to this Section 7(a) and (B) that no Default, Event of
Default or Material Adverse Condition has occurred or is continuing.

    (b) Notices of Material Events. The Borrower shall furnish to the Lender
prompt written notice of the following:

         (i) the occurrence of any Default or Event of Default or of any event
that could reasonably be expected to result in a Default or Event of Default;


                                       4



         (ii) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or governmental authority against or affecting the
Borrower that, if adversely determined, could reasonably be expected to result
in a Material Adverse Condition; and

         (iii) any other development that constitutes or results in, or could
reasonably be expected to constitute or result in, a Material Adverse Condition.

    Each notice delivered under this Section 7(b) shall be accompanied by a
statement of an executive officer of the Borrower setting forth the details of
the event or development requiring that notice and any action taken or
proposed to be taken with respect to that event or development.

    (c)  Existence; Conduct of Business. The Borrower shall do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the governmental approvals material to the conduct of
its business.

    (d)   Payment of Obligations. The Borrower shall pay its obligations,
including for taxes, that, if not paid, could result in a Material Adverse
Condition before the same become delinquent or in default, except any such
obligation (a) the validity or amount of which is being contested in good
faith by appropriate proceedings, (b) with respect of which the Borrower has
set aside on its books adequate reserves in accordance with generally accepted
accounting procedures and (c) the failure to pay obligations of which pending
contest could not reasonably be expected to result in a Material Adverse
Condition.

    (e)  Books and Records; Inspection Rights. The Borrower shall keep proper
books of record and account in which full, true and correct entries are made
of all dealings and transactions in relation to its business and activities.
The Borrower shall permit any representatives designated by the Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.

    (f)  Indebtedness. The Borrower shall not, without the prior written
consent of the Lender, create, incur, assume or permit to exist any
indebtedness, except indebtedness created under the Basic Documents; provided
that, subject to Section 23, Summit shall consent to the incurrence by the
Borrower of indebtedness that is immediately used to repay the total
outstanding balance of all principal and interest on the Loans and all other
amounts owing to the Lender under this Note and the other Basic Documents but
only so long as such indebtedness (i) is provided to the Borrower by a
financial institution in the ordinary course of business in a bona fide arms-
length transaction and (ii) is not provided, guaranteed or in any other way
supported by the credit of, any person or entity affiliated with the Borrower,
or any shareholder or any director of the Borrower. The provisions of this
Section 7(f) shall survive the termination of this Note.


                                       5



    (g)  Liens. The Borrower shall not create, incur, assume or permit to exist
any lien on any personal property or assets of the Borrower, except the liens
created under the Security Agreement in favor of the Lender. The Borrower
shall promptly discharge at the Borrower's cost and expense, any lien (other
than the liens of the Lender pursuant to the Security Agreement) on the
Collateral (as defined in the Security Agreement). The Borrower shall take, or
cause to be taken, all action reasonably required to maintain and preserve the
liens created by the Security Agreement and the priority of such Liens. The
Borrower shall from time to time execute or cause to be executed any and all
further instruments (including financing statements, continuation statements
and similar statements and other documents with respect to the Security
Agreement) reasonably requested by the Lender for such purposes.

    (h)  Fundamental Changes. The Borrower shall not merge or consolidate with
any other person or entity, sell, transfer, lease or otherwise dispose of (in
one transaction or in a series of transactions) all of its property or assets
or liquidate or dissolve. The Borrower shall not engage in any business other
than business of the type conducted by the Borrower on the date of this Note
and reasonably related activities.

    (i)  Investments, Loans, Advances, Guarantees and Acquisitions. The
Borrower shall not hold or acquire the capital stock, partnership or other
ownership interests, indebtedness or other securities of any other person or
entity, make any deposit with, or loan or other extension of credit to, any
other person or entity, enter into any guarantee of, or other contingent
obligation with respect to, indebtedness or other liability of any other
person or entity or acquire (in one transaction or a series of transactions)
any property of any other person or entity constituting a business unit.

    (j)  Financial Covenants. The Borrower shall satisfy the following
financial covenants:

         (i) For the period from May 1, 2003 up to and including June 30,
2003, the Borrower shall cause its Contributed Capital (as defined below) to
equal or exceed $351,000;

         (ii) For the period from July 1, 2003 up to and including July 31,
2003, the Borrower shall cause its Contributed Capital to equal or exceed
$315,000;

         (iii) For each calendar month during the period from and including
August 1, 2003 to the date on which all of the obligations of the Borrower
under this Note shall have been paid in full and the Total Commitment shall
have expired, the Borrower shall cause its Contributed Capital to equal or
exceed $331,000; provided that (A) if, during the periods specified in Section
7(j)(i) and Section 7(j)(ii), the Borrower's Contributed Capital exceeds
$351,000 and $315,000, respectively, then the Borrower may carry over the
amounts of such excess to succeeding calendar months for purposes of
calculating the Borrower's Contributed Capital for such succeeding calendar
months; and (B) in any given calendar month after July 31, 2003, the
Borrower's Contributed Capital exceeds $331,000, then the amount of such
excess may be carried over to succeeding calendar months for purposes of
calculating the Borrower's Contributed Capital for such succeeding calendar
months;

         (iv) Until such time as all of the obligations of the Borrower under
this Note shall have been paid in full and the Total Commitment shall have
expired, the Borrower shall not permit its operating expenses in any given
calendar month to exceed $305,000.


                                       6


    "Contributed Capital" as used in this Section 7(j) shall mean, for any given
period, the sum of the Gross Margin of the Borrower for that period plus the
Equity Revenue of the Borrower for that period. "Gross Margin" shall mean the
gross operating revenue of the Borrower for the applicable period less the cost
of goods sold (determined in accordance with Generally Accepted Accounting
Principles) for that period. "Equity Revenue" shall mean the total sum of equity
raised by the Borrower in the applicable period through the sale of its common
stock by means of private placements and/or Regulation S offerings.

    (k)  Use of Proceeds. The proceeds of the Loans made under this Note shall
be used only for the payment of operating and occupancy expenses incurred by
Borrower provided that payments to affiliates, shareholders or directors of
Borrower for expenses or obligations incurred by Borrower other than operating
and occupancy expenses shall be permitted only with the prior written consent
of Lender, and provided further the proceeds of the initial Loan made under
this Note shall be used for payment of the expenses below, as follows:



                                       
Proceeds from initial Loan:               $250,000
Legal fees-Summit                         $20,000
Commitment Fees                           $50,000
Payroll and taxes                         $90,000
Employee Expenses                         $32,114
Vendors                                   $57,886



    (l)  Settlements. The Borrower shall not, without the prior written consent
of the Lender, enter into or consent to any settlements with respect to any
claims, disputes, suits or proceeding of any kind (including with respect to
the matters disclosed in the attached Schedule 1) if and to the extent that
the amount of such settlement is or can reasonably be expected to be, in
excess of $10,000.

    (m)  Other Information. Promptly following any request for the same at any
time, the Borrower shall furnish to the Lender such other information
regarding the operations, business affairs and financial condition of the
Borrower or compliance with the terms of the Basic Documents as the Lender may
reasonably request.

    (n)  Maintenance of Property; Insurance. The Borrower shall:

         (i) keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted;

         (ii) maintain, with financially sound and reputable insurance
companies, insurance (including liability and casualty insurance) in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations; and

         (iii) cause the Lender to be joined as loss payee or additional
insured, as applicable, under all policies of insurance maintained by the
Borrower, and provide to the Lender, within ten (10) Business Days after the
date of this Note, certificates of insurance with respect to all such insurance
policies (including liability and casualty insurance) showing the Lender as loss
payee or additional insured, as applicable, on such certificates, together with,
in each case, evidence of the payment of all premiums with respect to such
insurance policies and a certificate of an executive officer of the Borrower
certifying that all such insurance policies are in full force and effect and
that the Borrower has received no notice of cancellation with respect to any
such insurance policies.


                                       7



    8.  Representations and Warranties. The Borrower represents and warrants to
the Lender that:

    (a)  Organization; Powers. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Condition, is qualified
to do business in, and is in good standing in, every jurisdiction where that
qualification is required.

    (b)  Authorization; Enforceability. The transactions contemplated under
this Note and the other Basic Documents are within the Borrower's corporate
powers and have been duly authorized by all necessary corporate (including, if
required, stockholder) action. This Agreement has been, and the other Basic
Documents will be, duly executed and delivered by the Borrower, and each Basic
Document constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.

    (c)  Governmental Approvals; No Conflicts. The transactions contemplated
under this Note and the other Basic Documents (i) will not violate or result in
a default under any agreement or other instrument binding upon the Borrower or
its property and assets or give rise to a right under any such agreement or
other instrument to require any payment to be made by the Borrower and (ii) will
not result in the creation or imposition of any lien on any property or asset of
the Borrower other than the liens created under the Security Agreement.

    (d)  Properties and Assets.

         (i) The Borrower has good title to all its property and assets, free
and clear of all liens (other than the liens of the Security Agreement) except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize its properties and assets for
their intended purposes.

         (ii) The Borrower owns, or is licensed to use, all trademarks, trade
names, copyrights, patents and other intellectual property material to its
business, and the use of any such property by the Borrower does not infringe
upon the rights of any other person or entity.

    (e)  No Litigation. Other than as disclosed on the attached Schedule 1,
there are no actions, suits or proceedings by or before any arbitrator or
governmental authority pending against or, to the knowledge of the Borrower,
threatened against or affecting the Borrower (i) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Condition.

                                       8



    9.  Events of Default. The Borrower shall be in default under this Note
upon the occurrence of any of the following events (each an "Event of
Default"):

    (a)  The failure of the Borrower to pay any portion of the principal,
interest or any other amounts payable under this Note when due, whether at
stated maturity or otherwise;

    (b)  The entry of an order for relief under Title 11 of the United States
Bankruptcy Code as to the Borrower or the adjudication of the Borrower as
insolvent or bankrupt pursuant to the provisions of any state insolvency or
bankruptcy act; the commencement by the Borrower of any case, proceeding or
other action seeking any reorganization, arrangement, composition, adjustment,
liquidation, dissolution or similar relief for itself under any present or
future statute, law or regulation relating to bankruptcy, insolvency,
reorganization or other relief for debtors; the consent of the Borrower to,
its acquiescence in or attempt to secure the appointment of any receiver of
all or any substantial part of its properties; or the Borrower shall make a
general assignment for the benefit of creditors;

    (c)  The commencement of any case, proceeding or other action against the
Borrower seeking to have an order for relief entered against it as a debtor or
seeking any reorganization, arrangement, composition, adjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation relating to bankruptcy, insolvency, reorganization or other relief
for debtors or seeking appointment of any receiver for the Borrower or for all
or any substantial part of its property, which is not in any such instance
fully stayed or dismissed within 90 days after the entry of the same;

    (d)  The Borrower admits in writing its inability to, or be generally
unable to, pay its debts as those debts become due;

    (e)   The occurrence and continuation of a Material Adverse Condition if
such condition is not remedied or capable of being remedied by the exercise of
reasonable diligence within 10 days after the Borrower or the Lender obtain
knowledge of such condition;

    (f)  A final judgment or judgments for the payment of more than $50,000 in
the aggregate are rendered against the Borrower, and the Borrower fails,
within 30 days of the entry of each such judgment, either (i) to discharge (or
to cause or provide for that discharge) each such judgment or (ii) both to
procure stay of execution of each such judgment and, within that 30-day period
(or such longer period during which execution of the that judgment has been
stayed) to appeal from, and during that appeal to procure the continued stay
of execution for, each such judgment;

    (g)  Any representation, warranty or certification made or deemed made in
any Basic Document by the Borrower or any certificate furnished to the Lender
pursuant to the provisions of any Basic Document proves in any material
respect to have been false or misleading when made or furnished or deemed made
or furnished;

                                       9



    (h)   The Borrower fails to comply with its obligations under Section 7(a)
or Section 7(j);

    (i)  The Borrower fails to perform any of its other obligations under this
Note or any other Basic Document, and that failure continues unremedied for 30
days after notice of that failure to the Borrower by the Lender; or

    (j)  Any default or event of default occurs and continues under any of the
other Basic Documents.


    Upon the occurrence of any Event of Default, all principal of this Note
and accrued and unpaid interest on the principal of this Note and all other
sum under this Note shall become immediately due and payable without any
demand, notice or other action, all of which are hereby waived by the
Borrower.

    10.  Conditions Precedent to Initial Loan. The obligation of the Lender to
make the initial Loan under this Note is subject to the satisfaction of the
following conditions:

    (a) no Default or Event of Default has occurred and is continuing as of the
date of such initial Loan;

    (b) no Material Adverse Condition has occurred and is continuing as of the
date of such initial Loan;

    (c) the representations and warranties made by the Borrower in this Note
and the other Basic Documents are true and complete on and as of the date of
that Loan with the same force and effect as if made on and as of that date
(or, if applicable, as of any specific date as of which that representation or
warranty is expressly stated to have been made);

    (d) the Lender shall have received a certificate of the Secretary or an
Assistant Secretary of the Borrower, dated as of the date of the initial Loan
and certifying:


         (i) that attached to such certificate is a copy of the charter, as
amended and in effect, of the Borrower certified as of a recent date by the
Secretary of State of its jurisdiction of incorporation, and that such charter
has not been amended since the date of such certification by the Secretary of
State;


         (ii) that attached to such certificate is a true and complete copy of
the bylaws of the Borrower as amended and in effect at all times from the date
on which the resolutions referred to in clause (iii) were adopted to and
including the date of such certificate,


         (iii) that attached to such certificate is a true and complete copy of
resolutions duly adopted by the board of directors of the Borrower authorizing
the execution, delivery and performance of this Note and the Loans, the Security
Agreement and all documents related to the transactions contemplated under this
Note (the "Basic Documents"), and that such resolutions have not been modified,
rescinded or amended and are in full force and effect;


                                       10


         (iv) that attached to such certificate are certificates of good
standing for the Borrower from the Secretary of State of the State of Delaware
and the Secretary of State of the State of Michigan; and

         (iv) as to the incumbency and specimen signature of each officer of the
Borrower executing the Basic Documents (and the Lender may conclusively rely on
such certificate);

    (e) the Lender shall have received an opinion of in-house legal counsel to
the Borrower, dated the date of the initial Loan, in form and substance
reasonably satisfactory to the Lender;

    (f) the Lender shall have received duly executed and delivered copies of (i)
the Security Agreement, (ii) the Warrant to Purchase Stock of Power Efficiency
Corporation that expires on June 14, 2012 (the "Warrant") and the Certificate of
Amendment of Warrant issued to Lender and dated as of the date of this Note (the
"Warrant Amendment") and (iii) the Certificate of Designation of Series A
Convertible Preferred Stock of the Borrower (the "Certificate of Designation")
and the Certificate of Amendment of Certificate of Designation of Series A
Convertible Preferred Stock of the Borrower dated as of the date of this Note
(the "Certificate of Designation Amendment"); and

    (g) the Lender shall have received such other documents as the Lender may
reasonably request.

    11.  Conditions to All Loans. The obligation of the Lender to make any Loan
under this Note is subject to the further conditions precedent that, both
immediately prior to the making of that Loan and also after giving effect to,
and to the intended use of, that Loan:

    (a) no Default or Event of Default has occurred and is continuing;

    (b) no Material Adverse Condition has occurred and is continuing; and

    (c) the representations and warranties made by the Borrower in this Note
and the other Basic Documents are true and complete on and as of the date of
that Loan with the same force and effect as if made on and as of that date
(or, if applicable, as of any specific date as of which that representation or
warranty is expressly stated to have been made).

    Each such extension of credit to the Company shall constitute a
certification by the Company to the effect set forth in the preceding
sentence.

    12.  Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.


    (a)  Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THE STATE OF NEW YORK.


                                       11



    (b) Submission to Jurisdiction. THE BORROWER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL
DISTRICT OF CALIFORNIA AND OF ANY CALIFORNIA STATE COURT SITTING IN RIVERSIDE
COUNTY, CALIFORNIA FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE. EACH OF THE
BORROWER AND THE LENDER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR IN THE FUTURE HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.

    (c) Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE.

    13.  No Waiver. No failure on the part of the Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any right,
remedy, power or privilege under this Note shall operate as a waiver of that
right, remedy, power or privilege, nor shall any single or partial exercise of
any right, power or privilege under this Note preclude any other or further
exercise of any such right, remedy, power or privilege or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Note are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.

    14.  Expenses, Indemnification, Etc.

    (a)  The Borrower shall pay: (i) all reasonable out-of-pocket expenses of
the Lender (including the reasonable fees and expenses of counsel to the
Lender), in connection with (A) the negotiation, preparation, execution and
delivery of this Note and the other Basic Documents and the extension of
credit under this Note and (B) any modification, supplement or waiver of any
of the terms of this Note or any other Basic Document, (ii) all out-of-pocket
expenses of the Lender (including counsels' fees and expenses) in connection
with any Default or Event of Default and any enforcement or collection
proceedings (including any bankruptcy, reorganization, workout or other
similar proceeding) resulting from that Default or Event of Default or in
connection with the negotiation of any restructuring or "work-out" (whether or
not consummated) of the obligations of the Borrower under this Note and the
other Basic Documents, (iii) all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of the security interest contemplated by the Security Agreement;
and (iv) all out-of-pocket expenses of the Lender (including counsels' fees
and expenses) in connection with the enforcement of this Section 14.


                                       12


    (b)  The Borrower shall indemnify the Lender from, and hold the Lender
harmless against, any and all judgments, losses, liabilities, damages or
expenses incurred by the Lender in connection with or by reason of (i) the
execution and delivery of this Note, the other Basic Documents or any related
agreement, instrument or document, or the performance by any person of its
obligations under this Note and the other Basic Documents, (ii) the
transactions contemplated by this Note, (iii) the making of any Loan or the
use of the proceeds of any Loan or (iv) any actual or prospective claim,
litigation, investigation or proceeding related to any of the foregoing,
whether based on contract, tort or any other theory (but excluding any such
losses, liabilities, damages or expenses incurred by reason of the negligence,
gross negligence or willful misconduct of the person to be indemnified). It
shall not be a condition to any such indemnification that the Lender be a
party to any such investigation, litigation or other proceeding.

    (c)  To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against the Lender on any theory of
liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages).

    (d)  All amounts due under this Section 14 shall be payable promptly after
written demand.

    (e)  The provisions of this Section 14 shall survive the termination of
this Note.

    15.  Restrictions on Transfer.

    (a)  Assignments by the Borrower. The Borrower may not assign any of its
rights or obligations under this Note without the prior written consent of the
Lender.

    (b)  Assignments by the Lender. With the prior written consent of the
Borrower, the Lender may assign all or any part of this Note and the Total
Commitment, together with, in any such case, its related rights, remedies,
powers and privileges under the Basic Documents; provided that (i) no such
consent shall be required if an Event of Default has occurred and is
continuing; and (ii) no such consent shall be required in the case of any
assignment by the Lender (A) to an affiliate of the Lender; (B) to limited
partners or other investors in the Lender; (C) to Northwest Power Management,
the general partner of the Lender or other funds affiliated with Northwest
Power Management; or (D) to Steven Strasser or other funds affiliated with or
managed by Steven Strasser.

    16.  Integration. This Note and the other Basic Documents constitute the
entire agreement and understanding between the Borrower and the Lender with
respect to the matters covered by this Note and the other Basic Documents and
supersede all prior agreements and understandings, written or oral, between
the Borrower and the Lender with respect to the subject matter of this Note
and the other Basic Documents.


                                       13



    17.  Severability. Any provision of this Note that is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions of this Note, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction.

    18.  Captions. The table captions and section headings appearing in this
Note are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Note.

    19.  Counterparts. This Note may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and
any of the parties to this Note may execute this Note by signing any such
counterpart. Delivery of an executed counterpart of a signature page to this
Note by hand or by telecopy shall be as effective as the delivery of a fully
executed counterpart of this Note.

    20.  Amendments. No provision of this Note may be waived, modified or
supplemented except by a written instrument signed by the Borrower and the
Lender.

    21.  Successors and Assigns. This Note shall be binding upon and inure to
the benefit of its parties and their respective successors and permitted
assigns.

    22.  Further Assurances. The Borrower shall provide to the Lender, from
time to time, such documents, agreements, certificates and other information
requested by the Lender as shall be necessary or advisable to effect the
purposes of this Note and the other Basic Documents.

    23. Termination. So long as all of the principal and interest on the Loans
and all fees and other amounts payable by the Borrower under this Note and the
other Basic Documents have been paid in full, the Borrower shall have the right
to terminate this Note and the Total Commitment by written notice to the Lender.
Upon the receipt of such notice by the Lender, if no principal, interest, fees
or other amounts are outstanding under this Note and the other Basic Documents,
then (a) this Note and the Total Commitment shall terminate and (b) the Security
Agreement shall terminate and the liens granted to the Lender under the Security
Agreement shall be released in accordance with the provisions of Section 15 of
the Security Agreement.

            [The remainder of this page is intentionally left blank.
                            Signature pages follow]

                                       14


    IN WITNESS WHEREOF, the parties agree to the provisions of this Note, and
Power Efficiency Corporation has caused this Note to be duly executed and
delivered on its behalf and in its name by the signature of its duly
authorized officer, as of the date first above written.

POWER EFFICIENCY CORPORATION

By:
    ---------------------------------------------
    Name: Raymond J. Skiptunis
    Title: President & CEO


SUMMIT ENERGY VENTURES, LLC

By: Northwest Power Management, its manager

By:
    ---------------------------------------------
    Name: Steven Strasser
    Title: President









                                                                     Schedule 1

                             Disclosure re Disputes

1.      Stephen Shulman: The Borrower is involved with certain claims and
        counterclaims related to arbitration with its former CEO, Stephen
        Shulman. The claim was filed by the former CEO on October 10, 2002 and
        is being administrated by the East Providence, Rhode Island office of
        the American Arbitration Association. The former CEO is claiming the
        Borrower owes him, and is seeking to recover, approximately $528,659.
        The amount of his claim is comprised of (i) $116,039 for unpaid salary
        and expenses, and (ii) $412,620 for a payment owed to him in the case
        of a change of control of the Borrower. The Borrower is currently
        defending these claims.

2.      Warner Norcross & Judd LLP: The Borrower received certain services from
        a law firm, Warner Norcross & Judd LLP ("WNJ"). The Borrower received
        an invoice from WNJ that it believes was unreasonably high. The invoice
        was for approximately $200,000 which the Borrower believes is
        approximately two times the reasonable value of the services provided.
        The Borrower has paid approximately $80,000 of the outstanding balance
        and is in negotiations with WNJ regarding the unpaid portion of the
        invoice.





                              SCHEDULE OF LOANS AND
                              PAYMENTS OF PRINCIPAL
                           UNDER REVOLVING CREDIT NOTE



                                                                                     
Date               Amount of        Amount of           Amount of          Balance of               Person Making
                   Loan             Principal Paid      Interest Paid      Unpaid Principal         Notation

EX-10.2

Exhibit 10.2

                               SECURITY AGREEMENT

    This SECURITY AGREEMENT, dated as of May 8, 2003 (as amended or
supplemented from time to time, this "Agreement"), is made by Power Efficiency
Corporation, a Delaware corporation (the "Borrower"), for the benefit of
Summit Energy Ventures, LLC, a Delaware limited liability company (the
"Lender").

                              W I T N E S S E T H

    WHEREAS, the Lender has agreed to extend to the Borrower a revolving line
of credit loan in a principal amount not to exceed $1,000,000, (the "Loan"),
evidenced by a Revolving Credit Note, dated May 8, 2003, issued by the
Borrower payable to the Lender (the "Note") and subject to the terms and
conditions specified in the Note; and

    WHEREAS, the Lender is willing to make the Loan, but only upon the
condition, inter alia, that the Borrower shall have executed and delivered to
the Lender this Agreement;

    NOW, THEREFORE, in consideration of the promises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower hereby
agrees with the Lender as follows:

    1. Defined Terms; Interpretation.

    (a)  Defined Terms. Capitalized terms not otherwise defined in this
Agreement shall have the meanings set forth in the Note. All terms used in
this Security Agreement and defined in Article 9 of the Code (as defined
below) shall have the respective meanings assigned to those terms in Article 9
of the Code. In addition, the following terms shall have the following
respective meanings:

    "Code" shall mean the Uniform Commercial Code as the same may from time to
time be in effect in the State of New York or, by reason of mandatory
application, any other applicable jurisdiction.

    "Collateral" shall have the meaning assigned to it in Section 2 of this
Agreement.

    "Event of Default" and "Default" shall mean any default or Event of
Default (as defined under the Note) under the Note, this Agreement or any
other instruments securing the Note.





    "Obligations" shall mean all the unpaid principal amount of, and accrued
interest on, the Note, the Lending Fee, and all other obligations and
liabilities of the Borrower to the Lender, now existing or hereafter incurred,
under, arising out of or in connection with, the Note or this Agreement.

    (b) Interpretation. In this Agreement, unless otherwise indicated, the
singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes or regulations are to
be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means
of reproducing words in a tangible visible form; the words "including,"
"includes" and "include" are to be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments include all subsequent amendments,
extensions and other modifications to those instruments; and references to
persons include their respective successors and permitted assigns and, in the
case of governmental authorities, persons succeeding to their respective
functions and capacities.

        2. Grant of Security Interest; Perfection.

             (a) Grant of Security Interest. As collateral security for the
        prompt and complete payment and performance when due of all the
        Obligations and in order to induce the Lender to make the Loan in
        accordance with the terms of the Note, the Borrower hereby pledges and
        grants to the Lender a security interest in all the Borrower's right,
        title and interest in, to and under the following properties and
        assets, wherever located, and whether now held or in the future
        acquired by the Borrower and whether now existing or in the future
        coming into existence (all of which being hereinafter collectively
        called the "Collateral"):


                                       2


               (i)  all tangible and intangible personal property and fixtures
               of every kind and nature, including all furniture, fixtures,
               equipment, raw materials, inventory, other goods, accounts,
               contract rights, rights to the payment of money, insurance
               policies, insurance refund claims and all other insurance
               claims and proceeds, tort claims, chattel paper, electronic
               chattel paper, documents, instruments, securities and other
               investment property, deposit accounts, rights to proceeds of
               letters of credit, letter-of-credit rights, supporting
               obligations of every nature, and general intangibles including
               all tax refund claims, license fees, patents, patent
               applications, trademarks, trademark applications, trade names,
               copyrights, copyright applications, rights to sue and recover
               for past infringement of patents, trademarks and copyrights,
               computer programs, computer software, engineering drawings,
               service marks, customer lists, goodwill, and all licenses,
               permits, agreements of any kind or nature pursuant to which (A)
               the Borrower operates or has authority to operate, (B) the
               Borrower possesses, uses or has authority to possess or use
               property (whether tangible or intangible) of others, or (C)
               others possess, use, or have authority to possess or use
               property (whether tangible or intangible) of the Borrower, and
               all recorded data of any kind or nature, regardless of the
               medium of recording, including all software, writings, plans,
               specifications and schematics;

               (ii)  all other tangible and intangible property of the
               Borrower, including all books, correspondence, credit files,
               records, invoices, tapes, cards, computer runs and other papers
               and documents in the possession or under the control of the
               Borrower or any computer bureau or service company from time to
               time acting for the Borrower; and

               (iii)  to the extent not otherwise included, all proceeds and
               products in whatever form of all or any part of the other
               Collateral, including all rents, profits, income and benefits
               and all condemnation awards and all other compensation for any
               casualty event with respect to all or any part of the other
               Collateral (together with all rights to recover and proceed
               with respect to the same), and all accessions to, substitutions
               for and replacements of all or any part of the other
               Collateral.

             (b) Perfection. The Borrower authorizes the Lender to file such
        financing statements and continuation statements in such offices from
        time to time before, on or after the date of this Agreement, as are
        necessary or as the Lender may determine to be appropriate to create,
        perfect and establish the priority of the liens granted by this
        Agreement in any and all of the Collateral, to preserve the validity,
        perfection or priority of the liens granted by this Agreement in any
        and all of the Collateral or to enable the Lender to exercise its
        remedies, rights, powers and privileges under this Agreement, and
        consents that any such financing statements may be filed describing the
        Collateral as "all assets" or "all personal property" of the Borrower
        (without, however, modifying the description of the Collateral as set
        forth in Section 2(a)). Concurrently with the execution and delivery of
        this Agreement, the Borrower shall take all such other actions, and
        authenticate or sign and file or record such other records or
        instruments, as are necessary or as the Lender may request to perfect
        and establish the priority of the liens granted by this Agreement in
        any and all of the Collateral or to enable the Lender to exercise its
        remedies, rights, powers and privileges under this Agreement, including
        cooperating with the Lender in obtaining, and taking such other actions
        as are necessary or that the Lender may request in order for it to
        obtain, control with respect to any of the Collateral the perfection of
        which requires control under the Code (including, in the case of the
        deposit accounts listed on Schedule 4(f), causing the relevant bank at
        which that deposit account is maintained to enter into an agreement in
        substantially the form of Annex 1 or such other form as the Lender may
        in its discretion accept).


                                       3


    3. Rights of the Lender; Limitations on the Lender's Obligations. It is
expressly agreed by the Borrower that, anything herein to the contrary
notwithstanding, the Borrower shall remain liable under the contracts and
agreements included in the Collateral, to observe and perform all the conditions
and obligations to be observed and performed by it thereunder, all in accordance
with and pursuant to the terms and provisions of each such contracts and
agreements, to the same extent as if this Agreement had not been executed and
delivered. The exercise by the Lender of any right, remedy, power or privilege
in respect of this Agreement shall not release the Borrower from any of its
duties and obligations under those contracts and agreements. The Lender shall
have no obligation or liability under those contracts or agreements or in
respect of any governmental approval included in the Collateral by reason of
this Agreement or the assignment to the Lender of any payment relating to those
contracts or agreements pursuant to this Agreement, nor shall the Lender be
required or obligated in any manner to perform or fulfill any of the obligations
of the Borrower under or pursuant to those contracts or agreements or any such
governmental approval, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under those contracts or agreements, or to present
or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.

    4.  Representations and Warranties. The Borrower hereby represents and
warrants that:

             (a) Schedule 4(a) correctly sets forth the full and correct legal
        name, type of organization, jurisdiction of organization,
        organizational ID number (if applicable), chief executive office and
        mailing address of the Borrower as of the date of this Agreement.

             (b) The Borrower is the sole beneficial owner of the Collateral or
        otherwise has the power to grant a security interest in the Collateral
        pursuant to this Agreement, and the Collateral is free and clear of all
        liens, and no security agreement, financing statement, equivalent
        security or lien instrument or continuation statement covering all or
        any part of the Collateral is on file or of record in any public
        office, except such as may have been filed by the Borrower in favor of
        the Lender pursuant to this Agreement and as set forth in the Note.


                                       4


             (c) The liens granted by this Agreement in favor of the Lender
        have attached and constitute a perfected security interest in all of
        the Collateral. This Agreement constitutes a valid and continuing first
        lien on and first security interest in the Collateral in favor of the
        Lender, prior to all other liens, encumbrances, security interests and
        rights of others, except as set forth in Schedule 4(c).

             (d) Schedule 4(d) is a true and complete list of all of the
        physical locations of the Collateral as of the date of this Agreement
        and certain other information relative thereto.

             (e) Schedule 4(e) sets forth completely and correctly all
        copyrights, patents and trademarks owned by Borrower as of the date of
        this Agreement; except pursuant to licenses and other user agreements
        entered into by the Borrower in the ordinary course of business and
        listed in Schedule 4(e), the Borrower owns and possesses the right to
        use, and has done nothing to authorize or enable any other person to
        use, any copyright, patent or trademark listed in Schedule 4(e).

             (f) Schedule 4(f) is a true and complete list of all deposit
        accounts maintained by the Borrower at the respective banks listed in
        such Schedule.

    5. Covenants. The Borrower covenants and agrees with the Lender that from
and after the date of this Agreement and until the Obligations are fully
satisfied:

             (a) Further Documentation. At any time and from time to time, upon
        the written request of the Lender, and at the sole expense of the
        Borrower, the Borrower promptly and duly shall execute and deliver any
        and all such further instruments and documents and take such further
        action as the Lender reasonably may deem desirable to create, perfect
        and establish the priority of the liens granted by this Agreement in
        any and all of the Collateral, to preserve the validity, perfection or
        priority of the liens granted by this Agreement in any and all of the
        Collateral, and otherwise to enable the Lender to obtain the full
        benefits of this Agreement and of the rights and powers herein granted,
        including the filing of any financing or continuation statements under
        the Code in effect in any jurisdiction with respect to the liens and
        security interests granted hereby. The Borrower also hereby authorizes
        the Lender to file any such financing or continuation statement without
        the signature of the Borrower to the extent permitted by applicable
        law. If any amount payable under or in connection with any of the
        Collateral shall be or become evidenced by any promissory note or other
        instrument, such note or instrument shall immediately become a part of
        the Collateral and shall be pledged to the Lender, duly endorsed by the
        Borrower in a manner satisfactory to the Lender.


                                       5


             (b) Maintenance of Records. The Borrower will keep and maintain at
        its own cost and expense satisfactory and complete records of the
        Collateral including a record of all payments received and all credits
        granted with respect to the Collateral and all other dealings with the
        Collateral. The Borrower will mark, to the extent feasible, its books
        and records pertaining to the Collateral to evidence this Agreement and
        the security interests granted hereby. For the Lender's further
        security, the Borrower agrees that the Lender shall have a special
        property interest in all of the Borrower's books and records pertaining
        to the Collateral and the Borrower shall deliver and turn over copies
        of any such books and records to the Lender or to its representatives
        at any time on reasonable demand of the Lender.

             (c) Indemnification. In any suit, proceeding or action brought by
        the Lender under any contract or agreement that is a part of the
        Collateral for any sum owing thereunder, or to enforce any provisions
        of such contract or agreement, the Borrower will save, indemnify and
        keep the Lender harmless from and against all expense, loss or damage
        suffered by reason of any defense, setoff, counterclaim, recoupment or
        reduction of liability whatsoever of the person or entity against whom
        such suit, proceedings or action is brought, arising out of a breach by
        the Borrower of any obligation thereunder or arising out of any other
        agreement, indebtedness or liability at any time owing to or in favor
        of such obligee or its successors from the Borrower, and all such
        obligations of the Borrower shall be and remain enforceable against and
        only against the Borrower and shall not be enforceable against the
        Lender.

             (d) Compliance with Laws, etc. The Borrower will comply, in all
        material respects, with all acts, rules, regulations, orders, decrees
        and directions of any governmental authority, applicable to the
        Collateral or any part thereof; provided, however, that the Borrower
        may contest any act, regulation, order, decree or direction in any
        reasonable manner.

             (e) Payment of Obligations. The Borrower will pay promptly when
        due, all taxes, assessments and governmental charges or levies imposed
        upon the Collateral or in respect of its income or profits therefrom,
        as well as all claims of any kind (including claims for labor,
        materials and supplies), except that no such charge need be paid if (i)
        the validity thereof is being contested in good faith by appropriate
        proceedings, (ii) such proceedings do not involve any danger of the
        sale, forfeiture or loss of any of the Collateral or any interest
        therein and (iii) such charge is adequately reserved against in
        accordance with generally accepted accounting principles.


                                       6



             (f) Limitation on Sale and Liens. Other than as set forth in the
        Note, the Borrower will not (i) dispose of the Collateral, (ii) permit
        any person other than the Lender to have control of any deposit
        account, electronic chattel paper, investment property or letter-of-
        credit right included in the Collateral and (iii) create, permit or
        suffer to exist, and will defend the Collateral against and take such
        other action as is necessary to remove, any lien, security interest,
        encumbrance, claim or right, in or to the Collateral, and will defend
        the right, title and interest of the Lender in and to any of the
        Borrower's rights under and in the Collateral against the claims and
        demands of all persons whomsoever.

             (g) Removals; Further Identification of Collateral. Without at
        least 30 days' prior written notice to the Lender, the Borrower shall
        not (i) change its location (as that term is defined in the Code) from
        that shown on Schedule 4(a), (ii) change its name from the name shown
        on Schedule 4(a) as its current legal name or (iii) permit any Goods to
        be located anywhere other than at one of the locations identified in
        Schedule 4(d) or in transit from one of those locations to another. The
        Borrower will furnish promptly to the Lender upon request statements
        and schedules further identifying, describing and stating the physical
        location of the Collateral and such other reports in connection with
        the Collateral as the Lender reasonably may request at any time, all in
        reasonable detail.

             (h) Notices. The Borrower will advise the Lender promptly, in
        reasonable detail, (i) of any lien, security interest, encumbrance or
        claim made or asserted against any of the Collateral, (ii) of any
        material change in the composition of the Collateral not in the
        ordinary course of business, and (iii) of the occurrence of any other
        event which would have a material adverse effect on the aggregate value
        of the Collateral or on the security interests created hereunder not in
        the ordinary course of business.

             (i) Right of Inspection. The Lender shall at all times have full
        and free access during normal business hours to all the books,
        correspondence and records of the Borrower, and the Lender or its
        representatives may examine the same, take extracts therefrom and make
        photocopies thereof, and the Borrower agrees to render to the Lender,
        at the Borrower's cost and expense, such clerical and other assistance
        as may be reasonably requested with regard thereto. The Lender and its
        representatives shall at all times also have the right to enter into
        and upon any premises where any of the Collateral is located for the
        purpose of inspecting the same, observing its use or otherwise
        protecting the interests of the Lender therein.


                                       7


    6. The Lender's Appointment as Attorney-in-Fact.

             (a) The Borrower hereby irrevocably constitutes and appoints the
       Lender and any officer or agent thereof, with full power of substitution,
       as its true and lawful attorney-in-fact with full irrevocable power and
       authority in the place and stead of the Borrower and in the name of the
       Borrower or in its own name, from time to time in the Lender's
       discretion, for the purpose of carrying out the terms of this Agreement,
       to take any and all appropriate action and to execute any and all
       documents and instruments which may be necessary or desirable to
       accomplish the purposes of this Agreement and, without limiting the
       generality of the foregoing, hereby gives the Lender the power and right,
       on behalf of the Borrower, without notice to or assent by the Borrower,
       to do the following:

               (i)  to create, perfect and establish the priority of the liens
               granted by this Agreement in any and all the Collateral, to
               preserve the validity, perfection or priority of the liens
               granted by this Agreement in any and all of the Collateral or
               to enable the Lender to exercise its remedies, rights, powers
               and privileges under this Agreement;

               (ii)  upon the occurrence and continuance of any Default or
               Event of Default, to ask, demand, collect, receive and give
               acquittances and receipts for any and all moneys due and to
               become due under any contract or account that is a part of the
               Collateral and, in the name of the Borrower or its own name or
               otherwise, to take possession of and endorse and collect any
               checks, drafts, notes, acceptances or other instruments for the
               payment of moneys due under any contract or account that is a
               part of the Collateral and to file any claim or to take any
               other action or proceeding in any court of law or equity or
               otherwise deemed appropriate by the Lender for the purpose of
               collecting any and all such moneys due under any such contract
               or account whenever payable;

               (iii)  to pay or discharge taxes, liens, security interests or
               other encumbrances levied or placed on or threatened against
               the Collateral; and

               (iv)  upon the occurrence and continuance of any Default or
               Event of Default, (A) to direct any party liable for any
               payment under any of the contracts or accounts that are a part
               of the Collateral to make payment of any and all moneys due and
               to become due thereunder directly to the Lender or as the
               Lender shall direct; (B) to receive payment of and receipt for
               any and all moneys, claims and other amounts due and to become
               due at any time in respect of or arising out of any Collateral;
               (C) to commence and prosecute any suits, actions or proceedings
               at law or in equity in any court of competent jurisdiction to
               collect the Collateral or any part thereof and to enforce any
               other right in respect of any Collateral; (D) to defend any
               suit, action or proceeding brought against the Borrower with
               respect to any Collateral; (E) to settle, compromise or adjust
               any suit, action or proceeding described above and, in
               connection therewith, to give such discharges or releases as
               the Lender may deem appropriate; and (F) generally to sell,
               transfer, pledge, make any agreement with respect to or
               otherwise deal with any of the Collateral as fully and
               completely as though the Lender were the absolute owner thereof
               for all purposes, and to do, at the Lender's option and the
               Borrower's expense, at any time, or from time to time, all acts
               and things which the Lender deems necessary to protect,
               preserve or realize upon the Collateral and the Lender's
               security interest therein, in order to effect the intent of
               this Agreement, including the preparation, execution and
               recordation of patent, trademark or other forms of assignment,
               all as fully and effectively as the Borrower might do.

                                       8



               The Borrower hereby ratifies all that said attorneys-in-fact
        shall lawfully do or cause to be done by virtue hereof. This power of
        attorney is a power coupled with an interest and is irrevocable.

             (b) The powers conferred on the Lender hereunder are solely to
        protect its interests in the Collateral and shall not impose any duty
        upon it to exercise any such powers. The Lender shall be accountable
        only for amounts that it actually receives as a result of the exercise
        of such powers and neither it nor any of its officers, directors,
        employees or agents shall be responsible to the Borrower for any act or
        failure to act, except for its own gross negligence or willful
        misconduct.

             (c) The Borrower also authorizes the Lender, at any time and from
        time to time (i) to communicate in its own name with any party to any
        contract or agreement that is a part of the Collateral with regard to
        the assignment of those contracts or agreements hereunder and other
        matters relating thereto and (ii) to execute, in connection with the
        sale provided for in paragraph (b) of Section 8 of this Agreement, any
        endorsements, assignments or other instruments of conveyance or
        transfer with respect to the Collateral.

    7. Performance by the Lender of the Borrower's Obligations. If the Borrower
fails to perform or comply with any of its agreements contained in this
Agreement, and the Lender, as provided for by the terms of this Agreement,
itself performs or complies, or otherwise causes performance or compliance, with
such agreement, the expenses of the Lender incurred in connection with such
performance or compliance, together with interest thereon, shall be payable by
the Borrower to the Lender on demand and shall constitute an Obligation secured
by this Agreement.


                                       9



    8. Remedies, Rights Upon An Event of Default.

             (a) If an Event of Default shall occur and be continuing:

               (i)  The Borrower shall, upon written request by the Lender,
               notify (and the Borrower hereby authorizes the Lender so to
               notify) each account debtor in respect of any Accounts and
               General Intangible that such Collateral has been assigned to
               the Lender under this Agreement and that any payments due or to
               become due in respect of that Collateral shall be made directly
               to the Lender;

               (ii)  All payments received by the Borrower under or in
               connection with any of the Collateral shall be held by the
               Borrower in trust for the Lender, shall be segregated from
               other funds of the Borrower and shall forthwith upon receipt by
               the Borrower, be turned over to the Lender, in the same form as
               received by the Borrower (duly indorsed by the Borrower to the
               Lender, if required); and

               (iii)  Any and all such payments so received by the Lender
               (whether from the Borrower or otherwise) may, in the sole
               discretion of the Lender, be held by the Lender as collateral
               security for, and then or at any time thereafter applied in
               whole or in part by the Lender, against all or any part of the
               Obligations.

               Any balance of such payments so paid to or held by the Lender
        and remaining after payment in full of all the Obligations shall be
        paid over to the Borrower or to whomsoever may be lawfully entitled to
        receive the same.

             (b) If any Event of Default shall occur and be continuing, the
        Lender may exercise in addition to all other rights and remedies
        granted to it in this Agreement and in any other instrument or
        agreement securing, evidencing or relating to the Obligations, all
        rights and remedies of a secured party under the Code. Without limiting
        the generality of the foregoing, the Borrower expressly agrees that in
        any such event the Lender, without demand of performance or other
        demand, advertisement or notice of any kind (except the notice
        specified below of time and place of public or private sale) to or upon
        the Borrower or any other person (all and each of which demands,
        advertisements and/or notices are hereby expressly waived), may
        forthwith collect, receive appropriate and realize upon the Collateral,


                                       10


        or any part thereof, and/or may forthwith sell, lease, assign, give
        option or options to purchase, or sell or otherwise dispose of and
        deliver said Collateral (or contract to do so), or any part thereof, in
        one or more parcels at public or private sale or sales, at any exchange
        broker's board or at any of the Lender's offices or elsewhere at such
        prices as it may deem best, for cash or on credit or for future
        delivery without assumption of any credit risk. The Lender shall have
        the right upon any such public sale or sales, and, to the extent
        permitted by law, upon any such private sale or sales, to purchase the
        whole or any part of said Collateral so sold, free of any right or
        equity of redemption in the Borrower, which right or equity is hereby
        expressly released. The Borrower further agrees, at the Lender's
        request, to assemble the Collateral, make it available to the Lender at
        places which the Lender reasonably shall select, whether at the
        Borrower's premises or elsewhere. The Lender shall apply the net
        proceeds of any such collection, recovery, receipt, appropriation,
        realization or sale, after deducting all reasonable costs and expenses
        of every kind incurred therein or incidental to the care, safe keeping
        or otherwise of any or all of the Collateral or in any way relating to
        the rights of the Lender hereunder, including reasonable attorneys'
        fees and legal expenses, to the payment in whole or in part of the
        Obligations, in such order as the Lender may elect, the Borrower
        remaining liable for any deficiency remaining unpaid after such
        application, and only after so paying over such net proceeds and after
        the payment by the Lender of any other amount required by any provision
        of law, need the Lender account for the surplus, if any, to the
        Borrower. To the extent permitted by applicable law, the Borrower
        waives all claims, damages, and demands against the Lender arising out
        of the repossession, retention or sale of the Collateral. The Borrower
        agrees that the Lender need not give more than ten (10) days' notice
        (which notification shall be deemed given when mailed, postage prepaid,
        addressed to the Borrower at its address set forth in Section 10
        hereof) of the time and place of any public sale or of the time after
        which a private sale may take place and that such notice is reasonable
        notification of such matters. The Borrower shall remain liable for any
        deficiency if the proceeds of any sale or disposition of the Collateral
        are insufficient to pay all amounts to which the Lender is entitled,
        the Borrower also being liable for the fees of any attorneys employed
        by the Lender to collect such deficiency.

             (c) The Borrower also agrees to pay all costs of the Lender,
        including attorneys' fees, incurred with respect to the collection of
        any of the Obligations and the enforcement of any of their respective
        rights hereunder.

    9. Limitation on the Lender's Duty in Respect of Collateral. Beyond the safe
custody thereof, the Lender shall not have any duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of it or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto.


                                       11



    10. Notices. All notices, demands and approvals hereunder shall be in
writing and shall be deemed to have been sufficiently given or served when
presented personally, telecopied or when deposited in the mail with first class
postage prepaid:


If to the Borrower:   Ray Skiptunis
                      Power Efficiency Corporation
                      75-153 Merle Drive, Suite B
                      Palm Desert, CA 92211

If to the Lender:     Steven Strasser
                      Summit Energy Ventures, LLC
                      P.O. Box 7387
                      Bellevue, WA 98008

and shall be deemed to have been received upon the earlier of actual receipt
thereof or the fourth calendar day after such mailing. Either party may change
its address by notice to the other.

    11. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

    12. No Waiver; Cumulative Remedies. The Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder and no waiver shall be valid unless in writing, signed by
the Lender, and then only to the extent therein set forth. A waiver by the
Lender of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which the Lender would otherwise
have had on any future occasion. No failure to exercise nor any delay in
exercising on the part of the Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or future exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights and remedies provided by
law. None of the terms or provisions of this Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the
Lender.

    13. Successors and Assigns; Governing Law. This Agreement and all
obligations of the Borrower hereunder shall be binding upon the successors and
assigns of the Borrower, and shall, together with the rights and remedies of
the Lender hereunder, inure to the benefit of the Lender and its successors
and assigns. This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of New York.


                                       12


    14. Further Indemnification. The Borrower agrees to pay, and to save the
Lender harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all excise, sales or other taxes which may
be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.

    15. Termination. When all Obligations have been paid in full and the Total
Commitment has expired or been terminated, this Agreement shall terminate, and
the Lender shall forthwith cause to be assigned, transferred and delivered,
against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect of the
Collateral, to or on the order of the Borrower. The Lender shall also execute
and deliver to the Borrower upon that termination such Code termination
statements and such other documentation as is reasonably requested by the
Borrower to effect the termination and release of the liens granted by this
Agreement on the Collateral.

    16. Amendments, Etc. No provision of this Agreement may be waived,
modified or supplemented except by an instrument in writing signed by the
Borrower and the Lender. Any modification, supplement or waiver shall be for
such period and subject to such conditions as shall be specified in the
written instrument effecting the same and shall be binding upon the Lender and
the Borrower, and any such waiver shall be effective only in the specific
instance and for the purpose for which given.

    17. Agreements Superseded. This Agreement supersedes all prior agreements
and understandings, written or oral, among the parties with respect to the
subject matter of this Agreement.

            [The remainder of this page is intentionally left blank.
                            Signature pages follow.]


                                       13


    IN WITNESS WHEREOF, the Borrower has caused this Agreement to be executed
by its duly authorized officer on the date first set forth above.

POWER EFFICIENCY CORPORATION
(a Delaware corporation)

  By:
     ---------------------------------------------
     Name: Raymond J. Skiptunis
     Title: President & CEO


SUMMIT ENERGY VENTURES, LLC
(a Delaware limited liability company)

By: Northwest Power Management, its manager

  By:
     ---------------------------------------------
     Name: Steven Strasser
     Title: President


                                       14


                                  SCHEDULE 4(a)

                           Identification of Borrower



                                  
Legal Name                           Power Efficiency Corporation

Type of Organization                 Corporation

Jurisdiction of Organization         Delaware

Organizational ID Number             22-3337365

Chief Executive Office               Raymond J. Skiptunis

Mailing Address                      75-153 Merle Drive, Suite B
                                     Palm Desert, CA 92211
                                     Attention: Raymond J. Skiptunis




                                       15


                                  SCHEDULE 4(c)

                                 Existing Liens
                                      NONE


                                       16


                                  SCHEDULE 4(d)

                    LOCATION OF POWER EFFICIENCY CORPORATION
                                   COLLATERAL



                                                                                            
                                      Type of Facility (office,
Location                              warehouse, etc.)                    Owned/Leased             Type of Collateral

1. 4220 Varsity Drive, Suite          Office/Warehouse/ Assembly          Leased                   Materials, Equipment, and
   E; Ann Arbor, MI 48108                                                                            Inventory

2. 75-153 Merle Drive, Suite          Office/Warehouse/ Research          Leased                   Materials, Equipment, and
   B; Palm Desert, CA 92211                                                                          Inventory

3. 40 Nassau Terminal Road;           Office/Warehouse/ Research
   New Hyde Park, New York 11040                                          Leased                   Materials and Equipment




                                       17


                                  SCHEDULE 4(e)

                 DESCRIPTION OF INTELLECTUAL PROPERTY COLLATERAL

Patent
Balanced and Synchronized Phase Detector for an AC Induction Motor Controller
Patent Number: 5,821,726
Date of Patent: Oct. 13, 1998
Inventor: Nicholas Anderson
Assignee: Power Efficiency Corp.
Application number 786,787
Filed: Jan. 21, 1997

Trademark
Registration Number: 2021810
Serial Number: 74/702367
Registration Date: 12/10/1996
Mark: Power Commander
Registration Owner: Power Efficiency Corporation


                                       18


                                  SCHEDULE 4(f)

                                DEPOSIT ACCOUNTS

Michigan Heritage Bank
28300 Orchard Lake Road
Farmington Hills, MI 48334
Phone: (248) 380-6590
Account number: 210369
Type of Account: Checking


Bank One - Michigan
105 Briarwood Circle
Ann Arbor, MI 48108
Mailing address:
P.O. Box 8601
Ann Arbor, MI 48107
Phone: (734) 995-8100
Type of Account: Checking
Account number: 205000545934


                                       19


                                     ANNEX 1

                    FORM OF DEPOSIT ACCOUNT CONTROL AGREEMENT

                        DEPOSIT ACCOUNT CONTROL AGREEMENT

    This DEPOSIT ACCOUNT CONTROL AGREEMENT, dated as of [________] (this
"Agreement"), is entered into between Power Efficiency Corporation, a Delaware
corporation (the "Borrower"), Summit Energy Ventures, LLC, a Delaware limited
liability company (the "Lender"), and [NAME OF DEPOSITARY BANK] (the
"Depositary Bank").

                               W I T N E S S E T H :

    WHEREAS, the Borrower is the Depositary Bank's customer with respect to
the Deposit Accounts (as defined below);

    WHEREAS, the Borrower and the Lender have entered into a Security
Agreement, dated as of May 8, 2003 (the "Security Agreement") pursuant to
which the Borrower has granted to the Lender a continuing security interest
in, among other things, all right, title and interest of the Borrower in, to
and under the Deposit Accounts, whether now owned or existing or hereafter
acquired or arising; and

    WHEREAS, delivery of this Agreement in relation to the Deposit Accounts is
required by the Security Agreement for the purpose of perfecting the Lender's
security interest in, and rights with respect to, the Deposit Accounts;

    NOW, THEREFORE, the parties hereto agree as follows:

    1. Defined Terms; Interpretation.

    (a)  Defined Terms. All references herein to the "Code" refer to the
Uniform Commercial Code as in effect from time to time in the State of New
York. Terms defined in the Code have the same meanings when used in this
Agreement.

    (b) Interpretation. In this Agreement, unless otherwise indicated, the
singular includes the plural and plural the singular; words importing any
gender include the other gender; references to statutes or regulations are to
be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to;
references to "writing" include printing, typing, lithography and other means


                                       20




of reproducing words in a tangible visible form; the words "including,"
"includes" and "include" are to be deemed to be followed by the words "without
limitation"; references to articles, sections (or subdivisions of sections),
exhibits, annexes or schedules are to this Agreement; references to agreements
and other contractual instruments include all subsequent amendments,
extensions and other modifications to those instruments; and references to
persons include their respective successors and permitted assigns and, in the
case of governmental authorities, persons succeeding to their respective
functions and capacities.

    2. Confirmation of Security. The Borrower hereby confirms that, to secure
the Obligations (as defined in the Security Agreement), it has granted to the
Lender a security interest in all of the Borrower's right, title and interest
in and to each Deposit Account at any time or from time to time established,
all amounts at any time or from time to time in any such Deposit Account, and
all proceeds of all or any part of the foregoing (the "Transaction Lien").

    3. Establishment of Deposit Accounts. The Depositary Bank confirms that:

    (a) the Depositary Bank has established the Deposit Accounts set forth on
Schedule I hereto in the name of the Borrower (such account and any successor
account, the "Deposit Accounts"); and

    (b) the Deposit Account is a "deposit account" as defined in Section 9-
102(a)(29) of the Code.

    4. Instructions. The Depositary Bank agrees to comply with any
instructions originated by the Lender pursuant to Section 10 directing
disposition of funds in the Deposit Accounts without further consent by the
Borrower or any other person. The Borrower consents to the foregoing agreement
by the Depositary Bank.

    5. Waiver of Lien; Waiver of Set-off. The Depositary Bank waives any
security interest, lien or right to make deductions or set-offs that it may
now have or hereafter acquire in or with respect to the Deposit Accounts.
Any amounts credited to the Deposit Accounts will not be subject to deduction,
set-off, banker's lien, or any other right in favor of any person other than
the Lender (except that the Depositary Bank may set off for (a) all items
deposited in and credited to the Deposit Accounts and subsequently returned to
the Depositary Bank unpaid, (b) overdrafts in the Deposit Accounts and
interest thereon, (c) interest and fees (in accordance with the Depositary
Bank's generally applicable account agreements and policies) on any items
deposited in the Deposit Accounts and returned unpaid, and (d) all other
compensation, fees, charges and expenses charged to the Deposit Accounts in
accordance with the Depositary Bank's account roles, policies and normal
banking practices).


                                       21



    6. Choice of Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York. The State of New York shall be
deemed to be the Depositary Bank's jurisdiction for purposes of the Code
(including, without limitation, Section 9-304 thereof).

    7. Conflict with Other Agreements. In the event of any conflict between
this Agreement (or any portion hereof) and any other agreement between the
Depositary Bank and the Borrower with respect to the Deposit Accounts, whether
now existing or hereafter entered into, the terms of this Agreement shall
prevail.

    8. Amendments. No provision of this Agreement may be waived, modified or
supplemented, except by an instrument in writing signed by all the parties to
this Agreement.

    9. Notice of Adverse Claims. Except for the claims and interests of the
Lender and the Borrower, the Depositary Bank does not know of any claim to, or
interest in, the Deposit Accounts.

    10. Maintenance of Deposit Account. In addition to, and not in lieu of,
the obligation of the Depositary Bank to honor instructions as agreed in
Section 2, the Depositary Bank agrees to maintain the Deposit Accounts as
follows: so long as the Depositary Bank has not received a Notice of Exclusive
Control (as defined below), the Depositary Bank may comply with instructions
of the Borrower or any duly authorized agent of the Borrower in respect of the
Deposit Accounts. After the Depositary Bank receives a written notice from the
Lender that it is exercising exclusive control over the Deposit Accounts in
the form of Exhibit A (a "Notice of Exclusive Control"), the Depositary Bank
will cease complying with instructions of the Borrower or any of its agents
and will thereafter comply with the instructions of the Lender, until such
time as the Lender otherwise advises the Depositary Bank in writing.

    11. Successors. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and
assigns.

    12. Notices. All notices, demands and approvals hereunder shall be in
writing and shall be deemed to have been sufficiently given or served when
presented personally, telecopied or when deposited in the mail with first
class postage prepaid:


                                       22





                                  
If to the Borrower:                  Power Efficiency Corporation
                                     Attn: Ray Skiptunis
                                     75-153 Merle Drive, Suite B
                                     Palm Desert, CA 92211

If to the Lender:                    Summit Energy Ventures, LLC
                                     Attn: Steven Strasser
                                     P.O. Box 7387
                                     Bellevue, WA 98008

If to the Depositary Institution:    [Name of Depositary Institution]
                                     Attn: [_______]
                                     [Address]



and shall be deemed to have been received upon the earlier of actual receipt
thereof or the fourth calendar day after such mailing. Either party may change
its address by notice to the other.

    13. Termination. The rights and powers granted to the Lender under this
Agreement have been granted in order to perfect the Transaction Lien, are powers
coupled with an interest and will not be affected by any bankruptcy of the
Borrower or any lapse of time. The obligations of the Depositary Bank under this
Agreement shall continue in effect until the Lender has notified the Depositary
Bank in writing that the Transaction Lien has been terminated pursuant to the
terms of the Security Agreement. Upon receipt of such notice, the obligations of
the Depositary Bank hereunder with respect to the operation and maintenance of
the Deposit Accounts after the receipt of such notice shall terminate, and the
Lender shall have no further right to originate instructions concerning the
Deposit Accounts and any previous Notice of Exclusive Control delivered by the
Lender shall be deemed to be of no further force and effect.

    14. Indemnity; Depositary Bank's Responsibility. The Borrower agrees to
indemnify, defend and hold harmless the Depositary Bank and its directors,
officers, agents and employees against any loss, liability or expense
(including reasonable fees and disbursements of counsel) incurred in
connection with this Agreement, including any action taken by the Depositary
Bank pursuant to the instructions of the Lender, except to the extent due to
the gross negligence or willful misconduct of the Depositary Bank (as actually
and finally determined by a final, non-appealable judgment of a court of
competent jurisdiction). The Borrower confirms and agrees that the Depositary
Bank shall not have any liability to the Borrower for wrongful dishonor of any
items as a result of any instructions of the Lender. The Lender confirms and
agrees that the Depositary Bank shall not have any liability to the Lender for
executing transactions with respect to the Deposit Accounts at the direction
of the Borrower that are received by the Depositary Bank before the Depositary
Bank receives a Notice of Exclusive Control. The Depositary Bank shall have no
duty to inquire or determine whether the obligations of the Borrower to the


                                       23



Lender are in default or whether the Lender is entitled to give any such
instructions and the Depositary Bank is fully entitled to rely upon such
instructions from the Lender (even if such instructions are contrary or
inconsistent with any instructions or demands given by the Borrower). The
Depositary Bank may rely on a Notice of Exclusive Control purportedly signed
by the Lender and shall have no duty to investigate or make any determination
as to the validity, genuineness or propriety thereof or the facts giving rise
thereto. This Agreement does not create or impose any obligation or duty upon
the Depositary Bank other than those expressly set forth herein. Without
limiting the generality of the foregoing, the Depositary Bank shall have no
duty or obligation to account to or act on behalf of the Lender with respect
to any other accounts or advise the Lender of the existence of any other
accounts, whether the same are in existence now or are opened after the date
of this Agreement.

    15. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute but one and the same instrument.
To make proof of this Agreement, it shall only be necessary to produce one
such counterpart (or copy thereof if no such counterpart is available).

            [The remainder of this page is intentionally left blank.
                            Signature pages follow.]



                                       24


    IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.

POWER EFFICIENCY CORPORATION
(a Delaware corporation)

 By:
     ---------------------------------------------
     Name: Raymond J. Skiptunis
     Title: President & CEO


SUMMIT ENERGY VENTURES, LLC
(a Delaware limited liability company)

By: Northwest Power Management, its manager

By:
    ---------------------------------------------
    Name: Steven Strasser
    Title: President

[NAME OF DEPOSITARY BANK]

By:
    ---------------------------------------------
    Name:
    Title:



                                       25


                                                                      Exhibit A

                      [Letterhead of Summit Ventures, LLC]

                                     [Date]

[Name and Address of Depositary Bank]

Attention: ________________________

Re: Notice of Exclusive Control

Ladies and Gentlemen:

    As referenced in the Deposit Account Control Agreement dated as of
[_____________] between Power Efficiency Corporation, a Delaware corporation,
us and you (a copy of which is attached), we notify you that we will hereafter
exercise exclusive control over deposit account numbers __________ (the
"Deposit Accounts"). You are instructed not to accept any directions or
instructions with respect to the Deposit Accounts from any person other than
the undersigned unless otherwise instructed by us or ordered by a court of
competent jurisdiction.

    You are instructed to deliver a copy of this notice by facsimile
transmission to Power Efficiency Corporation.

                          Very truly yours,
                          Summit Ventures, LLC
                          By: Northwest Power Management, its manager

                              By:
                                  ---------------------------------------------
                                  Name: Steven Strasser
                                  Title: President

cc: Power Efficiency Corporation
    Attn: Raymond J. Skiptunis
    75-153 Merle Drive, Suite B
    Palm Desert, CA 92211




                                                                     Schedule I

                                DEPOSIT ACCOUNTS





                                                        
Deposit Account Number          Deposit Account Type          Entity

EX-10.4

Exhibit 10.4

                            CERTIFICATE OF AMENDMENT

                                       OF

                                     WARRANT

                              To Purchase Stock of
                          Power Efficiency Corporation
                             a Delaware corporation

      This Certificate of Amendment (the "Amendment") to the Warrant To
Purchase Stock of Power Efficiency Corporation, a Delaware Corporation, that
expires on June 14, 2012 (the "Warrant"), is by and between Power Efficiency
Corporation, a Delaware corporation (the "Company") and Summit Energy
Ventures, LLC, a Delaware limited liability company (the "Holder") and is
dated May 8, 2003.

      WHEREAS, the Company and the Holder have entered into a Revolving Credit
Note of even date herewith (the "Note");

      WHEREAS, as consideration for the Note, the Company agreed to amend the
Warrant as provided below;

      NOW, THEREFORE, the Company and the Holder hereby mutually agree that the
Warrant is hereby amended by changing the Warrant so that, as amended, the
definition of Stock Unit in Section 1 shall read as follows:

    "Stock Unit" shall mean one share of Common Stock or one-half share of
Series A-2 Convertible Preferred Stock, at the election of the Holder of the
Warrant.

    NOW, THEREFORE, the Company and the Holder hereby mutually agree that the
Warrant is hereby amended by changing the Warrant so that, as amended, Section
2 shall read as follows:

    Section 2. Exercise of Warrant. The Holder of this Warrant may, at any time
on or after the Vesting Date, exercise this Warrant in whole or in part for the
number of Stock Units which such Holder is then entitled to purchase hereunder.
In order to exercise this Warrant, in whole or in part, the Holder hereof shall
deliver to the Company at its office maintained for such purpose pursuant to
Section 17: (i) a written notice of such Holder's election to exercise this
Warrant, (ii) this Warrant, and (iii) the total purchase price for the shares
being purchased upon such exercise by delivery in cash, by wire transfer or
certified or official bank check of immediately available funds in an amount
equal to the product of the Current Warrant Price multiplied by the number of
Stock Units being purchased upon such exercise (the "Aggregate Purchase Price"),


                                       1



Such notice may be in the form of the Subscription set out at the end of
this Warrant. Upon receipt thereof, the Company shall, as promptly as
practicable and in any event within ten (10) Business Days thereafter, cause
to be executed and delivered to such Holder a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Warrant Stock issuable upon such exercise.

    The Holder of this Warrant may purchase the number of Stock Units
calculated in the following manner:

    SU = (XC/(1-X)) - P

        where:

        SU =   the number of Stock Units the Holder of this Warrant may
               purchase upon exercise of this Warrant.

        C      = the number of shares of Common Stock outstanding on the
               exercise date; the number of shares of Common Stock reserved for
               issuance pursuant to the Company's stock option plans existing
               on the exercise date (whether or not such options have been
               issued); the number of shares of Common Stock issuable under all
               warrants outstanding on the exercise date; plus the number of
               shares of Common Stock issuable upon conversion of all
               Convertible Instruments outstanding on the exercise date, other
               than (i) the Series A-1 Convertible Preferred Stock sold by the
               Company pursuant to the Stock Purchase Agreement, and (ii) the
               stock issuable (but unissued) upon conversion of the Revolving
               Credit Note issued by the Company to Summit on May 8, 2003.

        P =    the number of shares of Common Stock issuable on the exercise
               date upon conversion of all the Series A-1 Convertible
               Preferred Stock sold by the Company pursuant to the Stock
               Purchase Agreement.

        X =    the percent that is obtained by the following formula:

               X = 51% + (Y/1,000,000) * 9.1%

        where:

        Y =    the dollar amount that has been converted into Series A-1
               Preferred Stock pursuant to the Revolving Credit Note dated May
               8, 2003.

    Upon the first exercise of any right under the Warrant or Warrants by any
Holder (the "First Exercise"), the Current Warrant Price and the remaining
Stock Units purchasable under the Warrant or Warrants by all Holders shall be
fixed upon such first exercise. The remaining Stock Units purchasable under
the Warrant or Warrants shall be equal to the number of Stock Units that could
have been purchased had all the Warrants been exercised minus the number of
Stock Units that were actually purchased at the First Exercise; and (ii) the
Current Warrant Price of all remaining Warrants shall be fixed at the Current
Warrant Price determined for the Warrants that were exercised at the First
Exercise.

                                       2



    The stock certificate or certificates for Warrant Stock so delivered shall
be endorsed with a legend in the form contained in Section 4.1 of the Amended
and Restated Stockholders' Agreement dated June 14, 2002, and shall be in such
denominations as may be specified in said notice and shall be registered in
the name of such Holder or such other name or names as shall be designated in
said notice. Such certificate or certificates shall be deemed to have been
issued and such Holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares, including to
the extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time said notice is received by the
Company as aforesaid.

    Except as otherwise provided in Section 8 hereof, the Company shall pay
all expenses, transfer taxes and other charges payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2,
except that, in case such stock certificates shall be registered in a name or
names other than the name of the Holder of this Warrant, funds sufficient to
pay all stock transfer taxes which shall be payable upon the issuance of such
stock certificate or certificates shall be paid by the Holder hereof at the
time of delivering the notice of exercise mentioned above.

    All shares of Warrant Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free from all liens
and other encumbrances thereon.

    The Company will not close its books against the transfer of this Warrant
or of any share of Warrant Stock in any manner which interferes with the
timely exercise of this Warrant. With the consent of the Holder of this
Warrant, the Company will from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Warrant Stock
acquirable upon exercise of this Warrant is at all times equal to or less than
the Current Warrant Price then in effect.

    No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant.

                     [signature page to immediately follow]


                                       3


    IN WITNESS WHEREOF, the Company and the Holder have caused this
Certificate of Amendment of Warrant to be executed.

                                 POWER EFFICIENCY CORPORATION, a
                                 Delaware corporation

                                   By:
                                   ---------------------------------------------
                                   Name: Raymond J. Skiptunis
                                   Title: President & Chief Executive Officer


                                 SUMMIT ENERGY VENTURES, LLC, a
                                 Delaware limited liability company

                                 By: Northwest Power Management, its manager

                                   By:
                                   ---------------------------------------------
                                   Name: Steven Strasser
                                   Title: President



                                       4