Document:

TERMINATION FEE AGREEMENT

                  TERMINATION FEE AGREEMENT, dated as of November 28, 2000 (this
"Agreement"),  among U.S. ENERGY SYSTEMS,  INC., a Delaware corporation ("USE"),
CINERGY  ENERGY  SOLUTIONS,  INC., a Delaware  corporation  ("CES"),  and ZAHREN
ALTERNATIVE POWER CORPORATION, a Delaware corporation ("Zapco").

                  WHEREAS,  USE,  Zapco and USE  Acquisition  Corp.,  a Delaware
corporation  (the "Sub"),  have entered into that certain  Agreement and Plan of
Reorganization  and  Merger,  dated  as  of  even  date  herewith  (the  "Merger
Agreement").  All capitalized terms used herein but not otherwise defined herein
shall have their respective meanings as set forth in the Merger Agreement;

                  WHEREAS,  it is a condition to the  effectuation of the Merger
that CES, an indirect  wholly  owned  subsidiary  of Cinergy  Solutions  Holding
Company,  Inc. ("CSHC"),  shall purchase 4,574 shares of Class B Common Stock of
Sub for $11,500,000  pursuant to a subscription  agreement dated as of even date
herewith (the "Subscription Agreement"; and

                  WHEREAS, each of USE, CES and Zapco desires to enter into this
Agreement  to  restrict  USE's and  Zapco's  ability  to  solicit  or  entertain
alternative merger or acquisition  proposals and to provide for the payment of a
Termination  Fee (as defined  below) and certain  expense  reimbursements  under
certain circumstances as set forth in this Agreement.

                  NOW,  THEREFORE,  in  consideration  of the  foregoing and the
respective  representations,  warranties,  covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:

                  SECTION 1.  No Solicitation of Transactions by USE and Zapco.
(a) Zapco  and USE  immediately  shall  cease  and  cause to be  terminated  all
existing  discussions or negotiations with any parties conducted heretofore with
respect to a Competing Transaction (as defined below) from the date hereof until
the earlier of (i) the  Effective  Time, or (ii) the  termination  of the Merger
Agreement in accordance with its terms (the "Period").  During the Period, Zapco
and USE shall not, directly or indirectly,  and each will instruct its officers,
directors, employees,  subsidiaries, agents or advisors or other representatives
(including,  without limitation,  any investment banker,  attorney or accountant
retained  by  it)   (collectively   "Representatives"),   not  to,  directly  or
indirectly,  (i) solicit,  initiate or knowingly encourage  (including by way of
furnishing  nonpublic  information),  or take  any  other  action  knowingly  to
facilitate,  any  inquiries or the making of any  proposal or offer  (including,

<PAGE>

without limitation, any proposal or offer to its stockholders) that constitutes,
or may reasonably be expected to lead to, any Competing Transaction,  (ii) enter
into or maintain or continue  discussions or negotiate with any person or entity
in furtherance of such  inquiries,  (iii) obtain a Competing  Transaction,  (iv)
agree to or endorse any  Competing  Transaction,  or (v)  authorize or knowingly
permit any  Representative  of such party or any of its Subsidiaries to take any
such action. If any proposal or offer, or any inquiry or contact with any person
with respect thereto,  regarding a Competing Transaction is made to Zapco or USE
(any party which receives such a proposal, other inquiry or contact is hereafter
referred to as the  "Receiving  Party"),  such  Receiving  Party  promptly shall
notify the other parties hereto.  Each of ZAPCO and USE shall  immediately cease
and cause to be terminated  all existing  discussions or  negotiations  with any
parties conducted  heretofore with respect to a Competing  Transaction.  Each of
Zapco and USE agrees not to release any third party from, or waive any provision
of,  any   confidentiality   or  standstill   agreement  relating  to  Competing
Transactions to which it is a party.

                  (b)  Notwithstanding  anything to the contrary in Section 1(a)
above,  the Board of Directors of such Receiving  Party may cause such Receiving
Party  to  furnish  information  to,  and  may  participate  in  discussions  or
negotiations  with, any person that, without any solicitation by or on behalf of
such  Receiving  Party,  has  submitted  a  written  proposal  to such  Board of
Directors which  constitutes a Superior Proposal (as hereafter  defined,  except
that for purposes of this Section 1(b) a Superior  Proposal  shall not require a
financing  commitment),  to the  extent  that  the  Board of  Directors  of such
Receiving  Party  determines in good faith that the failure to do so would cause
such Board of Directors to breach its fiduciary duties to the Receiving Party or
its  stockholders  under  applicable  Laws if the  Receiving  Party has received
advice to such effect from  independent  legal  counsel (who may be such party's
regularly engaged  independent legal counsel,  it being understood that Robinson
Brog  Leinwand  Greene  Genovese & Gluck  P.C.,  Tannenbaum  Helpern  Syracuse &
Hirschtritt  LLP and  Shipman  & Goodwin  LLP shall be deemed to be  independent
legal  counsel).  Notwithstanding  anything to the  contrary  contained  in this
Agreement,  any  such  furnishing  of  information  and  participation  in  such
discussions or  negotiations  shall not constitute a breach of this Agreement by
such party.

                  (c) A  "Competing  Transaction"  means  any of  the  following
involving Zapco or USE (other than the Merger and the Investment): (i) a merger,
consolidation, share exchange, business combination or other similar transaction
as a result of which the  stockholders of such party  immediately  prior to such
transaction will, after such transaction,  own less than 50% of the voting stock
of the combined,  surviving or merged entity;  (ii) any sale,  lease,  exchange,
transfer or other disposition of 50% or more of the assets of such party and its
subsidiaries, taken as a whole or (iii) a tender offer or exchange offer for, or
any  acquisition of, 50% or more of the  outstanding  voting  securities of such
party by a person not affiliated with any party hereto.

                  (d) A "Superior  Proposal"  shall mean any proposal  made by a
third  party for a  Competing  Transaction  with Zapco or USE which the Board of
Directors of such party reasonably  determines in its good faith judgment (based

                                       2
<PAGE>

on the  advice  of a  financial  advisor  and  independent  counsel)  to be more
favorable to such party's  stockholders than the Merger and for which financing,
to the  extent  required,  is then  committed,  subject  to  standard  terms and
conditions  at the  time  ZAPCO or USE as  applicable,  exercises  any  right to
terminate the Merger Agreement provided for in this Agreement.

                  SECTION 2.  Termination of Merger Agreement.  (a) In  addition
to the provisions of Section 8.01 of the Merger Agreement, the  Merger Agreement
may be terminated at any time prior to the Effective Time as follows:

                           (i) By USE,  if (A) the Board of  Directors  of Zapco
         does not recommend to its stockholders the approval of the transactions
         contemplated by the Merger Agreement or withdraws,  modifies or changes
         its  recommendation  of the  transactions  contemplated  by the  Merger
         Agreement in a manner  adverse to USE or shall have  resolved to do so,
         (B) the Board of  Directors  of Zapco  shall  have  recommended  to the
         stockholders of Zapco a Competing Transaction or shall have resolved to
         do so, or (C) if the transactions  contemplated by the Merger Agreement
         shall fail to receive  the  requisite  vote for  adoption  at the Zapco
         Stockholders'  Meeting held within thirty days of the Merger  Agreement
         execution date; provided, however, that nothing herein shall reduce the
         liability  of the  shareholders  of Zapco under the  Stockholders'  and
         Voting  Agreement by and among USE and certain  shareholders of USE and
         Zapco dated as of the date hereof (the  "Stockholders  Agreement")  for
         any breach of their obligations under the Stockholders Agreement;

                           (ii) By Zapco,  if (A) the Board of  Directors of USE
         does not recommend to its stockholders the approval of the transactions
         contemplated by the Merger Agreement or withdraws,  modifies or changes
         its  recommendation  of the  transactions  contemplated  by the  Merger
         Agreement in a manner adverse to Zapco or shall have resolved to do so,
         (B) the  Board  of  Directors  of USE  shall  have  recommended  to the
         stockholders  of USE a Competing  Transaction or shall have resolved to
         do so, or (C) a tender  offer or exchange  offer for 50% or more of the
         outstanding shares of capital stock of USE is commenced,  and the Board
         of Directors of USE fails to recommend within ten Business Days against
         acceptance of such tender offer or exchange  offer by its  stockholders
         (for purposes of this Agreement, taking no position with respect to the
         acceptance of such tender offer or exchange  offer by its  stockholders
         shall be considered to be a failure to recommend  against  acceptance),
         provided,  however,  that nothing  herein shall reduce the liability of
         any shareholder of USE under the Stockholders  Agreement for any breach
         of its obligations under the Stockholders Agreement; or

                           (iii)   By   Zapco   or  USE   if  the   transactions
         contemplated  by  the  Merger  Agreement  shall  fail  to  receive  the
         requisite vote for adoption at (A) the USE Stockholders' Meeting or any
         adjournment  or  postponement  thereof  or (B) the Zapco  Stockholders'

                                       3
<PAGE>

         Meeting or any adjournment or postponement  thereof provided that Zapco
         may  terminate the Merger  Agreement  pursuant to this clause B, if and
         only  if  the  Zapco  Stockholders  (as  defined  in  the  Stockholders
         Agreement)  are not  obligated to vote in favor of the Merger under the
         express  terms  of  Section  2.01(a)  of  the  Stockholders  Agreement;
         provided,  however,  that nothing  herein shall reduce the liability of
         the shareholders of USE or Zapco under the  Stockholders  Agreement for
         any breach of their obligations under the Stockholders Agreement.

                  (b) In  addition  to the  provisions  of  Section  8.01 of the
Merger  Agreement,  the Merger  Agreement may be terminated at any time prior to
the Effective Time as follows:

                           (i) By USE, if (A) USE shall pay the  Termination Fee
         and (B)  (1) the  Board  of  Directors  of USE  shall  have  withdrawn,
         modified  or  changed  its   recommendation  of  the  adoption  of  the
         transactions  contemplated by the Merger  Agreement in a manner adverse
         to Zapco following such Board's receipt of advice of independent  legal
         counsel (who may be USE's regularly engaged  independent legal counsel)
         that failure to terminate the Merger Agreement would cause the Board of
         Directors  of  USE  to  breach  its  fiduciary  duties  to  USE  or its
         stockholders  under  applicable  Laws and (2) any  person  (other  than
         Zapco) shall have made a public  announcement  or  communicated  to USE
         with respect to a Superior  Proposal  with respect to USE and the Board
         of Directors of USE fails to recommend within ten Business Days against
         acceptance of such Superior Proposal; or

                           (ii) By Zapco, if (A) Zapco shall pay the Termination
         Fee and (B) (1) the Board of Directors  of Zapco shall have  withdrawn,
         modified  or  changed  its   recommendation  of  the  approval  of  the
         transactions  contemplated by the Merger  Agreement in a manner adverse
         to USE following such Board's  receipt of advice of  independent  legal
         counsel  (who  may  be  Zapco's  regularly  engaged  independent  legal
         counsel) that failure to terminate the Merger Agreement would cause the
         Board of Directors of Zapco to breach its fiduciary  duties to Zapco or
         its  stockholders  under applicable Laws and (2) any person (other than
         USE) has made a public announcement or otherwise  communicated to Zapco
         with respect to a Superior Proposal with respect to Zapco.

                  SECTION 3. Termination Fee and Expenses. In the event that the
Merger Agreement is terminated in the following circumstances,  then (subject to
the provisions of Section 4 hereof) the party  indicated below shall be required
to pay to the other parties hereto (to be shared equally by the other  parties),
the  Termination  Fee,  and shall be required to  reimburse  the other  parties'
Expenses  (as  defined  in  Section   3(d))  upon  the  receipt  of   reasonable
documentation in respect thereof:

                  (a)  Zapco  shall  pay to USE and CES  the  lesser  of (i) the
highest  amount then  allowed  under the Laws of the State of Delaware  and (ii)

                                       4
<PAGE>

$2,000,000 in cash (the "Pre-Approval  Termination Fee") and shall reimburse USE
and CES for all of their Expenses in the following circumstances:

                   (i)  If USE  terminates  the  Merger  Agreement  pursuant  to
         Section  2(a)(i)  hereof  before  or at the time  Zapco's  stockholders
         approve the  transactions  contemplated  by the Merger  Agreement  (the
         "Zapco Shareholder Approval") and at the time of such termination,  any
         person shall have made a public announcement or otherwise  communicated
         to Zapco with respect to a Competing Transaction with respect to Zapco;
         or

                  (ii) If Zapco terminates the Merger Agreement before or at the
         time of the Zapco  Shareholder  Approval  pursuant to Section  2(b)(ii)
         hereof;

                  (b)  USE  shall   pay  to  Zapco  and  CES  the   Pre-Approval
Termination  Fee and shall  reimburse Zapco and CES for all of their Expenses in
the following circumstances:

                  (i) If Zapco  terminates  the  Merger  Agreement  pursuant  to
         Section  2(a)(ii)  hereof  before  or at the  time  USE's  stockholders
         approve the transactions contemplated by the Merger Agreement (the "USE
         Shareholder Approval") and at the time of such termination,  any person
         shall have made a public announcement or otherwise  communicated to USE
         with  respect to a Competing  Transaction  with  respect to USE and the
         Board of Directors of USE fails to recommend  within  fifteen  Business
         Days against acceptance of such Competing Transaction;

                  (ii) Zapco terminates the Merger Agreement pursuant to Section
         2(a)(iii) (A) hereof and at the time of such failure,  any person shall
         have made a public  announcement or otherwise  communicated to USE with
         respect to a Competing Transaction with respect to USE and the Board of
         Directors  of USE  fails to  recommend  within  fifteen  Business  Days
         against acceptance of such Competing Transaction.

                  (iii) If USE terminates the Merger  Agreement before or at the
         time  of the USE  Shareholder  Approval  pursuant  to  Section  2(b)(i)
         hereof.

                  (c)  Zapco  shall  pay to USE and CES  the  lesser  of (i) the
highest  amount then  allowed  under the Laws of the State of Delaware  and (ii)
$5,000,000 in cash (the  "Post-Approval  Termination  Fee" and together with the
Pre-Approval Termination Fee, the "Termination Fee") and shall reimburse USE and
CES for all of their Expenses in the following circumstances:

                  (i) If USE terminates the Merger Agreement pursuant to Section
         2(a)(i) hereof after the Zapco Shareholder  Approval and at the time of

                                       5
<PAGE>
         such termination,  any person shall have made a public  announcement or
         otherwise communicated to Zapco with respect to a Competing Transaction
         with respect to Zapco; or

                  (ii) If Zapco  terminates the Merger Agreement after the Zapco
         Shareholder Approval pursuant to Section 2(b)(ii) hereof.

(d) USE shall pay to Zapco and CES the  Post-Approval  Termination Fee and shall
reimburse   Zapco  and  CES  for  all  of  their   Expenses  in  the   following
circumstances:

                  (i) If Zapco  terminates  the Merger  Agreement  after the USE
         Shareholder  Approval  pursuant to Section  2(a)(ii)  hereof and at the
         time  of  such  termination,  any  person  shall  have  made  a  public
         announcement  or  otherwise  communicated  to  USE  with  respect  to a
         Competing Transaction with respect to USE and the Board of Directors of
         USE fails to recommend within fifteen Business Days against  acceptance
         of such Competing Transaction;

                  (ii) If USE  terminates  the  Merger  Agreement  after the USE
         Shareholder Approval pursuant to Section 2(b)(i) hereof.

                  (e) CES shall pay the  Pre-Approval  Termination Fee and shall
reimburse the other parties'  Expenses if the Merger  Agreement is terminated by
ZAPCO  or  USE  as the  result  of a  breach  by  CES  of  one  or  more  of its
representations,   warranties,   covenants  or   agreements   contained  in  the
Subscription  Agreement  provided  that CES  shall  not be  required  to pay the
Pre-Approval  Termination  Fee if CES terminates the  Subscription  Agreement in
accordance with the terms of such agreement. In no event will CES be required to
pay the Post-Approval Termination Fee.

                  (f) "Expenses" as used in this Agreement  shall consist of all
out-of-pocket expenses (including,  without limitation, all fees and expenses of
counsel,  accountants,  investment  bankers,  experts and consultants to a party
hereto and its affiliates)  incurred by a party on its behalf in connection with
or  related  to  the  authorization,  preparation,  negotiation,  execution  and
performance  of  the  Merger   Agreement  (and  the  related   documents),   the
preparation,  printing,  filing and mailing of the proxy  statements  of USE and
ZAPCO, the solicitation of stockholder approvals,  the Investment,  the purchase
of securities of Energy Systems  Investors LLC by certain  shareholders of Zapco
and all other matters related to the closing of the Merger.

                  (g) All  payments  required  to be made  pursuant to Section 3
above shall be made to the parties  entitled to receive such  payments not later
than thirty  Business Days after  delivery to the other parties hereto of notice
of  demand  for  payment  and  shall  be made by wire  transfer  of  immediately
available  funds to an  account  designated  by the party  entitled  to  receive
payment in such notice of demand,  except that all payments  required to be made
pursuant to a  termination  by either  party  pursuant  to Sections  3(a)(ii) or
3(b)(iii)  shall be made by wire transfer of immediately  available  funds to an

                                       6
<PAGE>

account  designated by the other parties entitled to receive payment on or prior
to the effective date of such termination.

                  (h) In the event that  Zapco,  USE or CES, as the case may be,
shall fail to pay any Expense or any Termination Fee when due, the amount of any
such  Expense or  Termination  Fee shall be  increased  to include the costs and
expenses  actually incurred or incurred by the party entitled to receive payment
(including, without limitation, fees and expenses of counsel) in connection with
the collection  under and  enforcement of this Section 3, together with interest
on such unpaid  Expenses and Termination  Fee,  commencing on the date that such
Expenses  and  Termination  Fee became  due,  at a rate equal to (i) the rate of
interest publicly announced by Citibank, N.A., from time to time, in the City of
New York, as such bank's Prime Rate plus (ii) 1.00%.

                  SECTION 4. Limitation on Section 3 Hereof. (a) Notwithstanding
anything to the contrary herein, no party to this Agreement shall be entitled to
receive any portion of a Termination Fee or to be reimbursed for its Expenses to
the extent such party has materially  breached its obligations  under the Merger
Agreement (or the  Subscription  Agreement) or, in the case of Zapco, any of the
Zapco  Stockholders  (as defined in the  Stockholders  Agreement) has materially
breached its  obligations  under the  Stockholders  Agreement or, in the case of
USE, any of the USE Stockholders has materially  breached its obligations  under
the Stockholders  Agreement to the party that is required to pay the Termination
Fee and to reimburse  Expenses  hereunder.  In the event that one of the parties
hereto is required to pay the  Termination  Fee and reimburse  Expenses and only
one of the other parties is entitled to receive such  Termination  Fee and to be
reimbursed for such Expenses, then the full Termination Fee shall be paid to the
party entitled to receive payment and only the Expenses of the party entitled to
receive payment shall be reimbursed.

         Notwithstanding  anything  to the  contrary  herein,  no  party to this
Agreement  shall be required to pay more than one  Termination  Fee and no party
shall  be  entitled  to  receive  any  portion  of a  Termination  Fee  or to be
reimbursed  for its expenses if the Merger  Agreement is terminated by any party
because the Average Parent Share Price is less than $4.00.

                  SECTION 5.  Difficulty  of  Calculating  Actual  Damages.  The
parties hereby  acknowledge and agree that it would not be possible to calculate
the magnitude of their damages in the event the Merger Agreement were terminated
in any of the circumstances described in Section 2 hereof.  Accordingly,  in the
event the Merger Agreement were terminated in any of the circumstances described
in Section 2 hereof,  they agree that the Termination Fee and Expenses represent
(a) a fair and  reasonable  measure  of the  value of the time  expended  by the
management of the parties  hereto and the  opportunities  that such parties have
foregone the payment of which is consistent  with any  fiduciary  duties owed to
the  shareholders of the party making such payment and (b) the parties' sole and
exclusive remedy arising from such termination of the Merger Agreement.

                                       7
<PAGE>

                  SECTION   6.   Effect  of   Merger,   Termination.   Upon  the
consummation of the Merger,  this Agreement  shall forthwith  become void and be
terminated  and there shall be no liability  under this Agreement on the part of
USE, CES or Zapco,  provided,  however that if CES is liable for the Termination
Fee and the  Expenses  of any  other  party  at the  time  when  the  Merger  is
consummated,   then  such  liability  shall  survive  the  termination  of  this
Agreement.

                  SECTION 7. Notices. All notices and other communications given
or made  pursuant  hereto  shall be in writing  and shall be deemed to have been
duly given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by overnight, registered
or certified mail (postage prepaid,  return receipt requested) to the parties at
the  following  addresses  (or at such  other  address  for a party  as shall be
specified by like changes of address) or sent by electronic  transmission to the
facsimile number specified below:

                  (a)      If to USE:

                           U.S. Energy Systems, Inc.
                           One North Lexington Avenue, 4th Floor
                           White Plains, New York 10601
                           Facsimile No.: 914-271-5315 and 718-832-0263
                           Attention:        Goran Mornhed, President & COO
                                             Barbara Farr, General Counsel

                           With a copy to:

                           Robinson Brog Leinwand Greene
                           Genovese & Gluck P.C.
                           1345 Avenue of the Americas
                           New York, New York 10105-0143
                           Facsimile No.: (212) 956-2164
                           Attention: Allen J. Rothman

                  (b)      If to Zapco:

                           Zahren Alternative Power Corporation
                           40 Tower Lane
                           Avon, CT 06001
                           Facsimile No.: (860) 677-6054
                           Attention: Bernard J. Zahren, President

                                       8
<PAGE>
                           With a copy to:

                           Shipman & Goodwin LLP
                           One American Row
                           Hartford, CT 06103-2819
                           Facsimile No.: (860) 251-5999
                           Attention: John H. Lawrence Jr., Esq. and
                                      Marcus D. Wilkinson, Esq.
                           and

                           Tannenbaum Helpern Syracuse & Hirschtritt LLP
                           900 Third Avenue
                           New York, New York 10022
                           Facsimile No.: (212) 826-0773
                           Attention: Stephen Rosenberg, Esq.

                  (c)      If to CES:

                           Cinergy Energy Solutions, Inc.
                           c/o Cinergy Solutions, Inc.
                           1000 East Main Street
                           Plainfield, IN 46168
                           Attention:  M. Stephen Harkness, President & COO
                           Facsimile: 317-838-2090

                           With a copy to:

                           Cinergy Corp.
                           221 East Fourth Street
                           Cincinnati, Ohio  45201
                           Attention: Jerome A. Vennemann, General Counsel
                                    Facsimile: 513-287-1363

                  SECTION 8.  Headings. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way  the  meaning or
interpretation of this Agreement.

                  SECTION 9.  Severability.  If any term or other  provision  of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public  policy,  all other  conditions  and  provisions of this Agreement
shall  nevertheless  remain in full force and effect so long as the  economic or
legal substance of the transactions  contemplated  hereby is not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid,  illegal or incapable of being enforced, the parties
hereto shall  negotiate  in good faith to modify this  Agreement so as to effect

                                       9

<PAGE>

the  original  intent of the  parties as closely as  possible  in an  acceptable
manner to the end that  transactions  contemplated  hereby are  fulfilled to the
extent possible.

                  SECTION 10. Entire Agreement.  This Agreement  constitutes the
entire  agreement  of the  parties  and  supersedes  all  prior  agreements  and
undertakings,  both written and oral, between the parties,  or any of them, with
respect to the subject matter hereof and, except as otherwise expressly provided
herein,  is not  intended to confer upon any other person any rights or remedies
hereunder;  provided  however,  that nothing herein shall be deemed to supercede
the Merger  Agreement or the  Stockholders  Agreement  and nothing in the Merger
Agreement  or the  Stockholders  Agreement  shall be  deemed to  supercede  this
Agreement.

                  SECTION 11.  Assignment.  This Agreement shall not be assigned
by operation of law or otherwise.

                  SECTION  12.  Parties in  Interest.  This  Agreement  shall be
binding upon and inure solely to the benefit of each party  hereto,  and nothing
in this Agreement,  express or implied,  is intended to or shall confer upon any
other person any right,  benefit or remedy of any nature  whatsoever under or by
reason of this Agreement.

                  SECTION 13.  Mutual Drafting.  Each  party  hereto  has
participated in the drafting of this Agreement, which each party acknowledges is
the result of extensive negotiations between the parties.

                  SECTION 14.  Governing Law. This  Agreement  shall be governed
by,  and  construed  in  accordance  with,  the Laws of the  State of  Delaware,
regardless of the Laws that might otherwise govern under  applicable  principles
of conflicts of law.

                  SECTION 15.  Specific  Performance.  The parties  hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled  to specific  performance  of the terms  hereof,  in addition to any
other remedy at law or in equity.

                  SECTION 16. Jurisdiction.  Each party hereby irrevocably:  (1)
agrees  that any suit,  action,  or other legal  proceeding  arising out of this
Agreement or out of any of the transactions  contemplated hereby or thereby, may
be brought in any New York court or United  States  federal court located in the
County of New York; (2) consents to the  jurisdiction  of each such court in any
such suit,  action,  or legal  proceeding;  (3) waives any objection  which such
party  may  have to the  laying  of venue of any  such  suit,  action,  or legal
proceeding  in any of  such  courts;  (4)  agrees  that  New  York  is the  most
convenient forum for litigation of any such suit,  action,  or legal proceeding;
and (5)  designates  the  Secretary  of State  of the  State of New York as such
party's  agent to accept and  acknowledge  on its behalf  service of any and all
process in any such suit, action or legal proceeding  brought in any such court,

                                       10
<PAGE>

and agrees and  consents  that any such service of process upon such agent shall
be taken and held to be valid personal service upon such party and that any such
service of process  shall be of the same force and  validity as if service  were
made  upon  such  party  according  to  the  laws  governing  the  validity  and
requirements  of such service in the State of New York,  and waives all claim of
error by reason of any such service.

                  SECTION 17.  Counterparts.  This  Agreement may be executed in
one or more  counterparts,  and by the  different  parties  hereto  in  separate
counterparts,  each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.

                                       11

<PAGE>

                  IN  WITNESS  WHEREOF,  USE,  CES and Zapco  have  caused  this
Agreement to be executed as of the date first written above.

                                 U.S. ENERGY SYSTEMS, INC.

                                     By: /s/ Goran Mornhed
                                      ---------------------
                                      Name:  Goran Mornhed
                                      Title: President & COO

                                 CINERGY ENERGY SOLUTIONS, INC.

                                 By:    /s/ M. Stephen Harkness
                                     ---------------------------
                                     Name:  M. Stephen Harkness
                                     Title: President & COO

                                  ZAHREN ALTERNATIVE POWER
                                  CORPORATION

                                  By: /s/  Bernard J. Zahren
                                     ---------------------------
                                     Name:  Bernard J. Zahren
                                     Title: President

                                       12INDEMNIFICATION AGREEMENT

              INDEMNIFICATION  AGREEMENT  dated  as of  November  28,  2000  (as
amended,  supplemented or modified from time to time,  this  "Agreement") by and
among Bernard J. Zahren, Finova Mezzanine Capital Corp., AJG Financial Services,
Inc.,   ("AJG")   Environmental   Opportunities   Fund  ("EOF"),   Environmental
Opportunities  Fund Cayman ("EOF-C"),  Frederic Rose, M&R Associates,  Martin F.
Laughlin,   Richard  J.  Augustine  and  Michael  J.  Carolan  (each,  a  "Major
Shareholder"),  AJG Financial  Services,  Inc., by its Vice  President,  General
Counsel,  as agent for the Major Shareholders (the "Major  Shareholder  Agent"),
Zahren Alternative Power Corporation,  a Delaware Corporation,  ("ZAPCO"),  U.S.
Energy Systems,  Inc., a Delaware  corporation ("USE"), USE Acquisition Corp., a
Delaware  corporation (the "Sub" and together with the USE, the "Beneficiaries")
and Cinergy Energy Solutions, Inc., a Delaware corporation ("CES")

                              W I T N E S S E T H:

              WHEREAS,  ZAPCO and the  Beneficiaries  are party to that  certain
agreement and plan of reorganization  and merger (the "Merger  Agreement") dated
as of the date hereof  providing for the merger (the  "Merger") of ZAPCO and the
Sub, as contemplated therein;

              WHEREAS,  pursuant to the Merger Agreement,  the shares of ZAPCO's
common  stock (the  "ZAPCO  Common  Stock")  and  preferred  stock  (the  "ZAPCO
Preferred  Stock") shall be converted upon the  effectiveness of the Merger into
the right to receive  the Merger  Consideration  (as such term is defined in the
Merger Agreement);

              WHEREAS,  pursuant  to Section  2.05 of the Merger  Agreement , in
certain circumstances a post-closing adjustment (the "Adjustment") to the Merger
Consideration will be required;

              WHEREAS, it is a condition to the willingness of the Beneficiaries
to enter into the Merger  Agreement and the obligations of the  Beneficiaries to
consummate  the Merger that the Major  Shareholders  indemnify and hold harmless
the  Beneficiaries  from certain  Damages (as herein  defined)  relating to such
Agreement;

              WHEREAS,  ZAPCO makes  certain  representations,  warranties,  and
covenants in the Merger Agreement and the Major  Shareholders  desire to provide
for  indemnification   with  respect  to  breaches  of  these   representations,
warranties, and covenants, all as set forth herein.

              WHEREAS, it is a condition to the willingness of the Beneficiaries
to enter into the Merger  Agreement and the obligations of the  Beneficiaries to
consummate  the Merger that the Major  Shareholders  indemnify and hold harmless
the Beneficiaries  (and,  following the Merger,  the Surviving  Corporation) and
their respective affiliates,  shareholders,  officers, directors,  employees and
agents,  and the heirs,  successors and assigns of each of the foregoing (each a
"Purchaser  Indemnitee" and,  collectively,  the "Purchaser  Indemnitees")  from
Damages, all as provided herein.

<PAGE>

              WHEREAS, the Major Shareholders'  execution of this Agreement is a
condition  to the  Beneficiaries'  entering  into the Merger  Agreement  and the
Beneficiaries'  obligation to consummate the  transactions  contemplated  by the
Merger Agreement;

              WHEREAS,   the   Beneficiaries   make   certain   representations,
warranties,  and  covenants  in the Merger  Agreement  and desire to provide for
indemnification with respect to breaches of these  representations,  warranties,
and covenants, all as set forth herein.

              WHEREAS,  it is a condition to the  willingness  of ZAPCO to enter
into the Merger  Agreement and the obligations of ZAPCO to consummate the Merger
that the  Beneficiaries  indemnify and hold harmless the Major  Shareholders and
ZAPCO's  shareholders,  and the  heirs,  successors  and  assigns of each of the
foregoing (each a "ZAPCO Indemnitee" and, collectively, the "ZAPCO Indemnitees";
the ZAPCO Indemnitees and the Purchaser Indemnitees are collectively referred to
as the "Indemnitees") from Damages, all as provided herein.

              WHEREAS,  the  Beneficiaries'  execution  of this  Agreement  is a
condition to ZAPCO's entering into the Merger  Agreement and ZAPCO's  obligation
to consummate the transactions contemplated by the Merger Agreement;

              WHEREAS,  concurrently  with the execution of the Merger Agreement
and  this  Agreement,  USE and  CES are  entering  into a  certain  subscription
agreement (the "Subscription  Agreement") dated as of the date hereof to acquire
4,574 shares of the Sub's Class B Common Stock (the "Class B Stock");

              WHEREAS,   Zapco's  and  the  Beneficiaries'   execution  of  this
Agreement is a condition to CES's entering into the Subscription Agreement,  and
CES's   obligations  to  consummate  the   transactions   contemplated   by  the
Subscription  Agreement  and  accordingly  CES shall be  considered a "Purchaser
Indemnitee" under the terms and conditions of this Agreement.

              NOW,  THEREFORE,  in consideration of the benefits accruing to the
Beneficiaries and the Major  Shareholders,  the receipt and sufficiency of which
are  hereby   acknowledged,   the  parties  hereto  hereby  make  the  following
representations and warranties and hereby covenant and agree as follows:

              1. As used in this Agreement, capitalized terms not defined herein
which are defined in the Merger  Agreement  are used herein as therein  defined,
and the following terms shall have the following meanings:

                    "Damages" means all liabilities, judgments, demands, claims,
              actions or causes of action,  regulatory,  legislative or judicial
              proceedings or investigations, assessments, levies, losses, fines,

                                       2
<PAGE>

              penalties,  damages,  costs  and  expenses.  For the  purposes  of
              clarification,  any of the foregoing  Damages incurred or suffered
              by the Surviving  Corporation  by virtue of a state of facts which
              constitute  an  inaccuracy  in or breach of a  representation  and
              warranty  or  covenant  by  ZAPCO  or the  effects  thereby  shall
              (without  duplication)  be deemed to have been suffered by USE and
              CES.  Without  limiting  the  generality  of  the  foregoing,  the
              Purchaser   Indemnities'  Damages  include,   without  limitation:
              reasonable attorneys', arbitrators', accountants', investigators',
              environmental   consultants'   and  experts'  fees  and  expenses,
              sustained  or incurred in  connection  with the  enforcement  by a
              Purchaser  Indemnitee  of  its  rights  and  remedies  under  this
              Indemnification   Agreement,  or  the  Merger  Agreement,  or  any
              agreement,  instrument or document  executed or to be delivered in
              connection  with  the  Merger  Agreement  by  ZAPCO  or any of its
              stockholders in connection therewith (collectively,  including the
              Merger Agreement, the "Transaction  Documents").  Without limiting
              the generality of the foregoing,  the ZAPCO  Indemnitees'  Damages
              include, without limitation: reasonable attorneys',  arbitrators',
              accountants',   investigators',   environmental  consultants'  and
              experts'  fees and  expenses,  sustained or incurred in connection
              with the  enforcement  by a ZAPCO  Indemnitee  of its  rights  and
              remedies under the Transaction Documents.

                    "Escrow  Agreement" shall mean that certain  agreement dated
              as of the date hereof by the parties  hereto and the escrow  agent
              thereunder.

                    "Person" shall mean an individual, partnership, corporation,
              limited  liability  company,  association,  joint  stock  company,
              trust,  joint  venture,  or  unincorporated  organization,  or the
              United  States of  America  or any other  nation,  or any state or
              other political subdivision thereof, or any entity with executive,
              legislative,  judicial,  regulatory or administrative functions of
              government; and

                  "USE  Share"  means a share of Series C  preferred  stock (the
              "Preferred  Stock") or common stock (the  "Common  Stock") of USE,
              and for  purposes  of  determining  the number of USE Shares to be
              issued to ZAPCO  Indemnitees  or Purchaser  Indemnitees,  (i) each
              share of  Common  Stock  shall be  valued  at the  average  of the
              closing  price per share of Common  Stock on the  Nasdaq  National
              Market  System,  and if the  Common  Stock is not  listed  on such
              System,  the average of the last  reported sale price per share of
              Common  Stock on the Nasdaq  Small Cap  Market (in either  case as
              reported in the Wall Street Journal) for ten  consecutive  trading
              days  ending on the  trading  day which is two (2)  Business  Days
              prior to the date of the  delivery  of the  Notice  of Claim  with
              respect to which  Damages are being paid and the closing price per
              share of  Common  Stock on the  Nasdaq  Small Cap  Market  for ten
              consecutive  trading  days  ending on the trading day which is two
              (2) Business Days prior to the date of payment of the Damages with
              respect  to which  Damages  are being  paid and (ii) each share of
              Preferred Stock shall be valued at $30.00.

              2. (a) From and after the Closing,  the Major  Shareholders  shall
indemnify  the  Purchaser   Indemnitees  as  provided  in  this  Indemnification

                                       3
<PAGE>

Agreement.  For  the  purposes  of this  Indemnification  Agreement,  the  Major
Shareholders shall be deemed to have remade all  representations  and warranties
of ZAPCO  contained  in the  Transaction  Documents at the Closing with the same
effect as if originally made at the Closing.

                    (b) From and  after the  Closing,  the  Beneficiaries  shall
indemnify the ZAPCO Indemnitees as provided in this  Indemnification  Agreement.
For the purposes of this Indemnification  Agreement,  the Beneficiaries shall be
deemed to have remade all  representations  and warranties of the  Beneficiaries
contained in the Transaction Documents at the Closing with the same effect as if
originally made at the Closing.

              3. (a) Each of the Major Shareholders  hereby  unconditionally and
irrevocably,  subject  to  Section  4,  agrees to  indemnify,  save and keep the
Purchaser  Indemnitees  harmless at all times after the Closing Date against and
from all Damages  sustained or incurred by any Purchaser  Indemnitee as a result
of, or arising out of, by virtue of, or in connection with:

                    i.  any  inaccuracy in  or breach of any representation and
                    warranty made by ZAPCO in the Transaction Documents;

                    ii.  any  breach by ZAPCO of, or  failure by ZAPCO to comply
                    with,  any  of  its  covenants  or  obligations   under  the
                    Transaction Documents;

                    iii. if any holder of ZAPCO Common Stock or ZAPCO  Preferred
                    Stock exercises his, her or its appraisal rights pursuant to
                    Section 262 of the Delaware corporation code, the amount, if
                    any,  by which  the sum such  holder  receives  pursuant  to
                    Section  262  exceeds  the  Merger  Consideration  Value (as
                    defined in the Merger Agreement) of the Merger Consideration
                    (including  any  Merger  Consideration  placed  into  escrow
                    pursuant  to the  Merger  Agreement  and any  portion of the
                    Contingent   Merger   Payment  (as  defined  in  the  Merger
                    Agreement)  allocated to such Major  Shareholder) which such
                    Major   Shareholder  is  entitled  to  receive  pursuant  to
                    Schedule  2.01(a) of the Merger  Agreement  (the  "Scheduled
                    Merger Consideration.")

                    iv. the amounts  described as being  liabilities of Zapco in
                    Section 10(a) hereof;

                    v. the  amounts described  as being  liabilities of Zapco in
                    Section 10(b) hereof provided that the  sum of  the Damages
                    arising under Sections 3(a)(iv) and 3(a)(v) hereof shall  be
                    reduced  by  the "Ordinary Course Working Capital  Surplus".
                    For purposes of this Agreement the "Ordinary Course  Working
                    Capital Surplus" shall  mean the  amount  by which  Ordinary
                    Course  Working Capital  (as defined in the Merger Agreement
                    but  without treating  Transfer Taxes as allowable  payables
                    for purposes of calculating Ordinary Course Working Capital)
                    is a  greater  number  than  negative  $1,200,000.00
                    (-$1,200,000).  In  the  event  the Ordinary  Course Working
                    Capital Surplus exceeds the sum of the Damages arising under
                    Sections  3(a)(iv) and 3(a)(v)  hereof,  then no party shall
                    have any  liability to any other party under such  sections.
                    For  example  if  Damages arising  from Section 3(a)(iv) and
                    3(a)(v) were $600,000.00 and Ordinary Course Working Capital

                                       4

<PAGE>

                    (without  accounting  for  Transfer Taxes)  was negative
                    $700,000.00 (-$700,000.00) then  the  Major  Shareholder's
                    indemnity obligation under 3(a)(iv)  and 3(a)(v) would equal
                    $100,000.00   ($600,000.00   -  $500,000.00).

                    vi.  all  claims,  actions,  suits,  proceedings,   demands,
                    assessments,   judgments,   costs  and  expenses  ("Claims")
                    relating to the manner in which the Merger  Consideration is
                    allocated among Zapco's stockholders;

                    vii.   all Claims incident to any of the foregoing;

                    viii.  any breach by ZAPCO of, or failure by ZAPCO to comply
                    with,  any of its covenants or  obligations  under the YESCO
                    Agreement and the other agreements (collectively, the "YESCO
                    Documents")  executed and delivered in  connection  with the
                    YESCO  Transaction and any breach by ZAPCO of, or failure by
                    ZAPCO to comply with,  any of its  covenants or  obligations
                    under  the YESCO  Documents  and any  liability  of ZAPCO in
                    connection  with the YESCO  Transaction in each case only to
                    the extent it arises or accrues before the Effective Time;

                    ix.  any  breach by ZAPCO of, or  failure by ZAPCO to comply
                    with,  any of its  covenants  or  obligations  under the AJG
                    Agreement and the other agreements  (collectively,  the "AJG
                    Documents")  executed and delivered in  connection  with the
                    AJG Genco Transaction, any breach by ZAPCO of, or failure by
                    ZAPCO to comply with,  any of its  covenants or  obligations
                    under the AJG Genco  Documents and any liability of ZAPCO in
                    connection with the AJG Genco  Transaction in each case only
                    to the  extent it arises or  accrues  before  the  Effective
                    Time;

                    x. any  breach by ZAPCO of,  or  failure  by ZAPCO to comply
                    with,  any  of  its  covenants  or  obligations   under  the
                    agreements   (collectively,   the  "AJG  Gasco   Documents")
                    executed  and  delivered  in  connection  with the AJG Gasco
                    Transaction,  any breach by ZAPCO of, or failure by ZAPCO to
                    comply with, any of its covenants or  obligations  under the
                    AJG Gasco Documents and any liability of ZAPCO in connection
                    with the AJG  Gasco  Transaction  in each  case  only to the
                    extent it arises or accrues before the Effective Time; and

                    xi.  any  breach by ZAPCO of, or  failure by ZAPCO to comply
                    with, any of its covenants or obligations  under the Cinergy
                    Gasco Purchase and Sale  Agreement and the other  agreements
                    (collectively,  with the  Cinergy  Gasco  Purchase  and Sale
                    Agreement,  the  "Cinergy  Gasco  Documents")  executed  and
                    delivered in connection with the  transactions  contemplated
                    by the  Cinergy  Gasco  Purchase  and  Sale  Agreement  (the
                    "Cinergy  Gasco  Transaction"),  any  breach by ZAPCO of, or
                    failure by ZAPCO to comply  with,  any of its  covenants  or

                                       5
<PAGE>

                    obligations  under  the  Cinergy  Gasco  Documents  and  any
                    liability  of ZAPCO in  connection  with the  Cinergy  Gasco
                    Transaction  in each  case  only to the  extent it arises or
                    accrues before the Effective Time.

              (b)  Each  of  the  Beneficiaries   hereby   unconditionally   and
irrevocably,  subject to Section 4, agrees to indemnify, save and keep the ZAPCO
Indemnitees  harmless at all times after the Closing  Date  against and from all
Damages sustained or incurred by any ZAPCO Indemnitee as a result of, or arising
out of, by virtue of, or in connection with:

                    i.     any inaccuracy in or breach of any representation and
                    warranty made  by  the Beneficiaries  in  the  Transaction
                    Documents;

                    ii.  any breach by the  Beneficiaries  of, or failure by the
                    Beneficiaries  to comply  with,  any of their  covenants  or
                    obligations under the Transaction Documents; and

                    iii.  all  claims,  actions,  suits,  proceedings,  demands,
                    assessments,  judgments,  costs and expenses incident to any
                    of the foregoing.

              (c) The respective  obligations of the Major  Shareholders and the
Beneficiaries, under Sections 3(a) and 3(b) hereof are referred to herein as the
"Obligations."

              4. (a) The Purchaser  Indemnitees shall not be entitled to recover
under Section 3(a):

                    i.  unless a Notice of Claim (as  defined  herein)  has been
         delivered to the Major  Shareholders,  on or prior to the date which is
         eighteen  months after the Closing Date provided  that  notwithstanding
         anything  to the  contrary  in this  Section  4(a)(i)  Notices of Claim
         arising from or relating to breaches of Section 3.10,  3.17 and 3.20 of
         the Merger Agreement may be delivered prior to the sixth anniversary of
         the Closing Date;

                    ii. for  Damages  to the extent  such  Damages  (other  than
              pursuant to 3(a)(iii)  and 3(a)(vi) do not exceed  $500,000 in the
              aggregate;

                    iii.  from  any  Major  Shareholder  more  than  the  Merger
         Consideration   Value   of   such   Shareholder's    Scheduled   Merger
         Consideration;

                    iv. for Damages to the extent such  Damages  were  expressly
         included in the Post-Closing  Adjustment  Amount as provided in Section
         2.5 of the Merger Agreement; and

                    v. with respect to lost profits or punitive  damages  (other
         than punitive damages paid or payable to, or claimed by third parties).

                                       6

<PAGE>

                    vi.  from any  Major  Shareholder  more  than the  aggregate
         amount of the Damages multiplied by a fraction,  the numerator of which
         is the Merger Consideration Value of such Major Shareholder's Scheduled
         Merger  Consideration  and  the  denominator  of  which  is the  Merger
         Consideration Value of all of the Major Shareholders'  Scheduled Merger
         Consideration;  provided  however  that to the  extent  that any  Major
         Shareholder  does not,  within thirty days following the  determination
         that any  Damages  are due,  whether  by the Major  Shareholder  Agent,
         pursuant to Section 4(c) or otherwise,  pay to any Purchaser Indemnitee
         all of the Damages such Major  Shareholder  is  obligated to pay,  such
         Purchaser  Indemnitee  may require either AJG or Bernard Zahren or both
         jointly to pay such amount to the extent such payment would not require
         either AJG or Bernard  Zahren to pay any amount,  under this  Agreement
         which  would  be more  than  the  Merger  Consideration  Value of their
         Scheduled Merger Consideration.

The ZAPCO Indemnitees shall not be entitled to recover under Section 3(b):

                    i.  unless a Notice of Claim (as  defined  herein)  has been
         delivered  to the  Beneficiaries,  on or  prior  to the  date  which is
         eighteen  months  after the Closing  Date except that  Notices of Claim
         arising  from or relating to the  breaches of Sections  4.09,  4.15 and
         4.18 of the  Merger  Agreement  may be  delivered  prior  to the  sixth
         anniversary of the Closing Date;

                    ii.    for  Damages to the extent such Damages do not exceed
         $500,000 in the aggregate;

                    iii. to the extent the aggregate claims actually paid by the
         Beneficiaries to the ZAPCO Indemnitees  thereunder exceeds  $13,000,000
         and the Merger  Consideration  Value  (other  than the  aggregate  Cash
         Payment  (as  defined  in the Merger  Agreement))  which all of ZAPCO's
         stockholders are entitled to receive pursuant to Schedule 2.01 (a);

                    iv. with respect to lost profits or punitive  damages (other
         than punitive damages paid or payable to, or claimed by third parties);
         and

                    v.     unless  the claim is brought by the Major Shareholder
         Agent.

                     (b)   The payment of  any Damages  to which  the  Purchaser
Indemnitees  are  entitled pursuant  to Section 3(a) of  this  Indemnification
Agreement shall first be satisfied by, on a  proportionate basis, (I) disbursing
cash  (including  any  investments  made  pursuant to  Section 2 of the  Escrow
Agreement), USE Shares (valued in  accordance with  the definition  of  Merger
Consideration Value)and any other assets held in the Indemnification Escrow Fund
(as defined in the Escrow  Agreement) held in such Fund pursuant to the terms of
Section 3(c) of the  Escrow  Agreement,  to  the extent available, until  the
Indemnification  Escrow Fund has  been reduced to  zero (with all amounts  being
released from the Indemnification Escrow being deemed to have been furnished  by
each  Major  Shareholder in proportion to the ratio of the Merger Consideration
Value  of  such  Shareholder's  Scheduled Merger Consideration  to  the  Merger
Consideration Value  of  all  of  the Major Shareholders' Scheduled  Merger

                                       7
<PAGE>

Consideration)  and (II)  reducing the amount of the  Contingent Merger Payment,
until  such  Contingent  Merger  Payment  has  been reduced  to zero; thereafter
the  payment  of  such  Damages  shall  be  satisfied  by the Major Shareholders
on a several basis in the case of each Major Shareholder  directly, in the  case
of cash, by wire  transfer in  immediately available  funds to such bank account
or accounts as  Purchaser  Indemnitees  shall designate by written notice to the
Major Shareholders and, in the case of USE  Shares,  to the Purchaser Indemnitee
at such address as the Purchaser Indemnitee  shall designate  by written notice.
The payment  of  Damages to which the  Purchaser  Indemnities are  entitled  to
receive from  any Major Shareholder  pursuant to this Indemnification Agreement
once the Indemnification Escrow Fund and the Contingent Merger Payment have been
reduced  to zero  shall be made such that  50.5% of the value of such payment
shall be made in USE  Shares valued  in accordance with  the  definition  of USE
Shares set  forth in Section 1 hereof, and 49.5% of the  value  of  such payment
shall  be  made  in  cash;  provided,   however  that  such  indemnifying  Major
Shareholder may, at his option, pay such Damages solely in cash.

              The  payment  of any  Damages to which the ZAPCO  Indemnitees  are
entitled  pursuant to this  Indemnification  Agreement shall be satisfied by the
Beneficiaries by the delivery of cash or, at the  Beneficiaries'  option, by the
delivery of USE Shares,  valued in accordance  with the definition of USE Shares
set  forth in  Section  1  hereof,  to such  account  or  accounts  as the Major
Shareholder  Agent  shall  designate  by  written  notice to the  Beneficiaries;
provided  however,  that USE shall not be required to distribute  such shares if
such distribution would violate the securities laws (in which case USE shall use
its best  reasonable  efforts so that a  distribution  may be made  without  the
violation of any such securities laws and the ZAPCO  Indemnitees shall cooperate
in such efforts and if despite such efforts and  cooperation  USE is not able to
make such  distribution  within 90 days,  USE shall  satisfy the payment of such
Damages by the delivery of cash; and provided  further  however,  that USE shall
provide registration rights for such shares analogous to the registration rights
provided pursuant to Articles 1 and 2 of the Registration Rights Agreement dated
as of the date hereof  between USE and certain other parties  relating to shares
of USE issued in connection with the Merger Agreement.

                    (c) The parties  hereto  agree that the  provisions  of this
Section 4 will govern any claims for indemnification  under this Indemnification
Agreement.  If and when a  Purchaser  Indemnitee  desires  to assert a claim for
Damages  against  the Major  Shareholders  pursuant  to the  provisions  of this
Indemnification  Agreement,  or a ZAPCO Indemnitee desires to assert a claim for
Damages   against  the   Beneficiaries   pursuant  to  the  provisions  of  this
Indemnification  Agreement,  the Purchaser  Indemnitee or the Major  Shareholder
Agent, acting on behalf of the ZAPCO Indemnitee,  shall deliver to (i) the Major
Shareholders and the Major  Shareholder  Agent or (ii) the  Beneficiaries as the
case may be (the "Indemnifying  Party") reasonably promptly after its receipt of
a  claim  or  specific  and  affirmative  awareness  of  a  potential  claim,  a
certificate  signed by the Indemnitee  (the "Notice of Claim"):  (i) stating the
amount of Damages (to the extent then known); and, (ii) specifying to the extent
possible (A) the individual  items of Damages  included in the amount so stated,
(B) the date  each  such item is to be paid or  accrued  and (C) the basis  upon
which Damages are claimed.  The Major Shareholder Agent, acting on behalf of the
Major  Shareholders,  and the  Beneficiaries  shall proceed,  in good faith, and
using  reasonable  efforts,  to agree  upon the amount of such  Damages.  If the
Indemnifying  Party (with the Major  Shareholder  Agent  acting on behalf of the
Major  Shareholders if the Major  Shareholders are the Indemnifying  Party) does

                                       8

<PAGE>

not notify the  Indemnitee  within thirty (30) days of the giving of such Notice
of Claim that the Indemnifying Party) disputes such Damages,  the amount of such
Damages  shall be  conclusively  deemed a liability  of the  Indemnifying  Party
hereunder.  If the Major  Shareholder  Agent and the Beneficiaries are unable to
agree on the amount of such  Damages  within  thirty (30) days after  giving the
Notice of Claim then the provisions of Section 4(d) shall become effective.

                  Notwithstanding  the foregoing  paragraph,  the parties hereto
agree  that if CES or USE  ("Sub  Shareholder")  has a good  faith  belief  that
Purchaser  Indemnitee  has the  basis  to  submit a Notice  of  Claim,  such Sub
Shareholder shall not submit a Notice of Claim on its own behalf but may deliver
to the Major Shareholder Agent a notice (the "Sub Shareholder Notice") detailing
the basis and  providing the  information  that would be included in a Notice of
Claim.  If  such  Purchaser  Indemnitee  does  not  both  (I)  notify  such  Sub
Shareholder within thirty (30) days of the giving of such Sub Shareholder Notice
that such Purchaser  Indemnitee shall submit a Notice of Claim and prosecute its
rights under this Section 4(c) and (II) submit such Notice of Claim within forty
five  (45)  days of the  giving of such Sub  Shareholder  Notice,  then such Sub
Shareholder shall be entitled,  acting for itself and as agent for the other Sub
Shareholder,  and for the benefit of both Sub Shareholders,  to deliver a Notice
of Claim to the Indemnifying  Party reasonably  promptly  thereafter.  The Major
Shareholder  Agent,  acting on behalf  of the Major  Shareholders,  and such Sub
Shareholder shall proceed, in good faith, and using reasonable efforts, to agree
upon the  amount of such  Damages.  If the  Indemnifying  Party  (with the Major
Shareholder  Agent acting on behalf of the Major  Shareholders)  does not notify
such Sub  Shareholder  within  thirty  (30) days of the giving of such Notice of
Claim that the  Indemnifying  Party  disputes such  Damages,  the amount of such
Damages  shall be  conclusively  deemed a liability  of the  Indemnifying  Party
hereunder. If the Major Shareholder Agent and such Sub Shareholder are unable to
agree on the amount of such  Damages  within  thirty (30) days after  giving the
Notice of Claim then the  provisions  of Section  4(d) shall  become  effective,
provided, however that such Sub Shareholder shall be entitled, acting on its own
behalf and on behalf of the other Sub  Shareholder,  to take any action that any
Purchaser  Indemnitee would be entitled to take thereunder.  All amounts payable
by the  Indemnifying  Party to USE,  CES  and/or  the Sub shall be paid  without
duplication  to USE  54.3%  and  CES  45.7%,  provided,  however,  that  the Sub
Shareholder shall be entitled to reimbursement by the Indemnifying  Party of its
reasonable  expenses  respecting  the  prosecution  of the matters raised in the
Notice of Claim if it is determined that the Purchaser Indemnitee is entitled to
indemnification. If it is ultimately determined that the Purchaser Indemnitee is
not entitled to indemnification for a claim prosecuted by a Sub Shareholder then
USE shall be responsible for 54.3% of the expenses respecting the prosecution of
the matters raised in the Notice of Claim and CES shall be responsible for 45.7%
of the expenses  respecting the  prosecution of the matters raised in the Notice
of Claim.  The Sub  Shareholders  shall  make  such  adjusting  payments  as are
necessary to accord with the foregoing sentence.

                    (d) Each and every  controversy  or claim  arising out of or
relating  to  indemnification  for  Damages  pursuant  to  Section  4(c) of this
Indemnification  Agreement which the Indemnifying  Party and the Indemnitee (the
"Parties")  have not resolved,  shall be resolved by  arbitration  in accordance
with the rules of the American  Arbitration  Association  ("AAA") as modified by

                                       9

<PAGE>

this Agreement. Each party shall select one arbitrator and the two such selected
arbitrators  shall select a third  arbitrator (who shall not be appointed by the
Parties)  selected  from  the AAA.  Judgment  upon the  award  rendered  in such
arbitration  shall be final and  binding  upon the Parties and may be entered in
any court  having  jurisdiction  thereof.  Notice of the demand for  arbitration
shall be filed in writing  with the other  party and with the office of the AAA,
located in  Manhattan,  New York,  which such demand shall set forth in the same
degree of  particularity  as required for complaints  under the Federal Rules of
Civil  Procedure the claims to be submitted to  arbitration.  Additionally,  the
demand for  arbitration  shall  include  appropriate  copies of all documents on
which  the  claims  are based and a list of all  persons  who the party  seeking
arbitration will call as witnesses with respect to such claims.  The arbitration
shall take place in  Manhattan,  New York.  This  agreement to arbitrate  may be
specifically enforced by a court of competent  jurisdiction under the applicable
law of the State of New York pertaining to arbitrations.

              The arbitrator  shall have the authority and jurisdiction to enter
any  pre-arbitration  awards  that  would  aid and  assist  the  conduct  of the
arbitration or preserve the Parties'  rights with respect to the  arbitration as
the  arbitrator  shall  deem  appropriate  in his  discretion.  The award of the
arbitrator  shall be in  writing  and it shall  specify  in  detail  the  issues
submitted to arbitration and the award of the arbitrator with respect to each of
the issues so submitted.

              The provisions of the Federal Rules of Civil Procedure relating to
the right of discovery in civil actions shall be applicable to such  arbitration
proceedings except as modified by the terms of this  Indemnification  Agreement.
Within thirty (30) days after the  commencement  of any  arbitration  proceeding
under this Indemnification  Agreement, each party shall file with the arbitrator
its contemplated  discovery plan outlining the desired documents to be produced,
the  depositions  to be taken  and any  other  discovery  action  sought  in the
arbitration  proceeding.  After a hearing,  the  arbitrator  in an interim award
shall fix the scope and content of each Party's discovery plan as the arbitrator
deems appropriate.  The arbitrator shall have the authority to modify,  amend or
change  such  interim  award  fixing the  discovery  plans of the  Parties  upon
application by either Party, if good cause appears for doing so.

                    The "Prevailing Party" as determined by the arbitrator shall
be entitled to recover from the losing  party  reasonable  expenses,  attorneys'
fees and costs  incurred  in  connection  therewith  and in the  enforcement  or
collection of any judgment or award rendered  therein.  The  "Prevailing  Party"
means the Party determined by the arbitrator to have most nearly prevailed, even
if such Party  does not  prevail  in all  matters,  or is not the Party in whose
favor an award is rendered. Included within the cost recoverable pursuant to the
terms of this Section 4(d) shall be included  service of process  costs,  filing
fees,   arbitration   fees,   arbitrators'   fees,  court  and  reporter  costs,
investigative  costs,  and  expert  witness  fees.  The award  pursuant  to such
arbitration will be final, binding and conclusive.

              5.  The  liability  of  each   Indemnifying   Party  hereunder  is
independent of any agreements to indemnify the Indemnitees  whether  executed by
the parties hereto, any other indemnifying person or by any other party, and the
liability of the parties  hereunder shall not be affected or impaired by (a) any
direction as to application of payment by USE, ZAPCO, the Surviving  Corporation
or any  Indemnifying  Party,  (b)  any  other  continuing  or  other  indemnity,
undertaking of a party hereto or of any other indemnifying person or other party

                                       10
<PAGE>

as to the  Obligations,  (c) any  payment on or in  reduction  of any such other
indemnity  or  undertaking,  or (d) any  dissolution,  termination  or increase,
decrease or change in personnel by USE, ZAPCO, the Surviving  Corporation or any
Indemnifying Party.

              6. The obligations of each party hereto  hereunder are independent
of the obligations of any other party hereto,  or  indemnifying  person or other
party of any of the Obligations, and a separate action or actions may be brought
and prosecuted against any party hereto, subject to Section 4(a), whether or not
action is brought  against any other party  hereto,  or  indemnifying  person or
other party of, or with respect to, any of the  Obligations,  and whether or not
any other party hereto or indemnifying person or other party of, or with respect
to,  any of the  Obligations,  be  joined  in any such  action  or  actions.  No
Indemnifying  Party  shall be  entitled  to  require  that any action be brought
against any other Person  before  action is brought  against it hereunder by the
Indemnitee.  Subject to Section 4(a) hereof,  each party hereto  waives,  to the
fullest  extent  permitted  by law,  the benefit of any  statute of  limitations
affecting its liability  hereunder or the  enforcement  thereof.  Any payment by
USE,  ZAPCO,  the Surviving  Corporation  or any  Indemnifying  Party,  or other
circumstance which operates to toll any statute of limitations as to USE, ZAPCO,
the Surviving  Corporation or any  Indemnifying  Party shall operate to toll the
statute of limitations as to each Indemnifying Party.

              7. No invalidity,  irregularity or  unenforceability of all or any
part of the Obligations or of any security therefor shall affect, impair or be a
defense to this  Agreement,  and  (except  to the  extent,  if any,  as shall be
required by  applicable  statute and cannot be waived) this  Agreement  shall be
primary, absolute and unconditional  notwithstanding the occurrence of any event
or the existence of any other  circumstances  which might  constitute a legal or
equitable  discharge of an  indemnifying  person  except  payment in full of the
Obligations.  No provision of this  Agreement  shall be deemed to be a waiver by
any party hereto of its right to assert that its  Obligations  have been paid in
full.

              8. Each  Indemnifying  Party waives any right  (except as shall be
required  by  applicable  statute or law and  cannot be  waived) to require  the
Indemnitees to: (i) proceed against ZAPCO, any party hereto, indemnifying person
or other person of, or with respect to, any of the  Obligations or; (ii) proceed
against  or  exhaust  any  security   held  from  ZAPCO  or  any  party  hereto,
indemnifying  person of, or with  respect to, any of the  Obligations;  or (iii)
pursue any other remedy in any Indemnitee's power whatsoever.  Each Indemnifying
Party waives (to the fullest  extent  permitted by  applicable  law) any defense
based on or arising out of any defense of ZAPCO, any party hereto,  indemnifying
person of, or with respect to, any of the Obligations other than payment in full
of the  Obligations,  including,  without  limitation,  any defense  based on or
arising out of the disability of ZAPCO,  any party hereto,  indemnifying  person
of, or with respect to, any of the Obligations,  or the  unenforceability of the
Obligations or any part thereof from any cause,  or the cessation from any cause
of the  liability of ZAPCO other than payment in full of the  Obligations.  Each
party waives any defense  arising out of any such  election by the  Indemnitees,
even  though  such  election  operates  to  impair  or  extinguish  any right of
reimbursement  or  subrogation  or other  right or remedy  of any  party  hereto
against ZAPCO or any party or any security.

                                       11
<PAGE>

              9. In order to induce  the  Beneficiaries  and ZAPCO to enter into
and consummate the transactions contemplated by the Merger Agreement, each party
hereto represents, warrants and covenants that:

                    (a) no  consent  of any  other  Person  and  no  consent  or
authorization of, filing with or other act by or in respect of, any Governmental
Entity or any  other  Person  is  required  in  connection  with the  execution,
delivery or performance  by such party,  or the validity or  enforceability  of,
this Agreement, except for consents, authorizations,  filings or acts which have
been made or obtained, as the case may be, and are in full force and effect; and

                    (b) the execution, delivery and performance by such party of
this  Indemnification  Agreement  will not (i) violate any law,  statute,  rule,
regulation  or  ordinance or any order,  writ,  junction or decree of any court,
Governmental  Entity or  arbitration  board or tribunal,  or (ii) conflict or be
inconsistent  with or result in any  breach  of,  any of the  terms,  covenants,
conditions  or  provisions  of, or  constitute a default  under,  or (other than
pursuant to the Transaction  Documents)  result in the creation or imposition of
(or the  obligation  to create or impose)  any lien upon any of the  property or
assets of such party pursuant to the terms of any indenture,  mortgage,  deed of
trust,  loan agreement,  credit  agreement or other material  agreement or other
instrument  to which such party is a party or by which it or any of its property
or assets is bound or to which it may be subject.

              10. (a) ZAPCO  shall be liable for any stock  transfer  or similar
taxes ("Transfer  Taxes") arising from or relating to the AJG Gasco  Transaction
and  those  aspects  of the  AJG  Genco  Transaction  that  are  required  to be
consummated prior to the Effective Time pursuant to the AJG Agreement;  provided
that any  amounts  paid by ZAPCO for such  Transfer  Taxes shall be deemed to be
allowable  payable for purposes of the  definition  of Ordinary  Course  Working
Capital in the Merger Agreement.

                    (b)  Cinergy  Gasco  Solutions,  LLC and ZAPCO shall each be
liable for 50% of the  Transfer  Taxes  arising  from or relating to the Cinergy
Gasco Transaction.

              11.  Nothing  contained in this  Indemnification  Agreement  shall
limit the ability of the  Indemnitees to pursue Damages or such other  remedies,
at law or in equity, resulting from fraud or intentional misrepresentation.

              12.  (a) All  representations  and  warranties  set  forth in this
Indemnification  Agreement  shall  survive the Closing for a period of six years
following  the  Effective  Time (and none  shall  merge into any  instrument  of
conveyance)  regardless of any  investigation  or lack of  investigation  by the
parties  hereto  provided  that this sentence is not intended to extend the time
limits  respecting  the  delivery of Notices of Claims set forth in Section 4(a)
hereof.  No specific  representation  and warranty shall limit the generality or
applicability of a more general  representation and warranty. The failure in any
one or more instances of a party to insist upon performance of any of the terms,
covenants or conditions of this Indemnification Agreement, to exercise any right
or privilege conferred in this Indemnification  Agreement, or the waiver by said
party  of any  breach  of any of the  terms,  covenants  or  conditions  of this

                                       12
<PAGE>

Indemnification  Agreement, shall not be construed as a subsequent waiver of any
such  terms,  covenants,  conditions,  right or  privileges,  but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.

                    (b) This Indemnification  Agreement sets forth the exclusive
remedies of the Indemnitees  against the Indemnifying  Parties,  absent fraud or
intentional  misrepresentation,  with respect to the matters expressly set forth
in Section 3 hereof.

              13. This  Indemnification  Agreement shall inure to the benefit of
and be binding  upon the parties  hereto,  and their  successors  and  permitted
assigns.  Nothing in this  Indemnification  Agreement,  express or  implied,  is
intended  to confer on any  person  other  than the  parties  hereto,  and their
respective successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Indemnification Agreement.

              14. This Indemnification  Agreement shall not be assignable by the
parties  without the prior  written  consent of the other  parties,  except that
after the Closing,  subject to compliance with all applicable  securities  laws,
each Major  Shareholder  and  Beneficiary  may assign its respective  rights and
delegate its respective obligations under this Indemnification  Agreement to any
third  party  which  assumes  all  of  the  assigning   Beneficiary's  or  Major
Shareholder's  obligations  hereunder  provided,  however,  that such  assigning
Beneficiary or Major  Shareholder shall remain liable for all of its obligations
hereunder.

              15.  This  Indemnification  Agreement  may be executed in multiple
counterparts,  each of which  shall be  deemed to be an  original,  and all such
counterparts shall constitute but one instrument.

              16. The parties shall execute such further documents,  and perform
such further  acts,  as may be  necessary to otherwise  comply with the terms of
this Indemnification  Agreement,  the Merger Agreement and the other Transaction
Documents and consummate the transactions contemplated thereby. In addition, the
Purchaser  Indemnitees  shall,  and shall cause the  Surviving  Corporation  to,
cooperate with the Major  Shareholders in connection with all claims giving rise
to any claim for indemnification hereunder. In furtherance of the foregoing, the
Purchaser  Indemnitees  shall and shall cause the Surviving  Corporation (at the
expense of the Major  Shareholders) to make available to the Major Shareholders,
and permit the Major Shareholders to make copies of all records,  data and other
materials and otherwise to cooperate in all respects  with the  prosecution  and
defense of all such claims.

              17.  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  Shareholder  Agent  (acting  on  behalf  of  the  Major
Shareholders), CES and the Beneficiaries.

                                       13

<PAGE>

              18.  Each Major  Shareholder  acknowledges  that an  executed  (or
conformed) copy of each Transaction  Document has been made available to him and
he is familiar with the contents thereof.

              19.  Any notice or  request  hereunder  may be given to each Major
Shareholder  at its  address  (including  telecopy  number)  set forth under its
signature below or to Beneficiaries at:

If to USE:

                           U.S. Energy Systems, Inc.
                           One North Lexington Avenue, 4th Floor
                           White Plains, New York 10601
                           Facsimile No.: 561-820-9775
                           Attention: Goran Mornhed, President and Chief
                                      Operating Officer

with a copy to:

                           Robinson Brog Leinwand Greene Genovese & Gluck P.C.
                           1345 Avenue of the Americas
                           New York, New York 10105
                           Facsimile No.: 212-956-2164
                           Attention: Allen J. Rothman, Esq.

If to ZAPCO:

                           Zahren Alternative Power Corporation
                           40 Tower Lane
                           Avon, CT 06001
                           Facsimile No.: 860-677-6054
                           Attention: Bernard J. Zahren, President

with a copy to:

                           Shipman & Goodwin LLP
                           One American Row
                           Hartford, CT 06103-2819
                           Facsimile No.: 860-251-5999
                           Attention:  John H. Lawrence, Esq.
                            Marcus D. Wilkinson, Esq.

                           and

                                       14
<PAGE>

                           Tannenbaum Helpern Syracuse & Hirschtritt LLP
                           900 Third Avenue
                           New York, New York 10022
                           Facsimile No.: 212-836-0773
                           Attention: Stephen Rosenberg, Esq.

If to Major Shareholder Agent:

                           A. J. G. Financial Services Co., Inc.
                           c/o Arthur J. Gallagher & Co.
                           Gallagher Centre
                           2 Pierce Place
                           Itasca, Illinois
                           Facsmile:  630-285-3473
                           Attention:  Vice President and General Counsel

with a copy to:     to be supplied

                                    If to CES:

                           c/o Cinergy Solutions, Inc.
                           1000 East Main Street
                           Plainfield, IN 46168
                           Attention: M. Stephen Harkness, President and COO
                           Facsimile: 317-838-2090

with a copy to:

                           Cinergy Corp.
                           221 East Fourth Street
                           Cincinnati, Ohio  45201
                           Attention: Jerome Vennemann, Esq.
                           Facsimile: 513-287-1363

or, at such other address as may  hereafter be specified in a notice  designated
as a notice of change of  address  under  this  Section.  Any  notice or request
hereunder  shall be given by reputable  overnight  courier.  Any notice or other
communication  required or permitted  pursuant to this Agreement shall be deemed
given upon actual receipt thereof when sent by a recognized  overnight  delivery
service.

              20.  Subject to  Section  4(d)  hereof,  this  Agreement  shall be
governed by and construed in  accordance  with the laws of the State of New York
applied  to  contracts  to be  performed  wholly  within  the State of New York,
without  giving  effect to the  principles  of  conflicts  of law.  Any judicial
proceeding brought by or against any party hereto with respect to this Agreement
or any related agreement may be brought in the Supreme Court of the State of New

                                       15
<PAGE>

York located in the County of New York or in the United  States  District  Court
for the  Southern  District of New York and, by  execution  and delivery of this
Agreement,  each party accepts, for itself or himself and in connection with its
or his properties, generally and unconditionally, the non-exclusive jurisdiction
of the  aforesaid  courts,  and  irrevocably  agrees to be bound by any judgment
rendered  thereby in connection  with this  Agreement.  Each party hereto hereby
waives personal  service of any and all process upon it or him and consents that
all such  service of process  may be made by  registered  mail  (return  receipt
requested)  directed to such party at the address set forth  pursuant to Section
18 hereto and service so made shall be deemed  completed five (5) days after the
same shall have been so deposited in the mails of the United  States of America.
Nothing  herein shall affect the right to serve process in any manner  permitted
by law or shall  limit the right of any party to bring  proceedings  against any
other party in the courts of any other  jurisdiction.  The parties  hereto waive
any objection to jurisdiction  and venue of any action  instituted  hereunder in
any court  referred to above and shall not assert any  defense  based on lack of
jurisdiction or venue or based upon forum non conveniens.

              21. All payments made by the Indemnifying  Parties  hereunder will
be made without set off, counterclaim or other defense.

              22. If any part of this  Agreement is contrary to,  prohibited by,
or deemed invalid under applicable laws or regulations,  such provision shall be
inapplicable  and  deemed  omitted  to the  extent so  contrary,  prohibited  or
invalid,  but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.

              23. 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.

              24. 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.

              25.(a)USE,   the  Sub,   Zapco  and  CES  (all  of  the  foregoing
collectively  referred  to as the  "Releasing  Parties")  have agreed to release
Finova Mezzanine  Capital Corp.  ("Finova") from its obligations  hereunder with
respect  to  one  or  more  of  the  transactions  (each,  a  "Transaction"  and
collectively,  the "Transactions")  contemplated by the Yesco Documents, the AJG
Documents, AJG Gasco Documents or the Cinergy Gasco Documents (collectively, the
"Closing  Documents")  if  (i)  Finova  reasonably  gives  written  notice  (the
"Objection Notice") to the Releasing Parties not less than 24 hours prior to the
scheduled  closing of the  applicable  Transaction to the effect that it will be
exposed to liability  materially  greater  than the  liability it was exposed to
under  the  Original  Documents  (as  defined)  by the  changes  to the  Closing
Documents.  The term  "Original  Document"  means  the  latest  form of  Closing
Document  with  respect to such  Transaction  provided  to Finova or its counsel
prior to the execution of this agreement.

                  (b)  By  virtue  of  giving  the  Objection   Notice,   Finova
relinquishes  any and all of its rights to the Contingent  Merger  Consideration
and any and all of its rights under the Registration  Rights  Agreement.  In the

                                       16

<PAGE>

event  of any  conflict  between  the  provisions  of  this  Section  25 and the
provisions of the  Registration  Rights  Agreement and the Merger Agreement with
respect to Finova's rights to Contingent Merger  Consideration  and/or its right
to register USE securities  pursuant to the Registration  Rights Agreement,  the
provisions of this Section 25 shall govern.

                  (c) Zapco  hereby  agrees to provide  Finova  with the Closing
Documents for the  applicable  Transaction  not later than 48 hours prior to the
scheduled closing of such transaction.

                  (d) In the event  the  Objection  Notice  is  given,  then the
denominator  referred to in Section 4(a)(vi) hereof shall,  notwithstanding such
provision,  equal the Merger  Consideration  Value of all the Major Shareholders
Scheduled Merger Consideration other than Finova.

                                       17

<PAGE>

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

                              ZAHREN ALTERNATIVE POWER CORPORATION

                              By:/s/ Bernard J. Zahren
                              ---------------------------------------------
                              Name:  Bernard J. Zahren
                              Title: President and Chief Executive Officer

                                     MAJOR SHAREHOLDERS:

                              AJG Financial Services, Inc.

                              By:  /s/Mark P. Strauch
                                 -------------------------------------
                              Name:   Mark P. Strauch
                                      Title:  Executive Vice President

                                     BERNARD J. ZAHREN

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

                             ENVIRONMENTAL OPPORTUNITIES FUND

                             By:   Keneth Leung
                                -----------------------------
                                       Name:
                                       Title:

                            ENVIRONMENTAL OPPORTUNITIES FUND/CAYMAN

                             By:  Kenneth Leung
                                 ---------------------------
                                       Name:
                                       Title:

                                       18

<PAGE>

                             FINOVA MEZZANINE CAPITAL CORP.

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

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

                                       19

<PAGE>

                            MAJOR SHAREHOLDER AGENT:

                            /s/ John C. Rosengren
                           ---------------------------

                           CES:

                           CINERGY ENERGY SOLUTIONS, INC.

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

                           BENEFICIARIES:

                            U.S. ENERGY SYSTEMS, INC.

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

                            USE ACQUISITION CORP.:

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

                                       20

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00018-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00018-of-00352.parquet"}]]