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 19, 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:

¨ 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 May 19, 2006, the Registrant entered into a financing transaction in which the Registrant increased its outstanding $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, to $1,500,000. The Registrant’s CEO is the beneficial owner of 50% of EMTUCK. 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 only 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 individual beneficial owners of EMTUCK were issued, in aggregate, 755,210 warrants (the “Warrants”) in conjunction with the Note, with an exercise price of $0.32 per share. 546,876 Warrants will vest immediately, with the remaining 208,334 warrants vesting equally over eight (8) months so long as any principal amount remains outstanding. 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 9.01. Exhibits

Description of Document
10.1	Interim Financing Agreement with EMTUCK, LLC Dated April 18, 2006, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2006
10.2	Promissory Note granted to EMTUCK, LLC dated May 19, 2006, filed herewith
10.3	Security Agreement with EMTUCK, LLC dated April 19, 2006, incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on April 24, 2006
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: May 26, 2006

EX-10.2

EXHIBIT 10.2

NOTE

Principal Amount: $500,000	Las Vegas, Nevada
	May 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 $500,000, 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 the first Base Loan (as defined in the Agreement), 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-10.4

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 Thirty-Two cents ($0.32) per share (the “Warrant Exercise Price”), calculated as provided below, Three Hundred Seventy-Seven Thousand Six Hundred Five (377,605) 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 May 18, 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: