Document:

Line of Credit Agreement

Bank One, Michigan (the "Bank"), whose address is 611 Woodward Avenue,  Detroit,
Michigan   48226-3947,   has  approved  the  credit   facilities   listed  below
(collectively,  the "Credit Facilities," and, individually, as designated below)
to Power Efficiency Corporation (the "Borrower"),  whose address is 4220 Varsity
Drive,  Suite E, Ann Arbor,  MI 48108  subject to the terms and  conditions  set
forth in this agreement.

1.0      Credit Facilities.

         1.1 Facility A. The Bank has approved a credit facility to the Borrower
         in the principal sum not to exceed  $750,000.00 in the aggregate at any
         one time  outstanding  ("Facility A"). Credit under Facility A shall be
         in the form of  disbursements  evidenced  by credits to the  Borrower's
         account and shall be  repayable  as set forth in a  Revolving  Business
         Credit Note executed  concurrently  (referred to in this agreement both
         singularly and together with any other  promissory  notes referenced in
         this  Section 1 as the  "Notes").  The  proceeds of Facility A shall be
         used for the  following  purpose:  Working  Capital.  Facility  A shall
         expire April 30, 2001 unless earlier withdrawn. $200,000.00 of Facility
         A is enrolled in Michigan Strategic Fund Capital Access Program.

2.0      Conditions Precedent.

         2.1      Conditions  Precedent to Initial  Extension of Credit.  Before
                  the first extension of credit under this agreement, whether by
                  disbursement  of a loan,  issuance of a letter of credit,  the
                  funding of a Lease or otherwise, the Borrower shall deliver to
                  the Bank, in form and substance satisfactory to the Bank:

                  A.       Loan  Documents.  The Notes,  and if applicable,  the
                           Leases,  the  letter  of  credit  applications,   the
                           security agreement,  financing statements,  mortgage,
                           guaranties,  subordination  agreements  and any other
                           loan documents which the Bank may reasonably  require
                           to give effect to the transactions  described by this
                           agreement;

                  B.       Evidence  of  Due  Organization  and  Good  Standing.
                           Evidence   satisfactory   to  the  Bank  of  the  due
                           organization  and good  standing of the  Borrower and
                           every other  business  entity that is a party to this
                           agreement or any other loan document required by this
                           agreement;

                  C.       Evidence of Authority  to Enter into Loan  Documents.
                           Evidence satisfactory to the Bank that (i) each party
                           to  this   agreement  and  any  other  loan  document
                           required by this  agreement  is  authorized  to enter
                           into the transactions described by this agreement and
                           the other loan documents, and (ii) the person signing
                           on behalf of each party is authorized to do so; and

         2.2      Conditions  Precedent to Each Extension of Credit.  Before any
                  extension   of  credit  under  this   agreement,   whether  by
                  disbursement  of a loan,  issuance of a letter of credit,  the
                  funding  of a Lease or  otherwise,  the  following  conditions
                  shall have been satisfied:

                  A.       Representations.  The  Representations  contained  in
                           this agreement shall be true on and as of the date of
                           the extension of credit;
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                  B.       No Event of Default.  No event of default  shall have
                           occurred and be  continuing  or would result from the
                           extension of credit;

                  C.       Additional Approvals,  Opinions,  and Documents.  The
                           Bank  shall  have  received  such  other   approvals,
                           opinions and documents as it may reasonably request.

3.0      Borrowing Base/Annual Pay Down.

         3.1      Borrowing  Base.  Notwithstanding  any other provision of this
                  agreement,  the aggregate  principal amount outstanding at any
                  one time  under  Facility A shall not exceed the lesser of the
                  Borrowing Base or $750,000.00. Borrowing Base means:

                  A.       80% of the Borrower's  trade  accounts  receivable in
                           which  the  Bank  has  a  perfected,  first  priority
                           security  interest,  excluding  accounts more than 90
                           days  past due from  the  date of  invoice,  accounts
                           subject  to offset or  defense,  government,  bonded,
                           affiliate and foreign  accounts,  accounts from trade
                           debtors  of which  more  than  -0-% of the  aggregate
                           amount owing from the trade debtor to the Borrower is
                           more than 90 days past due,  and  accounts  otherwise
                           unacceptable to the Bank, plus

                  B.       Inventory  of the  Borrower  in which  the Bank has a
                           perfected first priority security interest, valued at
                           the  lower  of  cost  or  market  but  not  exceeding
                           $500,000.00,  reducing to  $450,000  at February  28,
                           2001,  $400,000 at March 31, 2001,  and $350,00.00 at
                           April 30, 2000 in the aggregate, as follows:
                                    (1)  50% of raw material inventory; and
                                    (2)  50% of finished goods inventory, plus

4.0      Fees and Expenses.

         4.1      Fees. Upon execution of this agreement, or as set forth below,
                  the Borrower  shall pay the Bank the  following  fees,  all of
                  which the Borrower  acknowledges have been earned by the Bank:
                  $5,000.00 plus 10,000 shares of Power Efficiency  common stock
                  to be delivered upon Bank's request.  Capital Access fee of 3%
                  of $200,000 ($6,000.00).

         4.2      Out-of-Pocket  Expenses. The Borrower shall reimburse the Bank
                  for its out-of-pocket expenses, and reasonable attorney's fees
                  (including  the fees of  in-house  counsel)  allocated  to the
                  Credit Facilities.

5.0      Security.

         5.1      Payment of the borrowings and all other  obligations under the
                  Credit  Facilities  shall  be  secured  by  a  first  security
                  interest  and/or  real  estate  mortgage,  as the case may be,
                  covering  the  following   property  and  all  its  additions,
                  substitutions,  increments, proceeds and products, whether now
                  owned or later acquired ("Collateral"):

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                  A.       Accounts Receivable.  All of the Borrower's accounts,
                           chattel paper, general intangibles,  instruments, and
                           documents (as those terms are defined in the Michigan
                           Uniform Commercial Code),  rights to refunds of taxes
                           paid at any time to any governmental  entity, and any
                           letters  of credit  and  drafts  under  them given in
                           support  of  the  foregoing,  wherever  located.  The
                           Borrower shall deliver to the Bank executed  security
                           agreements  and  financing 9  statements  in form and
                           substance satisfactory to the Bank.

                  B.       Inventory. All of the Borrower's inventory,  wherever
                           located.  The  Borrower  shall  deliver  to the  Bank
                           executed security agreements and financing statements
                           in form and substance satisfactory to the Bank.

                  C.       Equipment. All of the Borrower's equipment,  wherever
                           located.  The  Borrower  shall  deliver  to the  Bank
                           executed security agreements and financing statements
                           in form and substance satisfactory to the Bank.

         5.2      No  forbearance  or extension  of time granted any  subsequent
                  owner  of the  Collateral  shall  release  the  Borrower  from
                  liability.

         5.3      Additional Collateral/Setoff. To further secure payment of the
                  borrowings  and  all  other   obligations   under  the  Credit
                  Facilities and all of the Borrower's other  liabilities to the
                  Bank,  the Borrower  grants to the Bank a continuing  security
                  interest  in: (i) all  securities  and other  property  of the
                  Borrower  in the  custody,  possession  or control of the Bank
                  (other  than  property  held by the Bank solely in a fiduciary
                  capacity)  and (ii) all  balances  of deposit  accounts of the
                  Borrower  with the Bank.  The Bank shall have the right at any
                  time to apply its own debt or liability to the Borrower, or to
                  any other party  liable for payment of the  obligations  under
                  the Credit  Facilities,  in whole or  partial  payment of such
                  obligations  or other present or future  liabilities,  without
                  any requirement of mutual maturity.

         5.4      Cross Lien. Any of the Borrower's  other property in which the
                  Bank has a security  interest  to secure  payment of any other
                  debt,  whether  absolute,   contingent,  direct  or  indirect,
                  including  the  Borrower's  guaranties of the debts of others,
                  shall also secure payment of and be part of the Collateral for
                  the Credit Facilities.

6.0      Subordination.   The  Credit  Facilities  shall  be  supported  by  the
         subordination  of all debt owing  from the  Borrower  to Scott  Caputo,
         including  without  limitation  debt  currently  owing in the amount of
         $100,000.00, in manner and by agreement satisfactory to the Bank.

7.0      Affirmative  Covenants.  So long  as any  debt  or  obligation  remains
         outstanding under the Credit Facilities,  the Borrower, and each of its
         subsidiaries, if any, shall:

         7.1      Insurance.  Maintain  insurance  with  financially  sound  and
                  reputable   insurers  covering  its  properties  and  business
                  against those  casualties and  contingencies  and in the types
                  and amounts as shall be in accordance  with sound business and
                  industry practices.

         7.2      Existence.  Maintain its existence and business  operations as
                  presently in effect in accordance with all applicable laws and
                  regulations,  pay its  debts  and  obligations  when due under
                  normal terms,  and pay on or before their due date, all taxes,
                  assessments, fees and other governmental monetary obligations,
                  except  as they may be  contested  in good  faith if they have
                  been  properly  reflected  on its  books  and,  at the  Bank's
                  request, adequate funds or security has been pledged to insure
                  payment.

<PAGE>

         7.3      Financial  Records.  Maintain  proper  books  and  records  of
                  account,  in accordance  with  generally  accepted  accounting
                  principles  where  applicable,  and consistent  with financial
                  statements  previously submitted to the Bank. The Bank retains
                  the right to  inspect  the  Collateral  and  business  records
                  related to it at such times and at such  intervals as the Bank
                  may reasonably require.

         7.4      Notice.  Give prompt  notice to the Bank of the  occurrence of
                  (i) any  Event of  default,  and (ii) any  other  development,
                  financial  or  otherwise,  which would  affect the  Borrower's
                  business,  properties  or  affairs  in  a  materially  adverse
                  manner.

         7.5      Collateral  Audits.  Permit  the Bank or its agents to perform
                  audits of the  Collateral.  The Borrower shall  compensate the
                  Bank for such audits in accordance with the Bank's schedule of
                  fees as amended from time to time.

         7.6      Financial Reports.  Furnish to the Bank whatever  information,
                  books, and records the Bank may reasonably request,  including
                  at a minimum: (If the Borrower has subsidiaries, all financial
                  statements  required will be provided on a consolidated and on
                  a separate basis.)

                  A.       Within 30 days after each monthly  period,  a balance
                           sheet as of the end of that period and  statements of
                           income retained  earnings,  and cash flows,  from the
                           beginning  of  that  fiscal  year  to the end of that
                           period, certified as correct by one of its authorized
                           agents.

                  B.       Within 120 days after,  and as of the end of, each of
                           its  fiscal  years,  a detailed  financial  statement
                           including a balance  sheet and  statements of income,
                           cash  flows,  and  retained  earnings,  audited by an
                           independent certified public accountant of recognized
                           standing.

                  C.       Within  15  days  after  and  as of the  end of  each
                           calendar month, the following  lists,  each certified
                           as correct by one of its authorized agents:

                                    (1)      a list of accounts receivable, aged
                                             from date of invoice;

                                    (2)      a list of  accounts  payable,  aged
                                             from date of receipt;

                                    (3)      a list of inventory,  valued at the
                                             lower of cost or market.

8.0      Negative Covenants.

         8.1      Definitions.  As used in this agreement,  the following  terms
                  shall have the following respective meanings:

         8.2      Unless otherwise  noted, the financial  requirements set forth
                  in this section shall be computed in accordance with generally
                  accepted  accounting  principles applied on a basis consistent
                  with financial statements previously submitted by the Borrower
                  to the Bank.

         8.3      Without the written  consent of the Bank,  so long as any debt
                  or obligation remains outstanding under the Credit Facilities,
                  the Borrower shall not: (where appropriate, covenants apply on
                  a consolidated basis).

                  A.       Dividends.  Acquire  or retire  any of its  shares of
                           capital  stock,  or declare or pay  dividends or make
                           any  other  distributions  upon any of its  shares of
                           capital  stock  or  percentage  ownership  interests,
                           except  dividends  payable in its  capital  stock and
                           dividends   payable  to  "Subchapter  S"  corporation
                           shareholders and distributions payable to LLC members
                           in amounts  sufficient  to pay the  shareholders'  or
                           members'  income  tax  obligations   related  to  the
                           Borrower's taxable income.

<PAGE>

                  B.       Sale of Shares.  Issue,  sell or otherwise dispose of
                           any shares of its capital stock or other  securities,
                           or rights, warrants or options to purchase or acquire
                           any such shares or securities.

                  C.       Debt.  Incur, or permit to remain  outstanding,  debt
                           for borrowed money or installment obligations, except
                           debt reflected in the latest  financial  statement of
                           the Borrower furnished to the Bank prior to execution
                           of this agreement and not to be paid with proceeds of
                           borrowings or leases under the Credit Facilities. For
                           purposes of this  covenant,  the sale of any accounts
                           receivable  shall be deemed the incurring of debt for
                           borrowed money.

                  D.       Guaranties.  Guarantee or otherwise  become or remain
                           secondarily  liable on the  undertaking  of  another,
                           except  for  endorsement  of drafts for  deposit  and
                           collection in the ordinary course of business.

                  E.       Liens.  Create  or permit to exist any lien on any of
                           its  property,  real or  personal,  except:  existing
                           liens  known to the Bank;  liens to the  Bank;  liens
                           incurred in the ordinary course of business  securing
                           current nondelinquent liabilities for taxes, worker's
                           compensation, unemployment insurance, social security
                           and  pension  liabilities;  and liens for taxes being
                           contested in good faith.

                  F.       Advances  and  Investments.  Purchase  or acquire any
                           securities  of, or make any loans or advances  to, or
                           investments  in,  any  person,  firm or  corporation,
                           except  obligations of the United States  Government,
                           open market commercial paper rated one of the top two
                           ratings by a rating agency of recognized standing, or
                           certificates   of  deposit   in   insured   financial
                           institutions.

                  G.       Use of  Proceeds.  Use, or permit any proceeds of the
                           Credit Facilities to be used, directly or indirectly,
                           for the purpose of "purchasing or carrying any margin
                           stock"  within the meaning of Federal  Reserve  Board
                           Regulation  U. At the Bank's  request,  the  Borrower
                           shall furnish to the Bank a completed Federal Reserve
                           Board Form U-1.

9.0      Representations  by Borrower.  Each Borrower  represents  that: (a) the
         execution and delivery of this agreement, the Notes, and the Leases and
         the performance of the obligations  they impose do not violate any law,
         conflict with any agreement by which the Borrower is bound,  or require
         the consent or approval of any  governmental  authority  or other third
         party;  (b) this  agreement,  the  Notes,  and the Leases are valid and
         binding agreements, enforceable in accordance with their terms; and (c)
         all balance  sheets,  profit and loss  statements,  and other financial
         statements  furnished to the Bank are  accurate and fairly  reflect the
         financial  condition  of the  organizations  and  persons to which they
         apply on their effective  dates,  including  contingent  liabilities of
         every type,  which financial  condition has not changed  materially and
         adversely  since those dates.  Each  Borrower,  if other than a natural
         person, further represents that: (a) it is duly organized, existing and
         in good standing under the laws of the jurisdiction  under which it was
         organized;  and (b) the execution and delivery of this  agreement,  the
         Notes,  and the  Leases and the  performance  of the  obligations  they
         impose (i) are within its powers; (ii) have been duly authorized by all
         necessary action of its governing body; and (iii) do not contravene the
         terms of its articles of incorporation or organization,  its bylaws, or
         any partnership, operating or other agreement governing its affairs.

<PAGE>

10.0     Default/Acceleration.

         10.1     Events of Default/Acceleration. If any of the following events
                  occurs,   the  Credit   Facilities  shall  terminate  and  all
                  borrowings  and  other  obligations  under  them  shall be due
                  immediately,  without  notice,  at the Banks option whether or
                  not the Bank has made demand.

                  A.       The  Borrower or any  guarantor  of any of the Credit
                           Facilities,  the  Notes or the  Leases  ("Guarantor")
                           fails to pay when due any  amount  payable  under the
                           Credit   Facilities   or  under  any   agreement   or
                           instrument evidencing debt to any creditor;

                  B.       The Borrower or any Guarantor (a) fails to observe or
                           perform any other term of this agreement,  the Notes,
                           or the Leases; (b) makes any materially  incorrect or
                           misleading  representation,  warranty, or certificate
                           to the Bank;  (c) makes any  materially  incorrect or
                           misleading  representation in any financial statement
                           or other  information  delivered to the Bank;  or (d)
                           defaults   under  the  terms  of  any   agreement  or
                           instrument  relating to any debt for  borrowed  money
                           (other than borrowings  under the Credit  Facilities)
                           such that the  creditor  declares the debt due before
                           its maturity;

                  C.       There  is a  default  under  the  terms  of any  loan
                           agreement,  mortgage, security agreement or any other
                           document  executed as part of the Credit  Facilities,
                           or any guaranty of the  obligations  under the Credit
                           Facilities becomes unenforceable in whole or in part,
                           or any Guarantor fails to promptly  perform under its
                           guaranty;

                  D.       A  "reportable  event" (as  defined  in the  Employee
                           Retirement  Income  Security  Act of 1974 as amended)
                           occurs that would permit the Pension Benefit Guaranty
                           Corporation to terminate any employee benefit plan of
                           the Borrower or any affiliate of the Borrower;

                  E.       The Borrower or any  Guarantor  becomes  insolvent or
                           unable to pay its debts as they become due;

                  F.       The Borrower or any Guarantor (a) makes an assignment
                           for the  benefit of  creditors;  (b)  consents to the
                           appointment  of a custodian,  receiver or trustee for
                           it or for a  substantial  part of its assets;  or (c)
                           commences  any  proceeding   under  any   bankruptcy,
                           reorganization,  liquidation  or similar  laws of any
                           jurisdiction;

                  G.       A custodian, receiver or trustee is appointed for the
                           Borrower or any Guarantor or for a  substantial  part
                           of its assets  without its consent and is not removed
                           within 60 days after such appointment;

                  H.       Proceedings are commenced against the Borrower or any
                           Guarantor  under  any   bankruptcy,   reorganization,
                           liquidation, or similar laws of any jurisdiction, and
                           such proceedings remain undismissed for 60 days after
                           commencement;  or the Borrower or Guarantor  consents
                           to the commencement of such proceedings;

<PAGE>

                  I.       Any  judgment is entered  against the Borrower or any
                           Guarantor, or any attachment,  levy or garnishment is
                           issued  against any  property of the  Borrower or any
                           Guarantor;

                  J.       The Borrower or any Guarantor dies;

                  K.       The  Borrower  or any  Guarantor,  without the Bank's
                           written  consent,  (a) is  dissolved,  (b)  merges or
                           consolidates with any third party, (c) leases,  sells
                           or otherwise conveys a material part of its assets or
                           business outside the ordinary course of business, (d)
                           leases,  purchases,  or otherwise acquires a material
                           part  of the  assets  of  any  other  corporation  or
                           business  entity,  except in the  ordinary  course of
                           business,  or (e) agrees to do any of the  foregoing,
                           (notwithstanding  the  foregoing,  any subsidiary may
                           merge, or consolidate with any other  subsidiary,  or
                           with the  Borrower,  so long as the  Borrower  is the
                           survivor);

                  L.       The loan-to-value  ratio of any pledged securities at
                           any time exceeds N/A%, and such excess  continues for
                           five  (5)  days  after  notice  from  the Bank to the
                           Borrower;

                  M.       There is a  substantial  change  in the  existing  or
                           prospective I financial  condition of the Borrower or
                           any Guarantor which the Bank in good faith determines
                           to be materially adverse; or

                  N.       The Bank in good faith shall deem itself insecure.

         10.2     Remedies.  If the borrowings and all other  obligations  under
                  the Credit  Facilities  are not paid at  maturity,  whether by
                  acceleration  or  otherwise,  the Bank  shall  have all of the
                  rights and  remedies  provided  by any law or  agreement.  Any
                  requirement  of  reasonable  notice  shall  be met if the Bank
                  sends the notice to the Borrower at least seven (7) days prior
                  to the date of sale, disposition or other event giving rise to
                  the required  notice.  The Bank is  authorized to cause all or
                  any part of the  Collateral to be transferred to or registered
                  in its  name  or in the  name  of any  other  person,  firm or
                  corporation,  with or without  designation  of the capacity of
                  such nominee.  The Borrower shall be liable for any deficiency
                  remaining after disposition of any Collateral. The Borrower is
                  liable to the Bank for all  reasonable  costs and  expenses of
                  every kind  incurred in the making or collection of the Credit
                  Facilities,    including,   without   limitation,   reasonable
                  attorney's  fees and court costs (whether  attributable to the
                  Bank's in-house or outside counsel).  These costs and expenses
                  shall  include,  without  limitation,  any  costs or  expenses
                  incurred  by  the  Bank  in  any  bankruptcy,  reorganization,
                  insolvency or other similar proceeding.

11.0     Miscellaneous.

         11.1     Notice from one party to another  relating  to this  agreement
                  shall  be  deemed  effective  if  made in  writing  (including
                  telecommunications)  and delivered to the recipient's address,
                  telex  number or fax number set forth  under its name below by
                  any of the following means: (a) hand delivery,  (b) registered
                  or  certified  mail,  postage  prepaid,  with  return  receipt
                  requested,  (c) first class or express mail,  postage prepaid,
                  (d) Federal  Express or like overnight  courier service or (e)
                  fax,  telex  or  other  wire  transmission  with  request  for
                  assurance  of  receipt  in a manner  typical  with  respect to
                  communication  of that type.  Notice made in  accordance  with
                  this  section  shall  be  deemed  delivered  upon  receipt  if
                  delivered by hand or wire transmission,  3 business days after
                  mailing  if mailed by first  class,  registered  or  certified
                  mail,  or one  business  day after  mailing or deposit with an
                  overnight  courier  service if  delivered  by express  mail or
                  overnight courier.

<PAGE>

         11.2     No delay on the part of the Bank in the  exercise of any right
                  or remedy  shall  operate  as a waiver.  No single or  partial
                  exercise by the Bank of any right or remedy shall preclude any
                  other future exercise of it or the exercise of any other right
                  or remedy.  No waiver or indulgence by the Bank of any default
                  shall be  effective  unless in writing and signed by the Bank,
                  nor shall a waiver on one occasion be construed as a bar to or
                  waiver of that right on any future occasion.

         11.3     This  agreement,  the Notes,  the Leases and any related  loan
                  documents  embody  the  entire  agreement  and   understanding
                  between  the  Borrower  and the Bank and  supersede  all prior
                  agreements  and  understandings   relating  to  their  subject
                  matter.  If any one or more of the obligations of the Borrower
                  under  this  agreement,  the  Notes  or the  Leases  shall  be
                  invalid,  illegal or  unenforceable in any  jurisdiction,  the
                  validity,   legality  and   enforceability  of  the  remaining
                  obligations  of the Borrower  shall not in any way be affected
                  or   impaired,    and   such    invalidity,    illegality   or
                  unenforceability  in one  jurisdiction  shall not  affect  the
                  validity, legality or enforceability of the obligations of the
                  Borrower under this agreement,  the Notes or the Leases in any
                  other jurisdiction.

         11.4     The Borrower, if more than one, shall be jointly and severally
                  liable.

         11.5     This  agreement  is  delivered  in the State of  Michigan  and
                  governed by Michigan  law.  This  agreement  is binding on the
                  Borrower and its successors, and shall inure to the benefit of
                  the Bank, its successors and assigns.

         11.6     Section  headings are for  convenience  of reference  only and
                  shall not affect the interpretation of this agreement.

12.0     Information  Sharing.  The Bank may  provide,  without  any  limitation
         whatsoever,  any  information  or knowledge the Bank may have about the
         undersigned  or any matter  relating to this  agreement and any related
         documents  to  BANK  ONE  CORPORATION,  or any of its  subsidiaries  or
         affiliates  or their  successors,  or to any one or more  purchasers or
         potential  purchasers of this agreement or any related  documents,  and
         the  undersigned  waives any right to privacy the  undersigned may have
         with respect to such matters.  The Borrower agrees that the Bank may at
         any  time  sell,   assign  or  transfer   one  or  more   interests  or
         participations  in all or any part of its rights or obligations in this
         agreement to one or more purchasers whether or not related to the Bank.

13.0     Waiver  of  Jury  Trial.  The  Bank  and  the  Borrower  knowingly  and
         voluntarily  waive any right  either of them have to a trial by jury in
         any proceeding  (whether  sounding in contract or tort) which is in any
         way connected with this or any related  agreement,  or the relationship
         established  under  them.  This  provision  may only be  modified  in a
         written instrument executed by the Bank and the Borrower.

<PAGE>

Executed by the parties on:  December 6 , 2000.

Bank One, Michigan                        Borrower

                                          POWER EFFICIENCY CORPORATION
By: /s/ J. Eric Lehmann
   ----------------------------
    J. Eric Lehmann
                                          By:/s/ Arthur H. Smith
                                             -----------------------------------
Its: First Vice
President                                 Its:
-------------------------------
                                          Treasurer
                                          ---------------------------

Address for Notices                       Address for Notices

10 S. Main, Suite 104                     4220 Varsity Drive, Suite E
Mt. Clements, MI 48043                    Ann Arbor, MI 48108

<PAGE>

Revolving Business Credit Note
--------------------------------------------------------------------------------

 Due April 30, 2001                      $750,000.00

 No.                                     Date: December 6, 2000
    --------------------

Promise  to Pay.  On or  before  April  30,  2001,  for  value  received,  Power
Efficiency  Corporation (the "Borrower")  promises to pay to Bank One,  Michigan
(the "Bank"), or order, at any office of the Bank in the State of Michigan,  the
sum of Seven Hundred Fifty Thousand DOLLARS ($750,000.00), or such lesser sum as
is indicated on Bank records,  plus interest computed on the basis of the actual
number of days elapsed in a year of 360 days at the rate of:

          2.0% per annum above the Prime Rate (the "Note Rate")  until  maturity
          whether by  acceleration  or otherwise and at the rate of 3% per annum
          above the Note Rate on overdue  principal from the date when due until
          paid.  "Prime  Rate" means a rate per annum equal to the prime rate of
          interest  announced from time to time by the Bank or its parent (which
          is not necessarily the lowest rate charged to any customer),  changing
          when and as said prime rate changes.

In no event shall the interest  rate exceed the maximum rate allowed by law; any
interest  payment which would for any reason be deemed unlawful under applicable
law shall be applied to principal.

Interest will be computed on the unpaid principal  balance from the date of each
borrowing.

 Until  maturity,  the Borrower will pay  consecutive  monthly  installments  of
 interest only commencing January 10 , 2001.

Late Fee. If any payment is not  received by the Bank within  fifteen days after
its due date,  the Bank may  assess  and the  Borrower  agrees to pay a late fee
equal to the lesser of five percent of the past due amount or $200.

Credit Facility. The Bank has authorized a credit facility to the Borrower in a,
principal amount not to exceed the face amount of this note. The credit facility
is in the form of loans made from time to time by the Bank to the Borrower. This
note  evidences the  Borrower's  obligation to repay those loans.  The aggregate
principal  amount of debt  evidenced by this note shall be the amount  reflected
from  time to time in the  records  of the Bank but shall  not  exceed  the face
amount of this note.  Until  maturity,  the Borrower may borrow,  pay down,  and
reborrow under this note so long as the aggregate  principal amount  outstanding
at any one time does not exceed the face amount of this note.

Credit Agreement. This note evidences a debt under the terms of a Line of Credit
Agreement  between  the Bank and the  Borrower  dated  December 6 2000,  and any
amendments (the "Agreement").

Security.  To secure the  payment  of this note and all other  present or future
liabilities of the Borrower to the Bank,  whether  several,  joint, or joint and
several,  the  Borrower  pledges  and grants to the Bank a  continuing  security
interest  in  the  following  described  property  and  all  of  its  additions,
substitutions,  increments,  proceeds and  products,  whether now owned or later
acquired ("Collateral"):
<PAGE>

1.       All  securities  and other  property of the  Borrower  in the  custody,
         possession or control of the Bank (other than property held by the Bank
         solely in a fiduciary capacity);

2.       All  property or  securities  declared or  acknowledged  to  constitute
         security for any past,  present or future  liability of the Borrower to
         the Bank;

3.       All balances of deposit accounts of the Borrower with the Bank;

4.       The  following  additional  property:  General  Lien  on all  Corporate
         Assets.

Bank's  Right to Setoff.  The Bank shall have the right at any time to apply its
own debt or  liability to the Borrower or to any other party liable on this note
in whole or partial payment of this note or other present or future liabilities,
without any requirement of mutual maturity.

Representations by Borrower.  Each Borrower  represents:  (a) that the execution
and delivery of this note and the  performance of the  obligations it imposes do
not  violate  any law,  conflict  with any  agreement  by which it is bound,  or
require  the  consent or approval  of any  governmental  authority  or any third
party;  (b)  that  this  note  is a valid  and  binding  agreement,  enforceable
according  to its  terms;  and (c)  that all  balance  sheets,  profit  and loss
statements,  and other financial  statements  furnished to the Bank are accurate
and fairly reflect the financial  condition of the  organizations and persons to
which they apply on their effective dates,  including contingent  liabilities of
every type, which financial  condition has not changed  materially and adversely
since  those  dates.  Each  Borrower,  other  than  a  natural  person,  further
represents:  (a)  that  it is duly  organized,  existing  and in  good  standing
pursuant to the laws under which it is organized; and (b) that the execution and
delivery of this note and the  performance of the obligations it imposes (i) are
within its powers and have been duly  authorized by all necessary  action of its
governing  body;  and  (ii) do not  contravene  the  terms  of its  articles  of
incorporation  or organization,  its by laws, or any  partnership,  operating or
other agreement governing its affairs.

Events of Default/Acceleration. If any of the following events occurs, this note
shall be due immediately, without notice, at the Bank's option.

1.       The Borrower or any guarantor of this note  ("Guarantor")  fails to pay
         when due any amount  payable  under this note or under any agreement or
         instrument evidencing debt to any creditor;

2.       The Borrower or any Guarantor (a) fails to observe or perform any other
         term of this note;  (b) makes any  materially  incorrect or  misleading
         representation,  warranty,  or  certificate  to the Bank; (c) makes any
         materially  incorrect or  misleading  representation  in any  financial
         statement or other  information  delivered to the Bank; or (d) defaults
         under the terms of any agreement or instrument relating to any debt for
         borrowed  money (other than the debt  evidenced by this note) such that
         the creditor declares the debt due before its maturity;

3.       There is a default  under the  terms of any loan  agreement,  mortgage,
         security agreement,  or any other document executed as part of the loan
         evidenced by this note,  or any guaranty of the loan  evidenced by this
         note becomes  unenforceable in whole or in part, or any Guarantor fails
         to promptly perform under its guaranty;

<PAGE>

4.       A  "reportable  event" (as defined in the  Employee  Retirement  Income
         Security  Act of 1974 as amended)  occurs that would permit the Pension
         Benefit Guaranty  Corporation to terminate any employee benefit plan of
         the Borrower or any affiliate of the Borrower;

5.       The Borrower or any  Guarantor  becomes  insolvent or unable to pay its
         debts as they become due;

6.       The Borrower or any Guarantor  (a) makes an assignment  for the benefit
         of creditors; (b) consents to the appointment of a custodian, receiver,
         or trustee for itself or for a substantial  part of its assets;  or (c)
         commences  any  proceeding   under  any   bankruptcy,   reorganization,
         liquidation, insolvency or similar laws of any jurisdiction;

7.       A custodian,  receiver, or trustee is appointed for the Borrower or any
         Guarantor or for a substantial  part of its assets  without the consent
         of the party against which the  appointment  is made and is not removed
         within 60 days after such appointment;

8.       Proceedings  are commenced  against the Borrower or any Guarantor under
         any  bankruptcy,  reorganization,  liquidation,  or similar laws of any
         jurisdiction, and such proceedings remain undismissed for 60 days after
         commencement; or the Borrower or Guarantor consents to the commencement
         of such proceedings;

9.       Any judgment is entered  against the Borrower or any Guarantor,  or any
         attachment,  levy, or garnishment is issued against any property of the
         Borrower or any Guarantor;

10.      The Borrower or any Guarantor dies;

11.      The Borrower or any Guarantor,  without the Bank's written consent, (a)
         is  dissolved,  (b) merges or  consolidates  with any third party,  (c)
         leases,  sells or  otherwise  conveys a material  part of its assets or
         business outside the ordinary course of business, (d) leases, purchases
         or  otherwise  acquires  a  material  part of the  assets  of any other
         corporation  or  business  entity  except  in the  ordinary  course  of
         business, or (e) agrees to do any of the foregoing (notwithstanding the
         foregoing,  any  subsidiary  may  merge or  consolidate  with any other
         subsidiary,  or  with  the  Borrower  so long  as the  Borrower  is the
         survivor);

12.      The loan-to-value  ratio of any pledged  securities at any time exceeds
         N/A% and such excess  continues for five (5) days after notice from the
         Bank to the Borrower;

13.      There is a substantial change in the existing or prospective  financial
         condition of the Borrower or any Guarantor which the Bank in good faith
         determines to be materially adverse;

14.      The Bank in good faith deems itself insecure.

Remedies.  If this note is not paid at  maturity,  whether  by  acceleration  or
otherwise,  the Bank shall have all of the rights and  remedies  provided by any
law or agreement.  Any requirement of reasonable notice shall be met if the Bank
sends the notice to the  Borrower  at least  seven (7) days prior to the date of
sale, disposition or other event giving rise to the required notice. The Bank is
authorized to cause all or any part of the  Collateral to be  transferred  to or
registered in its name or in the name of any other person,  firm or corporation,
with or without designation of the capacity of such nominee.  The Borrower shall
be liable for any deficiency remaining after disposition of any Collateral.  The
Borrower is liable to the Bank for all  reasonable  costs and  expenses of every
kind  incurred  in the making or  collection  of this note,  including,  without
limitation, reasonable attorneys' fees and court costs. These costs and expenses
shall include, without limitation, any costs or expenses incurred by the Bank in
any bankruptcy, reorganization, insolvency or other similar proceeding.

<PAGE>

Waiver.  Each endorser and any other party liable on this note severally  waives
demand,  presentment,  notice of  dishonor  and  protest,  and  consents  to any
extension or  postponement of time of its payment without limit as to the number
or  period,  to any  substitution,  exchange  or  release  of all or part of the
Collateral, to the addition of any party, and to the release or discharge of, or
suspension of any rights and remedies against,  any person who may be liable for
the  payment of this note.  No delay on the part of the Bank in the  exercise of
any right or remedy shall operate as a waiver.  No single or partial exercise by
the Bank of any right or remedy shall  preclude any other future  exercise of it
or the  exercise of any other right or remedy.  No waiver or  indulgence  by the
Bank of any default shall be effective unless in writing and signed by the Bank,
nor shall a waiver on one  occasion be  construed  as a bar to or waiver of that
right on any future occasion.

Miscellaneous.  The Borrower,  if more than one,  shall be jointly and severally
liable,  and the term  "Borrower"  shall mean any one or more of them. This note
shall be binding on the  Borrower  and its  successors,  and shall  inure to the
benefit of the Bank, its successors and assigns. Any reference to the Bank shall
include any holder of this note. This note is delivered in the State of Michigan
and governed by Michigan law.  Section headings are for convenience of reference
only and shall not affect the interpretation of this note.

Information  Sharing. The Bank may provide,  without any limitation  whatsoever,
any  information  or knowledge  the Bank may have about the  undersigned  or any
matter relating to this note and any related  documents to BANK ONE CORPORATION,
or any of its subsidiaries or affiliates or their  successors,  or to any one or
more purchasers or potential  purchasers of this note or any related  documents,
and the  undersigned  waives any right to privacy the  undersigned may have with
respect to such matters. The Borrower agrees that the Bank may at any time sell,
assign or transfer one or more interests or participations in all or any part of
its rights or obligations in this note to one or more purchasers  whether or not
related to the Bank.

Waiver of Jury Trial. The Bank and the Borrower  knowingly and voluntarily waive
any  right  either of them  have to a trial by jury in any  proceeding  (whether
sounding in contract  or tort)  which is in any way  connected  with this or any
related  agreement,  or the relationship  established under them. This provision
may  only be  modified  in a  written  instrument  executed  by the Bank and the
Borrower.

Address:                                  Borrower:

4220 Varsity Drive, Suite E               POWER EFFICIENCY CORPORATION
Ann Arbor, MI 48108
                                          By:   /s/ Arthur H. Smith
                                                --------------------------------
                                          Its:             Treasurer
                                                 -------------------------------

<PAGE>

Continuing Security Agreement
--------------------------------------------------------------------------------
Power Efficiency Corporation (the "Debtor")

Taxpayer I.D. No.: 22-3337365

Chief executive office: 4220 Varsity Drive, Suite E, Ann Arbor, MI 48108

Grant of Security Interest. The Debtor grants to Bank One, Michigan, the secured
party  referred to as "Bank",  whose  address is 611 Woodward  Avenue,  Detroit,
Michigan 48226, a continuing  security  interest in the Collateral listed below,
to secure the payment and performance of all of the Debtor's debt to the Bank.

Debt shall include each and every debt  liability  and  obligation of every type
and description now owed or arising at a later time,  whether they are direct or
indirect,  joint,  several,  or joint and several and whether or not of the same
type or class as presently outstanding,  which shall collectively be referred to
as "Liabilities."  Liabilities shall also include all interest,  costs, expenses
and reasonable attorney's fees accruing to or incurred by the Bank in collecting
the  Liabilities  or in  the  protection,  maintenance  or  liquidation  of  the
Collateral.

Collateral: Accounts Receivable, Inventory, Equipment, Instruments

Description  of Collateral.  The Collateral  covered by this agreement is all of
the Debtor's property indicated above and as defined below,  present and future,
including but not limited to any items listed on any schedule or list  attached.
Also  included  are all  proceeds,  including  but not limited to stock  rights,
subscription rights,  dividends,  stock dividends,  stock splits, or liquidating
dividends,  and all cash,  instruments,  accounts,  chattel  paper  and  general
intangibles  arising  from  the  sale,  rent,  lease,  casualty  loss  or  other
disposition of the Collateral, and any Collateral returned to, repossessed by or
stopped in transit by the  Debtor.  Also  included  are the  Debtor's  books and
records  which  relates  to  the  Collateral.  Where  the  Collateral  is in the
possession  of the Bank,  the Debtor  agrees to deliver to the Bank any property
which  represents  an increase in the  Collateral  or profits or proceeds of the
Collateral.

Definitions.

1. "Accounts  Receivable"  shall consist of accounts,  chattel paper and general
intangibles as those terms are defined in the Michigan  Uniform  Commercial Code
("UCC"). Also included is any right to a refund of taxes paid at any time to any
governmental entity. Also included are letters of credit, and drafts under them,
given in  support  of  Accounts  Receivable.  Debtor  warrants  that  its  chief
executive office is at the address shown above.

2.  "Inventory"  shall  consist of all  property  held at any location by or for
Debtor for sale,  rent; or lease,  or furnished or to be furnished by the Debtor
under an  contract  of service,  or raw  materials  or work in process and their
products,  or  materials,  used or consumed in its  business,  and shall include
containers  and  shelving  useful for  storing.  Without  limiting  the security
interest granted, Inventory is presently located at 4220 Varsity Drive, Suite E,
Ann Arbor, MI 48108.

3. "Equipment" shall consist of any goods at any time acquired, owned or held by
Debtor at any location  primarily  for use in its business,  including,  but not
limited to, machinery,  fixtures,  furniture,  furnishings and vehicles, and any
accessions,   parts,   attachments,   accessories,   tools,   dies,   additions,
substitutions,  replacements and  appurtenances to them or intended for use with
them.  Without limiting the security  interest  granted,  Equipment is presently
located at 4220 Varsity Drive, Suite E, Ann Arbor, MI 48108.

<PAGE>

4.  "Instruments"  shall  consist  of  Debtor's  interest  of  any  kind  in any
negotiable  instrument or security as those terms are defined in the UCC, or any
other writing which evidences a right to payment of money and is of a type which
is, in the ordinary  course of  business,  transferred  by delivery  alone or by
delivery with any necessary endorsement or assignment.

Warranties and Covenants. The Debtor warrants and covenants to the Bank that:

1. It will pay its Liabilities to the Bank secured by this agreement;
2. It is or will  become  the  owner of the  Collateral  free  from  any  liens,
encumbrances  or security  interests,  except for this  security  interest,  and
existing liens disclosed to and accepted by the Bank in writing, and will defend
the  Collateral  against  all  claims  and  demands  of all  persons at any time
claiming  any  interest  in it;  3. It will keep the  Collateral  free of liens,
encumbrances and other security  interests,  maintain it in good repair, not use
it illegally,  and exhibit it to the Bank on demand; 4. At its own expense,  the
Debtor will maintain  comprehensive casualty insurance on the Collateral against
such risks,  in such amounts,  with such  deductibles and with such companies as
may be  satisfactory  to the Bank,  and provide the Bank with proof of insurance
acceptable  to the Bank.  Each  insurance  policy shall  contain a lender's loss
payable  endorsement   satisfactory  to  the  Bank  and  a  prohibition  against
cancellation  or  amendment  of the  policy or removal of the Bank as loss payee
without at least 30 days prior written  notice to the Bank.  In all events,  the
amounts of such insurance  coverages shall conform to prudent business practices
and  shall be in such  minimum  amounts  that the  Debtor  will not be  deemed a
co-insurer;  5. It will  not sell or offer  to sell or  otherwise  transfer  the
Collateral,  nor change the  location  of the  Collateral,  without  the written
consent of the Bank,  except in the ordinary course of business;  6. It will pay
promptly when due all taxes and assessments upon the Collateral,  or for its use
or  operation;  7.  No  financing  statement  covering  all or any  part  of the
Collateral or any proceeds is on file in any public office,  unless the Bank has
approved  that filing.  At the Bank's  request,  Debtor will execute one or more
financing  statements  in form  satisfactory  to Bank  and  will pay the cost of
filing  them in all  public  offices  wherever  filing  is  deemed by Bank to be
desirable;  8. It will immediately  notify Bank in writing of any name change or
any change in business  organization;  9. It will provide any  information  that
Bank may reasonably  request,  and will permit Bank upon prior notice to inspect
and copy its books and records during normal business hours.

Accounts  Receivable.  The Debtor  acknowledges that if the Collateral  includes
"Accounts  Receivable,"  then  until  the Bank  gives  notice  to  Debtor to the
contrary,  Debtor will,  in the usual course of its business and at its own cost
and  expense,  on the  Bank's  behalf but not as the  Bank's  agent,  demand and
receive  and use its best  efforts to collect all moneys due or to become due on
the Accounts  Receivable.  Until the Bank gives notice to Debtor to the contrary
or until  the  Debtor  is in  default,  it may use the  funds  collected  in its
business.  Upon notice from the Bank or upon default, the Debtor agrees that all
sums of money it  receives  on account of or in  payment  or  settlement  of the
Accounts  Receivable  shall  be  held by it as  trustee  for  the  Bank  without
commingling  with any of its funds,  and shall  immediately  be delivered to the
Bank with endorsement to the Bank's order of any check or similar instrument. It
is agreed that,  at any time the Bank elects,  it shall be entitled,  in its own
name or in the name of the Debtor or  otherwise,  but at the expense and cost of
the Debtor,  to collect,  demand,  receive,  sue for or  compromise  any and all
Accounts Receivable,  and to give good and sufficient  releases,  to endorse any
checks, drafts or other orders for the payment of money payable to the Debtor in
payment and, its discretion, to file any claims or take any action or proceeding
which the Bank may deem necessary or advisable.  It is expressly  understood and
agreed,  however, that the Bank shall not be required or obligated in any manner
to make any demand or to make any inquiry as to the nature or sufficiency of any
payment  received by it or to present or file any claim or take any other action
to collect or enforce the payment of any amounts which may have been assigned to
it or to which it may be entitled at any time or times.  All notices required in
this paragraph will be immediately effective when sent. Such notices need not be
given prior to the Bank taking action.

<PAGE>

Representations by Debtor.  Each Debtor  represents:  (a) that the execution and
delivery of this agreement and the  performance of the obligations it imposes do
not  violate  any law,  conflict  with any  agreement  by which it is bound,  or
require  the  consent or approval  of any  governmental  authority  or any third
party;  (b) that this  agreement is a valid and binding  agreement;  enforceable
according  to its  terms;  and (c)  that all  balance  sheets,  profit  and loss
statement, and other financial statements furnished to the Bank are accurate and
fairly reflect the financial condition of the organizations and persons to which
they apply on their effective dates,  including contingent  liabilities of every
type, which financial  condition has not changed  materially and adversely since
those dates. Each Debtor, other than a natural person,  further represents:  (a)
that it is duly  organized,  existing and in good standing  pursuant to the laws
under which it is  organized;  and (b) that the  execution  and delivery of this
agreement and the  performance of the  obligations it imposes (i) are within its
powers and have been duly  authorized by all  necessary  action of its governing
body;  (ii) do not  contravene  the terms of its  articles of  incorporation  or
organizations,  its by-laws,  or any  partnership,  operating or other agreement
governing its affairs.

Pledge.  If the  Debtor  is not  liable  for all or any  part of the  Borrower's
obligations to the Bank (the "Debt"), then it agrees that:

(a) If any monies  become  available  to the Bank that it can apply to any Debt,
the Bank may apply  them to Debt not  secured  by this  agreement.  (b)  Without
notice to or the  consent  of the  Debtor,  the Bank may (i) take any  action it
chooses  against any Borrower,  against any  collateral for the Debt, or against
any other  person  liable for the Debt;  (ii)  release any Borrower or any other
person liable for the Debt,  release any collateral for the Debt, and neglect to
perfect any interest in any such  collateral;  (iii) forbear or agree to forbear
from exercising any rights or remedies,  including any right of setoff,  that it
has against the  Borrower,  any other person  liable for the Debt,  or any other
collateral  for the Debt;  (iv)  extend to any  Borrower  additional  Debt to be
secured by this agreement;  or (v) renew, extend,  modify or amend any Debt, and
deal with any Borrower or any other person liable for the Debt as it chooses.
(c) None of the Debtor's  obligations  under this agreement shall be affected by
(i)  any  act or  omission  of the  Bank;  (ii)  the  voluntary  or  involuntary
liquidation, sale or other disposition of all or substantially all of the assets
of any Borrower; (iii) any receivership,  insolvency, bankruptcy, reorganization
or other similar  proceedings  affecting  any Borrower or any of its assets;  or
(iv) any change in the  composition  or structure of any Borrower or any Debtor,
including a merger or consolidation with any other entity.

<PAGE>

(d) The Bank's rights under this section and this  agreement  are  unconditional
and  absolute,  regardless  of  the  unenforceability  of any  provision  of any
agreement  between any Borrower and the Bank,  or the  existence of any defense,
setoff or counterclaim that any Borrower may be able to assert against the Bank.
(e) It waives all rights of subrogation, contribution, reimbursement, indemnity,
exoneration,  implied  contract,  recourse to security,  and any other claim (as
that term is defined in the federal  Bankruptcy  Code,  as amended  from time to
time) that it may have or acquire in the future against any Borrower,  any other
person  liable  for the Debt,  or any  collateral  for the Debt,  because of the
existence of this agreement,  the Debtor's performance under this agreement,  or
the Bank's availing itself of any rights or remedies under this agreement.
(f) If any payment to the Bank on any Debt is wholly or  partially  invalidated,
set aside,  declared  fraudulent  or  required  to be repaid to the  Borrower or
anyone  representing  the  Borrower  or  the  Borrower's  creditors,  under  any
bankruptcy or insolvency  act or code,  under any state or federal law, or under
common law or equitable  principles,  then this  agreement  shall remain in full
force and effect or be reinstated,  as the case may be, until payment in full to
the Bank of the  repaid  amounts,  and of the Debt.  If this  agreement  must be
reinstated,  the Debtor agrees to execute and deliver to the Bank new agreements
and financing statements,  if necessary, in form and substance acceptable to the
Bank, covering the Collateral.

Default/Remedies.  If  the  Debtor  or the  Borrower  fails  to  pay  any of the
Liabilities  when due, or if a default by anyone  occurs  under the terms of any
agreement  related to any of the Liabilities,  or if the Debtor dies or fails to
observe or  perform  any term of this  agreement,  or if any  representation  or
warranty contained in this agreement is untrue, or if there is a material change
in the financial condition of the Debtor which the Bank in good faith determines
to be  materially  adverse,  then the Bank shall  have the  rights and  remedies
provided  by law or this  agreement,  including  but not limited to the right to
require the Debtor to assemble the  Collateral and make it available to the Bank
at a place to be designated  by the Bank which is reasonably  convenient to both
parties,  the right to take  possession of the Collateral with or without demand
and with or without  process of law, and the right to sell and dispose of it and
distribute  the proceeds  according to law. In connection  with the right of the
Bank to take possession of the  Collateral,  the Bank may take possession of any
other  items  of  property  in or on  the  Collateral  at  the  time  of  taking
possession,  and hold them for the Debtor  without  liability on the part of the
Bank. If there is any statutory requirement,  for notice, that requirement shall
be met if the Bank sends  notice to the Debtor at least  seven (7) days prior to
the date of sale, disposition or other event giving rise to the required notice.
The Debtor shall be liable for any deficiency remaining after disposition of the
Collateral.

Miscellaneous.

1. Where the Collateral is located at, used in or attached to a facility  leased
by the Debtor,  the Debtor will obtain from the lessor a consent to the granting
of this security  interest and  a subordination  of the lessor's interest in any
of the Collateral, in form acceptable to the Bank.
2. At its  option  the Bank may,  but shall be under no duty or  obligation  to,
discharge taxes,  liens,  security  interests or other  encumbrances at any time
levied or placed on the Collateral, pay for insurance on the Collateral, and pay
for the maintenance and preservation of the Collateral, and the Debtor agrees to
reimburse  the Bank on demand for any  payment  made or expense  incurred by the
Bank, with interest at the maximum legal rate.
3. No delay on the part of Bank in the  exercise  of any right or  remedy  shall
operate as a waiver,  no single or partial  exercise by the Bank of any right or
remedy  shall  preclude  any other  exercise of it or the  exercise of any other
right or remedy, and no waiver or indulgence by the Bank of any default shall be
effective  unless in writing  and signed by the Bank,  nor shall a waiver on one
occasion be construed as a waiver of that right on any future occasion.
4. If any provision of this agreement is invalid,  it shall be ineffective  only
to the extent of its invalidity, and the remaining provisions shall be valid and
effective.
5. Notice from one party to another  relating to this agreement  shall be deemed
effective if made in writing (including telecommunications) and delivered to the
recipient's address, telex number or telecopier number set forth above by any of
the following  means:  (a) hand  delivery,  (b)  registered  or certified  mail,
postage prepaid, with return receipt requested, (c) first class or express mail,
postage  prepaid,  (d)  Federal  Express,  Purolator  Courier or like  overnight
courier service or (e) telecopy,  telex or other wire  transmission with request
for assurance of receipt in a manner typical with respect to  communications  of
that type. Notice made in accordance with this section shall be deemed delivered
on receipt if delivered by hand or wire transmission,  on the third business day
after mailing if mailed by first class,  registered or certified mail, or on the
next business day after mailing or deposit with an overnight  courier service if
delivered by express mail or overnight courier.
6. All rights of the Bank shall  inure to the  benefit of the Bank's  successors
and assigns;  and all  obligations of the Debtor shall bind the Debtor's  heirs,
executors,  administrators,  successors  and assigns.  If there is more than one
Debtor, their obligations are joint and several.
7. A carbon, photographic or other reproduction of this agreement is sufficient,
and can be filed as a financing statement. The Bank is irrevocably appointed the
Debtor's  attorney-in-fact to execute any financing statement on Debtor's behalf
covering the Collateral.
8. The terms and provisions of this security agreement shall be governed by
Michigan law.

<PAGE>

Information  Sharing. The Bank may provide,  without any limitation  whatsoever,
any  information  or knowledge  the Bank may have about the  undersigned  or any
matter  relating  to  this  agreement  and any  related  documents  to BANK  ONE
CORPORATION, or any of its subsidiaries or affiliates or their successors, or to
any one or more  purchasers  or potential  purchasers  of this  agreement or any
related  documents,  and  the  undersigned  waives  any  right  to  privacy  the
undersigned  may have with respect to such  matters.  The Debtor agrees that the
Bank may at any  time  sell,  assign  or  transfer  one or   more  interests  or
participations in all or any part of its rights or obligations in this agreement
to one or more purchasers whether or not related to the Bank.

Waiver of Jury Trial.  The Bank and the Debtor  knowingly and voluntarily  waive
any  right  either of them  have to a trial by jury in any  proceeding  (whether
sounding in contract  or tort)  which is in any way  connected  with this or any
related  agreement,  or the relationship  established under them. This provision
may  only be  modified  in a  written  instrument  executed  by the Bank and the
Debtor.

Dated: December 6, 2000
                                  Debtor:

                                  POWER EFFICIENCY CORPORATION

                                  By:  /s/ Arthur H. Smith
                                       ---------------------

                                  Its:          Treasurer
                                         -------------------------------------

<PAGE>

<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented for filing                                              FOR FILING OFFICER
pursuant to the Michigan Uniform Commercial Code.     (Please Type All Information)         (Date, Time, Number,
and Filing Officer)
---------------------------------------------------------- --- -------------------------------------------------
<S>          <C>                                               <C>               <C>
1. Debtor(s) (Last Name, First, If Individual) &               Soc. Security      DO NOT WRITE IN THIS SPACE
Address(es)       Soc. Security #/Tax ID #                     #/Tax ID #
   Power Efficiency Corporation                                  22-3337365
  22-3337365

                                                               -------------------
----------------------------------------------------------
Address
   4220 Varsity Drive, Suite E
----------------------------------------------------------
------------------------------ ------- -------------------     -------------------
City                           Stale     Zip Code
Ann Arbor                      MI        48108
----------------------------------------------------------     -------------------
Debtor(s) (Last Name, First, if Individual) & Address(es)
                                                               -------------------
----------------------------------------------------------     -------------------

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

----------------------------------------------------------
------------------------------ ------- -------------------     -------------------
City                           Stale      Zip Code

------------------------------ ---------------------- ------------------------------------------------
2. If filing without debtor    3. Secured Party(ies) and Address(es)  Secured   5.  No. of Add'l Sheets    6. State Account No.
signature Item a, b, c, or d                                                                       Party #
must be marked [X].            Bank One, Michigan                     M00003
a. [   ] Collateral was        c/o American National Bank
already subject to the         120 S. LaSalle Street
security interest in another   B2-IL1-1145
state when it was brought      Chicago, IL  60603
into Michigan, or when the
Debtor's location changed to                                          --------------------------------------------------------------
Michigan;                      4. MAIL ACKNOWLEDGEMENT COPY TO:                 7. (Mark [X] if applicable):
b. [   ] Collateral is
proceeds of the original       Bank One, Michigan                               [ ] Products of collateral
collateral in which a          c/o American National Bank
security interest was          120 S. LaSalle Street
perfected;                     B2-IL1-1145                                      [ ]  The  debtor  is a
c. [   ] A previous filing     Chicago, IL  60603                                      transmitting
covering the collateral has                                                            utility  as defined
lapsed (Pre. Filing                                                                    in    MCLA
#                );                                                                    440.9105(1)(o).
d. [   ] The filing covers
collateral acquired after a    -------------------------------------- ---------------------------------------------------
change of name identity, or                                                     8.  Assignee(es) (if any) and
corporate structure of                                                                         Address(es)
Debtor (MCLA 440.9402(2) &
(7))
FROM:

(Prev. Filing
#                         ).

--------------------------------------------------------------------------------
9. This financing statement covers the following types (or items) of property:

All  present  and future  equipment  wherever  located.  All  present and future
accounts,  chattel paper,  instruments and general intangibles.  All present and
future inventory, wherever located.

---------------------------------------------------------------------------------------------------------------------------------
POWER EFFICIENCY CORPORATION                                                            BANK ONE, MICHIGAN

x  /s/ Arthur H. Smith                                                          x /s/ J. Eric Lehmann
-------------------------------------------------                               -------------------------------------------------
Signature(s) of Debtor(s)                                                       Signature(s) of Secured Party(ies)
or Assignee(s) of Record

Its:  Treasurer                                                                     J. Eric Lehmann, First Vice
President

x                                                                               x
-------------------------------------------------                               -------------------------------------------------
Signature(s) of Debtor(s)                                                       Signature(s) of Secured Party(ies)
or Assignee(s) of Record

IF YOU WISH THE ACKNOWLEDGEMENT COPY TO BE MAILED TO AN ADDRESS OTHER THAN THE SECURED PARTY SHOWN IN ITEM 3,
PROVIDE

</TABLE>

<PAGE>

                                    EXHIBIT 1

           BORROWER'S REPRESENTATIONS REGARDING LOAN LOSS RESERVE FUND

          The   undersigned   borrower   (the   "Borrower")   acknowledges   and
understands:

           (a)  that  the  loan  to be  made by  Bank  One-Michigan,  N.A.  (the
"Lender") to the Borrower will be filed for enrollment by the Lender in the Loan
Loss  Reserve  Program (the "Program"),  a program  established  by the Michigan
Strategic Fund (the "MSF"), an agency of the State of Michigan;

           (b) that the purpose of the Program is to assist the Lender in making
loans that might otherwise not qualify for a loan from the Lender;

           (c) that as a condition  of having the loan filed for  enrollment  in
the Program, the Borrower is required to pay a non-refundable  premium charge to
an  administrative  account  called the  Reserve  Fund,  which  Reserve  Fund is
established by the Michigan  Strategic Fund to help cover losses that the Lender
may sustain on loans enrolled in the Program; and

           (d) that the Borrower's payment of its non-refundable  premium charge
will be collected by the Lender for the  transmittal  to the Reserve  Fund,  and
that other  payments or transfers will be made to the Reserve Fund by the Lender
and the Michigan Strategic Fund.

           The Borrower  acknowledges  the foregoing and hereby  represents  and
warrants that it has no, and has not been promised or told by anyone that it has
any,   legal,   beneficial   or   equitable   interest  in  the   aforementioned
non-refundable  premium charges or any other funds credited to the Reserve Fund,
and hereby waives any right, claim or interest to any and all such funds paid or
credited to the Reserve Fund from time to time.

Borrower:         POWER EFFICIENCY CORPORATION

By: /s/ Arthur H. Smith
    --------------------------------

Dated:    12/6/00

<PAGE>

                                    EXHIBIT 2

                               NOTICE TO BORROWER

         This notice is provided to borrowers who may receive a loan from a bank
under the Loan Loss Reserve  Program of the Michigan  Strategic Fund, a State of
Michigan agency.

         The purpose of this program is to assist banks to make loans that might
otherwise  not qualify  for a bank loan.  The  program  utilizes a special  loss
reserve to assist the bank in covering  losses from a portfolio  of loans that a
bank  makes  under the  program.  The  borrower  pays a premium  payment  to the
reserve, which is matched by a bank premium payment to the reserve. The Michigan
Strategic Fund will then match the combined  total of the Borrower's payment and
the bank's payment.

          It is  important  to  emphasize  that the loan is private  transaction
between the bank and the borrower.  While the program may assist a bank in being
able to take more risk than normal,  it is important  to  understand  that it is
still the bank that is bearing the risk of the loan. The Michigan Strategic Fund
is not a party  to the  loan and  plays  no role at all in the  bank's  decision
regarding  whether or not to make the loan,  or in the  setting of the  interest
rate, fees,  duration,  or any other terms or conditions of the loan. The bank's
rights and remedies are delineated in the loan contract and in law applicable to
any decision by the bank with respect to enforcing  the bank's  rights under the
loan contract.

         While the program is intended to assist the bank in providing  you with
access to bank  financing,  you should  understand  that it is likely to be more
expensive for the borrower than would be the case with a conventional bank loan.
Not only does the  borrower  make a payment to the  reserve,  but it is expected
that the bank may, in some  manner,  recover  from the  borrower the cost of the
bank's payment into the reserve.POWER EFFICIENCY CORPORATION

                            ANNUAL PURCHASE AGREEMENT
                               FOR THE PURCHASE OF
                             PERFORMANCE CONTROLLERS
                             ("Purchase Agreement")

                                        PREPARED FOR:
                                 MILLAR ELEVATOR
                                 SERVICE COMPANY
                                    (REVISED)

                                 AUGUST 17,2000

              4220 VARSITY DRIVE, SUITE 3 ANN ARBOR, MICHIGAN 48108
                      TEL (734) 975-9111 FAX (734) 975-9115
                           www.performancecontrol.com

<PAGE>

                            ANNUAL PURCHASE AGREEMENT
                               FOR THE PURCHASE OF
                             PERFORMANCE CONTROLLERS
                             ("Purchase Agreement")

1.      DATE AND TERM
This Purchase Agreement is made September 1 2000, and shall apply to orders made
according to this Purchase Agreement, from September 1, 2000 and shall continue
valid until September l, 2001.

2.      PARTIES
        (a) Millar Elevator Service Company    (the Purchaser)
            1530 Timberwolf Drive
            Holland, Ohio 43528      (the Purchaser's primary place of business)

        (b) Power Efficiency Corporation       (the Supplier)
            4220 Varsity Drive, Suite E
            Ann Arbor, Michigan 48108 (the Supplier's primary place of business)

        Orders applicable to this Purchase Agreement may be made directly by the
        Purchaser of any of the products listed in Appendix 7 ("Participating
        Units"), or subsequently added the list by the Parties. The Purchaser
        shall establish its own ordering procedures with the Supplier.

        The Purchaser and the Supplier shall always communicate directly
        regarding any specific Order.

3.      APPLICABLE TERMS

        The General Terms and Conditions of Purchase, attache Appendix 2
        ("GTC"), shall as apply and the application of any other general terms
        and conditions is specifically excluded.

4.      SCOPE OF THE PURCHASE AGREEMENT

        The Purchaser shall purchase, via separate Purchase Orders ("Order"),
        the following Equipment from the Supplier: Performance Controller

        Subject to the quality of the Equipment meeting the requirements of the
        Purchaser and the availability of the Equipment by the Supplier, the
        Purchaser shall prefer the purchases of the Equipment from the Supplier.

<PAGE>

        Appendix 1 (Specification) is the detailed description of the Equipment.

        Appendix 3 (Technical Documentation) is the list of drawings and other
        technical documents to be delivered with the Equipment, including the
        delivery times thereof.

5.      DELIVERY

        The Supplier shall deliver the Equipment to the Purchaser FOB Ann Arbor
        (INCOTERMS 1990) .

        Supplier shall only be obligated to deliver the Equipment to location
        designated by Purchaser in Appendix 1, located in the United States.
        Supplier shall have no obligation to deliver the Equipment to multiple
        locations or locations outside the United States.

        The Delivery Time (GTC 4) shall be stated on the order transmittal, and
        calculated from the date of each Purchase Order.

6.      PURCHASE PRICE

        The Purchase Prices for the Equipment shall be as set out in the Price
        List attached hereto as Appendix 4. The Supplier will incorporate last
        column pricing throughout each twelve-month period.

        The Purchase Prices shall fully cover the costs for all the obligations
        of the Supplier and the Supplier shall not be entitled to mark any
        additional charges, such as packing, cartage, drayage or handling
        charges or charges for small deliveries.

7.      TIME OF PAYMENT

        Payments shall be made within thirty (30) days calculated from the
        Delivery of each ordered Equipment subject to the receipt of the
        Supplier's respective invoice.

8.      VOLUME INDICATIONS

        Any indications as to the volumes of Equipment to be purchased by the
        Purchaser during the validity of this Purchase Agreement are given as
        the best estimate only and shall not be construed as legally binding.

9.      DAMAGES (GTC 4.3)

        If the Supplier fails to deliver the equipment at the times specified in
        Article 5 of this Purchase Agreement and on the individual Purchase
        Orders, and the Purchaser pays or incurs any damages, penalty or other
        charges for a late delivery or performance under the terms of the
        Purchase Agreement on account of Supplier's late delivery, Supplier
        shall immediately indemnify and hold harmless the Purchaser therefore
        from all such damages and costs.

<PAGE>

10.     GUARANTEE PERIOD (GTC 5.4)

        The Guarantee Period for the Equipment shall be 18 months from Delivery
        of the equipment, or twelve (12) months after installation, whichever is
        first. Appendix 6

11.     CONTRACT DOCUMENTS

        In the event of any conflict between the provisions of this document and
        any Appendix to this Purchase Agreement listed below, or between any two
        Appendixes, this document shall govern and Appendices shall be
        interpreted in their numbered order.

        Appendix 1    Specification
        Appendix 2 General Terms and Conditions of the Purchase Appendix 3
        Technical Specification Appendix 4 Price List Appendix 5 Example of
        Purchase Order Form Appendix 6 Warranty Appendix 7 Participating Units

12.     PARTIES REPRESENTATIVES (GTC 8)

        For the Purchaser:   /s/ Rod Hoyving
                             ---------------------------------------------------
                             Rod Hoyving, Vice President

        For the Supplier:    /s/ Stephen L. Shulman, President
                             ---------------------------------------------------
                             Stephen L. Shulman, President

13.     OTHER PROVISIONS

        This Agreement contains all the terms agreed upon between the parties
        with respect to the subject matter hereof and supersedes all agreements,
        and communications, whether oral or written, pertaining to the subject
        of this Agreement. Any modifications to this Agreement may be
        accomplished only by amendment as accepted by both parties in writing,
        to be effective from the agreed date.

<PAGE>

The parties have executed this Purchase Agreement in two identical copies, one
for each party.

WITNESSES:                                  "SUPPLIER"
                                            Power Efficiency Corporation,
                                            a Delaware Corporation

                                       By: /s/ Stephen L. Shulman
--------------------------                 ----------------------
                                           Stephen L. Shulman
--------------------------                  Managing Member

                                            Date: 9/20/00

                                            "PURCHASER"
                                            Millar Elevator Service Company, a
                                            Division of the Schindler Group

                                          By: /s/ Rod Hoyving
--------------------------                    --------------------

--------------------------
                                            Date: 9/1/2000

<PAGE>

Appendix 2 - General Terms and Conditions of Purchase ("GTC")

                GENERAL TERMS AND CONDITIONS OF PURCHASE ("GTC")

1. DEFINITIONS

         The  following  capitalized  terms shall have the meanings  assigned to
         them, unless a different definition is assigned to them in the Purchase
         Agreement:

         "Delivery"

                    Completion  of  the  delivery  of the  Equipment,  including
                    successful completion of the specified inspections and tests
                    to insure the equipment meets the  requirements set forth in
                    the Purchase  Agreement for the quality and  workmanship  of
                    the equipment.

         "Equipment"

                    The materials,  equipment and all necessary documentation to
                    be delivered to the Purchaser by the Supplier, including any
                    specified  services to be performed in  connection  with the
                    Delivery, such as installation and testing of the Equipment.
                    (GTC 3.1).

         "Supplier"

                    "Seller"  as  referenced  on  the  individual  Millar,  Inc.
                    Purchase Orders is same as "Supplier".

         "Purchaser"

                    "Buyer"  as  referenced  on  the  individual  Millar,  Inc.,
                    Purchase Orders is same as "Purchaser".

         "End User"

                    Legal  entity  responsible  for  the  use of  the  installed
                    product furnished by Millar, and its subsidiaries.

         "Project Destination"

                    Installed  location of the product furnished by Millar,  and
                    its subsidiaries.

         "Participating   Units"

                    Business unit within Millar  Corporation which  participates
                    in the purchase of goods or services covered by the Purchase
                    Agreement.

          "Purchase Agreement"

                    Contract  for the  purchase of (goods or services) by Millar
                    Corporation, including its subsidiaries.

2. PAYMENT

         2.1      Payment Terms
         Unless  otherwise  agreed  to  in  Article  7 of  the  Annual  Purchase
         Agreement,  payment  shall be made  within 30 days  after  delivery  of
         material and receipt of invoice,  (original and one copy),  with prices
         and  extended.  Supplier  shall render  separate  invoices for each and
         every  shipment.  Supplier   shall  render  a  monthly  statement  on a
         mutually  agreeable day of the month following shipment of goods. Under
         no circumstances  shall Purchaser pay any late,  interest,  carrying or
         other  charges  with respect to any amounts  invoiced to Purchaser  for
         goods ordered under the Purchase Agreement.

<PAGE>

Appendix 3 - Technical Documentation (Shipping Manual)

3. EQUIPMENT

         3.1      Scope of Delivery
         The Equipment shall be completed to meet the Specification  attached to
         the Purchase Agreement  ("Specification") and shall be delivered to the
         Purchaser  within the period  allowed for the  Delivery.  The Equipment
         shall be  deemed to  include  any  equipment  and  services,  which are
         necessary  for the  Delivery  and the  intended  use of the  Equipment,
         regardless  of  whether  or not it is  specifically  identified  in the
         specification.

         Individual  deliveries may be changed by Purchaser from time to time to
         correspond  with the  progress  of the  projects  for  which  goods are
         ordered  hereunder.  Purchaser may change the Delivery date to any date
         upon (1) thirty  days  notice for those  portions  of this order with a
         Delivery  date of six  months  or less from  date of the  order.  If no
         Delivery date is shown,  Purchaser  shall fix a Delivery date by giving
         Supplier  (i) thirty days' notice for  deliveries  required  within the
         six-month period following said notice, and (ii) sixty days' notice for
         deliveries required beyond the six-month period following such notice.

         In accordance  with Purchase  Order,  Supplier  shall give Purchaser 24
         hours notice of all shipments.

         3.2      Modifications
         No change or  modification  of the Purchase  Agreement or General Terms
         and Conditions shall be made without Purchaser and Supplier's  specific
         written consent.

         The  Purchaser  shall have the right to request the  Supplier to modify
         the Specification at any time. Any adjustment to the Purchase Price and
         to the Delivery Time caused by the modification  shall be agreed to via
         a written change order. The rights and obligations of the parties under
         the Purchase Agreement shall extend to all modifications.

         3.3      Documentation
         The Supplier shall provide the Purchaser with documentation  concerning
         Equipment in accordance with the Purchase Agreement.  Upon a reasonable
         request  by  the  Purchaser,  the  Supplier  shall  deliver  additional
         instructions and documentation to enable the orderly use,  installation
         and servicing of the Equipment.

         The Purchaser  shall have the right to use all  documentation  that has
         been placed at his disposal,  for any  authorized  purpose and to place
         such  documents at the disposal of  authorities,  the End User,  or any
         other third party, as necessary in such connection.

         Supplier shall accept individual Purchase Orders and agree to the terms
         hereof.  (i)  Signing  and  returning  the  Acknowledgment  Copy of the
         Purchase  Order hereof,  or (ii)  furnishing  Purchaser  with any other
         writing indicating its acceptance,  or (iii) performance by Supplier in
         accordance with the Purchase Order.  However, the receipt from Supplier
         of any acceptance or any document purporting to be an acceptance of the
         Purchase Order, or receipt of goods shipped or work performed under the
         Purchase Order or payment  therefore,  does not constitute an assent by
         Purchaser to any terms which are  different  from or  additional to the
         instructions,  Terms and Conditions on the Face and Reverse Side of the
         Purchase Order,  unless expressly  assented to in writing by Purchaser.
         The  Purchase  Order  is  revocable  at any time  prior to  acceptance.
         Without limiting the foregoing, Purchaser's receipt of any invoice from
         Supplier,  before  or after  Supplier's  delivery  of  goods  described
         herein,  shall not obligate  Buyer to any terms in such  invoice  which
         differ from or are in addition to the terms contained herein.

<PAGE>

         Notwithstanding  anything to the contrary contained herein, no term and
         condition of any individual Purchase Order shall modify any term and/or
         condition   applicable  to  Supplier  under  the  Purchase   Agreement,
         including  by way of  illustration  and not  limitation  the  scope  of
         Supplier's  obligations  for  delivery or the  Purchase  Prices for the
         Equipment.  In the event of any conflict between an individual Purchase
         Order and the  Purchase  Agreement,  as  amended  herein,  the  amended
         Purchase Agreement shall control.

         3.4      Inspections and quality control
         Both the Purchaser and the End User shall be allowed free access to the
         facilities of the Supplier at all  reasonable  times for the purpose of
         inspecting,  expediting,  or  testing  the  Equipment  and the  quality
         thereof and witnessing tests which may have been agreed upon. The costs
         of  carrying  out of any  tests and  inspections  shall be borne by the
         Supplier. The cost of attending shall be borne by the attending party.

         In addition,  if any goods  furnished by Supplier shall fail to satisfy
         the requirements of the specifications,  or shall prove to be defective
         in any respect,  Purchaser may, at its option, upon notice to Supplier,
         (i)  require  Supplier  to  promptly  correct  or  replace  the same at
         Supplier's  expense;  (ii)  correct or replace or arrange to correct or
         replace  the  same,  for  which  Supplier  shall  reimburse   Purchaser
         immediately upon demand. If Purchaser elects to cancel, Purchaser shall
         hold any  goods  in its  possession  affected  by the  cancellation  at
         Supplier's  risk, to be disposed of in accordance  with applicable law,
         and Supplier  shall refund any payments made on account of the canceled
         goods. Furthermore, in the event any goods furnished by Supplier are or
         become defective in any respect  whatsoever or if Supplier breaches any
         of  its  warranties  or  obligations  hereunder,   Supplier  agrees  to
         indemnify and hold harmless Purchaser from any or all loss,  liability,
         cost or expense  (including court costs and reasonable  attorney's fees
         and  expense)  by reason of any  injury or  damage,  whether  direct or
         indirect, consequential,  incidental or otherwise, including all claims
         of such injury or damage to persons or property, caused by, relating to
         or arising from such defect or breach.

         No  approval  of  the  Supplier's   technical  documents  or  drawings,
         inspection,  testing of the Equipment, or supervision of design work or
         manufacturing,  whether  by the  Purchaser  or the End  User,  shall be
         construed   as   implying   any   limitation   on   the    obligations,
         representations, warranties and liabilities of the Supplier.

3.5      Safety
         The  Equipment  shall  include  all  specified  safety  devices and the
         Supplier shall ensure that they fully satisfy the  requirements  of any
         applicable safety  regulations and standards.  If any additional safety
         devices are required,  due to a non-compliance with any regulations and
         standards, they shall be installed at the cost of the Supplier.
<PAGE>

         Whenever any work is performed at any facility of the  Purchaser or end
         user, the Supplier shall comply with all applicable safety  regulations
         of the  Purchaser or end user and shall  follow any other  instructions
         given by the Purchaser concerning safety.

         3.6      Compliance with other laws and regulations
         The Supplier  shall also ensure that the Equipment  fully complies with
         any other applicable laws and regulations of an end use location in the
         United States of America for the installed equipment.

         3.7      Change in Laws
         If  any  modification  of  the  Specification  is  necessary  due to an
         unanticipated  change  in  laws  after  the  signing  of  the  Purchase
         Agreement,  the Supplier  shall  request a  modification  to be made in
         accordance with Article 3.2.

4. DELIVERY

         4.1      Shipping, Packing, Marking, & Storage
         All  shipments  are to be made as  directed  on the  front  page of the
         individual Purchase Order. Notices must be sent to consignee.  A NOTICE
         must be sent to  Consignee  covering  carload and  truckload  shipments
         within  24 hours of the  material  being  forwarded,  giving  number of
         order,  kind of material,  shipper's  name, car number and initials and
         routing.  Enclose  shipping  memorandum  in each  package  or tack same
         inside each car door.  For less than carload and  truckload  shipments,
         indicate  order  numbers on all material or packages and packing  slips
         and Bins of Lading,  in space  provided  on the  blanks of the  various
         railroad, truck and express companies.  IMMEDIATELY upon shipping, mail
         the Purchaser two (2) copies of tally and shipping memorandum.

         The  Equipment  shall be packed in a manner which is  appropriate  with
         regard  to the  means of  transport  to be used and the  nature  of the
         Equipment  and  in  accordance  with  any  instructions  given  in  the
         Specification as to the manner, size, weight, etc. of the packing.

         The  Equipment  shall be  clearly  marked  by the  Supplier  and  carry
         information  concerning  the identity of the  recipient and the name of
         the  place  of  destination  together  with any  specific  instructions
         necessary for handling and storage.

         4.2      Early Delivery
         No Equipment  should be delivered or performed prior to the time agreed
         in the Purchase Agreement as the earliest time for delivery without the
         prior written consent of the Purchaser.

         4.3      Delay by the Supplier
         If Supplier shall fail or refuse to proceed with this order,  Purchaser
         shall  have the  right to  cancel  all of any  part of this  order.  If
         Supplier  shall fail to make delivery of all items within the specified
         times agreed upon in a Purchase  Order,  Purchaser shall have the right
         to cancel all or any part of the Purchase Order. Time is of the essence
         to this  contract.  If  Purchaser  instructs  Supplier  that damages or
         penalties  could be incurred if the goods  ordered are not delivered in
         accordance with Purchaser's  instructions at the time of the order, and
         subsequently  Purchaser  pays or incurs any  damages,  penalty or other
         charge for a late delivery or performance on account of Supplier's late
         delivery,  Supplier  shall  immediately  indemnify  and  hold  harmless
         Purchaser therefor.
<PAGE>

         4.4      Quantity
         The specific quantity ordered on each individual Purchase Order must be
         delivered in full. Delivery of any unauthorized  quantity is subject to
         Purchaser's rejection, and such goods shall be held at Supplier's risk.
         Purchaser may return such goods at Supplier's  risk, and Supplier shall
         pay all transportation charges to and from the original destination.

         4.5      Transfer of Title
         The title to all Equipment or parts thereof shall be transferred to the
         Purchaser  when the  relevant  parts have been  obtained,  or otherwise
         identified and separated,  by the Supplier, as parts to be used for the
         purposes of the Purchase Agreement.

         4.7      Transfer of Risk
         The  Supplier  shall bear the risk of loss of the  Equipment  until the
         Delivery of equipment is complete and written  acceptance by Purchaser,
         upon which the risk of loss shall be  transferred  from the Supplier to
         the Purchaser.

         4.8      Waiver
         No waiver by  Purchaser  of any  breach of any  provision  of the order
         shall  constitute  a waiver of any other breach or  provision.  No act,
         conduct or failure to act of Purchaser shall constitute a waiver of any
         provision  contained herein unless such waiver is in writing,  executed
         by Purchaser and delivered to Supplier.

5. OTHER RESPONSIBILITIES OF THE SUPPLIER

         5.1      Insurance
         Supplier  shall  at  all  times  and at  Supplier's  cost,  maintain  a
         Comprehensive  General  Liability  Policy  including  bodily injury and
         property  damage  coverage  and  containing  a Broad  Form  Contractual
         Liability  Endorsement  which  specifically  covers the indemnity under
         paragraph 7.2 and the obligation Supplier has accepted hereunder.  This
         Comprehensive  General Liability Policy shall be specifically  endorsed
         to name Purchaser as an additional insured.

         5.2      Supply of Spare Parts
         The  Supplier  guarantees  the  availability  of  spare  parts  for the
         Equipment for at least ten (10) years after Delivery of the Equipment.

         5.3      Special Tools
         No charge shall be made for patterns, pattern equipment, jigs, dies and
         fixtures or special  apparatus used in the manufacture of the Equipment
         provided by the Supplier.

         5.4      Liability for Defects
         The Supplier  guarantees  that the Equipment  complies in every respect
         with the requirements of the Purchase  Agreement and that they are free
         from  any   defect  in   design,   materials,   or   workmanship.   Any
         non-compliance  appearing  during the period of time  specified  in the
         Purchase  Agreement  as  the  period  starting  from  the  Delivery  of
         Equipment  during which the Supplier shall be liable for any defects in
         the Equipment ("Guarantee Period"),  shall be corrected by the Supplier
         without delay and without any  additional  cost to the Purchaser or the
         End User.
<PAGE>

         If any repair under the guarantee  obligation is made subsequent to the
         End User having put the Equipment in service,  the guarantee  period in
         respect of the affected  Equipment  shall be renewed  starting from the
         date when the repair work was approved by the End User.

         Should  the  Supplier  refuse,   or  fail,  to  fulfill  his  guarantee
         obligation to the Purchaser's,  or End User's,  satisfaction,  within a
         reasonable  period of time,  the  Purchaser  shall be  entitled to have
         repair or replacement carried out at the Supplier's  expense.  The same
         right  shall  accrue  to the  Purchaser,  if in  case  of  urgency  the
         Purchaser finds it  inappropriate to wait for the Supplier to carry out
         the work.

         The Purchaser shall request the consent of the Supplier before carrying
         out the repair or replacement  work, if time permits.  If such work has
         been carried out without the consent of the Supplier, the Supplier will
         be given  opportunity  to inspect the repaired or replaced  products to
         evidence the  applicability  of the Supplier's  guarantee  liability to
         such work.

         The guarantee  obligation  for the Supplier shall not extend to defects
         proved to have been  directly  caused by wrong or negligent  operation,
         installation, overloading or inadequate maintenance.

6. BONDS

         The performance bond, if required from the Supplier, shall be issued by
         any  acceptable  surety in any  agreed  form,  for the value set in the
         Purchase  Agreement or Purchase Order to secure the  performance of the
         obligations of the Supplier . The Performance Bond shall be valid until
         the end of the Guarantee Period.

7. LIABILITIES OF THE SUPPLIER

         7.1      Indemnification and Hold Harmless
         The Supplier  shall  defend,  indemnify and hold harmless the Purchaser
         against  losses  and  claims  for  injuries  or damage to any person or
         property which may arise out of or in consequence of the performance of
         any Purchase  Agreement  or Purchase  Order by the Supplier and against
         all claims, demands, proceedings, damages, costs, charges, and expenses
         in respect thereof or in relation thereto. Provided that the Supplier's
         liability to  indemnify  and hold  harmless the  Purchaser as aforesaid
         shall be reduced  proportionately to the extent that the act or neglect
         of the Purchaser, his servants, or agents is proven to have contributed
         to the said loss, injury, or damage.

         7.2      Patents
         Supplier  warrants  that the goods  furnished  under  this order do not
         infringe any patent rights.  Supplier shall indemnify and hold harmless
         Purchaser,  its  affiliates and their  customers from losses,  expenses
         (including  attorneys' fees), claims or liability of any nature arising
         out of the  infringement  or  alleged  infringement  of any  patent  on
         account  of  the  manufacture,  sale  or use  of  any  goods  furnished
         hereunder  except  where  compliance  by Supplier  with  specifications
         prescribed by and originating with Purchaser constitutes the sole basis
         of  infringement  or alleged  infringement.  Supplier,  at its expense,
         agrees to defend any suit brought or claim asserted against  Purchaser,
         its affiliates and their customers on account of any such  infringement
         or alleged  infringement  upon  being  notified  in writing  thereof by
         Purchaser. If the use of such goods is enjoined,  Supplier shall at its
         expense  make  every  reasonable  effort to obtain for  Purchaser,  its
         affiliates  and their  customers,  a license  to  continue  to use such
         goods. If after a reasonable time Supplier is unable or fails to obtain
         such license, Supplier shall, at its expense, either replace such goods
         with equivalent non-infringing  goods or modify such  goods in a manner
         acceptable to Purchaser so that they become equivalent,  non-infringing
         goods. If Supplier fails or is unable to do any of the above,  Supplier
         shall  refund  to  Purchaser  the  money  or other  consideration  paid
         therefor.

<PAGE>

         7.3      Confidentiality
         All drawings and technical  documents submitted by either the Purchaser
         to  the  Supplier  or  the  Supplier  to  the  Purchaser   (hereinafter
         "Submitting   Party")  shall  remain  the  exclusive  property  of  the
         Submitting Party. They may not, without the Submitting  Party's express
         written consent, be utilized by the other party, or copied, reproduced,
         transmitted  or  communicated  to a third party,  except as provided in
         Section 3.3 hereof.

         The other party shall, at the Submitting  Party's request,  immediately
         return any copies of the drawings or technical  documents held by it at
         the end of the Guarantee Period.

         Both parties  shall ensure that no  information  regarding the Purchase
         Agreement  is  brought  to the  knowledge  of any third  party  without
         obtaining prior consent thereto from the other party.

8. MISCELLANEOUS

         8.1      Notices
         Notices  shall be  deemed  to have  been  validly  given  if  delivered
         personally  in writing,  telexed,  sent by  registered  mail, or faxed,
         followed by a letter copy,  to the  addresses set forth in the Purchase
         Agreement or to any other address of which the Parties  hereto may have
         informed to the other Party.  A notice or document  sent by  registered
         mail  shall be  deemed  to have  been  received  on the 14th day  after
         mailing.

         8.2      The Representatives of the Parties
         All  communication  between the parties  shall be affected  through the
         representatives named in the Purchase Agreement or their substitutes as
         notified from time to time by either party to the other party. However,
         all communication  concerning any specific Order or Participating  Unit
         shall be  affected  directly  between  the  Participating  Unit and the
         authorized representative of the Supplier.

         8.3      Amendments
         Amendments to the Purchase Agreement shall only be made in writing with
         specific  reference to the Purchase  Agreement and therefore any waiver
         given by  either  party to the other in any one  instance  shall not be
         deemed an amendment of the Purchase Agreement.

<PAGE>

         8.4      Entire Agreement
         The  Purchase  Agreement  and  the  documents  listed  in the  Purchase
         Agreement shall constitute the entire agreement between the parties and
         it shall take precedence over any other document  exchanged between the
         parties before the date of the Purchase Agreement. No document shall be
         deemed to be  included  in the  Purchase  Agreement  without a specific
         reference.

         8.5      Termination
         In  addition  to any  other  rights  of  termination  specified  in the
         Purchase Agreement, the Purchaser has a right to terminate the Purchase
         Agreement in the event that the  Supplier is in material  breach of his
         obligations under the Purchase  Agreement and has failed to remedy such
         breach  within  thirty  (30) days of a written  demand  thereof  by the
         Purchaser. The Equipment failing to meet the specified time and quality
         requirements  shall  always  be  considered  a  material  breach of the
         obligations of the Supplier.

         Purchaser  may cancel  all or any part of an order at any time  without
         notice of any kind,  after  acceptance and before complete  delivery is
         made,  upon the  happening of any of the  following:  insolvency of the
         Supplier,   however  induced;  the  application  by  Supplier  for  the
         appointment of receiver,  trustee or custodian for Supplier or any part
         of its assets,  the  execution  by Supplier  of an  assignment  for the
         benefit of creditors;  Supplier becomes insolvent or fails generally to
         pay its debts as such debts become due.

         Supplier may cancel this Purchase  Agreement in the event Purchaser has
         not  paid,  within  one  hundred  twenty  (120)  days of due date of an
         invoice,  any of Supplier's invoices for Equipment previously delivered
         to Purchaser.

         8.7       Excuse of Performance: Cost of Performance
         The terms and  provisions  of Section  2-615 of the Uniform  Commercial
         Code  notwithstanding,  the  occurrence  or existence of the  following
         events and circumstances shall not excuse Supplier from the performance
         of any of its obligations hereunder: (i) any adverse change in the cost
         or availability of raw materials,  supplies or work in process from the
         date  of  this  order  to  the  Date  Required;   (ii)  fires,  floods,
         explosions, accidents or breakdowns; (iii) riots, strikes, slowdowns or
         other concerted acts of workmen,  whether direct or indirect;  and (iv)
         any other cause  similar to any of  foregoing.  Under no  circumstances
         shall  Purchaser  pay or be liable to Supplier for a price in excess of
         the price  determined in accordance with Appendix 6 (Price List) of the
         Purchase  Agreement  hereof due to an  increase in  Supplier's  cost of
         performance  between the date of this order and the time of  Supplier's
         performance  thereof unless the Project  Designation space on the front
         page of the Purchase  Order is completed and the general  contractor(s)
         or owner(s) of said Project(s) agree(s) to pay such increase.

         8.8      Force Majeure
         The following circumstances shall constitute an event of Force Majeure,
         provided  they arise  subsequently  to the  entering  into the Purchase
         Agreement  and  could  not  reasonably  have  been  anticipated  by the
         Supplier at the time: war,  mobilization,  civil  commotion,  revolt or
         riot, government intervention, official strike, and acts of God.
<PAGE>

         The Supplier may not invoke any events of Force  Majeure  unless he can
         prove that

                  a.)      he has  taken  all  reasonable  steps  to  limit  the
                           effects  and to make good the time  lost,  during and
                           after the event of Force Majeure,

                  b.)      he has, when the circumstances he wishes to invoke as
                           events of Force  Majeure  have  become  known to him,
                           within  three (3) days  given  written  notice to the
                           Purchaser of the nature and anticipated  consequences
                           of the Force Majeure.

         Under no circumstances can a period longer than seven (7) days prior to
         the written  notice be taken into account as an event of Force Majeure,
         whether known to the Supplier or not.

         8.9      Applicable Law
         APPLICABLE   LAWS:   SEVERABILITY.   Supplier  shall  comply  with  the
         provisions of the Fair Labor  Standards  Act of 1938,  as amended,  the
         Occupational  Safety and Health Act of 1970,  and all other  applicable
         Federal, state and local laws, regulations,  rules and ordinances. This
         agreement shall be interpreted   under the parties' rights and remedies
         governed by the Uniform Commercial Code of Michigan. Wherever possible,
         each provision of this agreement shall be interpreted in such manner as
         to be effective and valid under applicable law, but if any provision of
         this agreement shall be prohibited by or invalid under  applicable law,
         such provision  shall be ineffective to the extent of such  prohibition
         or invalidity,  without invalidating the remainder of such provision or
         the remaining provisions of this agreement.

         8.10     Settlement of Disputes
         Solutions  to any  disputes  arising in  connection  with the  Purchase
         Agreement  shall be negotiated in good faith between the parties.  If a
         solution cannot be found in mutual negotiations,  the disputes shall be
         finally  settled under the rules of American  Arbitration  Association.
         The  arbitration  proceedings  shall be held in the City of Southfield,
         Michigan.

         In addition,  either  party has a right to submit any dispute,  or seek
         enforcement  of any  provision of the  Purchase  Agreement in the local
         court of the other party at his discretion,  shall take precedence over
         any  arbitration  proceedings  and decision of the court shall be final
         and binding to the parties.

         8.11     Buy American Act
         If  required  by  the  conditions  stated  in the  Purchase  Agreement,
         Supplier must comply with provisions of the Buy American Act (41 U.S.C.
         10)  including,  but not limited to,  Federal  Acquisition  Regulations
         52.225-1,  52.225-3,  52.225-5, as applicable per project specification
         requirements.

<PAGE>

Appendix 3 - Technical Documentation (Shipping Manual)
                                   Appendix 3

                             Technical Documentation

Below is a copy of the  abbreviated  manual that is shipped  enclosed with every
Performance  Controller.  When additional information is required (non Wye/Delta
Starter)  we direct the  installer/seller  to contact  Performance  Control  for
additional   information/wiring  diagrams  in  order  to  properly  install  the
controller.

<PAGE>

                           The Performance Controller
                                  USER'S GUIDE

                   Optimum Performance for AC Induction Motors

                                [GRAPHIC OMITTED]

                           4220 Varsity Drive, Suite E
                               Ann Arbor, MI 48108
                               734.975.9111 phone
                                734.975.9115 fax
                           www.performancecontrol.com

                      (C)2000 Power Efficiency Corporation

<PAGE>

                    How the Performance Controller Helps You

Performance Control  manufactures  high-quality  electric motor controllers that
manage  the  magnetic  field  of  AC  Induction  Motors.  The  controller  is  a
self-contained,  solid-state  device  that  mounts  between the AC motor and the
existing  motor starter.  It provides a true  ramp-type  soft-start and a unique
energy saving feature that  automatically  and continuously  updates the motor's
magnetic field to match the required load.

The Performance Controller has no effect on motor speed. Therefore, it cannot be
considered  a  variable-speed  drive  or  used  in  association  with  one.  The
controller is updating the energy to the motor only.

The Performance  Controller adjusts energy to the AC induction motor so that the
motor functions at its optimum efficiency. The controller monitors the phase lag
of current  and voltage to  precisely  what the motor  requires to maintain  the
rated  speed and torque  under the  present  load.  Volts,  amps,  and watts are
decreased thereby reducing your cost of operating the motor.

State-of-the-art electronic circuits constantly sense the workload of the motor.
When the actual  workload of the motor is lower than the rated load, the sensing
circuits  reduce the energy  (voltage and current) being fed to the motor to the
exact level that the motor needs.

The controller circuitry includes a solid-state soft-start that reduces starting
inrush  current by as much as 50%.  Soft starting is a proven method of reducing
contactor  wear and tear,  mechanical  starting  stress  upon  bearings  and the
associated  drive  train.  Additionally,  insulation  damage  and heat  buildup,
particularly  when the motor is  "duty-cycled"  by an Energy  Management  System
(EMS) or stopped and started frequently, are reduced as well.

The  energy-saving  feature  increases  motor  life by  lowering  the  operating
temperature of the motor 10(Degree) to 40(Degree)F.  The environmental  benefits
of the Performance Controller can be directly equated to lower carbon and sulfur
dioxide emissions, which benefits all of us.

                               System Requirements

o        The motor should be an AC Induction Motor.

o        The controller must be matched to the appropriate line voltage.  (i.e.:
         208, 480, 575 volts).

o        The load on the motor  should be cyclical  and exhibit low power factor
         for a portion of the cycle.

o        The controller  should be used in conjunction  with an  across-the-line
         starter  (please contact  Performance  Control if starter being used is
         other than across-the-line for additional information/wiring diagrams).

                              Product Capabilities
The controller will reduce:

o        Volts,  Amps, Watts, KVA, Heat,  Vibration and general wear and tear on
         motors that fit the  application  criteria  in the SYSTEM  REQUIREMENTS
         section above.

The controller will not reduce or eliminate:

o        Single  phasing,  defective motor  insulation,  faulty  windings,  poor
         lubrication maintenance and problem motors in general.
<PAGE>

--------------------------------------------------------------------------------
                                     WARNING

      Equipment is at line voltage when AC power is connected. Pressing the
"Stop" push- button does not remove AC main's potential. De-energize and lockout
            circuit at the panel before installing control equipment.
--------------------------------------------------------------------------------

                                  Installation
The  installation  process is similar to any  ordinary  electrical  distribution
component. All NEC and local codes including licensing,  permits, and inspection
regulations apply. A few very important instructions are needed:

1.       Install the Performance Controller as the last apparatus in the circuit
         ahead of the motor  itself.  There should be nothing  between the motor
         and the Performance Controller.

2.       The Performance  Controller is a series device;  that is, wiring should
         consist  of  line  and  load  only.   Control  wiring  is  not  needed;
         communication takes place on the phase conductors.

3.       Mark the motor feeders,  cut and route to L1, L2, and L3. The remaining
         three  leads from the motor are  terminated  in T1, T2, and T3 as shown
         below.

4.       Check to ensure that  capacitors,  if  installed,  are connected on the
         line side of the controller

                               [GRAPHIC OMITTED]

   The above wiring diagram is for an across-the-line starter. If the starter
  being used on your application is other than across-the-line, please contact
         Performance Control for additional information/wiring diagrams.

                             Pre Start-Up Procedure

o        Clean out all metallic particles and foreign matter.

o        Check all connections for tightness.

o        Check to ensure  line  voltage is the same  voltage the  controller  is
         rated for.

                              Set-Up and Operation

Once the  Performance  Controller  has been properly  installed and has passed a
routine electrical inspection, we are ready to energize and make adjustments for
operation.  Set-up  of the  Performance  Controller  is  accomplished  with  two
adjustments outlined on these two pages:

1.       Soft-start  adjustment  determines  the amount of  soft-start  (time to
         voltage) applied to the voltage. Do not apply long duration soft-starts
         to loaded motors.

2.       "Energy"  (motor  matching) is the  adjustment  to each motor's  unique
         characteristics  and to the  application.  This is where energy savings
         are dialed in.

<PAGE>

                               [GRAPHIC OMITTED]

                   Starting the Controller for the First Time

1.       With the  Performance  Controller in "bypass" (on position),  start the
         motor and check for proper rotation.

2.       Continue to monitor for unusual events.  If motor start-up  confirms no
         problems, continue to step 3.

3.       Turn off power to the motor with the starter. (de-energize)

4.       Place the  Performance  Controller  in  "service" by turning the bypass
         switch to the "Normal"  (off).  (Never  SWITCH TO AND FROM BYPASS WHILE
         THE MOTOR IS RUNNING.)

5.       Adjust the "Soft-Start" to "25(Degree)" or lower if the motor labors to
         start. Do not apply long duration soft-starts to loaded motors.

6.       Adjust the "Energy" to "Min."

7.       Start the motor.

8.       While  monitoring  the  voltage  meter on the panel of the  Performance
         Controller, continue to monitor for unusual events.

9.       Once the motor has run without event for five to ten minutes, gradually
         increase  the  "Energy"   adjustment.   While  the  motor  is  running,
         increasing the "Energy" adjustment decreases the voltage and current to
         the motor. This is the reduction of motor losses (energy  savings).  If
         you reduce the "Energy" too much,  the motor will  "chatter" or "buck".
         Once the voltage needle starts to bounce (even  slightly) you have gone
         too  far.  Decrease  the  adjustment  knob  until  the  voltage  needle
         stabilizes.

         If you do not see a bounce in the voltage meter, use an ammeter clamped
         to the primary side of the Performance Controller. While increasing the
         "Energy"  adjustment,  amperage will go down. As amps continue to fall,
         you will come to a point where amps again start to rise,  decrease  the
         adjustment at this point  slightly and you have  properly  adjusted the
         Performance Controller.

10.      Close and secure the  cabinet,  making sure that the machine  operators
         and maintenance personnel have been notified of the installation of the
         Controller and its operation procedures.

                                  A. Operation

The  Performance  Controller  is fully  automatic and will provide many years of
service.  A monthly check of the voltage meter is all that is required to ensure
trouble-free operation.

While the  Performance  Controller  is  operating,  the  following  condition is
normal: The voltage meter is rising and falling as the motor loads and unloads.

<PAGE>

                                    Warranty

Seller warrants to Purchaser that any products  provided by Seller hereunder are
free from defects in material and/or  workmanship under normal use and operation
during the warranty  period stated herein.  If any products  provided  hereunder
prove to be defective in material and/or workmanship within eighteen months from
date of sale,  provided  conditions of operation  have been normal at all times,
and that the product has not been subjected to abnormal stresses,  including but
not limited  to,  such causes as  incorrect  primary  voltage and  frequency  or
improper  ventilation,  nor will this  Warranty be extended to any product which
has been  subject to misuse,  negligence,  accident,  improper  installation  or
operation,  not does it extend to any product which has been repaired or altered
by any party other than the Seller.  Seller,  if  promptly  notified  thereof in
writing,  will correct such defect at Seller's own expense,  at Seller's option,
repairing or replacing the defective products.

Claims for defective  products shall be subject to verification by an authorized
employee of the Seller.

No products shall be returned to Seller without prior written consent. Products,
which Seller consents to have returned, shall be shipped prepaid F.O.B. Seller's
factory,  or other  location  designated  by  Seller.  Seller  shall not  assume
responsibility or accept invoices for unauthorized repairs or alterations to its
products,  even though defective.  Any replacement or repaired product furnished
under this Warranty shall be warranted by Seller for the balance of the Warranty
period and under the same  Warranty  conditions  as  applicable  to the original
product.

The   foregoing   Warranty  does  not  apply  to   experimental,   prototype  or
developmental products.

Seller makes no warranty on products manufactured by others, which are resold by
Seller.  Seller  shall use its best  efforts  to obtain  from each such  product
manufacturer,  in  accordance  with the  manufacturer's  warranty  or  customary
practice,  the repair or  replacement  of  products,  which prove  defective  in
material and/or workmanship.

The foregoing  Warranties  shall apply to  controllers,  who are repaired by the
Seller,  except that the Warranty is limited to that portion of the product that
was  repaired  or  replaced.  This  Warranty  is in lieu of any  other  right or
remedies.  In no event  shall  the  Seller be liable  for any  special  indirect
consequential or incidental damages.

Seller shall pay transportation  charges for controllers  returned to Seller and
delivered  to Buyer  only if  Seller  is  responsible  under  the  terms of this
Warranty.  Buyer shall notify Seller, in writing,  of any intention to return an
allegedly defective product. Buyer shall give such advance notification to allow
Seller to arrange for shipment, should Seller so desire.

In no event shall seller or its  suppliers be liable for any special,  indirect,
incidental or consequential damages including, but not limited to loss of profit
or revenues,  loss of use of the products provided or any associated products or
equipment,   cost  of  capital,   cost  of  substitute  products  or  equipment,
facilities, downtime expenses, or claims of purchaser's customer for such costs.

WARNING:  Improperly  installing and/or maintaining these products can result in
death or serious personal injury. Before attempting installation or maintenance,
read and understand all  instructional  materials  related to the product.  This
Warranty  is  published  solely  for  information  purposes  and  should  not be
considered  all-inclusive.  If further  information  is required,  consult Power
Efficiency Corporation at (734) 975-9111.

<PAGE>

Appendix 6 - Warranty

                         PERFORMANCE CONTROLLER WARRANTY

Seller warrants to Purchaser that any products  provided by Seller hereunder are
free from defects in material and/or  workmanship under normal use and operation
during the warranty  period stated herein.  If any products  provided  hereunder
prove to be defective in material and/or workmanship within eighteen months from
date of sale,  provided  conditions of operation  have been normal at all times,
and that the product has not been subjected to abnormal stresses,  including but
not limited  to,  such causes as  incorrect  primary  voltage and  frequency  or
improper  ventilation,  nor will this  Warranty be extended to any product which
has been  subject to misuse,  negligence,  accident,  improper  installation  or
operation,  not does it extend to any product which has been repaired or altered
by any party other than the Seller.  Seller,  if  promptly  notified  thereof in
writing,  will correct such defect at Seller's own expense,  at Seller's option,
repairing or replacing the defective products.

Claims for defective  products shall be subject to verification by an authorized
employee of the Seller.

No products shall be returned to Seller without prior written consent. Products,
which Seller consents to have returned, shall be shipped prepaid F.O.B. Seller's
factory,  or other  location  designated  by  Seller.  Seller  shall not  assume
responsibility or accept invoices for unauthorized repairs or alterations to its
products,  even though defective.  Any replacement or repaired product furnished
under this Warranty shall be warranted by Seller for the balance of the Warranty
period and under the same  Warranty  conditions  as  applicable  to the original
product.

The   foregoing   Warranty  does  not  apply  to   experimental,   prototype  or
developmental products.

Seller makes no warranty on products manufactured by others, which are resold by
Seller.  Seller  shall use its best  efforts  to obtain  from each such  product
manufacturer,  in  accordance  with the  manufacturer's  warranty  or  customary
practice,  the repair or  replacement  of  products,  which prove  defective  in
material and/or workmanship.

The foregoing  Warranties  shall apply to  controllers,  who are repaired by the
Seller,  except that the Warranty is limited to that portion of the product that
was  repaired  or  replaced.  This  Warranty  is in lieu of any  other  right or
remedies.  In no event  shall  the  Seller be liable  for any  special  indirect
consequential or incidental damages.

Seller shall pay transportation  charges for controllers  returned to Seller and
delivered  to Buyer  only if  Seller  is  responsible  under  the  terms of this
Warranty.  Buyer shall notify Seller, in writing,  of any intention to return an
allegedly defective product. Buyer shall give such advance notification to allow
Seller to arrange for shipment, should Seller so desire.

In no event shall seller or its  suppliers be liable for any special,  indirect,
incidental or consequential damages including, but not limited to loss of profit
or revenues,  loss of use of the products provided or any associated products or
equipment,   cost  of  capital,   cost  of  substitute  products  or  equipment,
facilities, downtime expenses, or claims of purchaser's customer for such costs.

WARNING:  Improperly  installing and/or maintaining these products can result in
death or serious personal injury. Before attempting installation or maintenance,
read and understand all  instructional  materials  related to the product.  This
Warranty  is  published  solely  for  information  purposes  and  should  not be
considered  all-inclusive.  If further  information  is required,  consult Power
Efficiency Corporation at (734) 975-9111.

<PAGE>

Appendix 7 - Available Units

                Performance Controller Units Available for MILLAR

        PEC Model #               Voltage          Horsepower           F.L.A.
      PC3-20-10-11-28             208/230              10                 28
      PC3-20-15-11-42             208/230              15                 42
      PC3-20-20-11-54             208/230              20                 54
      PC3-20-25-11-68             208/230              25                 68
      PC3-20-30-11-80             208/230              30                 80
      PC3-20-40-11-104            208/230              40                104
      PC3-20-50-11-130            208/230              50                130
      PC3-46-10-11-14             460/480              10                 14
      PC3-46-15-11-21             460/480              15                 21
      PC3-46-20-11-27             460/480              20                 27
      PC3-46-30-11-40             460/480              30                 40
      PC3-46-40-11-52             460/480              40                 52
      PC3-46-50-11-65             460/480              50                 65
      PC3-46-60-11-77             460/480              60                 77

         *        All units come standard with internally mounted voltage meter.

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