EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT  ("Agreement "), dated as of May 10,
2000, between US ENERGY SYSTEMS,  INC., a Delaware  corporation (the "Company"),
and Goran Mornhed (the "Executive").

                              W I T N E S S E T H:

                  WHEREAS,  the Company's business consists of (a) acquiring and
operating existing independent power plants ("IPPs") and cogeneration facilities
throughout  the world,  (b)  developing,  building  and  operating  new IPPs and
cogeneration  facilities throughout the world, and (c) developing,  building and
selling  special  energy  efficient  products  using   cogeneration   technology
throughout the world and (d) developing,  building,  acquiring  and/or operating
"inside  the  fence"  energy   facilities  and  operations  for  commercial  and
industrial users throughout the world, and (e) developing,  building,  acquiring
and/or operating district heating and cooling systems throughout the world.

                  WHEREAS,  the  Company and the  Executive  now desire to enter
into this Agreement in its entirety.

                  NOW,  THEREFORE,  in  consideration  of the  mutual  promises,
representations and warranties set forth herein. and for other good and valuable
consideration, it is hereby agreed as follows:

                  1.       Position and Duties.

                           a)       Employment and Position -The Company hereby
agrees  to  employ the Executive as set forth in the next succeeding  sentence,
and the Executive hereby accepts such employment,  upon the terms and conditions
set forth herein. The  Executive  shall serve as  President and Chief  Operating
Officer of the Company  and shall have  such other duties  consistent  with such
office,  as from time to time may be  prescribed  by the Board of  Directors  of
the Company (the "Board ").

                           (b)      Duties - During the  Term (as  defined  in
Section 5(f) below), the Executive  shall perform and discharge the  duties that
may  be assigned to him by  the  Board from time to time as  provided  in  this
Agreement, and the Executive shall devote his reasonable  best  talents, efforts
and abilities to the performance of his duties hereunder.  During the Term,  the
Executive  shall perform such duties on a substantially full-time basis, and the
Executive shall have no other employment whatsoever.

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                  2. Compensation..  Notwithstanding anything to the contrary in
this  Agreement,  during  the term of this  Agreement,  each  part of the  total
compensation  paid to the Executive by the Company as well as Executive's  total
compensation  shall be no less than such part of the compensation and such total
compensation  paid by the  Company  to Larry  Schneider  in his  capacity  as an
employee of the Company or any successor  CEO with respect to the  corresponding
time period.

                           (a)      Base  Salary - The  Company  shall  pay  the
Executive for his services hereunder a salary (as the same may be increased from
time to time,  the "Base Salary") at the annual rate of $180,000.00  which shall
be payable in accordance with the customary payroll practices of the Company but
not  less frequently  than on a monthly basis. The Base Salary shall be reviewed
periodically by the Board and shall be subject to such  increases  as the Board,

                           (b)      Incentive Bonus -  In addition to the Base
Salary, the Executive shall  at the  end of each  fiscal  year  for the  Company
be awarded  a bonus determined in accordance with the 2000 Executive  Bonus Plan
(the "Bonus Plan") annexed hereto as Exhibit  A and  incorporated  herein as  if
fully set forth.  In addition,  the Executive is eligible for such other bonuses
which may be awarded by the Board in its sole discretion under such other  plans
that the Board may establish in its sole discretion from time to time.

                           (c)      Simultaneous herewith, the  Company and the
Executive are executing (i) a Stock Option Agreement  respecting  187,500 shares
(the "187,500 Share  Agreement"),  (ii) a  Stock  Option  Agreement  respecting
562,500  shares  (the "562,500 Share Agreement")  and  (iii) a Stock Option
Agreement  respecting 1,000,000 shares (the "1,000,000 Share  Agreement")  dated
as of the date hereof providing  collectively  for up to 1,750,000 stock options
(collectively  the "Stock Options") annexed hereto as Exhibit B and incorporated
herein as if fully set forth.

                           (d)      Shareholder Consent - Executive acknowledges
that, except for the issuance of the Options under the 187,500 Share  Agreement
which  are  vesting  immediately  upon the  execution  of this  Agreement  (the
"Immediate  Vesting Options") the Board  may  determine  that  it is required or
advisable for the Board to present the Stock Options,  the  2000  Executive
Incentive Plan (the "Incentive Plan")  and/or  the  Bonus Plan to the  Company's
shareholders  for  a  vote  (individually  each  of the matters described above
submitted to the Shareholders for a  vote  shall be  referred  to as a "Voted
Matter").  In the event the Board  presents any of the foregoing matters to the
Company's  shareholders for  a vote, in order for  such Voted Matter to become
effective,  the  affirmative  vote  of  a  majority  of  the  Company's shares,
present in person or represented by proxy, at a meeting of shareholders at which
a quorum is present and in

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fact voting (a "Majority of the  Shareholders")  must approve the material terms
of the Voted  Matter,  it being further  understood  that if the Majority of the
Shareholders  do not approve the Incentive Plan none of the Stock Options except
for the Immediate  Vesting  Options shall be effective.  The Board shall present
any Voted Matter (or the material terms  thereof) to the Company's  shareholders
for a vote as soon as reasonably possible after the execution of this Agreement.
In the event any Voted Matter (or the material terms thereof) is not approved by
a Majority of the  Shareholders  by November 15, 2000, the Executive  shall have
the rights set forth in Section 5(g) hereof.

                           (e)      Withholding. All  payments  required  to  be
made by the Company to  the Executive  under this Agreement  (whether under this
Section 2 or otherwise) shall be subject to withholding of employment and income
taxes  and  other  payroll  deductions  in  accordance  with  applicable  tax
requirements,  the  Company's policies applicable to employees of the Company at
the  Executive's level  and  the provisions of the Benefit Plans (as defined in
Section 3 below).

                  3. Benefits.  (a) Benefit Plans - During the Term, the Company
shall provide to the Executive all fringe benefits currently  provided,  as well
as  those  which  the  Company  may  generally  make  available  to  its  senior
executives, including, without limitation, benefits provided under the Company's
pension and profit-sharing plans (if any), health benefit plans (such as medical
and hospitalization  coverage),  and insurance plans (such as life, supplemental
life,   disability,   business   travel,   accident  and  accidental  death  and
dismemberment) (collectively,  the "Benefit Plans"). Such plans shall during the
term  provide  for at least the same  level of  benefits  as the  Benefit  Plans
provide at the date of this  Agreement and at least as provided for below.  Such
Benefit Plans shall generally provide the following benefits:

         o    Medical and Dental Insurance
         o    401K plan with Company, matching or equal, to be structured  for
              Company management
         o    $1  million  Life  Insurance (the  employee's estate  shall be the
              beneficiary)
         o    Disability Insurance: 60% of base compensation for life

                           (b)      Automobiles - During the Term, the  Company
shall provide the Executive with a Company-owned or leased  automobile of a type
to be agreed upon by the Executive and the Company, or at the Executive's option
a car allowance of $600  per  month in lieu  thereof.  The Company will bear all
insurance,  gasoline, registration, maintenance and repair costs incident to the
Executive's use of such  Company-owned or leased or  Executive-owned  or  leased
automobile in the performance of his duties hereunder.

                           (c)      Vacations, sick leave and holidays.  The
Executive shall be entitled to no less  than  four (4) weeks  of  paid  vacation
during each year of the Term (and a pro rata

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portion thereof for any portion of the Term that is less than a fiscal year). In
addition,  the  Executive  shall be entitled to paid sick leave and  holidays in
accordance with the Company's usual policies for its senior executives.

                           (d)      Company Life Insurance.  In addition to the
life insurance policy described  above,  the  Company  intends  to  obtain a  $5
million  policy  on Executive's life  for  which  the  Company  shall  be  the
beneficiary. Executive shall cooperate with the Company in obtaining such
insurance.

                  4.  Reimbursement  of Expenses.  During the Term,  the Company
shall pay or reimburse the Executive for all  reasonable  travel,  entertainment
and other business  expenses  actually  incurred or paid by the Executive in the
performance of his duties hereunder upon  presentation of expense  statements or
vouchers or such other  supporting  information  as the  Company may  reasonably
require of the Executive.

                  5.  Term:  Termination.  Subject  to the  provisions  of  this
Section 5, the term of the  Executive's  employment  under this Agreement  shall
commence  on the date  hereof  and shall end on the  fifth  anniversary  hereof,
provided  that the term of this  Agreement  shall  automatically  be renewed for
successive  additional  one-year periods at the end of such five-year period and
of each such one-year renewal period, unless either party elects not to renew by
giving  written  notice to the other at least 90 days  before an annual  renewal
date. The initial  five-year term referred to herein,  together with any renewal
thereof,  is referred to in this Agreement as the "Term".  The employment of the
Executive  may be terminated  prior to the  expiration of the Term in the manner
described in this Section 5 solely on the following grounds.

                           (a)      Termination by the Company for Cause -  The
Company shall have the right to terminate the employment of the Executive  prior
to expiration of the Term for Cause (as defined in Section  5(i)(iii) below)  by
written notice to the  Executive  specifying  the  particulars of the conduct of
the Executive  forming  the  basis  for  such termination, as provided  in this
Agreement.

                           (b)      Termination by the Executive for Good Reason
 - The Executive  shall have the right to terminate  his  employment  hereunder
prior to expiration of the Term for Good  Reason  (as such term is  defined  in
Section 5(i)(iv)  below)  by  written  notice  to the  Company  specifying  the
grounds constituting such Good Reason,  provided such written notice  is  given
within six months  of the  date  the  Executive reasonably became  aware of such
an event constituting such Good Reason.

                           (c)      Termination upon Death - The employment of
the Executive hereunder shall terminate immediately upon his death.

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                           (d)      The Company's Option upon Disability. If the
Executive becomes physically or mentally  disabled during the Term so that he is
unable to perform the  services  required of him pursuant to this  Agreement for
a period  of  six successive months, or  an  aggregate of six  months  in  any
consecutive twelve-month period (the  "Disability  Period"),  the Company  shall
have the option,  in its discretion,  by giving  written  notice  thereof,  to
terminate the  Executive's employment hereunder prior to expiration of the Term.
Regardless of whether the Company  exercises such option,  during a period of 18
month's  from the  date of  the  commencement  of the  Disability  Period, the
Executive  shall continue to receive his full  compensation  and other  benefits
provided  herein net of any payments received  under  any disability  policy  or
program provided by the Company  of  which the Executive is  a beneficiary  or
recipient.

                           (e)      Termination by  the Company for other reason
than under 5(a), 5(c), 5(d) - The Company shall have the right to terminate  the
employment of the Executive  prior to  expiration  of the Term for other reasons
than defined in 5(a), 5(c) and 5(d) above ("Without Cause") by written notice to
the  Executive as  provided in  this  Agreement. Such notice  shall  state for
informational reasons only, the reason for such Termination.

                           (f)      Termination  by the  Executive  for  other
reason than under 5(b) The Executive  shall  have  the  right  to  terminate his
employment  hereunder prior to  expiration  of the Term for other  reason than
under 5(b) by written  notice given at least 90 days  prior to the  "Termination
Date" as  defined in section 5(h) below..

                           (g)      Termination By Executive if A Voted  Matter
is Not Approved  -- The  Executive  shall have the right to terminate  his
employment  if Company's shareholders  do not approve any Voted Matter (or
material  terms thereof) on or before  November 15, 2000  provided  that such
notice is given within 30 days of the earlier of November 15, 2000 or the date
the  shareholders  reject the Voted Matter.

                           (h)      Termination Date - Any notice of termination
given by the Company or the  Executive  pursuant to the  provisions of this
Agreement  shall specify therein the effective date of such termination (the
"Termination Date").

                           (i)      Certain Definitions - For purposes of this
Agreement, the following terms shall have the following meanings:

                                    (i)     The "Affiliate" of any Person means
any  other  Person  directly  or  indirectly through one or more intermediary
Persons,  controlling, controlled  by or under common  control with such Person.
For purposes of this definition, "control" shall mean the power to direct the
management and policies of such Person, directly or indirectly,  by or through
equity ownership,  agency or otherwise, or pursuant to or in connection with an
agreement,

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arrangement or understanding (written or oral) with one or more other Persons by
or through equity ownership,  agency or otherwise;  and the terms  "controlling"
and "controlled" shall have meanings correlative to the foregoing.

                                    (ii) "Change of Control" with respect to the
Company, means the occurrence of any of the following:

                                            (A) the acquisition, with or without
                  the approval of the Board,  directly  or  indirectly  (in  one
                  or more  related transactions),  by any Person (other than (i)
                  the Executive or an Affiliate of the Executive (ii)
                  Sparkenergy or any of their Affiliates  (iii) Lawrence
                  Schneider or any of his Affiliates (iv) Ormat or any of its
                  Affiliates or (v) the Marmon Group or any of its Affiliates or
                 (collectively the "Excluded  Group")) or two or  more  Persons
                  acting  as a  group,  of  beneficial ownership  (as that term
                  is defined  in Rule  13d-3  under the Securities  Exchange Act
                  of  1934)  of more  than  30% of the outstanding voting stock
                  of the Company (Voting Stock");


                                            (B) the merger or  consolidation  of
                  the Company with one or more other Persons (other than any one
                  or  more  of  the  Excluded  Group)  as a result of which the
                  holders of the outstanding Voting Stock  of  the  Company
                  immediately before the merger hold less than 30% of the Voting
                  Stock (or  equivalent  thereof) of the surviving or  resulting
                  Person;

                                            (C) the  sale to any  Person  (other
                  than any one  or  more  of  the Excluded  Group)  of  all  or
                  substantially  all of  the  assets  of  the  Company or  its
                  subsidiaries  taken as  a  whole, and  this  Agreement is not
                  assumed by the acquiring Person in connection therewith; or

                                            (D)  the   Company  or  any  of  its
                  members  enters  into any  agreement  providing for any of the
                  foregoing  and the  transaction  contemplated  thereby  is
                  ultimately consummated.

provided,  however, that for purposes of this Agreement,  the sale of any Voting
Stock (or equivalent  thereof) of the Company (or any successor  Person thereto)
pursuant to a public offering shall not constitute a Change of Control.

                                    (iii)  "Cause"  shall mean (A) the continued
failure of the Executive to perform substantially his  duties with the Company
('Non-Performance') other than

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any such failure  resulting from (1) the Executive's  incapacity due to physical
or mental illness or (2) the Executive's  delivery to the Company of a notice of
termination  for Good Reason or other  reason),  which  failure  continues for a
period of more than 7  business  days  after a written  demand  for  substantial
performance is given to the Executive by the Board which specifically identifies
the manner in which the Board believes that the Executive has not  substantially
performed his duties,  (B) the Executive  having been convicted of a crime which
constitutes a felony under  applicable law or having entered a plea of guilty or
nolo  contendere with respect  thereto,  or (C) the engaging by the Executive in
illegal or fraudulent conduct with respect to the Company.

                                    (iv)    "Good Reason" means the  occurrence
of any one of the following events:

                                            (A) a  Change of Control of the
Company;

                                            (B) the  assignment to the Executive
of  any duties inconsistent in any material respect with  the  Executive's  then
position  (including status,  offices, titles  and  reporting  relationships),
authority, duties or responsibilities, or any other action by the Company  which
when  taken  as a whole results in a significant diminution in  the  Executive's
position, authority, duties or responsibilities, excluding for this purpose any
isolated, immaterial and inadvertent action not taken in bad faith and  which is
remedied  by the Company within 7 business days after receipt of notice  thereof
given by the Executive;

                                            (C) a  reduction  by the  Company in
the  Executive's  Base Salary without  the consent  of  such Executive or the
failure by  the  Company  to  continue  in  effect  any  material  benefit  or
compensation  plan,  life insurance  plan,  health and accident plan or
disability plan in  existence as of the date of this Agreement (or a replacement
or substitute plan providing the Executive with substantially similar  benefits)
in  which  the  Executive  is  participating  or  the material  reduction of the
Executive's  benefits  under  any of  such  plans (or replacement or substitute
plans); or

                                             (D)  the  Company   requiring   the
Executive  to be based at any location other than New York City or any county in
New York,  New Jersey or Connecticut that abuts  New York City, Westchester, NY
and north of the southern boundary of New York City except  for requirements of
travel on the Company's  business which travel may be on a regular and extensive
basis given the geographic scope of  the Company's franchise territories.

                                    (v)     "Person" means  any  individual,
corporation, partnership, limited liability  company,  association, joint-stock
company, trust, unincorporated organization,

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joint venture, court or government (or political subdivision or agency thereof).

                  6.       Obligations on Termination.

                           (a)      Payment Obligations of the Company in Case
of Termination for Good Reason Under Section 5(b) and the Company's Termination
Without Cause under Section 5(e).

                                    (i)     Upon termination of the Executive's
employment pursuant to Section 5(b) and Section  5(e),  then,  in lieu of any
further payment under 2(a),  the Company shall pay the Executive a lump sum cash
payment equal to 2.9 times the Base Salary then in effect, plus any unreimbursed
expenses and unpaid accrued benefits  (collectively,  the "Severance Payment).
The Severance Payment shall be payable within 60 days after the Termination
Date.  Executive's  rights to  payments  under the Bonus Plan shall not be
affected  by  termination  under Sections 5(b) and 5(e) except as provided in
such Bonus Plan.

                                    (ii)   Notwithstanding   anything   to   the
contrary  contained herein or in any other agreement between the Company and the
Executive,  in the event that the Executive's employment is terminated  pursuant
to Section 5(b) and 5(e), then (I) (A) any Stock Options which vest solely based
on  the  Executive's  employment  by  the Company for specified  periods of time
(including  the  options covered  by the  187,500  Share  Agreement  and  the
562,500 Share Agreement) heretofore or hereafter granted to the Executive vested
and unvested,  will be automatically vested and may be exercised in full (to the
extent not previously  exercised  and  provided that  the term of the applicable
option has not otherwise expired) at  any time  within  six  months  after  such
cessation of employment  after which time such options shall expire; and (B) any
Stock Options described in the 1,000,000  Share Agreement shall be unaffected by
any  termination  of  employment  under  Sections 5(b) and 5(e) hereof and shall
continue to be in full force and effect as if the Executive  had continued to be
an  employee  of  the  Company.  Any  and  all reasonable costs and expenses,
including but not limited to, reasonable legal fees incurred by the Executive in
good faith in enforcing or  establishing any of his rights  hereunder  shall be
immediately  paid  to  the Executive  upon  presentation  of  appropriate
documentation to the Company.

                           (b)      Payment Obligations of the Company in case
of Termination for Non-Performance as defined in Section 5(i)(iii)(A) Under
Section 5(a).

                                    (i)     Upon termination of the Executive's
employment for Non-Performance,  then, in lieu of any further payment under 2(a)
the Company shall pay the  Executive a lump sum cash payment equal to 1 times
the Base Salary then in effect, plus any unreimbursed

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expenses and unpaid accrued benefits (collectively, the "Severance Payment). The
Severance  Payment shall be payable within 60 days after the  Termination  Date.
Executive's  rights  under the Bonus Plan shall not be affected  by  termination
under Section 5(a) except as provided in such Bonus Plan.

                                    (ii)   Notwithstanding   anything   to   the
contrary contained herein or in any other agreement  between the Company and the
Executive,  in the event that the  Executive's employment is terminated pursuant
to Section  5(a) for Non-Performance,

                                            (A) then any stock options (or
equivalent thereof) heretofore  or hereafter  granted to the  Executive,  which
have vested,  may be exercised in full (to the extent not previously  exercised
and provided that the term of the applicable option has not otherwise  expired)
at any time within six months after such  cessation of  employment  after which
time such options shall expire; and

                                            (B) any and all reasonable costs and
expenses, including but not limited to, reasonable legal fees incurred by the
Executive in good faith in enforcing or establishing any of his rights hereunder
shall be immediately paid  to the  Executive upon  presentation of  appropriate
documentation to the Company.

                           (c)      Payment Obligations of the Company in case
of Termination for Death.

                                    (i)     Upon termination of the Executive's
employment upon death, the Company shall have no  payment  obligations  to  the
Executive hereunder, except  for the  payment  of any  proceeds received  by the
Company  from  the $1,000,000  Life Insurance policy  described  in Section 3(a)
hereof, any accrued and unpaid compensation (including unpaid accrued benefits),
and reimbursement of any unreimbursed expenses.  Executive's  rights under  the
Bonus Plan shall not be affected by  termination  under Section 5(c) except as
provided in such Bonus Plan.

                                    (ii)   Notwithstanding   anything   to   the
contrary contained herein or in any other agreement between the Company and the
Executive, in the event that the Executive's employment is terminated pursuant
to Section 5(c),

                                            (A) then any stock options (or
equivalent thereof) heretofore  or hereafter  granted to the  Executive,  which
have vested,  may be exercised in full (to the extent not previously  exercised
and provided that the  term of the applicable  option has not otherwise expired)
by the  Executive's estate at any time within six months after such termination;
and

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                                           (B) any and all reasonable costs and
expenses, including  but not limited to, reasonable legal fees incurred  by  the
Executive's estate in good faith  in enforcing or establishing any of his rights
hereunder  shall be immediately paid to the Executive's estate upon presentation
of appropriate documentation to the Company.


                           (d)      Payment Obligations of the Company in case
of Termination for Disability.

                                    (i)     Upon termination of the Executive's
employment  upon  disability, the  Executive  shall  receive  the  compensation
provided for in Section 5(d) hereof plus any unreimbursed expenses and  unpaid
accrued benefits.  Upon termination  under Section 5(d),  Executive shall have
the same rights under the  Bonus  Plan  as  if  his  employment  continued for
eighteen  months  after  the commencement of the Disability Period.

                                    (ii)   Notwithstanding   anything   to   the
contrary contained herein or in any other agreement between the Company  and the
Executive, in the event that the Executive's  employment is terminated pursuant
to Section 5(d),

                                            (A) then any stock options (or
equivalent thereof) heretofore or  hereafter  granted  to  the  Executive, which
have  vested  or which vest in accordance  with the terms of  the  Stock  Option
Agreement  within  the 18  month period after  commencement of  the  Disability
Period,  will  vest  as  if  the  Executive's  employment did not  terminate and
may be exercised in full (to the extent not  previously  exercised and  provided
that the term of the   applicable option  has not otherwise expired) at any time
within such eighteen month period after which time such options shall expire;
and

                                            (B) any and all reasonable costs and
expenses, including  but  not limited  to, reasonable legal fees incurred by the
Executive in good faith in enforcing or establishing any of his rights hereunder
shall be immediately  paid  to  the  Executive  upon presentation of appropriate
documentation to the Company.

                           (e)      Payment Obligations of the Company in case
of  Termination  for  Voluntary  Resignation or Cause as defined in Section 5(i)
(iii)(B) and (C).
7
                                    (i)     Upon termination of the Executive's
employment  as  a  result  of  the  voluntary  resignation  of  the Executive
under  Section 5(f) or termination of the Executive by  the Company  for  Cause
(except Non-Performance) as defined in Section 5 (i)(iii)(B) and (C) under
Section 5 (a),  the Company shall  have  no payment obligations to the Executive
hereunder,  except  for  the  payment  of any  accrued  and  unpaid compensation
(including unpaid accrued

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<PAGE>

benefits),  and reimbursement of any unreimbursed  expenses.  Executive's rights
under the  Bonus  Plan  shall  not be  affected  by such  termination  except as
provided in such Bonus Plan.

                                    (ii)   Notwithstanding   anything   to   the
contrary  contained  herein or in any  other  agreement  between  the  Company
and the Executive,  in the event the Executive  terminates  his employment   by
voluntary  resignation pursuant to Section 5(f) or the Executive's employment is
terminated pursuant to Section 5(a) for Cause (except Non-Performance),

                                            (A) then  any  stock  options (or
equivalent thereof) heretofore  or hereafter  granted  to  the Executive,  which
have  vested, may be exercised in full (to the extent not previously  exercised
and provided  that  the term of the applicable option has not otherwise expired)
at  any  time  within six  months  after  such  cessation  of  employment after
which time such  options  shall expire; and

                                            (B) any and all reasonable costs and
expenses, including, but  not limited to, reasonable legal fees incurred  by the
Executive in good faith in enforcing or establishing any of his rights hereunder
shall immediately be paid to  the  Executive upon presentation  of  appropriate
ocumentation  to  the company.

                           (f)      Continued Medical Dental Coverage. Upon  the
termination of the Executive's  employment with the Company for whatever reason,
to the extent permitted by applicable law, the Company shall continue to provide
the Executive (at the Company's cost or, in the case of a  termination  pursuant
to  Sections 5(a)  for  other  than  Non-Performance  and  Section 5(f), at  the
Executive's cost)  with  medical, dental  and hospitalization insurance coverage
for the longest of-(i) the 18-month period from the Termination Date; (ii) the
period prescribed by applicable law; and (iii) the period set forth in the
applicable Benefit Plans.

                           (g)      Company  Obligations  Upon  Termination If a
Voted Matter is Not Approved.

                                    (i)     If the Executive terminates this
Agreement pursuant to Section 5(g) because any Voted Matter (or the material
terms  thereof) is not approved by a Majority of the Shareholders  then in lieu
of any further payments under 2(a) the Company shall pay the Executive  $500,000
plus any  unreimbursed  expenses  (collectively the "Severance Payment"). 50% of
such Severance Payment shall be made within 60 days of the Termination Date and
the remaining 50% shall be made within 420 days of the Termination Date.

                                    (ii)  In  the  event  that  the  Executive's
employment is terminated pursuant to Section 5(g) then

                                       11

<PAGE>


                                            (A) any stock options heretofore or
hereafter granted to the Executive  pursuant to  authorized  stock  option plans
which have vested may be  exercised  in  full (to the  extent  not  previously
exercised and provided that the term of the applicable option has not otherwise
expired) at any time within six months after such  cessation of employment after
which time such options shall expire and

                                            (B) any and all reasonable costs and
expenses, including but not limited to reasonable  legal  fees  incurred by  the
Executive in good faith in enforcing or establishing any of his rights hereunder
shall  be  immediately  paid  to  the Executive upon presentation of appropriate
documentation to the Company.

                           (h)      Obligations of  Company  Under  Bonus  Plan.
Notwithstanding anything to the contrary  subject to Executive's full compliance
under Section 7 after the Term, and 8 hereof,  the Company's  obligation  to the
Executive  under the Bonus Plan  shall not be  affected  by the  termination  or
renewal of the Executive's  employment except as provided in such Bonus Plan. In
the event the Executive commits a breach of Section  7 after the Term or Section
8  of this Agreement  and fails to cure such  breach  within  seven  days  after
receiving written notice describing such breach (provided the Company sends such
notice to Executive within 14 days of obtaining actual knowledge of the material
facts relating to such  breach),  the Company  shall have the right to terminate
this Agreement under  paragraph 5(a) (if Executive's  employment has not already
been terminated  or  expired at such  time) and effective upon  the date of such
Termination  (if  Executive's  employment  has not already  been  terminated  or
expired  at  such  time)  or the  lapse  of such  cure  period  (if  Executive's
employment  has already been  terminated  or expired at such time),  the Company
shall be relieved of its obligation to make any further payments under the Bonus
Plan. In the event the Executive and the Company dispute  whether  Executive has
committed an uncured breach of Sections 7 or 8 hereof,  the Parties'  rights and
obligations  under the Bonus Plan shall remain in effect except that the Company
shall make any payments due under the Bonus Plan into an interest-bearing escrow
held by an outside  escrow  agent  designated  jointly by the parties  until the
earlier of the passage of 180 days from the date of the lapse of the cure period
described  above (in which case the Escrow  shall be released to the  Executive)
or;

                                    (i)     an arbitration panel described in
Section 12 of this Agreement and, finds that

                                            (A) the Executive  breached Sections
7 or 8, in which case, the escrow shall be released  to  the  Company  and  the
Company shall have no further obligations to Executive under the Bonus Plan, or

                                            (B)  that  the   Executive  did  not
breach  Sections 7 or 8, in  which  case  the  escrow shall be released to the
Executive and the Company shall thereafter make payments to the Executive  under
the  Bonus  Plan  in accordance with its terms, or


                                       12



<PAGE>


                                    (ii) the Company and the Executive deliver a
joint  written  instruction to such escrow holder respecting the disposition of
the funds.

At the  request  of the  escrow  holder,  the  parties  shall  execute an escrow
agreement containing normal terms and conditions consistent with this paragraph.
The parties agree to proceed  expeditiously  under any  arbitration in which the
Executive's  rights under the Bonus Plan is at issue so that the  arbitration is
adjudicated within the 180 day period described above.

                           (i)      Liability  of  the Company  for Compensation
in  the  Event  of Termination - Provided  the Company fully  complies with this
Section 6, then the Company shall have no further  liability to the Executive
under Section 2 above in the event of termination as provided for herein.

                  7. Trade Secrets;  Confidentiality.  The Executive  recognizes
and  acknowledges  that, in connection with his employment with the Company,  he
has had  and  will  continue  to have  access  to  valuable  trade  secrets  and
confidential  information of the Company and its Affiliates  including,  but not
limited  to,  customer  lists,   business  methods  and  processes,   marketing,
promotional,  pricing,  financial  information,  technical  information and data
relating to clients,  employees  and  consultants  (collectively,  "Confidential
Information") and that such Confidential  Information is being made available to
the Executive only in connection with the furtherance of his employment with the
Company.  The Executive  agrees that during the Term and for a period of 2 years
thereafter, the Executive shall not disclose any Confidential Information to any
Person,  except that disclosure of Confidential  Information  will be permitted:
(a) to the Company  and its  respective  Affiliates  and  advisors;  (b) if such
Confidential  Information has previously  become available to the public through
no fault of the Executive;  (c) if required by law or any court or  governmental
agency or body,  provided  that in any such case  covered by this clause (c) the
Executive  shall provide the Company,  in advance of any such  disclosure,  with
prompt notice of such  requirement(s) and shall cooperate fully with the Company
to the  extent  it may  seek to  limit  such  disclosure;  (d) if  necessary  to
establish or assert the rights of the Executive  hereunder;  or (e) if expressly
consented to by the Company.


                  8.       Noncompetition and Nonsolicitation.

                           (a)      The Executive hereby covenants  and  agrees
that during the Term and for the  respective periods set forth below immediately
following  the termination  by the Company or the Executive,  as applicable,  of
his  employment under the respective circumstances set forth below he shall not,
without the prior written consent of the Board, at any time, directly

                                       13

<PAGE>






or indirectly, on his own behalf or on behalf of any Person:

                                    (i)     own, manage, operate, control, be
employed by, participate in, provide consulting  services to, or be connected or
associated in any manner with the ownership, management, operation or control of
any business which is in competition  with  the  Company  (in  the  business  in
which  the  Company  is substantially  engaged during the Term in the case of
acts committed  during the Term or in the  business  in which the Company is
substantially  engaged at the time of  termination  of Executive's Employment in
the case of acts committed after the Term) or any of its Affiliates in any state
of the United States or in any foreign country in which  any of them are engaged
in business during the Term in the case of acts  committed  during  the Term or
in any state of the United States or in any foreign country in which any of them
are engaged in business at the time of termination of Executive's  employment in
the case of acts committed  after the Term for as long as the Company  continues
to conduct such business (the "Non-Compete"),

                                    (ii) solicit or take any action to cause the
solicitation of, or recommend that, any supplier,  client, customer, contractor,
vendor, agent or consultant  of the  Company  or any of its  Affiliates or other
Person  having business  relations  with  the  Company, discontinue business  or
cease  such relationship,  in whole or in part,  with the  Company or any of its
Affiliates (the "Customer Non-Solicit"),

                                    (iii)   employ any Person employed by the
Company  or  any  of  its Affiliates  at  the time of, or during the 12 months
preceding,  such termination of the Executive's employment with the Company (the
"Non-Hire") or

                                    (iv)  solicit  for  employment  (other  than
through unaffiliated employment  recruiting or placement  firms or services who
are not  specifically directed to solicit  employees of the Company or provided
with the names of any such  employees) any Person  employed  by the Company or
any of its Affiliates at the  time  of,  or  during the 12 months preceding such
termination  of  the  Executive's  employment  with  the  Company,  or otherwise
encourage or entice any such Person to leave such employment (the "Employee Non-
Solicit"),  provided, however, that nothing in this Agreement shall preclude the
executive  from  owning less than five percent of any class of publicly traded
equity of any entity


                                       14



<PAGE>
<TABLE>
<CAPTION>
<S>
                                             <C>             <C>                <C>              <C>


                                                              Customer                           Employee
Reason for Termination                      Non-Compete       Non-Solicit       Non-Hire         Non-Solicit

Good Reason                                 1 1/2 years       1 1/2 years       1 1/2 years      1 1/2 years

For Cause other than                        2 years           2 years           1 1/2 years      2 years
Non-Performance

For Non-Performance                         1 years           1 years           1 years          1 years

Company Termination                         0 years           1 1/2 years       1 1/2 years      1 1/2 years
for other than Cause and
Disability

Voluntary Resignation not for               2 years           2 years           2 years          2 years
Good Reason

Company Failure to Renew                    0 years           2 years           1 year           2 years

Executive Failure to Renew                  0 years           2 years           1 year           2 years

Disability                                  0 years           1 1/2 years       1 year           1 year

</TABLE>


                           (b)      The Employee acknowledges and agrees that

                                    (i)     the restrictive covenants set forth
in  this  Section 8 (the "Restrictive Covenants") are  reasonable  and valid in
geographical and temporal scope and in all other respects, and

                                    (ii)  it is the  intention  of  the  parties
hereto that the Restrictive Covenants  be  enforceable  to  the  fullest  extent
permitted by applicable  law. Therefore, if any court determines that any of the
Restrictive Covenants, or any part thereof,  is invalid or  unenforceable,  the
remainder of the  Restrictive  Covenants shall not thereby be affected and shall
be given  full  force and effect, without regard to the invalid or unenforceable
parts.  Specifically,  if any court of  competent  jurisdiction should hold that
any  portion  of the Restrictive  Covenants  is overly  broad as to one or more
states of the United States  or  one  or  more foreign jurisdictions, then that
state or  states or foreign  jurisdiction or jurisdictions shall be eliminated
from  the  territory  to  which  the  Restrictive  Covenants  apply and the
restrictions shall remain applicable in all other states of the

                                       15

<PAGE>


United States and foreign jurisdictions.

                           (c)      If any court determines that any of the
Restrictive Covenants, or any part thereof,  is invalid or unenforceable for any
reason,  such court shall have the power to modify such Restrictive Covenant, or
any part thereof, and, in its  modified  form, such  restrictive  covenant shall
then  be  valid  and enforceable.

                  9.  Equitable  Relief.  In the event of a breach or threatened
breach by the Executive of any of the covenants contained in this Agreement, the
Company  shall be entitled  to a  temporary  restraining  order,  a  preliminary
injunction  and/or  a  permanent  injunction   restraining  the  Executive  from
breaching  or  continuing  to  breach  any of  said  covenants.  Nothing  herein
contained  shall be construed as prohibiting the Company from pursuing any other
remedies  that may be  available to it under this  Agreement  for such breach or
threatened breach.

                  10.  Severability.  Should any provision of this  Agreement be
held, by a court of competent jurisdiction, to be invalid or unenforceable, such
invalidity or unenforceability  shall not render the entire Agreement invalid or
unenforceable,  and this Agreement and each individual provision hereof shall be
enforceable and valid to the fullest extent permitted by law.

                  11.      Successors and Assigns.

                           (a)      This Agreement and all rights under  this
Agreement are personal to the  Executive  and shall not be assignable other than
by will or the laws of descent.  All of the  Executive's  rights under the
Agreement shall inure to the benefit  of his  heirs,  personal  representatives,
designees  or  other  legal representatives, as the case may be.

                           (b)      This Agreement shall inure to the benefit of
and be binding upon the  Company  and its  successors  and  assigns.  Any Person
succeeding  to the business of the Company by merger,  purchase,  consolidation
or otherwise shall assume by contract or operation of law the obligations of the
Company under this Agreement.

                  12.  Governing  Law:  Jurisdiction.  This  Agreement  shall be
construed in accordance  with and governed by the laws of the State of New York.
The parties  hereby  agree to submit any and all  disputes  arising out of or in
connection  with this Agreement to binding  arbitration  in accordance  with the
rules of the American Arbitration Association. Such arbitration shall be held in
New York City.  Each party shall select one arbitrator and the two such selected
arbitrators  shall select a third  arbitrator.  Notwithstanding  anything to the
contrary in this  Section 12,  such  parties may seek in any court of  competent
jurisdiction  any  injunctive  relief  pursuant to Section 9 of this  Agreement.
Provided that  Executive's  position in such dispute has a good faith basis, any
and all  reasonable  out of pocket costs incurred by the Executive in connection
with any

                                       16



<PAGE>


dispute arising out of this Agreement shall be immediately paid to the Executive
by  the  Company  upon  presentation  of  appropriate  documentation,  up  to an
aggregate amount equal to $180,000.

                  13.  Notices.  All notices,  requests and demands  given to or
made upon the respective  parties hereto shall be deemed to have been given when
received or refused if mailed by registered or certified mail,  postage prepaid,
if delivered by hand,  or if delivered by Federal  Express or similar  overnight
delivery service, addressed to the parties at their addresses set forth below or
to such  other  addresses  furnished  by notice  given in  accordance  with this
Section 13:

                           (a)      if to the Company, to
                                    Company Headquarters
                                    Attention CEO

                           (b)      if to the  Executive,  to Goran  Mornhed  94
                                    Colabaugh Road Croton-on-Hudson, NY 10520

                  14.  Complete  Understanding.  Together  with the Stock Option
Agreement,  Stock Option Plans and the Bonus Plan, this Agreement supersedes any
prior  contracts,   understandings,   discussions  and  agreements  relating  to
employment  between the Executive and the Company and  constitutes  the complete
understanding  between the parties with respect to the subject matter hereof. No
statement,  representation,  warranty or covenant  has been made by either party
with respect to the subject  matter  hereof except as expressly set forth herein
or therein.

                  15.      Modification:.


                           (a)      This Agreement may be amended or waived if,
and only if, such amendment or waiver is in writing and signed,  in  the case of
an  amendment,  by the Company and the  Executive or in the case of a waiver, by
the party against whom the waiver is to be effective.  Any such waiver shall be
effective  only to the extent specifically set forth in such writing.

                           (b)      No failure or  delay  by  any  party in
exercising any right, power or privilege  hereunder shall operate as a waiver
thereof,  nor shall any single or partial  exercise  thereof preclude any other
or  further  exercise thereof  or the  exercise  of any  other  right, power or
privilege.

                  16.      Mutual Representations.

                                       17

<PAGE>


                           (a)      The Executive represents and warrants to the
Company that the execution and delivery of this Agreement and the fulfillment of
the terms hereof

                                    (i)     will not constitute a default under
or conflict with any agreement or other instrument to which he is a party or by
which he is bound, and

                                    (ii)    do not require the consent of  any
Person.  The Executive represents and warrants to the Company  that  Executive's
performance  of his duties under this Agreement shall not require him to breach
the terms of Exhibit C hereto..

                           (b)      The Company represents and  warrants to the
Executive that this Agreement  has been duly authorized, executed and delivered
by the Company and that except with respect to any Voted Matter, (other than the
Initially Vesting Options), the fulfillment of the terms hereof

                                    (i)     will not  constitute a default under
or conflict with any agreement or other  instrument to which it is a party or by
which it is bound and

                                    (ii)  do  not  require  the  consent  of any
Person.

                           (c)      Each party hereto warrants and represents to
the other  that this  Agreement constitutes the valid and binding obligation  of
such party enforceable against such party in accordance with its terms.

                           (d)      The parties agree to indemnify, defend and
hold the each other harmless  for  any  claim,  loss,   damage,   cost,  expense
including without  limitation,  reasonable  attorney  fees  arising  out  of  or
relating to a breach of the foregoing  representations  in Section 16 (a), (b),
and (c). The Executive's obligation  under this  Section 16 shall be  limited to
an  aggregate  amount of  $180,000.

                  17.   Headings.   The  headings  in  this  Agreement  are  for
convenience  of  reference  only and shall not  control or affect the meaning or
construction of this Agreement.

                  18.  Counterparts.  This Agreement may be signed in any number
of counterparts,  each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  This Agreement
shall become  effective when each party hereto shall have received  counterparts
hereof signed by the other party hereto.

                  19. Inconsistencies. In the event of any inconsistency between
this  Agreement on the one hand and the Incentive  Plan or the Bonus Plan on the
other hand, this Agreement shall govern.

                                       18




<PAGE>




                  IN WITNESS  WHEREOF,  the Company has caused this Agreement to
be duly executed in its corporate name by one of its officers duly authorized to
enter into and execute this Agreement, and the Executive has manually signed his
name hereto, all as of the day and year first above written.

                            US ENERGY SYSTEMS, INC.



                            By: /s/ Lawrence I. Schneider
                                    ------------------------
                                    Lawrence I. Schneider,
                                    Chief Executive Officer


                               /s/   Goran Mornhed
                               -------------------
                                     Goran Mornhed