U.S. ENERGY SYSTEMS, INC.

                   AMENDED AND RESTATED STOCK OPTION AGREEMENT


Name of Optionee:    Goran Mornhed

Date of Grant:    May 10, 2000

Number of Shares Subject to Option:    1,000,000

Exercise Price Per Share:      $4.00

Type of Option:  Non-qualified Stock Option

Expiration Date: May 9, 2010 (subject to earlier termination)

1.                Amendment  and  Restatement  of Option  Granted May 10,  2000;
                  Grant of Option.  (a) On May 10, 2000,  U.S.  Energy  Systems,
                  Inc. (the  "Company")  granted to the Optionee (as defined) an
                  option (the "Prior  Option"),  to acquire the number of shares
                  of the Company's Common Stock set forth above.  This agreement
                  amends and restates the Prior Option.

                  (b) The Company hereby grants to the Optionee identified above
                  (the  "Optionee")  an option (the  "Option") to purchase up to
                  the number of shares of the Company's Common Stock,  $0.01 par
                  value per share set forth above (the "Shares"), at an exercise
                  price per share  equal to the  exercise  price set forth above
                  (the "Exercise Price").  The Option is not intended to qualify
                  as an ISO. The Option was issued pursuant to the (a) Company's
                  2000 Executive  Incentive  Compensation  Plan (the "Plan") and
                  (b) employment  agreement dated as of May 10, 2000 between the
                  Company and the Optionee (the "Employment Agreement"), both of
                  which are  incorporated  herein for all  purposes.  The Option
                  shall be subject to the terms and conditions set forth herein,
                  the Plan and the  Employment  Agreement.  The Optionee  hereby
                  acknowledges  receipt  of a copy of the  Plan  and  Employment
                  Agreement  and  agrees  to be  bound by all of the  terms  and
                  conditions   hereof   and   thereof.   In  the  event  of  any
                  inconsistency between the Employment Agreement on the one hand
                  and the Plan or this Stock Option Agreement on the other hand,
                  the  Employment  Agreement  shall govern.  In the event of any
                  inconsistency   between   the  Plan  and  this  Stock   Option
                  Agreement, the Plan shall govern.

2.                Definitions.  Unless  otherwise  provided  herein,  terms used
                  herein  that  are  defined  in  the  Plan  or  the  Employment
                  Agreement and not defined herein shall have the



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                  meanings  attributed  thereto in  the  Plan  or the Employment
                  Agreement, as the case may be.

3.                Exercise Schedule.   (a)  This Option vests in full as  of the
                  Date of Grant set forth above.

                  (b) Notwithstanding  anything to the contrary herein, the Plan
                  or  the  Employment   Agreement,   the  Option  shall  not  be
                  exercisable  until  the Plan  shall  have been  approved  by a
                  Majority of the  Shareholders  by November  15, 2000  provided
                  that if the Stock Option  becomes a Voted Matter as defined in
                  Section 3(d) of the Employment Agreement, the Option shall not
                  be  exercisable  until the Option and the Plan shall have been
                  approved by a Majority  of the  Shareholders  by November  15,
                  2000.

4.                Method of Exercise.  The Option shall be exercisable in  whole
                  or in part by written notice which shall state the election to
                  exercise the Option, the number of Shares in respect  of which
                  the  Option is being exercised, and such other representations
                  and  agreements  as to  the holder's investment  intent  with
                  respect  to  such Shares as  may be  required by  the  Company
                  pursuant to the provisions of  the Plan.  Such written  notice
                  shall  be signed  by the Optionee and shall  be  delivered  in
                  person or by certified mail  to  the Secretary of the Company.
                  The  written  notice shall  be accompanied by payment  of  the
                  exercise price in the manner contemplated by Section 5 hereof.
                  This Option shall be deemed to  be  exercised  after  both (a)
                  receipt by  the Company of such written notice accompanied  by
                  the  exercise price and the Option and  (b) arrangements  that
                  are  reasonably  satisfactory to the Committee have  been made
                  for Optionee's payment to the Company  of  the  amount that is
                  necessary to be withheld in accordance with applicable Federal
                  or state  withholding requirements.  The  Company  and  the
                  Optionee shall work cooperatively, expeditiously  and in  good
                  faith  to make such withholding arrangements.  No Shares  will
                  be  issued  pursuant  to the Option  unless  and  until  such
                  issuance and such  exercise  shall  comply with all  relevant
                  provisions of  applicable law, including the requirements  of
                  any  stock  exchange (including any  automated  system  of
                  quotation) upon which the Shares then may be traded or quoted.

5.                Method of Payment.  Payment of the exercise price shall be by
                  any  of  the  following, or a combination  thereof, at  the
                  election of the Optionee: (a) cash; (b) check; (c) with Shares
                  that have been held by the Optionee for at least 6 months (or
                  such other Shares as the Company determines will not cause the
                  Company  to  realize  a  financial  account charge); (d)  as
                  provided in Section 9 of this Stock Option Agreement; or  (e)
                  such other consideration or in such other manner as may  be
                  determined  by  the Board or the Committee  in  its  absolute
                  discretion.




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6.                Termination of  Option.  Subject  to  earlier  termination  as
                  provided in this Section 6, the Option shall terminate on, and
                  in  no  event  shall  the  Option be exercisable after, May 9,
                  2010.  The Option shall terminate and  expire on  November 16,
                  2000 unless the Plan has been  approved  by a  Majority of the
                  Shareholders by November 15, 2000 provided  that if the Option
                  becomes  Voted  Matter  as  defined  in  Section 3(d)  of  the
                  Employment Agreement the Option shall  expire on November  16,
                  2000 unless the Plan and the Option are approved by a Majority
                  of  the  Shareholders  by November 15, 2000.  Any  unexercised
                  portion  of the Option shall automatically and without  notice
                  terminate and become null and void on the terms and conditions
                  and at the time(s) set forth in the Employment Agreement.

7.                Transferability. The Option is not transferable otherwise than
                  by will or the laws of descent  and  distribution,  and during
                  the lifetime of the  Optionee the Option shall be  exercisable
                  only by the Optionee. The terms of the Option shall be binding
                  upon the  executors,  administrators,  heirs,  successors  and
                  assigns of the Optionee.

8.                No Rights of Stockholder Nor Rights to Continued Employment.
                  Neither  the  Optionee  nor  any personal  representative (or
                  beneficiary) shall be, or shall have any of  the  rights  and
                  privileges of, a stockholder of  the  Company with respect to
                  any shares of Stock purchasable or issuable upon the exercise
                  of the Option, in whole or in part, prior  to  the  date  the
                  Option  is  deemed  to  have  been exercised. Notwithstanding
                  Section 1 of this Stock Option Agreement, neither the Option
                  nor this Stock Option Agreement shall confer upon the Optionee
                  any right to continued employment or service with the Company.

9.                Conversion.  (a) In lieu of  exercise  of any  portion  of the
                  Option as provided  herein,  and the  payment of the  exercise
                  price  therefor in the manner  contemplated  by Sections 5(a),
                  5(b),  5(c)  and  5(e)  hereof,  the  Option  (or any  portion
                  thereof)  may, at the election of the  Optionee,  be converted
                  into the nearest whole number of Shares determined pursuant to
                  the following formula:

                           Number of Shares = NOS multiplied by (MVPS minus EP)
                                                                 -------------
                                                                  ( MVPS )

                           where:

                           NOS is the number of Options to be exercised;

                           MVPS is the  Market  Value  Per  Share on the date of
                           exercise, which shall be determined in the manner set
                           forth in Section 9(c); and

                           EP is the  Exercise  Price in effect on the  business
                           day next preceding the date of exercise.




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                  (b)  Notwithstanding  anything  to the  contrary  herein,  the
                  conversion privilege afforded under this Section 9 may only be
                  used if, at the date of  exercise,  the Market Value Per Share
                  is greater than the Exercise Price then in effect.

                  (c)  For   purposes  of  the  Option  and  this  Stock  Option
                  Agreement,  Market Value Per Share shall be the closing  price
                  of a Share as of the day in question, as reported with respect
                  to the  principal  market or quotation  system in which Shares
                  are then traded or quoted,  or, if no such closing  prices are
                  reported,  on the basis of the closing bid price as of the day
                  in question on the  principal  market or  quotation  system on
                  which  Shares are then traded or quoted,  or, if not so traded
                  or quoted,  as furnished by a professional  securities  dealer
                  making a market in such stock selected by the Committee.

10.               Law Governing.  This Agreement shall be governed in accordance
                  with  and  governed  by the  internal  laws  of the  State  of
                  Delaware.

11.               Notices.  Any notice under this Agreement  shall be in writing
                  and shall be given in the  manner  specified  in Section 13 of
                  the Employment Agreement.


IN WITNESS  WHEREOF,  the undersigned have executed this Agreement as of May 10,
2000.

                                      COMPANY:

                                      U.S. ENERGY SYSTEMS, INC.



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


         Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof,  and hereby accepts
this Option  subject to all of the terms and  provisions  thereof.  Optionee has
reviewed the Plan and this Option in their  entirety,  has had an opportunity to
obtain  the  advice  of  counsel  prior to  executing  this  Option,  and  fully
understands all provisions of the Option.

                                        OPTIONEE:

                                        /s/ Goron Mornhead
                                        -------------------------------
                                            Goran Mornhed