Document:

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:    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

<PAGE>

                  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.

<PAGE>

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.

<PAGE>

                  (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: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. SchneiderU.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:     562,500

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.

<PAGE>

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

<PAGE>

                  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: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/ Goran Mornhead
                                        ------------------
                                             Goran Mornhed

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