LAS VEGAS--(BUSINESS WIRE)--Dec. 11, 2006--Power Efficiency Corporation (OTCBB: PEFF), a developer and marketer of advanced energy savings technologies for electric motors, announced it closed on $3.2 million in equity and $2.0 million in debt financing. Investors in the financing included members of management and the board of directors, an energy-focused hedge fund, and a number of highly accomplished individuals.

The equity financing included sales of units comprised of two shares of common stock and one warrant. The purchase price for each unit was $0.60. Each warrant has an exercise price of $0.40 per share.

The debt financing consisted of $2.0 million of two year, secured promissory notes. The Company also issued 2.5 million warrants to the debt investors. Each warrant has an exercise price of $0.40 per share.
Half the warrants vest upon issuance of the notes, while the other half vest evenly for the first 24 months after issuance.

With the financing, the Company retired two classes of existing notes originally issued in Spring 2006 and Winter 2004-2005, some of which was retired in exchange for the new notes.

"We are delighted to complete this new financing with an outstanding set of investors," said Steven Strasser, Power Efficiency Corporation's Chairman and CEO. "This financing is important for the Company because it enables us to finalize development and commence selling the next generation of our digital products. The new product for industrial motors is expected to be launched in the first quarter of 2007. This product combines all the standard characteristics of a solid state electric motor soft start with timely and valuable energy savings technology. Ultimately, this product will incorporate additional value-added features, such as motor load monitoring and predictive maintenance. With this new product, the Company is primarily targeting sales through established distribution channels, such as original equipment manufacturers, motor and drive distributors, and energy service companies. We believe the product and associated marketing strategy should lead to significantly increased sales with a healthy gross margin in 2007."

"Some of the proceeds from the financing will also be used to complete the Company's single phase product, which we are developing to reduce the electricity used by motors in appliances and light commercial equipment, such as refrigerators, residential air conditioning and shop tools."

The financing was led by Steven Strasser, Herman Sarkowsky and funds managed by Marathon Resource Investments LLC.

-- Mr. Strasser is Power Efficiency's Chairman and CEO. Prior to joining the Company, Mr. Strasser was an accomplished venture capitalist, developer of power plants and related real estate, and attorney.

-- Mr. Sarkowsky's many professional accomplishments include being an early investor in many companies, such as Starbucks and Eagle Hardware; a director of Emdeon Corporation, a NASDAQ listed company; the owner or co-owner of two professional sports franchises, the Portland Trailblazers and the Seattle Seahawks; a Regent of the University of Washington; a commercial and residential real estate developer; and a philanthropist.

-- Marathon Resource Investments LLC is an investment management firm focused since 1997 on natural resources, including energy. Robert Mullin, the founder and general partner of Marathon, previously co-managed the Franklin Natural Resources Mutual Fund where he directed investments in energy and natural resources.

Other notable investors in the financing were George Boyadjieff, Irwin Helford, and David Heerensperger.

-- George Boyadjieff is a member of the board of directors of Power Efficiency and serves as a Senior Technical Advisor to the Company. Mr. Boyadjieff retired in 2002 from being the CEO of Varco International, now part of National Oilwell Varco, a diversified oil services company. During his tenure, Varco grew from a small private company with several million dollars in sales to a public company with roughly $1.3 billion in revenue.

-- Irwin Helford was the CEO of Viking Office Products from 1983 to 1998, growing it from $13 million to over $1.7 billion in sales. In 1998, Viking was acquired by Office Depot and Mr. Helford served as the Vice Chairman of Office Depot until his retirement in 2002.

-- David Heerensperger, an accomplished retail executive, was the Chairman of Pay 'N Pack Stores and was the founder and CEO of Eagle Hardware and Garden. He founded Eagle in 1990 and sold it to Lowe's Home Improvement in 1998 for approximately $1 billion.

Power Efficiency's Chief Operating Officer, Robert Murray, and Chief Financial Officer, John (BJ) Lackland, also invested in the equity offering.

About Power Efficiency Corporation

Power Efficiency Corporation develops and markets advanced energy saving technologies for electric motors. The Company's first product is an energy saving soft start. The product gradually brings an electric motor from rest to full speed. Once at full speed, the Company's patented technology works like cruise control for a car; it delivers the motor just enough electricity to maintain a constant operating speed, whether the motor is heavily or lightly loaded. The technology saves energy on motors found in applications such as escalators, elevators, grinders, granulators, mixers, saw mills and more. Energy savings from these controllers are typically 20-40%. The controllers also reduce the operating heat of the motor, producing significant motor life extension and downtime reduction benefits. Power Efficiency's products are CE Marked and CSA certified. The Company is also developing products to reduce the amount of electricity used by appliances and light commercial equipment, such as refrigerators, residential air conditioning and shop tools. For more information visit www.powerefficiencycorp.com

As a cautionary note to investors, certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; acceptance of the Company's products in the market; the Company's success in technology and product development; the Company's ability to execute its business model and strategic plans; and all the risks and related information described from time to time in the Company's SEC filings, including the financial statements and related information contained in the Company's 2005 Annual Report. Power Efficiency assumes no obligation to update the information in this release.

Copyright Business Wire 2006

Power Efficiency Corporation

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