ESCROW AGREEMENT

         ESCROW  AGREEMENT  dated as of the 28th day of November,  2000,  by and
among Bernard J. Zahren, Finova Mezzanine Capital Corp., AJG Financial Services,
Inc., Environmental Opportunities Fund, Environmental Opportunities Fund Cayman,
Frederic Rose,  M&R  Associates,  Martin F.  Laughlin,  Richard C. Augustine and
Michael J. Carolan (each, a "Major Shareholder"),  AJG Financial Services, Inc.,
through its  Vice-President,  General  Counsel as agent (the "Major  Shareholder
Agent")  for the Major  Shareholders,  U.S.  Energy  Systems,  Inc.,  a Delaware
corporation ("USE"), and USE Acquisition Corp. a Delaware corporation (the "Sub"
which after consummation of the Merger shall be the "Surviving  Corporation" and
together  with USE,  the "USE  Parties"),  Cinergy  Energy  Solutions,  Inc.,  a
Delaware   corporation   ("CES"  and  together   with  the  USE   Parties,   the
"Beneficiaries"),  and Tannenbaum  Helpern  Syracuse & Hirschtritt LLP having an
office at 900 Third Ave., New York, New York, 10022 (the "Escrow Agent").


                              W I T N E S S E T H:
                  WHEREAS,  Zahren  Alternative Power Corporation  ("ZAPCO") and
the USE Parties  are  parties to an  Agreement  and Plan of  Reorganization  and
Merger dated as of the date hereof (the "Merger Agreement"); and

                  WHEREAS,   pursuant  to  the  Merger   Agreement,   the  Major
Shareholders and the  Beneficiaries  entered into an  indemnification  agreement
dated as of the date hereof (the "Indemnification Agreement"); and

                  WHEREAS,   the  Merger   Agreement  and  the   Indemnification
Agreement  contemplate the execution and delivery of an Escrow  Agreement by the
parties hereto.

                  NOW, THEREFORE, the parties hereto agree as follows:

                  1. Capitalized terms used herein without definition shall have
the same meaning as ascribed to them in the Merger Agreement.

                  2. Escrow Agent  agrees to hold and disburse (i) cash,  shares
of USE's Series C Preferred Stock ("Preferred Stock") and shares of USE's common
stock  ("Common  Stock" and  together  with the  Preferred  Stock,  the "Stock")
delivered to it pursuant to the Merger  Agreement on account of the  possibility
of a post-closing  adjustment to the Merger  Consideration (the "Working Capital
Escrow Fund") and (ii) cash and shares of Stock  delivered to it pursuant to the
Merger  Agreement  on  account  of the  obligations  of the  Major  Shareholders
pursuant to the Indemnification Agreement (the "Indemnification Escrow Fund" and


                                       1
<PAGE>

together with the Working Capital Escrow Fund, the "Escrow  Funds")  pursuant to
the terms  hereof.  The cash  portion of the Escrow  Funds  shall be invested by
Escrow Agent in accordance with the written  direction of the Major  Shareholder
Agent from the  investments  set forth on Schedule A hereto;  as such Schedule A
may be amended by mutual agreement of CES, USE and the Major  Shareholder  Agent
from time to time,  provided,  however that in the absence of any such direction
the  Escrow  Agent  shall   deposit  and  maintain   such  cash  portion  in  an
interest-bearing  bank account at Bankers Trust Company.  Escrow Agent shall not
be responsible  for any interest earned or other earnings on the cash portion of
the Escrow  Funds,  except for such  interest  or other  earnings as is actually
received,  nor for the loss of any interest or other  earnings  arising from the
withdrawal of the cash portion of the Escrow Funds prior to the date of maturity
of any deposit.

                  3. (a) The parties acknowledge that the Working Capital Escrow
Fund shall  serve as a source of funding for amounts  owing by  shareholders  of
ZAPCO to the Surviving  Corporation as a result of the  post-closing  adjustment
pursuant to Section 2.05 of the Merger Agreement  ("Adjustment  Claims"). If the
Surviving  Corporation  shall request a  disbursement  from the Working  Capital
Escrow Fund associated  with any Adjustment  Claim, it shall give notice of such
request  (which  notice shall be executed by the Surviving  Corporation)  to the
Escrow Agent and the Major Shareholder  Agent,  which notice shall set forth the
amount requested,  the basis for such request,  and reasonable  documentation to
support such request (such notice being  substantially  in the form of Exhibit A
hereto).  The Escrow Agent shall disburse the amount requested within 10 days of
its receipt of the notice in the event the Escrow Agent shall not have  received
a notice of objection from the Major  Shareholder  Agent within such period.  In
the event the Escrow Agent shall  receive a notice of  objection  from the Major
Shareholder Agent within such period, it shall not disburse the amount requested
unless  and until it shall have  received  (i) the joint  written  notice of the
Major  Shareholder Agent and the Surviving  Corporation  setting forth the joint
direction  of such  parties  (such  notice  being  substantially  in the form of
Exhibit  B  hereto),  (ii)  a  written  instrument   representing  a  final  and
non-appealable  order or similar  direction  with respect to the  disposition of
such amount issued by the arbitrator or arbitration  forum, or (iii) a certified
copy of a final and non-appealable judgment of a court of competent jurisdiction
directing  the  disbursement  of such  funds;  the  Escrow  Agent  shall also be
entitled,  in its sole  discretion,  to deposit such Working Capital Escrow Fund
with the clerk of the court in which  any  litigation  between  the  parties  is
pending,  or with the clerk of an  appropriate  court in New York, New York. The
Escrow Agent shall make  disbursements  from the Working  Capital Escrow Fund in
the following order: (1) first, by releasing cash from such Fund; (2) second, if
there is no remaining cash in such Fund, by  liquidating  the assets (other than
the Stock) in such Fund and releasing the proceeds;  and (3) third, if there are
no assets  other than the Stock in such  Fund,  by  releasing  the Stock in such
Fund,  which shall be valued  according to the Merger  Consideration  Value,  as
defined in the Merger  Agreement;  if there are no assets in the Working Capital
Escrow Fund, the Escrow Agent shall make disbursements of cash, Common Stock and
Preferred  Stock  from the  Indemnification  Escrow  Fund in  proportion  to the
aggregate  amount of cash (including any investments  made pursuant to Section 2
hereof  and the  proceeds  thereof),  Common  Stock and  Preferred  Stock in the
Indemnification Escrow Fund, with the Stock being valued according to the Merger
Consideration Value.

                  (b) At any time after the  finalization  of the Effective Date
Balance Sheet, the Major  Shareholder  Agent may, at its option,  give notice to
the Escrow  Agent and the  Surviving  Corporation  to disburse  all amounts then
remaining  in the  Working  Capital  Escrow  Fund less the  Disputed  Amount (as

                                       2

<PAGE>

defined below) to the Major Shareholder Agent for the distribution in accordance
with the instructions  contained in such  notification.  In the event the Escrow
Agent  shall  not have  received  a notice  of  objection  (asserting  that such
conditions  have not been satisfied)  from the Surviving  Corporation  within 10
days after delivery of such notice to the Escrow Agent,  it shall be required to
disburse all amounts then remaining in the Working  Capital Escrow Fund less the
Disputed  Amount  to  the  Major  Shareholder  Agent  for  the  distribution  in
accordance with the instructions  contained in such  notification from the Major
Shareholder  Agent.  In the event that the Escrow  Agent shall  receive a timely
notice of objection  (asserting  that such  conditions  have not been satisfied)
within such period from the  Surviving  Corporation,  it shall not  disburse any
portion of the  Working  Capital  Escrow  Fund and shall  disburse  the  Working
Capital  Escrow  Fund  only in  accordance  with the  provisions  of the  fourth
sentence  of  Section  3(a)  hereof.  The  "Disputed  Amount"  is the amount (as
reasonably determined by the Surviving Corporation), including interest and fees
(including legal fees and expenses) for which the Surviving Corporation has made
Adjustment  Claims that have not been  settled and paid in  accordance  with the
provisions of Section 3(a). The Escrow Agent shall retain in the Working Capital
Escrow Fund to provide for the  Disputed  Amount an amount  equal to the Dispute
Amount as follows:  (1) first, by retaining cash from such Fund; (2) second,  if
there is not  sufficient  cash in such  Fund,  by  retaining  such of the assets
(other than the Stock) in such Fund  (valued  according to the amount that could
be obtained if they were liquidated); (3) third, if there is not sufficient cash
and assets other than the Stock in such Fund,  by  retaining  such Stock in such
Fund,  which shall be valued  according to the Merger  Consideration  Value,  as
defined in the Merger Agreement; such amounts as are not required to be retained
in the Working  Capital Escrow Fund shall be disbursed to the Major  Shareholder
Agent for  distribution  in accordance with the  instructions  contained in such
notification.

                  At any time  after  the  finalization  of the  Effective  Date
Balance  Sheet that all  Adjustment  Claims  that have been set forth in notices
provided  under  Sections 3(a) of this  Agreement  have been settled and paid in
accordance  with  the  provisions  of  Section  3(a) and no such  claims  remain
outstanding,  the Major Shareholder Agent may, at its option, give notice to the
Escrow Agent and the Surviving Corporation that the post-closing  adjustment has
been  completed.  In the event the Escrow Agent shall not have received a notice
of objection  (asserting  that such conditions have not been satisfied) from the
Surviving Corporation within 10 days after delivery of such notice to the Escrow
Agent,  it shall be required  to disburse  all  amounts  then  remaining  in the
Working  Capital  Escrow Fund to the Major  Shareholder  in accordance  with the
instructions contained in such notification from the Major Shareholder Agent. In
the event that the  Escrow  Agent  shall  receive a timely  notice of  objection
(asserting that such conditions have not been satisfied) within such period from
the  Surviving  Corporation,  it shall not  disburse  any portion of the Working
Capital Escrow Fund and shall  disburse the Working  Capital Escrow Fund only in
accordance with the provisions of the fourth sentence of Section 3(a) hereof.

                  (c) The parties  acknowledge that the  Indemnification  Escrow
Fund  shall  serve  as a source  of  funding  for  amounts  owing  by the  Major
Shareholders   to  the   Beneficiaries   pursuant   to   Section   3(a)  of  the
Indemnification  Agreement  ("Claims").  If  any  Beneficiary  shall  request  a
disbursement  from the Escrow  Fund  associated  with any  Claim,  it shall give
notice of such request (which notice shall be executed by such  Beneficiary)  to
the Escrow  Agent and the Major  Shareholders,  which notice shall set forth the

                                       3
<PAGE>

amount requested,  the basis for such request,  and reasonable  documentation to
support such request (such notice being  substantially  in the form of Exhibit C
hereto).  The Escrow Agent shall disburse the amount requested within 10 days of
its receipt of the notice in the event the Escrow Agent shall not have  received
a notice of objection from the Major  Shareholder  Agent within such period.  In
the event the Escrow Agent shall  receive a notice of  objection  from the Major
Shareholder Agent within such period, it shall not disburse the amount requested
unless  and until it shall have  received  (i) the joint  written  notice of the
Major Shareholder  Agent and such Beneficiary  setting forth the joint direction
of such  parties  (such  notice  being  substantially  in the form of  Exhibit D
hereto), (ii) a written instrument representing a final and non-appealable order
or similar  direction  with respect to the  disposition of such amount issued by
the  arbitrator or arbitration  forum,  or (iii) a certified copy of a final and
non-appealable  judgment  of a court of  competent  jurisdiction  directing  the
disbursement of such funds; the Escrow Agent shall also be entitled, in its sole
discretion,  to deposit  such Escrow  Funds with the clerk of the court in which
any  litigation  between  the  parties  is  pending,  or with  the  clerk  of an
appropriate   court  in  New  York,  New  York.  The  Escrow  Agent  shall  make
disbursements of cash, Common Stock and Preferred Stock from the Indemnification
Escrow  Fund in  proportion  to the  aggregate  amount  of cash  (including  any
investments made pursuant to Section 2 hereof and the proceeds thereof),  Common
Stock and Preferred  Stock in the  Indemnification  Escrow Fund,  with the Stock
which valued according to the Merger Consideration Value.

                  (d)  At  any  time  following  the  Release  Date,  the  Major
Shareholder  Agent may, at its option,  give notice to the Escrow  Agent and the
Beneficiaries  that the Escrow  Agent shall  disburse  to the Major  Shareholder
Agent the  Non-Disputed  Portion (as defined  below) of the Escrow Fund.  In the
event the Escrow Agent shall not have received a notice of objection from either
Beneficiary  within 10 days after delivery of such notice,  it shall be required
to disburse the  Non-Disputed  Portion to the Major  Shareholders  in accordance
with the instructions  contained in the Major Shareholder  Agent's  notification
and this  Agreement  shall  terminate.  In the event that the Escrow Agent shall
receive a notice of objection  from either  Beneficiary  within such period,  it
shall not disburse any portion of the Escrow Fund and shall  disburse the Escrow
Fund only in accordance  with the  provisions of the fourth  sentence of Section
3(c) hereof. The "Non-Disputed  Portion" equals the Escrow Fund less the product
of (i) a fraction,  the numerator of which is (A) the value of USE Shares in the
Indemnification  Escrow Fund (valued in accordance with the definition of Merger
Consideration Value) plus the amount of cash in the Indemnification Escrow Fund,
and  the   denominator  of  which  is  (B)  the  value  of  USE  Shares  in  the
Indemnification  Escrow Fund (valued in  accordance  with the  definition of USE
Shares)  plus the  amount of cash in the  Indemnification  Escrow  Fund plus the
Contingent Merger Payment,  as adjusted through such time and (ii) the amount at
issue (as reasonably  determined by the Beneficiary that provided such notice of
Claim),  including  interest and fees  (including  legal fees and expenses) (the
"Amount  at  Issue"),  under the  Claims  that  have  been set forth in  notices
provided under Section 3(c) of this Agreement and have not been settled and paid
in accordance with Section 3(c); each Beneficiary  agrees that upon a request of
the Major  Shareholder  Agent  following  the Release  Date,  it shall  promptly
prepare with  respect to each Claim that has been set forth in notices  provided
by it under Section 3(c) of this  Agreement and has not been settled and paid in
accordance with Section 3(c), a statement setting forth the Amount at Issue. The
Escrow Agent shall make  disbursements of cash, Common Stock and Preferred Stock

                                       4
<PAGE>

from the Non-Disputed  Portion of the Indemnification  Escrow Fund in proportion
to the aggregate  amount of cash  (including  any  investments  made pursuant to
Section 2 hereof and the proceeds thereof),  Common Stock and Preferred Stock in
the  Indemnification  Escrow Fund, with the Stock being valued  according to the
Merger Consideration Value.

                  At any time  following  the Release  Date that all Claims that
have been set forth in notices  provided  under  Sections 3(c) of this Agreement
have been settled and paid in accordance with the provisions of Section 3(c), no
such Claims remain outstanding,  the Major Shareholder Agent may, at its option,
give  notice  to the  Escrow  Agent  and  the  Beneficiaries  that  all of  such
conditions  have been  fulfilled.  In the event the Escrow  Agent shall not have
received a notice of  objection  from  either  Beneficiary  within 10 days after
delivery of such notice, it shall be required to disburse all amounts and Shares
then remaining in the Escrow Fund to the Major  Shareholders  in accordance with
the instructions  contained in the Major  Shareholder  Agent's  notification and
this Agreement shall terminate. In the event that the Escrow Agent shall receive
a notice of objection from either  Beneficiary  within such period, it shall not
disburse any portion of the Escrow Fund and shall  disburse the Escrow Fund only
in accordance with the provisions of the fourth sentence of Section 3(c) hereof.
The "Release Date" shall be the date eighteen months following the date hereof.

                  (e) The Escrow  Agent shall not be required to  determine  the
reasonableness  of any action or  inaction  by the Major  Shareholder  Agent but
shall be entitled to rely on such action or inaction  for the purposes of taking
any action pursuant to this Section 3.

                  4.  Escrow  Agent  shall  not be  liable  in any way or to any
person for its refusal to comply with adverse claims and demands being made upon
it, and shall not be responsible  for any act or failure to act on its part, nor
shall it have any liability under this Escrow  Agreement,  except in the case of
willful default or gross  negligence.  This Escrow Agreement shall terminate and
Escrow  Agent  shall  be  automatically  released  from all  responsibility  and
liability  upon  Escrow  Agent's  delivery  or deposit  of the  Escrow  Funds in
accordance with the provisions of this Escrow Agreement.

                  5. Escrow  Agent or any member of its firm shall be  permitted
to act as  counsel  for the  Major  Shareholders  and the  Beneficiaries  in any
dispute or question as to any matter  arising out of the Merger  Agreement,  the
Indemnification Agreement or this Escrow Agreement.

                  6. Escrow Agent may resign or be  discharged  at any time and,
in such event,  shall  deliver the Escrow  Funds  pursuant to the joint  written
instructions of the Major  Shareholder  Agent and the  Beneficiaries  or, in the
absence of such instructions,  may deposit the Escrow Funds with the clerk of an
appropriate court in New York, New York.

                  7. Escrow Agent shall be indemnified by the Major Shareholders
and the  Beneficiaries  against  any  liabilities,  damages,  losses,  costs  or
expenses incurred by, or claims or charges made against, Escrow Agent (including
reasonable counsel fees,  disbursements and court costs) by reason of its acting
or failing to act in connection with any of the matters  contemplated  by, or in

                                       5
<PAGE>

carrying  out the terms of,  this  Escrow  Agreement,  except as a result of its
willful malfeasance or gross negligence.

                  8.  Any  notice  or  communication  pursuant  to  this  Escrow
Agreement   shall  be  delivered  in  accordance  with  the  provisions  of  the
Indemnification   Agreement,   addressed  to  the  Major  Shareholders  and  the
Beneficiaries  and to the Escrow  Agent at the address set forth  above.  Notice
shall be deemed effective as provided in the Indemnification Agreement.

                    9. This Escrow Agreement, the Indemnification  Agreement and
the Merger  Agreement set forth the entire  understanding of the parties hereto.
None of the terms or provisions of this  Agreement may be amended,  supplemented
or  otherwise  modified  except by a written  instrument  executed  by the Major
Shareholders  Agent  (acting  on behalf of the Major  Shareholders),  the Escrow
Agent and the Beneficiaries.

                  10.  Each  Major   Shareholder   hereby   appoints  the  Major
Shareholder  Agent as his  representative  to take any  action and  receive  any
notice hereunder on behalf of such Major Shareholder as set forth herein.

                  11.  This  Agreement  shall  not  become  effective  until the
Effective Time (as defined in the Merger Agreement).  If the Merger Agreement is
terminated  before the Effective Time, this Agreement shall be null and void and
of no effect.

                                       6

<PAGE>


                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Escrow Agreement as of the date and year first above written.

                              MAJOR SHAREHOLDERS:

                              AJG Financial Services, Inc.


                              By: /s/   Mark P. Strach
                                  -------------------------
                                  Name:
                                  Title:

                              BERNARD J. ZAHREN

                                 /s/ Bernard J. Zahren
                                 ---------------------------


                             ENVIRONMENTAL OPPORTUNITIES FUND

                             By: /s/ Kenneth Leung
                                 ---------------------------
                                Name:
                                Title:



                             ENVIRONMENTAL OPPORTUNITIES FUND/CAYMAN


                             By: /s/    Kenneth Leung
                                 ------------------------------
                                 Name:
                                 Title:



                             FINOVA MEZZANINE CAPITAL CORP.


                             By: /s/ Kevin Pearce
                                 -----------------------------------
                                 Name:
                                 Title:


                                        7

<PAGE>

                            FREDERIC ROSE

                            /s/ Frederic Rose
                            -------------------


                            M & R ASSOCIATES


                            By: /s/ Frederic Rose
                            -----------------------------
                            Name:   Frederic Rose
                            Title:  President


                            MARTIN F. LAUGHLIN

                            /s/ Martin F. Laughlin
                            -----------------------------



                            MICHAEL J. CAROLAN

                            /s/ Michael J. Carolan
                            -----------------------------



                            RICHARD J. AUGUSTINE

                            /s/ Richard J. Augustine
                            ------------------------------



                             MAJOR SHAREHOLDER AGENT:


                             AJG FINANCIAL SERVICES, INC

                             By: /s/    John C. Rosengren
                                 -------------------------
                                 Name:  John C. Rosengren
                                 Title: Vice President and
                                 General Counsel

                                       8

<PAGE>



                                 BENEFICIARIES:

                                 U.S. ENERGY SYSTEMS, INC.

                                 /s/    Goran Mornhed
                                 ---------------------------
                                 Name:  Goran Mornhed
                                 Title: President & Chief Operating Officer

                                 USE ACQUISITON CORP.

                                 /s/    Goran Mornhed
                                 ---------------------------
                                  Name:
                                  Title:

                                  CINERGY ENERGY SOLUTIONS INC.

                                  /s/   M. Stephen Harkness
                                  ---------------------------
                                  Name: M. Stephen Harkness
                                  Title: President and Chief Operating Officer

                                  ESCROW AGENT:

                                  TANNENBAUM HELPERN SYRACUSE & HIRSCHTRITT LLP

                                  By: /s/ Stephen Rosenberg
                                      A Member of the Firm

                                       9

<PAGE>

                                    Exhibit A
                           FORM OF DISBURSEMENT NOTICE
                                   CERTIFICATE


          This  certificate  is being  issued  pursuant to Section  3(a) of that
certain Escrow Agreement (the "Escrow  Agreement") dated as of November 28, 2000
by and among Bernard J. Zahren,  Finova  Mezzanine  Capital Corp., AJG Financial
Services,  Inc., Environmental  Opportunities Fund, Environmental  Opportunities
Fund Cayman,  Frederic Rose,  M&R  Associates,  Martin F.  Laughlin,  Richard C.
Augustine and Michael J. Carolan (each, an "Major  Shareholder"),  AJG Financial
Services, Inc., through its Vice-President, General Counsel as agent (the "Major
Shareholder Agent") for the Major Shareholders,  Cinergy Energy Solutions, Inc.,
a  Delaware  corporation  ("CES"),   U.S.  Energy  Systems,   Inc.,  a  Delaware
corporation ("USE"), and USE Acquisition Corp. a Delaware corporation (the "Sub"
and together  with USE and CES, the  "Beneficiaries"),  and  Tannenbaum  Helpern
Syracuse &  Hirschtritt  LLP as Escrow  Agent (the  "Escrow  Agent").  Terms not
defined  in this  certificate  shall have the  meanings  set forth in the Escrow
Agreement. The undersigned, Sub, hereby certifies that:

         1.       The  undersigned  is requesting  the Escrow Agent release the
amount of $_______,  _______ shares of Common Stock and _______ shares of
Preferred Stock from the Escrow Fund.

         2. The  undersigned  is  requesting  the amount in Paragraph 1 above on
account of [brief description of the claim] (the "Claim");

         3.       Attached hereto is documentation which supports the amount of
the Claim; and

         4. A copy of this Certificate, including all attachments, has been sent
to the Major Shareholder Agent in the manner set forth in the Escrow Agreement.

         IN WITNESS  WHEREOF,  the undersigned has executed and delivered this
 Certificate as of the ________day of ----------- --------.


                                              USE ACQUISITION CORP.



                                              Name:
                                              Title:


<PAGE>



                                    Exhibit B
                        FORM OF JOINT DISBURSEMENT NOTICE
                                   CERTIFICATE


                   This  certificate is being issued pursuant to Section 3(a) of
that certain Escrow Agreement (the "Escrow  Agreement") dated as of November 28,
2000 by and among  Bernard  J.  Zahren,  Finova  Mezzanine  Capital  Corp.,  AJG
Financial  Services,  Inc.,  Environmental   Opportunities  Fund,  Environmental
Opportunities  Fund Cayman,  Frederic Rose, M&R Associates,  Martin F. Laughlin,
Richard C. Augustine and Michael J. Carolan (each, an "Major Shareholder"),  AJG
Financial Services,  Inc., through its Vice-President,  General Counsel as agent
(the "Major  Shareholder  Agent")  for the Major  Shareholders,  Cinergy  Energy
Solutions,  Inc., a Delaware corporation ("CES"),  U.S. Energy Systems,  Inc., a
Delaware  corporation  ("USE"), and USE Acquisition Corp. a Delaware corporation
(the "Sub" and together with USE and CES, the  "Beneficiaries"),  and Tannenbaum
Helpern Syracuse & Hirschtritt LLP as Escrow Agent (the "Escrow  Agent").  Terms
not defined in this certificate  shall have the meanings set forth in the Escrow
Agreement.  The undersigned,  Sub and the Major  Shareholder  Agent, each hereby
certify that:

         1. On  __________,  ___ Sub  filed a  certificate  (a copy of which was
attached to this certificate with the Escrow Agent) (the "Disputed Certificate")
with the Escrow Agent and the Major  Shareholder  Agent pursuant to Section 3(a)
of the Escrow Agreement.

         2. The Major  Shareholder  Agent  disputed  an element of the  Disputed
Certificate in accordance with the above provision of the Escrow Agreement.

         3. The  parties  hereto are now  jointly  requesting  the Escrow  Agent
release  the amount of  $_______,  _______  shares of Common  Stock and  _______
shares of Preferred  Stock from the Escrow Fund to Sub as the agreed-to  payment
with respect to the Disputed Certificate.

         IN WITNESS WHEREOF,  Sub and the Major  Shareholder Agent have executed
and delivered this Certificate as of the ________day of ___________ ________.

                                                USE ACQUISITION CORP.


                                                Name:
                                                Title:

                                                MAJOR SHAREHOLDER AGENT:


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

<PAGE>



                                    Exhibit C
                           FORM OF DISBURSEMENT NOTICE
                                   CERTIFICATE


          This  certificate  is being  issued  pursuant to Section  3(c) of that
certain Escrow Agreement (the "Escrow  Agreement") dated as of November 28, 2000
by and among Bernard J. Zahren,  Finova  Mezzanine  Capital Corp., AJG Financial
Services,  Inc., Environmental  Opportunities Fund, Environmental  Opportunities
Fund Cayman,  Frederic Rose,  M&R  Associates,  Martin F.  Laughlin,  Richard C.
Augustine and Michael J. Carolan (each, an "Major  Shareholder"),  AJG Financial
Services, Inc., through its Vice-President, General Counsel as agent (the "Major
Shareholder Agent") for the Major Shareholders,  Cinergy Energy Solutions, Inc.,
a  Delaware  corporation  ("CES"),   U.S.  Energy  Systems,   Inc.,  a  Delaware
corporation ("USE"), and USE Acquisition Corp. a Delaware corporation (the "Sub"
and together  with USE and CES, the  "Beneficiaries"),  and  Tannenbaum  Helpern
Syracuse &  Hirschtritt  LLP as Escrow  Agent (the  "Escrow  Agent").  Terms not
defined  in this  certificate  shall have the  meanings  set forth in the Escrow
Agreement. The undersigned, one of the Beneficiaries, hereby certifies that:

         1. The undersigned is requesting the Escrow Agent release the amount of
$_______,  _______ shares of Common Stock and _______ shares of Preferred  Stock
from the Escrow Fund.

         2. The  undersigned  is  requesting  the amount in Paragraph 1 above on
account of [brief description of the claim] (the "Claim");

         3. Attached hereto is documentation which supports the amount of the
Claim; and

         4. A copy of this Certificate, including all attachments, has been sent
to each Major Shareholder in the manner set forth in the Escrow Agreement.

         IN WITNESS  WHEREOF,  the undersigned has executed and delivered this
Certificate as of the ________day of ----------- --------.


                                          [                            ]


                                            Name:
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                                    Exhibit D
                        FORM OF JOINT DISBURSEMENT NOTICE
                                   CERTIFICATE

                   This  certificate is being issued pursuant to Section 3(c) of
that certain Escrow Agreement (the "Escrow  Agreement") dated as of November 28,
2000 by and among  Bernard  J.  Zahren,  Finova  Mezzanine  Capital  Corp.,  AJG
Financial  Services,  Inc.,  Environmental   Opportunities  Fund,  Environmental
Opportunities  Fund Cayman,  Frederic Rose, M&R Associates,  Martin F. Laughlin,
Richard C. Augustine and Michael J. Carolan (each, an "Major Shareholder"),  AJG
Financial Services,  Inc., through its Vice-President,  General Counsel as agent
(the "Major  Shareholder  Agent")  for the Major  Shareholders,  Cinergy  Energy
Solutions,  Inc., a Delaware corporation ("CES"),  U.S. Energy Systems,  Inc., a
Delaware  corporation  ("USE"), and USE Acquisition Corp. a Delaware corporation
(the "Sub" and together with USE and CES, the  "Beneficiaries"),  and Tannenbaum
Helpern Syracuse & Hirschtritt LLP as Escrow Agent (the "Escrow  Agent").  Terms
not defined in this certificate  shall have the meanings set forth in the Escrow
Agreement. The undersigned each hereby certify that:

         1. On __________, ___ one of the Beneficiaries (the "Requesting Party")
filed a certificate (a copy of which was attached to this  certificate  with the
Escrow Agent) (the "Disputed  Certificate")  with the Escrow Agent and the other
parties required under Section 3(c) of the Escrow Agreement.

         2. The Major  Shareholder  Agent  disputed  an element of the  Disputed
Certificate in accordance with the above provision of the Escrow Agreement.

         3. The  parties  hereto are now  jointly  requesting  the Escrow  Agent
release the amount of $_______ _______ shares of Common Stock and _______ shares
of Preferred Stock from the Escrow Fund to the Requesting Party as the agreed-to
payment with respect to the Disputed Certificate.

         IN WITNESS  WHEREOF,  the Major  Shareholder  Agent and the  Requesting
Party have executed and delivered  this  Certificate  as of the  ________day  of
___________ ________.


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                                          Name:
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                                          MAJOR SHAREHOLDER AGENT:

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