Document:

AWARD/CONTRACT       J

1.         THIS CONTRACT IS A RATED ORDER
           UNDER DPAS (15 CFR 350)

RATING     DOC9

Page 1 of 2 pages

2.         CONTRACT (Proc. Instr. Ident.) No.
                                SP0430-00-D-4015

3.         EFFECTIVE DATE
           2000 JAN 12

4.         REQUISITION/PURCHASE REQUEST/PROJECT NO.
                                 ARG99035045001

5.         ISSUED BY:

           Defense Supply Center Richmond                     CODE SP0400
           ATTN: DSCR Procurement
           8000 Jefferson Davis Highway
           Richmond, Virginia  23297-5814
           Local Administrator: PK3, (804) 279-5914

6.         ADMINISTERED BY: (if other than Item 5):

           DEFENSE SUPPLY CENTER RICHMOND           CODE SP040
           BUSINESS OPERATIONS
           8000 JEFFERSON DAVIS HWY
           RICHMOND    VA  23297-5770

           Criticality: To be cited on each order                    PAS: None

7.         NAME AND ADDRESS OF CONTRACTOR

           PERFORMANCE CONTROL LLC
           4220 VARSITY DR SUITE E
           ANN ARBOR MI  48108

8.         DELIVERY

           [  ]  FOB ORIGIN               [X] OTHER (See below)

9.         DISCOUNT FOR PROMPT PAYMENT

                               2% 10, NET 30 days

10.        Submit Invoices (4 copies unless otherwise specified) TO THE ADDRESS
           SHOWN IN:

           ITEM 12

11.        SHIP TO/MARK FOR

           See Schedule - Do Not Ship to Address in Block 5

12.        PAYMENT WILL BE MADE BY

           S44073 DFAS -  COLUMBUS CENTER           CODE s44073
           DFAS-CO-LSCAC
           P O BOX 182317
           COLUMBUS OH  43218-6231                  EFT: T

13.        AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION:

           [X]  10 USC 2304(c)(1)

15B.       See Schedule

15G.       TOTAL AMOUNT OF CONTRACT:  $395,247.50

16.        TABLE OF CONTENTS

           PART 1 - THE SCHEDULE
           [X]  Sec ASolicitation/Contract Form                         1 page
           [X]  Sec BSupplies or Services and Prices/Cost               3 pages

           PART II - CONTRACT CLAUSES
           [X]  Sec IContract Clauses                                   40 pages

18.        [X]  AWARD
           (Contractor is not required to sign this document)

           Your offer on Solicitation Number SP043099R1343, including the
additions or changes made by you which additions or changes are set forth in
full above, is hereby accepted as to the items listed above and on any
continuation sheets. This award consummates the contract which consists of the
following documents: (a) the Government's solicitation and your offer, and (b)
this award/contract. No further contractual document is necessary.

20.        NAME OF CONTRACTING OFFICER

           KREYLON V. CREWE

20B.       UNITED STATES OF AMERICA

           By: /s/ Kreylon V. Crewe
           (Signature of Contracting Officer

20C.       DATE SIGNED
           04 JAN 00

<PAGE>

[CONTINUATION SHEET]

Contract Number: SP0430-00-D-4015

Page 2 of 2 pages

This is a Requirements Contract. Orders may be issued on this contract for a
period of 01/12/00 THRU 01/11/01.

NOTE: Actual unit prices will be specified on individual delivery orders issued
under this contract. The estimated amount in Block 15G is for administrative
purposes only.

ARG99035045001 APPLIES.

THIS IS A POPs REQUIREMENTS TYPE CONTRACT FOR THE BASE YEAR AND FOUR OPTION
YEARS. THE ESTIMATED ANNUAL QUANTITY FOR ALL NSNs IS 5 EACH.

NEGOTIATIONS, CONFIRMED BY FAX LETTER OF DECEMBER 15, 1999, RESULTED IN REVISED
PRICING LISTED ON PAGE 2a, CHANGE IN PRLI/CLIN #24 P/N TO PC3-4-40-11-52, AND
INCLUSION OF DSCR CLAUSE 52.211-9G69, BAR CODING REQUIREMENTS FOR DIRECT VENDOR
DELIVERY (DVD) SHIPMENT, IN THE AWARD, PAGE 2b.

FOB DESTINATION WITH INSPECTION AND ACCEPTANCE IN ACCORDANCE WITH FAST PAY
PROCEDURES. DELIVERY IS 14 DAYS.

SEE FAR CLAUSE 52.216-19 (SECTION I)
MINIMUM DELIVERY ORDER QUANTITY IS 1 EACH
MAXIMUM DELIVERY ORDER QUANTITY IS 5 EACHPOWER EFFICIENCY CORPORATION

                             1994 STOCK OPTION PLAN

1.  Purposes.  The  purposes of this Stock Option Plan are to attract and retain
the best  available  personnel for positions of substantial  responsibility,  to
provide additional incentive to the Employees of the Company or its subsidiaries
(as defined in Section 2 below),  and to promote  the  success of the  Company's
business.

         Options granted hereunder may be either  "Incentive Stock Options",  as
defined in Section 422 of the  Internal  Revenue  Code of 1986,  as amended,  or
"Nonqualified Stock Options", at the discretion of the Board and as reflected in
the terms of the written option agreement.

2.       Definitions.  As used herein, the following definitions shall apply:

         (a) "Board" shall mean the Board of Directors of the Company.

         (b) "Common  Stock"  shall mean the Common  Stock of the  Company  (see
Section 3 below).

         (c)  "Company"  shall mean  Power  Efficiency  Corporation,  a Delaware
corporation.

         (d)  "Committee"  shall mean the  Committee  appointed  by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan or the Board
of Directors of the Company, if no Committee is appointed.

         (e)  "Continuous  Status as an Employee"  shall mean the absence of any
interruption or termination of service as an Employee.  Continuous  Status as an
Employee shall not be considered interrupted in the case of sick leave, military
leave, or any other leave of absence approved by the Board.

         (f) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company.  The payment
of a  director's  fee by the  Company  shall  not be  sufficient  to  constitute
"employment" by the Company.

         (g) "Exchange Act" shall mean the  Securities  Exchange Act of 1934, as
amended.

         (h) "Incentive  Stock Option" shall mean an Option  intended to qualify
as an

                                        1

<PAGE>

Incentive Stock Option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.

         (i) "Nonqualified  Stock Option" shall mean a stock option not intended
to qualify as an Incentive Stock Option.

         (j) "Option" shall mean a stock option granted pursuant to the Plan.

         (k) "Optioned Stock" shall mean the Common Stock subject to an Option.

         (l)  "Optionee"  shall mean an Employee or other person who receives an
Option.

         (m)  "Parent"  shall  mean  a  "parent  corporation",  whether  now  or
hereafter existing, as defined in Section 425(e) of the Internal Revenue Code of
1986, as amended.

         (n)  "Share"  shall mean a share of the Common  Stock,  as  adjusted in
accordance with Section 12 of the Plan.

         (o) "Subsidiary" shall mean a "subsidiary corporation",  whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code of
1986, as amended.

3.       Stock.

         Subject  to the  provisions  of  Section  12 of the Plan,  the  maximum
aggregate  number of shares which may be optioned and sold under the Plan is Two
Hundred  Fifty  Thousand  (250,000)  shares  of  authorized,  but  unissued,  or
reacquired $.001 par value Common Stock.

         If an  Option  should  expire or become  unexercisable  for any  reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated,  become available for
further grant under the Plan.

4.       Administration.

         (a) Procedure. The Company's Board of Directors may appoint a Committee
to administer the Plan. The Committee  appointed by the Board of Directors shall
consist of not less than three members of the Board of Directors,  to administer
the Plan on  behalf  of the  Board  of  Directors,  subject  to such  terms  and
conditions  as the  Board  of  Directors  may  prescribe.  Once  appointed,  the
Committee  shall  continue  to serve  until  otherwise  directed by the Board of
Directors. From time to time the Board of Directors may increase the size of the
Committee and appoint additional members thereof, remove members (with

                                        2

<PAGE>

or without  cause),  and  appoint  new members in  substitution  therefor,  fill
vacancies  however caused, or remove all members of the Committee and thereafter
directly  administer  the  Plan;  provided,  however,  that at no  time  shall a
Committee of less than three (3) members administer the Plan.

         (b) Powers of the Board.  Subject to the  provisions  of the Plan,  the
Board shall have the authority, in its discretion:  (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal Revenue Code of 1986, as
amended or to grant Nonqualified Stock Options;  (ii) to determine,  upon review
of relevant  information  and in accordance  with Section 8(b) of the Plan,  the
fair market value of the Company's Common Stock; (iii) to determine the exercise
price  per  share of  Options  to be  granted,  which  exercise  price  shall be
determined  in  accordance  with Section 8 of the Plan;  (iv) to  determine  the
Employees  and other  persons to whom,  and the time or times at which,  Options
shall be granted and the number of shares to be represented by each Option;  (v)
to  interpret  the  Plan;  (vi)  to  prescribe,  amend  and  rescind  rules  and
regulations relating to the Plan; (vii) to determine the terms and provisions of
each Option granted  (which need not be identical)  and, with the consent of the
holder thereof, modify or amend each Option; (viii) to accelerate or defer (with
the consent of the Optionee) the exercise date of any Option;  (ix) to authorize
any  person to execute  on behalf of the  Company  any  instrument  required  to
effectuate the grant of an Option  previously  granted by the Board;  and (x) to
make  all  other   determinations   deemed   necessary  or  advisable   for  the
administration of the Plan.

         (c) Effect of the Board's Decision.  All decisions,  determinations and
interpretations  of the Board or any Committee shall be final and binding on all
Optionees and any other holders of any Options granted under the Plan.

5.  Eligibility.  Incentive  Stock  Options  may be granted  only to  Employees.
Nonqualified  Stock Options may be granted to employees as well as  non-employee
directors and  consultants to the Company  (subject to the limitations set forth
in Section 4) as  determined by the Board or any  Committee.  Any person who has
been  granted  an  Option  may,  if he is  otherwise  eligible,  be  granted  an
additional Option or Options.

         No such Incentive Stock Option may be granted to an Employee if, as the
result of such grant,  the aggregate  fair market value  (determined at the time
each  option was  granted) of the Shares  with  respect to which such  Incentive
Stock Options are  exercisable  for the first time by such  Employee  during any
calendar  year  (under  all  such  plans  of the  Company  and  any  Parent  and
Subsidiary) shall exceed One Hundred Thousand Dollars ($100,000).

         The Plan shall not confer upon any  Optionee  any right with respect to
continuation  of  employment  by the Company,  nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.

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<PAGE>

6. Term of Plan.  The Plan shall become  effective  upon the earlier to occur of
(i) its adoption by the Board of Directors,  or (ii) its approval by vote of the
holders of a majority of the outstanding  shares of the Company entitled to vote
on the adoption of the Plan. It shall  continue in effect for a term of ten (10)
years from its effective date unless sooner  terminated  under Section 14 of the
Plan.

7. Term of Option. The term of each Option shall be ten (10) years from the date
of grant  thereof or such  shorter  term as may be provided in the Stock  Option
Agreement.  However,  in the case of an  Incentive  Stock  Option  granted to an
Employee who,  immediately  before the Incentive  Stock Option is granted,  owns
stock  representing  more  than ten  percent  (10%) of the  voting  power of all
classes of stock of the  Company or any  Parent or  Subsidiary,  the term of the
Incentive Stock Option shall be five (5) years from the date of grant thereof or
such shorter time as may be provided in the Stock Option Agreement.

8.       Exercise Price and Consideration.

         (a) The per Share exercise  price for the Shares to be issued  pursuant
to exercise of an Option shall be such price as is determined by the Board,  but
shall be subject to the following:

                  (i)      In the case of an Incentive Stock Option

                           (A) granted to an Employee  who,  immediately  before
                  the  grant  of  such  Incentive   Stock  Option,   owns  stock
                  representing  more than ten percent  (10%) of the voting power
                  of all  classes  of  stock of the  Company  or any  Parent  or
                  Subsidiary, the per Share exercise price shall be no less than
                  110% of the fair market value per Share on the date of grant.

                           (B) granted to any Employee,  the per share  exercise
                  price shall be no less than 100% of the fair market  value per
                  Share on the date of grant.

                  (ii) In the  case of a  Non-qualified  Stock  Option,  the per
Share  exercise  price  shall be  determined  by the Board of  Directors  or the
Committee on the date of grant.

         (b) In the case of Incentive  Stock Options the fair market value shall
be  determined by the Board in its  discretion;  provided,  however,  that where
there is a public market for the Common  Stock,  the fair market value per Share
shall be the  closing  bid price of the  Common  Stock on the date of grant,  as
reported  in the Wall  Street  Journal  (or, if not so  reported,  as  otherwise
reported by the National  Association of Securities Dealers Automated  Quotation
[NASDAQ]  System)  or,  in the  event  the  Common  Stock is  listed  on a stock
exchange,  the fair market  value per Share  shall be the closing  price on such
exchange  on the date of grant of the  Option,  as  reported  in the Wall Street
Journal.

                                        4

<PAGE>

         (c) The  consideration  to be paid for the  Shares  to be  issued  upon
exercise of an Option,  including the method of payment,  shall be determined by
the Board and may consist entirely of cash, check, promissory note, other Shares
of Common Stock having a fair market value on the date of surrender equal to the
aggregate  exercise  price  of the  Shares  as to  which  said  option  shall be
exercised,  the surrender  for  cancellation  of Options  having an in the money
value on the date of surrender  equal to the aggregate  exercise  price of other
Options being exercised,  or any combination of such methods of payment, or such
other  consideration  and method of payment  for the  issuance  of Shares to the
extent permitted under Delaware Law.

9.       Exercise of Option.

         (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
hereunder  shall be  exercisable  at such  times and under  such  conditions  as
determined  by the Board,  including  performance  criteria  with respect to the
Company and/or the Optionee,  and as shall be permissible under the terms of the
Plan.

         An Option may not be exercised for a fraction of a Share.

         An Option shall be deemed to be exercised  when written  notice of such
exercise  has been  given to the  Company  in  accordance  with the terms of the
Option by the person  entitled to exercise  the Option and full  payment for the
Shares with  respect to which the Option is exercised  has been  received by the
Company.  Full  payment  may,  as  authorized  by  the  Board,  consist  of  any
consideration  and method of payment  allowable  under Section 8(c) of the Plan.
Until the issuance, which in no event will be delayed more than thirty (30) days
from the date of the exercise of the Option,  (as  evidenced by the  appropriate
entry on the books of the Company or of a duly authorized  transfer agent of the
Company) of the stock  certificate  evidencing such Shares,  no right to vote or
receive  dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in the Plan.

         Exercise of an Option in any manner  shall  result in a decrease in the
number of Shares which  thereafter  may be  available,  both for purposes of the
Plan and for sale  under  the  Option,  by the  number of Shares as to which the
Option is exercised.

         (b)  Termination of Status as an Employee with Respect to  Nonqualified
Stock Options.  Nonqualified  Stock Options granted  pursuant to the Plan may be
exercised  notwithstanding  the  termination  of  the  Optionee's  status  as an
Employee, director or consultant,  except as provided in the Plan or as provided
by the terms of the Stock Option Agreement.

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<PAGE>

         (c)  Termination  of Status as an Employee  with  Respect to  Incentive
Stock Options.  In the case of an Incentive Stock Option,  if an Employee ceases
to serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not  exceeding  three (3) months as is  determined  by the Board)
after the date he ceases to be an Employee of the  Company,  exercise his Option
to  the  extent  that  he was  entitled  to  exercise  it at the  date  of  such
termination.  To the extent that he was not  entitled to exercise  the Option at
the date of such  termination,  or if he does not exercise such Option (which he
was entitled to exercise)  within the time  specified  herein,  the Option shall
terminate.

         (d) Disability.  Notwithstanding  the provisions of Section 9(c) above,
in the event an Employee is unable to continue his  employment  with the Company
as a result  of his  total and  permanent  disability  (as  defined  in  Section
22(e)(3) of the Internal  Revenue  Code of 1986),  he may, but only within three
(3) months (or such other period of time not exceeding  twelve (12) months as is
determined  by the Board) from the date of  disability,  exercise his  Incentive
Stock  Option to the extent he was  entitled  to exercise it at the date of such
disability.  To the extent that he was not  entitled to exercise  the  Incentive
Stock  Option  at the  date of  disability,  or if he  does  not  exercise  such
Incentive  Stock  Option  (which he was  entitled to  exercise)  within the time
specified herein, the Incentive Stock Option shall terminate.

         (e) Death of Optionee.  In the event of the death of an Optionee  under
an Incentive Stock Option:

                  (i)  during  the term of the  Option who is at the time of his
death an Employee of the Company and who shall have been in Continuous Status as
an Employee since the date of grant of the Option,  the Option may be exercised,
at any time  within  twelve  (12)  months  following  the date of death,  by the
Optionee's  estate or by a person who  acquired the right to exercise the Option
by bequest or inheritance,  but only to the extent of the right to exercise that
would have  accrued had the  Optionee  continued  living one (1) month after the
date of death; or

                  (ii) within thirty (30) days (or such other period of time not
exceeding  three (3) months as is determined by the Board) after the termination
of Continuous  Status as an Employee,  the Option may be exercised,  at any time
within three (3) months following the date of death, by the Optionee's estate or
by a person  who  acquired  the  right to  exercise  the  Option by  bequest  or
inheritance, but only to the extent of the right to exercise that had accrued at
the date of termination.

10.  Non-Transferability  of Incentive Stock Options.  An Incentive Stock Option
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution  and may
be exercised, during the lifetime of the Optionee, only by the Optionee.

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<PAGE>

11.  Transferability  of Nonqualified  Stock Options.  All Nonqualified  Options
granted  pursuant to the Plan are  transferable  subject to compliance  with the
Securities  Act of 1933,  as  amended  (the  "Act"),  and any  applicable  state
securities  or Blue Sky laws.  Upon  surrender of a  Nonqualified  Option to the
Company or at the office of its stock  transfer  agent,  if any,  with the funds
sufficient to pay any transfer tax, the Company shall,  without charge,  execute
and deliver a new Nonqualified  Option in the name of the assignee named in such
instrument  of  assignment  and  the  Nonqualified   Option  shall  promptly  be
cancelled.  The  Nonqualified  Option  may be  divided  or  combined  with other
Nonqualified  Options which carry the same rights upon  presentation  thereof 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  Nonqualified  Options are to be issued and signed by the Optionee  thereof.
The term "Option" as used herein includes any Nonqualified  Options into which a
Nonqualified Option may be divided or exchanged.

12.  Adjustments  upon  Changes  in  Capitalization  or  Merger.  Subject to any
required  action by the  shareholders  of the  Company,  the number of shares of
Common Stock  covered by each  outstanding  Option,  and the number of shares of
Common Stock which have been  authorized  for issuance  under the Plan but as to
which no Options have yet been  granted or which have been  returned to the Plan
upon  cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding  Option,  shall be proportionately
adjusted for any  increase or decrease in the number of issued  shares of Common
Stock  resulting  from a stock  split or the  payment of a stock  dividend  with
respect to the Common  Stock or any other  increase or decrease in the number of
issued shares of Common Stock effected  without receipt of  consideration by the
Company; provided, however, that conversion of any convertible securities of the
Company  shall  not  be  deemed  to  have  been  "effected  without  receipt  of
consideration."  Such adjustment shall be made by the Board, whose determination
in that  respect  shall be  final,  binding  and  conclusive.  Furthermore,  any
distribution of assets by the Company except for cash dividends  paid,  shall be
considered  the payment of a stock  dividend  for  purposes of this  Section 12.
Except as  expressly  provided  herein,  no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

         In the event of the proposed dissolution or liquidation of the Company,
or in the event of a proposed sale of all or substantially  all of the assets of
the Company, or the merger of the Company with or into another corporation,  the
Option will terminate  immediately  prior to the  consummation  of such proposed
action,  unless otherwise  provided by the Board. The Board may, in the exercise
of its  sole  discretion  in such  instances,  declare  that  any  Option  shall
terminate  as of a date fixed by the Board and give each  Optionee  the right to
exercise  his  Option  as to all or any part of the  Optioned  Stock,  including
Shares as to which the Option would not otherwise be exercisable.

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13. Time for Granting  Options.  The date of grant of an Option  shall,  for all
purposes,  be the date on which the Board makes the determination  granting such
Option.  Notice of the determination  shall be given to each Employee to whom an
Option is so granted within a reasonable time after the date of such grant.

14.  Amendment and Termination of the Plan. (a) The Board may amend or terminate
the Plan from  time to time in such  respects  as the Board may deem  advisable;
provided that, the following  revisions or amendments  shall require approval of
the holders of a majority of the outstanding  shares of the Company  entitled to
vote:

                  (i) any increase in the number of Shares  subject to the Plan,
other than in connection with an adjustment under Section 12 of the Plan;

                  (ii) any  change in the  designation  of the class of  persons
eligible to be granted Options; or

                  (iii)  any  material  increase  in the  benefits  accruing  to
participants under the Plan.

         (b)  Shareholder  Approval.  If  any  amendment  requiring  shareholder
approval under Section 14(a) of the Plan is made such shareholder approval shall
be solicited as described in Section 18(a) of the Plan.

         (c)  Effect  of  Amendment  or  Termination.   Any  such  amendment  or
termination  of the Plan  shall not  affect  Options  already  granted  and such
Options  shall  remain  in full  force  and  effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.

15.  Conditions upon Issuance of Shares.  Shares shall not be issued pursuant to
the  exercise of an Option  unless the  exercise of such Option and the issuance
and  delivery of such Shares  pursuant  thereto  shall  comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further  subject to the  approval of counsel  for the Company  with
respect to such compliance.

         As a condition  to the  exercise of an Option,  the Company may require
the person  exercising  such Option to represent  and warrant at the time of any
such  exercise  that the  Shares are being  purchased  only for  investment  and
without  any  present  intention  to sell or  distribute  such Shares if, in the
opinion of counsel for the Company,  such a representation is required by any of
the aforementioned relevant provisions of law.

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<PAGE>

16.  Reservation of Shares.  The Company,  during the term of this Plan, will at
all  times  reserve  and  keep  available  such  number  of  Shares  as shall be
sufficient to satisfy the requirements of the Plan.

         Inability of the Company to obtain  authority from any regulatory  body
having  jurisdiction,  which authority is deemed by the Company's  counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the  Company of any  liability  in respect of the  failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.

17. Option Agreement. Options shall be evidenced by written option agreements in
such form as the Board shall approve.

18. Shareholder  Approval.  Continuance of the Plan shall be subject to approval
by the shareholders of the Company within twelve months before or after the date
the Plan is  adopted.  If such  shareholder  approval is obtained at a duly held
shareholders' meeting, it may be obtained by the affirmative vote of the holders
of a majority of the  outstanding  shares of the Company  present or represented
and entitled to vote  thereon.  If at the time of such meeting the Company has a
class of securities  registered  pursuant to Section 12 of the Exchange Act, the
approval  of  such   shareholders   of  the  Company  shall  be;  (1)  solicited
substantially in accordance with Section 14(a) of the Exchange Act and the rules
and regulations promulgated  thereunder,  or (2) solicited after the Company has
furnished  in writing to the  holders  entitled to vote  substantially  the same
information concerning the Plan as that which would be required by the rules and
regulations  in effect under  Section 14(a) of the Exchange Act at the time such
information is furnished.

         If such  shareholder  approval is  obtained  by written  consent in the
absence of a Shareholders'  Meeting,  it must be obtained by the written consent
of all  shareholders  of the  Company  who would have been  entitled to cast the
minimum  number of votes which would be necessary to authorize  such action at a
meeting at which all  Shareholders  entitled to vote  thereon  were  present and
voting.

19. Miscellaneous  Provisions. An Optionee shall have no rights as a shareholder
with respect to any Shares  covered by his Option until the date of the issuance
of a stock certificate to him for such shares.

20. Other Provisions. The Stock Option Agreement authorized under the Plan shall
contain such other provisions, including, without limitation,  restrictions upon
the exercise of the Option,  as the Board of Directors of the Company shall deem
advisable.  Any such Stock Option  Agreement shall contain such  limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
such option will be an  Incentive  Stock Option as defined in Section 422 of the
Internal  Revenue  Code of 1986,  as amended,  if an  Incentive  Stock Option is
intended to be granted.

                                        9

<PAGE>

21.  Indemnification  of  Committee.   In  addition  to  such  other  rights  of
indemnification  as they may have as Directors  or as members of the  Committee,
the members of the Committee  shall be  indemnified  by the Company  against the
reasonable expenses, including attorneys' fees actually and necessarily incurred
in  connection  with  the  defense  of any  action,  suit or  proceeding,  or in
connection with any appeal therein,  to which they or any of them may be a party
by reason of any action taken or failure to act under or in connection  with the
Plan or any Option granted  thereunder,  and against all amounts paid by them in
settlement  thereof  (provided such settlement is approved by independent  legal
counsel  selected by the Company) or paid by them in  satisfaction of a judgment
in any such  action,  suit or  proceeding,  except in  relation to matters as to
which it shall be adjudged in such action,  suit or  proceeding  that such Board
member is liable for negligence or misconduct in the  performance of his duties;
provided  that  within 60 days after  institution  of any such  action,  suit or
proceeding a Board member shall in writing offer the Company the opportunity, at
its own expense, to handle and defend the same.

22.  Application of Funds. The proceeds received by the Company from the sale of
Common Stock pursuant to Options will be used for general corporate purposes.

23. No Obligation to Exercise Option.  The granting of an Option shall impose no
obligation upon the Optionee to exercise such Option.

24.  Other  Compensation  Plans.  The  adoption of the Plan shall not affect any
other stock option or incentive  or other  compensation  plans in effect for the
Company  or any  Subsidiary,  nor  shall  the Plan  preclude  the  Company  from
establishing  any other forms of incentive or other  compensation  for employees
and directors of the Company or any Subsidiary.

25. Singular,  Plural; Gender. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine gender.

26.  Headings,  etc., No Part of Plan.  Headings of Articles and Sections hereof
are inserted for convenience and reference; they constitute no part of the Plan.

                                        POWER EFFICIENCY CORPORATION

                                   By:
                                      ---------------------------------------
                                        Anthony Caputo, Chairman of the Board

DATED: December 31, 1994

                                       10

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