U.S. ENERGY SYSTEMS, INC.

                   AMENDED AND RESTATED STOCK OPTION AGREEMENT



Name of Optionee:    Lawrence I. Schneider

Date of Grant:    May 10, 2000

Number of Shares Subject to Option:     750,000

Exercise Price Per Share:      $3.00

Type of Option:  Non-qualified Stock Option

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

Section 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  shall be subject to the
                  terms and  conditions  set  forth  herein.  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 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.

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

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Section 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.

Section 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.

Section 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.

Section 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


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                  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.

Section 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 this  Option
                  shall be binding upon the  executors,  administrators,  heirs,
                  successors and assigns of the Optionee.

Section 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.

Section 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.

                  (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


<PAGE>



                  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.


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

Section 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:Goran Mornhead
                                      ------------------------
                                      Goran Mornhed, President

         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/ Lawrence I. Schneider
                                   ---------------------------------
                                       Lawrence I. Schneider