Document:

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                                     WARRANT

                              to Purchase Stock of
                          Power Efficiency Corporation
                             a Delaware corporation

                             Expires: June 14, 2012

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
         QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES REPRESENTED
         BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
         SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE WITH
         FEDERAL OR STATE SECURITIES LAWS. THE WARRANT EVIDENCED BY THIS
         CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS AS SET FORTH IN THE
         STOCK PURCHASE AGREEMENT.

                            THIS IS TO CERTIFY THAT:

         SUMMIT ENERGY VENTURES, LLC, a Delaware limited liability company
("Summit"), is entitled to purchase from Power Efficiency Corporation, a
Delaware corporation (the "Company"), at any time on and and from time to time
after January 1, 2004 (the "Vesting Date") and prior to June 14, 2012, Common
Stock on the terms and conditions hereinafter provided.

         Section 1. Certain Definitions. Initially capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in the
Stock Purchase Agreement. As used in this Warrant:

         "Aggregate Purchase Price" shall have the meaning set forth in Section
2 of this Warrant.

         "Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of New York.

         "Certificate of Designation" shall mean the Certificate of Designation
of the Company's Series A Convertible Preferred Stock dated June 13, 2002.

         "Commission" shall mean the Securities and Exchange Commission.

                                       1
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         "Common Stock" shall mean the Company's authorized common stock, $0.001
par value per share, irrespective of class unless otherwise specified, and shall
also include stock of the Company of any other class, which is not preferred as
to dividends or assets over any other class of stock of the Company and which is
not subject to redemption, issued to the holders of shares of Common Stock upon
any reclassification thereof.

         "Company" shall have the meaning set forth in the introductory
paragraph to this Warrant.

         "Company Stock" shall mean the Common Stock and Preferred Stock,
collectively.

         "Convertible Instruments" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
Company Stock, either immediately or upon the arrival of a specified date or the
happening of a specified event.

         "Current Warrant Price" shall mean the dollar amount calculated in the
following manner:

         CWP = (3 x E)/(C + P)

         where:

         CWP =     Current Warrant Price.

         E =       EBITDA.

         C =       the number of shares of Common Stock outstanding on the
                   exercise date; the number of shares of Common Stock reserved
                   for issuance pursuant to the Company's stock option plans
                   existing on the exercise date (whether or not such options
                   have been issued); the number of shares of Common Stock
                   issuable under all warrants outstanding on the exercise date;
                   plus the number of shares of Common Stock issuable upon
                   conversion of all Convertible Instruments outstanding on the
                   exercise date, other than the Series A Convertible Preferred
                   Stock sold by the Company pursuant to the Stock Purchase
                   Agreement.

         P =       the number of shares of Common Stock issuable on the
                   exercise date upon conversion of all the Series A-1
                   Convertible Preferred Stock sold by the Company pursuant to
                   the Stock Purchase Agreement.

         "EBITDA" shall mean the earnings of the Company before interest taxes
depreciation and amortization determined in accordance with generally accepted
accounting principles for the previous 4 quarters.

         "Holder" shall mean the holder of this Warrant or any subsequent
Warrants resulting from the transfer of this Warrant.

         "Person" shall mean any individual, corporation, partnership,
association, joint stock company, trust or trustee thereof, estate or executor
thereof, unincorporated organization or joint venture, court or governmental
unit or any agency or subdivision thereof, or any other legally recognizable
entity.

                                       2
<PAGE>

         "Preferred Stock" shall mean the Company's authorized preferred stock,
irrespective of class or series unless otherwise specified.

         "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

         "Series A-1 Convertible Preferred Stock" shall mean the Series A-1
Convertible Preferred Stock having the rights, designations and preferences set
forth in the Certificate of Designation.

         "Series A-2 Convertible Preferred Stock" shall mean the Series A-2
Convertible Preferred Stock having the rights, designations and preferences set
forth in the Certificate of Designation.

         "Stock Purchase Agreement" shall mean that certain Series A Convertible
Stock Purchase Agreement between the Company and Summit, dated as of June ___,
2002, as amended, relating to the Series A-1 Convertible Preferred Stock.

         "Stock Unit" shall mean one share of Common Stock or one share of
Series A-2 Convertible Preferred Stock, at the election of the Holder of the
Warrant.

         "Summit" shall have the meaning set forth in the introductory paragraph
to this Warrant.

         "Vesting Date" shall have the meaning set forth in the introductory
paragraph to this Warrant.

         "Warrant" shall mean this warrant originally issued by the Company
pursuant to Section 1.2 of the Stock Purchase Agreement, evidencing rights to
purchase shares of Warrant Stock, and all warrants issued upon transfer,
division or combination of, or in substitution for, this warrant. All warrants
shall at all times be identical as to terms and conditions and date, except as
to the number of shares of Warrant Stock for which they may be exercised.

         "Warrant Stock" shall mean the shares of Common Stock or Series A-2
Convertible Preferred Stock purchasable by the Holder of a Warrant upon the
exercise of such Warrant.

         Section 2. Exercise of Warrant. The Holder of this Warrant may, at any
time on or after the Vesting Date, exercise this Warrant in whole or in part for
the number of Stock Units which such Holder is then entitled to purchase
hereunder. In order to exercise this Warrant, in whole or in part, the Holder
hereof shall deliver to the Company at its office maintained for such purpose
pursuant to Section 17: (i) a written notice of such Holder's election to
exercise this Warrant, (ii) this Warrant, and (iii) the total purchase price for
the shares being purchased upon such exercise by delivery in cash, by wire
transfer or certified or official bank check of immediately available funds in
an amount equal to the product of the Current Warrant Price multiplied by the
number of Stock Units being purchased upon such exercise (the "Aggregate
Purchase Price"), Such notice may be in the form of the Subscription set out at
the end of this Warrant. Upon receipt thereof, the Company shall, as promptly as
practicable and in any event within ten (10) Business Days thereafter, cause to
be executed and delivered to such Holder a certificate or certificates
representing the aggregate number of fully paid and nonassessable shares of
Warrant Stock issuable upon such exercise.

                                       3
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         The Holder of this Warrant may purchase the number of Stock Units
calculated in the following manner:

         SU = 1.0408C - P

         where:

         SU =      the number of Stock Units the Holder of this Warrant may
                   purchase upon exercise of this Warrant.

         C =       the number of shares of Common Stock outstanding on the
                   exercise date; the number of shares of Common Stock reserved
                   for issuance pursuant to the Company's stock option plans
                   existing on the exercise date (whether or not such options
                   have been issued); the number of shares of Common Stock
                   issuable under all warrants outstanding on the exercise date;
                   plus the number of shares of Common Stock issuable upon
                   conversion of all Convertible Instruments outstanding on the
                   exercise date, other than the Series A-1 Convertible
                   Preferred Stock sold by the Company pursuant to the Stock
                   Purchase Agreement.

         P =       the number of shares of Common Stock issuable on the
                   exercise date upon conversion of all the Series A-1
                   Convertible Preferred Stock sold by the Company pursuant to
                   the Stock Purchase Agreement.

         Upon the first exercise of any right under the Warrant or Warrants by
any Holder (the "First Exercise"), the Current Warrant Price and the remaining
Stock Units purchasable under the Warrant or Warrants by all Holders shall be
fixed upon such first exercise. The remaining Stock Units purchasable under the
Warrant or Warrants shall be equal to the number of Stock Units that could have
been purchased had all the Warrants been exercised minus the number of Stock
Units that were actually purchased at the First Exercise; and (ii) the Current
Warrant Price of all remaining Warrants shall be fixed at the Current Warrant
Price determined for the Warrants that were exercised at the First Exercise.

         The stock certificate or certificates for Warrant Stock so delivered
shall be endorsed with a legend in the form contained in Section 4.1 of the
Amended and Restated Stockholders' Agreement dated June 14, 2002, and shall be
in such denominations as may be specified in said notice and shall be registered
in the name of such Holder or such other name or names as shall be designated in
said notice. Such certificate or certificates shall be deemed to have been
issued and such Holder or any other Person so designated to be named therein
shall be deemed to have become a holder of record of such shares, including to
the extent permitted by law the right to vote such shares or to consent or to
receive notice as a stockholder, as of the time said notice is received by the
Company as aforesaid.

                                       4
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         Except as otherwise provided in Section 8 hereof, the Company shall pay
all expenses, transfer taxes and other charges payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2,
except that, in case such stock certificates shall be registered in a name or
names other than the name of the Holder of this Warrant, funds sufficient to pay
all stock transfer taxes which shall be payable upon the issuance of such stock
certificate or certificates shall be paid by the Holder hereof at the time of
delivering the notice of exercise mentioned above.

         All shares of Warrant Stock issuable upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable, and free from all liens
and other encumbrances thereon.

         The Company will not close its books against the transfer of this
Warrant or of any share of Warrant Stock in any manner which interferes with the
timely exercise of this Warrant. With the consent of the Holder of this Warrant,
the Company will from time to time take all such action as may be necessary to
assure that the par value per share of the unissued Warrant Stock acquirable
upon exercise of this Warrant is at all times equal to or less than the Current
Warrant Price then in effect.

         No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant.

         Section 3. Transfer, Division and Combination. Subject to Section 10,
this Warrant and all rights hereunder are transferable, in whole or in part, on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the office of the Company maintained for such purpose pursuant
to Section 17, together with a written assignment of this Warrant duly executed
by the Holder hereof or its agent or attorney and payment of funds sufficient to
pay any stock transfer taxes payable upon the making of such transfer. Upon such
surrender and payment the Company shall, subject to Section 10, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denominations specified in such instrument of assignment, and this
Warrant shall promptly be cancelled. If and when this Warrant is assigned in
blank (in case the restrictions on transferability in Section 10 shall have been
terminated), the Company may (but shall not be obliged to) treat the bearer
hereof as the absolute owner of this Warrant for all purposes and the Company
shall not be affected by any notice to the contrary. This Warrant, if properly
assigned in compliance with this Section 3 and Section 10, may be exercised by
an assignee for the purchase of shares of Warrant Stock without having a new
Warrant issued.

         This Warrant may, subject to Section 10, be divided or combined with
other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder hereof or its agent or
attorney. In the case that this Warrant is divided, the Stock Units purchasable
by each new Warrant must be a fraction of the formula specified in Section 2
hereof. The aggregate number of Stock Units purchasable by all Warrants into
which this Warrant is divided must equal the number of Stock Units determined
based on the formula in Section 2 hereof. Subject to compliance with the
preceding paragraph and with Section 10, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.

                                       5
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         The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section 3.

         The Company agrees to maintain at its aforesaid office books for the
registration and transfer of the Warrants.

         Section 4. [This section is intentionally left blank].

         Section 5. [This section is intentionally left blank].

         Section 6. Reservation and Authorization of Stock; Registration with or
Approval of any Governmental Authority. The Company shall at all times reserve
and keep available for issue upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock and Preferred Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. Without
the prior written consent of the Holders of Warrants evidencing 75% in number of
the total number of Stock Units at the time purchasable upon the exercise of all
the then outstanding Warrants, the Company will not amend its Certificate of
Incorporation in any respect relating to the Company Stock or other than to
increase or decrease the number of shares of authorized capital stock or to
decrease the par value of any shares of Company Stock. All shares of Warrant
Stock which shall be so issuable, when issued upon exercise of any Warrant or
upon such conversion, as the case may be, shall be duly and validly issued and
fully-paid and nonassessable.

         Section 7. Stock and Warrant Transfer Books. The Company will not at
any time, except (i) upon dissolution, liquidation or winding up, or (ii) for
purposes of declaring and paying a dividend or matters related to voting by
stockholders of the Company, close its stock transfer books or Warrant transfer
books so as to result in preventing or delaying the exercise or transfer of any
Warrant.

         Section 8. Transfer Taxes. The Company will pay any and all transfer
taxes that may be payable in respect of the issuance or delivery of shares of
Company Stock on exercise of this Warrant. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Company Stock in a name other than that
in which this Warrant is registered, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Company the
amount of any such tax, or has established, to the satisfaction of the Company,
that such tax has been paid.

         Section 9. No Voting Rights. This Warrant shall not entitle the Holder
hereof to any voting rights, or to any rights as a stockholder of the Company.

                                       6
<PAGE>

         Section 10. Restrictions on Transferability. The Warrants and the
Warrant Stock shall be transferable only in compliance with the provisions of
the Securities Act and applicable state securities laws in respect of the
transfer of any Warrant or any Warrant Stock, and any Holder of this Warrant
shall be bound by the provisions of (and entitled to the benefits of) Section 3
hereof.

         Section 11. Limitation of Liability. No provision hereof, in the
absence of affirmative action by the Holder hereof to purchase shares of Warrant
Stock, and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of such Holder for the Aggregate
Purchase Price (or any portion thereof) or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.

         Section 12. [This section is intentionally left blank].

         Section 13. [This section is intentionally left blank].

         Section 14. Loss, Destruction of Warrant Certificates. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Company
(the original Holder's or any other institutional Holder's indemnity being
satisfactory indemnity in the event of loss, theft or destruction of any Warrant
owned by such institutional Holder), or, in the case of any such mutilation,
upon surrender and cancellation of such Warrant, the Company will make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Warrant Stock.

         Section 15. Furnish Information. The Company agrees that it shall
deliver to the Holder of record hereof promptly after their becoming available
copies of all financial statements, reports and proxy statements which the
Company shall have sent to its stockholders generally.

         Section 16. Amendments. The terms of this Warrant and all other
Warrants may be amended, and the observance of any term therein may be waived,
but only with the written consent of both the Company and the Holders of
Warrants evidencing 75% in number of the total number of Stock Units at the time
purchasable upon the exercise of all then outstanding Warrants, provided that no
such action may change the number of shares of stock comprising a Stock Unit or
the Current Warrant Price, without the written consent of both the Company and
the Holders of Warrants representing at least 90% in number of the total number
of Stock Units at the time purchasable upon the exercise of all then outstanding
Warrants.

         Section 17. Office of the Company. So long as any of the Warrants
remain outstanding, the Company shall maintain an office in Ann Arbor, Michigan
where the Warrants may be presented for exercise, transfer, division or
combination as in this Warrant provided. Such office shall be at 4220 Varsity
Drive, Suite E, Ann Arbor, MI 48108 unless and until the Company shall designate
and maintain some other office for such purposes and give written notice thereof
to the Holders of all outstanding Warrants.

         Section 18. Notices Generally. Any notice, demand or delivery pursuant
to the provisions hereof shall be sufficiently given or made if given or made as
set forth in Section 13 of the Stock Purchase Agreement, which is incorporated
herein by reference.

                                       7
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         Section 19. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. NOTWITHSTANDING SUCH CHOICE OF LAW,
THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF AND EACH OTHER RELATED PERSON TO
THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE
STATE OF DELAWARE AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE
UPON IT OR ANY OF ITS SUBSIDIARIES IN ANY LEGAL PROCEEDING RELATING TO THE
OPERATIVE DOCUMENTS OR THE OBLIGATIONS BY ANY MEANS ALLOWED UNDER DELAWARE OR
FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.

                                       8
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its President, such signature to be attested to by the Company's
Secretary or Assistant Secretary, and the Company's corporate seal to be
impressed hereon.

Dated:
      ----------------------------

[SEAL]                              Power Efficiency Corporation,
                                    a Delaware corporation

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

                                       9
<PAGE>

                               SUBSCRIPTION FORM

                 (to be executed only upon exercise of Warrant)

                  The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases ___________ Stock Units of Power
Efficiency Corporation, a Delaware corporation, purchasable with this Warrant,
herewith makes payment therefor on the terms and conditions specified in this
Warrant and requests that certificates for the shares of Common Stock hereby
purchased (and any securities or other property issuable upon such exercise) be
issued in the name of and delivered to whose address is .

Dated:

                      ----------------------------------------------
                      (Signature of Registered Owner)

                      ----------------------------------------------
                      (Street Address)

                      ----------------------------------------------
                      (City)              (State)         (Zip Code)

                                       10
<PAGE>

                                 ASSIGNMENT FORM

                  FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
Stock Units set forth below:

                                                      No. of Stock
      Name and Address of Assignee                       Units*
      ----------------------------                     ----------

and does hereby irrevocably constitute and appoint _____________________
attorney to make sure transfer on the books of Power Efficiency Corporation, a
Delaware corporation, maintained for the purpose, with full power of
substitution in the premises.

* Must be expressed as a formula pursuant to Section 3 hereof.

Dated:

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

                      ----------------------------------------------
                      Witness

NOTICE:           The signature to the assignment must correspond with the name
                  as written upon the face of the within Warrant in every
                  particular, without alteration or enlargement or any change
                  whatever.

                  The signature to this assignment must be guaranteed by an
                  Eligible Guarantor Institution as defined in Rule 17Ad-15
                  promulgated under the Securities Exchange Act of 1934, as
                  amended, or any successor thereto.

                                       11<PAGE>

                              AMENDED AND RESTATED

                             STOCKHOLDERS' AGREEMENT

                                  by and among

                                Nicholas Anderson
                                 Anthony Caputo
                                  Philip Elkus
                                 Stephen Shulman
                            Performance Control, LLC
                           Summit Energy Ventures, LLC
                                       and
                          Power Efficiency Corporation

                              Dated: June 14, 2002

<PAGE>

                             STOCKHOLDERS' AGREEMENT
                                TABLE OF CONTENTS

                                                                        Page

1.    CORPORATE GOVERNANCE.................................................2
   1.1.      Board of Directors............................................2
   1.2.      Initial Officers of the Company...............................5
   1.3.      Certain Actions Requiring Majority Stockholder Approval.......5

2.    TRANSFERS OF SHARES..................................................6
   2.1.      Certain Restrictions..........................................6
   2.2.      Right of First Refusal........................................7
   2.3       "Co-Sale" Rights..............................................8
   2.4.      "Tag Along" Rights............................................9
   2.5       Rights Regarding Subsequent Private Equity Financings........10
   2.6.      Legends; Shares Subject to this Agreement....................11

3.    REPRESENTATIONS AND COVENANTS.......................................12
   3.1       Representation of Stockholders...............................12
   3.2       Summit Warrant...............................................12

4.    MISCELLANEOUS.......................................................12
   4.1.      Legends on Stock Certificates................................12
   4.2.      Term.........................................................13
   4.3.      Injunctive Relief............................................13
   4.4.      Notices......................................................13
   4.5.      Successors and Assigns.......................................15
   4.6.      Company Information..........................................15
   4.7.      Governing Law................................................17
   4.8.      Headings.....................................................17
   4.9.      Entire Agreement; Amendment..................................17
   4.10.     No Waiver....................................................17
   4.11.     Undertaking..................................................17
   4.12.     Counterparts.................................................17

                                       ii
<PAGE>

                             STOCKHOLDERS' AGREEMENT

                  AGREEMENT dated as of June 14, 2002 by and among Nicholas
Anderson, residing at 1536 208th Street, Bayside, NY 11360 ("Nicholas"), Anthony
Caputo, residing at 1155 Colonial Way, Bridgewater, NJ 08807("Anthony"), Philip
Elkus, residing at 2488 Orchard Lake Road, Farmington Hills, MI 48334
("Philip"), Stephen Shulman, residing at 5807 Fox Hollow Court, Ann Arbor, MI
48105 ("Stephen"), Performance Control, LLC, a Michigan limited liability
company having an address at c/o Seyburn, Kahn, Ginn, Bess & Serlin 2000 Town
Center Suite 1500, South Field, MI 48075 ("Percon"), Summit Energy Ventures,
LLC, a Delaware limited liability company with offices at 423 Second Avenue,
Ext. S, Metropole Building, Suite 31, Seattle, WA 98104 ("Summit"), and Power
Efficiency Corporation, a Delaware corporation [with temporary offices at 4220
Varsity Drive, Suite E, Ann Arbor, MI 48108] (the "Company"). Nicholas and
Anthony are sometimes collectively referred to herein as (the "Founders"), and
Philip, Stephen and Percon are sometimes collectively referred to herein as (the
"Percon Group"). Each of the parties hereto (other than the Company) and any
other person who shall hereafter become a party to or agree to be bound by the
terms of this agreement (the "Agreement") is sometimes referred to as a
"Stockholder" and all of such parties are sometimes referred to as the
"Stockholders."

                              W I T N E S S E T H:

         WHEREAS, the Company and Percon are parties to an Asset Agreement dated
as of August 7, 2000 (the "Asset Agreement");

         WHEREAS, in connection with and in consideration of the Asset
Agreement, the Company, the Founders and Percon entered into a Stockholders'
Agreement dated as of August 7, 2000 (the "Prior Stockholders' Agreement");

         WHEREAS, the Company and Summit are parties to a Series A Convertible
Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement");

         WHEREAS, immediately prior to the closing of the Stock Purchase
Agreement there were 6,573,120 shares of the Company's common stock, $0.001 par
value per share ("Common Stock") outstanding and no shares of the Company's
preferred stock, $0.001 par value per share ("Preferred Stock" and, together
with the Common Stock, "Company Stock") outstanding;

         WHEREAS, the Company has filed a Certificate of Designation of Series A
Convertible Preferred Stock with the Secretary of State of the state of Delaware
(the "Certificate of Designation") to designate two new series of preferred
stock (the "Series A-1 Convertible Preferred Stock" and the "Series A-2
Convertible Preferred Stock") each with voting rights as set forth in the
Certificate of Designation;

         WHEREAS, the execution and delivery of this Agreement is a condition to
the closing of the Stock Purchase Agreement;
<PAGE>

         WHEREAS, pursuant to the Stock Purchase Agreement, Summit will be
issued shares of Series A-1 Convertible Preferred Stock ;

         WHEREAS, as of the closing of the Stock Purchase Agreement, the
holdings of Company Stock by the Stockholders (the shares of Common Stock and
Series A-1 Convertible Preferred Stock are collectively referred to herein as
the "Shares") will be as set forth in Exhibit A hereto.

         WHEREAS, pursuant to the Stock Purchase Agreement, the Company will
issue to Summit a warrant to purchase the number of shares of Common or
Preferred Stock which would enable them to acquire a fifty-one percent (51%)
interest in the Company (the "Warrant") pursuant to the terms and conditions set
forth in the Warrant.

         WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and to regulate certain of their rights in connection with their
interests in the Company, and desire to enter into this Agreement in order to
effectuate those purposes;

         WHEREAS, the parties hereto also desire to restrict under certain
circumstances the sale, assignment, transfer, encumbrance or other disposition
of the Shares, including issued and outstanding Shares as well as Company Stock
which may be issued hereafter, or which may become issuable pursuant to the
exercise of options or warrants hereafter granted and to provide for certain
rights and obligations with respect thereto as hereinafter provided; and

         WHEREAS, this Agreement amends and restates, in its entirety, the Prior
Stockholders' Agreement.

         NOW, THEREFORE, in consideration of the premises and of the covenants,
terms and conditions herein contained, the parties hereto mutually agree as
follows:

1.       CORPORATE GOVERNANCE

         1.1. Board of Directors.

                  (a) Number of Directors. The Company shall be governed by a
Board of Directors consisting of eight (8) members. The number of members may
not be increased or decreased except as provided in Section 1.3.

                  (b) Nomination and Election of Directors. The following
procedures shall govern the nomination and election of directors of the Company:

                  (i) For so long as the Founders shall beneficially own at
         least 90% of the Shares held by them on the date hereof as referenced
         Exhibit A, they shall be entitled to nominate and have elected three
         (3) directors acceptable to them in their sole discretion (the
         "Founders Directors");

                                       2
<PAGE>

                  (ii) For so long as it shall beneficially own at least 90% of
         the Shares held by it on the date hereof as referenced in Exhibit A,
         Percon shall be entitled to nominate and have elected two (2) directors
         (the "Percon Directors");

                  (iii) For so long as it shall beneficially own at least 90% of
         the Shares held by it on the date hereof as referenced in Exhibit A,
         Summit shall be entitled to nominate and have elected three (3)
         directors (the "Summit Directors") and;

                  (iv) At least one of the Summit Directors, one of the Percon
         Directors and one of the Founders Directors must have generally
         acceptable knowledge and experience in the types of financial and
         operating issues that are likely to face the Company and also satisfy
         the definition of "independent director" as defined in NASDAQ Stock
         Market Rule 4200(a)(14) of the NASD Manual.

                  (c) Initial Board of Directors. The initial Board of Directors
of the Company shall consist of the following eight members:

        ---------------------------------       -----------------------------
        Name of Director                        Type of Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        Nicholas Anderson                       Founders Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        Scott Straka                            Founders Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        Stephen Shulman                         Percon Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        Leonard Bellezza                        Percon Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        Raymond J. Skiptunis                    Founders Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        TBD                                     Summit Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        TBD                                     Summit Director
        ---------------------------------       -----------------------------
        ---------------------------------       -----------------------------
        TBD                                     Summit Director
        ---------------------------------       -----------------------------

         (d) Removal of Directors. Except as otherwise provided in this Section
1.1(d), each holder of Shares agrees not to take any action or to cause the
Company to take any action to remove, with or without cause, any director of the
Company. Notwithstanding the foregoing, Percon shall at all times have the right
to recommend the removal, with or without cause, of any of the Percon Directors;
the Founders and the Founders Directors shall have the right to recommend the
removal, with or without cause, of any Founders Director; and Summit and the
Summit Directors shall at all times have the right to recommend the removal,
with or without cause, of any Summit Director. If the removal of any director is
recommended as provided in the immediately preceding sentence, then the
Stockholders shall immediately cause a special meeting of stockholders to be
held, or shall act by written consent without a meeting, for the purpose of
removing such director, and each Stockholder agrees to vote all its Shares, or
to execute a written consent in respect of all such Shares, for the removal of
such director.

                                       3
<PAGE>

         (e) Vacancies. At any time a vacancy exists on the Board of Directors,
the remaining directors (if any) representing the Stockholder whose Board seat
is vacant shall have the right to designate and elect the person to fill such
vacancy. If no directors representing the Stockholder remain as a result of such
vacancy, the Stockholder shall have the right to designate and elect the person
to fill such vacancy. To the extent required by law, (i) all directors on the
Board and (ii) all holders of Shares, shall vote in favor of electing such
designated director to fill the vacancy and all such persons shall take the
necessary actions to amend the by-laws to reflect the provisions of this
Agreement.

         (f) Covenant to Vote. Each of the Stockholders agrees to vote, in
person or by proxy, all of the Shares beneficially owned by such Stockholder, at
any annual or special meeting of stockholders of the Company called for the
purpose of voting on the election of directors or by consensual action of
stockholders without a meeting with respect to the election of directors, in
favor of the election of the director(s) nominated by Percon, the Founders and
Summit, as the case may be, in accordance with Section 1.1(b) hereof. Each
Stockholder shall vote the Shares owned by such Stockholder and shall take all
other actions necessary to ensure that the Company's Articles of Incorporation
and By-Laws do not at any time conflict with the provisions of this Agreement.

         (g) Quorum. No action shall be taken at any meeting of the Board of
Directors of the Company, except for the adjournment of such meeting, unless at
least five (5) Directors shall be present. For purposes of a quorum, any
director may be present at any meeting in person, by means of telephone or
similar communications equipment by means of which each person participating in
the meeting can hear and speak to each other or, to the extent permitted under
applicable law, by proxy or by nominee director. No action shall be taken at any
meeting of stockholders of the Company unless a majority of the Shares
beneficially owned by the Founders, the Percon Group, and Summit are represented
at the meeting, in person or by proxy.

         (h) Committees of the Board. The Board shall appoint such committees,
including an audit committee and a compensation committee, as shall be
permissible under Section 141 of the General Corporation Law of the State of
Delaware and as the Board shall deem reasonable and necessary. A majority of the
members of the audit committee, and at least half of the members of the
compensation committee must consist of Independent Directors (as defined in Rule
4200(a)(14) of the NASD Regulations). If the Board has or creates an executive
committee, the Committee shall be comprised of at least one Percon Director, one
Summit Director and one Founders Director.

         (i) Special Meetings of Directors. Special meetings of the Board may be
called by the President of the Company and shall be called by the President of
the Company or the Secretary of the Company upon the written request of any
director.

         (j) Board of Directors and Officers of Subsidiaries. The composition of
the board of directors and officers of each subsidiary of the Company shall
require the approval of the Percon Directors, the Founders Directors and the
Summit Directors.

         (k) CEO Board Position. For so long as Stephen Shulman shall remain the
Company's CEO, Percon shall nominate Stephen Shulman to fill one (1) of the
director positions that Percon is entitled to nominate. If Stephen Shulman
ceases to be the Company's CEO, the Stockholders agree to increase the number of
Company directors from eight (8) to nine (9) members and to elect the new CEO to
the newly created board position.

                                       4
<PAGE>

         1.2. Initial Officers of the Company. Each of the Stockholders agrees
to cause the Board of Directors of the Company initially to appoint the
following persons as officers of the Company in the following positions:

   --------------------------------       -------------------------------
           Office                                    Name
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   President                              Stephen Shulman
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   Chief Executive Officer                Stephen Shulman
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   Chief Technology Officer               Nicholas Anderson
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   Chief Financial Officer                Raymond J. Skiptunis
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   Treasurer/Controller/Secretary         Arthur N. Smith
   --------------------------------       -------------------------------
   --------------------------------       -------------------------------
   Assistant Secretary                    Gerard S. DiFiore
   --------------------------------       -------------------------------

If any of such officers are unable to serve, or cease for any reason to be an
officer of the Company, their successors shall be appointed by the Board of
Directors of the Company. The parties hereto agree that the Company should enter
into employment agreements with each officer mentioned above to assure the
Company of such officer's services for a fixed period of time.

1.3. Certain Actions Requiring Majority Stockholder. For so long as the Percon
Group, the Founders and Summit shall collectively own shares constituting at
least 40% of the Common Stock then outstanding (including the Series A-1
Convertible Preferred Stock on an as converted basis) without either (A) the
majority of the Founders Directors, the Summit Directors and the Percon
Directors including an affirmative vote of at least one of the Percon Directors
and one of the Summit Directors, or (B) the prior affirmative vote of at least
75% of the Shares then beneficially owned by the Founders, the Percon Group and
Summit taken collectively (either of (A) or (B) being referred to as a "Majority
Vote"), the Company shall not, and the Percon Directors, the Founders Directors
and the Summit Directors shall use their respective best efforts to preclude the
Company, directly or indirectly (including through any Subsidiaries (as
hereinafter defined) of the Company) from taking the following actions:

         (a) amend or modify on behalf of the Company the terms, provisions or
conditions of this Agreement or extend the term of this Agreement; or

         (b) alter the size of the Board of Directors except in connection with
a financing that yields a total enterprise value of the Company which is not
less than $8,000,000.

                                       5
<PAGE>

2.       TRANSFERS OF SHARES

         2.1. Certain Restrictions.

         (a) Notwithstanding anything to the contrary set forth herein, no
Stockholder or Transferee (as hereinafter defined in Section 2.5) shall directly
or indirectly sell, assign, pledge, encumber, hypothecate or otherwise dispose
of including any disposition by way of a statutory merger or consolidation
involving a Stockholder that is not a natural person (collectively a "Transfer")
any Shares at any time, unless any such Transfer shall have been effected in
accordance with the terms of this Agreement.

         (b) No Stockholder shall Transfer any Shares at any time if such action
would constitute a violation of any federal or state securities or blue sky laws
or a breach of the conditions to any exemption from registration of Shares under
any such laws or a breach of any undertaking or agreement of such Stockholder
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Summit agrees that any Shares to be received pursuant to the Stock
Purchase Agreement shall bear appropriate legends restricting the sale or other
transfer of such stock in accordance with applicable federal or state securities
or blue sky laws, as set forth in Section 4.1 hereof.

         (c) Except as otherwise provided in this Agreement, no Stockholder
shall grant any proxy or enter into or agree to be bound by any voting trust
with respect to any Shares nor shall any Stockholder enter into any stockholder
agreements or arrangements of any kind with any person with respect to any
Shares inconsistent with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Stockholders or holders of Shares who
are not parties to this Agreement), including agreements or arrangements with
respect to the acquisition, disposition or voting (if applicable) of any Shares,
nor shall any Stockholder act, for any reason, as a member of a group or in
concert with any other persons in connection with the acquisition, disposition
or voting (if applicable) of any Shares in any manner which is inconsistent with
this Agreement.

         (d) None of the restrictions contained in this Agreement with respect
to Transfers of Shares, including without limitation the Right of First Refusal
(Section 2.2) and Tag-Along Rights (Section 2.4), shall apply to Transfers of
Shares to (i) any Affiliate of a Stockholder (an "Affiliate Transferee"); (ii)
to limited partners or other investors in Summit; or (iii) to Northwest Power
Management, the general partner of Summit or other funds affiliated with
Northwest Power Management; or (iv) to Steven Strasser or other funds affiliated
with or managed by Steven Strasser or (v) to members of a Stockholder's
immediate family or his lineal descendants (a "Family Transferee"). Any such
Affiliate Transferee or Family Transferee shall be considered a "Permitted
Transferee" for purposes of this Agreement. Only in the event such Affiliate
Transferee or Family Transferee shall become an Affiliate of the Company as a
result of any permitted transfer hereunder, such Affiliate Transferee or Family
Transferee shall agree in writing to be bound by the terms of this Agreement.
For the purposes of this Agreement, an Affiliate shall have the same meaning as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"))

                                       6
<PAGE>

         (e) During the term of this Agreement Summit may not transfer the
Warrant to any person other than (i) any Affiliate of Summit; (ii) to limited
partners or other investors in Summit; or (iii) to Northwest Power Management,
the general partner of Summit or other funds affiliated with Northwest Power
Management; or (iv) to Steven Strasser or other funds affiliated with or managed
by Steven Strasser

         2.2. Right of First Refusal.

                           (a) If at any time any Stockholder desires to
Transfer any Shares (a "Selling Stockholder") now or hereafter beneficially
owned by it to any other person (other than (i) pursuant to a registered public
offering under the Securities Act; (ii) a public resale under Securities Act
Rule 144 effected in accordance with Section 2.2(d) hereof; or (iii) a Transfer
of Shares to an Affiliate Transferee or a Family Transferee) such Selling
Stockholder shall before effecting such Transfer first give each other
Stockholder a written notice (a "Seller's Notice") stating the Selling
Stockholder's desire to make such Transfer, the identity of the party to whom
such Shares are proposed to be transferred (the "ROFR Transferee"), the number
of Shares proposed to be transferred (the "Offered Shares"), the cash price (the
"Offer Price") agreed upon between the Selling Stockholder and the ROFR
Transferee at which the Stockholder proposes to sell the Offered Shares (it
being understood and agreed that the Selling Stockholder may not Transfer, sell
or otherwise dispose of Shares except for cash) and any other material terms
proposed for the sale of such Offered Shares.

                           (b) Upon receipt of the Seller's Notice, a
Stockholder shall have an option for a period of 10 days from the Stockholder's
receipt of the Seller's Notice from the Selling Stockholder to elect to purchase
his, her or its respective pro rata share of the Offered Shares at the Offer
Price and subject to the same material terms and conditions as described in the
Seller's Notice. Each Stockholder may exercise such purchase option and,
thereby, purchase all or any portion of his, her or its pro rata share of the
Offered Shares, by notifying the Selling Stockholder and the Company in writing
(the "Buyer's Notice"), before expiration of the 10 day period as to the number
of such shares which he, she or it wishes to purchase. Each Stockholder's pro
rata share of the Offered Shares shall be a fraction of the Offered Shares, the
numerator of which shall be: 1) the number of shares of Common Stock issuable
upon conversion of the Series A-1 Convertible Preferred Stock held by such
Stockholder, plus 2) the number of shares of Common Stock held by such
Stockholder on the date of the Seller's Notice, and the denominator of which
shall be: 1) the number of shares of Common Stock issuable upon conversion of
the Series A-1 Convertible Preferred Stock held by all Stockholders, plus 2) the
number of shares of Common Stock held by all Stockholders on the date of the
Seller's Notice. Each Stockholder shall have a right of reallotment such that,
if any other Stockholder fails to exercise the right to purchase its full pro
rata share of the Offered Shares, the other participating Stockholders may
exercise an additional right to purchase, on a pro rata basis, the Offered
Shares not previously purchased. Each Stockholder shall be entitled to apportion
Offered Shares to be purchased among its partners and affiliates, provided that
such Stockholder notifies the Selling Stockholder of such allocation. If a
Stockholder gives the Selling Stockholder notice that it desires to purchase its
pro rata share of the Offered Shares and, as the case may be, its reallotment,
then payment for the Offered Shares shall be by check or wire transfer, against
delivery of the Offered Shares to be purchased at a place agreed upon between
the parties and at the time of the scheduled closing therefore, which shall be
no later than 45 days after the Selling Stockholder's receipt of the Buyer's
Notice, unless the Seller's Notice contemplated a later closing with the ROFRT
Transferee(s).

                                       7
<PAGE>

                           (c) If the applicable  Seller's Notice shall
be duly given, and if any Stockholders shall not have exercised their option to
purchase (or for their designee to purchase) the Offered Shares at the Offer
Price within 10 days of the date Selling Stockholder gave the Seller's Notice,
then, subject to the other provisions of this Agreement, the Selling Stockholder
shall be free for a period of 90 days from the 10th day following the date of
the last Seller's Notice to sell the Offered Shares not purchased by the
Stockholders' exercise of the options described in this Section 2.2 at a price
not less than 90% of the Offer Price and on terms and conditions not materially
more favorable to the transferee, taken as a whole, than those set forth in the
Seller's Notice. In any such sale the Transferee must agree to become a party to
and be bound by the terms of this Agreement.

                           (d) All other provisions of this Section 2.2
notwithstanding, any Stockholder intending to make a public resale of Shares
pursuant to Securities Act Rule 144, following satisfaction of the holding
period and other requirements thereof, may do so provided:

                  (i)      Seller's Notices are provided to the Stockholders as
                           in Section 2.2(a);

                  (ii)     the Stockholder's options are not exercised within 10
                           days;

                  (iii)    the sale occurs within 100 days after the date on
                           which the first Seller's Notice was received.

                           (e)  If the Offered Shares are not sold by the
Selling Stockholder pursuant to Section 2.2(c) or 2.2(d) above, upon the
expiration of the 90 day period contemplated by Section 2.2(c) and Section
2.2(d), the Offered Shares shall again become subject to the right of first
refusal provisions of this Section 2.2.

                                       8
<PAGE>

         2.3 "Co-Sale" Rights.

                           (a) If any of the Founders or Percon  intend  to
seek to sell or otherwise transfer all or a portion of their Shares to any other
person or persons (other than a Permitted Transferee) and the other Stockholders
have not fully exercised their right to purchase pursuant to Section 2.2 herein,
the Founders or Percon (as applicable) shall first deliver to Summit a written
notice (the "Co-Sale Notice") advising Summit of their intention to sell their
Shares and specifying the terms and conditions on which the Founders or Percon
(as applicable) propose to sell such Shares. Summit shall have the right,
exercisable upon written notice to the Founders within 10 days following the
receipt of the Co-Sale Notice, to participate in the sale of the Shares by any
Founder or Percon (as applicable). To the extent that Summit exercises such
right of participation the number of Shares which the Founder or Percon (as
applicable) may sell pursuant to the Co-Sale Notice shall be correspondingly
reduced. Summit may sell all or any part of that number of Shares that is not in
excess of the product obtained by multiplying (i) the number of Shares
identified in the Co-Sale Notice by (ii) a fraction, the numerator of which is
the number of Shares at the time owned by Summit and the denominator of which is
the total of the number of Shares outstanding. For the purpose of making such
computation, Summit shall be deemed to own the number of Shares which are
issuable upon conversion of the Series A-1 Convertible Preferred Stock held by
Summit. If within 10 days of receiving the Co-Sale Notice Summit does not send
notice to the Founders or Percon (as applicable) pursuant to this Section
2.3(a), then the Founders or Percon (as applicable) who sent the Co-Sale Notice
shall be free to sell the number of Shares identified in the Co-Sale Notice, but
only within 90 days following the expiration of the 10 day notice period,
provided such sale is made on terms and conditions no more favorable to the
Founder than the terms and conditions specified in the Co-Sale Notice. (b)
Summit's right to participate in any sale or transfer by a Founder or Percon (as
applicable) shall not pertain or apply to (a) any transfer to such Founder's or
Percon's spouse, siblings, ancestors or descendents or to any partnership, trust
or entity the sole owners of which are the Founder or Percon (as applicable) or
his spouse, siblings, ancestors or descendents (b) any sale of Shares to the
Company pursuant to the exercise by the Company of any rights of repurchase of
stock under any restricted stock purchase agreement, or (any transfer or
transfers that, in the aggregate, involve no more than ten per cent (10%) of the
Shares held by the Founder or Percon (as applicable) provided that the
transferring Founder or Percon (as applicable) shall inform Summit of such
transfer prior to effecting it and if such sale is not made on the open market,
the transferee agrees to be bound by the terms of this Agreement.

         2.4. "Tag Along" Rights.

                           (a) If Summit intends to seek to sell or  otherwise
transfer a Control Portion (as hereinafter defined) of their Shares to any other
person or persons (other than a Permitted Transferee) Summit shall first deliver
to the Percon Group and the Founders a written notice (the "Summit Tag Along
Notice") advising the Percon Group and the Founders of Summit intention to sell
a Control Portion of their Shares and specifying the price at which Summit
proposes to sell such Shares and any other material terms proposed for the sale.
Within 10 days after the date of the Summit Tag Along Notice, the Percon Group
and the Founders must each deliver to Summit a written notice (the "Percon Group
Tag Along Notice" and the "Founders Tag Along Notice," respectively) indicating
whether the Percon Group or the Founders, as applicable, shall require Summit to
have any of the Percon Group's or the Founders' Shares included in the proposed
sale in the same proportion as Summit propose to sell or transfer. The Percon
Group's and the Founders' determination to participate in such sale, as
evidenced by the Percon Group Tag Along Notice and the Founders Tag Along
Notice, shall be final and irrevocable, provided such sale is made on terms and
conditions no more favorable to Summit than the terms and conditions specified
in the Summit Tag Along Notice. The Percon Group's or the Founders determination
not to participate in such sale, as evidenced by the Percon Group Tag Along
Notice, the Founders Tag Along Notice, and/or either party's failure to timely
deliver such notices, shall be final and irrevocable and the Percon Group and/or
the Founders shall be deemed to have waived any right to participate in any such
sale.

                                       9
<PAGE>

                           (b)  For purposes of this Section 2.4, a "Control
Portion" of the Summit Shares shall mean that number of Shares which, when
effectively transferred to another person (other than an Affiliate of Summit)
shall result in such person beneficially owning on a fully diluted basis a
greater number of Shares than any other Stockholder and its Affiliates.

         2.5 Rights Regarding Subsequent Private Equity Financings.

                           (a) Right to Purchase. The Company shall, prior to
any issuance by the Company of its securities to third parties for cash in a
private transaction, other than debt securities with no equity feature, offer to
each Stockholder by written notice the right, for a period of fifteen (15) days,
to purchase such Stockholder's pro rata share of such securities proposed to be
issued for cash to a third party or parties (the "Offered Securities") at an
amount equal to the price for which such Offered Securities are to be issued;
provided, however, that the preemptive rights pursuant to this Section 2.5 shall
not apply to securities issued in any of following (each an "Exempted
Transaction"):

                  (i)      pursuant to a split, subdivision or recapitalization
                           of the outstanding shares of Common Stock;

                  (ii)     as a dividend;

                  (iii)    upon conversion of any of the Preferred Stock;

                  (iv)     upon exercise of the Warrant;

                  (v)      upon exercise or conversion of any debenture,
                           warrant, option or other convertible security
                           outstanding on the date of the Closing of the Stock
                           Purchase Agreement;

                  (vi)     the issuance of the Reserved Option Shares as such
                           term is defined in the Certificate of Designation; or

                  (vii)    in a Qualified Public Offering or other public
                           offering of securities by the Company.

                                       10

<PAGE>

                           (b)  Notice, Limitations. The Company's written
notice to the Stockholders shall describe the securities proposed to be issued
by the Company and specify the number, price and payment terms. Each Stockholder
may accept the Company's offer as to the full number of securities offered to it
("Allocable Share") or any lesser number, by written notice thereof given by it
to the Company prior to the expiration of the aforesaid fifteen (15) day period,
in which event the Company shall promptly sell and such holder shall buy, upon
the terms specified, the number of securities agreed to be purchased by such
holder. The Company shall be free at any time prior to ninety (90) days after
date of its notice of offer to the Stockholders, to offer and sell, to any such
third party or parties the Offered Securities not agreed by the Stockholders to
be purchased by them, at a price and on payment terms no less favorable to the
Company than those specified in such notice of offer to the Stockholders.
However, if such third party sale or sales are not consummated within such
ninety (90) days period, the Company shall not sell such Offered Securities as
shall not have been purchased within such period without again complying with
this Section 2.5. The right of purchase granted pursuant to this Section 2.5
shall expire immediately prior to (and shall not apply to) the sale of Common
Stock pursuant to the Qualified Public Offering. If any Stockholder and its
Affiliates fails to agree to purchase its full pro rata share of the Offered
Securities, the Company shall promptly so notify each other Stockholder and each
other Stockholder shall have the right to purchase such remaining Offered
Securities (on a pro rata basis), by notice to the Company given within seven
(7) days after receipt of such notice from the Company.

                           (c) Pro Rata Share. For purposes of determining a
pro rata share under this Agreement, such pro rata share shall be the ratio of
the number of shares of Common Stock held by each Stockholder to the number of
shares of Common Stock then held by all stockholders. For this purpose all
amounts shall be calculated by (i) treating all shares of Preferred Stock then
held by any Stockholder as converted on the date of any notice under this
Section 2.5 into the largest whole number of shares of Common Stock into which
such shares are then convertible and (ii) treating all other securities
exercisable for or exchangeable into Common Stock as outstanding on the date of
any such notice.

                           (d) Allocation Among Affiliates. If any Stockholder
has any Affiliates which hold Common Stock or who also hold Preferred Stock,
such persons may allocate among themselves, in such manner as they may
determine, their respective rights to purchase Offered Securities under this
Section 2.5.

         2.6. Legends; Shares Subject to this Agreement. Unless otherwise
expressly provided herein, no Stockholder shall Transfer any Shares to any
person (regardless of the manner in which such Stockholder initially acquired
such Shares) nor shall the Company issue, sell or otherwise transfer any Shares
to any person (all persons acquiring Shares from a Stockholder or from the
Company, regardless of the method of transfer, shall be referred to collectively
as "Transferees" and individually as a "Transferee") unless (i) such Shares bear
legends as provided in Section 4.1 and (ii) such Transferee shall have executed
and delivered to the Company, as a condition precedent to any acquisition of
such Shares, an instrument in form and substance reasonably satisfactory to the
Company confirming that such Transferee agrees to become a party to this
Agreement and takes such Shares subject to all the terms and conditions of this
Agreement; provided that the provisions of this Section 2.6 shall not apply in
respect of a sale of Shares included in a registered public offering under the
Securities Act and the rules and regulations promulgated thereunder. The Company
shall not transfer upon their books any Shares to any person except in
accordance with this Agreement.

                                       11

<PAGE>

3.       REPRESENTATIONS AND COVENANTS

         3.1 Representation of Stockholders. Each Stockholder hereby represents
that such Stockholder owns, beneficially and of record, free and clear of any
liens or encumbrances (or in the case of Summit, will own upon the closing of
the transactions contemplated by the Stock Purchase Agreement), the number of
Shares set forth beside such Stockholder's name on Exhibit A hereto. Further,
each Stockholder represents that such Stockholder has full power and authority
to enter into and to perform this Agreement in accordance with its terms and
except for the Prior Stockholders' Agreement (if applicable), such Shareholder
is not bound by any proxy or any voting agreement with respect to any Shares.

         3.2 Summit Warrant. The Founders and the Percon Group hereby represent
that they have reviewed the terms and conditions set forth in the Warrant and
hereby consent to the issuance of the Warrant to Summit pursuant to the Stock
Purchase Agreement. Further, the Founders and the Percon Group agree to perform
all acts and execute all documents, consents and instruments that may be
necessary or convenient to enable Summit to exercise the Warrant pursuant to its
terms.

4.       MISCELLANEOUS

         4.1. Legends on Stock Certificates. A copy of this Agreement shall be
filed with the Secretary of the Company and kept with the records of the
Company. Each of the Stockholders hereby agrees that each outstanding
certificate representing Shares subject to this Agreement shall bear legends
reading substantially as follows:

                  (a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  ANY STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE
                  TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
                  AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
                  EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT AND SUCH
                  STATE SECURITIES OR BLUE SKY LAWS.

                  (b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
                  RESTRICTIONS ON TRANSFER, AND CERTAIN VOTING RESTRICTIONS, ON
                  THE TERMS AND CONDITIONS SET FORTH IN AN STOCKHOLDERS'
                  AGREEMENT DATED AS OF JUNE ___, 2002, A COPY OF WHICH MAY BE
                  OBTAINED FROM THE COMPANY OR FROM THE HOLDER OF THIS
                  CERTIFICATE. NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE
                  BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF
                  COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.

                  (c) THE HOLDER OF THIS CERTIFICATE AGREES FOR SUCH PERIOD AS
                  THE COMPANY'S INVESTMENT BANKER SHALL REASONABLY REQUEST AND
                  TO THE EXTENT ALSO AGREED TO BY THE FOUNDERS (AS SUCH TERM IS
                  DEFINED IN THE SHAREHOLDERS AGREEMENT), NOT TO DIRECTLY OR
                  INDIRECTLY OFFER, SELL (INCLUDING BY EFFECTING ANY SHORT
                  SALE), CONTRACT TO SELL, HYPOTHECATE, PLEDGE, GRANT ANY OPTION
                  FOR THE SALE OF, ACQUIRE ANY OPTION TO DISPOSE OF, TRANSFER OR

                                       12
<PAGE>

                  OTHERWISE DISPOSE OF ANY COMMON STOCK, WITHOUT OBTAINING THE
                  PRIOR WRITTEN CONSENT OF SUCH INVESTMENT BANKER, WHICH CONSENT
                  MAY BE WITHHELD OR GRANTED IN SUCH INVESTMENT BANKER'S SOLE
                  DISCRETION.

Such certificate shall bear any additional legend required by the Asset
Agreement or required for compliance with state securities or blue sky laws.

         4.2. Term. This Agreement shall terminate on the date of the first to
occur of the following events: (i) the closing of a Qualified Public Offering
(as defined in the Company's Certificate of Designation); (ii) Bankruptcy,
receivership, or dissolution of the Company; (iii) the voluntary agreement of
all the parties who are then bound by the terms hereof; (iv) the acquisition of
all the Shares by one of the Stockholders; (v) the full and complete exercise of
all the rights under the Warrant by Summit (or its assignee) pursuant to its
terms; or (vi) five years from the date of this Agreement.

         4.3. Injunctive Relief. It is hereby agreed and acknowledged that it
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person shall,
therefore, be entitled to injunctive relief, including specific performance, to
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.

         4.4. Notices. All notices, statements, instructions or other documents
required to be given hereunder, shall be in writing and shall be given either by
hand delivery, by overnight delivery service, by facsimile transmission or by
mailing the same in a sealed envelope, first-class mail, postage prepaid and
either certified or registered, return receipt requested, addressed as follows:

if to the Percon Group, to:         Performance Control, LLC
                                    c/o Seyburn, Kahn, Ginn, Bess and Serlin
                                    Attn:  Bruce Seyburn
                                    2000 Town Center
                                    Suite 1500
                                    Southfield, MI 48075

with a copy to their counsel:       Seyburn, Kahn, Ginn, Bess and Serlin
                                    2000 Town Center
                                    Suite 1500
                                    Southfield, MI 48075

                                       13
<PAGE>

if to the Founders, to:             to the addresses in the recitals of
                                    the Agreement

if to the Company:                  Power Efficiency Corporation
                                    4220 Varsity Drive, Suite E
                                    Ann Arbor, MI  48108

with a copy to their counsel:       Gerard S. DiFiore, Esq.
                                    Reed Smith LLP
                                    One Riverfront Plaza, First Floor
                                    Newark, NJ  07102

if to Summit Energy Ventures, LLC:  Summit Energy Ventures, LLC
                                    423 Second Avenue, Ext. S
                                    Metropole Building, Suite 31
                                    Seattle, WA  98104

with a copy to their counsel:       Milbank, Tweed, Hadley & McCloy, LLP
                                    630 Hansen Way
                                    Second Floor
                                    Palo Alto, CA  94304

and to the other parties at their addresses reflected in the stock records of
the Company. Each Stockholder, by written notice given to the Company in
accordance with this Section 4.4 may change the address to which notices,
statements, instruction or other documents are to be sent to such Stockholder.
All notices, statements, instructions and other documents hereunder that are (i)
mailed shall be deemed to have been given on the date of mailing, (ii) sent by
hand delivery or by facsimile transmission shall be deemed to have been given
when received, or (iii) sent by overnight delivery service shall be deemed to
have been given one business day after sent. Whenever pursuant to this Agreement
any notice is required to be given by any Stockholder to any other Stockholder
or Stockholders, such Stockholder may request from the Company a list of
addresses of all Stockholders of the Company, which list shall be promptly
furnished to such Stockholder.

                                       14
<PAGE>

         4.5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties, and their respective successors and
permitted assigns. If any Transferee of any Stockholder shall acquire any
Shares, or any right to acquire Shares, in any manner, whether by operation of
law or otherwise, such Shares shall be held subject to all of the terms of this
Agreement, and by taking and holding such Shares such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement. Subject to this Section 4.5, the
Stockholders may assign their rights hereunder to any person to whom they sell
or otherwise transfer Shares (including Common Stock issued upon the conversion
of Series A-1 Convertible Preferred Stock)

         4.6. Company Information. The Company agrees to deliver to each
Stockholder, without charge, so long as such Stockholder owns any Shares:

                           (a) Within 45 days after the end of each 0quarterly
fiscal period (except the last) in each fiscal year of the Company, a
consolidated balance sheet of the Company and their consolidated Subsidiaries as
of the end of such quarter, and consolidated statements of income and cash flow
of the Company and their consolidated Subsidiaries for such quarter and the
portion of the fiscal year ending with such quarter, setting forth in each case
in comparative form the figures for the corresponding periods a year earlier and
the figures set forth in the Company's budget for such periods and accompanied
by a narrative description of such financial statements in reasonable detail
prepared by the chief accounting or financial officer of the Company.

                           (b) Within 90 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and their
consolidated Subsidiaries as of the end of such fiscal year, and consolidated
statements of income, and cash flows for such fiscal year, in each case prepared
in accordance with generally accepted accounting principles, setting forth in
each case in comparative form the figures for the previous fiscal year and the
figures set forth in the Company's budget for such fiscal year.

                           (c) Promptly after receipt of a request therefor,
any information required by or necessary for a Stockholder to comply with local,
state or federal regulatory or tax filing requirements.

                           (d) Permit representatives of the Founders,
the Percon Group and Summit at reasonable times upon prior reasonable notice to
visit and inspect such financial records and the premises of the Company at
reasonable times on reasonable notice and to make copies of such records as such
representatives deem necessary, other than documents subject to the
attorney-client privilege or the attorney work product privilege, and to discuss
the business, operations, assets, properties and financial and other conditions
of the Company with officers and employees of the Company and with their
independent accountants.

                           (e) With reasonable promptness, such other data and
information as from time to time may be reasonably requested.

                                       15
<PAGE>

         4.7. Governing Law. Regardless of the place of execution, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, applicable to contracts made and to be performed entirely
within such state.

         4.8. Headings. All headings are inserted herein for convenience only
and do not form a part of this Agreement.

         4.9. Entire Agreement; Amendment. This Agreement and the other
agreements referenced herein contain the entire agreement among the parties
hereto with respect to the transactions contemplated herein and supersede all
prior written agreements and negotiations and oral understandings, if any, and
this Agreement may not be amended, supplemented or discharged except by an
instrument in writing signed by all the Stockholders. Concurrently with such
amendment or modification of this Agreement or as soon thereafter as is
practicable the Certificate of Incorporation and By-Laws of the Company shall be
amended by necessary corporate action. In the event that any Stockholder, or the
Company shall be required, as a result of the enactment, amendment or
modification, subsequent to the date hereof, of any applicable law or
regulations, or by the order of any governmental authority, to take any action
which is inconsistent with or which would constitute a violation or breach of
any terms of this Agreement, then the Stockholders, and the Company shall use
their best efforts to negotiate an appropriate amendment or modification of, or
waiver of compliance with, such terms.

         4.10. No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege of a party hereunder shall operate as a waiver nor a
consent to the modification of the terms hereof unless given by that party in
writing.

         4.11. Undertaking. The Founders and the Company hereby agree that
before completing any extraordinary corporate transaction involving the Company,
the Founders and the Company will consider, and will consult with Percon Group
and Summit with respect to, methods to minimize or eliminate any adverse income
tax consequences to Percon Group and Summit that could arise as a result of such
extraordinary corporate transaction, and the Founders and the Company will take
such actions as they deem necessary or appropriate to minimize or eliminate any
such adverse income tax consequences to Percon Group and Summit, so long as in
the opinion of counsel to the Founders and the Company such actions will not
have any adverse consequence or effect on the Founders or the Company.

         4.12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Fax copy signatures shall
be given the same effect as original signatures.

      [rest of page left blank intentionally - next page is signature page]

                                       16
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first written above.

PERFORMANCE CONTROL, LLC                   POWER EFFICIENCY CORPORATION

By: /s/ Philip Elkus                       By: /s/ Stephen Shulman
   -------------------------------------      ---------------------------------
   Philip Elkus, Managing Member              Stephen Shulman, President

SUMMIT ENERGY VENTURES, LLC

By: Northwest Power Management, manager

    By: /s/ Steven Strasser
        --------------------------------
        Steven Strasser, President

/s/ Anthony Caputo                         /s/ Nicholas Anderson
----------------------------------------   ------------------------------------
Anthony Caputo, Individually               Nicholas Anderson, Individually
1155 Colonial Way                          1536 208th Street
Bridgewater, NJ 08807                      Bayside, NY 08807

/s/ Philip Elkus                           /s/ Stephen Shulman
---------------------------------------    ------------------------------------
Philip Elkus, Individually                 Stephen Shulman, Individually
2488 Orchard Lake Road                     5807 Fox Hollow Court
Farmington Hill, MI 48334                  Ann Arbor, MI 48105

                                       17
<PAGE>

                                    EXHIBIT A

-------------------  -------------------  ----------------------------------
 Stockholder Name     Number of Shares       Number of Shares of Series A-1
                       of Common Stock          Convertible Preferred Stock
-------------------  -------------------  ----------------------------------
Nicholas Anderson       1,379,833                    -0-
-------------------  -------------------  ----------------------------------
  Anthony Caputo        1,361,085                    -0-
-------------------  -------------------  ----------------------------------
   Philip Elkus          [22,500]                    -0-
-------------------  -------------------  ----------------------------------
    Percon LLC         [1,004,853]                   -0-
-------------------  -------------------  ----------------------------------
 Stephen Shulman         [64,843]                    -0-
-------------------  -------------------  ----------------------------------
      Summit               -0-              2,346,233*[this equates to
                                                4,692,466 votes]
-------------------  -------------------  ----------------------------------

                                       18

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