SECURITIES PURCHASE AGREEMENT

Power Efficiency Corporation

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 August 7, 2009 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 125,000 units (the “Units”) to the Investors in a private placement offering (the “Offering”) commencing as of the date hereof and continuing through December 30, 2009 (the “Termination Date”).  Each Unit consists of one share of Series C Convertible Preferred Stock of the Company, par value $0.001 per share (the “Preferred Stock”) and 50 warrants in substantially the form attached hereto as Annex III (each a “Warrant” and collectively for all Investors, the “Warrants”) to purchase common stock of the Company, par value $0.001 per share (the “Common Stock”) at $0.40 per share of Common Stock.  Initially, one share of Preferred Stock shall be convertible into one hundred (100) 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.  The Units, Preferred Stock, Warrants and shares of Common Stock underlying the Warrants are referred to collectively herein as the “Securities”.

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 $40.00 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:

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).

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.

1. Authorization and Sale of the Units . Subject to these Terms and Conditions, the Company has authorized the sale and issuance of up to 125,000   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 once subscriptions for at least $500,000 have been received.  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.

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 12,500 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-K and Form 10-Q (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).

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.

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-K for the years ended December 31, 2007 and December 31, 2008;

(b) Definitive Proxy Statement for the Annual Meeting held on July 11, 2008;

(c) Quarterly Reports on Form 10-Q for the quarters ended June 30, 2008, September 30, 2008 and March 31, 2009; 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