Document:

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                          REGISTRATION RIGHTS AGREEMENT

        THIS REGISTRATION RIGHTS 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 "Investor").

                                    RECITALS

        A. The Investor is acquiring shares of Series A-1 Preferred Stock, par
value $0.001 per share, of the Company (the "Series A-1 Preferred Stock") which
are initially convertible into two (2) shares of Common Stock, par value $0.001
per share, of the Company (the "Common Stock"), pursuant to the terms of the
Series A Convertible Preferred Stock Purchase Agreement dated as of the date
hereof between the Company and the Investor (the "Purchase Agreement").
Capitalized terms used herein and not otherwise defined shall have the same
meanings herein as in the Purchase Agreement.

        B. It is a condition to the obligations of the Investor under the
Purchase Agreement that this Agreement be executed by the parties hereto in
order to provide the Investor with certain registration rights with respect to
the shares of Common Stock issuable upon conversion of the Series A-1 Preferred
Stock being purchased by the Investor under the Purchase Agreement, and the
parties are willing to execute this Agreement and to be bound by the provisions
hereof.

                                    AGREEMENT

        The parties hereto agree as follows:

         1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

                "Commission" means the Securities and Exchange Commission and
any successor agency of the United States federal government administering the
Securities Act or the Exchange Act.

                "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules, regulations and interpretations
thereunder.

                "Holder" means the person who is the then record owner of
Registrable Securities which have not been sold to the public.

                "Person" means a corporation, an association, a partnership, a
trust, an organization, a business, an individual, or a government or political
agency or other entity.

                "Preferred Stock" means Series A-1 Preferred Stock and
Series A-2 Preferred Stock

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                "Qualified Public Offering" means a firmly underwritten public
offering by the Company pursuant to a registration statement filed and declared
effective under the Securities Act covering the offer and sale of Common Stock
for the account of the Company yielding net proceeds of at least $15,000,000 to
the Company at a price per share of Common Stock that yields a total enterprise
value of the Company of not less than $50,000,000.

                  "Registrable Securities" means (i) all of the shares of Common
Stock issuable upon conversion of the Preferred Stock owned by the Investor,
(ii) all other shares of Common Stock or Preferred Stock now owned or hereafter
acquired by the Investor; (iii) all shares of Common Stock issuable with respect
to securities of the Company convertible into or exercisable for shares of
Common Stock now owned or hereafter acquired by the Investor; and (iv) any
Common Stock issued in respect to the shares described in clauses (i) through
(iv) upon any stock split, stock dividend, recapitalization or other similar
event or otherwise in exchange for such securities. Registrable Securities shall
not include (a) Securities that have been registered under the Securities Act,
the registration statement in connection therewith has been declared effective,
and they have been disposed of pursuant to such effective registration
statement, (b) Securities that are distributed to the pubic pursuant to Rule 144
(or any similar provision then in force) under the Securities Act, or (c)
Securities that have been otherwise transferred and new certificates or other
evidences of ownership for them (not bearing a legend to the effect that such
securities have not been registered under the Securities Act and may not be sold
or transferred in the absence of registration or an exemption therefrom under
the Securities Act, and not subject to any stop transfer order or other
restriction on transfer) have been delivered by or on behalf of the Company, and
they may be resold without subsequent registration under the Securities Act, (d)
Securities which would otherwise be Registrable Securities held by a Holder,
when such Holder is eligible to sell, transfer or otherwise convey in any 3
month period all of Holder's Registrable Securities pursuant to Rule 144(e)
under the Securities Act in accordance with the volume limitations set forth in
Rule 144(e) under the Securities Act, provided that the Company makes and keeps
public information available, as those terms are understood and defined in Rule
144 under the Securities Act, (e) Securities which would otherwise be
Registrable Securities held by a Holder, when such Holder is eligible to sell,
transfer or otherwise convey all of such Holder's Registrable Securities
pursuant to Rule 144(k) under the Securities Act, or (f) upon any sale in any
manner to a person or entity which by virtue of Section 18 of this Agreement, is
not entitled to the rights provided by this Agreement. Wherever reference is
made in this Agreement to a request or consent of holders of a certain
percentage of Registrable Securities, the determination of such percentage shall
include shares of Common Stock issuable upon conversion of the Preferred even if
such conversion has not yet been effected.

                "Registration Expenses" means all expenses incurred by the
Company in compliance with Sections 2, 3 or 5 hereof, including, without
limitation, all registration and filing fees, printing expenses, transfer taxes,
accounting fees and expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses, reasonable fees and disbursements of one counsel for
the selling Holders, and the expense of any special audits incident to or
required by any such registration, and excluding underwriting discounts and
commissions.

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                "Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules, regulations and interpretations thereunder.

                "Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.

                "Series A-2 Preferred Stock" means shares of Series A-2
Convertible Preferred Stock of the Company.

                The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement.

         2. Requested Registrations.

                (a)     If, on any two (2) occasions after the earlier of

                        (i) June 30, 2004, or

                        (ii) 270 days after the effective date of a firmly
                underwritten public offering of any Company securities,

the Company shall receive from the holders of at least a majority of the
Preferred Stock (or Common Stock issued upon conversion thereof or a combination
of such Common Stock and Preferred Stock) a written request that the Company
effect the registration of at least 50% of the outstanding Registrable
Securities (or a lesser percent if anticipated gross proceeds of such offering
would equal at least $10,000,000), the Company will:

                        (i) promptly give written notice of the proposed
                registration to all other Holders, if any; and

                        (ii) as soon as practicable, use its best efforts to
                effect such registration as may be so requested and as would
                permit or facilitate the sale and distribution of such portion
                of such Registrable Securities as are specified in such request,
                together with such portion of the Registrable Securities of any
                Holder or Holders joining in such request as are specified in a
                written request given within fifteen (15) days after receipt of
                such written notice from the Company. If the offering is an
                underwritten offering and the underwriter managing the offering
                advises the Holders who have requested inclusion of their
                Registrable Securities in such registration that marketing
                considerations require a limitation on the number of shares
                offered, such limitation shall be imposed pro rata among such
                Holders who requested inclusion of Registrable Securities in
                such registration according to the number of Registrable
                Securities each such Holder requested to be included in such
                registration. No registration initiated by Holders hereunder
                shall count as a registration under this Section 2 unless and
                until it shall have been declared effective.

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                (b) The Company shall be required to effect not more than two
(2) registrations pursuant to Section 2(a) above provided, however, that the
Company shall not be required to effect any registration within six (6) months
after the effective date of any other Registration Statement of the Company

                (c) If at the time of any request to register Registrable
Securities pursuant to this Section 2, the Company is engaged in any activity
that, in the good faith and reasonable determination of the Company's Board of
Directors, would be adversely affected by the requested registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a period not in excess of 90 days from the date
of commencement of such material activity, such right to delay a request to be
exercised by the Company not more than once in any one (1) year period.

                (d) Selection of Underwriter. The underwriter of any
underwriting requested under this Section 2, if any, shall be selected by the
Company; provided that such underwriter must be reasonably acceptable to the
Holders holding a majority of the Registrable Securities.

         3. "Piggy Back" Registrations. The Holders of Preferred Stock and the
Holders of Common Stock issued upon conversion of Preferred Stock shall be
entitled to unlimited "piggy back" registration rights on Company registrations,
subject to certain cutbacks as more fully described below. The Company will:

                        (i) promptly give to each Holder written notice of
                Company registrations (which shall include the number of shares
                the Company or other holder proposes to register and, if known,
                the name of the proposed underwriter); and

                        (ii) use its best efforts to include in such
                registration all the Registrable Securities specified in a
                written request or requests, made by any Holder within fifteen
                (15) days after the date of delivery of the written notice from
                the Company described in clause (i) above. If the offering is an
                underwritten offering, the Company may request or the
                underwriter may advise the Company that marketing considerations
                require a limitation on the number of shares offered pursuant to
                the registration statement relating to the Company's first
                underwritten public offering of shares, then the Company may
                offer all of the securities it proposes to register for its own
                account or the maximum amount that the underwriter considers
                saleable and such limitation on any remaining securities that
                may, in the opinion of the underwriter, be sold will be imposed
                pro rata among all shareholders who request to include shares in
                such registration statement according to the number of
                Registrable Securities each such shareholder requested to be
                included in such registration statement in favor of newly-issued
                shares (which cutback may be 100% in the Company's Qualified
                Public Offering if requested by Company or the underwriter for
                such offering), subject to the following paragraph.

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                        If the underwriter advises the Company that marketing
                considerations require a limitation on the number of shares
                offered pursuant to any registration statement other than the
                one relating to the Company's first underwritten public offering
                of shares, then the Holders of Registrable Securities who
                requested to include shares in such registration statement shall
                have the right to include in the aggregate a minimum of twenty
                percent (20%) of the total number of shares covered thereby, and
                the Company shall have the right to include shares for its own
                account for up to all of the remaining shares that may, in the
                opinion of the underwriter, be sold.

        4. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2 and 3 and registrations on Form S-3 pursuant to Section 5 shall be
paid by the Company. The Company shall reimburse the reasonable expenses of one
counsel for the selling shareholders in any registration pursuant to Section 2
and registrations on Form S-3 pursuant to Section 5.

        5. Registration on Form S-3. If the Company is entitled as a registrant
to use Form S-3 and the holders of Registrable Securities request that the
Company effect a registration on Form S-3 for shares having an aggregate sale
price to the public of at least $5,000,000 (net of underwriting discounts and
commissions), the Company shall use its best efforts to register such securities
on such form under the Securities Act as expeditiously as possible. All such
requests for registration on Form S-3 by the holders of Registrable Securities
shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Initiating Holder or Holders, provided that the Company shall not
be obligated to effect a registration pursuant to this Section 5 if the Company
certifies in good faith that it would not be in the best interests of the
Company to file a Form S-3, in which case the Company may defer the filing on
Form S-3 for up to one hundred eighty (180) days once during any twelve (12)
month period. The Company shall be obligated to effect a registration on Form
S-3 only once in any twelve (12) month period. The Company will not be required
to register shares in any jurisdiction in which the Company would be required to
execute a general consent to service of process to effect such registration.

        6. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep each Holder of
Registrable Securities included in such registration advised in writing as to
the initiation of each registration and as to the completion thereof. At its
expense, the Company will do the following for the benefit of such Holders:

                (a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, and promptly amend or supplement such registration statement and the
prospectus contained therein from time to time to the extent necessary to comply
with the Securities Act and applicable state securities laws;

                (b) use its best efforts to register or qualify the Registrable
Securities covered by such registration under the applicable securities or "blue
sky" laws of such jurisdictions as the selling shareholders may reasonably
request; provided that the Company shall not be obligated to qualify to do
business in any jurisdiction where it is not then so qualified or otherwise
required to be so qualified or to take any action which would subject it to the
service of process in suits other than those arising out of such registration;

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                (c) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;

                (d) in connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 2 hereof, the Company and the
Holders will enter into any underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and is entered into by the Holders
participating in such registration and provided further that, if the underwriter
so requests, the underwriting agreement will contain customary contribution
provisions on the part of the Company;

                (e) permit the counsel to the selling shareholders whose
expenses are being paid pursuant to Section 4 hereof to inspect and copy such
corporate documents as such counsel may reasonably request.

                (f) to the extent then permitted under applicable professional
guidelines and standards, obtain a comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by comfort letters and an opinion from the Company's counsel
in customary form, covering such matters of the type customarily covered in a
public issuance of securities, in each case addressed to the Holders, and
provide copies thereof to the Holders; and

                (g) advise such Holders or their attorney-in-fact, promptly
after it shall receive notice or obtain knowledge thereof, of any event that
would require the Company to amend the prospectus or the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use its best efforts to amend the prospectus or prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.

        7. Indemnification.

                (a) The Company will, and hereby does, indemnify each Holder,
each of its affiliates, officers, directors and partners, and each person
controlling such Holder within the meaning of the Securities Act, with respect
to which registration, qualification, or compliance has been effected pursuant
to this Agreement, and each underwriter, if any, and each person who controls
such underwriter within the meaning of the Securities Act, against all claims,
losses, damages, and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement of a material fact contained in any prospectus,
offering circular, or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification, or compliance, or based on any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
the Exchange Act or securities act of any state or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors, and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability, or action, whether or not
resulting in any liability, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder or underwriter and stated to
be specifically for use therein.

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                (b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of the Securities Act and the
rules and regulations thereunder, each other such Holder and each of their
officers, directors and partners, and each person controlling such Holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and such Holder's directors, officers, partners,
persons, underwriters, or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, whether or not resulting in liability,
in each case to the extent, but only to the extent, that such untrue statement
or omission is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and stated to be
specifically for use therein; provided, however, that the obligations of each
Holder hereunder shall be limited to an amount equal to the net proceeds
received by such Holder upon sale of such Holder's securities.

                (c) Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations under this Section 7 (except and to the
extent the Indemnifying Party has been prejudiced as a consequence thereof). The
Indemnifying Party will be entitled to participate in, and to the extent that it
may elect by written notice delivered to the Indemnified Party promptly after
receiving the aforesaid notice from such Indemnified Party, at its expense to
assume, the defense of any such claim or any litigation resulting therefrom,
with counsel reasonably satisfactory to such Indemnified Party, provided that
the Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party, and
provided further, that if the defendants in any such action shall include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it
and/or other Indemnified Parties which are different from or additional to those
available to the Indemnifying Party, the Indemnified Party or Parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel shall be
paid by the Indemnifying Party. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall (i) furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom and
(ii) shall reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its funds in
connection with such assistance.

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                (d) If the indemnification provided for in Sections 7.7(a) or
7.7(b) is unavailable or insufficient to hold harmless an Indemnified Party
under such subsections in respect of any losses, claims, damages or liabilities
or actions in respect thereof referred to therein, then each Indemnifying Party
shall in lieu of indemnifying such Indemnified Party contribute to the amount
paid or payable by such Indemnified Party as a result of losses, claims,
damages, liabilities or actions in such proportion as appropriate to reflect the
relative fault of the Company, on the one hand, and the sellers of such
Registrable Securities, on the other, in connection with the statements or
omissions, which resulted in such losses, claims, damages, liabilities or
actions as well as any other relevant equitable considerations, including the
failure to give any notice under Section 7.7(c). The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Company on the one hand, or the sellers of such Registrable Securities, on the
other hand, and to the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the sellers of Registrable Securities agree that it would not be
just and equitable if contributions pursuant to this paragraph were determined
by pro rata allocation (even if all of the sellers of such Registrable
Securities were treated as one entity for such purpose) or by any other method
of allocation which did not take account of the equitable considerations
referred to above in this subsection. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities, or
action in respect thereof, referred to above in this paragraph, shall be deemed
to include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection, the sellers of such
Registrable Securities shall not be required to contribute any amount in excess
of the amount, if any, by which the net proceeds received by such sellers for
the Common Stock sold by each of them under such registration statement exceeds
the amount of any damages which they would have otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission. No person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.

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                (e) No Holder shall be required to participate in a registration
pursuant to which it would be required to execute an underwriting agreement in
connection with a registration effected under Section 2 or 3 which imposes
indemnification or contribution obligations on such Holder more onerous than
those imposed hereunder; provided, however, that the Company shall not be deemed
to breach the provisions of Section 2 or 3 if a Holder is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (e); provided further,
that in any such event, for the purposes of determining the number of demand
requests available to a Holder hereunder, the request for the applicable
registration shall count against such Holder only if Holders of 50% or more of
the Registrable Securities making the demand execute the underwriting agreement.

        8. Information by Holder. Each Holder of Registrable Securities included
in any registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Agreement
or otherwise required by applicable state or federal securities laws.

        9. "Standoff" Agreement. Each Holder, if requested by the Company and
the managing underwriter of an offering by the Company of Common Stock of other
securities of the Company pursuant to its initial Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Holder for a specified
period (not to exceed 180 days) after the effective date of the Company's
Qualified Public Offering; provided, however, that such restriction shall not
apply to Registrable Securities included in such offering.

        10. Limitations on Registration Rights. From and after the date of this
Agreement, the Company shall not without the consent of Holders holding at least
66 2/3% of the Registrable Securities enter into any agreement with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder (a) the right to require the Company, upon any registration
of any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder, unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of its securities
will not limit the number of Registrable Securities sought to be included by the
Holders of Registrable Securities or reduce the offering price thereof, or (b)
the right to require the Company to initiate any registration of any securities
of the Company prior to the Qualified Public Offering.

        11. Exception to Registration; Termination.

                (a) The Company shall not be required to effect a registration
under this Agreement if in the written opinion of counsel for the Company, such
Holders of Registrable Securities may sell without registration under Rule 144
under the Securities Act (or its successor) all Registrable Securities for which
they requested registration within a 90-day period under the provisions of the
Securities Act and in the manner and in the quantity in which the Registrable
Securities were proposed to be sold.

                (b) The registration rights granted under this Agreement will
terminate three (3) years following the effective date on which the Company
completes its initial Qualified Public Offering.

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        12. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144 under the Securities
Act) to the public without registration, the Company agrees to:

                (a) make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
from and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;

                (b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and

                (c) so long as an Investor owns any restricted securities,
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as an Investor may reasonably request in availing itself of
any rule or regulation of the Commission allowing an Investor to sell any such
securities without registration.

         13. Listing Application. If shares of any class of stock of the Company
shall be listed on a national securities exchange, the Company shall, at its
expense, include in its listing application all of the shares of the listed
class then owned by any Investor.

        14. Amendments and Waivers. Amendments or additions to this Agreement
may be made, agreements with any decision of the Company may be made, and
compliance with any term, covenant, agreement, condition, or provision set forth
herein may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) upon the written consent of the
Company and the holders of a majority of the then outstanding Registrable
Securities, provided that, to the extent such amendment affects any party or
parties hereto disproportionally to any other party or parties, no amendment may
be made without the consent of the party so disproportionally affected. Prompt
notice of any such amendment or waiver shall be given to any Person who did not
consent thereto. This Agreement constitutes the full and complete agreement of
the parties with respect to the subject matter hereof.

         15. Representations and Warranties of the Company. The Company
represents and warrants to the Investor as follows:

                (a) The execution, delivery, and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of court or other agency or
government by which the Company or any of its properties or assets is bound, the
corporate charter or by-laws of the Company or any provision of any indenture,
agreement, or other instrument to which the Company or any of its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement,
or other instrument or result in the creation or imposition of any lien, charge,
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.

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                (b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid, and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

        16. Miscellaneous.

                (a) Survival of Representations. The representations,
warranties, covenants and agreements made herein or in any certificates or
documents executed in connection herewith shall survive the execution and
delivery hereof and the closing of the transaction contemplated hereby.

                (b) Parties in Interest. Except as otherwise set forth herein,
all covenants, agreements, representations, warranties and undertakings
contained in this Agreement shall be binding on and shall inure to the benefit
of the respective successors and assigns of the parties hereto (including
transferees of any Registrable Securities) whether so expressed or not.

                (c) Shares Owned by Affiliates. For the purposes of applying all
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
number or percentage of shares, the shares owned of record by any affiliate of a
Holder shall be deemed to be owned by such Holder. For the purpose of this
Agreement, the term "affiliate" shall mean any Person controlling, controlled by
or under common control with, a Holder and any general or limited partner of a
Holder.

                (d) Notices. All notices, requests, consents, reports and
demands shall be in writing and shall be hand delivered, sent by facsimile or
other electronic medium, or mailed, postage prepaid, or sent by reputable
overnight courier, delivery charges prepaid, to the Company or to the Investor
at the addresses set forth below or to such other addresses as may be furnished
in writing to the other parties hereto. All such notices and communications
shall be deemed to have been duly given three (3) business days after being
deposited in the mail, postage prepaid, if mailed; one (1) business day after
being sent by overnight courier; when receipt acknowledged, if telecopied.

        The Company:          Power Efficiency Corporation
                              4220 Varsity Drive, Suite E
                              Ann Arbor, MI 48108
                              Attn: President
                              Tel.: (800) 975-9111
                              Fax:  (734) 975-9115

                                       11
<PAGE>

        with a copy to:       Reed Smith LLP
                              One Riverfront Plaza
                              Newark, NJ 07102
                              Attn:  Gerard S. DiFiore, Esq.
                              Tel.:  (973) 621-3179
                              Fax:   (973) 621-3199

        The Investor:         Summit Energy Ventures, LLC
                              423 Second Avenue, Ext. S
                              Metropole Building, Suite 31
                              Seattle, WA 98104
                              Attn:  Steve Strasser
                              Tel:   (206) 624-9921
                              Facsimile:  (___) ___-____

        with a copy to:       Milbank, Tweed, Hadley & McCloy LLP
                              630 Hansen Way, Second Floor
                              Palo Alto, CA  94306
                              Attn: Rajesh Aji, Esq.
                              Tel:  (650) 739-7054
                              Fax:  (650) 739-7100

                If notice is to be sent to any subsequent Holder of Registrable
Securities, it shall be at such address as may have been furnished to the
Company in writing by such Holder; or, in any case, at such other address or
addresses as shall have been furnished in writing to the Company (in the case of
a Holder of Registrable Securities) or to the Holders of Registrable Securities
(in the case of the Company) in accordance with the provisions of this
paragraph.

                (e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original but all of which shall
constitute but one and the same instrument. One or more counterparts of this
Agreement may be delivered via telecopier, with the intention that they shall
have the same effect as an original counterpart hereof.

                (f)  Effect of Headings. The article and section headings
herein are for convenience only and shall not affect the construction hereof.

                (g) Adjustments. All provisions of this Agreement shall be
automatically adjusted to reflect any stock dividend, stock split or other such
form of recapitalization.

                (h) Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the state of
Delaware, without giving effect to the conflicts of laws principles thereof.

                (i) Unenforceability. If any provision of this Agreement shall
be held to be illegal, invalid, or unenforceable, such illegality, invalidity,
or unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provision of
this Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.

                                       12
<PAGE>

        17. Transfers of Certain Rights.

                (a) The rights granted to a Holder under this Agreement hereof
may be transferred by such Holder (or his successor) to (i) any affiliate of a
Holder (as such term is defined in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) thereof (an "Affiliate Transferee");
(ii) to limited partners or other investors in the Investor; (iii) to Northwest
Power Management, the general partner of the Investor or other funds affiliated
with Northwest Power Management; (iv) any parent, sibling, child, spouse or
trust for the benefit of any individual Holder or to the Holder's estate;
provided, however, that the Company is given written notice by the transferee at
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned
and has consented in writing to such transfer, or (v) any transferee who
acquires at least 30% of the Preferred Stock (or any combination thereof)
outstanding at the time of the transfer; provided, however, that the Company is
given written notice by the transferee at the time of such transfer stating the
name and address of the transferee and identifying the securities with respect
to which such rights are being assigned.

                (b) Transferees. Any transferee to whom rights under this
Agreement hereof are transferred shall, as a condition to such transfer, deliver
to the Company a written instrument by which such transferee agrees to be bound
by the obligations imposed upon Holders under this Agreement, as the case may
be, to the same extent as if such transferee were an Holder hereunder.

                (c) Subsequent Transferees. A transferee to whom rights are
transferred pursuant to this Section 18 may not again transfer such rights to
any other person or entity, other than as provided in (a) or (b) above.

        18. Additional Investors. The term "Additional Investors" shall refer to
any person or entity who acquires Preferred Stock of the Company (whether
pursuant to the exercise of a warrant or otherwise). Shares of Preferred Stock
issued to such Additional Investors shall constitute Registrable Securities for
purposes of this Agreement and, upon issuance of any such Preferred Stock to any
such Additional Investor, such Additional Investor shall, as a condition to such
issuance, execute a counterpart signature page to this Agreement in the form of
Exhibit A as evidence of such Additional Investor's agreement to be bound by all
of the provisions of this Agreement to the same extent as the Investors are
bound hereunder.

            [The remainder of this page is intentionally left blank]

                                       13
<PAGE>

        IN WITNESS WHEREOF, this Registration Rights Agreement has been executed
as of the date and year first above written.

                               COMPANY:

                               POWER EFFICIENCY CORPORATION

                               By: /s/ Stephen Shulman
                                  ------------------------------------------
                               Name:   Stephen Shulman
                                    ----------------------------------------
                               Title:  President
                                     ---------------------------------------

                               INVESTOR:

                               SUMMIT ENERGY VENTURES, LLC

                               By:
                                  -------------------------------------------
                               Name:
                                    -----------------------------------------
                               Title:
                                     ----------------------------------------

                                       14
<PAGE>

                                    EXHIBIT A

                         ADDITIONAL PARTY SIGNATURE PAGE

         The undersigned hereby executes the Registration Rights Agreement,
dated as of June 14, 2002, by and among Power Efficiency Corporation, a Delaware
corporation (the "Company") and the Investor, authorizes this signature page to
be attached to a counterpart of such agreement, and agrees to be bound by such
agreement as an Additional Investor as if the undersigned had executed such
agreement on the date of its original execution.

                                    ------------------------------------------
                                    Name

                                    ------------------------------------------
                                    Address

                                    ------------------------------------------
                                    Signature

                                       15<PAGE>

                           CERTIFICATE OF DESIGNATION

                                       OF

                      SERIES A CONVERTIBLE PREFERRED STOCK

                                       OF

                          POWER EFFICIENCY CORPORATION
                            (a Delaware corporation)

     (Pursuant to Section 151 of Delaware General Corporation Law ("GCL"))

                  POWER EFFICIENCY CORPORATION, a corporation organized and
existing under the laws of the state of Delaware (the "Company") DOES HEREBY
CERTIFY THAT:

                  FIRST: The Company was incorporated in the State of Delaware
on October 19, 1994.

                  SECOND: Pursuant to the authority conferred upon the Board of
Directors (the "Board") by the Certificate of Incorporation of the Company under
the provisions of Section 151 of the GCL the following resolutions were duly
adopted by unanimous written consent of the Board on June 11, 2002, which
resolutions are still in full force and effect and are not in conflict with any
provisions of the Certificate of Incorporation, or By-laws of the Company.

                  RESOLVED, that pursuant to the authority vested in the Board
of the Company by Section 151 of the GCL and in accordance with the provisions
of its Certificate of Incorporation, two classes of preferred stock of the
Company to be known as Series A-1 Convertible Preferred Stock and Series A-2
Convertible Preferred Stock are hereby created and provided for and the Board
hereby fixes, states and expresses the terms, designations, relative rights,
preferences and limitations of such class in the particulars required by but not
specifically set forth in said Certificate of Incorporation or any amendment
thereto, as follows:

         1. Designation of Series of Preferred Stock. Of the 10,000,000
undesignated shares of the Company's authorized Preferred Stock, (i) 2,346,233
shares shall be designated and known as "Series A-1 Convertible Preferred
Stock," par value $0.001 per share (the "Series A-1") and (ii) 3,933,091 shares
shall be designated and known as "Series A-2 Convertible Preferred Stock," par
value $0.001 per share (the "Series A-2") (collectively the Series A-1 and the
Series A-2 shall be referred to herein as the "Series A Preferred Stock").

         2. Issuance; Rank. The issuance price of the Series A-1 shall be
$1.065538 per share (the "Original Purchase Price") and the issuance price of
the Series A-2 shall be determined at the time of the exercise of a certain
stock purchase warrant delivered to the purchaser of the Series A-1 (the "A-2
Purchase Price"). The Series A Preferred Stock shall rank senior to the Common
Stock and any other capital stock of the Company ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation, dissolution or winding up.
The date on which a share of Series A-1 was issued shall hereinafter be referred
to as the "Original Issue Date" for such share.

<PAGE>

         3.     Dividends.

                  3.1 No dividends shall be declared or paid upon the Common
Stock or other securities ranking junior to the Series A Preferred Stock unless
equivalent dividends, on an as converted basis, are declared and paid
concurrently on the Series A Preferred Stock.

          4.       Liquidation, Dissolution or Winding Up.

                  4.1 In the event of any liquidation or winding up of the
Company (a "Liquidation Event"), the assets of the Company available for
distribution to its stockholders, whether from capital, surplus or earnings (the
"Corporate Assets") shall be distributed pursuant to Sections 4.1.1 and 4.1.2
below. A sale of substantially all of the assets of the Company or a sale of the
Company by way of a statutory merger or consolidation of the Company into or
with any other corporation, in which the holders of the Company's voting
securities immediately prior to such transaction own less than fifty percent
(50%) of the voting power of the surviving entity in the transaction, shall also
be deemed to be a Liquidation Event. All other mergers or consolidations of the
Company with or into another corporation and all acquisitions of one or more
businesses by the Company as part of its "roll-up" strategy, whether effected by
the purchase of assets or the issuance of securities, shall not be deemed a
Liquidation Event.

                         4.1.1    First,  before any  distribution of assets
shall be made to the holders of Common Stock, the holder of each share of Series
A-1 and A-2, respectively, then outstanding shall be entitled to be paid out of
the Corporate Assets an amount per share equal to two (2) times the Original
Purchase Price (with respect to the Series A-1) and two (2) times the A-2
Purchase Price (with respect to the Series A-2) plus all dividends, accrued but
unpaid, on such share up to the date of distribution of the assets of the
Company (the "Liquidation Preference"). If upon the occurrence of a Liquidation
Event, the Corporate Assets shall be insufficient to pay the holders of shares
of Series A Preferred Stock the Liquidation Preference, the holders of shares of
Series A Preferred Stock, shall share ratably in the distribution of the entire
remaining Corporate Assets in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.

                         4.1.2 Second, after distribution of the Liquidation
Preference, the remaining Corporate Assets shall be distributed among the
holders of Common Stock and Series A Preferred Stock on a pro rata basis.

                  4.2 Non-Cash Consideration. If any assets of the Company
distributed to stockholders in connection with any liquidation, dissolution, or
winding up of the Company are other than cash, then the value of such assets
shall be their fair market value as determined in good faith by the Board,
except that any securities to be distributed to stockholders in a liquidation,
dissolution, or winding up of the Company shall be valued as follows:

                         (a)  The method of valuation of securities not subject
to investment letter or other similar restrictions on free marketability shall
be as follows:

                                    (i)     if the  securities  are then traded
on a national securities exchange or the Nasdaq National Market (or a similar
national quotation system), then the value shall be deemed to be the average of
the closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and

                                    (ii)    if actively traded over-the-counter,
then the value shall be deemed to be the average of the closing bid prices or
sale prices (whichever is applicable) over the 30-day period ending three (3)
days prior to the distribution; and

                                      -2-
<PAGE>

                                    (iii) if there is no active public market,
then the value shall be the fair market value thereof, as mutually determined by
the Company and the holders of at least a majority of the voting power of all
then outstanding shares of Series A Preferred Stock.

                         (b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i), (ii) or (iii) of this subsection to reflect the
approximate fair market value thereof, as mutually determined by the Company and
the holders of at least a majority of the voting power of all then outstanding
shares of Series A Preferred Stock.

                  4.3 Written notice of such Liquidation Event, stating a
payment date, the liquidation amount and the place where said liquidation amount
shall be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex, not
less than twenty (20) days prior to the payment date stated therein, to the
holders of record of the Series A Preferred Stock, such notice to be addressed
to each such holder at its address as shown by the records of the Company.

        5.       Voting.

                  5.1 Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock held of
record by such holder are convertible (as adjusted from time to time pursuant to
Section 6 hereof) at each meeting of stockholders of the Company (and written
actions of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Company for their action or consideration.
Except as provided by law and by the provisions of Section 5.2 below, the
holders of shares of Series A Preferred Stock shall vote together with the
holders of Common Stock as a single class.

Notwithstanding the foregoing, if at anytime during the eighteen (18) month
period after the filing of this Certificate of Designation there is a vote of
the stockholders of the Company, and the holders of shares of Series A-1 and
holders of Common Stock vote together as a single class as provided in the
preceding paragraph, each holder of outstanding shares of Series A-1 shall be
entitled to the number of votes equal to the nearest whole number obtained by
multiplying the number of whole shares of Common Stock into which the shares of
Series A-1 held of record by such holder are convertible multiplied by the
Preferred Voting Multiple. The Preferred Voting Multiple shall be calculated in
the following manner:

PVM = 0.3888 x (C/P)

where:
PVM  =  Preferred Voting Multiple;
C    =  total number of shares of Common Stock outstanding on the record date;
P    =  number of shares of Common Stock into which all of the outstanding
shares of Series A Preferred Stock are convertible on the record date (as
adjusted from time to time pursuant to Section 6 hereof).

                  5.2 So long as any of the shares of Series A Preferred Stock
are outstanding, the Company or, as applicable, any subsidiary shall not,
without first obtaining the written consent or affirmative vote of the holders
of a majority of the then outstanding shares of Series A Preferred Stock, given
in writing or by vote at a meeting, consenting or voting, as the case may be,
separately as a class:

                                      -3-
<PAGE>

                         5.2.1  redeem, repurchase, or acquire, directly or
indirectly, any shares of the Company's stock;

                         5.2.2  declare or take any action resulting in payment
of dividends or distributions with respect to any capital stock;

                         5.2.3  sell or issue any equity or debt securities
of the Company or rights to acquire equity or debt securities of the Company,
except for (i) the issuance of options to purchase up to 4,500,000 shares of
Common Stock, and the issuance of the Common Stock upon exercise of such
options, pursuant to existing stock option plans of the Company and (ii) the
issuance and exercise of warrants to purchase approximately 1,000,000 shares of
Common Stock;

                         5.2.4   change the authorized number of directors or
the classes or series of stockholders who elect them;

                         5.2.5   increase or decrease the authorized number of
shares of any class or series of preferred stock;

                         5.2.6   amend, alter or repeal any provision of the
Certificate of Incorporation, the By-laws of the Company, this Certificate of
Designation or in any manner change or modify the rights, preferences, or
privileges of the Series A Preferred Stock;

                         5.2.7   authorize, designate, reclassify, amend or
issue, or obligate the Company to do any of the foregoing with respect to, any
class or series of equity security, including any security exercisable for or
convertible into any equity security, which is or will be senior to or on parity
with the Series A Preferred Stock with respect to any rights, preferences,
privileges or restrictions;

                         5.2.8   enter into, permit or agree to any transaction
or series of transactions which would involve a Liquidation Event or the sale of
a significant portion of the assets of the Company outside of sales in the
ordinary course of business (for purposes of this section a "significant
portion" of the assets of the Company shall mean assets constituting all or
substantially all of an operating or business unit or division of the Company,
or other assets having a purchase price in excess of 20% of the Company's total
assets at the time of the proposed transaction;

                         5.2.9   make any loans or advances to officers,
directors, employees or consultants of the Company except in the ordinary course
of business in connection with compensation and expenses; or

                         5.2.10  incur debt in excess of $2,000,000, by the
Company, its parent or subsidiary or incurrence of liens and/or encumbrances on
the assets of the Company (other than liens filed by any financial lending
institutions) which relate to borrowings in an amount greater than 50% of the
book value of the Company's assets.

       6.  Optional Conversion. The holders of shares of Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):

                                      -4-
<PAGE>

                  6.1 Right to Convert. Each share of Series A-1 shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the Original Purchase Price by the A-1 Conversion
Price (as defined below) in effect at the time of conversion. The conversion
price at which shares of Common Stock shall be deliverable upon conversion of
Series A-1 without payment of additional consideration by the holder thereof
(the "A-1 Conversion Price") shall initially be the Original Purchase Price
divided by two (2).

                  Each share of Series A-2 shall be convertible, at the option
of the holder thereof, at any time and from time to time, into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the A-2 Purchase Price by the A-2 Conversion Price (as defined below) in effect
at the time of conversion. The conversion price at which shares of Common Stock
shall be deliverable upon conversion of Series A-2 without payment of additional
consideration by the holder thereof (the "A-2 Conversion Price") shall initially
be the A-2 Purchase Price divided by two (2).

                  The initial A-1 Conversion Price and the initial A-2
Conversion Price (collectively referred to herein as the "Conversion Prices"),
and the rate at which shares of Series A-1 and Series A-2, respectively, may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.

                         Upon a Liquidation  Event, the Conversion  Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of shares of Series A Preferred Stock or upon the date of the merger,
consolidation or sale of substantially all of the assets.

                  6.2 Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the shares of Series A Preferred Stock. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Company shall pay cash equal to such fraction multiplied by the then
effective and applicable Conversion Prices. Whether or not a holder would
otherwise be entitled to a fractional share shall be determined on the basis of
the total number of shares of Series A Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.

                  6.3     Mechanics of Conversion.

                         6.3.1 In order for a holder to convert shares of
Series A Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series A Preferred
Stock at the office of the transfer agent for such shares (or at the principal
office of the Company if the Company serves as its own transfer agent), together
with written notice that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Company, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Company, duly
executed by the registered holder or his or her or its attorney-in-fact duly
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Company if the Company serves as its own transfer
agent) shall be the conversion date (the "Conversion Date"). The Company shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of shares of Series A Preferred Stock, or to his or her or
its nominees, a certificate or certificates for the number of shares of Common

                                      -5-
<PAGE>

Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date. Other than as set forth in Section 7 below, if
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), the conversion may, at the option of any holder tendering shares of
Series A Preferred Stock for conversion, be conditioned upon the closing of the
sale of securities pursuant to such offering in which event the person entitled
to receive the Common Stock issuable upon such conversion of the shares of
Series A Preferred Stock shall not be deemed to have converted such shares of
Series A Preferred Stock until immediately prior to the closing of such sale of
securities.

                         6.3.2 The Company shall, at all times when the
Series A Preferred Stock shall be outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the shares of Series A Preferred Stock, such number of its duly authorized
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock. Before taking
any action that would cause an adjustment reducing either of the Conversion
Prices below the then par value of the shares of Common Stock issuable upon
conversion of the shares of Series A Preferred Stock, the Company will take any
corporate action that may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price. If at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series A Preferred
Stock, in addition to such other remedies as shall be available to the holder of
such shares of Series A Preferred Stock, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes.

                         6.3.3 All shares of Series A Preferred Stock that
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and dividends or to vote, shall
immediately cease and terminate on the Conversion Date, except only the right of
the holders thereof to receive shares of Common Stock in exchange therefor. Any
shares of Series A Preferred Stock so converted shall be retired and canceled
and shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to eliminate the authorized Series A
Preferred Stock or reduce the authorized number thereof as may be appropriate
accordingly.

                  6.4     Adjustments to Conversion Price for Diluting Issues:

                         6.4.1.  Special Definitions. For purposes of this
Section 6.4, the following definitions shall apply:

                                  (A) "Option" shall mean any rights, options
or warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities (as defined below) or restricted stock, excluding rights,
options or warrants to subscribe for, purchase or otherwise acquire up to the
2,076,360 shares of Common Stock (appropriately adjusted to reflect stock
splits, stock dividends, reorganizations, consolidations and similar changes
effected after the Original Issue Date) pursuant to any equity incentive plan or
benefit plan approved by a majority of the Board of the Company and any shares
of Common Stock issued on exercise of such rights, options or warrants (such
excluded securities, the "Reserved Option Shares").

                                 (B) "Original Issue Date" shall have the
definition set forth in Section 2.

                                      -6-
<PAGE>

                                 (C) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Series A Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for Common
Stock or Preferred Stock.

                                 (D) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section 6.4.3
below, deemed to be issued) by the Company after the Original Issue Date, other
than:

                  (1) any securities issued as a stock dividend, stock split or
         other similar event in respect of Common Stock outstanding on the date
         hereof or Series A Preferred Stock;

                  (2) the issuance of any shares of Common Stock upon exercise,
         conversion or exchange of any option, warrant convertible security
         outstanding on the date hereof;

                  (3) the Reserved Option Shares;

                  (4) the issuance of warrants to purchase approximately 14,280
         shares of Common Stock;

                  (5) any issuance of securities in a Qualified Public Offering
         (as defined in Section 7 below);

                  (6) any conversion of the Series A-1 or issuance or conversion
         of the Series A-2.

                         6.4.2  No Adjustment of Conversion Price.
Notwithstanding any provision herein to the contrary, no adjustment in the
number of shares of Common Stock into which the shares of Series A Preferred
Stock are convertible shall be made, by adjustment in the applicable Conversion
Prices thereof, unless the consideration per share (determined pursuant to
Section 6.4.5) for all Additional Shares of Common Stock issued or deemed to be
issued by the Company is less than the applicable Conversion Prices in effect on
the date of, and immediately prior to, the issue of such Additional Shares of
Common Stock.

                         6.4.3 Issue of Options and Convertible Securities
Deemed Issuance of Additional Shares of Common Stock. If the Company at any time
or from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, issuable upon the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that in any such case in
which Additional Shares of Common Stock are deemed to be issued:

                                 (A) no further adjustment in the applicable
Conversion Prices shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities; and

                                      -7-
<PAGE>

                                 (B) if such Options or Convertible Securities
by their terms provide, with the passage of time or otherwise, for any increase
in the consideration payable to the Company, or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof, the
applicable Conversion Prices computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities, provided that no adjustment pursuant to this clause (B)
shall have the effect of increasing the Conversion Prices to an amount that
exceeds the lower of (i) the applicable Conversion Prices on the original
adjustment date, or (ii) the Conversion Prices that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.

                         6.4.4  Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Company shall, after the
Original Issue Date, issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
6.4.3), without consideration or for a consideration per share less than either
of the Conversion Prices (the "New Conversion Price") in effect on the date of,
and immediately prior to such issue, then and in such event, the applicable
Conversion Prices shall be reduced, concurrently with such issue, to a price
(calculated to the nearest tenth of a cent) equal to the New Conversion Price.

                          6.4.5 Determination of Consideration. For purposes
of this Section 6.4, the "Aggregate Consideration" shall mean the net
consideration received by the Company for the issue of all Additional Shares of
Common Stock and shall be computed as follows:

                            (A) Cash and Property. Such consideration shall:

                            (1) insofar as it consists of cash, be computed
                    at the aggregate of cash received by the Company,
                    before deducting therefrom any commissions,
                    compensations or other expenses paid or incurred by the
                    Company for any underwriting or placement of, or
                    otherwise in connection with the issuance or sale of
                    shares;

                            (2) insofar as it consists of property other
                    than cash, be computed at the fair market value thereof
                    at the time of such issue, as determined in good faith
                    by the Board; and

                            (3) in the event Additional Shares of Common
                    Stock are issued together with other shares or
                    securities or other assets of the Company for
                    consideration that covers both, be the proportion of
                    such consideration so received, computed as provided in
                    clauses (1) and (2) above, as determined in good faith
                    by the Board.

                                 (B) Options and Convertible Securities. The
consideration per share received by the Company for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 6.4.3, relating to Options
and Convertible Securities, shall be determined by dividing:

                                 (x) the total amount, if any, received or
receivable by the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities or, in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by

                                      -8-
<PAGE>

                                 (y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

                         6.4.6  Adjustment for Combinations or Consolidation
of Common Stock. If, at any time after the Original Issue Date, the number of
shares of Common Stock outstanding are decreased by a combination of the
outstanding shares of Common Stock, then following the record date fixed for
such combination (or the date of such combination, if no record date is fixed),
the applicable Conversion Prices shall be increased so that the number of shares
of Common Stock issuable on conversion of each share of Series A Preferred Stock
shall be decreased in proportion to such decrease in outstanding shares of
Common Stock.

                         6.4.7  Adjustment for Stock Dividends, Splits, Etc. If
the Company shall at any time after the applicable Original Issue Date fix a
record date for the subdivision, split-up or stock dividend of shares of Common
Stock, then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the applicable Conversion Prices shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series A Preferred Stock shall be increased in proportion to such
increase in outstanding shares, provided, however, that the Conversion Prices
shall not be decreased at such time if the amount of such reduction would be an
amount less than $.05, but all such amount shall be carried forward and
reduction with respect thereto made at the time of, and together with all,
subsequent reduction that, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.05 or more.

                  6.5 No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
shares of Series A Preferred Stock against impairment.

                  6.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Prices pursuant to this Section 6,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
shares of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request at any time
of any holder of Series A Preferred Stock, furnish or cause to be furnished to
such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the applicable Conversion Prices then in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
that then would be received upon the conversion of the shares of Series A
Preferred Stock.

                                      -9-
<PAGE>

                  6.7    Notice of Record Date.  In the event:

                         6.7.1  that the Company takes a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or any
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right;

                         6.7.2  that the Company subdivides or combines its
outstanding shares of Common Stock;

                         6.7.3 of any reclassification of the Common Stock of
the Company (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Company into or with another corporation, or of
the sale of all or substantially all of the assets of the Company; or

                         6.7.4 of the involuntary or voluntary dissolution,
liquidation or winding up of the Company; then the Company shall cause to be
filed at its principal office or at the office of the transfer agent of the
Series A Preferred Stock, and shall cause to be mailed to the holders of the
Series A Preferred Stock at their last addresses as shown on the records of the
Company or such transfer agent, at least ten (10) days prior to the record date
specified in (A) below or twenty (20) days before the date specified in (B)
below, a notice stating:

                                  (A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, subdivision or combination are to be determined, or

                                  (B)  the date on which such reclassification,
consolidation, merger, Sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.

        7.       Automatic Conversion.

                  7.1 Triggering Event. All outstanding shares of Series A
 Preferred Stock shall automatically convert to shares of Common Stock, at the
 then effective Conversion Prices pursuant to Section 6, upon the date of the
 closing of a public offering pursuant to an effective registration statement
 under the Securities Act, resulting in at least $15,000,000 of gross proceeds
 to the Company, at a per share price that yields a total enterprise value of
 the Company of not less than $50,000,000, underwritten on a firm commitment
 basis by a reputable, nationally recognized underwriting firm (a "Qualified
 Public Offering").

                  7.2 No Further Action. In the case of an automatic conversion
pursuant to this Section 7, the outstanding shares of Series A Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, that the Company
shall not be obligated to issue to any holder certificates evidencing the shares
of Common Stock issuable upon such conversion unless certificates evidencing
such shares of Series A Preferred Stock are delivered either to the Company or
any transfer agent of the Company.

                  7.3 Surrender of Certificates; Retirement and Cancellation of
Converted Shares. All certificates evidencing shares of Series A Preferred Stock
that are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Series A Preferred Stock represented thereby converted into Common
Stock for all purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such date. The Company may
thereafter take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock accordingly.

                                      -10-
<PAGE>

         IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this 13th day of June, 2002.

                                            POWER EFFICIENCY CORPORATION

                                            By:  /s/ Stephen Shulman
                                                 ------------------------------
                                                 Stephen Shulman, President

CORPORATE SEAL

ATTEST:

By: /s/ Arthur Smith
    ----------------------------------------
     Arthur Smith, Chief Financial Officer

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