Document:

Unassociated Document

    NEITHER
      THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY OTHER
      APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
      NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD,
      PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
      AN
      EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION
      WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT
      OR
      ANY APPLICABLE STATE LAWS. THIS WARRANT MAY NOT BE EXERCISED BY OR ON BEHALF
      OF
      A UNITED STATES PERSON UNLESS REGISTERED UNDER THE SECURITIES ACT OR AN
      EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

     

    STOCK
      PURCHASE WARRANT

     

    Warrant
      #
      ___

     

    To
      Purchase [_____]
      Shares
      of Common Stock of 

     

    POWER
      EFFICIENCY CORPORATION

     

    THIS
      CERTIFIES that, for value received, [________________] (the “Holder”), is
      entitled, upon the terms and subject to the limitations on exercise and the
      conditions hereinafter set forth, at any time on or after the date hereof (the
      “Initial Exercise Date”) and on or prior to the close of business on
[ ],
      2012
      (the “Termination Date”) but not thereafter, to subscribe for and purchase from
      POWER EFFICIENCY CORPORATION, a corporation incorporated in the State of
      Delaware (the “Company”), up to [_________]
      shares
      (the “Warrant Shares”) of common stock, $0.001 par value, of the Company (the
“Common Stock”). The purchase price of one share of Common Stock (the “Exercise
      Price”) under this Warrant shall be $0.60. The Exercise Price and the number of
      shares for which the Warrant is exercisable shall be subject to adjustment
      as
      provided herein. In the event of any conflict between the terms of this Warrant
      and the Securities Purchase Agreement dated as of October 25, 2007 pursuant
      to
      which this Warrant has been issued (the “Purchase Agreement”), the Purchase
      Agreement shall control. Capitalized terms used and not otherwise defined herein
      shall have the meanings set forth for such terms in the Purchase
      Agreement.

     

    1. Title
      to Warrant.
      Prior
      to the Termination Date and subject to compliance with applicable laws and
      the
      terms hereof, this Warrant and all rights hereunder are transferable, in whole
      or in part, at the office or agency of the Company by the holder hereof in
      person or by duly authorized attorney, upon surrender of this Warrant together
      with the Assignment Form annexed hereto properly endorsed.

     

    2. Authorization
      of Shares.
      The
      Company covenants that all shares of Common Stock which may be issued upon
      the
      exercise of the purchase rights represented by this Warrant will, upon exercise
      of the purchase rights represented by this Warrant in accordance with the other
      terms and conditions hereof, be duly authorized, validly issued, fully paid
      and
      nonassessable and free from all taxes, liens and charges in respect of the
      issue
      thereof (other than taxes in respect of any transfer occurring contemporaneously
      with such issue).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. Exercise
      of Warrant.

     

    (a) Except
      as
      provided in Section 4 herein, exercise of the purchase rights represented by
      this Warrant may be made at any time or times on or after the Initial Exercise
      Date, and before the close of business on the Termination Date by the surrender
      of this Warrant and the Notice of Exercise Form annexed hereto duly executed,
      at
      the office of the Company (or such other office or agency of the Company as
      it
      may designate by notice in writing to the registered holder hereof at the
      address of such holder appearing on the books of the Company) and upon payment
      of the Exercise Price of the shares thereby purchased by wire transfer or
      cashier’s check drawn on a United States bank, the holder of this Warrant shall
      be entitled to receive a certificate for the number of shares of Common Stock
      so
      purchased. Certificates for shares purchased hereunder shall be delivered to
      the
      holder hereof within five
      (5)
      Trading
      Days after the date on which this Warrant shall have been exercised as
      aforesaid. This Warrant shall be deemed to have been exercised and such
      certificate or certificates shall be deemed to have been issued, and Holder
      or
      any other person so designated to be named therein shall be deemed to have
      become a holder of record of such shares for all purposes, as of the date the
      Warrant has been exercised by payment to the Company of the Exercise Price
      and
      all taxes required to be paid by Holder, if any, pursuant to Section 5 prior
      to
      the issuance of such shares, have been paid.

     

    (b) If
      this
      Warrant shall have been exercised in part, the Company shall, at the time of
      delivery of the certificate or certificates representing Warrant Shares, deliver
      to Holder a new Warrant evidencing the rights of Holder to purchase the
      unpurchased shares of Common Stock called for by this Warrant, which new Warrant
      shall in all other respects be identical with this Warrant.

     

    4. No
      Fractional Shares or Scrip.
      No
      fractional shares or scrip representing fractional shares shall be issued upon
      the exercise of this Warrant. In lieu thereof, any fractional shares to which
      Holder is entitled shall be rounded up or down to the nearest whole
      share.

     

    5. Charges,
      Taxes and Expenses.
      Issuance of certificates for shares of Common Stock upon the exercise of this
      Warrant shall be made without charge to the holder hereof for any issue or
      transfer tax or other incidental expense in respect of the issuance of such
      certificate, all of which taxes and expenses shall be paid by the Company,
      and
      such certificates shall be issued in the name of the holder of this Warrant
      or
      in such name or names as may be directed by the holder of this Warrant;
      provided, however, in the event certificates for shares of Common Stock are
      to
      be issued in a name other than the name of the holder of this Warrant, this
      Warrant when surrendered for exercise shall be accompanied by the Assignment
      Form attached hereto duly executed by the holder hereof; and the Company may
      require, as a condition thereto, the payment of a sum sufficient to reimburse
      it
      for any transfer tax incidental thereto.

     

    6. Closing
      of Books.
      The
      Company will not close its stockholder books or records in any manner which
      prevents the timely exercise of this Warrant.

     

    
      
        
        

      

      
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    7. Transfer,
      Division and Combination.
      

     

    (a) Subject
      to compliance with any applicable securities laws, transfer of this Warrant
      and
      all rights hereunder, in whole or in part, shall be registered on the books
      of
      the Company to be maintained for such purpose, upon surrender of this Warrant
      at
      the principal office of the Company, together with a written assignment of
      this
      Warrant substantially in the form attached hereto duly executed by Holder or
      its
      agent or attorney and funds sufficient to pay any transfer taxes payable upon
      the making of such transfer. Upon such surrender and, if required, such payment,
      the Company shall execute and deliver a new Warrant or Warrants in the name
      of
      the assignee or assignees and in the denomination or denominations specified
      in
      such instrument of assignment, and shall issue to the assignor a new Warrant
      evidencing the portion of this Warrant not so assigned, and this Warrant shall
      promptly be cancelled. A Warrant, if properly assigned, may be exercised by
      a
      new holder for the purchase of shares of Common Stock without having a new
      Warrant issued.

     

    (b) This
      Warrant may be divided or combined with other Warrants upon presentation hereof
      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 Holder or its agent or attorney. Subject to compliance with Section
      7(a), 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.

     

    (c) The
      Company shall prepare, issue and deliver at its own expense (other than transfer
      taxes) the new Warrant or Warrants under this Section 7.

     

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

     

    8. No
      Rights as Shareholder until Exercise.
      This
      Warrant does not entitle the holder hereof to any voting rights or other rights
      as a shareholder of the Company prior to the exercise hereof. Upon the surrender
      of this Warrant and the payment of the aggregate Exercise Price, the Warrant
      Shares so purchased shall be and be deemed to be issued to such holder as the
      record owner of such shares as of the close of business on the later of the
      date
      of such surrender or payment.

     

    9. Loss,
      Theft, Destruction or Mutilation of Warrant.
      The
      Company covenants that upon receipt by the Company of evidence reasonably
      satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
      certificate or any stock certificate relating to the Warrant Shares, and in
      case
      of loss, theft or destruction, of indemnity or security reasonably satisfactory
      to it (which shall not include the posting of any bond), and upon surrender
      and
      cancellation of such Warrant or stock certificate, if mutilated, the Company
      will make and deliver a new Warrant or stock certificate of like tenor and
      dated
      as of such cancellation, in lieu of such Warrant or stock
      certificate.

     

    10. Saturdays,
      Sundays, Holidays, etc.
      If the
      last or appointed day for the taking of any action or the expiration of any
      right required or granted herein shall be a Saturday, Sunday or a legal holiday,
      then such action may be taken or such right may be exercised on the next
      succeeding day not a Saturday, Sunday or legal holiday.

     

    
      
        
        

      

      
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    11. Adjustments
      of Exercise Price and Number of Warrant Shares; Stock Splits,
      etc.
      The
      number and kind of securities purchasable upon the exercise of this Warrant
      and
      the Exercise Price shall be subject to adjustment from time to time upon the
      happening of any of the following. In case the Company shall (i) pay a dividend
      in shares of Common Stock or make a distribution in shares of Common Stock
      to
      holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
      of Common Stock into a greater number of shares of Common Stock, (iii) combine
      its outstanding shares of Common Stock into a smaller number of shares of Common
      Stock or (iv) issue any shares of its capital stock in a reclassification of
      the
      Common Stock, then the number of Warrant Shares purchasable upon exercise of
      this Warrant immediately prior thereto shall be adjusted so that the holder
      of
      this Warrant shall be entitled to receive the kind and number of Warrant Shares
      or other securities of the Company which he would have owned or have been
      entitled to receive had such Warrant been exercised in advance thereof. Upon
      each such adjustment of the kind and number of Warrant Shares or other
      securities of the Company which are purchasable hereunder, the holder of this
      Warrant shall thereafter be entitled to purchase the number of Warrant Shares
      or
      other securities resulting from such adjustment at an Exercise Price per Warrant
      Share or other security obtained by multiplying the Exercise Price in effect
      immediately prior to such adjustment by the number of Warrant Shares purchasable
      pursuant hereto immediately prior to such adjustment and dividing by the number
      of Warrant Shares or other securities of the Company resulting from such
      adjustment. An adjustment made pursuant to this paragraph shall become effective
      immediately after the effective date of such event retroactive to the record
      date, if any, for such event.

     

    12. Reorganization
      Reclassification Merger Consolidation or Disposition of Assets.
      In case
      the Company shall reorganize its capital, reclassify its capital stock,
      consolidate or merge with or into another corporation (where the Company is
      not
      the surviving corporation or where there is a change in or distribution with
      respect to the Common Stock of the Company), or sell, transfer or otherwise
      dispose of all or substantially all its property, assets or business to another
      corporation and, pursuant to the terms of such reorganization, reclassification,
      merger, consolidation or disposition of assets, shares of common stock of the
      successor or acquiring corporation, or any cash, shares of stock or other
      securities or property of any nature whatsoever (including warrants or other
      subscription or purchase rights) in addition to or in lieu of common stock
      of
      the successor or acquiring corporation (“Other Property”), are to be received by
      or distributed to the holders of Common Stock of the Company, then Holder shall
      have the right thereafter to receive, upon exercise of this Warrant, the number
      of shares of common stock of the successor or acquiring corporation or of the
      Company, if it is the surviving corporation, and Other Property receivable
      upon
      or as a result of such reorganization, reclassification, merger, consolidation
      or disposition of assets by a holder of the number of shares of Common Stock
      for
      which this Warrant is exercisable immediately prior to such event. In case
      of
      any such reorganization, reclassification, merger, consolidation or disposition
      of assets, the successor or acquiring corporation (if other than the Company)
      shall expressly assume the due and punctual observance and performance of each
      and every covenant and condition of this Warrant to be performed and observed
      by
      the Company and all the obligations and liabilities hereunder, subject to such
      modifications as may be deemed appropriate (as determined in good faith by
      resolution of the Board of Directors of the Company) in order to provide for
      adjustments of shares of Common Stock for which this Warrant is exercisable
      which shall be as nearly equivalent as practicable to the adjustments provided
      for in this Section 12. For purposes of this Section 12, “common stock of the
      successor or acquiring corporation” shall include stock of such corporation of
      any class which is not preferred as to dividends or assets over any other class
      of stock of such corporation and which is not subject to redemption and shall
      also include any evidences of indebtedness, shares of stock or other securities
      which are convertible into or exchangeable for any such stock, either
      immediately or upon the arrival of a specified date or the happening of a
      specified event and any warrants or other rights to subscribe for or purchase
      any such stock. The foregoing provisions of this Section 12 shall similarly
      apply to successive reorganizations, reclassifications, mergers, consolidations
      or disposition of assets.

     

    
      
        
        

      

      
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    13. Voluntary
      Adjustment by the Company.
      The
      Company may at any time during the term of this Warrant reduce the then current
      Exercise Price to any amount and for any period of time deemed appropriate
      by
      the Board of Directors of the Company.

     

    14. Notice
      of Adjustment.
      Whenever the number of Warrant Shares or number or kind of securities or other
      property purchasable upon the exercise of this Warrant or the Exercise Price
      is
      adjusted, as herein provided, the Company shall promptly mail by registered
      or
      certified mail, return receipt requested, to the holder of this Warrant notice
      of such adjustment or adjustments setting forth the number of Warrant Shares
      (and other securities or property) purchasable upon the exercise of this Warrant
      and the Exercise Price of such Warrant Shares (and other securities or property)
      after such adjustment, setting forth a brief statement of the facts requiring
      such adjustment and setting forth the computation by which such adjustment
      was
      made. Such notice, in the absence of manifest error, shall be conclusive
      evidence of the correctness of such adjustment. Notwithstanding the foregoing,
      if the Company fails to give notice to the Holder of any required adjustment
      set
      forth in this Warrant, then so long as the Company has made the adjustment(s)
      required by this Warrant, the failure of the Company to give notice of such
      adjustment to the Holder will not cause the Company to incur any liability.
      

     

    15. Notice
      of Corporate Action.
      If at
      any time:

     

    (a) the
      Company shall take a record of the holders of its Common Stock for the purpose
      of entitling them to receive a dividend or other distribution, or any right
      to
      subscribe for or purchase any evidences of its indebtedness, any shares of
      stock
      of any class or any other securities or property, or to receive any other right,
      or

     

    (b) there
      shall be any capital reorganization of the Company, any reclassification or
      recapitalization of the capital stock of the Company or any consolidation or
      merger of the Company with, or any sale, transfer or other disposition of all
      or
      substantially all the property, assets or business of the Company to, another
      corporation or,

     

    (c) there
      shall be a voluntary or involuntary dissolution, liquidation or winding up
      of
      the Company;

     

    then,
      in
      any one or more of such cases, the Company shall give to Holder (i) at least
      20
      days’ (or as many days as is reasonably practicable) prior written notice of the
      date on which a record date shall be selected for such dividend, distribution
      or
      right or for determining rights to vote in respect of any such reorganization,
      reclassification, merger, consolidation, sale, transfer, disposition,
      liquidation or winding up, and (ii) in the case of any such reorganization,
      reclassification, merger, consolidation, sale, transfer, disposition,
      dissolution, liquidation or winding up, at least 20 days’ prior written notice
      of the date when the same shall take place. Such notice in accordance with
      the
      foregoing clause also shall specify (i) the date on which any such record is
      to
      be taken for the purpose of such dividend, distribution or right, the date
      on
      which the holders of Common Stock shall be entitled to any such dividend,
      distribution or right, and the amount and character thereof, and (ii) the date
      on which any such reorganization, reclassification, merger, consolidation,
      sale,
      transfer, disposition, dissolution, liquidation or winding up is to take place
      and the time, if any such time is to be fixed, as of which the holders of Common
      Stock shall be entitled to exchange their shares of Common Stock for securities
      or other property deliverable upon such disposition, dissolution, liquidation
      or
      winding up. Each such written notice shall be sufficiently given if addressed
      to
      Holder at the last address of Holder appearing on the books of the Company
      and
      delivered in accordance with Section 18(c). 

     

    
      
        
        

      

      
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    16. Authorized
      Shares.
      The
      Company covenants that during the period the Warrant is outstanding, it will
      reserve from its authorized and unissued Common Stock a sufficient number of
      shares to provide for the issuance of the Warrant Shares upon the exercise
      of
      any purchase rights under this Warrant. The Company further covenants that
      its
      issuance of this Warrant shall constitute full authority to its officers who
      are
      charged with the duty of executing stock certificates to execute and issue
      the
      necessary certificates for the Warrant Shares upon the exercise of the purchase
      rights under this Warrant. The Company will take all such reasonable action
      as
      may be necessary to assure that such Warrant Shares may be issued as provided
      herein without violation of any applicable law or regulation, or of any
      requirements of the principal market upon which the Common Stock may be
      listed.

     

    The
      Company shall not by any action, including, without limitation, amending its
      articles of incorporation or through any reorganization, transfer of assets,
      consolidation, merger, dissolution, issue or sale of securities or any other
      voluntary action, avoid or seek to avoid the observance or performance of any
      of
      the terms of this Warrant, but will at all times in good faith assist in the
      carrying out of all such terms and in the taking of all such actions as may
      be
      necessary or appropriate to protect the rights of Holder against impairment.
      Without limiting the generality of the foregoing, the Company will (a) not
      increase the par value of any shares of Common Stock receivable upon the
      exercise of this Warrant above the amount payable therefor upon such exercise
      immediately prior to such increase in par value, (b) take all such action as
      may
      be necessary or appropriate in order that the Company may validly and legally
      issue fully paid and nonassessable shares of Common Stock upon the exercise
      of
      this Warrant, and (c) use commercially reasonable efforts to obtain all such
      authorizations, exemptions or consents from any public regulatory body having
      jurisdiction thereof as may be necessary to enable the Company to perform its
      obligations under this Warrant.

     

    Before
      taking any action which would result in an adjustment in the number of shares
      of
      Common Stock for which this Warrant is exercisable or in the Exercise Price,
      the
      Company shall obtain all such authorizations or exemptions thereof, or consents
      thereto, as may be necessary from any public regulatory body or bodies having
      jurisdiction thereof.

     

    
      
        
        

      

      
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    17. Registration
      Rights.
      All
      Common Stock issuable upon exercise of this Warrant shall be deemed to be
“Registrable Securities” or such other definition of securities entitled to
      registration rights pursuant to Section 7 of the Purchase Agreement, and are
      entitled, subject to the terms and conditions of the Purchase Agreement, to
      all
      rights granted to holders of Registrable Securities thereunder. In no event
      will
      any holder of this Warrant be entitled to receive a net-cash settlement in
      lieu
      of physical settlement in shares of Common Stock, regardless of whether any
      of
      such holder’s Warrant Shares are registered pursuant to an effective
      registration statement

     

    18. Miscellaneous.

     

    (a) Jurisdiction.
      This
      Warrant shall constitute a contract under the laws of Delaware, without regard
      to its conflict of law, principles or rules, and be subject to arbitration
      pursuant to the terms set forth in this
      Warrant.

     

    (b) Restrictions.
      The
      holder hereof acknowledges that the Warrant Shares acquired upon the exercise
      of
      this Warrant, if not registered, will have restrictions upon resale imposed
      by
      state and federal securities laws.

     

    (c) Notices.
      Any
      notice, request or other document required or permitted to be given or delivered
      to the holder hereof by the Company shall be delivered in accordance with the
      notice provisions of the Purchase Agreement.

     

    (d) Remedies.
      Holder,
      in addition to being entitled to exercise all rights granted by law, including
      recovery of damages, will be entitled to specific performance of its rights
      under this Warrant. The Company agrees that monetary damages would not be
      adequate compensation for any loss incurred by reason of a breach by it of
      the
      provisions of this Warrant and hereby agrees to waive the defense in any action
      for specific performance that a remedy at law would be adequate.

     

    (e) Successors
      and Assigns.
      Subject
      to applicable securities laws, this Warrant and the rights and obligations
      evidenced hereby shall inure to the benefit of and be binding upon the
      successors of the Company and the successors and permitted assigns of Holder.
      The provisions of this Warrant are intended to be for the benefit of all Holders
      from time to time of this Warrant and shall be enforceable by any such Holder
      or
      holder of Warrant Shares.

     

    (f) Amendment.
      This
      Warrant may be modified or amended or the provisions hereof waived with the
      written consent of the Company and the Holder.

     

    (g) Severability.
      Wherever possible, each provision of this Warrant shall be interpreted in such
      manner as to be effective and valid under applicable law, but if any provision
      of this Warrant 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 provisions or the remaining
      provisions of this Warrant.

     

    (h) Headings.
      The
      headings used in this Warrant are for the convenience of reference only and
      shall not, for any purpose, be deemed a part of this Warrant.

     

    
      
        
        

      

      
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    (i) Arbitration.
      In the
      event any controversy or dispute shall arise between the parties under, out
      of,
      in connection with, or relating to this Warrant or the breach thereof, the
      party
      initiating such controversy or making such claim shall provide to the other
      party notice containing a brief and concise statement of the initiating party’s
      claims, together with relevant facts supporting them. Following the date of
      said
      notice, the parties shall make good faith efforts to settle the dispute. In
      the
      event the parties have been unable to reach accord using the procedures set
      forth in this Section 13, either party may seek binding arbitration before
      three
      (3) arbitrators in accordance with the rules of the American Arbitration
      Association (“AAA”). Each party shall appoint one arbitrator and the appointed
      arbitrators shall in turn appoint the third arbitrator. In the event the two
      appointed arbitrators are unable to agree upon the third arbitrator, the AAA
      shall designate the third arbitrator to arbitrate the controversy or dispute.
      The arbitration shall be held in Las Vegas, Nevada. Within thirty (30) days
      after initiation of arbitration, the parties shall reach agreement upon and
      thereafter follow procedures assuring that the arbitration will be concluded
      and
      the award rendered within no more than six (6) months from selection of the
      three arbitrators. Failing such agreement, AAA will design, and the parties
      will
      follow, such procedures. THE ARBITRATORS SHALL NOT AWARD ANY PARTY PUNITIVE
      OR
      EXEMPLARY DAMAGES, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK
      SUCH DAMAGES. Each party has the right before or during the arbitration to
      seek
      and obtain from the appropriate court provisional remedies such as attachment,
      preliminary injunction, replevin, etc., to avoid irreparable harm, maintain
      the
      status quo or preserve the subject matter of the arbitration.

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
      officer thereunto duly authorized.

     

    Dated:
      October [__],
      2007

     

    
      	 	 	 
	 	POWER EFFICIENCY CORPORATION
	 
 	 
 	 
 
	 	By:  	 
	 	
              Name: 

            	 
	 	
              Title:

            	 

    

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NOTICE
      OF
      EXERCISE

     

    To:
      Power
      Efficiency Corporation.

     

    (1) The
      undersigned hereby elects to purchase shares
      of
      Common Stock (the “Common Stock”), of Power Efficiency Corporation, a Delaware
      corporation pursuant to the terms of the attached Warrant, and tenders herewith
      payment of the exercise price in full, together with all applicable transfer
      taxes, if any.

     

    (2) Please
      issue a certificate or certificates representing said shares of Common Stock
      in
      the name of the undersigned or in such other name as is specified
      below:

     

     

    
      	 	 	 
	 	 
	 
 	 
  
 
	 	 (Name)
	 	 
	 	 
	 	 (Address)
	 	 
	
              Dated:

            	 
	 	 
	 	 
	 	Signature

    

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    ASSIGNMENT
      FORM

     

    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information.

    Do
      not
      use this form to exercise the warrant.)

     

    FOR
      VALUE
      RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby
      assigned to

     

    _____________________________________________________
      whose address  is

     

     _____________________________________________________________________________.

     

    Dated:
      ______________________,_____

    

    Holder’s
      Signature:  _________________________________

     

    Holder’s
      Address:  __________________________________

     

    

     

    Signature
      Guaranteed: ____________________________________________________

     

    

    NOTE:
      The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust company. Officers of
      corporations and those acting in an fiduciary or other representative capacity
      should file proper evidence of authority to assign the foregoing
      Warrant.Unassociated Document

    SECURITIES
      PURCHASE AGREEMENT

     

    Power
      Efficiency Corporation

    3960
      Howard Hughes Parkway

    Suite
      460

    Las
      Vegas, NV 89169

    

    Ladies
      & Gentlemen:

    

    Each
      undersigned investor set forth on the Schedule of Investors attached as Annex
      I
      hereto (each, an “Investor” and, collectively, the “Investors”), hereby confirms
      its agreement with you as follows:

     

    1. This
      Securities Purchase Agreement (the “Agreement”) is made as of October ____, 2007
      between Power Efficiency Corporation, a Delaware corporation (the “Company”),
      and each of the Investors.

     

    2. The
      Company has authorized the sale and issuance of up to 140,000
      units
      (the “Units”) to the Investors in a private placement offering (the “Offering”)
      commencing as of the date hereof and continuing through December 31, 2007 (the
      “Termination Date”). Each Unit consists of one share of preferred stock of the
      Company, par value $0.001 per share (the “Preferred Stock”) and a warrant in
      substantially the form attached hereto as Annex III to purchase a number of
      shares of common stock of the Company, par value $0.001 per share (the “Common
      Stock”) equal to 100% of the total Units purchased by such Investor pursuant to
      this Agreement (each a “Warrant” and collectively for all Investors, the
“Warrants”). Initially, one share of Preferred Stock shall be convertible into
      two shares of Common Stock, subject to adjustment as set forth in the
      Certificate of Designation setting forth the rights, preferences and privileges
      of the Preferred Stock. 

     

    3. The
      Company and the Investors agree that each Investor will, severally and not
      jointly, purchase from the Company and the Company will issue and sell to the
      Investors that number of Units as set forth opposite each Investor’s name on
      Annex I attached hereto, for a purchase price of $50.00 per Unit, pursuant
      to
      the Terms and Conditions for Purchase of Units attached hereto as Annex II
      and
      incorporated herein by reference as if fully set forth herein (the “Terms and
      Conditions”). Notwithstanding the foregoing, certain Investors, as well as
      certain officers and directors of the Company may purchase Units in the
      Offering, with the purchase price therefore being paid through the cancellation
      of deferred compensation owed, or promissory notes payable, to such Investors,
      officers or directors. Unless otherwise requested by the Investor, certificates
      representing the Preferred Stock and the Warrants purchased by the Investor
      will
      be registered in the Investor’s name and address as set forth on Annex
      I.

     

    4. Each
      Investor represents that, except as set forth below, (a) it has had no position,
      office or other material relationship within the past three years with the
      Company or persons known to it to be affiliates of the Company and (b) it has
      no
      direct or indirect affiliation or association with any Financial Industry
      Regulatory Authority (“FINRA”) member as of the date hereof.
      Exceptions:

     

    (If
      no
      exceptions, write “none.” If left blank, response will be deemed to be
“none.”)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Please
      confirm the foregoing correctly sets forth the agreement between us by signing
      in the space provided below for that purpose. By executing this Agreement,
      you
      acknowledge that the Company may use or rely upon (i) the information in
      paragraph 4 above, (ii) the representations and warranties in Section 5 of
      the
      Terms and Conditions, solely with respect to the Investors and (iii) the name
      and address information below in preparation of the Registration Statement
      (as
      defined in Annex II).

     

    
      	
              AGREED
                AND ACCEPTED:

            	 
	
              POWER
                EFFICIENCY CORPORATION

               

               

               

               

              By:
                ________________________

              Name:
                Steven Z. Strasser

              Title:
                Chairman & CEO

            	
              INVESTORS:

               

              [ENTITY]

               

               

              By:
                ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              Address:

               

              Name
                in which securities should be registered (if different):

              _____________________________________________

            
	 	
               

              [ENTITY]

               

               

              By:
                ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              Address:
                 

               

              Name
                in which securities should be registered (if different):

              
                _____________________________________________

              

            

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    
      	 	
               

              [ENTITY]

               

               

              By: ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              Address:

Name
                in which securities should be registered (if different):

              _____________________________________________

            
	 	
               

              [ENTITY]

               

               

              By:
                ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              Address:  

Name
                in which securities should be registered (if different):

              
                _____________________________________________

              

            
	 	
               

               

              [ENTITY]

               

               

              By:
                ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              Address:  

Name
                in which securities should be registered (if different):

              _____________________________________________

            

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    ANNEX
      I

     

    SCHEDULE
      OF INVESTORS

     

    
      	
              NAME
                AND ADDRESS OF PURCHASER

            	
              NUMBER
                OF UNITS

            	
              AGGREGATE
                PURCHASE PRICE

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              [Entity]

               

              [Address]

               

            	 	
              $

            
	
              TOTAL

            	 	
              $

            

    

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    THE
      UNITS
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, AND, UNLESS SO REGISTERED,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
      TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
      ACT.
      THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
      COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
      EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON OR ENDORSED
      THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS CONFIDENTIAL
      SUMMARY OF TERMS AND CONDITIONS. ANY REPRESENTATION TO THE CONTRARY IS A
      CRIMINAL OFFENSE. THE UNITS ARE BEING OFFERED PURSUANT TO EXEMPTIONS FROM
      REGISTRATION REQUIREMENTS PROVIDED BY SECTION 4(2) OF THE SECURITIES ACT,
      REGULATION D AND RULE 506 THEREUNDER, CERTAIN STATE SECURITIES LAWS AND CERTAIN
      RULES AND REGULATIONS PROMULGATED PURSUANT THERETO. THE UNITS MAY NOT BE
      TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
      OF
      AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
      STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
      COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS DOCUMENT
      DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE
      SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
      TO MAKE SUCH OFFER OR SOLICITATION.

     

    ANNEX
      II

     

    TERMS
      AND CONDITIONS FOR PURCHASE OF UNITS

     

    1. Authorization
      and Sale of the Units.
      Subject
      to these Terms and Conditions, the Company has authorized the sale and issuance
      of up to 140,000
      Units.

     

    2. Agreement
      to Sell and Purchase the Units.
      At each
      Closing (as defined in Section 3), the Company will sell to each Investor,
      and
      such Investor will severally purchase from the Company, upon the terms and
      conditions hereinafter set forth, the number of Units set forth opposite such
      Investor’s name in Annex I to the Securities Purchase Agreement (the
“Agreement”) to which these Terms and Conditions are attached as Annex II, at
      the purchase price set forth thereon.

     

    3. Delivery
      of the Preferred Stock and Warrants at Closing.
      A
      closing on the purchase and sale of the Units (each, a “Closing”) shall occur at
      such time or times as the Company determines at the offices of the Company’s
      counsel. At each Closing, the Company shall deliver to each Investor, versus
      payment therefor, (i) one or more stock certificates representing the number
      of
      shares of Preferred Stock and (ii) one or more Warrants underlying the number
      of
      Units set forth opposite such Investor’s name in Annex I of the Agreement, each
      such certificate or Warrant to be held in the name of such Investor or, if
      so
      indicated on the signature page of the Agreement, in the name of a nominee
      designated by the Investor. The Preferred Stock certificates and the Warrants
      shall bear an appropriate restrictive legend as required by applicable
      securities laws.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    The
      Company’s obligation to issue the Units to the Investors shall be subject to the
      following conditions, any one or more of which may be waived by the Company:
      (a)
      receipt by the Company of a certified or official bank check or wire transfer
      of
      funds in the full amount of the purchase price for the Units being purchased
      hereunder, (b) receipt of aggregate investments for not less than 90,000 Units
      and (c) the accuracy of the representations and warranties made by the Investors
      and the fulfillment of those undertakings of the Investors.

     

    Each
      Investor’s obligation to purchase the Units shall be subject to the following
      conditions, any one or more of which may be waived by such Investor: (a) the
      representations and warranties of the Company set forth herein shall be true
      and
      correct as of the date of each Closing in all material respects and (b) the
      Investor shall have received such documents as such Investor shall reasonably
      have requested, including compliance and Secretary’s certificates and, subject
      to the accuracy of the information and the representations and warranties
      required to be provided by each Investor, as to exemption from the registration
      requirements of the Securities Act of 1933, as amended (the “Securities
      Act”).

     

    4. Representations,
      Warranties and Covenants of the Company.
      Except
      as otherwise described in the Disclosure Schedule delivered to the Investors
      prior to the execution of this Agreement, the Company hereby represents and
      warrants to, and covenants with, the Investors, as follows:

     

    4.1 Organization.
      The
      Company is duly organized and validly existing under the laws of the
      jurisdiction of its organization. Each of the Company and its Subsidiaries
      (as
      defined in Rule 405 under the Securities Act) has full power and authority
      to
      own, operate and occupy its properties and to conduct its business as presently
      conducted and as described in the documents filed by the Company under the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), since the end
      of its most recently completed fiscal year through the date hereof, including,
      without limitation, its most recent reports on Form 10-KSB and Form 10-QSB
      (collectively, the “Exchange Act Documents”) and is registered or qualified to
      do business and in good standing in each jurisdiction in which the nature of
      the
      business conducted by it or the location of the properties owned or leased
      by it
      requires such qualification and where the failure to be so qualified would
      have
      a material adverse effect upon the condition (financial or otherwise), earnings,
      business or business prospects, properties or operations of the Company and
      its
      Subsidiaries, considered as one enterprise (a “Material Adverse Effect”), and no
      proceeding has been instituted in any such jurisdiction, revoking, limiting
      or
      curtailing, or seeking to revoke, limit or curtail, such power and authority
      or
      qualification.

     

    4.2 Due
      Authorization and Valid Issuance.
      The
      Company has all requisite power and authority to execute, deliver and perform
      its obligations under the Agreement, and the Agreement has been duly authorized
      and validly executed and delivered by the Company and constitutes the legal,
      valid and binding agreement of the Company enforceable against the Company
      in
      accordance with its terms, except as rights to indemnity and contribution may
      be
      limited by state or federal securities laws or the public policy underlying
      such
      laws, except as enforceability may be limited by applicable bankruptcy,
      insolvency, reorganization, moratorium or similar laws affecting creditors’ and
      contracting parties’ rights generally and except as enforceability may be
      subject to general principles of equity (regardless of whether such
      enforceability is considered in a proceeding in equity or at law). Furthermore,
      the Company has complied with Delaware Corporations Code Section 144(a).

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    4.3 Non-Contravention.
      The
      execution and delivery of the Agreement, the issuance and sale of the Units
      under the Agreement, the fulfillment of the terms of the Agreement and the
      consummation of the transactions contemplated hereby will not (A) conflict
      with
      or constitute a violation of, or default (with the passage of time or otherwise)
      under, (i) any material bond, debenture, note or other evidence of indebtedness,
      lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
      venture or other agreement or instrument to which the Company or any Subsidiary
      is a party or by which it or any of its Subsidiaries or their respective
      properties are bound, (ii) the charter, bylaws or other organizational documents
      of the Company or any Subsidiary, or (iii) any law, administrative regulation,
      ordinance or order of any court or governmental agency, arbitration panel or
      authority applicable to the Company or any Subsidiary or their respective
      properties other than in relation to any offering of securities under Section
      5
      of the Securities Act or (iv) any offering of securities under Section 5 of
      the
      Securities Act, assuming compliance by the Investors with the terms and
      conditions hereof and the truthfulness and accuracy of the Investors'
      representations and warranties set forth in Section 5 hereof, except in the
      case
      of clauses (i), (iii) and (iv) for any such conflicts, violations or defaults
      which are not reasonably likely to have a Material Adverse Effect, individually
      or in the aggregate, or (B) result in the creation or imposition of any lien,
      encumbrance, claim, security interest or restriction whatsoever upon any of
      the
      material properties or assets of the Company or any Subsidiary or an
      acceleration of indebtedness pursuant to any obligation, agreement or condition
      contained in any material bond, debenture, note or any other evidence of
      indebtedness or any material indenture, mortgage, deed of trust or any other
      agreement or instrument to which the Company or any Subsidiary is a party or
      by
      which any of them is bound or to which any of the material property or assets
      of
      the Company or any Subsidiary is subject. No consent, approval, authorization
      or
      other order of, or registration, qualification or filing with, any regulatory
      body, administrative agency, or other governmental body in the United States
      or
      any other person is required for the execution and delivery of the Agreement
      and
      the valid issuance and sale of the Units to be sold and issued pursuant to
      the
      Agreement, other than such as have been made or obtained, and except for any
      post-closing securities filings or notifications required to be made under
      federal or state securities laws.

     

    4.4 Capitalization.
      As of
      the date hereof and prior to giving effect to the issuance of the Units,
      Disclosure Schedule 4.4 sets forth the capitalization of the Company on an
      outstanding basis and on a fully-diluted basis. Disclosure Schedule 4.4 also
      sets forth (i) any capital stock granted pursuant to an employee benefit plan
      and (ii) any outstanding warrants, options or other securities. The Units to
      be
      sold and issued pursuant to the Agreement have been duly authorized, and when
      issued and paid for in accordance with the terms of the Agreement, will be
      duly
      and validly issued, fully paid and nonassessable (other than as to a lawful
      offering of securities under Section 5 of the Securities Act) and as to a lawful
      offering of securities under Section 5 of the Securities Act, assuming the
      correctness of the representations and warranties of the Investors set forth
      in
      Section 5 hereof. Except as set forth in or contemplated by the Agreement or
      as
      described in the Disclosure Schedule, no preemptive right, co-sale right, right
      of first refusal, registration right, or other similar right exists with respect
      to the Units or the issuance and sale thereof. No further approval or
      authorization of any stockholder, the Board of Directors of the Company or
      others is required for the issuance and sale of the Units.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    4.5 Legal
      Proceedings.
      Except
      as set forth on the Disclosure Schedule, there is no material legal or
      governmental proceeding pending or, to the knowledge of the Company, threatened
      (i) to which the Company or any Subsidiary is or may be a party or of which
      the
      business or property of the Company or any Subsidiary is subject or (ii) which
      adversely affects or challenges the legality, validity or enforceability of the
      Agreement.

     

    4.6 Disclosure.
      The
      representations and warranties of the Company contained in this Section 4 as
      of
      the date hereof, do not contain any untrue statement of a material fact or
      omit
      to state a material fact required to be stated therein or necessary to make
      the
      statements therein, in light of the circumstances under which they were made,
      not misleading.

     

    4.7 Common
      Stock Listing.
      The
      Common Stock is registered pursuant to Section 12(g) of the Exchange Act and
      is
      quoted on The Over-the-Counter Bulletin Board (the “OTCBB”), and the Company has
      taken no action designed to, or likely to have the effect of, terminating the
      registration of the Common Stock under the Exchange Act or removal of the Common
      Stock from the OTCBB, nor has the Company received any notification that the
      SEC
      is contemplating terminating such registration.

     

    4.8 Reporting
      Status.
      The
      Company has filed in a timely manner all documents that the Company was required
      to file under the Exchange Act during the 12 months preceding the date of this
      Agreement. The following documents complied in all material respects with the
      SEC’s requirements as of their respective filing dates, and the information
      contained therein as of the date thereof did not contain an untrue statement
      of
      a material fact or omit to state a material fact required to be stated therein
      or necessary to make the statements therein, in light of the circumstances
      under
      which they were made, not misleading:

     

    (a) Annual
      Report on Form 10-KSB for the years ended December 31, 2005 and December 31,
      2006;

     

    (b) Definitive
      Proxy Statement for the Annual Meeting held on June 8, 2007;

     

    (c) Quarterly
      Reports on Form 10-QSB for the quarters ended September 30, 2006, March 31,
      2007
      and June 30, 2007; and

     

    (d) All
      other
      documents, if any, filed by the Company with the SEC during the 12 months
      preceding the date of this Agreement pursuant to the reporting requirements
      of
      the Exchange Act.

     

    4.9 No
      Manipulation of Stock.
      Neither
      the Company, nor any of its directors, officers or controlling persons, has
      taken or will, in violation of applicable law, take, any action designed to
      or
      that might reasonably be expected to cause or result in, or which has
      constituted, stabilization or manipulation of the price of the Common Stock
      to
      facilitate the sale or resale of the Units.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    4.10 Company
      not an “Investment Company”.
      The
      Company has been advised of the rules and requirements under the Investment
      Company Act of 1940, as amended (the “Investment Company Act”). The Company is
      not, and immediately after receipt of payment for the Units will not be, an
      “investment company” or an entity “controlled” by an “investment company” within
      the meaning of the Investment Company Act and shall conduct its business in
      a
      manner so that it will not become subject to the Investment Company
      Act.

     

    4.11 Foreign
      Corrupt Practices; Sarbanes-Oxley Act.

     

    (a) Neither
      the Company, nor to the knowledge of the Company, any agent or other person
      acting on behalf of the Company, has (i) directly or indirectly, used any
      corrupt funds for unlawful contributions, gifts, entertainment or other unlawful
      expenses related to foreign or domestic political activity, made any unlawful
      payment to foreign or domestic government officials or employees or to any
      foreign or domestic political parties or campaigns from corporate funds, (iii)
      failed to disclose fully any contribution made by the Company (or made by any
      person acting on its behalf of which the Company is aware) which is in violation
      of law, or (iv) violated in any material respect any provision of the Foreign
      Corrupt Practices Act of 1977, as amended.

     

    (b) The
      Company is in compliance in all material respects with all provisions of the
      Sarbanes-Oxley Act of 2002 that are applicable to it as of the date of each
      Closing.

     

    4.12 Environmental.
      Except
      as would not, individually or in the aggregate, reasonably be expected to have
      a
      Material Adverse Effect (i) the Company and its Subsidiaries are in compliance
      with and not subject to any known liability under applicable Environmental
      Laws
      (as defined below), (ii) the Company has made all filings and provided all
      notices required under any applicable Environmental Law, and has, and is in
      compliance with, all permits required under any applicable Environmental Laws
      and each of them is in full force and effect, (iii) (a) there is no pending
      civil, criminal or administrative action, or pending hearing or suit, (b) the
      Company has not received any demand, claim or notice of violation and (c) to
      the
      knowledge of the Company, there is no investigation, proceeding, notice or
      demand letter or request for information threatened against the Company, in
      the
      case of each of (a), (b) and (c), under any Environmental Law, (iv) no lien,
      charge, encumbrance or restriction has been recorded under any Environmental
      Law
      with respect to any assets, facility or property owned, operated, leased or
      controlled by the Company, (v) the Company has not received notice that it
      has
      been identified as a potentially responsible party under the Comprehensive
      Environmental Response, Compensation and Liability Act of 1980, as amended
      (“CERCLA”), or any comparable state law and (vi) no property or facility of the
      Company is (a) listed or, to the knowledge of the Company, proposed for listing
      on the National Priorities List under CERCLA or is (b) listed in the
      Comprehensive Environmental Response, Compensation, Liability Information System
      List promulgated pursuant to CERCLA, or on any comparable list maintained by
      any
      state or local governmental authority.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    For
      purposes of this Agreement, “Environmental Laws” means all applicable federal,
      state and local laws or regulations, codes, orders, decrees, judgments or
      injunctions issued, promulgated, approved or entered thereunder, relating to
      pollution or protection of public or employee health and safety or the
      environment, including, without limitation, laws relating to (i) emissions,
      discharges, releases or threatened releases of Hazardous Materials (as defined
      below) into the environment (including, without limitation, ambient air, surface
      water, ground water, land surface or subsurface strata), (ii) the manufacture,
      processing, distribution, use, generation, treatment, storage, disposal,
      transport or handling of Hazardous Materials and (iii) underground and above
      ground storage tanks and related piping, and emissions, discharges, releases
      or
      threatened releases therefrom. The term “Hazardous Material” means (a) any
“hazardous substance,” as defined in the Comprehensive Environmental Response,
      the Resource Conservation and Recovery Act, as amended, (b) any “hazardous
      waste,” as defined by the Resource Conservation and Recovery Act, as amended,
      (c) any petroleum or petroleum product, (d) any polychlorinated biphenyl and
      any
      pollutant or contaminant or hazardous, dangerous or toxic chemical, material,
      waste or substance.

     

    4.13 Accountants.
      Sobel
& Co., LLC, who have certified certain financial statements filed with the
      SEC as part of, or incorporated by reference in, the Company's Annual Report
      on
      Form 10-KSB for the fiscal year ended December 31, 2006, are independent public
      accountants as required by the Exchange Act and the rules and regulations
      thereunder. 

     

    4.14 Taxes.
      Except
      as set forth on the Disclosure Schedule, the Company has filed all necessary
      federal, state and foreign income and franchise tax returns and has paid or
      accrued all taxes shown as due thereon, and the Company has no knowledge of
      a
      tax deficiency which has been or might be asserted or threatened against it
      which would have a Material Adverse Effect.

     

    4.15 Transfer
      Taxes.
      On the
      date of each Closing, all securities transfer or other taxes (other than income
      taxes) which are required to be paid in connection with the sale and transfer
      of
      the Units to be sold to the Investors hereunder will be, or will have been,
      fully paid or provided for by the Company and all laws imposing such taxes
      will
      be or will have been fully complied with.

     

    4.16 Private
      Offering.
      Assuming the correctness of the representations and warranties of the Investors
      set forth in Section 5 hereof, the offer and sale of Units hereunder is exempt
      from registration under the Securities Act. The Company will not distribute
      prior to the final Closing, any offering materials in connection with this
      Offering and sale of the Units other than the documents of which this Agreement
      is a part, including the Disclosure Schedule, or the Exchange Act Documents.
      The
      Company has not in the past nor will it hereafter take any action to sell,
      offer
      for sale or solicit offers to buy any securities of the Company which would
      bring the offer, issuance or sale of the Units as contemplated by this
      Agreement, within the provisions of Section 5 of the Securities Act, unless
      such
      offer, issuance or sale was or shall be within the exemptions of Section 4
      of
      the Securities Act.

     

    4.17 Use
      of
      Proceeds.
      The
      Company shall use the proceeds from the Offering for repayment of debt, working
      capital, strategic acquisitions, if any, and general corporate
      purposes.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    4.18 Transactions
      with Affiliates.
      Other
      than as set forth on the Disclosure Schedule, as of the date hereof, the Company
      has no current plans to enter into any, agreement, contract or arrangement
      with
      any of its officers, directors or other affiliates.

     

    4.19 Brokers
      or Finders.
      Except
      as disclosed in the Disclosure Schedule, the Company has not dealt with any
      broker or finder in connection with the transactions contemplated by the
      Agreement, and Company has not incurred, and shall not incur, directly or
      indirectly, any liability for any brokerage or finders’ fees or agents
      commissions or any similar charges in connection with the transactions
      contemplated by the Agreement.

     

    4.20 Employee
      Relations.
      Neither
      the Company nor any of its Subsidiaries is involved in any union or labor
      dispute nor, to the knowledge of the Company or any of its Subsidiaries, is
      any
      such dispute threatened. None of the Company's or its Subsidiaries is a party
      to
      a collective bargaining agreement, and the Company and its Subsidiaries believe
      that their relations with their employees are good. No executive officer (as
      defined in Rule 501(f) of the Securities Act) has notified the Company that
      such
      officer intends to leave the Company or otherwise terminate such officer's
      employment with the Company. No executive officer, to the best knowledge of
      the
      Company and its Subsidiaries, is, or is now expected to be, in violation of
      any
      material term of any employment contract, confidentiality, nondisclosure or
      proprietary information agreement, non-competition agreement, or any other
      contract or agreement or any restrictive covenant, and the continued employment
      of each such executive officer does not subject the Company or any of its
      Subsidiaries to any liability with respect to any of the foregoing
      matters.

     

    4.21 No
      Misleading Statements.
      The
      representations and warranties of the Company contained in this Agreement,
      the
      Annexes, Exhibits and Disclosure Schedules hereto and all other documents and
      information furnished to the Investors and their representatives pursuant hereto
      are complete and accurate in all material respects and do not include any untrue
      statement of a material fact or omit to state any material fact necessary to
      make any statements made not misleading. There is no material fact relating
      to
      the Company or the Units that has not been set forth or described in this
      Agreement or in the Disclosure Schedules hereto or in the Exchange Act
      Documents.

     

    5. Representations
      Warranties and Covenants of the Investors.

     

    5.1 Each
      Investor, severally and not jointly, represents and warrants to, and covenants
      with, the Company that: (i) the Investor is an “accredited investor” as defined
      in Rule 501(a) of Regulation D under the Securities Act and the Investor is
      also
      knowledgeable, sophisticated and experienced in making, and is qualified to
      make, decisions with respect to investments in shares presenting an investment
      decision like that involved in the purchase of the Units, including investments
      in securities issued by the Company and investments in comparable companies,
      and
      has requested, received, reviewed and considered all information it deemed
      relevant in making an informed decision to purchase the Units; (ii) the Investor
      is acquiring the Units set forth in Annex I to the Agreement in the ordinary
      course of its business and for its own account for investment only and with
      no
      present intention of distributing any of such Units or any arrangement or
      understanding with any other persons regarding the distribution of such Units,
      except in accordance with applicable securities law; (iii) the Investor will
      not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
      of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
      of) any of the Units except in compliance with the Securities Act, applicable
      state securities laws and the respective rules and regulations promulgated
      thereunder; (iv) the Investor has answered all questions in the Agreement for
      use in preparation of the Registration Statement and the answers thereto are
      true, correct and complete in all material respects as of the date hereof and
      will be true, correct and complete in all material respects as of the date
      of
      each Closing; and (v) the Investor has, in connection with its decision to
      purchase the Units set forth in Annex I to the Agreement, relied only upon
      the
      Exchange Act Documents (which are incorporated herein by reference and which
      Investor acknowledges it has reviewed), the representations and warranties
      of
      the Company contained herein and the Disclosure Schedules. Each Investor
      understands its acquisition of the Units has not been registered under the
      Securities Act or registered or qualified under any state securities law in
      reliance on specific exemptions therefrom, which exemptions may depend upon,
      among other things, the bona fide nature of the Investor’s investment intent as
      expressed herein. Investor understands the Units purchased hereunder have to
      be
      held indefinitely unless there is an effective Registration Statement under
      the
      Securities Act with respect to the Units or an exemption from registration
      available under the Securities Act and applicable state securities laws, and
      the
      Investor is able to bear the economic risk of an investment in the
      Units.

     

    
      
        
        

      

      
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    5.2 Each
      Investor, severally and not jointly, acknowledges, represents and agrees that
      no
      action has been or will be taken in any jurisdiction outside the United States
      by the Company that would permit an offering of the Units, or possession or
      distribution of offering materials in connection with the issue of the Units,
      in
      any jurisdiction outside the United States where legal action by the Company
      for
      that purpose is required. Each Investor outside the United States will comply
      with all applicable laws and regulations in each foreign jurisdiction in which
      it purchases, offers, sells or delivers Units or has in its possession or
      distributes any offering material, in all cases at its own expense.

     

    5.3 Each
      Investor, severally and not jointly, hereby covenants with the Company not
      to
      make any sale of the Units, the Preferred Stock, the Warrants or the Common
      Stock underlying either of the Preferred Stock or Warrants without complying
      with the provisions of this Agreement, including Section 7.2 hereof and all
      securities laws, and the Investor acknowledges that the certificates evidencing
      the Preferred Stock and the Warrants will be imprinted with a legend that
      prohibits their transfer except in accordance therewith. Upon the earlier of
      (i)
      the Registration Statement becoming effective and (ii) Rule 144(k) becoming
      available, the Investors shall be entitled to exchange their certificates
      representing the Common Stock and Warrants for certificates that do not contain
      any restrictive legend. Each Investor acknowledges that there may occasionally
      be times when the Company determines that it must suspend the use of the
      prospectus forming a part of the Registration Statement, as set forth in Section
      7.2(c).

     

    5.4 Each
      Investor, severally and not jointly, further represents and warrants to, and
      covenants with, the Company that (i) the Investor has full right, power,
      authority and capacity to enter into this Agreement and to consummate the
      transactions contemplated hereby and has taken all necessary action to authorize
      the execution, delivery and performance of this Agreement, (ii) the execution
      and delivery of this Agreement, the purchase of the Units under the Agreement,
      the fulfillment of the terms of the Agreement and the consummation of the
      transactions contemplated hereby will not conflict with or constitute a
      violation of, or default (with the passage of time or otherwise) under the
      charter, bylaws or other organizational documents of the Investor, and (iii)
      this Agreement constitutes a valid and binding obligation of the Investor
      enforceable against the Investor in accordance with its terms, except as
      enforceability may be limited by applicable bankruptcy, insolvency,
      reorganization, moratorium or similar laws affecting creditors’ and contracting
      parties’ rights generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is considered
      in
      a proceeding in equity or at law) and except as the indemnification agreements
      of the Investors herein may be legally unenforceable.

     

    
      
        
        

      

      
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    5.5 Investor
      will not use any of the restricted Units acquired pursuant to this Agreement
      to
      cover any short position in the Common Stock of the Company if doing so would
      be
      in violation of applicable securities laws.

     

    5.6 Each
      Investor understands that nothing in the Exchange Act Documents, this Agreement
      or any other materials presented to the Investors in connection with the
      purchase and sale of the Units constitutes legal, tax or investment advice.
      The
      Investor has consulted such legal, tax and investment advisors as it, in its
      sole discretion, has deemed necessary or appropriate in connection with its
      purchase of Units.

     

    5.7 Except
      as
      disclosed in the Disclosure Schedule, the Investors have not dealt with any
      broker or finder in connection with the transactions contemplated by the
      Agreement, and the Investors have not incurred, and shall not incur, directly
      or
      indirectly, any liability for any brokerage or finders’ fees or agents
      commissions or any similar charges in connection with the transactions
      contemplated by the Agreement.

     

    5.8 Investor
      is not purchasing the Units as a result of any advertisement, article, notice
      or
      other communication regarding the Units published in any newspaper, magazine
      or
      similar media or broadcast over television or radio or presented at any seminar
      or any other general solicitation or general advertisement.

     

    5.9 Each
      Investor has independently evaluated the merits of its decision to purchase
      Units, such decision has been independently made by such Investor and such
      Investor confirms that it has only
      relied
      on the advice of its own business and/or legal counsel and not on the advice
      of
      the Company’s or any other Investor’s business and/or legal counsel in making
      such decision.

     

    5.10 Each
      Investor acknowledges that certain officers and directors of the Company may
      purchase Units in the Offering, with the purchase price therefore being paid
      through the cancellation of deferred compensation owed to such officers or
      directors.

     

    6. Survival
      of Representations, Warranties and Agreements.
      Notwithstanding any investigation made by any party to this Agreement, all
      covenants, agreements, representations and warranties made by the Company and
      the Investors herein shall survive the execution of this Agreement, the delivery
      to the Investors of the Units being purchased and the payment
      therefor.

     

    7. Registration
      of the Units; Compliance with the Securities Act.

     

    
      
        
        

      

      
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    7.1 Registration
      Procedures and Other Matters.
      The
      Company shall:

     

    (a) use
      its
      reasonable best efforts, subject to receipt of necessary information from the
      Investors after prompt request from the Company to the Investors to provide
      such
      information, prepare and file with the SEC, not later than 60 days from the
      Termination Date (the “Filing Date”), a registration statement on Form SB-2 or
      such other successor form (except that if the Company is not then eligible
      to
      register for resale the Registrable Securities (as defined below) on Form SB-2,
      in which case such registration shall be on any form available for registration)
      (the “Registration Statement”) to enable the resale of the shares of Common
      Stock underlying the Preferred Stock and the shares of Common Stock underlying
      the Warrants (the “Registrable Securities”) by the Investors from time to time
      through the OTCBB quotation system or in other privately-negotiated
      transactions;

     

    (b) use
      its
      reasonable best efforts, subject to receipt of necessary information from the
      Investors after prompt request from the Company to the Investors to provide
      such
      information, to cause the Registration Statement to become effective, not later
      than 120 days from the Termination Date (the “Effectiveness Date”), such efforts
      to include, without limiting the generality of the foregoing, preparing and
      filing with the SEC in such 120-day period any financial statements required
      to
      be filed prior to the effectiveness of such Registration Statement;

     

    (c) use
      its
      reasonable best efforts to prepare and file with the SEC such amendments and
      supplements to the Registration Statement and the prospectus used in connection
      therewith as may be necessary to keep the Registration Statement current,
      effective and free from any material misstatement or omission to state a
      material fact for a period not exceeding, with respect to each Investor’s
      Registrable Securities purchased hereunder, the earlier of (i) the second
      anniversary of the final Closing date, (ii) the date on which the Investors
      may
      sell all Registrable Securities then held by the Investors without restriction
      by the volume limitations of Rule 144(e) of the Securities Act, or (iii) such
      time as all Registrable Securities purchased by the Investors in this Offering
      have been sold pursuant to a registration statement;

     

    (d) furnish
      to the Investors with respect to the Registrable Securities registered under
      the
      Registration Statement such number of copies of the Registration Statement,
      prospectuses and preliminary prospectuses in conformity with the requirements
      of
      the Securities Act and such other documents as the Investors may reasonably
      request, in order to facilitate the public sale or other disposition of all
      or
      any of the Registrable Securities by the Investors; provided, however, the
      obligation of the Company to deliver copies of prospectuses or preliminary
      prospectuses to the Investors shall be subject to the receipt by the Company
      of
      reasonable assurances from the Investors that the Investors will comply with
      the
      applicable provisions of the Securities Act and of such other securities or
      blue
      sky laws as may be applicable in connection with any use of such prospectuses
      or
      preliminary prospectuses.

     

    (e) file
      documents required of the Company for normal blue sky clearance in states
      specified in writing by the Investors and use its reasonable best efforts to
      maintain such blue sky qualifications during the period the Company is required
      to maintain the effectiveness of the Registration Statement pursuant to Section
      7.1(c); provided, however, that the Company shall not be required to qualify
      to
      do business or consent to service of process in any jurisdiction in which it
      is
      not now so qualified or has not so consented;

     

    
      
        
        

      

      
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    (f) otherwise
      use commercially reasonable efforts to comply with all applicable rules and
      regulations of the SEC under the Securities Act and the Exchange Act, and take
      such other actions as may be reasonably necessary to facilitate the registration
      of the Registrable Securities hereunder;

     

    (g) bear
      all
      expenses in connection with the procedures in paragraph (a) through (e) of
      this
      Section 7.1 and the registration of the Registrable Securities pursuant to
      the
      Registration Statement; and

     

    (h) advise
      the Investors, promptly after it shall receive notice or obtain knowledge of
      the
      issuance of any stop order by the SEC delaying or suspending the effectiveness
      of the Registration Statement or of the initiation or threat of any proceeding
      for that purpose; and it will promptly use its best efforts to prevent the
      issuance of any stop order or to obtain its withdrawal at the earliest possible
      moment if such stop order should be issued.

     

    With
      a
      view to making available to the Investors the benefits of Rule 144 (or its
      successor rule) and any other rule or regulation of the SEC that may at any
      time
      permit the Investors to sell Registrable Securities to the public without
      registration, the Company covenants and agrees to: (i) make and keep public
      information available, as those terms are understood and defined in Rule 144,
      until the earlier of (A) such date as all of the Investors’ Registrable
      Securities may be resold pursuant to Rule 144(k) or any other rule of similar
      effect or (B) such date as all of the Investors’ Registrable Securities shall
      have been resold; (ii) file with the SEC in a timely manner all reports and
      other documents required of the Company under the Securities Act and under
      the
      Exchange Act; and (iii) furnish to the Investors upon request, as long as the
      Investors owns any Registrable Securities, (A) a written statement by the
      Company that it has complied with the reporting requirements of the Securities
      Act and the Exchange Act; (B) a copy of the Company’s most recent Annual Report
      on Form 10-KSB or Quarterly Report on Form 10-Q-SB and (C) such other
      information as may be reasonably requested in order to avail the Investors
      of
      any rule or regulation of the SEC that permits the selling of such Registrable
      Securities without registration.

     

    In
      no
      event at any time before the initial Registration Statement becomes effective
      with respect to the Units shall the Company publicly announce or file any other
      registration statement, other than (i) registrations on Form S-8 and (ii)
      maintaining the effectiveness of the currently effective registration statements
      of the Company, without the prior written consent of a majority in interest
      of
      the Investors.

     

    The
      Company understands the Investors disclaim being underwriters, but an Investor
      being deemed an underwriter by the SEC shall not relieve the Company of any
      obligations it has hereunder. In the event the SEC determines any Registration
      Statement filed pursuant hereto constitutes a primary offering of securities
      by
      the Company and/or requires any Investor to be named as an underwriter,
      Investors understand and agree the Company may reduce, on a pro rata basis,
      the
      total number of Registrable Securities to be registered on behalf of each such
      Investor, and the
      Company shall not be required to pay any penalty, financial or otherwise to
      any
      Investor.
      In the
      event of such reduction, the affected Investors shall have demand registration
      rights until such time as: (i) all Registrable Securities have been registered
      pursuant to an effective Registration Statement, (ii) the Registrable Securities
      may be resold without restriction pursuant to Rule 144 of the Act or (iii)
      the
      Investor agrees to be named as an underwriter in any such registration
      statement. Investors acknowledge and agree the provisions of this paragraph
      may
      apply to more than one Registration Statement and that the SEC may limit or
      condition any subsequent Registration Statement. If
      the
      Company receives notice from the SEC that it deems any Investor an
“underwriter”, the Company shall notify all Investors of same within five (5)
      business days of the date of receipt of such notice.

     

    
      
        
        

      

      
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    In
      no
      event will any registered holder of Registrable Securities be entitled to
      receive a net-cash settlement in lieu of physical settlement in shares of Common
      Stock, regardless of whether any of such holder’s Registrable Securities are
      registered pursuant to an effective registration statement.

     

    7.2 Transfer
      of Units After Registration; Suspension.

     

    (a) Each
      Investor agrees that it will not effect any disposition of the Registrable
      Securities or its right to purchase the Registrable Securities that would
      constitute a sale within the meaning of the Securities Act except as
      contemplated in the Registration Statement referred to in Section 7.1 and as
      described below or as otherwise permitted by law, and that it will promptly
      notify the Company of any changes in the information set forth in any
      Registration Statement regarding the Investor or its plan of
      distribution.

     

    (b) Except
      in
      the event that paragraph (c) below applies, the Company shall (i) if deemed
      necessary by the Company, prepare and file from time to time with the SEC a
      post-effective amendment to any Registration Statement or a supplement to the
      related prospectus or a supplement or amendment to any document incorporated
      therein by reference or file any other required document so that such
      Registration Statement will not contain an untrue statement of a material fact
      or omit to state a material fact required to be stated therein or necessary
      to
      make the statements therein not misleading, and so that, as thereafter delivered
      to purchasers of the Registrable Securities being sold thereunder, such
      prospectus will not contain an untrue statement of a material fact or omit
      to
      state a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading; (ii) provide the Investors copies of any documents filed
      pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the Company
      has complied with its obligations in Section 7.2(b)(i) (or that, if the Company
      has filed a post-effective amendment to the Registration Statement which has
      not
      yet been declared effective, the Company will notify the Investors to that
      effect, will use its best efforts to secure the effectiveness of such
      post-effective amendment as promptly as possible and will promptly notify the
      Investors when the amendment has become effective).

     

    
      
        
        

      

      
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    (c) Subject
      to paragraph (d) below, in the event (i) of any request by the SEC or any other
      federal or state governmental authority during the period of effectiveness
      of
      any Registration Statement for amendments or supplements to a Registration
      Statement or related prospectus or for additional information; (ii) of the
      issuance by the SEC or any other federal or state governmental authority of
      any
      stop order suspending the effectiveness of a Registration Statement or the
      initiation of any proceedings for that purpose; (iii) of the receipt by the
      Company of any notification with respect to the suspension of the qualification
      or exemption from qualification of any of the Units for sale in any jurisdiction
      or the initiation or threatening of any proceeding for such purpose; or (iv)
      of
      any event or circumstance which, upon the advice of its counsel, necessitates
      the making of any changes in any Registration Statement or related prospectus,
      or any document incorporated or deemed to be incorporated therein by reference,
      so that, in the case of the Registration Statement, it will not contain any
      untrue statement of a material fact or any omission to state a material fact
      required to be stated therein or necessary to make the statements therein not
      misleading, and that in the case of the prospectus, it will not contain any
      untrue statement of a material fact or any omission to state a material fact
      required to be stated therein or necessary to make the statements therein,
      in
      the light of the circumstances under which they were made, not misleading;
      then
      the Company shall deliver a certificate in writing to the Investors (the
“Suspension Notice”) to the effect of the foregoing and, upon receipt of such
      Suspension Notice, the Investors will refrain from selling any Registrable
      Securities pursuant to the Registration Statement (a “Suspension”) until the
      Investors’ receipt of copies of a supplemented or amended prospectus prepared
      and filed by the Company, or until it is advised in writing by the Company
      that
      the current prospectus may be used, and has received copies of any additional
      or
      supplemental filings that are incorporated or deemed incorporated by reference
      in any such prospectus. In the event of any Suspension, the Company will use
      its
      reasonable best efforts to cause the use of the prospectus so suspended to
      be
      resumed as soon as reasonably practicable within 20 business days after the
      delivery of a Suspension Notice to the Investors. 

     

    (d) Notwithstanding
      the foregoing paragraphs of this Section 7.2, the Investors shall not be
      prohibited from selling Registrable Securities under any Registration Statement
      as a result of Suspensions on more than two occasions of not more than 30 days
      each in any twelve month period, unless, in the good faith judgment of the
      Company’s Board of Directors, upon the written advice of counsel, continuing a
      Suspension is necessary to prevent the disclosure of material nonpublic
      information where such disclosure would be materially injurious to the Company,
      in which event the Company shall use reasonable best efforts to terminate such
      Suspension at the earliest date practicable.

     

    (e) Provided
      that a Suspension is not then in effect, the Investors may sell Registrable
      Securities under a Registration Statement in the manner set forth under the
      caption “Plan of Distribution” in the prospectus, provided that they arrange for
      delivery of a current prospectus to the transferee of such Registrable
      Securities and provided that they comply with all applicable laws. Upon receipt
      of a request therefor, the Company has agreed to provide an adequate number
      of
      current prospectuses to the Investors and to supply copies to any other parties
      requiring such prospectuses.

     

    (f) In
      the
      event of a sale of Registrable Securities by the Investors pursuant to a
      Registration Statement, the Investors must also deliver to the Company’s
      transfer agent, with a copy to the Company, a Certificate of Subsequent Sale
      substantially in the form attached hereto as Exhibit A, so that the Registrable
      Securities may be properly transferred.

     

    
      
        
        

      

      
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    7.3 Indemnification.
      For the
      purpose of this Section 7.3:

     

    (a) the
      term
“Selling Stockholder” shall include the Investors and any affiliate of such
      Investors;

     

    (b) the
      term
“Registration Statement” shall include the prospectus in the form first filed
      with the SEC pursuant to Rule 424(b) of the Securities Act or filed as part
      of
      the Registration Statement at the time of effectiveness if no Rule 424(b) filing
      is required, exhibit, supplement or amendment included in or relating to the
      Registration Statement referred to in Section 7.1; and

     

    (c) the
      term
“untrue statement” shall include any untrue statement or alleged untrue
      statement of a material fact, or any omission or alleged omission to state
      (1)
      if in the Registration Statement (and excluding the prospectus from such defined
      term solely for the purposes of describing the applicable standard), a material
      fact required to be stated therein or necessary to make the statements therein
      not misleading, and (2) if in the prospectus, a material fact required to be
      stated therein or necessary to make the statements therein, in the light of
      the
      circumstances under which they were made, not misleading.

     

    (i) The
      Company agrees to indemnify and hold harmless each Selling Stockholder from
      and
      against any losses, claims, damages or liabilities to which such Selling
      Stockholder may become subject (under the Securities Act or otherwise) insofar
      as such losses, claims, damages or liabilities (or actions or proceedings in
      respect thereof) arise out of, or are based upon (i) any untrue statement
      contained in a Registration Statement as amended at the time of effectiveness,
      or (ii) any failure by the Company to fulfill any undertaking included in a
      Registration Statement as amended at the time of effectiveness, and the Company
      will reimburse such Selling Stockholder for any reasonable legal or other
      expenses reasonably incurred in investigating, defending or preparing to defend
      any such action, proceeding or claim, provided, however, that the Company shall
      not be liable in any such case to the extent that such loss, claim, damage
      or
      liability arises out of, or is based upon, an untrue statement made in such
      Registration Statement in reliance upon and in conformity with written
      information furnished to the Company by or on behalf of such Selling Stockholder
      specifically for use in preparation of the Registration Statement or for any
      transaction effected by any Selling Stockholder following receipt of a
      Suspension Notice, which notice is given in compliance with the terms hereof
      and
      of a duration in compliance with the terms hereof, which transaction is effected
      by such Selling Stockholder in violation of Section 7.2(c) above and is not
      subsequently remedied. The Company shall reimburse each Selling Stockholder
      for
      the amounts provided for herein on demand as such expenses are
      incurred.

     

    (ii) Each
      Investor agrees to indemnify and hold harmless the Company (and each person,
      if
      any, who controls the Company within the meaning of Section 15 of the Securities
      Act, each officer of the Company who signs a Registration Statement and each
      director of the Company) from and against any losses, claims, damages or
      liabilities to which the Company (or any such officer, director or controlling
      person) may become subject (under the Securities Act or otherwise), insofar
      as
      such losses, claims, damages or liabilities (or actions or proceedings in
      respect thereof) arise out of, or are based upon: any untrue statement contained
      in any Registration Statement if such untrue statement was made in reliance
      upon
      and in conformity with written information furnished by or on behalf of the
      Investor specifically for use in preparation of the Registration Statement
      or
      for any transaction effected by any Selling Stockholder following receipt of
      a
      Suspension Notice, which notice is given in compliance with the terms hereof
      and
      of a duration in compliance with the terms hereof, which is not subsequently
      remedied, or for any transaction effected by any Selling Stockholder following
      receipt of a Suspension Notice, which notice is given in compliance with the
      terms hereof and of a duration in compliance with the terms hereof, which
      transaction is effected by such Selling Stockholder in violation of Section
      7.2(c) above and is not subsequently remedied, and the Investor will reimburse
      the Company (or such officer, director or controlling person), as the case
      may
      be, for any legal or other expenses reasonably incurred in investigating,
      defending or preparing to defend any such action, proceeding or claim. The
      Investor shall reimburse the Company for the amounts provided for herein on
      demand as such expenses are incurred.

     

    
      
        
        

      

      
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    (iii) Promptly
      after receipt by any indemnified person of a notice of a claim or the beginning
      of any action in respect of which indemnity is to be sought against an
      indemnifying person pursuant to this Section 7.3, such indemnified person shall
      notify the indemnifying person in writing of such claim or of the commencement
      of such action, but the omission to so notify the indemnifying person will
      not
      relieve it from any liability which it may have to any indemnified person under
      this Section 7.3 (except to the extent that such omission materially and
      adversely affects the indemnifying person’s ability to defend such action) or
      from any liability otherwise than under this Section 7.3. Subject to the
      provisions hereinafter stated, in case any such action shall be brought against
      an indemnified person, the indemnifying person shall be entitled to participate
      therein, and, to the extent that it shall elect by written notice delivered
      to
      the indemnified person promptly after receiving the aforesaid notice from such
      indemnified person, shall be entitled to assume the defense thereof, with
      counsel reasonably satisfactory to such indemnified person. After notice from
      the indemnifying person to such indemnified person of its election to assume
      the
      defense thereof, such indemnifying person shall not be liable to such
      indemnified person for any reasonable legal expenses subsequently incurred
      by
      such indemnified person in connection with the defense thereof, provided,
      however, that if there exists or shall exist a conflict of interest that would
      make it inappropriate, in the opinion of counsel to the indemnified person,
      for
      the same counsel to represent both the indemnified person and such indemnifying
      person or any affiliate or associate thereof, the indemnified person shall
      be
      entitled to retain its own counsel at the expense of such indemnifying person;
      provided, however, that no indemnifying person shall be responsible for the
      fees
      and expenses of more than one separate counsel (together with appropriate local
      counsel) for all indemnified parties. In no event shall any indemnifying person
      be liable in respect of any amounts paid in settlement of any action unless
      the
      indemnifying person shall have approved the terms of such settlement; provided
      that such consent shall not be unreasonably withheld. No indemnifying person
      shall, without the prior written consent of the indemnified person, effect
      any
      settlement of any pending or threatened proceeding in respect of which any
      indemnified person is or could have been a party and indemnification could
      have
      been sought hereunder by such indemnified person, unless such settlement
      includes an unconditional release of such indemnified person from all liability
      on claims that are the subject matter of such proceeding.

     

    (iv) If
      the
      indemnification provided for in this Section 7.3 is unavailable to or
      insufficient to hold harmless an indemnified person under subsection (a) or
      (b)
      above in respect of any losses, claims, damages or liabilities (or actions
      or
      proceedings in respect thereof) referred to therein, then each indemnifying
      person shall contribute to the amount paid or payable by such indemnified person
      as a result of such losses, claims, damages or liabilities (or actions in
      respect thereof) in such proportion as is appropriate to reflect the relative
      fault of the Company on the one hand and the Investors on the other in
      connection with the statements or omissions or other matters which resulted
      in
      such losses, claims, damages or liabilities (or actions in respect thereof),
      as
      well as any other relevant equitable considerations. The relative fault shall
      be
      determined by reference to, among other things, in the case of an untrue
      statement, whether the untrue statement relates to information supplied by
      the
      Company on the one hand or the Investors on the other and the parties’ relative
      intent, knowledge, access to information and opportunity to correct or prevent
      such untrue statement. The Company and the Investors agree that it would not
      be
      just and equitable if contribution pursuant to this subsection (d) were
      determined by any method of allocation which does not take into account the
      equitable considerations referred to above in this subsection (d). The amount
      paid or payable by an indemnified person as a result of the losses, claims,
      damages or liabilities (or actions in respect thereof) referred to above in
      this
      subsection (d) shall be deemed to include any legal or other expenses reasonably
      incurred by such indemnified person in connection with investigating or
      defending any such action or claim. Notwithstanding the provisions of this
      subsection (d), the Investors shall not be required to contribute any amount
      in
      excess of the amount by which the net amount received by the Investors from
      the
      sale of the Registrable Securities to which such loss relates exceeds the amount
      of any damages which such Investors have otherwise been required to pay by
      reason of such untrue statement. No person guilty of fraudulent
      misrepresentation (within the meaning of Section 11 (t) of the Securities Act)
      shall be entitled to contribution from any person who was not guilty of such
      fraudulent misrepresentation. Each Investor’s obligations in this subsection to
      contribute shall be in proportion to its sale of Registrable Securities to
      which
      such loss relates and shall not be joint with any other Selling
      Stockholders.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    (v) The
      parties to this Agreement hereby acknowledge that they are sophisticated
      business persons who were represented by counsel during the negotiations
      regarding the provisions hereof including, without limitation, the provisions
      of
      this Section 7.3, and are fully informed regarding said provisions. They further
      acknowledge that the provisions of this Section 7.3 fairly allocate the risks
      in
      light of the ability of the parties to investigate the Company and its business
      in order to assure that adequate disclosure is made in a Registration Statement
      as required by the Securities Act and the Exchange Act. The parties are advised
      that federal or state public policy as interpreted by the courts in certain
      jurisdictions may be contrary to certain of the provisions of this Section
      7.3,
      and the parties hereto hereby expressly waive and relinquish any right or
      ability to assert such public policy as a defense to a claim under this Section
      7.3 and further agree not to attempt to assert any such defense.

     

    7.4 Termination
      of Conditions and Obligations.
      The
      conditions precedent imposed by Section 5 or this Section 7 upon the
      transferability of the Units or the Registrable Securities, as applicable,
      shall
      cease and terminate as to any particular Units or the Registrable Securities,
      as
      applicable, when such Units or the Registrable Securities, as applicable, shall
      have been effectively registered under the Securities Act and sold or otherwise
      disposed of in accordance with the intended method of disposition set forth
      in a
      Registration Statement covering the Registrable Securities or at such time
      as an
      opinion of counsel reasonably satisfactory to the Company shall have been
      rendered to the effect that such conditions are not necessary in order to comply
      with the Securities Act.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    7.5 Information
      Available.
      So long
      as the Registration Statement is effective covering the resale of Registrable
      Securities owned by the Investors, the Company will furnish to the
      Investors:

     

    (a) Unless
      otherwise electronically available on EDGAR, as soon as practicable after it
      is
      available, one copy of (i) its Annual Report to Stockholders (which Annual
      Report shall contain financial statements audited in accordance with generally
      accepted accounting principles by a national firm of certified public
      accountants), (ii) if not included in substance in the Annual Report to
      Stockholders, its Annual Report on Form 10-KSB and (iii) its Quarterly Reports
      on Form 10-QSB (the foregoing, in each case, excluding exhibits);

     

    (b) upon
      the
      request of the Investors, all exhibits excluded by the parenthetical to
      subparagraph (a) of this Section 7.5 as filed with the SEC and all other
      information that is made available to shareholders; and

     

    (c) upon
      the
      reasonable request of the Investors, an adequate number of copies of the
      prospectuses to supply to any other party requiring such prospectuses. Further,
      and upon the reasonable request of the Investors, the President or the Chief
      Financial Officer of the Company (or an appropriate designee thereof) will
      meet
      with the Investors or their representative at the Company’s headquarters to
      discuss all information relevant for disclosure in the Registration Statement
      covering the Registrable Securities and will otherwise cooperate with any
      Investor conducting an investigation for the purpose of reducing or eliminating
      such Investor’s exposure to liability under the Securities Act, including the
      reasonable production of information at the Company’s headquarters; provided,
      that the Company shall not be required to disclose any confidential information
      to or meet at its headquarters with any Investor until and unless the Investor
      shall have entered into a confidentiality agreement in form and substance
      reasonably satisfactory to the Company with the Company with respect
      thereto.

     

    8. Representation.
      Each
      Investor hereto acknowledges its interests may not necessarily coincide with
      the
      interests of any other Investors (the “Other Investors”). Each Investor has
      consulted with, or has had the opportunity to consult with, their own legal
      counsel in connection with this transaction. For the avoidance of doubt, it
      shall be expressly agreed and understood that as among the Investors, each
      Investor intends to and is acting individually on its own behalf only, making
      its own investment decisions, not in concert with or as a group with any other
      Investor, and no beneficial or pecuniary interest of any one Investor shall
      be
      attributed or attributable to any other Investor.

     

    9. Notices.
      All
      notices, requests, consents and other communications hereunder shall be in
      writing, shall be mailed (A) if within the United States by first-class
      registered or certified airmail, or nationally recognized overnight express
      courier, postage prepaid, or by facsimile, or (B) if delivered from outside
      the
      United States, by International Federal Express or facsimile, and shall be
      deemed given (i) if delivered by first-class registered or certified mail,
      three
      business days after so mailed, (ii) if delivered by nationally recognized
      overnight carrier, one business day after so mailed, (iii) if delivered by
      International Federal Express, two business days after so mailed, (iv) if
      delivered by facsimile, upon electronic confirmation of receipt and shall be
      delivered as addressed as follows:

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

      
        	
                (a)

              	
                if
                  to the Company, to:

              
	 	 
	 	
                Power
                  Efficiency Corporation

              
	 	
                3960
                  Howard Hughes Parkway

              
	 	
                Suite
                  460

              
	 	
                Las
                  Vegas, NV 89169

              
	 	
                Tel:
                  (702) 697-0377

              
	 	
                Fax:
                  (702) 697-0379

              
	 	
                Attn: BJ
                  Lackland

              
	 	 
	
                (b)

              	
                with
                  a copy to:

              
	 	 
	 	
                Ellenoff
                  Grossman & Schole LLP

              
	 	
                370
                  Lexington Avenue

              
	 	
                New
                  York, New York 10017

              
	 	
                Tel: (212)
                  370-1300

              
	 	
                Fax: (212)
                  370-7889

              
	 	
                Attn:
                  Barry Grossman, Esq.

              

      

    (c) if
      to the
      Investors, at their respective addresses on the signature pages hereto, or
      at
      such other address or addresses as may have been furnished to the Company in
      writing, with a copy to Louis Treiger, 6411 57th
      Avenue
      S., Seattle, WA 98118.

     

    10. Changes.
      This
      Agreement may not be modified or amended except pursuant to an instrument in
      writing signed by the Company and the majority in interest of the
      Investors.

     

    11. Headings.
      The
      headings of the various sections of this Agreement have been inserted for
      convenience of reference only and shall not be deemed to be part of this
      Agreement.

     

    12. Severability.
      In case
      any provision contained in this Agreement should be invalid, illegal or
      unenforceable in any respect, the validity, legality and enforceability of
      the
      remaining provisions contained herein shall not in any way be affected or
      impaired thereby.

     

    13. Governing
      Law; Arbitration.
      

     

    13.1 This
      Agreement shall be governed by, and construed in accordance with, the internal
      laws of the State of Delaware, without giving effect to the principles of
      conflicts of law.

     

    13.2 In
      the
      event any controversy or dispute shall arise between the parties under, out
      of,
      in connection with, or relating to this Agreement or the breach thereof, the
      party initiating such controversy or making such claim shall provide to the
      other party notice containing a brief and concise statement of the initiating
      party’s claims, together with relevant facts supporting them.  Following
      the date of said notice, the parties shall make good faith efforts to settle
      the
      dispute. In the event the parties have been unable to reach accord using the
      procedures set forth in this Section 13, either party may seek binding
      arbitration before three (3) arbitrators in accordance with the rules of the
      American Arbitration Association (“AAA”).  Each party shall appoint one
      arbitrator and the appointed arbitrators shall in turn appoint the third
      arbitrator.  In the event the two appointed arbitrators are unable to agree
      upon the third arbitrator, the AAA shall designate the third arbitrator to
      arbitrate the controversy or dispute.  The arbitration shall be held in Las
      Vegas, Nevada.  Within thirty (30) days after initiation of arbitration,
      the parties shall reach agreement upon and thereafter follow procedures assuring
      that the arbitration will be concluded and the award rendered within no more
      than six (6) months from selection of the three arbitrators.  Failing such
      agreement, AAA will design, and the parties will follow, such procedures. 
THE ARBITRATORS SHALL NOT AWARD ANY PARTY PUNITIVE OR EXEMPLARY DAMAGES, AND
      EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT TO SEEK SUCH DAMAGES.  Each
      party has the right before or during the arbitration to seek and obtain from
      the
      appropriate court provisional remedies such as attachment, preliminary
      injunction, replevin, etc., to avoid irreparable harm, maintain the status
      quo
      or preserve the subject matter of the arbitration.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    14. Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which shall
      constitute an original, but all of which, when taken together, shall constitute
      but one instrument, and shall become effective when one or more counterparts
      have been signed by each party hereto and delivered to the other
      parties.

     

    15. Expenses.
      Each of
      the Company and the Investors shall bear its own expenses, including fees and
      costs of attorneys, accountants and financial advisors, incurred in connection
      with the transactions contemplated hereunder; provided, however, that the
      Company shall be responsible for the payment of legal fees that are related
      to
      the registration of the issued securities.

     

    16. Confidential
      Information.
      Each
      Investor represents to the Company that, at all times during the Offering,
      the
      Investor has maintained in confidence the existence of this
      Offering.

     

    17. Publicity.
      The
      Company and the Investors shall consult with each other in issuing any press
      releases with respect to the transactions contemplated hereby, and neither
      the
      Company nor any Investor shall issue any such press release or otherwise make
      any such public statement without the prior consent of the Company, with respect
      to any press release of any Investor, and without the prior consent of a
      majority in interest of the Investors, with respect to any press release of
      the
      Company, which consent shall not unreasonably be withheld, except if such
      disclosure is required by law, in which case the disclosing party shall, to
      the
      extent not inconsistent with the disclosing party’s legal obligations, promptly
      provide the other party with prior notice of such public statement or
      communication.

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    Power
      Efficiency Corporation

     

    ______________________,
      200

     

    Re: Power
      Efficiency Corporation; Registration Statement

     

    Dear
      Selling Stockholder:

     

    Enclosed
      please find five (5) copies of a prospectus dated _____________, ____ (the
      “Prospectus”) for your use in reselling your shares of common stock, par value
      $0.001 per share (the “Shares”), of Power Efficiency Corporation (the
“Company”), under the Company’s Registration Statement on Form S-- (Registration
      No. 333- )
      (the
“Registration Statement”), which has been declared effective by the Securities
      and Exchange Commission. As a selling stockholder under the Registration
      Statement, you may have an obligation to comply with the Prospectus delivery
      requirements under the Securities Act of 1933, as amended for each purchaser
      of
      your shares of Common Stock, either directly or through the broker-dealer who
      executes the sale of your shares of Common Stock.

     

    The
      Company is obligated to notify you in the event that it suspends trading under
      the Registration Statement in accordance with the terms of the Securities
      Purchase Agreement between the Company and you. During the period that the
      Registration Statement remains effective and trading thereunder has not been
      suspended, you will be permitted to sell your shares of Common Stock which
      are
      included in the Prospectus under the Registration Statement. Upon a sale of
      any
      shares of Common Stock under the Registration Statement, you or your broker
      will
      be required to deliver to the Company’s Transfer Agent, Continental Stock
      Transfer & Trust Company, (1) your restricted stock certificate(s)
      representing the shares of Common Stock, (2) instructions for transfer of
      the shares of Common Stock sold, and (3) a representation letter from your
      broker, or from you if you are selling in a privately negotiated transaction,
      or
      from such other appropriate party, in the form of Exhibit A attached hereto
      (the
“Certificate of Subsequent Sale”). The Representation Letter confirms that the
      shares of Common Stock have been sold pursuant to the Registration Statement
      and
      in a manner described under the caption “Plan of Distribution” in the Prospectus
      and that such sale was made in accordance with all applicable securities laws,
      including the prospectus delivery requirements, if and to the extent
      applicable.

     

    Please
      note that you are under no obligation to sell your shares of Common Stock during
      the registration period. However, if you do decide to sell, you must comply
      with
      the requirements described in this letter or otherwise applicable to such sale.
      Your failure to do so may result in liability under the Securities Act of 1933,
      as amended, and the Securities Exchange Act of 1934, as amended. Please remember
      that all sales of your shares of Common Stock must be carried out in the manner
      set forth under the caption “Plan of Distribution” in the Prospectus if you sell
      under the Registration Statement. The Company may require an opinion of counsel
      reasonably satisfactory to the Company if you choose another method of sale.
      You
      should consult with your own legal advisor(s) on an ongoing basis to ensure
      your
      compliance with the relevant securities laws and regulations.

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    In
      order
      to maintain the accuracy of the Prospectus, you must notify the undersigned
      upon
      the sale, gift, or other transfer of any shares of Common Stock by you,
      including the number of shares of Common Stock being transferred, and in the
      event of any other change in the information regarding you which is contained
      in
      the Prospectus. For example, you must notify the undersigned if you enter into
      any arrangement with a broker-dealer for the sale of shares of Common Stock
      through a block trade, special offering, exchange distribution or secondary
      distribution or a purchase by a broker-dealer. Depending on the circumstances,
      such transactions may require the filing of a supplement to the prospectus
      in
      order to update the information set forth under the caption “Plan of
      Distribution” in the Prospectus.

     

    Should
      you need any additional copies of the Prospectus, or if you have any questions
      concerning the foregoing, please write to me at Power Efficiency Corporation,
      3960 Howard Hughes Parkway, Suite 460, Las Vegas, NV 89169. Thank
      you.

     

    Sincerely,

    

    

    Chief
      Executive Officer

    

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    Exhibit
      A

     

    CERTIFICATE
      OF SUBSEQUENT SALE

     

    Continental
      Stock Transfer and Trust Company

    17
      Battery Place

    New
      York,
      NY 10004

     

    
      	 	
              RE:

            	
              Sale
                of Shares Common Stock and/or Warrants of Power Efficiency Corporation
                (the “Company”) pursuant to the Company’s Prospectus dated ______ __, 2007
                (the “Prospectus”)

            

    

     

    Dear
      Sir/Madam:

     

    The
      undersigned hereby certifies, in connection with the sale of shares of Common
      Stock or Warrants of the Company included in the table of Selling Stockholders
      in the Prospectus, that the undersigned has sold the shares and/or warrants
      pursuant to the Prospectus and in a manner described under the caption “Plan of
      Distribution” in the Prospectus and that such sale complies with all securities
      laws applicable to the undersigned, including, without limitation, if and to
      the
      extent applicable, the Prospectus delivery requirements of the Securities Act
      of
      1933, as amended. 

     

    Selling
      Stockholder (the beneficial
      owner):____________________________________________

     

    Record
      Holder (e.g., if held in name of
      nominee):________________________________________

     

    Restricted
      Stock Certificate
      No.(s):__________________________________________________

     

    Number
      of
      Shares of Common Stock
      Sold:_____________________________________________

     

    Restricted
      Warrant No.(s):
      ________________________________________________________

     

    Number
      of
      Warrants Sold:
      ________________________________________________________

     

    Date
      of
      Sale:___________________________________________________________________

     

    In
      the
      event that you receive a stock certificate(s) representing more shares of Common
      Stock than have been sold by the undersigned, then you should return to the
      undersigned a newly issued certificate for such excess shares in the name of
      the
      Record Holder [and BEARING A RESTRICTIVE LEGEND]. Further, you should place
      a
      stop transfer on your records with regard to such certificate.

     

    
      	
              Dated:__________________________________

            	
              Very
                truly yours,

               

              By:_____________________________

               

              Print
                Name:_______________________

               

              Title:____________________________ 

            

    

     

    
      	cc:	
              Power
                Efficiency Corporation
3960 Howard Hughes Parkway
Suite 460
Las
                Vegas, NV 89169

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