POWER EFFICIENCY CORP
REVOLVING CREDIT NOTE DATED MAY 8, 2003
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>4
<FILENAME>b325146ex10-1.txt
<DESCRIPTION>REVOLVING CREDIT NOTE DATED MAY 8, 2003
<TEXT>

<PAGE>
Exhibit 10.1

                                                                 EXECUTION COPY

                             REVOLVING CREDIT NOTE

Principal Amount: $1,000,000                           Palm Desert, California
                                                                   May 8, 2003


    FOR VALUE RECEIVED, Power Efficiency Corporation, a Delaware corporation
(the "Borrower") hereby promises to pay to Summit Energy Ventures, LLC, a
Delaware limited liability company (the "Lender"), by wire transfer of
immediately available United States federal funds to the Lender's designated
account or, if the Lender so agrees, by the Borrower's check, the aggregate
principal sum of $1,000,000, or such lesser aggregate amount as is advanced
and outstanding (each such advance, a "Loan") pursuant to the provisions of
this Revolving Credit Note (this "Note"), together with interest in like money
on the unpaid principal balance of each Loan for the period from and including
the date of such Loan to but excluding the date such Loan is paid in full
(whether as stated, by acceleration or otherwise) at the rate of 15% per
annum. Interest shall be simple interest and calculated on the basis of a 360-
day year consisting of twelve 30-day months. Accrued interest on each Loan
shall be payable (a) upon the payment or prepayment of each Loan (but only on
the principal amount so paid or prepaid) and (b) on the Maturity Date (as
defined below). All principal then outstanding, and all interest, fees,
charges, and other amounts owing under this Note and then unpaid shall be due
and payable on December 31, 2003 (the "Maturity Date"). All payments on or in
respect of this Note shall be made to the Lender without set-off or
counterclaim and free and clear of and without deductions of any kind.

    This Note is secured by, and entitled to the benefits of, the Security
Agreement dated of even date with this Note between the Borrower and the
Lender (the "Security Agreement").

    In this Note, the following terms shall have the following respective
meanings:

     "Business Day" shall mean a day other than a Saturday, Sunday or other
day on which commercial banks are authorized to close under the laws of the
State of New York.

    "Default" shall mean an event that with notice or lapse of time or both
would become an Event of Default (as defined below).

    "Material Adverse Condition" shall mean a material adverse effect on the
business, property, operations, prospects or condition (financial or
otherwise) of the Borrower and its subsidiaries, taken as a whole.



<PAGE>

    1.  Borrowings. The Lender agrees, subject to the terms and conditions of
this Note, to make Loans to the Borrower, from time to time during the period
from the date of this Note up to and including December 19, 2003 (the
"Commitment Termination Date"), in an aggregate principal amount not to exceed
at any time $1,000,000 (the "Total Commitment"). Unpaid interest and fees
shall be considered when calculating the Total Commitment. The initial Loan
under this Note shall be in the amount of $250,000. Each subsequent Loan under
this Note shall be in an amount that is an integral multiple of $50,000 and is
not, in the aggregate, less than $100,000 or more than $200,000. The Borrower
shall give the Lender written request for each Loan: (a) in the case of the
first Loan under this Note, at least two (2) Business Days, and (b) in the
case of all subsequent Loans, at least seven (7) Business Days, prior to the
date on which the Borrower wishes the Lender to fund such Loan; provided that
in no event shall the Borrower be permitted to request more than one Loan in
any given calendar month. Upon receipt of such written request for a Loan, the
Lender shall make each requested Loan available to the Borrower, in
immediately available funds by wire transfer to the account designated by the
Borrower on its request for a Loan, on the Business Day designated by the
Borrower in its notice.

    The Borrower hereby authorizes the Lender to endorse on the Schedule
annexed to this Note the principal amount of each Loan made to the Borrower
and all payments of principal and interest in respect of each such Loan, which
endorsements shall, in the absence of manifest error, be conclusive; provided,
however, that the failure to make such notation with respect to any Loan or
payment shall not limit or otherwise affect the obligations of the Borrower
hereunder.

    2.  Optional Prepayment; Premium. The Borrower may prepay the principal and
interest due on any Loan, at any time, in whole or in part, without penalty or
premium. Subject to the terms and conditions of this Note, during the period
from the date of this Note up to and including the Commitment Termination Date,
the Borrower may borrow, repay and reborrow the amount of the Total Commitment
by means of Loans; provided that in no event shall the Borrower be permitted to
request more than one Loan in any given calendar month.

    3.  Conversion. The Lender may at any time prior to Maturity Date give the
Borrower written notice (the "Conversion Notice") of its desire to convert, in
full or in part, the outstanding balance of all principal and interest on the
Loans and all other amounts owing to the Lender under this Note and the other
Basic Documents (such amount being the "Conversion Amount") into fully paid
and nonassessable shares of the Series A-1 Preferred Stock, par value $0.001
per share, of the Borrower (the "Stock"), on the basis of one share of Stock
for each $1.065538 (the "Conversion Price") of the Conversion Amount.

    The Conversion Notice shall set forth (a) the Conversion Price, (b) the
number of shares of Stock representing the Conversion Amount, (c) the date on
which the Conversion shall take place, which date shall not, in any event, be
less than seven days after the date of the Conversion Notice (the "Conversion
Date") and (d) instructions for delivery of the applicable number of shares of
Stock to the Lender.

    Upon receipt of the Conversion Notice from the Lender, the Borrower shall
have seven days to repay in full the Conversion Amount. If the Borrower does
not pay the Conversion Amount within that seven-day period, then on the
Conversion Date:


                                       2
<PAGE>


    (i) the Conversion Amount shall convert into Stock;

    (ii) the Total Commitment shall automatically be reduced by the amount of
principal on the Loans reflected in the Conversion Amount (which principal
amount shall be set forth in the Conversion Notice);

    (iii) the Conversion Amount so converted into Stock shall be deemed to
constitute a partial prepayment of the amounts of principal and interest on
the Loans and other amounts owing by the Borrower to the Lender under this
Note and the other Basic Documents, thereby reducing the obligations of the
Borrower to the Lender by the Conversion Amount; and

    (iv) the Lender shall become the holder of record of the shares of Stock
represented by the Stock certificates to be delivered by the Borrower pursuant
to this Section 3.

    As soon as practicable after the Conversion Date (and in any event no
later than 10 Business Days after the Conversion Date), the Borrower shall
deliver to the Lender the Stock certificates representing the number of shares
of Stock issuable pursuant to the Conversion Notice.

    Notwithstanding any other provisions of this Section 3 to the contrary, in
the event of a conversion under this Section 3, this Note, the Security
Agreement and all other Basic Documents shall remain in full force and effect.

    4.  Lending Fee. Concurrently with the first Loan made under this Note, the
Borrower shall be obligated to pay to the Lender a lending fee in the amount
of $50,000 (the "Lending Fee"). The Lending Fee shall be deducted by the
Lender from the amount of the initial Loan made under this Note.

    5.  Notices. Unless otherwise indicated differently, all notices, requests,
reports, information or demands which either party may desire or may be
required to give to the other party shall be in writing and shall be
personally delivered, sent by facsimile, by a reliable overnight mail delivery
service providing a receipt or by first-class certified or registered United
States mail, postage prepaid return receipt requested, and sent to the
receiving party at its address appearing below or at such other address as
that party shall designate to the other party by written notice; (provided,
however, notices to the Lender requesting disbursements need not be sent by
certified United States mail):

If to the Borrower:    Ray Skiptunis
                       Power Efficiency Corporation
                       75-153 Merle Drive, Suite B
                       Palm Desert, CA 92211

                                       3

<PAGE>

If to the Lender:      Steven Strasser
                       Summit Energy Ventures, LLC
                       P.O. Box 7387
                       Bellevue, WA 98008



    All notices, requests, reports, information or demands so given shall be
deemed effective upon receipt or, if mailed, upon receipt or the expiration of
the third day following the date of mailing, which ever occurs first, except
that any notice of change in address shall be effective only upon receipt by
the party to whom said notice is addressed.

    6.  Maximum Interest Rate. Notwithstanding the provisions of this Note, if
the rate of interest payable under this Note is limited by law, the interest
payable under this Note shall be the lesser of (a) the amount calculated at
the rate set forth in this Note and (b) the maximum interest permitted by law.
If, however, interest is paid under this Note in excess of the maximum rate of
interest permitted by law, any interest so paid which exceeds that maximum
rate shall automatically be considered a payment of principal and shall
automatically be applied in reduction of principal due on this Note to the
extent of the excess. The provisions of this Section 6 shall survive the
termination of this Note.

    7.  Covenants. The Borrower covenants and agrees with the Lender that, so
long as the Total Commitment is outstanding and until payment in full of all
obligations of the Borrower under this Note:

    (a) Financial Statements. On the fifth Business Day of each calendar
month, the Borrower shall furnish to the Lender:

         (i) unaudited financial statements of the Borrower setting forth
reasonably detailed information and calculations demonstrating compliance with
Section 7(j);

         (ii) unaudited financial statements of the Borrower with respect to the
immediately preceding calendar month; and

         (iii) a certificate of the chief financial officer of the Borrower
certifying (A) as to the accuracy and completeness of the financial statements
delivered pursuant to this Section 7(a) and (B) that no Default, Event of
Default or Material Adverse Condition has occurred or is continuing.

    (b) Notices of Material Events. The Borrower shall furnish to the Lender
prompt written notice of the following:

         (i) the occurrence of any Default or Event of Default or of any event
that could reasonably be expected to result in a Default or Event of Default;


                                       4
<PAGE>


         (ii) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or governmental authority against or affecting the
Borrower that, if adversely determined, could reasonably be expected to result
in a Material Adverse Condition; and

         (iii) any other development that constitutes or results in, or could
reasonably be expected to constitute or result in, a Material Adverse Condition.

    Each notice delivered under this Section 7(b) shall be accompanied by a
statement of an executive officer of the Borrower setting forth the details of
the event or development requiring that notice and any action taken or
proposed to be taken with respect to that event or development.

    (c)  Existence; Conduct of Business. The Borrower shall do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the governmental approvals material to the conduct of
its business.

    (d)   Payment of Obligations. The Borrower shall pay its obligations,
including for taxes, that, if not paid, could result in a Material Adverse
Condition before the same become delinquent or in default, except any such
obligation (a) the validity or amount of which is being contested in good
faith by appropriate proceedings, (b) with respect of which the Borrower has
set aside on its books adequate reserves in accordance with generally accepted
accounting procedures and (c) the failure to pay obligations of which pending
contest could not reasonably be expected to result in a Material Adverse
Condition.

    (e)  Books and Records; Inspection Rights. The Borrower shall keep proper
books of record and account in which full, true and correct entries are made
of all dealings and transactions in relation to its business and activities.
The Borrower shall permit any representatives designated by the Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.

    (f)  Indebtedness. The Borrower shall not, without the prior written
consent of the Lender, create, incur, assume or permit to exist any
indebtedness, except indebtedness created under the Basic Documents; provided
that, subject to Section 23, Summit shall consent to the incurrence by the
Borrower of indebtedness that is immediately used to repay the total
outstanding balance of all principal and interest on the Loans and all other
amounts owing to the Lender under this Note and the other Basic Documents but
only so long as such indebtedness (i) is provided to the Borrower by a
financial institution in the ordinary course of business in a bona fide arms-
length transaction and (ii) is not provided, guaranteed or in any other way
supported by the credit of, any person or entity affiliated with the Borrower,
or any shareholder or any director of the Borrower. The provisions of this
Section 7(f) shall survive the termination of this Note.


                                       5
<PAGE>


    (g)  Liens. The Borrower shall not create, incur, assume or permit to exist
any lien on any personal property or assets of the Borrower, except the liens
created under the Security Agreement in favor of the Lender. The Borrower
shall promptly discharge at the Borrower's cost and expense, any lien (other
than the liens of the Lender pursuant to the Security Agreement) on the
Collateral (as defined in the Security Agreement). The Borrower shall take, or
cause to be taken, all action reasonably required to maintain and preserve the
liens created by the Security Agreement and the priority of such Liens. The
Borrower shall from time to time execute or cause to be executed any and all
further instruments (including financing statements, continuation statements
and similar statements and other documents with respect to the Security
Agreement) reasonably requested by the Lender for such purposes.

    (h)  Fundamental Changes. The Borrower shall not merge or consolidate with
any other person or entity, sell, transfer, lease or otherwise dispose of (in
one transaction or in a series of transactions) all of its property or assets
or liquidate or dissolve. The Borrower shall not engage in any business other
than business of the type conducted by the Borrower on the date of this Note
and reasonably related activities.

    (i)  Investments, Loans, Advances, Guarantees and Acquisitions. The
Borrower shall not hold or acquire the capital stock, partnership or other
ownership interests, indebtedness or other securities of any other person or
entity, make any deposit with, or loan or other extension of credit to, any
other person or entity, enter into any guarantee of, or other contingent
obligation with respect to, indebtedness or other liability of any other
person or entity or acquire (in one transaction or a series of transactions)
any property of any other person or entity constituting a business unit.

    (j)  Financial Covenants. The Borrower shall satisfy the following
financial covenants:

         (i) For the period from May 1, 2003 up to and including June 30,
2003, the Borrower shall cause its Contributed Capital (as defined below) to
equal or exceed $351,000;

         (ii) For the period from July 1, 2003 up to and including July 31,
2003, the Borrower shall cause its Contributed Capital to equal or exceed
$315,000;

         (iii) For each calendar month during the period from and including
August 1, 2003 to the date on which all of the obligations of the Borrower
under this Note shall have been paid in full and the Total Commitment shall
have expired, the Borrower shall cause its Contributed Capital to equal or
exceed $331,000; provided that (A) if, during the periods specified in Section
7(j)(i) and Section 7(j)(ii), the Borrower's Contributed Capital exceeds
$351,000 and $315,000, respectively, then the Borrower may carry over the
amounts of such excess to succeeding calendar months for purposes of
calculating the Borrower's Contributed Capital for such succeeding calendar
months; and (B) in any given calendar month after July 31, 2003, the
Borrower's Contributed Capital exceeds $331,000, then the amount of such
excess may be carried over to succeeding calendar months for purposes of
calculating the Borrower's Contributed Capital for such succeeding calendar
months;

         (iv) Until such time as all of the obligations of the Borrower under
this Note shall have been paid in full and the Total Commitment shall have
expired, the Borrower shall not permit its operating expenses in any given
calendar month to exceed $305,000.


                                       6
<PAGE>

    "Contributed Capital" as used in this Section 7(j) shall mean, for any given
period, the sum of the Gross Margin of the Borrower for that period plus the
Equity Revenue of the Borrower for that period. "Gross Margin" shall mean the
gross operating revenue of the Borrower for the applicable period less the cost
of goods sold (determined in accordance with Generally Accepted Accounting
Principles) for that period. "Equity Revenue" shall mean the total sum of equity
raised by the Borrower in the applicable period through the sale of its common
stock by means of private placements and/or Regulation S offerings.

    (k)  Use of Proceeds. The proceeds of the Loans made under this Note shall
be used only for the payment of operating and occupancy expenses incurred by
Borrower provided that payments to affiliates, shareholders or directors of
Borrower for expenses or obligations incurred by Borrower other than operating
and occupancy expenses shall be permitted only with the prior written consent
of Lender, and provided further the proceeds of the initial Loan made under
this Note shall be used for payment of the expenses below, as follows:

<TABLE>
<CAPTION>
<S>                                       <C>
Proceeds from initial Loan:               $250,000
Legal fees-Summit                         $20,000
Commitment Fees                           $50,000
Payroll and taxes                         $90,000
Employee Expenses                         $32,114
Vendors                                   $57,886
</TABLE>


    (l)  Settlements. The Borrower shall not, without the prior written consent
of the Lender, enter into or consent to any settlements with respect to any
claims, disputes, suits or proceeding of any kind (including with respect to
the matters disclosed in the attached Schedule 1) if and to the extent that
the amount of such settlement is or can reasonably be expected to be, in
excess of $10,000.

    (m)  Other Information. Promptly following any request for the same at any
time, the Borrower shall furnish to the Lender such other information
regarding the operations, business affairs and financial condition of the
Borrower or compliance with the terms of the Basic Documents as the Lender may
reasonably request.

    (n)  Maintenance of Property; Insurance. The Borrower shall:

         (i) keep and maintain all property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted;

         (ii) maintain, with financially sound and reputable insurance
companies, insurance (including liability and casualty insurance) in such
amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations; and

         (iii) cause the Lender to be joined as loss payee or additional
insured, as applicable, under all policies of insurance maintained by the
Borrower, and provide to the Lender, within ten (10) Business Days after the
date of this Note, certificates of insurance with respect to all such insurance
policies (including liability and casualty insurance) showing the Lender as loss
payee or additional insured, as applicable, on such certificates, together with,
in each case, evidence of the payment of all premiums with respect to such
insurance policies and a certificate of an executive officer of the Borrower
certifying that all such insurance policies are in full force and effect and
that the Borrower has received no notice of cancellation with respect to any
such insurance policies.


                                       7
<PAGE>


    8.  Representations and Warranties. The Borrower represents and warrants to
the Lender that:

    (a)  Organization; Powers. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, has all
requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Condition, is qualified
to do business in, and is in good standing in, every jurisdiction where that
qualification is required.

    (b)  Authorization; Enforceability. The transactions contemplated under
this Note and the other Basic Documents are within the Borrower's corporate
powers and have been duly authorized by all necessary corporate (including, if
required, stockholder) action. This Agreement has been, and the other Basic
Documents will be, duly executed and delivered by the Borrower, and each Basic
Document constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors'
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding in equity or at law.

    (c)  Governmental Approvals; No Conflicts. The transactions contemplated
under this Note and the other Basic Documents (i) will not violate or result in
a default under any agreement or other instrument binding upon the Borrower or
its property and assets or give rise to a right under any such agreement or
other instrument to require any payment to be made by the Borrower and (ii) will
not result in the creation or imposition of any lien on any property or asset of
the Borrower other than the liens created under the Security Agreement.

    (d)  Properties and Assets.

         (i) The Borrower has good title to all its property and assets, free
and clear of all liens (other than the liens of the Security Agreement) except
for minor defects in title that do not interfere with its ability to conduct its
business as currently conducted or to utilize its properties and assets for
their intended purposes.

         (ii) The Borrower owns, or is licensed to use, all trademarks, trade
names, copyrights, patents and other intellectual property material to its
business, and the use of any such property by the Borrower does not infringe
upon the rights of any other person or entity.

    (e)  No Litigation. Other than as disclosed on the attached Schedule 1,
there are no actions, suits or proceedings by or before any arbitrator or
governmental authority pending against or, to the knowledge of the Borrower,
threatened against or affecting the Borrower (i) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Condition.

                                       8
<PAGE>


    9.  Events of Default. The Borrower shall be in default under this Note
upon the occurrence of any of the following events (each an "Event of
Default"):

    (a)  The failure of the Borrower to pay any portion of the principal,
interest or any other amounts payable under this Note when due, whether at
stated maturity or otherwise;

    (b)  The entry of an order for relief under Title 11 of the United States
Bankruptcy Code as to the Borrower or the adjudication of the Borrower as
insolvent or bankrupt pursuant to the provisions of any state insolvency or
bankruptcy act; the commencement by the Borrower of any case, proceeding or
other action seeking any reorganization, arrangement, composition, adjustment,
liquidation, dissolution or similar relief for itself under any present or
future statute, law or regulation relating to bankruptcy, insolvency,
reorganization or other relief for debtors; the consent of the Borrower to,
its acquiescence in or attempt to secure the appointment of any receiver of
all or any substantial part of its properties; or the Borrower shall make a
general assignment for the benefit of creditors;

    (c)  The commencement of any case, proceeding or other action against the
Borrower seeking to have an order for relief entered against it as a debtor or
seeking any reorganization, arrangement, composition, adjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation relating to bankruptcy, insolvency, reorganization or other relief
for debtors or seeking appointment of any receiver for the Borrower or for all
or any substantial part of its property, which is not in any such instance
fully stayed or dismissed within 90 days after the entry of the same;

    (d)  The Borrower admits in writing its inability to, or be generally
unable to, pay its debts as those debts become due;

    (e)   The occurrence and continuation of a Material Adverse Condition if
such condition is not remedied or capable of being remedied by the exercise of
reasonable diligence within 10 days after the Borrower or the Lender obtain
knowledge of such condition;

    (f)  A final judgment or judgments for the payment of more than $50,000 in
the aggregate are rendered against the Borrower, and the Borrower fails,
within 30 days of the entry of each such judgment, either (i) to discharge (or
to cause or provide for that discharge) each such judgment or (ii) both to
procure stay of execution of each such judgment and, within that 30-day period
(or such longer period during which execution of the that judgment has been
stayed) to appeal from, and during that appeal to procure the continued stay
of execution for, each such judgment;

    (g)  Any representation, warranty or certification made or deemed made in
any Basic Document by the Borrower or any certificate furnished to the Lender
pursuant to the provisions of any Basic Document proves in any material
respect to have been false or misleading when made or furnished or deemed made
or furnished;

                                       9
<PAGE>


    (h)   The Borrower fails to comply with its obligations under Section 7(a)
or Section 7(j);

    (i)  The Borrower fails to perform any of its other obligations under this
Note or any other Basic Document, and that failure continues unremedied for 30
days after notice of that failure to the Borrower by the Lender; or

    (j)  Any default or event of default occurs and continues under any of the
other Basic Documents.


    Upon the occurrence of any Event of Default, all principal of this Note
and accrued and unpaid interest on the principal of this Note and all other
sum under this Note shall become immediately due and payable without any
demand, notice or other action, all of which are hereby waived by the
Borrower.

    10.  Conditions Precedent to Initial Loan. The obligation of the Lender to
make the initial Loan under this Note is subject to the satisfaction of the
following conditions:

    (a) no Default or Event of Default has occurred and is continuing as of the
date of such initial Loan;

    (b) no Material Adverse Condition has occurred and is continuing as of the
date of such initial Loan;

    (c) the representations and warranties made by the Borrower in this Note
and the other Basic Documents are true and complete on and as of the date of
that Loan with the same force and effect as if made on and as of that date
(or, if applicable, as of any specific date as of which that representation or
warranty is expressly stated to have been made);

    (d) the Lender shall have received a certificate of the Secretary or an
Assistant Secretary of the Borrower, dated as of the date of the initial Loan
and certifying:


         (i) that attached to such certificate is a copy of the charter, as
amended and in effect, of the Borrower certified as of a recent date by the
Secretary of State of its jurisdiction of incorporation, and that such charter
has not been amended since the date of such certification by the Secretary of
State;


         (ii) that attached to such certificate is a true and complete copy of
the bylaws of the Borrower as amended and in effect at all times from the date
on which the resolutions referred to in clause (iii) were adopted to and
including the date of such certificate,


         (iii) that attached to such certificate is a true and complete copy of
resolutions duly adopted by the board of directors of the Borrower authorizing
the execution, delivery and performance of this Note and the Loans, the Security
Agreement and all documents related to the transactions contemplated under this
Note (the "Basic Documents"), and that such resolutions have not been modified,
rescinded or amended and are in full force and effect;


                                       10
<PAGE>

         (iv) that attached to such certificate are certificates of good
standing for the Borrower from the Secretary of State of the State of Delaware
and the Secretary of State of the State of Michigan; and

         (iv) as to the incumbency and specimen signature of each officer of the
Borrower executing the Basic Documents (and the Lender may conclusively rely on
such certificate);

    (e) the Lender shall have received an opinion of in-house legal counsel to
the Borrower, dated the date of the initial Loan, in form and substance
reasonably satisfactory to the Lender;

    (f) the Lender shall have received duly executed and delivered copies of (i)
the Security Agreement, (ii) the Warrant to Purchase Stock of Power Efficiency
Corporation that expires on June 14, 2012 (the "Warrant") and the Certificate of
Amendment of Warrant issued to Lender and dated as of the date of this Note (the
"Warrant Amendment") and (iii) the Certificate of Designation of Series A
Convertible Preferred Stock of the Borrower (the "Certificate of Designation")
and the Certificate of Amendment of Certificate of Designation of Series A
Convertible Preferred Stock of the Borrower dated as of the date of this Note
(the "Certificate of Designation Amendment"); and

    (g) the Lender shall have received such other documents as the Lender may
reasonably request.

    11.  Conditions to All Loans. The obligation of the Lender to make any Loan
under this Note is subject to the further conditions precedent that, both
immediately prior to the making of that Loan and also after giving effect to,
and to the intended use of, that Loan:

    (a) no Default or Event of Default has occurred and is continuing;

    (b) no Material Adverse Condition has occurred and is continuing; and

    (c) the representations and warranties made by the Borrower in this Note
and the other Basic Documents are true and complete on and as of the date of
that Loan with the same force and effect as if made on and as of that date
(or, if applicable, as of any specific date as of which that representation or
warranty is expressly stated to have been made).

    Each such extension of credit to the Company shall constitute a
certification by the Company to the effect set forth in the preceding
sentence.

    12.  Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.


    (a)  Governing Law. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND PERFORMED IN THE STATE OF NEW YORK.


                                       11
<PAGE>


    (b) Submission to Jurisdiction. THE BORROWER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE CENTRAL
DISTRICT OF CALIFORNIA AND OF ANY CALIFORNIA STATE COURT SITTING IN RIVERSIDE
COUNTY, CALIFORNIA FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE. EACH OF THE
BORROWER AND THE LENDER IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR IN THE FUTURE HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.

    (c) Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS NOTE OR THE TRANSACTIONS CONTEMPLATED BY THIS NOTE.

    13.  No Waiver. No failure on the part of the Lender to exercise and no
delay in exercising, and no course of dealing with respect to, any right,
remedy, power or privilege under this Note shall operate as a waiver of that
right, remedy, power or privilege, nor shall any single or partial exercise of
any right, power or privilege under this Note preclude any other or further
exercise of any such right, remedy, power or privilege or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Note are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.

    14.  Expenses, Indemnification, Etc.

    (a)  The Borrower shall pay: (i) all reasonable out-of-pocket expenses of
the Lender (including the reasonable fees and expenses of counsel to the
Lender), in connection with (A) the negotiation, preparation, execution and
delivery of this Note and the other Basic Documents and the extension of
credit under this Note and (B) any modification, supplement or waiver of any
of the terms of this Note or any other Basic Document, (ii) all out-of-pocket
expenses of the Lender (including counsels' fees and expenses) in connection
with any Default or Event of Default and any enforcement or collection
proceedings (including any bankruptcy, reorganization, workout or other
similar proceeding) resulting from that Default or Event of Default or in
connection with the negotiation of any restructuring or "work-out" (whether or
not consummated) of the obligations of the Borrower under this Note and the
other Basic Documents, (iii) all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of the security interest contemplated by the Security Agreement;
and (iv) all out-of-pocket expenses of the Lender (including counsels' fees
and expenses) in connection with the enforcement of this Section 14.


                                       12

<PAGE>
    (b)  The Borrower shall indemnify the Lender from, and hold the Lender
harmless against, any and all judgments, losses, liabilities, damages or
expenses incurred by the Lender in connection with or by reason of (i) the
execution and delivery of this Note, the other Basic Documents or any related
agreement, instrument or document, or the performance by any person of its
obligations under this Note and the other Basic Documents, (ii) the
transactions contemplated by this Note, (iii) the making of any Loan or the
use of the proceeds of any Loan or (iv) any actual or prospective claim,
litigation, investigation or proceeding related to any of the foregoing,
whether based on contract, tort or any other theory (but excluding any such
losses, liabilities, damages or expenses incurred by reason of the negligence,
gross negligence or willful misconduct of the person to be indemnified). It
shall not be a condition to any such indemnification that the Lender be a
party to any such investigation, litigation or other proceeding.

    (c)  To the extent permitted by applicable law, the Borrower shall not
assert, and hereby waives, any claim against the Lender on any theory of
liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages).

    (d)  All amounts due under this Section 14 shall be payable promptly after
written demand.

    (e)  The provisions of this Section 14 shall survive the termination of
this Note.

    15.  Restrictions on Transfer.

    (a)  Assignments by the Borrower. The Borrower may not assign any of its
rights or obligations under this Note without the prior written consent of the
Lender.

    (b)  Assignments by the Lender. With the prior written consent of the
Borrower, the Lender may assign all or any part of this Note and the Total
Commitment, together with, in any such case, its related rights, remedies,
powers and privileges under the Basic Documents; provided that (i) no such
consent shall be required if an Event of Default has occurred and is
continuing; and (ii) no such consent shall be required in the case of any
assignment by the Lender (A) to an affiliate of the Lender; (B) to limited
partners or other investors in the Lender; (C) to Northwest Power Management,
the general partner of the Lender or other funds affiliated with Northwest
Power Management; or (D) to Steven Strasser or other funds affiliated with or
managed by Steven Strasser.

    16.  Integration. This Note and the other Basic Documents constitute the
entire agreement and understanding between the Borrower and the Lender with
respect to the matters covered by this Note and the other Basic Documents and
supersede all prior agreements and understandings, written or oral, between
the Borrower and the Lender with respect to the subject matter of this Note
and the other Basic Documents.


                                       13
<PAGE>


    17.  Severability. Any provision of this Note that is prohibited or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions of this Note, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable that provision in any other jurisdiction.

    18.  Captions. The table captions and section headings appearing in this
Note are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Note.

    19.  Counterparts. This Note may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and
any of the parties to this Note may execute this Note by signing any such
counterpart. Delivery of an executed counterpart of a signature page to this
Note by hand or by telecopy shall be as effective as the delivery of a fully
executed counterpart of this Note.

    20.  Amendments. No provision of this Note may be waived, modified or
supplemented except by a written instrument signed by the Borrower and the
Lender.

    21.  Successors and Assigns. This Note shall be binding upon and inure to
the benefit of its parties and their respective successors and permitted
assigns.

    22.  Further Assurances. The Borrower shall provide to the Lender, from
time to time, such documents, agreements, certificates and other information
requested by the Lender as shall be necessary or advisable to effect the
purposes of this Note and the other Basic Documents.

    23. Termination. So long as all of the principal and interest on the Loans
and all fees and other amounts payable by the Borrower under this Note and the
other Basic Documents have been paid in full, the Borrower shall have the right
to terminate this Note and the Total Commitment by written notice to the Lender.
Upon the receipt of such notice by the Lender, if no principal, interest, fees
or other amounts are outstanding under this Note and the other Basic Documents,
then (a) this Note and the Total Commitment shall terminate and (b) the Security
Agreement shall terminate and the liens granted to the Lender under the Security
Agreement shall be released in accordance with the provisions of Section 15 of
the Security Agreement.

            [The remainder of this page is intentionally left blank.
                            Signature pages follow]

                                       14

<PAGE>
    IN WITNESS WHEREOF, the parties agree to the provisions of this Note, and
Power Efficiency Corporation has caused this Note to be duly executed and
delivered on its behalf and in its name by the signature of its duly
authorized officer, as of the date first above written.

POWER EFFICIENCY CORPORATION

By:
    ---------------------------------------------
    Name: Raymond J. Skiptunis
    Title: President & CEO


SUMMIT ENERGY VENTURES, LLC

By: Northwest Power Management, its manager

By:
    ---------------------------------------------
    Name: Steven Strasser
    Title: President








<PAGE>
                                                                     Schedule 1

                             Disclosure re Disputes

1.      Stephen Shulman: The Borrower is involved with certain claims and
        counterclaims related to arbitration with its former CEO, Stephen
        Shulman. The claim was filed by the former CEO on October 10, 2002 and
        is being administrated by the East Providence, Rhode Island office of
        the American Arbitration Association. The former CEO is claiming the
        Borrower owes him, and is seeking to recover, approximately $528,659.
        The amount of his claim is comprised of (i) $116,039 for unpaid salary
        and expenses, and (ii) $412,620 for a payment owed to him in the case
        of a change of control of the Borrower. The Borrower is currently
        defending these claims.

2.      Warner Norcross & Judd LLP: The Borrower received certain services from
        a law firm, Warner Norcross & Judd LLP ("WNJ"). The Borrower received
        an invoice from WNJ that it believes was unreasonably high. The invoice
        was for approximately $200,000 which the Borrower believes is
        approximately two times the reasonable value of the services provided.
        The Borrower has paid approximately $80,000 of the outstanding balance
        and is in negotiations with WNJ regarding the unpaid portion of the
        invoice.




<PAGE>
                              SCHEDULE OF LOANS AND
                              PAYMENTS OF PRINCIPAL
                           UNDER REVOLVING CREDIT NOTE

<TABLE>
<CAPTION>
<S>                <C>              <C>                 <C>                <C>                      <C>
Date               Amount of        Amount of           Amount of          Balance of               Person Making
                   Loan             Principal Paid      Interest Paid      Unpaid Principal         Notation
</TABLE>


</TEXT>
</DOCUMENT>
