<PAGE>


                         SERIES A CONVERTIBLE PREFERRED
                            STOCK PURCHASE AGREEMENT




                                 By and between

                          POWER EFFICIENCY CORPORATION

                                       and

                           SUMMIT ENERGY VENTURES, LLC






                           Dated as of June 14, 2002.



<PAGE>



                         SERIES A CONVERTIBLE PREFERRED
                            STOCK PURCHASE AGREEMENT



                  This Series A Convertible Preferred Stock Purchase Agreement
(the "Agreement") dated as of June 14, 2002, is entered into by and between
Power Efficiency Corporation, a Delaware corporation (the "Company") and Summit
Energy Ventures, LLC, a Delaware limited liability company (the "Purchaser").

                  In consideration of the premises, mutual promises and
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1.       Authorization and Sale of Series A Convertible Preferred Stock.

         1.1 Authorization. The Company has, or before the Closing (as defined
in Section 2.1) will have, duly authorized the sale and issuance of up to
2,346,233 shares of its Series A-1 Convertible Preferred Stock, $0.001 par value
per share (the "Series A-1 Preferred"), and additional shares of its Series A-2
Convertible Preferred Stock, $0.001 par value per share (the "Series A-2
Preferred"), all having the rights, restrictions, privileges and preferences set
forth in the Company's Certificate of Designation attached hereto as Exhibit A
(the "Certificate of Designation").

         1.2 Sale of Shares and Issuance of Warrant. Subject to the terms and
conditions of this Agreement, at the Closing, the Company (i) will sell and
issue to the Purchaser 2,346,233 shares of Series A-1 Preferred (the "Purchased
Shares"), and the Purchaser will purchase such shares of Purchased Shares for
the aggregate purchase price of $2,500,000 (the "Purchase Price"); and (ii) will
issue to the Purchaser a warrant entitling the Purchaser to purchase, at its
election, shares of common stock of the Company, $0.001 par value per share (the
"Common Stock") or shares of Series A-2 Preferred, all upon proper exercise by
the Purchaser, pursuant to the terms and conditions of the form of warrant
attached hereto as Exhibit F (the "Warrant").

         1.3 Use of Proceeds. Subject to minor modifications as reasonably
determined by management, the Company will use the net proceeds from the sale of
the Purchased Shares in accordance with the Use of Proceeds schedule set forth
on Exhibit B, attached hereto.

2.       The Closing. The closing (the "Closing") of the sale and purchase of
the Purchased Shares under this Agreement shall take place at the offices of
Reed Smith LLP, One Riverfront Plaza, Newark, NJ 07102 at 10:00 a.m. on June 14,
2002, or at such other time, date and place as are mutually agreeable to the
Company and counsel to the Purchaser or by facsimile, mail and wire transfer
should the parties so agree. At the Closing, the Company will deliver to the
Purchaser a certificate for the Purchased Shares, registered in the name of the
Purchaser, against payment to the Company of the Purchase Price therefor, by
wire transfer, check or other method acceptable to the Company. The date of the
Closing is hereinafter referred to as the "Closing Date". If at the Closing any
of the conditions specified in Section 5 shall not have been fulfilled, the
Purchaser shall, at its election, be relieved of all of its obligations under
this Agreement without thereby waiving any other rights it may have by reason of
such failure or such non-fulfillment.


<PAGE>

3.       Representations of the Company. Except as set forth on the schedules
hereto, the Company hereby represents and warrants to the Purchaser as
follows:

         3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. Except as set forth on Schedule 3.1, the Company is duly qualified to
do business as a foreign corporation and is in good standing in every
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to counsel to the Purchaser true and complete copies of its
Certificate of Incorporation and By-laws, each as amended to date and presently
in effect.

         3.2 Capitalization. The authorized capital stock of the Company
(immediately prior to the Closing) will consist of (i) 50,000,000 shares of
Common Stock of which 6,580,620 shares are issued and outstanding, (ii)
10,000,000 shares of preferred stock, of which 2,346,233 shares are designated
as Series A-1 Preferred, none of which are issued and outstanding, (iii)
3,933,091 shares designated as Series A-2 Preferred, none of which are issued
and outstanding and (iv) 3,724,676 undesignated shares, none of which are
outstanding. All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. There
are 4,500,000 shares of Common Stock reserved for issuance pursuant to the
Company's existing stock option plans. As of the date of this Agreement, the
Company has issued options to purchase 2,423,640 shares of Common Stock. In
addition, the Company has issued Common Stock purchase warrants to purchase
985,720 shares of Common Stock. No person or entity is entitled to (i) any
preemptive right with respect to the issuance of any capital stock of the
Company or (ii) any rights to demand the registration of any capital stock of
the Company under the Securities Act of 1933, as amended (the "Securities Act").
All of the issued and outstanding shares of Common Stock have been offered,
issued and sold by the Company in compliance with applicable Federal and state
securities laws. There are no outstanding contractual obligations (contingent or
otherwise) of the Company to retire, repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of, or other ownership interests in, the
Company.

         3.3 Subsidiaries. The Company has no subsidiaries and does not own or
control, directly or indirectly, shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business entity or enterprise.

         3.4 Stockholder List and Agreements. Attached hereto as Schedule 3.4 is
a true and complete list of the stockholders of the Company who are the owners
of greater than ten percent (10%) of the outstanding shares of Common Stock of
the Company. Except for a Stockholders' Agreement by and among the Company and
certain stockholders of the Company dated August 7, 2000 (the "August 2000
Stockholders' Agreement") or as contemplated by this Agreement, there are no
agreements, written or oral, between the Company and any holder of its capital
stock.

         3.5 Issuance of Shares The issuance, sale and delivery of the Purchased
Shares in accordance with this Agreement and the Warrant, and the issuance and
delivery of the shares of Common Stock issuable upon conversion of the Series A
Preferred (the "Series A Conversion Shares") have been, or will be on or prior
to the Closing, duly authorized and, as the case may be, reserved for issuance
by all necessary corporate action on the part of the Company, and the Series A
Preferred when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the Series A Conversion
Shares, when issued upon conversion of the Series A Preferred, will be duly and
validly issued, fully paid and nonassessable.


                                      -2-
<PAGE>

         3.6 Authority for Agreement. The execution, delivery and performance by
the Company of this Agreement and all other agreements required to be executed
by the Company on or prior to the Closing pursuant to Section 5.5 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action including, without limitation, a consent of a majority of the
shareholders of the Company. This Agreement and the Ancillary Agreements have
been duly executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with their provisions by
the Company: (i) will not violate any provision of law applicable to the
Company; and (ii) will not conflict with or result in any material breach of any
of the terms, conditions or provisions of, or constitute a default under, its
Certificate of Incorporation or By-laws (each as amended to date and presently
in effect), or any material indenture, lease, agreement or other instrument to
which the Company is a party or by which it or any of its properties is bound.

         3.7 Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
governmental authority is required on the part of the Company in connection with
the execution and delivery of this Agreement, the offer, issue, sale and
delivery of the Series A Preferred, the issue and delivery of the Series A
Conversion Shares or the other transactions to be consummated at the Closing, as
contemplated by this Agreement, except (i) such filings as shall have been made
prior to and shall be effective on and as of the Closing Date and (ii) if
required, qualifications or filings under the Securities Act and other
applicable state securities laws, which qualifications or filings, if required,
will be obtained or made and will be effective within the time periods required
by law. Assuming the accuracy of the representations and warranties made by the
Purchaser in Section 4 of this Agreement, the offer and sale of the Series A
Preferred to the Purchaser will be in compliance with applicable Federal and
state securities laws.

         3.8 Litigation. Except as set forth on Schedule 3.8 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, threatened against the Company that questions the validity of this
Agreement or the right of the Company to enter into it, or that would reasonably
be expected to result, either individually or in the aggregate, in any material
adverse change in the assets, condition (financial or otherwise), business or
prospects of the Company or any change in the current equity ownership of the
Company. Except as set forth on Schedule 3.8 hereto, there is no action, suit,
proceeding or investigation by the Company currently pending or that the Company
intends to initiate.

         3.9 Financial Statements. The Company has filed with the SEC and also
delivered to the Purchaser true and complete copies of a Balance Sheet and
Income Statement of the Company (the "Financial Statements") as of and for the
fiscal year ended December 31, 2001 and as of and for the quarter ended March
31, 2002 (the "Financial Statement Date"). The Financial Statements present
fairly the financial condition and results of operations of the Company for the
dates or periods indicated thereon and have been prepared in accordance with the
generally accepted accounting principles (GAAP).

         3.10 SEC Documents. The Company has furnished or made available to the
Purchaser true and complete copies of all reports or registration statements
filed by it with the Securities and Exchange Commission (the "SEC") since May
15, 2002, all in the form so filed (all of the foregoing being collectively
referred to as the "SEC Documents"). As of their respective filing dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act") or the Securities Exchange Act of
1934 (the "Exchange Act") as the case may be, and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a document subsequently filed with the SEC.


                                      -3-
<PAGE>

         3.11 Absence of Liabilities. Except as set forth on Schedule 3.10
hereto, the Company has no liabilities, contingent or otherwise, other than
liabilities reflected on the Financial Statements and incurred in the ordinary
course of business since the Financial Statement Date, that individually or in
the aggregate are material to the financial condition or operating results of
the Company.

         3.12 Taxes. The Company has timely filed or has obtained presently
effective extensions with respect to all material Federal, state, county and
local tax returns which are required to be filed by it. Federal income tax
returns of the Company have not been audited by the Internal Revenue Service,
and no controversy with respect to taxes of any type is pending or, to the
knowledge of the Company, threatened.

         3.13 Property and Assets. The Company has good title to all of its
material properties and assets, and, except for: (i) the liens filed by
financial lending Institutions and (ii) the liens and encumbrances incurred in
the ordinary course of business; none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance
other than those the material terms of which are described in Schedule 3.13
hereto. 3.14 Intellectual Property. Set forth on Schedule

         3.14 hereto is a true and complete list of all patents, patent
applications, trademarks, service marks, trademark and service mark
applications, trade names, copyrights and licenses presently owned or held by
the Company and used in the conduct of the Company's business as conducted and
as currently proposed to be conducted, as well as any agreement under which the
Company has access to any confidential information used by the Company in its
business (the "Intellectual Property Rights"). The Company owns, or has the
right to use, free and clear of all liens, charges, claims and restrictions, all
of the Intellectual Property Rights and any other rights and processes necessary
for the operation of the business of the Company. Except as set forth on
Schedule 3.14, the Company has not received any communications alleging that the
Company has violated or, by conducting its business as currently proposed, would
violate any of the patents, trademarks, service marks, trade names, copyrights,
licenses, trade secrets or other proprietary rights of any other person or
entity ("Third-Party Intellectual Property Rights") and, to the Company's
knowledge after due inquiry, the business proposed by the Company will not cause
the Company to infringe or violate any Third Party Intellectual Property Rights.
The Company is not aware of any violation by any third party of any Intellectual
Property Rights of the Company or of any defects therein or in the title
thereto. The Company is not aware that any employee is obligated under any
contract (including any license, covenant or commitment of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict or interfere with: (i) the
performance of such employee's duties as an officer, employee or director of the
Company; (ii) the use of such employee's best efforts to promote the interests
of the Company; or (iii) the Company's business as conducted or proposed to be
conducted. Each current and former employee and officer of the Company has
executed an employee confidentiality and invention assignment agreement and to
the Company's knowledge, no person or entity (including, without limitation, any
prior employer of any employee of the Company) has any right to or interest in
any inventions, improvements, discoveries or other information assigned to the
Company by any employee pursuant to an employee confidentiality and invention
agreement or otherwise.


                                      -4-
<PAGE>

         3.15 Insurance. The Company maintains with financially sound insurers
valid policies for workers' compensation insurance and insurance related to its
properties and business covering such losses and risks, and in such amounts, as
in the Company's judgment are necessary for the nature and extent of the
Company's business; provided that, as of the date of this Agreement, the Company
has not obtained director and officer liability insurance.

         3.16 Material Contracts and Obligations. The Company has filed with the
SEC: (i) each agreement which requires future expenditures by the Company in
excess of $25,000; (ii) all material employment and consulting agreements,
employee benefit, bonus, pension, profit-sharing, stock option, stock purchase
and similar plans and arrangements, and distributor and sales representative
agreements; (iii) any material agreement to which any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act) is party, including, without limitation, any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity; and (iv) any agreement relating to the Intellectual Property Rights.
There are no material agreements, understandings, instruments, contracts or
proposed transactions or judgments, orders, writs or decrees to which the
Company is a party or by which it is bound which (a) involve the license of any
patent, copyright, trade secret or other proprietary right to or from the
Company, (b) involve provisions impacting or affecting the development,
manufacture or distribution of the Company's products or services, (c) involve
indemnification by the Company with respect to infringement of proprietary
rights, or (d) materially adversely affect the Company's business as now
conducted or proposed to be conducted. All material contracts, agreements and
instruments to which the Company is a party are valid, binding and in full force
and effect in all material respects, and, to the Company's knowledge, there
exists no event which constitutes or with notice or passage of time would
constitute a material breach by the Company or any other party thereto.

         3.17 Related-Party Transactions. Except as set forth on Schedule 3.17
no employee, officer, or director of the Company or member of his or her
immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them. To the
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company is affiliated or with
which the Company has a business relationship, or any firm or corporation that
competes with the Company, except that employees, officers or directors of the
Company and members of their immediate families may own stock in publicly traded
companies that may compete with the Company. No member of the immediate family
of any officer or director of the Company is directly or indirectly interested
in any material contract with the Company.

         3.18 Employees. The Company does not have any deferred compensation
agreements or bonus, incentive or profit sharing plans, either currently in
effect or proposed, except for its stock option plans which cover the sale of up
to 4,500,000 shares of Common Stock to employees, consultants and directors. The
Company has no collective bargaining agreements with any of its employees and
there is no labor union organizing activity or pending or threatened with
respect to the Company. None of the Company's employees belongs to any union or
collective bargaining unit. To the Company's knowledge, the Company has complied
in all material respects with all applicable state and federal equal opportunity
and other laws related to employment. To the Company's knowledge, no employee of
the Company is or will be in violation of any judgment, decree, or order, or any
term of any employment contract, patent disclosure agreement or other contract
or agreement relating to the relationship of any such employee with the Company
or any other party because of the nature of the business conducted or to be
conducted by the Company or the use by the employee of his best efforts with
respect to such business. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees and any existing employment
agreements, the employment of each officer and employee of the Company is
terminable at the will of the Company.


                                      -5-
<PAGE>

         3.19 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present and proposed
business and has all material franchises, permits and licenses and any similar
authority for the conduct of its business now being conducted by it. Except as
set forth on Schedule 3.19, there is no term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is a
party or by which it is bound, or, to the knowledge of the Company, of any state
or Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, that materially adversely affects or, so far as the
Company may now foresee, in the future, is reasonably likely to materially
adversely affect the business, prospects, condition, affairs or operations of
the Company or any of its properties or assets. To the Company's knowledge, no
employee of the Company is in violation of any contract or covenant (either with
the Company or with another entity) relating to employment, patent, other
proprietary information disclosure, non-competition or non-solicitation.

         3.20 Absence of Changes. Since the Financial Statement Date, there has
been no material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes occurring in
the ordinary course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.

         3.21 Books and Records. The minute books of the Company contain
complete records of all meetings and other corporate actions of its stockholders
and its Board of Directors and committees thereof, and reflect all such actions
accurately in all material respects. The stock ledger of the Company is complete
and reflects all issuances, repurchases and cancellations of shares of capital
stock of the Company and, to the knowledge of the Company, all transfers of
shares of capital stock of the Company.

         3.22 Investment Company Representation. The Company is not an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.

         3.23 Brokerage or Finders' Fee. The Company does not have any contract,
arrangement or understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.

4.       Representations of the Purchaser. The Purchaser represents and
warrants to the Company as follows:

         4.1 Investment. The Purchaser is acquiring the Series A Preferred and
the Series A Conversion Shares for its own account for investment and not with a
view to, or for sale in connection with, any distribution thereof, and with no
present intention of distributing or selling the same, and, except as
contemplated by this Agreement and the Exhibits hereto, the Purchaser has no
present or contemplated agreement, undertaking, arrangement, obligation,
indebtedness or commitment providing for the disposition thereof. The Purchaser
understands that the Series A Preferred and the Series A Conversion Shares to be
purchased by it have not been registered under the Securities Act and must be
held indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration.


                                      -6-
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         4.2 Organization and Standing. The Purchaser is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of California and has full corporate power and authority to enter into
and perform this Agreement and to carry out the transactions contemplated by
this Agreement.

         4.3 Authority. The Purchaser has full power and authority to enter into
and to perform this Agreement and the Ancillary Agreements in accordance with
their terms and to consummate the transactions contemplated hereby and thereby,
and the execution, delivery and performance by the Purchaser of this Agreement
and all other agreements required to be executed by any Purchaser on or prior to
the Closing pursuant to Section 5.4, and the consummation by the Purchaser of
the transactions contemplated hereby and thereby, have been duly authorized by
all necessary action including all necessary corporate action. This Agreement
and the Ancillary Agreements have been duly executed and delivered by the
Purchaser and constitute valid and binding obligations of the Purchaser
enforceable in accordance with their respective terms. The execution and
performance of the transactions contemplated by this Agreement and the Ancillary
Agreements and compliance with their provisions by the Purchaser: (i) will not
violate any provision of law applicable to the Purchaser; and (ii) will not
conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, its Certificate of Formation or
Operating Agreement (each as amended to date and presently in effect), or any
indenture, lease, agreement or other instrument to which the Purchaser is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Purchaser. The Purchaser
further represents that it has not been organized, reorganized or recapitalized
specifically for the purpose of investing in the Company.

         4.4 Experience. The Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have answered to the Purchaser's satisfaction all
inquiries made by the Purchaser. The Purchaser has sufficient knowledge and
experience in investing in companies similar to the Company, in terms of stage
of development, so as to be able to evaluate the risks and merits of its
investment in the Company, and has adequate net worth and means of providing for
its current needs and contingencies to sustain a complete loss of its investment
in the Company. The Purchaser's overall commitment to investments which are not
readily marketable is not disproportionate to its net worth and such Purchaser's
investment in the Series A Preferred will not cause such overall commitment to
become excessive.

         4.5 Accredited Investor. The Purchaser is an "Accredited Investor" as
defined in Rule 501 (a)(1)-(3) or (8)  of Regulation D under
the Securities Act.

         4.6 Brokerage Fees. The Purchaser does not have any contract,
arrangement or understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.

5.       Conditions to the Obligations of the Purchaser. The obligation of the
Purchaser to purchase Series A Preferred at the Closing is subject to the
fulfillment, or the waiver by the Purchaser, of the following conditions on or
before the Closing Date:

         5.1 Accuracy of Representations and Warranties. Each representation and
warranty contained in Section 3 shall be true and complete on and as of the
Closing Date with the same effect as though such representation and warranty had
been made on and as of that date.

         5.2 Certificate Of Designation. The Certificate of Designation shall
have been filed with the Secretary of State of Delaware.


                                      -7-
<PAGE>

         5.3 Performance. The Company shall have performed and complied with all
agreements and conditions contained in this Agreement and the Ancillary
Agreements required to be performed or complied with by the Company prior to or
at the Closing.

         5.4 Opinion of Counsel. The Purchaser shall have received an opinion
from Reed Smith LLP, counsel for the Company, dated the Closing Date, addressed
to the Purchaser, substantially in the form attached hereto as Exhibit C.

         5.5 Other Agreements and Conditions.

                (a) Registration Rights. The Registration Rights Agreement,
attached hereto as Exhibit D, shall have been executed and delivered by the
Company and the Purchaser.

                (b) Amended and Restated Stockholders' Agreement. The August
2000 Stockholders' Agreement shall be amended and restated in accordance with
the terms and conditions of a certain term sheet entered into between the
Purchaser and the Company dated May 3, 2002 and shall have been executed and
delivered, in the form attached hereto as Exhibit E, by the Company, the
Purchaser and the parties to the August 2000 Stockholders' Agreement.

                (c) Stock Purchase Warrant. The Warrant, attached hereto as
Exhibit F, shall have been executed and delivered by the Company.

                (d) Stockholder Loans. The Loans to the Company from Nicholas
Anderson and Stephen Shulman shall have been extended to mature on such date
that the Company shall have received $5.0 million in gross proceeds from the
sale of its securities; or on the later of (i) such date that the Company's net
earnings for the preceding four (4) consecutive quarters shall exceed $1.0
million in the aggregate; or (ii) June 1, 2004.

                (e) New Credit Line. The Company shall have obtained a
commitment letter for a $1.0 million new bank line of credit ("New Line").

         5.6 Securities Law Approvals. All registrations, qualifications,
permits and approvals required under applicable state and federal securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Series A Preferred shall have been obtained,
except for the notices required or permitted to be filed after the appropriate
Closing Date with certain federal and state securities commissions, which
notices the Company will file on a timely basis.

         5.7 Certificates and Documents. The Company shall have delivered to
counsel to the Purchaser:

                (a) The Articles of Incorporation of the Company, as in effect
prior to the Closing, certified by the Secretary of State of the State of
Delaware;

                (b) Certificates, as of the most recent practicable dates, as to
the corporate good standing of the Company issued by the Secretary of State of
the State of Delaware;

                (c) By-laws of the Company, certified by its Secretary or
Assistant Secretary as being in effect as of the Closing Date;


                                      -8-
<PAGE>

         (d) Resolutions of the Board of Directors of the Company, authorizing
and approving all matters in connection with this Agreement, the Ancillary
agreements and the transactions contemplated hereby and thereby, certified by
the Secretary or Assistant Secretary of the Company as of the Closing Date;

         (e) Resolutions of the stockholders of the Company, authorizing and
approving this Agreement, the Ancillary Agreements and the transactions
contemplated hereby and thereby; and

         (f) A waiver letter from Bank One, Michigan waiving the Company's
non-compliance with certain covenants set forth in the loan agreement by and
between the Company and Bank One, Michigan.

         5.8 Compliance Certificate. The Company shall have delivered to the
Purchaser a certificate, executed by the President of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1, 5.2, 5.3 and 5.5 of this Agreement.

         5.9 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchaser and to their counsel, and the Purchaser and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.

6.       Conditions to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, on or
before the Closing Date, of each of the following conditions:

         6.1 Accuracy of Representations and Warranties. Each representation and
warranty contained in Section 4 shall be true and complete on and as of the
Closing Date with the same effect as though such representation and warranty had
been made on and as of that date.

         6.2 Purchase Price. The Purchaser shall have delivered to the Company
the aggregate Purchase Price.

         6.3 Securities Law Approvals. All registrations, qualifications,
permits and approvals required under applicable state and federal securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Series A Preferred shall have been obtained,
except for the notices required or permitted to be filed after the appropriate
Closing Date with certain federal and state securities commissions, which
notices the Company will file on a timely basis.

         6.4 Other Agreements. The Purchaser shall have executed and delivered
each of the agreements referenced in Section 5.5(a) and (b).

7.       Successors and Assigns. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto.



                                      -9-
<PAGE>

8.       Confidentiality. The Purchaser agrees that it will keep confidential
and will not use, disclose or divulge, for any purpose other than to monitor
such Purchaser's investment in the Company, any confidential, proprietary or
secret information which the Purchaser has heretofore obtained or may hereafter
obtain from the Company including, without limitation, financial statements,
reports and other materials submitted by the Company to the Purchaser pursuant
to this Agreement, or pursuant to visitation or inspection rights granted
hereunder ("Confidential Information"), unless such Confidential Information is
known or, until such Confidential Information becomes known, to the public other
than as a result of a disclosure by such Purchaser; provided, however, the
Purchaser may disclose Confidential Information (i) to its attorneys,
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (ii) to
any prospective purchaser of any Series A Preferred from the Purchaser, or (iii)
to any affiliate of the Purchaser or to a partner, shareholder or subsidiary of
such Purchaser, provided that, (x) in the case of clause (ii) and (iii) above,
the Company is given ten (10) days advanced written notice of such proposed
disclosure and has not reasonably objected to such proposed disclosure within
said ten (10) day period, and (y) in each case, the person to whom any
Confidential Information is disclosed agrees in writing prior to such disclosure
to be bound by the provisions of this Section, a copy of which shall be
delivered to the Company prior to any such disclosure.

9.       Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby until such point in time in which any party's right to bring a cause of
action due to a breach of any representation and warranty contained herein would
be time barred due to the expiration of the applicable statute of limitations
period to bring such claim; provided, however, that the agreements contained in
Section 8 with respect to Confidential Information shall continue in perpetuity.

10.      Legends on Stock Certificates. Each outstanding certificate
representing either shares of Series A Preferred or Common Stock to be issued
pursuant to the terms of this Agreement shall bear such legends as are set forth
in Section 4.1 of the Amended and Restated Stockholders' Agreement entered into
on even date herewith.

11.      Post Closing Covenants.

         11.1 Directors and Officers Liability Insurance. Within 120 days of the
date of the Closing, the Company shall have obtained directors and officers
liability insurance.

         11.2 Michigan Annual Report. Within 30 days of the date of Closing, the
Company will file all delinquent annual reports with the Secretary of State of
Michigan and pay all fees associated therewith.

         11.3 Settlement. Within 30 days of the date of Closing, the Company
shall use $5,000 of the Purchase Price to satisfy the Company's payment
obligations pursuant to a certain settlement agreement entered into between the
Company and a certain manufacturer, as described on Schedule 3.8, and also
deliver the 7,500 newly issued shares of Common Stock.

         11.4 Repayment of Bank One. The Company shall use approximately
$220,000 of the proceeds from the sale of the Purchased Shares and approximately
$220,000 of the proceeds from the New Line to repay the Company's borrowings
owed to Bank One, Michigan.



                                      -10-
<PAGE>

12.      Expenses. The Company shall pay, and hold the Purchaser harmless
against liability for the payment of (a) total out of pocket expenses of the
Purchaser arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement, which shall be payable at the Closing to the extent then known (and
the remainder, if any, or if the Closing does not occur, payable upon demand),
(b) the attorneys' fees of Milbank, Tweed, Hadley & McCloy, LLP, counsel to the
Company, arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement, which shall be payable at the Closing to the extent then known (and
the remainder, if any, or if the Closing does not occur, payable upon demand),
(c) the reasonable attorneys fees of Reed Smith LLP, counsel to the Company,
arising in connection with the negotiation and execution of this Agreement and
the consummation of the transactions contemplated by this Agreement, which shall
be payable at the Closing (and the remainder, if any, or if the Closing does not
occur, payable upon demand).

13.      Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed delivered (i) two
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid or (ii) one business day after being sent via a
reputable nationwide overnight courier service guaranteeing next business day
delivery, in each case to the intended recipient as set forth below:

         If to the Company, at Power Efficiency Corporation, 4220 Varsity Drive,
Suite E, Ann Arbor, Michigan 48108, FAX: (734) 975-9115, Attention: President,
or at such other address or addresses as may have been furnished in writing by
the Company to the Purchaser, with a copy to Reed Smith LLP, One Riverfront
Plaza, Newark, NJ 07102, Attention: Gerard S. DiFiore, Esq. FAX: (973) 621-3199.

         If to the Purchaser, at Summit Energy Ventures, LLC, 423 Second Avenue,
Ext. S, Metropole Building, Suite 31, Seattle, WA 98104, FAX: (206) 624-9928,
Attention: Steve Strasser or at such other address or addresses as may have been
furnished in writing by the Purchaser to the Company with a copy to Milbank,
Tweed, Hadley & McCloy, LLP, 630 Hansen Way, Second Floor, Palo alto, CA 94304.

         Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended; provided that if such communication is received
after 5:00 p.m. on any day it shall be deemed to have been duly given on the
next business day. Any party may change the address to which notices, requests,
consents or other communications hereunder are to be delivered by giving tile
other parties notice in the manner set forth in this Section.

14.      Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.

15.      Amendments and Waivers. Except as otherwise expressly set forth in this
Agreement, any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders in interest of no less than 66-2/3% of the
then-outstanding shares of Series A Preferred and the Series A Conversion Shares
taken together. Any amendment or waiver effected in accordance with this Section
13 shall be binding upon each holder of any shares of Series A Preferred
(including holders of Series A Conversion Shares) and each future holder of all
such securities and the Company. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.

16.      Counterparts; Facsimile Execution. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument. This
Agreement may be executed and delivered by exchange of facsimile copies showing
the signatures of the parties, and those signatures need not be affixed to the
same copy.



                                      -11-
<PAGE>

17.      Headings. The headings of the sections, subsections, and paragraphs of
this Agreement have been added for convenience only and shall not be deemed to
be a part of this Agreement.

18.      Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision.

19.      Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the choice
of law or conflicts of law provisions thereof.

20.      Pronouns. Whenever the context may require, any pronouns used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural, and vice
versa.


                            [Signature pages follow]




                                      -12-
<PAGE>





         IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.



                                  POWER EFFICIENCY CORPORATION


                                  By: /s/ Stephen Shulman
                                     ---------------------------------------

                                  Name:  Stephen Shulman

                                  Title:  President



                                  SUMMIT ENERGY VENTURES, LLC
                                  By: NorthWest Power Management, Manager

                                  By: /s/ Steven Strasser
                                     ---------------------------------------

                                  Name: Steven Strasser

                                  Title: President





                                      -13-
<PAGE>






                                    EXHIBIT A

                           Certificate of Designation


<PAGE>



                                    EXHIBIT B

                                 Use of Proceeds



Financing
Proceeds from Equity Investment                               $2,500,000
Bank line Availability (A/R and Inventory)                     1,000,000
                                                               ---------
Total Available Funds                                         $3,500,000
                                                              ----------


Equity Investment  $2,500,000
& Bank Line $1,000,000 = $3,500,000 - Use of Proceeds
Accounts Payable/ Accrued Expenses                             $ 400,000
Bank Line reduction                                              220,000
Inventory build-up                                               230,000
FY 2002 - Cash Deficit                                           200,000
Finance Accounts Receivable                                      200,000
Finance Increased Inventory Levels                               300,000
General Working Capital                                        1,950,000
                                                               ---------
Total  Use of  Proceeds                                        3,500,000








<PAGE>



                                    EXHIBIT C

                          Opinion of Company's Counsel



<PAGE>



                                    EXHIBIT D

                          Registration Rights Agreement



<PAGE>



                                    EXHIBIT E

                         Amended Stockholders' Agreement



<PAGE>



                                    EXHIBIT F


                                     Warrant





<PAGE>



                                  Schedule 3.1

                            Organization and Standing


         The Company is qualified to do business in Michigan but is delinquent
in the filing of its annual reports to that state.







                                  Schedule 3.4

                              10% Stockholders List


Name                                   Number of Shares Outstanding

Nick Anderson                          1,379,833
Anthony Caputo                         1,361,085
Performance Control, LLC               1,004,853





                                  Schedule 3.8

                                   Litigation


         The Company was involved with certain claims and counterclaims related
to litigation for breach of contract arising out of the manufacture of certain
electronic component parts. The Company has entered into a settlement agreement
with this manufacturer and the performance of the terms of the settlement are
still pending by both parties. In the settlement, the Company has agreed to pay
$5,000 and issue 7,500 shares of Common Stock. The shares of Common Stock have
been issued and the shares and cash will be delivered after the Closing.




                                  Schedule 3.13

                               Property and Assets


         The Company owes back rent on its Ann Arbor facility in the approximate
amount of $19,000 and on its NYC facility in the approximate amount of $11,000.



<PAGE>

                                  Schedule 3.14

                              Intellectual Property


Trademarks:

         Power Commander(R)


Trademark applications:

         None


Patents:

         The Balanced and Synchronized Phase Detector for an AC Induction Motor
Controller, No. 5,821,726 issued on October 13, 1998.


Patent Applications:

         None

Licenses

         The Company is the exclusive United States licensee of certain Power
Factor Controller Technology owned by the United States of America, as
represented by NASA. The rights under the license agreement, which are
non-transferable and may not be sublicensed without NASA's consent, expire in
December 2002.


Copyrights:

         None





                                      -2-
<PAGE>



                                  Schedule 3.17

                     Related Party Loans As of May 31, 2002



Long Term Stockholder Loans due June 1, 2004

         -  Nick Anderson                              $375,000
         -  Stephen Shulman                              28,000

Loans to be repaid out of proceeds

         -  Scott Caputo  (Bridge Loan)                  50,426
         -  Art Smith                                    27,000







                                  Schedule 3.19

                                   Compliance


         The Company is not in compliance with certain covenants in its loan
agreement with Bank One and is in the process of seeking an appropriate waiver.



                                      -3-