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): April 18, 2006

POWER EFFICIENCY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	0-31805	22-3337365
(State or other jurisdiction of incorporation)	Commission File Number	(IRS Employer Identification No.)
3960 Howard Hughes Pkwy, Suite 460, Las Vegas, NV		89109
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (702) 697-0377

N/A

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Item 2.03 Creation of a Direct Financial Obligation

On April 19, 2006, the Registrant entered into a financing transaction in which the Registrant issued a $1,000,000 convertible, secured note (the “Note”) to EMTUCK, LLC (“EMTUCK”), in which the managing member is a management company wholly owned and controlled by the Registrant’s CEO. The Note is subject to increase up to $1,500,000 if EMTUCK makes available such increased amount. The Note bears interest of 10.75% per annum, with interest payments due quarterly, beginning July 19, 2006. The Note’s principal becomes due on January 19, 2007 (the “Maturity Date”). The Registrant can draw on the note, in increments of up to $200,000, and interest is calculated on the outstanding principal drawn. The Note is secured by a first lien and security interest in all of the Registrant’s accounts receivable and inventory now or hereafter acquired, and a second lien and security interest in all other collateral, subordinate to the existing lien and security interest in favor of Pali Capital Corporation as representative of the holders of promissory notes of the Registrant in the aggregated principal amount of $1,464,806 due October 26, 2006, and $125,000 due February 24, 2007 (the “Pali Notes”). In the event of default (as defined in the note), EMTUCK may upon written notice to the Registrant elect to declare the entire principal amount of the Note then outstanding together with accrued and unpaid interest thereon due and payable. Upon receipt of such notice, the Registrant shall have seven (7) business days to cure the event of default and if uncured on the eighth (8) business day, all principal and accrued interest shall become immediately due and payable.

Item 3.02 Unregistered Sale of Equity Securities

The members of EMTUCK will promptly be issued 2,083,334 warrants in conjunction with the Note, with an exercise price of $0.24 per share. 1,458,334 warrants will vest immediately, with the remaining 625,000 warrants vesting equally over nine (9) months. The warrants will have a cashless exercise provision and will have a 5 year term. If after the date of issuance of the warrants, the Registrant files a registration statement under the Securities Act of 1933, or amends an existing registration statement, in either case, the Registrant will use its best efforts to include the shares issuable on exercise of the warrants in such registration statement or amended registration statement.

Item 5.02 Election of Directors and Appointment of Principal Officers

On April 18, 2006, the Board of Directors of the Registrant elected Rob Murray as a Director of the Registrant. Presently, the Registrant’s entire Board of Directors serves as the Audit Committee, thus Mr. Murray will serve on the Audit Committee. Along with Mr. Murray’s election to the Board of Directors, the Registrant named Mr. Murray the Registrant’s Executive Vice President and Chief Operating Officer.

Mr. Murray was the President, Director and Co-Owner of GoWireless, Inc. for 7 years, where he helped grow the company from 7 stores and $2 million in annual revenue to 110 stores and $38 million in annual revenues. Prior to GoWireless, Mr. Murray was Vice President and General Manager of Paging Network, Inc. Mr. Murray was with Paging Network, Inc for 7 years, where he was promoted 4 times to larger market responsibilities, beginning from $9 million to $70 million and managed 325 employees in 6 branch offices by the time he left. Prior to Paging Network, Inc., Mr. Murray served in various capacities as a Marketing Officer, Senior Account Manager and a Senior Accountant. Mr. Murray earned a Bachelors of Science in Business Administration and Accounting from the University of Southern California and is a former CPA in California.

Also on April 18, 2006, Eric Naroian tendered his resignation as a Director of the Registrant to the Registrant’s Board of Directors.

Item 9.01. Exhibits

	Description of Document	Location
10.1	Interim Financing Agreement with EMTUCK, LLC Dated April 18, 2006	Filed herewith.
10.2	Promissory Note granted to EMTUCK, LLC dated April 19, 2006	Filed herewith.
10.3	Security Agreement with EMTUCK, LLC dated April 19, 2006	Filed herewith.
10.4	Form of warrant	Filed herewith.

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/ Steven Strasser
	Steven Strasser, CEO

Date: April 24, 2006

EX-10.1

EXHIBIT 10.1

EMTUCK, LLC

As of April 18, 2006

Power Efficiency Corporation

3960 Howard Hughes Parkway

Suite 460

Las Vegas, NV 89109

Re: Interim Debt Financing

Ladies and Gentlemen:

In accordance with our discussions with Power Efficiency Corporation (the “Company”), EMTUCK, LLC, a Nevada limited liability company (the “Lender”), hereby agrees to make term loans (the “Loans”) to the Company in the aggregate principal amount of $1,000,000 (the “Base Commitment”), subject to increase up to $1,500,000 if the Lender makes available such increased amount of up to $500,000 (the “Additional Commitment,” and the Base Commitment and the Additional Commitment being herein collectively called the “Total Commitment”) available to the Company on or before May 31, 2006, on the following terms and conditions and any additional conditions set forth in the Notes (as hereinafter defined):

1. Terms of Loans. The Company shall borrow the aggregate principal amount of the Base Commitment in multiple borrowings, in each case not to exceed $200,000 (each such borrowing herein called a “Base Loan”), and, if made available, may borrow the amount of the Additional Commitment, up to the amount of the Total Commitment, each such borrowing being herein called an “Additional Loan,” and the Base Loans and the Additional Loans being herein sometimes collectively called the “Loans”), in the case of the first Base Loan, on a closing date on or as soon as practicable after execution of this Agreement, and in the case of subsequent Loans, on five (5) days prior written notice to the Lender; each Loan shall be due and payable on the date which is nine (9) months from the date the first Base Loan is advanced, shall bear interest on the unpaid principal amount thereof, payable quarterly as set forth in the Note, at a fixed rate equal to the prime rate of Bank of America as published in The Wall Street Journal as in effect on the date of the first Base Loan plus three percent (3%), shall be convertible into equity securities of the Company as provided in paragraph 2 of this Agreement, and shall have such other terms as are set forth herein or in the Notes. The Base Loans and the Additional Loans shall each be evidenced by a single promissory note of the Company dated the date of the first Base Loan or Additional Loan, as applicable, in the form of Exhibit A attached (a “Note,” and collectively, the “Notes”) and shall be secured as provided in the Notes.

2. Conversion Right. In the event the Company, while any amount of the Loans are outstanding, offers any equity securities to third parties (excluding issuances to officers, directors, employees, consultants or advisors pursuant to stock option or restricted stock purchase plans approved by the Board of Directors of the Company which are issued at fair market value at the time of issuance, and also excluding issuances of Common Stock on the exercise of currently outstanding warrants), the Company will use its best efforts to afford Lender the right, at the Lender’s sole option, to participate in such equity financing by converting the aggregate principal amount of the Loans outstanding into equity issuable in such financing on the same terms as such equity is offered to such third parties.

3. Warrants. On the applicable Closing Dates of the first Base Loan and the first Additional Loan, the Company will issue to the Lender (or at the Lender’s designation in its discretion to the individual members of the Lender or their affiliates) Warrants allowing the Lender to purchase, subject to vesting of the exercisability of the Warrants in accordance with Schedule X attached to this Agreement, at any time prior to the fifth anniversary following such Closing Date, and at the Lender’s sole and absolute discretion, a number of shares of Common Stock of the Company equal to a sum obtained by dividing 50% of the aggregate principal amount of the applicable Loans by the Warrant Exercise Price (as defined below), at a price (the “Warrant Exercise Price”) equal to the 5-day average of the closing bid price of shares of Common Stock of the Company on the OTC Bulletin Board prior to the applicable Closing Date; provided that the Warrant Exercise Price shall not be less than twenty cents ($0.20) per share. The

Warrants shall provide for “cashless exercise” by the Lender by use of shares issuable on exercise. If after the date of the issuance of the Warrants the Company files a registration statement under the Securities Act of 1933, or amends an existing registration statement, in either case the Company will use its best efforts to include the shares issuable on exercise of the Warrants in such registration statement or amended registration statement.

4. Consent of Pali Capital Noteholders. As a condition precedent to the Loans, the Company shall have received the requisite consent of the holders of those certain promissory notes bearing interest at 15% per annum of the Company in the aggregate principal amount of $1,464,806 due October 26, 2006, and $125,000 due February 24, 2007 (the “Pali Notes”) to the provision of security for the Loans in the form of a second lien subordinate to the lien securing the Pali Notes as provided in the Notes.

5. Securities Law Compliance. The Lender confirms that it is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”), and that in order to comply with the requirements of Section 4(2) of the 1933 Act and any applicable state securities or blue sky laws the Lender represents and warrants that it is acquiring the Notes and the Warrants for investment purposes only and not with a view to the resale or distribution thereof.

6. Company Action. This transaction shall have been approved by the requisite vote of members of the Board of Directors of the Company who are independent of any affiliate of the Lender.

[Signature page follows]

If the foregoing sets forth our understanding, please indicate your agreement by signing and returning the enclosed copy of this letter.

Very truly yours,
EMTUCK, LLC
By:
	Name:
	Title:

Agreed to and accepted as of the          day of April, 2006:
POWER EFFICIENCY CORPORATION
By:
	Name:
	Title:

SCHEDULE X

EXERCISABILITY OF THE WARRANTS

IMMEDIATELY VESTED	SUBSEQUENT VESTING
70% of the Warrants issued at the applicable Closing Date.	The remaining 30% of the Warrants shall vest in equal monthly increments in each month during which the Base Loans or the Additional Loans, as applicable, are outstanding.

EX-10.2

EXHIBIT 10.2

NOTE

Principal Amount: $1,000,000	Las Vegas, Nevada
	April 19, 2006

FOR VALUE RECEIVED, Power Efficiency Corporation, a Delaware corporation (the “Borrower”) hereby promises to pay to EMTUCK, LLC, a Nevada 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 amount as is advanced and outstanding (each such advance, a “Loan”) pursuant to the provisions of this 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 10.75% 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 the Loan (but only on the principal amount so paid or prepaid) and (b) quarterly on each three-month anniversary of the date of this Note, commencing July 19, 2006, and at maturity 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 January 19, 2007 (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.

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.

This Note is the Note referred to in that certain agreement dated April 18, 2006, between the Borrower and the Lender (the “Agreement”), and is subject to the terms and conditions and entitled to the benefits thereby, 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 Nevada.

“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. Optional Prepayment; Premium. The Borrower may prepay the principal and interest due on this Loan, at any time, in whole or in part, without penalty or premium.

2. Conversion. The Borrower may convert this Note into Common Stock of the Company in accordance with the terms of paragraph 2 of the Agreement. Any such conversion shall constitute payment in full of the aggregate principal amount of this Note so converted.

3. Expenses. Each party shall bear its own expenses incurred in connection with all transactions in respect of the Loans, except that Borrower shall reimburse the Lender for its reasonable legal expenses incurred in connection with such transactions, including the costs of formation of the Borrower.

4. 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: John (BJ) Lackland

Power Efficiency Corporation

3960 Howard Hughes Parkway

Suite 460

Las Vegas, NV 89109

If to the Lender: EMTUCK, LLC

c/o Northwest Power Management, Inc.

One Hughes Center Drive

Suite 1004

Las Vegas, NV 89109

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.

5. 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 5 shall survive the termination of this Note.

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

(a) Pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon its income and profits, or upon any properties belonging to it before the same shall be in default; provided, however, that the Borrower shall not be required to pay any such tax, assessment, charge or levy which is being contested in good faith by proper proceedings and adequate reserves for the accrual of same are maintained if required by generally accepted accounting principles;

(b) Preserve its corporate existence and continue to engage in business of the same general type as conducted as of the date hereof;

(c) Comply in all respects with all statutes, laws, ordinances, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements (the “Requirements”) of all governmental bodies, departments, commissions, boards, companies or associates insuring the premises, courts, authorities, officials, or officers, which are applicable to the Borrower or its property; except wherein the failure to comply would not have a material adverse effect on the Borrower or its property; provided that nothing contained herein shall prevent the Borrower from contesting the validity or the application of any Requirements;

(d) Preserve the value of the Collateral (as defined in the Security Agreement) by using all possible efforts to challenge any claim that the Borrower’s patents infringe upon any patents held by a third party, promptly challenging any third party who files a patent which the Borrower believes infringe upon the Borrower’s patents and

to make any necessary filings to prosecute the pending patent applications. In the event that such steps are not taken to the satisfaction of the Lender, the Lender shall have the right (at the Borrower’s expense) to take all necessary steps to preserve the value of the Collateral; and

(e) Shall not grant any party other than the Lender a security interest in any of the Collateral, except for the currently existing security interest securing the Pali Notes (as defined in the Agreement).

7. 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 Note 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 and securing the Pali Notes) 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.

8. Events of Default. (a) Upon the occurrence of any of the following events (herein called “Events of Default”):

(i) the Borrower shall fail to pay the principal of or interest on this Note when due and payable and on the Maturity Date;

(ii) the Borrower makes a general assignment for the benefit of creditors or commences (as the debtor) a case in bankruptcy, or commences (as the debtor) any proceeding under any other insolvency law;

(iii) except as provided in Section 6(e) above, the Borrower shall encumber or hypothecate the Collateral subject to the security interest created under the Security Agreement; or

(iv) a case in bankruptcy or any proceeding under any other insolvency law is commenced by or against the Borrower (as the debtor) and:

(A) a court having jurisdiction enters a decree or order for relief against the Borrower as the debtor in such case or proceeding;

(B) such case or proceedings is consented to by the Borrower or remains undismissed for 60 days;

(C) the Borrower consents or admits the material allegations against it in any such case or proceeding; or

(D) a trustee, receiver or agent (however named) is appointed or authorized to take charge of substantially all of the property of the Borrower for the purpose of general administration of such property for the benefit of creditors and the order making such appointment or granting such authorization is not vacated within 60 days, during which period such trustee, receiver or agent shall not have taken any action with respect to the property of the Borrower which might prejudice the interest of the Holder,

then, the Lender may upon written notice to the Borrower elect to declare the entire principal amount of the Note then outstanding together with accrued unpaid interest thereon due and payable. Upon receipt of such notice, the Company shall have seven (7) Business Days to cure the Event of Default and if uncured on the eighth (8^th) Business Day, all principal and accrued interest shall become immediately due and payable.

9. Conditions Precedent to Initial Loan. The obligation of the Lender to make the initial Loan under the Agreement 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 true and complete copy of the charter, as amended and in effect, of the Borrower, and that such charter has not been amended since the date of the last amendment set forth in such certificate;

(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 Agreement, 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;

(iv) that attached to such certificate is a certificate of good standing for the Borrower from the Secretary of State of the State of Delaware;

(v) 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 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 and (ii) the Warrants (in accordance with paragraph 3 of the Agreement);

(g) the conditions set forth in paragraph 4 of the Agreement shall have been satisfied; and

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

10. Conditions to All Loans. The obligation of the Lender to make any Loan under the Agreement 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.

11. Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF NEVADA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.

12. 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.

13. Restrictions on Transfer. The Borrower may not assign any of its rights or obligations under this Note without the prior written consent of the Lender.

14. 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.

15. 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.

16. 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.

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

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

19. 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.

[Signature pages follows]

IN WITNESS WHEREOF, 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
  (a Delaware corporation)

By:

Name:

Title:

SCHEDULE OF LOANS AND

PAYMENTS OF PRINCIPAL

UNDER REVOLVING CREDIT NOTE

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

EX-10.3

EXHIBIT 10.3

SECURITY AGREEMENT

This SECURITY AGREEMENT, dated as of April 19, 2006 (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 EMTUCK, LLC, a Nevada limited liability company (the “Lender”).

W I T N E S S E T H

WHEREAS, pursuant to that certain Agreement dated April 19, 2006, between the Borrower and the Lender (the “Base Agreement”), the Lender has agreed to extend to the Borrower loans in a maximum aggregate principal amount not to exceed [$1,500,000] subject, in the case of [$500,000] of such amount, to availability from the Lender (the “Loans”), evidenced by Notes dated as provided in the Base Agreement, issued by the Borrower payable to the Lender (the “Notes”) and subject to the terms and conditions specified in the Notes; 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 Nevada 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 Notes, 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 Notes, the Base Agreement, 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 Loans in accordance with the terms of the Base Agreement and the Notes, 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”):

(i) a first lien and security interest in all accounts receivable and inventory now or hereafter acquired; and

(ii) a second lien and security interest in all other collateral, subordinate to the existing lien and security interest in favor of Pali Capital Corporation as representative of the holders of promissory notes of the Company in the aggregate principal amount of $[1,464,806] due October 26, [2006], and $125,000 due February 24, 2007 (the “Pali Notes”); 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)), including, without limitation, the execution and delivery customary subordination and intercreditor agreements with respect to the Pali Notes. 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.

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 the Borrower is the sole beneficial owner of the Collateral or otherwise has the power to grant the security interests in the Collateral pursuant to this Agreement, and, except for the prior lien and security interest in favor of the holders of the Pali Notes referred to above, 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 Notes.

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.

(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.

(f) Limitation on Sale and Liens. Other than as set forth in the Notes and with respect to the first security interest in respect of the Pali Notes referred to above, 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) 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.

(h) 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.

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

(a) Subject to the rights of the holders of the Pali Notes in respect of the prior lien and security interest in their favor referred to above, 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.

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.

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 receivable 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, subject to the rights of the holders of the Pali Notes in respect of the prior lien and security interest referred to above, 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, 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.

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: John (BJ) Lackland

Power Efficiency Corporation

3960 Howard Hughes Parkway

Suite 460

Las Vegas, NV 89109

If to the Lender: EMTUCK, LLC

c/o Northwest Power Management, Inc.

Suite 1004

One Hughes Center Drive

Las Vegas, NV 89109

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 Nevada, without regard to conflict of laws principles.

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 Commitments have 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.

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:

Title:

EMTUCK, LLC   (a Nevada limited liability company)
By:	[                                         ],
	its manager

By:

Name:

Title:

EX-10.4

EXHIBIT 10.4

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE COMPANY, IS AVAILABLE.

Warrant Number WCE xx

Void after 5:00 P.M. Las Vegas, Nevada time on the last day of the Exercise Period,

as defined in the Warrant

COMMON STOCK PURCHASE WARRANT

OF

POWER EFFICIENCY CORPORATION

This is to certify that, FOR VALUE RECEIVED,                      (the “Holder”), is entitled to purchase, subject to the provisions of this Warrant, from Power Efficiency Corporation, a Delaware corporation (the “Company”), at twenty-four cents ($0.24) per share (the “Warrant Exercise Price”), calculated as provided below, One Million Forty-One Thousand Six Hundred Sixty-Seven (1,041,667) shares of common stock, par value $0.01 per share (the “Common Stock”). The Warrant Exercise Price is a price equal to the five-day average of the Closing Price of the shares of Common Stock on the OTC Bulletin Board on the last trading day immediately prior to the making of the initial Base Loan pursuant to the Loan Agreement, with a floor on the Warrant Exercise Price of Twenty Cents ($0.20). The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, have been calculated pursuant to paragraph 3 of the Loan Agreement and are hereinafter sometimes referred to as the “Warrant Shares.”

1. ISSUANCE OF WARRANT. This Warrant is being issued as part of the consideration paid for services provided in connection with the Base Loans made pursuant to the Loan Agreement (hereinafter defined). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement. In addition, the following terms shall have the meanings set forth below:

“Closing Price” means, as of any date, the last bid price for the Common Stock as reported by the NASDAQ OTC Bulletin Board, or other principal exchange or electronic trading system on which the shares of Common Stock are quoted or traded.

“Exercise Period” shall mean the period commencing on the date hereof and ending at 5:00 p.m., Pacific Time on April 19, 2011.

“Loan Agreement” shall mean the Agreement between EMTUCK, LLC, as Lender, and the Company, as Borrower, providing for the making of the Base Loans and Additional Loans (as defined in the Loan Agreement).

“Securities Act” means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder.

2. EXERCISE OF WARRANT. A. Subject to the vesting of the exercisability of applicable Warrants in accordance with the terms of paragraph 3 of the Loan Agreement, this Warrant may be exercised in whole or in part at any time or from time to time from the date hereof until the end of the Exercise Period by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its stock transfer

agent, if any, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Warrant Exercise Price for the number of shares of Common Stock specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder to purchase the balance of the shares of Common Stock purchasable hereunder. Upon receipt by the Company of this Warrant at its office, or by the stock transfer agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then actually be delivered to the Holder. As soon as practicable after each exercise of this Warrant, in whole or in part, and in any event within seven (7) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Holder hereof or, subject to Section 8 hereof, as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates (with appropriate restrictive legends, as applicable) for the number of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock to which the Holder shall be entitled upon exercise. All issuances of Common Stock pursuant to the exercise of this Warrant shall be rounded (up or down as the case may be) to the nearest whole share.

B. Cashless Exercise. Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant in the manner set forth in this Section 2, the Holder may elect to exercise this Warrant or a portion hereof and to pay for the shares of Common Stock issuable upon such exercise by way of cashless exercise by surrendering this Warrant at the principal executive office of the Company, together with the Notice of Exercise attached hereto duly executed, in which event the Company shall issue to the Holder that number of shares of Common Stock of the Company computed using the following formula:

X =	Y (A - B)
	A

Where	X	=	the number of shares of Common Stock to be issued to the Holder.
	Y	=	the number of shares of Common Stock purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
	A	=	the greater of: (i) the Closing Price of one share of Common Stock (on the date prior to such exercise) or (ii) the 10-day average of the closing bid price of the shares of Common Stock on the OTC Bulletin Board prior to such surrender.
	B	=	the Exercise Price (as adjusted to the date of such calculation).

If the above calculation results in a negative number, then no shares of Common Stock of the Company shall be issued or issuable upon conversion of this Warrant.

3. RESERVATION OF SHARES/FRACTIONAL SHARES. The Company hereby agrees that at all times there shall be reserved for issuance and/or delivery upon exercise of this Warrant such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of this Warrant. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. Instead, the Company will round up to the nearest whole share.

4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender of this Warrant to the Company for other Warrants of different denominations entitling the Holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed and funds sufficient to pay any applicable transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation of this Warrant at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any Warrants into which this Warrant may be divided or for which it

may be exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, (and, in the case of loss, theft or destruction, of reasonably satisfactory indemnification), and upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant of like tenor. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone.

5. RIGHTS AND OBLIGATIONS OF THE HOLDER. The Holder shall not, by virtue of this Warrant, be entitled to any rights of a stockholder of the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. In addition, no provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof shall give rise to any liability of such Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

6. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (a) if the Company shall pay any dividend or make any distribution upon Common Stock, or (b) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights, or (c) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another entity, tender offer transaction for the Company’s Common Stock, sale, lease or transfer of all or substantially all of the property and assets of the Company, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, or (d) if the Company shall file a registration statement under the Securities Act, or amend an existing Registration Statement, on any form other than on Form S-4 or S-8 or any successor form, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least ten (10) days prior to the date specified in clauses (a), (b), (c) or (d), as the case may be, of this Section 6 a notice containing a brief description of the proposed action and stating the date on which (i) a record is to be taken for the purpose of such dividend, distribution or rights, or (ii) such reclassification, reorganization, consolidation, merger, tender offer transaction, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up, or (iii) such registration statement or amendment is to be filed with the SEC.

7. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing or surviving corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance of all or substantially all of the assets of the Company, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that (i) the Holder shall have the right thereafter by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which could have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance, and (ii) the successor or acquiring entity shall expressly assume the due and punctual observance and performance of each covenant and condition of this Warrant to be performed and observed by the Company and all obligations and liabilities hereunder. The foregoing provisions of this Section 7 shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances.

8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant, the Warrant Shares or any other security issued or issuable upon the exercise of this Warrant may not be sold or otherwise disposed of except as follows:

(a) to a person who, in the opinion of counsel for the Company, is a person to whom this Warrant or Warrant Shares may legally be transferred without registration and without the delivery of a current

prospectus under the Securities Act with respect thereto and then only against receipt by the Company of an agreement of such person to comply with the provisions of this Section 8 with respect to any resale or other disposition of such securities, which agreement shall be satisfactory in form and substance to the Company and its counsel; or

(b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition.

9. REGISTRATION. If the Company shall, after the date of the issuance of this Warrant, file a registration statement or amendment to an existing registration statement under the Securities Act as provided in Section 6(d) hereof, the Company shall use its best efforts to include the shares of Common Stock issuable on exercise of this Warrant in such registration statement or amended registration statement.

10. GOVERNING LAW; JURISDICTION. The corporate laws of the State of [Delaware] shall govern all issues concerning the relative rights of the Company and its stockholders. All issues concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed in accordance with the internal laws of the State of [Delaware] without giving effect to the principles of conflicts of law thereof. The parties hereto agree that venue in any and all actions and proceedings related to the subject matter of this Warrant shall be in the state and federal courts in and for Kent County, Delaware, which courts shall have exclusive jurisdiction for such purpose, and the parties hereto irrevocably submit to the exclusive jurisdiction of such courts and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding. Service of process may be made in any manner recognized by such courts. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought.

11. NOTICES. Except as provided in Section 6 hereof, any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (Pacific time) on a Business Day, (b) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 6:30 p.m. (Pacific time) on any date and earlier than 11:59 p.m. (Pacific time) on such date, (c) the Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company: Power Efficiency Corporation

3960 Howard Hughes Parkway, Suite 460

Las Vegas, Nevada 89109

Attn: John (BJ) Lackland

Facsimile No.: (702) 697-0379

With a copy to: Craig H. Norville, Esq.

Jones Vargas

3773 Howard Hughes Parkway, Third Floor South

Las Vegas, Nevada 89109

Facsimile No.: (702) 734-2722

If to the Holder To the Address Set Forth In the Records of the Company

With copies to: EMTUCK, LLC

One Hughes Center Drive

Suite 1004

Las Vegas, NV 89109

Facsimile No.: (702) 792-5445

Attn: Steven Strasser

12. PAYMENT OF TAXES. The Company will pay the cost of all applicable documentary stamp taxes, if any, attributable to the issuance of shares of Common Stock underlying this Warrant upon exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the registration of any certificate for shares of Common Stock underlying this Warrant in a name other that of the Holder. The Holder is responsible for all other tax liability that may arise as a result of holding or transferring this Warrant or receiving shares of Common Stock underlying this Warrant upon exercise hereof.

13. INCONSISTENCIES. To the extent there are any inconsistencies between the terms and provisions of this Warrant and the terms and provisions of the Loan Agreement, the terms and provisions of this Warrant shall govern and be controlling.

IN WITNESS WHEREOF, this Warrant has been duly executed as of April 19, 2006.

POWER EFFICIENCY CORPORATION
By:
	Name:
	Address:

EXHIBIT A

FORM OF EXERCISE NOTICE

[To be executed only upon exercise of Warrant]

To POWER EFFICIENCY CORPORATION:

(A) The undersigned registered holder of the within Warrant hereby irrevocably exercises the Warrant pursuant to Section 2 of the Warrant with respect to                     (1) shares of the Common Stock, at an exercise price per share of Common Stock of $            , which the holder would be entitled to receive upon the cash exercise hereof, and requests that the certificates for the shares be issued in the name of, and delivered to, whose address is:

OR

(B) The undersigned registered holder of the within Warrant hereby irrevocably exercises the Warrant pursuant to Section 2(B) of the Warrant with respect to                     (1) shares of the Common Stock, and hereby authorizes POWER EFFICIENCY CORPORATION to withhold              shares of Common Stock having a total value of $            , such value being determined in accordance with the terms of this Warrant, from the Shares otherwise to be received, and requests that the certificates for the shares be issued in the name of, and delivered to                     , whose address is:

Dated:                         

Print or Type Name

(Signature must conform in all respects to name of holder as specified on the face of Warrant)

(Street Address)

(City)                                (State)              (Zip Code)

(1) Insert here the number of shares called for on the face of this Warrant (or, in the case of a partial exercise, the portion thereof as to which this Warrant is being exercised), in either case without making any adjustment of shares of Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of this Warrant, may be delivered upon exercise. In the case of a partial exercise, a new Warrant or Warrants will be issued and delivered, representing the unconverted portion of the Warrant, to the holder surrendering the Warrant.

PURCHASE FORM

Dated:                     , 20    

The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing              shares of Common Stock and hereby makes payment of $             in payment of the stated exercise price thereof. Schedule 1 attached hereto specifies the Warrant Shares from which the shares of Common Stock are being purchased and the Warrant Exercise Price(s) for such shares.

INSTRUCTIONS FOR REGISTRATION OF STOCK

Name:
	(Please typewrite or print in block letters)

Signature:

Social Security or Employer Identification No.:

ASSIGNMENT FORM

FOR VALUE RECEIVED,                                                                                                hereby sells, assigns and transfer unto:

Name:
	(Please typewrite or print in block letters)

Address:

Social Security or Employer Identification No.:

The right to purchase Common Stock represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint                      as attorney to transfer the same on the books of the Company with full power of substitution.

Dated:                         , 200_.

Signature:

Signature Guaranteed: