CERTIFICATE OF DESIGNATION

                                       OF

                      SERIES C CONVERTIBLE PREFERRED STOCK

                                       OF

                            U.S. ENERGY SYSTEMS, INC.

                         (PURSUANT TO SECTION 151 OF THE
                        DELAWARE GENERAL CORPORATION LAW)

                      ------------------------------------


         U.S. Energy Systems,  Inc., a corporation  organized and existing under
the General  Corporation  Law of the State of Delaware  (hereinafter  called the
"Corporation"),  hereby  certifies that the following  resolution was adopted by
the Board of  Directors  of the  Corporation  as  required by Section 151 of the
Business Corporation Law at a meeting duly called and held on [ ], [ ]:

         RESOLVED,  that pursuant to the authority  granted to and vested in the
Board of  Directors  of this  Corporation  (hereinafter  called  the  "Board  of
Directors" or the "Board") in accordance  with the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors hereby creates, from
the class of the  Corporation's  authorized  preferred stock, par value $.01 per
share (the "Preferred Stock"), a Series C Convertible  Preferred Stock, $.01 par
value per share (the  "Preferred  Stock"),  of the Corporation and hereby states
the  designation  and  number  of  shares,   and  fixes  the  relative   rights,
preferences, and limitations thereof as follows:

         Section 1.  Designation and Amount.  The shares of such series shall be
designated  as "Series C Convertible  Preferred  Stock" (the "Series C Preferred
Stock") and the number of shares constituting the Series C Preferred Stock shall
be 100,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors;  provided,  that no decrease  shall reduce the number of
shares of Series C  Preferred  Stock to a number  less than the number of shares
then outstanding and no increase shall increase the number of shares of Series C
Preferred Stock above the total number of authorized shares of Preferred Stock.

         Section 2.        Rank.  The Series C Preferred Stock shall rank as to
distributions of  assets  upon liquidation, dissolution  or  winding up of  the
Corporation,  whether voluntary  or  involuntary: (i) senior  to  all of  the
Corporation's  common stock, par value $.01 per share (the "Common Stock"); (ii)
senior to any  class or series  of capital stock  of the  Corporation  hereafter
created specifically ranking by its terms junior to the Series C Preferred Stock
(collectively,  with the Common  Stock,  "Junior Securities" or "Junior Stock");
(iii) on parity with the Corporation's Series A Convertible Preferred Stock, par

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value $.01 per share (the "Series A Preferred Stock");  (iv) senior to the
Corporation's  Series B Preferred Stock, par value $.01 per share  (the  "Series
B  Preferred  Stock); (v) junior to any class or series of capital  stock of the
Corporation  hereafter  created  specifically ranking by its terms senior to the
Series C Preferred Stock; and (vi) on parity with any class or series of capital
stock of the Corporation  hereafter created specifically ranking by its terms on
parity  with  the  Series C  Preferred  Stock (collectively, with the  Series A
Preferred Stock, "Parity Securities" or "Parity Stock").

         Section 3.        Dividends.

                  (a) The  holders  of the  Series C  Preferred  Stock  shall be
entitled  to  receive  out of funds of the  Corporation  legally  available  for
payment, cash dividends,  payable quarterly in arrears, at the rate of $2.70 per
share of  Series C  Preferred  Stock per  annum;  provided,  however,  that such
dividend  rate  shall  be  reduced  to the  rate of $1.80  per  annum  effective
immediately upon  satisfaction or waiver of all conditions to the  effectiveness
of the Amended and Restated Plan of  Recapitalization  dated as of July 31, 2000
by and between the  Corporation,  Lawrence I. Schneider,  Henry  Schneider,  and
Energy  Systems  Investors,  L.L.C.,  as amended from time to time (the "Plan of
Recapitalizatio"n;  the date on which all such  conditions  have been  waived or
satisfied  is  referred  to herein as the  "Plan of  Recapitalization  Effective
Date").  Dividends on the Series C Preferred Stock shall be cumulative and shall
accrue  from the date of issuance  or  thereafter,  from the most recent date on
which dividends were payable,  and shall be payable  quarterly on April 30, July
31,  October 31 and  January 31 of each year (each a "Dividend  Payment  Date"),
commencing with a pro-rata dividend on the first Dividend Payment Date after the
initial issuance of the Series C Preferred Stock, provided, however, that if any
such day is not a Business Day (as defined),  the Dividend  Payment Date will be
the next business day.  Each  declared  dividend  shall be payable to holders of
record  as they  appear  at the  close of  business  on the  stock  books of the
Corporation  on such record  date,  not more than 30 calendar  days and not less
than  10  calendar  days  preceding  the  Dividend  Payment  Date  therefor,  as
determined  by the Board of  Directors  (each of such  dates a  "Record  Date").
Quarterly  dividend  periods (each a "Dividend  Period")  shall  commence on and
include the 1st day of February, May, August and November of each year and shall
end on and include the day next  preceding the next following  Dividend  Payment
Date. The term "Business Day" means any day other than a Saturday,  a Sunday, or
a day on which  banks in New York are  authorized  or  obligated  to close their
regular banking business.

                  (b) No  dividends  shall be  declared or paid or set apart for
payment on any Common  Stock,  Parity  Stock or Junior Stock during any calendar
quarter unless full  dividends on the Series C Preferred  Stock for all Dividend
Periods  ending  prior  to  or  during  such  calendar   quarter  have  been  or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment. When dividends are not so paid in
full (or a sum  sufficient  for such full  payment is not so set apart) upon the
Series C Preferred Stock and any other Parity Stock, dividends upon the Series C
Preferred  Stock and  dividends on such other Parity Stock  payable  during such

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calendar quarter shall be declared pro rata so that the amount of such dividends
so payable per share on the Series C Preferred Stock and such other Parity Stock
shall in all cases bear to each other the same ratio that full  dividends on the
shares of Series C Preferred Stock and full dividends, if any, on shares of such
other  Parity  Stock,  bear to each  other.  If full  dividends  on the Series C
Preferred  Stock have not been  declared and paid or set apart for  payment,  no
dividend or  distribution,  other than in shares of capital stock ranking junior
to the Series C Preferred Stock as to dividends and liquidation preference,  may
be  declared,  set aside or paid on any shares of Junior  Stock.  So long as any
Series C Preferred  Stock is outstanding,  the Corporation may not,  without the
consent  of the  holders  of a majority  of the  outstanding  shares of Series C
Preferred  Stock,  repurchase,  redeem or  otherwise  acquire  any shares of its
Junior Stock (except by conversion  into or exchange for Junior Stock),  and may
not, directly or indirectly,  repurchase, redeem or otherwise acquire (except by
conversion  into or exchange for Junior Stock) any shares of any class or series
of Junior Stock or warrants,  calls,  options or other rights to acquire capital
stock of the  Corporation or other security  exercisable  or  exchangeable  into
capital  stock of the  Corporation  other than the  acquisition,  redemption  or
repurchase of the Corporation=s 9% Convertible Secured Subordinated  Debentures,
the Redeemable Common Stock Purchase Warrants and the Series C Redeemable Common
Stock  Purchase  Warrants,  consistent  with the  terms of such  securities,  as
applicable, if any, or as permitted or required by the Stockholders Agreement by
and among USE Acquisition  Corp., the Corporation and CSI Energy  Solutions,  as
amended from time to time.  Holders of the Series C Preferred Stock shall not be
entitled to any dividends, whether payable in cash, property or stock, in excess
of the  dividends  provided  for herein.  No interest or sum of money in lieu of
interest  shall be  payable  in  respect  of any  declared  dividend  payment or
payments  on the  Series C  Preferred  Stock  which may be in  arrears.  As used
herein,  the phrase  "set apart" in respect of the  payment of  dividends  shall
require  deposit of any funds in a bank or trust  company in a separate  deposit
account  maintained  for the  benefit of the  holders of the Series C  Preferred
Stock.

         Section 4.        Voting Rights.

                  (a) Each share of Series C  Preferred  Stock shall be entitled
to a number of votes in any vote brought  before the holders of the Common Stock
of the Corporation equal to $30.00 divided by the Conversion Price determined as
of the record date of such vote of  stockholders.  Holders of shares of Series C
Preferred  Stock  shall be  entitled  to notice of all  stockholder  meetings or
written  consents  with  respect to which they would be entitled to vote,  which
notice shall be provided  pursuant to the  Corporation's  bylaws and  applicable
law.

                  (b) To the  extent  that  under  Delaware  law the vote of the
holders of shares of Series C Preferred Stock,  voting separately as a class, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the then outstanding  shares of
the Series C Preferred Stock shall constitute the approval of such action by the
class.

         Section 5.        Conversion.  Subject to and upon compliance with this
Section  5, the  holders of shares of  Series C  Preferred Stock  shall  have
conversion rights as follows:

                  (A)  Optional  Conversion.  Each holder of a share of Series C
Preferred  Stock  shall  have the  right,  at any  time,  at the  office  of the
Corporation or any transfer agent for the Series C Preferred  Stock,  to convert
such  share of  Series C  Preferred  Stock  into that  number of fully  paid and
nonassessable  shares of Common Stock equal to $30.00  divided by the Conversion
Price.
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                  (B)  Mechanics of  Conversion.  In order to convert  shares of
Series C Preferred  Stock into shares of Common  Stock,  the holder of shares of
Series C Preferred  Stock shall (i) fax or  otherwise  deliver a fully  executed
notice of conversion (in such form as the Corporation  may reasonably  require )
("Notice of Conversion")  to the Corporation at its principal  office and to the
transfer  agent for the Series C Preferred  Stock,  that such  holder  elects to
convert his shares of Series C Preferred  Stock,  which notice shall specify the
number of shares of Series C Preferred  Stock to be converted  and shall contain
the Conversion Price (together with a copy of the first page of each certificate
to be  converted)  prior to 5:00  p.m.,  Eastern  Time (the  "Conversion  Notice
Deadline") on the date of conversion  specified on the Notice of Conversion  and
(ii) surrender the original certificate or certificates for the shares of Series
C Preferred  Stock to be  converted,  duly  endorsed,  and deliver the  original
Notice of  Conversion by either  overnight  courier or two-day  courier,  to the
principal  office of the Corporation or the office of the transfer agent for the
Series C Preferred Stock;  provided,  however, that the Corporation shall not be
obligated to issue  certificates  evidencing the shares of Common Stock issuable
upon such conversion unless the certificates  evidencing such shares of Series C
Preferred  Stock are  delivered  to the  Corporation  or its  transfer  agent as
provided above.  Upon receipt by the Corporation of evidence of the loss, theft,
destruction  or mutilation of any  certificate  representing  shares of Series C
Preferred Stock, and (in the case of loss, theft or destruction) of indemnity or
security  reasonably  satisfactory  to the  Corporation,  and upon surrender and
cancellation of any certificate representing shares of Series C Preferred Stock,
if mutilated,  the  Corporation  shall execute and deliver a new  certificate of
like tenor and date. No  fractional  shares of Common Stock shall be issued upon
conversion of the Series C Preferred  Stock. In lieu of any fractional  share to
which  the  holder of shares of Series C  Preferred  Stock  would  otherwise  be
entitled,  the  Corporation  shall pay cash to such holder in an amount equal to
such fraction  multiplied by the Conversion Price then in effect. In the case of
a dispute as to the  calculation  of the  Conversion  Price,  the  Corporation's
calculation shall be deemed conclusive absent manifest error.

         The Corporation  shall use all reasonable  efforts to issue and deliver
within  seven  (7)  business  days  after  delivery  to the  Corporation  of the
certificates  representing  the  shares  of  Series  C  Preferred  Stock  to  be
converted, or after such agreement and indemnification, to such holder of Series
C Preferred Stock at the address of the holder on the books of the  Corporation,
a certificate or certificates  for the number of shares of Common Stock to which
the holder shall be entitled as aforesaid.  The date on which conversion  occurs
(the  "Date of  Conversion")  shall be  deemed  to be the date set forth in such
Notice  of  Conversion,  provided  (i) that the  advance  copy of the  Notice of
Conversion  is delivered to and  received by the  Corporation  before 5:00 p.m.,
Eastern  Time,  on the Date of  Conversion,  and (ii)  that the  original  stock
certificates representing the shares of Series C Preferred Stock to be converted
are received by the  Corporation  or the transfer  agent within two (2) business
days thereafter.  The person or persons entitled to receive the shares of Common
Stock  issuable  upon such  conversion  shall be treated for all purposes as the
record  holder  or  holders  of such  shares  of  Common  Stock  on the  Date of
Conversion.  If the original  certificates  representing  the shares of Series C
Preferred  Stock to be  converted  are not  received by the  Corporation  or the
transfer  agent within two (2) business  days after the Date of Conversion or if
the facsimile of the Notice of Conversion is not received by the  Corporation or
its  transfer  agent  prior to the  Conversion  Notice  Deadline,  the Notice of
Conversion, at the Corporation's option, may be declared null and void.

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<PAGE>

         Following any  conversion of shares of Series C Preferred  Stock,  such
share of Series C Preferred  Stock shall no longer be outstanding and all rights
of a  holder  with  respect  to the  shares  surrendered  for  conversion  shall
immediately terminate except for the right to receive Common Stock.

                  (C) Forced Conversion. At the option of the Corporation at any
time after the Measurement  Date (as defined below),  and provided  further that
the  average of the last  reported  sales  prices  for the Common  Stock for the
thirty  (30) day  period  ending not more than ten days prior to the date of the
giving of the Forced  Conversion Notice (as defined) is greater than 120% of the
Conversion  Price then in effect,  the Corporation  may, by giving notice to the
holders of shares of Series C Preferred Stock (the "Forced Conversion  Notice"),
convert each of the shares of Series C Preferred  Stock held by such holder into
the  number  of shares  of the  Common  Stock  equal to  $30.00  divided  by the
Conversion Price then in effect,  plus accrued and unpaid dividends  (whether or
not declared) for all periods prior to such  conversion  date.  Such  conversion
shall be effective as of the date the Forced  Conversion  Notice is given by the
Corporation  and the  holders of the Series C  Preferred  Stock  shall  promptly
surrender their  certificates  evidencing  their ownership of Series C Preferred
Stock for Common Stock certificates.

                  (D) Reservation of Shares.  The Corporation shall at all times
reserve and keep available out of its  authorized but unissued  shares of Common
Stock  such  number  of shares  of  Common  Stock as shall  from time to time be
sufficient to effect the conversion of all then  outstanding  shares of Series C
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be  sufficient  to effect the  conversion  of all then
outstanding  shares of Series C Preferred  Stock, the Corporation will take such
corporate  action as may be necessary to increase  its  authorized  but unissued
shares of Common Stock to such number of shares as shall be sufficient  for such
purpose.

         Section 6.        Conversion Price.

                  (a) The "Conversion Price" per share of the Series C Preferred
Stock  shall,  subject to  adjustment  as provided  herein,  be $6.00;  provided
however,  that if, the average of the last  reported  sales prices of the Common
Stock for the thirty (30)  consecutive  trading  days ending on the  Measurement
Date is (x) less than $4.80,  then the Conversion  Price shall,  effective as of
the first Business Day following the Measurement  Date, be reduced to $5.00. The
term  AMeasurement  Date@ shall mean the 900th day following the Effective  Date
(as such term is defined in the Agreement and Plan of Reorganization  and Merger
dated as of November  28,  2000 by and among the  Corporation,  USE  Acquisition
Corp.,  and Zahren  Alternative  Power  Corporation  (the "Merger  Agreement"));
provided,  however,  that  if such  day is not a  Business  Day  then  the  next
preceding day which is a Business Day.
Upon conversion, all accrued but unpaid dividends shall be paid in cash.

                  (b) If, prior to the conversion of all  outstanding  shares of
Series C Preferred  Stock,  the number of outstanding  shares of Common Stock is
increased  by a  stock  split,  stock  dividend  or  other  similar  event,  the
Conversion  Price  shall  be  proportionately  reduced,  or  if  the  number  of
outstanding   shares  of  Common  Stock  is  decreased  by  a   combination   or
reclassification of shares or other similar event, the Conversion Price shall be
proportionately increased.

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<PAGE>

                  (c) If, prior to the conversion of all  outstanding  shares of
Series C Preferred Stock, there shall be any merger, consolidation,  exchange of
shares, recapitalization, reorganization or other similar event (collectively, a
ATransaction@),  as a result of which shares of Common Stock of the  Corporation
shall be changed  into the same or a  different  number of shares of the same or
another class or classes of stock or securities  of the  Corporation  or another
entity, then each share of Series C Preferred Stock shall after the date of such
Transaction be convertible into the number of shares of stock and/or  securities
to  which  the  Common  Stock  issuable  at the  time of such  Transaction  upon
conversion  of such share of Series C Preferred  Stock would have been  entitled
upon such  Transaction;  and in any such case,  appropriate  provisions shall be
made with  respect to the rights and  interests  of the  holders of the Series C
Preferred  Stock to the end  that  the  provisions  hereof  (including,  without
limitation,  provisions for adjustment of the Conversion Price and of the number
of shares  issuable  upon  conversion  of the Series C  Preferred  Stock)  shall
thereafter be applicable,  as nearly as may be  practicable,  in relation to any
shares of stock or securities  thereafter  deliverable upon conversion of shares
of Series C Preferred  Stock.  The Corporation  shall not effect any transaction
described in this  subsection  5(c) unless the resulting  successor or acquiring
entity (if not the Corporation)  assumes by written instrument the obligation to
deliver  to the  holders of the Series C  Preferred  Stock such  shares of stock
and/or securities as, in accordance with the foregoing  provisions,  the holders
of the Series C Preferred Stock may be entitled to purchase.

                  (d) Conversion Price  Adjustments.  The Conversion Price shall
be subject to adjustment from time to time as follows:

                           (i)      If  and  whenever after  the date hereof the
Corporation  shall  issue or  sell any  shares of its Common  Stock  (other than
Excluded  Stock  (as defined))  for a  consideration  per  share  less than  the
Conversion Price in effect  immediately prior to the time of such issue or sale,
then, forthwith  upon such  issue or sale, the Conversion Price shall be reduced
to the price  (calculated  to the nearest  cent)  determined  by dividing (A) an
amount equal to the sum of (x) the number of shares  of Common Stock outstanding
immediately prior  to  such issue  or  sale  multiplied by the  then  existing
Conversion   Price,   and  (y)  the consideration,  if  any received  by  the
Corporation upon such issue or sale by (B) the total number of shares of Common
Stock  outstanding  immediately  after such issue or sale. In case any shares of
Common  Stock shall  be issued  or sold  for cash, th consideration  received
therefor  shall be deemed to be the amount received by the Corporation therefor,
without  deduction  therefrom  of any expenses incurred or any underwriting
commissions or concessions  paid  or allowed  by the Corporation  in  connection
therewith.  In  case any  shares of  Common Stock shall be  issued or sold for a
consideration  other than cash, the amount of the consideration  other than cash
received  by  the Corporation  shall be deemed  to be  the  fair  value  of such
consideration as  determined by  the Board  of Directors  of  the Corporation,
without deduction of any expenses incurred or any underwriting  commissions  or
concessions  paid  or  allowed by the  Corporation  in  connection  therewith.

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                           (ii) In case at any time  after the date  hereof  the
Corporation shall  in  any manner grant (other than  Excluded Stock,  including
Options (as defined) or Convertible Securities (as defined) to acquire  Excluded
Stock)  any  rights to  subscribe for  or  to purchase, or any options  for  the
purchase of,  Common  Stock ("Options") or  any stock  or securities convertible
into or  exchangeable  for  Common Stock (Convertible Securities) whether or not
such  Options or  Convertible Securities  are  immediately exercisable  or
convertible,  and the exercise price per share of such Options or the conversion
price per share of such Convertible Securities shall be less than the Conversion
Price in effect immediately prior to the time of the granting of such Options or
Convertible Securities,  then the Conversion Price shall be reduced to the price
(calculated to  the nearest cent) determined by  dividing (A)  an  amount  equal
to the sum of (x) the number of shares of Common Stock  outstanding  immediately
prior to such  issuance  multiplied by the then existing  Conversion  Price, and
(y)  the aggregate  exercise  price or  conversion price  to  be received by the
Corporation  upon  the exercise or  conversion of  the  Options  or  Convertible
Securities,  as  applicable,  by (B) the total number of shares of Common Stock
outstanding immediately after the issuance of Options or Convertible Securities,
assuming  the  exercise of  such  Options  or the conversion of such Convertible
Securities.

                           (iii)    Excluded Stock.  "Excluded Stock" shall mean
shares  of  Common  Stock  (A) issued or issuable upon exercise or conversion of
options,  warrants, debentures and  all  other securities  outstanding as of the
Effective Date (or issuable  pursuant to agreements  executed prior to or on the
Effective  Date), (B) issued or issuable upon exercise or conversion of options,
warrants, rights and all other securities granted pursuant  to "employee benefit
plans" (as  such term is  defined in the first sentence  of  the  definition  of
"employee  benefit plan" set forth in Rule 405 promulgated  under the Securities
Act of 1933, as amended (the "Act")), (C) issued or issuable with the consent of
the holders of a majority of the then outstanding  shares of Series  C Preferred
Stock, and (D) issued  or  issuable  upon  exercise  or  conversion  of options,
warrants  and other  rights to  acquire, directly or indirectly, one or more of
the foregoing.

                  (e)      No adjustment  of  the Conversion Price shall be made
in an amount less than $.01 per share.

                  (f) Upon any adjustment of the Conversion  Price,  then and in
each case the  Corporation  shall give written  notice  thereof,  by first class
mail,  postage  prepaid,  addressed  to each  holder of  shares of the  Series C
Preferred  Stock at the  address  of such  holder  as shown on the  books of the
Corporation,  which notice shall state the Conversion  Price resulting from such
adjustment, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.

                  (g)      In case at any time:

                           (i)      the Corporation shall declare  any  dividend
upon its Common Stock payable in cash or stock or make any other distribution to
the holders of its Common Stock;

                           (ii)     the Corporation shall offer for subscription
pro rata to the holders of  its Common Stock any additional  shares  of stock of
any class or other rights;

                           (iii) there shall be any  capital  reorganization  or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with, or a sale of all or substantially all its assets
to, another corporation; or

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                           (iv)     there shall  be a voluntary  or  involuntary
dissolution, liquidation or winding up of the Corporation; then,  in  any one or
more of said cases,  the  Corporation  shall give, by first  class mail, postage
prepaid,  addressed to each holder of any shares of Series C Preferred  Stock at
the  address  of such  holder  as shown on the  books of the Corporation, (y) at
least 30  days' prior written  notice of the  date  on  which the  books  of the
Corporation shall  close or  a  record  shall  be  taken for  such  dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification,  consolidation, merger, sale,
dissolution,  liquidation  or winding  up, and (z) in the case of  any  such
reorganization,  reclassification,  consolidation,  merger,  sale,  dissolution,
liquidation  or winding up, at least 30 days' prior  written  notice of the date
when the same shall take place.  Such notice in  accordance  with the  foregoing
clause (y) shall also specify, in the case of any such dividend, distribution or
subscription  rights,  the date on which the  holders of Common  Stock  shall be
entitled  thereto,  and such notice in accordance with the foregoing  clause (z)
shall  also  specify  the date on which the  holders  of Common  Stock  shall be
entitled  to  exchange  their  Common  Stock for  securities  or other  property
deliverable upon such reorganization,  reclassification,  consolidation, merger,
sale,  dissolution,  liquidation  or winding  up, as the case may be, and in the
case of such merger or sale, the aggregate  consideration  to be received by the
holder of the Corporation's capital stock.

         Section 7. Status of  Converted  or  Reacquired  Shares.  Any shares of
Series C  Preferred  Stock  converted  into shares of Common  Stock  pursuant to
Section 5 hereof or purchased or otherwise  acquired by the  Corporation  in any
manner whatsoever shall be retired and canceled promptly after the conversion or
acquisition  thereof.  All such  shares  shall  upon their  cancellation  become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred  Stock subject to the conditions and  restrictions  on
issuance set forth herein, in the Certificate of Incorporation,  or in any other
Certificate of Designation  creating a series of Preferred  Stock or any similar
stock or as otherwise required by law.

         Section 8.        Liquidation, Dissolution or Winding Up.

                  (a) In the event of any liquidation, dissolution or winding up
of the Corporation,  either  voluntary or involuntary,  the holders of shares of
Series C  Preferred  Stock shall be entitled to receive out of the assets of the
Corporation  available for  distribution to stockholders  under  applicable law,
subject to the prior  preferences and other rights of any Senior  Securities but
prior and in  preference to any  distribution  to holders of the Common Stock or
any Junior  Securities and in parity with any  distribution to holders of Parity
Securities,  the amount of $30.00 per share of Series C Preferred Stock,  plus a
sum equal to all dividends  accrued on such shares (whether or not declared) and
unpaid for all Dividend Periods  preceding the date fixed for such  liquidation,
dissolution or winding up. If upon the occurrence of such event,  the assets and
funds to be distributed  among the holders of shares of Series C Preferred Stock
and  Parity  Securities  shall be  insufficient  to permit  the  payment to such
holders of the full preferential  amounts due to the holders of shares of Series
C Preferred Stock and Parity  Securities,  respectively,  then the entire assets
and  funds  of the  Corporation  legally  available  for  distribution  shall be

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distributed  among the holders of shares of Series C Preferred  Stock and Parity
Securities,  pro rata, based on the respective liquidation amounts to which each
such  series  of  stock  is  entitled  by  the   Corporation's   Certificate  of
Incorporation and any certificate of designation of preferences.

                  (b)  Upon  the  completion  of the  distribution  required  by
subsection  8(a)  above,  if assets  remain in the  Corporation,  they  shall be
distributed to holders of Parity Securities (unless holders of Parity Securities
have received  distributions  pursuant to subsection 8(a)) and Junior Securities
in accordance with the Corporation's Certificate of Incorporation, including any
duly adopted certificate(s) of designation of preferences.

                  (c) A consolidation  or merger of the Corporation with or into
any other  corporation  or  corporations,  or a sale,  exchange,  conveyance  or
disposition of all or substantially  all of the assets of the Corporation or the
effectuation   by  the  Corporation  of  a  transaction  or  series  of  related
transactions  in which the voting power of the  Corporation  is disposed of (not
withstanding  the fact  that  such  disposition  may be in  excess of 50% of the
voting power),  shall not be deemed to be a liquidation,  dissolution or winding
up of the Corporation within the meaning of this Section 8.

         Section 9.        Redemption.

                  (a) At the option of the Corporation at any time and from time
to time after the fifth  anniversary  of the Effective  Date (or, in the case of
redemption  pursuant to Section 9(e),  at the time  provided for  therein),  the
Series C Preferred Stock may be redeemed in full or in part for cash (subject to
proportional  adjustment  upon the  occurrence of an event  specified in Section
6(b)) at (i) the price of $30.00 per share or (ii) in the event such  redemption
is effected pursuant to Section 9(e), then at the following prices per share:

                 $40.50 after March 1, 2001 through  February 28,  2002
                 $39.00  after  February  28, 2002  through February 28, 2003
                 $37.50 after February 28, 2003,

plus, in each case, an amount equal to all accrued but unpaid dividends (whether
or not  declared)  for  all  Dividend  Periods  preceding  the  date  fixed  for
redemption (the "Redemption  Date"). If less than all of the outstanding  shares
of Series C Preferred  Stock are to be  redeemed,  such shares shall be redeemed
pro  rata  or by lot as  determined  by  the  Board  of  Directors  in its  sole
discretion.

                  (b) Notice of  redemption  (the  "Redemption  Notice")  of the
Series  C  Preferred  Stock,   specifying  the  Redemption  Date  and  place  of
redemption,  shall be given by first  class mail to each holder of record of the
shares to be redeemed,  at his address of record, not less than 30 nor more than
60 calendar days prior to the Redemption Date. The Redemption  Notice shall also
specify the redemption  price  applicable to the shares to be redeemed.  If less
than all the shares owned by such holder are then to be redeemed, the Redemption
Notice shall also specify the number of shares  thereof which are to be redeemed
and the fact that a new certificate or certificates  representing any unredeemed
shares shall be issued without cost to such holder.

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                  (c) The  Redemption  Notice  having  been given as provided in
Section 9(b), then unless the Corporation shall have defaulted in the payment of
the  redemption  price and all  accrued  and unpaid  dividends  (whether  or not
declared),  all rights of the holders  thereof  (except the right to receive the
redemption price and all accrued and unpaid dividends,  whether or not declared)
shall cease with respect to such shares on the  Redemption  Date and such shares
shall not, after the Redemption  Date, be deemed to be outstanding and shall not
have the status of Series C Preferred  Stock.  In case fewer than all the shares
represented by any such  certificate are redeemed,  a new  certificate  shall be
issued representing the unredeemed shares without cost to the holder thereof.

                  (d) Except as contemplated by Section 10, shares of the Series
C Preferred Stock are not subject or entitled to the benefit of a sinking fund.

                  (e) If the  Corporation  redeems  all  or any  portion  of the
Series A Preferred  Stock,  the Corporation  shall  contemporaneously  therewith
redeem  such  number of shares of Series C  Preferred  Stock  that it can redeem
using the Parity  Redemption  Amount (as defined).  The term AParity  Redemption
Amount@ means the dollar amount equal to the product obtained by (i) multiplying
a fraction,  the (A) numerator of which is the dollar  amount  (inclusive of the
accrued  but  unpaid  dividends  on the Series A  Preferred  Stock to be paid in
connection with such redemption) to be paid by the Corporation to the holders of
Series A Preferred  Stock in connection  with such  redemption of such stock and
(B) the denominator of which is equal to the total amount the Corporation  would
have to pay to the holders of Series A Preferred Stock (inclusive of the accrued
but unpaid  dividends on the Series A Preferred  Stock to be paid in  connection
with such  redemption) to redeem all the shares of Series A Preferred Stock then
outstanding (without giving effect to such redemption), by (ii) the total amount
the  Corporation  would have to pay to the holders of Series C  Preferred  Stock
(inclusive of the accrued but unpaid  dividends on the Series C Preferred  Stock
to be paid in  connection  with such  redemption)  to redeem  all the  shares of
Series C Preferred Stock then  outstanding at the redemption  price set forth in
Section  9(a)(ii).  For the  purposes of this  Section  9(e),  the term Series A
Preferred  Stock includes the Preferred  Stock,  if any,  issued pursuant to the
Plan of Recapitalization.

                  (f)  Notwithstanding  the foregoing,  if the Redemption Notice
shall have been given  pursuant to this Section 9 and any holder of the Series C
Preferred Stock shall, prior to the close of business on the date three business
days next preceding the Redemption  Date, give written notice to the Corporation
pursuant to Section 5 hereof of the  conversion of any or all of the shares held
by the holder  (accompanied  by a certificate or  certificates  for such shares,
duly endorsed or assigned to the  Corporation),  then the  redemption  shall not
become  effective as to such shares and the conversion shall become effective as
provided in Section 5.

         Section 10.       Dividend Payment Protection Fund.

                  (a) To ensure in part the  payment  of cash  dividends  on the
Series C Stock,  the  Corporation  covenants  that  commencing as of the Plan of
Recapitalization  Effective Date it will,  except as otherwise  provided in this
Section 10, (i) set apart (in the manner  contemplated by Section 3(b)) promptly
a fund  (the  "Dividend  Payment  Fund")  consisting  of  $360,000  in cash (the
"Dividend Payment Protection Amount"),  and (ii) within six months following the
application of all or a portion of the Dividend Payment Fund pursuant to Section
10(c) (in the manner  contemplated  by  Section  3(b)),  it will set apart,  the
amount so applied  pursuant to Section 10(c) but only to the extent the Dividend

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Payment  Protection  Amount exceeds the amount in the Dividend  Payment Fund and
subject to such  further  reduction  as may be  appropriate  pursuant to Section
10(d) hereof.  Notwithstanding  anything to the contrary herein, the Corporation
shall not be required to set apart funds with respect to dividends payable after
March 1, 2004 and the maximum amount that the  Corporation  shall be required to
set apart  shall not  exceed in the  aggregate  $0.0465  for each  dollar in the
principal  amount of the Note (as defined)  that has been paid.  The term "Note"
means the  Limited  Recourse  Promissory  Note in original  principal  amount of
$7,741,378.90  issued  by  Energy  Systems  Investors,  L.L.C.  in  favor of the
Corporation.

                  (b) All funds set apart  pursuant to the provisions of Section
10(a)  shall be applied in  accordance  with the  provisions  of Section  10(c),
provided,  however,  that  after  March 1,  2004,  the  Corporation  may use the
Dividend  Payment  Fund to pay any and all  dividends  on the Series C Preferred
Stock, notwithstanding the provisions of Section 10(c) hereof.

                  (c)  If  on  any  Dividend   Payment  Date,  the   Corporation
determines  that the funds  available  to it (without  recourse to the  Dividend
Payment Fund) are insufficient to pay the dividends  required on such date to be
paid with  respect to the Series C Preferred  Stock or that such  payment out of
the  Corporation's  funds  (other  than  the  Dividend  Payment  Fund)  would be
violative of applicable law (including  creditors'  rights or similar laws), the
Corporation shall, except as may be otherwise required by law or its Certificate
of   Incorporation   (which  term  includes  any  applicable   certificates   of
designations  or similar  instruments),  pay such  dividends  from the  Dividend
Payment Fund.

                  (d) The  Corporation  shall be entitled  to withdraw  from the
Dividend  Payment  Fund from time to time such sums as the Board of Directors of
the Corporation determines in good faith will not be required for the payment of
dividends  on the Series C Preferred  Stock  because  (i) of a reduction  in the
number of outstanding  shares of Series C Preferred Stock,  (ii) the amount held
in the Dividend  Payment Fund exceeds the Dividend  Payment  Protection  Amount,
(iii)  the  amount  of  dividends  that  must be paid  with  respect  to all the
outstanding shares of Series C Preferred Stock at the dividend rate provided for
herein at any time after the date hereof  through March 1, 2004 is less than the
Dividend  Protection  Payment Amount, or (iv) the obligations of the Corporation
pursuant  to  Section  10  hereof  are  otherwise  secured,   including  without
limitation,  by means of a letter of credit or  guaranty  issued by a banking or
other institution.

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<PAGE>

                  (e)  Notwithstanding  anything to the contrary herein,  in the
event the funds set apart  pursuant to this Section 10 are  insufficient  to pay
all applicable  dividends on the Series C Preferred Stock, then such funds shall
be applied to the Series C Stock on a pro-rata basis.

         Executed on this [     ] day of [               ] 200[   ].




                                          -----------------------------------
                                          Goran Mornhed, President


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