**EXHIBIT 10.46**

 

**SETTLEMENT AGREEMENT**

 

ThisSettlement Agreement (hereinafter the “Agreement”) is entered into this 15thday of December, 2004, by and between and among Richard J. Koch (“Koch”),located at 1604 Sound Watch Drive, Wilmington, North Carolina 28409, and PowerEfficiency Corporation (“PEC”), located at 3900 Paradise Road, Suite 283, LasVegas, Nevada, 89109.

 

**Whereas**: PECowes Koch $84,447.56 of back salary, accrued vacation and other expenses.

 

**Whereas**: PEChas requested and Koch has agreed to accept other consideration in lieu of aportion of the cash amounts owed Koch.

 

**NOW, THEREFORE**, in consideration of the foregoing and ofthe promises and covenants contained herein, it is hereby covenanted and agreedas follows:

 

1.                                        In consideration of the foregoing and theterms set forth herein, PEC shall pay or deliver to Koch the following:

 

(a)          Upon execution of this Agreement, PEC shallpay the sum of $16,889.51 in gross wages to Koch, and will make appropriatewithholdings from this amount for taxes.

 

(b)         Upon execution of this Agreement, PEC willissue a Promissory Note to Koch in the principal amount of $25,334.27 payablein 18 monthly payments of principle and interest with an interest rate of 15%,a draft copy of which is attached hereto as Exhibit A. From each monthlypayment PEC shall make all appropriate tax withholdings.

 

(c)          At the first meeting of or unanimous writtenconsent of the board of directors of PEC, PEC will issue to Koch Warrants toacquire 85,000 shares of PEC common stock at the exercise price of $.65 centsper shares. A draft copy of the Warrant is attached hereto as Exhibit B.

 

2.                                       Koch, accepts the cash, the Promissory Noteand the Warrants provided for herein as complete settlement of the $84,447.56that is currently owed to him by PEC and further agrees that PEC does not andwill not owe him any further payment of any kind.

 

3.                                       The parties agree that the validity,interpretation and effect of this Agreement be governed by the laws of theState of Nevada, and that if any provision of this Agreement is held to beinvalid, such provision shall be deleted and the remainder of this Agreementshall remain in full force and effect.

 

4.                                       The parties agree that any legal suit, actionor proceeding arising out of or relating to this Agreement shall be institutedexclusively in and subject to the jurisdiction of the courts of the State ofNevada, Clark County. The parties further waive any objection to the venue ofany such suit, action or proceeding and the right to assert that such forum isnot a convenient forum.

 

5.                                       The parties agree that this settlementrepresents the entire Agreement of the parties and that no modification oramendment of this Agreement shall be binding or effective, unless suchmodification or amendment is in writing and executed by each party hereto. ThisAgreement may be executed in several counterparts, each of which when soexecuted shall be deemed to be an original and such counterparts together shallconstitute one and the same Agreement. Any counterpart of this Agreement shall be validly and effectivelydelivered, if delivered by facsimile transmission.

 

6.                                       The parties agree that the employmentagreement entered into between PEC and Koch on June 9th, 2003, ishereby terminated and the parties hereby release each other from any and allobligations and claims under this employment agreement, with the exception ofsection 10, which will survive and is hereby incorporated in this Agreement.

 

**IN WITNESSWHEREOF**, the partieshereto have executed this Agreement as of the date and year first above written

 
| **POWER EFFICIENCY CORPORATION** |
|----------------------------------|
| ** **                       |
|                             |
| By:                              | /s/ Steven Strasser |   |
| Name:                            |   |
| Title:                           | CEO |
|                             |   |
| **RICHARD J. KOCH**              |
|                             |   |
|                             | /s/  Richard Koch |   |
| Richard  J. Koch                 |
|                                  |  |  |  |

 

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