Document:

WC-[    ]

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK  ISSUABLE  UPON  EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ( THE "ACT"),
AND NEITHER  THIS WARRANT NOR SUCH SHARES MAY BE SOLD,  ENCUMBERED  OR OTHERWISE
TRANSFERRED  EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER SUCH
ACT OR AN EXEMPTION  FROM SUCH  REGISTRATION  REQUIREMENT,  AND, IF AN EXEMPTION
SHALL BE APPLICABLE,  THE  REGISTERED  HOLDER SHALL HAVE DELIVERED AN OPINION OF
COUNSEL  REASONABLY  ACCEPTABLE  TO THE COMPANY  THAT SUCH  REGISTRATION  IS NOT
REQUIRED.

                SERIES C REDEEMABLE COMMON STOCK PURCHASE WARRANT
                                       OF
                            U.S. ENERGY SYSTEMS, INC.

This is to certify  that,  FOR VALUE  RECEIVED,  [ ] or  permitted  assigns,  is
entitled to  purchase,  subject to the  provisions  of this Series C  Redeemable
Common Stock Purchase Warrant (the "Warrant"), from U.S. ENERGY SYSTEMS, INC., a
Delaware  corporation  (the  "Company"),  at an  exercise  price of Six  Dollars
($6.00) per share, [ ] ( ) shares of Common Stock,  par value $.01 per share, of
the Company  (the "Common  Stock") at any time during the period (the  "Exercise
Period") commencing as of [the Effective Date], and ending at 5:00 p.m. New York
City time, [five years after the Effective Date]. The number of shares of Common
Stock to be received  upon the exercise of this Warrant and the price to be paid
for a share of Common Stock may be adjusted from time to time as hereinafter set
forth.  The  shares of Common  Stock  deliverable  upon  such  exercise,  and as
adjusted from time to time, are  hereinafter  sometimes  referred to as "Warrant
Shares,"  and the  exercise  price for the  purchase of a share of Common  Stock
pursuant to this Warrant in effect at any time and as adjusted from time to time
is hereby referred to as the "Exercise Price". This Warrant is one of the Series
C Redeemable  Common Stock Warrants  issued pursuant to an Agreement and Plan of
Merger  dated as of  November  28,  2000 by and  among  the  Company,  USE Zapco
Aquisition Corporation and Zahren Alternative Power Corporation.

                  1. EXERCISE OF WARRANT.  Except as otherwise  provided herein,
this  Warrant  may be  exercised  in whole at any time,  or in part from time to
time,  during the Exercise  Period by presentation  and surrender  hereof to the
Company at its principal  office,  or at the office of its stock transfer agent,
if any, with the Purchase Form annexed  hereto as Exhibit A duly executed and by
paying in full, in lawful money of the United States,  in cash,  certified check
or bank draft payable to the order of the Company,  the Exercise  Price for each
full share of Common Stock as to which the Warrant is exercised  and any and all
applicable  taxes  due in  connection  with the  exercise  of the  Warrant,  the
exchange  of the Warrant for the Common  Stock,  and the  issuance of the Common
Stock. If this Warrant should be exercised in part only, the Company shall, upon
surrender  of this Warrant for  cancellation,  execute and deliver a new Warrant

<PAGE>

evidencing the rights of the Registered  Holder (as defined)  hereof to purchase
the balance of the shares purchasable hereunder.  Upon receipt by the Company of
this  Warrant and the  Exercise  Price  therefor at its office,  or by the stock
transfer  agent of the Company at its office,  in proper form for exercise,  the
Registered Holder shall, except as otherwise provided by Section 9(b) herein, be
deemed to be the holder of record of the shares of Common  Stock  issuable  upon
such exercise provided, that if the date of such surrender and payment is a date
when the stock  transfer  books of the Company are closed,  such person shall be
deemed to have  become  the  Registered  Holder  of such  shares at the close of
business on the next succeeding date on which the stock transfer books are open.

                  2. VALID ISSUANCE.  All shares of Common Stock issued upon the
proper  exercise of this  Warrant in  conformity  with the terms hereof shall be
validly issued, fully paid and non-assessable.

                  3. RESERVATION OF COMMON STOCK; LISTING OF SHARES. The Company
hereby agrees that: (a) at all times there shall be reserved for issuance and/or
delivery upon exercise of this Warrant such number of shares of its Common Stock
as shall be required for issuance and delivery  upon  exercise of this  Warrant;
and (b) in the event the shares of the Company's Common Stock are included on an
Exchange (as defined), it shall cause the Warrant Shares to be so listed.

                  4.       FRACTIONAL SHARES.

                           (a) The  Company shall not  be  required to  issue
fractional  shares upon exercise  of this Warrant.  If upon exercise  of  this
Warrant the  Company would  be required to  issue a fractional number of shares,
the Company shall, in lieu thereof,  pay to the Holder an amount  in cash equal
to such fraction  multiplied by the current Market Price Per Share (as defined),
as of the last  business  day prior  to the date of exercise  of this Warrant.

                           (b) As used herein, the term "Market Price Per Share"
on any date shall mean the closing  price per share of the Common  Stock for the
trading  day  immediately preceding  such date. The closing price  for each such
day shall be the last sale price or,  in  case no such sale  takes place on such
day,  the  average of the closing  bid and asked  prices, in  either case on the
principal  securities exchange (including any automated system of quotation) (an
"Exchange") on which the Common Stock is listed or admitted for trading,  or, if
not so listed on an Exchange, the average of the closing bid and asked prices as
furnished by  two members of the National  Association  of  Securities  Dealers,
Inc. selected from time to time by the Company for that purpose. If such bid and
asked prices are not available,  then "Market Price Per Share" shall be the fair
market value of the Company's Common Stock as determined  in good  faith by  the
Board of Directors of the Company.

                  5.  EXCHANGE,  TRANSFER,  ASSIGNMENT OR LOSS OF WARRANT.  This
Warrant  is  exchangeable,  without  expense,  at the  option of the  Registered
Holder,  upon  presentation and surrender hereof to the Company or at the office
of  its  stock  transfer   agent,  if  any,  for  other  warrants  of  different
denominations  entitling  the  Registered  Holder  thereof  to  purchase  in the

<PAGE>

aggregate  the same  number of shares of  Common  Stock  purchasable  hereunder.
Subject to the  provisions of Section 9 of this Warrant,  upon surrender of this
Warrant to the  Company or at the office of its stock  transfer  agent,  if any,
with the  Assignment  Form annexed  hereto as Exhibit A duly  executed and funds
sufficient to pay any transfer tax, the Company shall,  without charge,  execute
and deliver a new Warrant in the name of the assignee  named in such  instrument
of assignment and this Warrant shall  promptly be canceled.  This Warrant may be
divided or  combined  with  other  Warrants  which  carry the same  rights  upon
presentation  hereof at the office of the  Company or at the office of its stock
transfer agent, if any,  together with a written notice specifying the names and
denominations  in  which  new  Warrants  are  to be  issued  and  signed  by the
Registered  Holder  hereof.  The term  "Warrant"  as used  herein  includes  any
Warrants  into which this Warrant may be divided or  exchanged.  Upon receipt by
the  Company  of  evidence  reasonably  satisfactory  to it of the loss,  theft,
destruction  or mutilation of this Warrant,  and (in the case of loss,  theft or
destruction) of reasonably satisfactory indemnification,  and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.

                  6. RIGHTS OF THE HOLDER. The holder of this Warrant shall not,
by virtue of this  Warrant,  be entitled to any rights of a  stockholder  in the
Company,  either at law or equity,  and the rights of the holder are  limited to
those  expressed  in the  Warrant  and are not  enforceable  against the Company
except to the extent set forth herein.

                  7.  ANTIDILUTION  ADJUSTMENT  OF NUMBER OF WARRANT  SHARES AND
EXERCISE PRICE; OTHER RECLASSIFICATIONS, REORGANIZATIONS OR MERGERS.

                           (a)In case  the Company  shall (i) pay  a dividend or
make a  distribution  on its  shares of  Common Stock in shares of Common Stock,
(ii)  split, subdivide or reclassify its outstanding Common Stock into a greater
number of shares or (iii) combine or  reclassify  its  outstanding  Common Stock
into a smaller  number of shares,  then the  number of  Warrant  Shares issuable
upon exercise of this Warrant, and the Exercise Price per share in effect at the
time of the  record date  for such dividend or  distribution or at the effective
date  of  such split, subdivision, combination or reclassification,  shall be
proportionately adjusted  so that if this Warrant is exercised  after such date,
the  Registered  Holder shall  be  entitled  to  receive  for the same aggregate
purchase  price, the aggregate number and kind of shares which,  if this Warrant
had been  exercised immediately prior to such time, such Registered Holder would
have  owned  after giving  effect to  such  dividend or  distribution,  split,
subdivision,  combination or  reclassification.  Such  adjustments shall be made
successively  whenever any event listed in this Section 7 shall occur. All price
calculations  under this  Section 7 shall be made  to the nearest whole cent and
share  adjustments  to the nearest share.

                           (b) If after  the  date hereof  any  capital
reorganization  or reclassification of  the Common  Stock  of  the Company,  or
consolidation or merger of the Company with or into another corporation,  or the
sale of all or substantially all of its assets to another  corporation  or other
similar event  (collectively  referred to as a "Transaction") shall be effected,
then,  as a condition  of such  Transaction, lawful and fair provision  shall be

<PAGE>

made whereby  the  Registered  Holder of this Warrant shall  thereafter have the
right  thereafter by exercising this Warrant, to purchase (in lieu of purchasing
the shares of Common  Stock of the Company immediately  theretofore  purchasable
and receivable upon the exercise of this Warrant), the kind and amount of shares
of stock, securities,  or assets receivable upon such Transaction by a holder of
the number of  shares of  Common Stock  which might  have been  purchased  upon
exercise of this Warrant  immediately prior to such Transaction.  In such event,
appropriate  provision shall be made with  respect to the  rights and  interests
of the  Registered  Holder of this Warrant to the end that the provisions hereof
(including,  without  limitation, provisions  for  adjustments  of the Exercise
Price and of the number of shares purchasable upon the exercise of this Warrant)
shall  thereafter be  applicable, as nearly  as may be, to  any  share of stock,
securities,  or assets  thereafter deliverable  upon the  exercise  hereof.  The
Company  shall not effect any such Transaction unless prior to the consummation
thereof  the  successor corporation (if  other than  the Company) resulting from
such Transaction,  or the corporation purchasing such  assets,  shall assume the
obligations  to  deliver  to  the Registered  Holder of this Warrant such shares
of stock,  securities,  or  assets which, in  accordance with  the  foregoing
provisions,  such holder may be entitled to purchase.

                  8. NOTICES OF CHANGE IN WARRANT.  Upon every adjustment of the
Exercise Price or the number of shares issuable on exercise of this Warrant, the
Company  shall give  written  notice  thereof to the  Registered  Holder of this
Warrant,  which  notice  shall  state the  Exercise  Price  resulting  from such
adjustment  and the  increase  or  decrease,  if any,  in the  number  of shares
purchasable  at such price upon the  exercise  of a  Warrant,  setting  forth in
reasonable  detail  the  method of  calculation  and the facts  upon  which such
calculation is based.  Upon the occurrence of any event  specified in Section 7,
then, in any such event, the Company shall give written notice to the Registered
Holder of this  Warrant  of the  record  date for such  dividend,  distribution,
split, reclassification or recombination,  or the effective date of Transaction.
Such notice  shall also specify the date as of which the holders of Common Stock
of  record   shall   participate   in  such   dividend,   distribution,   split,
reclassification or recombination, or shall be entitled to exchange their Common
Stock for stock,  securities,  or other assets  deliverable  upon a Transaction.
Failure  to give such  notice,  or any  defect  therein,  shall not  affect  the
legality or validity of such event.

                  9.       COMPLIANCE WITH THE SECURITIES ACT OF 1933.

                           (a)      This Warrant or  the Warrant Shares  or any
other security issued or issuable upon exercise of this Warrant may not  be sold
or otherwise disposed of except as follows:

                                    (i)     to a person who, in the opinion of
counsel reasonably acceptable the Company,  is a person to whom this  Warrant or
Warrant  Shares  may  legally be transferred  without   registration and without
the  delivery  of  a  current prospectus  under  the Act with  respect  thereto,
and  against receipt  of an  agreement of  such person  to  comply  with  the
obligations  of the holder of this Warrant which agreement  shall be reasonably
satisfactory in form and substance to the Company; or

<PAGE>

                                    (ii)  to  any  person  upon  delivery  of  a
prospectus then meeting the requirements of the Act relating to such securities
and the offering thereof for such sale or disposition.

                           (b) Notwithstanding anything to the contrary herein,
the  Company  shall  not be  obligated to deliver any securities  issuable  on
exercise  of  this  Warrant unless  the  issuance  of such securities  has  been
registered  under the  Act or, in  the  opinion of counsel to the Company,  the
issuance is exempt from the registration requirements of the Act and applicable
state  securities laws. This  Warrant may not  be  exercised by, nor  may  any
securities be issued to, any Registered  Holder or any other person in any state
in which such exercise would be unlawful.

                  10.      REDEMPTION

                           (a) After the first anniversary date of the Effective
Date, this Warrant may  be redeemed,  at the option of  the Company,  if all the
other outstanding  Series C Redeemable Common Stock  Purchase Warrants are  also
contemporaneously  redeemed, at any time, at  the office of the  Company or  its
stock transfer agent, upon  the notice  referred  to in  Section  10(b),  at the
price of $.001 per  Warrant Share (the "Redemption  Price"),  provided that  the
average of the last reported sales prices of the Common Stock  for  a  period of
twenty (20) consecutive trading  days ending on the  third  trading day prior to
the date on which notice of redemption is  given is at least one hundred twenty-
five  (125%)  percent  of the then effective Exercise Price of the Warrant.

                           (b) In the event the  Company  shall  elect to redeem
all of the outstanding Series C Redeemable Common Stock Purchase Warrants,   the
Company shall fix  a  date for  the redemption.  Notice  of redemption  shall be
mailed by first class mail,  postage prepaid,  by the Company or the  Company's
agent at its direction not less that fifteen  (15)  business  days  prior to the
date  fixed  for  redemption  to the  Registered Holder  of  this Warrant  to be
redeemed at  the  Registered Holder's last  address  as it shall  appear on  the
Warrant  Register  (as  defined).  Any  notice  mailed  in  the manner  herein
provided shall be conclusively presumed to have been duly give  whether  or not
the  Registered  Holder of this  Warrant  shall  have received such notice.

                           (c) This Warrant may be exercised in accordance  with
Section 1 hereof at any time  after notice of  redemption  shall have been given
by the  Company  pursuant to Section  10(b) and  prior to the  close of business
on the  date  fixed  for redemption.  After the redemption date,  the Registered
Holder of this Warrant shall  have no  further rights  except  to receive,  upon
surrender of this Warrant, the Redemption Price.

                  11.      MISCELLANEOUS.

                           (a)      All communications provided for herein shall
be sent, except as may be otherwise specifically provided, by registered or
certified mail: if  to  the Registered Holder of  this Warrant, to  the address
shown on the books of the Company; and if to the Company, to U.S. Energy Systems
, Inc., 515 N.  Flagler Drive, Suite 702,  West Palm  Beach, Florida  33401,
Attention: President, or to  such  other address  as the Company may advise the
Registered Holder  of  this Warrant in writing.  Notices shall  be  deemed given
when mailed.

<PAGE>

                           (b)      The provisions of this Warrant shall in all
respects  be  constructed according to, and the  rights and  liabilities  of the
parties hereto shall in all respects be  governed  by, the laws of the  State of
Delaware,  without  regard to such state's choice of law rules.

                           (c)      The Company shall maintain books ("Warrant
Register") for the  registration of original  issuance and the  registration  of
transfer of the Warrants. Upon the initial issuance of the Warrants, the Company
shall issue and  register  the Warrants in the names of the holders thereof.

                           (d)      Prior to due presentment for registration of
transfer of this Warrant, the Company may deem and treat  the  person  in  whose
name  this  Warrant  shall be registered  upon the Warrant Register ("Registered
Holder"),  as the absolute owner of such Warrant and of each Warrant represented
thereby  (notwithstanding  any  notation of  ownership  or  other writing on the
Warrant  certificate  made by anyone other than the Company,  for the purpose of
any exercise thereof, and for all other  purposes,  and the Company shall not be
affected by any notice to the contrary).

Dated:  [Effective Date]

                                      U.S. ENERGY SYSTEMS, INC.

                                      By:__________________________
                                         Goran Mornhed, President

<PAGE>

                                                                Exhibit A

                                  PURCHASE FORM

                                                            Dated_______ , 20__

         The  undersigned  hereby irrevocably  elects  to exercise  the  within
Warrant  to  the  extent of purchasing shares of Common Stock and hereby  makes
payment of _________ in payment of the actual exercise price thereof.

                     INSTRUCTIONS FOR REGISTRATION OF STOCK

Name___________________________________
         (Please typewrite or print in block letters)

Signature________________________________

                                 ASSIGNMENT FORM

                  FOR VALUE RECEIVED,
hereby sells, assigns and transfer unto

Name___________________________________
    (Please typewrite or print in block letters)

Address_________________________________

Social Security or Employer Identification No.__________
the right to purchase Common Stock  represented by this Warrant to the extent of
_____shares  as to which such right is exercisable  and does hereby  irrevocably
constitute and appoint  ________________  Attorney,  to transfer the same on the
books of the Company with full power of substitution in the premises.

Dated:___________, 20__

Signature_____________

Signature Guaranteed

----------------------------STOCKHOLDERS' AND VOTING AGREEMENT

                                      among

                           U.S. ENERGY SYSTEMS, INC.,

                             certain stockholders of
                           U.S. ENERGY SYSTEMS, INC.,

                              Major Stockholders of
                      ZAHREN ALTERNATIVE POWER CORPORATION

                                       and

                             CINERGY SOLUTIONS, INC.

                          Dated as of November 28, 2000

<PAGE>

                                TABLE OF CONTENTS

                                    ARTICLE I

                                   DEFINITIONS

<TABLE>
<CAPTION>
<S>
                                                                                <C>
         SECTION 1.01.  Certain Defined Terms......................................................................1

                                   ARTICLE II
                   CERTAIN OBLIGATIONS PRIOR TO EFFECTIVE TIME

         SECTION 2.01.  Voting Agreement...........................................................................5
         SECTION 2.02.  No Disposition or Encumbrance of Shares....................................................6
         SECTION 2.03.  No Solicitation of Transactions............................................................7
         SECTION 2.04.  Extraordiary Activities...................................................................7

                                   ARTICLE III
                  CERTAIN OBLIGATIONS AFTER THE EFFECTIVE TIME

         SECTION 3.01.  Election to Board of Directors.............................................................8
         SECTION 3.02.  Redemptions................................................................................9

                                   ARTICLE IV
                            RESTRICTIONS ON TRANSFER

         SECTION 4.01.  General Restriction.......................................................................11
         SECTION 4.02.  Legends...................................................................................11
         SECTION 4.03.  Lock-Up...................................................................................12

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES
                           OF USE AND THE STOCKHOLDERS

         SECTION 5.01.  Authority Relative to This Agreement......................................................12
         SECTION 5.02.  No Conflict...............................................................................13
         SECTION 5.03.  Title to the Shares.......................................................................13
         SECTION 5.04.  Authority of USE Relative to This Agreement...............................................13
         SECTION 5.05.  No USE Conflict...........................................................................13

</TABLE>

<PAGE>
                                   ARTICLE VI
                                  MISCELLANEOUS
<TABLE>
<CAPTION>
<S>
                                                                                <C>
         SECTION 6.01.  Termination...............................................................................14
         SECTION 6.02.  Expenses..................................................................................14
         SECTION 6.03.  Notices...................................................................................14
         SECTION 6.04   Headings..................................................................................16
         SECTION 6.05.  Severability..............................................................................16
         SECTION 6.06.  Entire Agreement..........................................................................16
         SECTION 6.07.  Assignment................................................................................16
         SECTION 6.08.  Amendment.................................................................................16
         SECTION 6.09.  Governing Law.............................................................................17
         SECTION 6.10.  Counterparts..............................................................................17
         SECTION 6.11.  Equitable Relief..........................................................................17
         SECTION 6.12.  Jurisdiction and Service of Process.......................................................17
         SECTION 6.13.  Further Assurances........................................................................17
         SECTION 6.14.  Limitations on Amendments.................................................................17

</TABLE>

<PAGE>

                       STOCKHOLDERS' AND VOTING AGREEMENT

         THIS STOCKHOLDERS' AND VOTING AGREEMENT, is entered into as of November
  28, 2000, among U. S. ENERGY SYSTEMS,  INC., a Delaware  corporation  ("USE"),
  the stockholders of USE who are signatories  hereto (the "USE  Stockholders"),
  Cinergy Solutions,  Inc. ("CSI") and the Major Shareholders (as defined in the
  Merger  Agreement)  of  ZAHREN  ALTERNATIVE  POWER  CORPORATION,   a  Delaware
  corporation  ("Zapco"),  who are signatories hereto (the "Zapco Stockholders",
  and, together with the USE Stockholders and CSI, the "Stockholders").

         WHEREAS, concurrently herewith, USE, Zapco and USE Acquisition Corp., a
  Delaware  corporation  ("Merger Sub"), are entering into an Agreement and Plan
  of Reorganization and Merger (the "Merger Agreement";  capitalized terms being
  used  herein as  defined  therein  unless  otherwise  defined  herein),  which
  provides,  among  other  things,  for Merger Sub to merge with and into Zapco,
  with Zapco as the surviving  corporation  (the "Merger"),  and for outstanding
  shares of Zapco  capital  stock to be  converted  into cash and  shares of USE
  capital stock;

         WHEREAS, as a condition to the willingness of the parties to enter into
  the Merger Agreement,  USE and the Stockholders have agreed to enter into this
  Agreement; and

         WHEREAS, the parties wish to set forth certain arrangements relating to
  the  governance  of USE and the  disposition  of shares of USE stock after the
  Merger;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
  agreements  and covenants  hereinafter  set forth,  the parties  hereto hereby
  agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         SECTION 1.01.  Certain Defined Terms.  As used in  this Agreement,  the
following terms shall have the following meanings:

         "Affiliate"  means,  with respect to any  specified  Person,  any other
  Person  that  directly,  or  indirectly  through  one or more  intermediaries,
  controls or is controlled by, or is under common control with,  such specified
  Person.

         "Agreement" or "this  Agreement"  means this  Stockholders'  and Voting
  Agreement, and all amendments hereto made in accordance with the provisions of
  Section 6.08.

         "Beneficial  owner" or  "Beneficially  own" has the meaning  given such
  term in Rule 13d-3 under the Exchange Act.

                                       1
<PAGE>

         "Board" means the Board of Directors of USE.

         "Business Day" means any day that is not a Saturday,  a Sunday or other
  day on which banks are required or authorized by law to be closed in New York,
  New York.

         "By-Laws" means USE's By-laws, as in effect from time to time.

         "Capital Stock" means,  with respect to any Person at any time, any and
  all  shares,   interests,   participations  or  other   equivalents   (however
  designated,  whether  voting or  non-voting)  of  capital  stock,  partnership
  interests (whether general or limited) or equivalent ownership interests in or
  issued by such Person.

         "Cause" has the meaning specified in Section 3.01(e).

         "Certificate   of    Incorporation"    means   USE's   Certificate   of
  Incorporation,  as amended or restated from time to time, and any certificates
  of designation of USE as in effect from time to time.

         "Change of Control" means the occurrence of any of the following events
  with respect to any specified  Person:  (a) there shall be consummated (i) any
  merger,  consolidation or combination (excluding the transactions contemplated
  by the Merger Agreement) (any, a "Combination") involving such Person in which
  such Person is not the  continuing  or surviving  corporation,  or pursuant to
  which shares of such  Person's  voting stock would be converted in whole or in
  part into cash, other  securities or other property,  other than a Combination
  involving  such  Person in which the  holders of such  Person's  voting  stock
  immediately prior to the Combination have substantially the same proportionate
  ownership of voting stock of the surviving  corporation  immediately after the
  Combination, or (ii) any sale, lease, exchange or transfer (in one transaction
  or a series of related transactions) of all or substantially all of the assets
  of such  Person,  or (b) any  other  Person  or a  subsidiary  thereof  or any
  employee  benefit plan  sponsored by such Person or a subsidiary  thereof or a
  corporation owned, directly or indirectly,  by the stockholders of such Person
  in  substantially  the same  proportions  as their  ownership of stock of such
  Person,  other than a party  hereto or any  Affiliate  of any such party shall
  become the Beneficial  Owner of securities of such Person  representing 50% or
  more  of  the  combined  voting  power  of  the  then  outstanding  securities
  ordinarily  (and apart from rights accruing in special  circumstances)  having
  the right to vote in the election of directors of such Person,  as a result of
  a tender or exchange  offer,  open market  purchase  or  purchases,  privately
  negotiated purchase or otherwise.

         "CSI  Shares"  means all USE Shares  owned or held  beneficially  or of
  record by CSI or its Permitted Transferees.

         "Competing  Transaction"  means any of the  following  (other  than the
  Merger  and the  transactions  contemplated  by the Merger  Agreement):  (a) a

                                       2

<PAGE>

 merger,  consolidation,  share exchange, business combination or other similar
  transaction  as a result of which the  stockholders  of any  specified  Person
  immediately prior to such transaction  will, after such transaction,  own less
  than 50% of the voting stock of the combined,  surviving or merged entity; (b)
  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 (c) 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.

         "Control"  (including  the  terms  "controlled  by" and  "under  common
  control with"), with respect to the relationship  between or among two or more
  specified Persons, means the possession,  directly or indirectly or as trustee
  or executor,  of the power to direct or cause the  direction of the affairs or
  management  of one of such  Persons,  whether  through the ownership of voting
  securities,  as trustee or  executor,  by  contract or  otherwise,  including,
  without  limitation,  the  ownership,  directly or  indirectly,  of securities
  having the power to elect a majority of the board of directors or similar body
  governing the affairs of such Person.

         "ESI" means Energy Systems Investors LLC.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
  and the rules and regulations thereunder.

         "Former Zapco  Stockholders" means  the Zapco Stockholders  and  their
Permitted Transferees.

         "Permitted  Transferee" means in the case of each Stockholder,  (a) any
  Affiliate of such Stockholder,  (b) any member of his or her immediate family,
  (c) a spouse,  lineal descendant or a trust for the benefit of the Stockholder
  or one or more  members  of his or her  immediate  family,  or (d)  upon  such
  Stockholder's  death,  any  executor,  administrator,   testamentary  trustee,
  legatee,  heir or beneficiary of the  Stockholder if, and only if, in the case
  of clauses (a) through (d) the  transferee  agrees in writing to be subject to
  this  Agreement  with the same  rights  and  obligations  as the  transferring
  Stockholder.

         "Person" means any individual,  partnership, firm, corporation, limited
  liability company,  association,  trust,  unincorporated organization or other
  entity,  as well as any syndicate or group that would be deemed to be a person
  under Section 13(d)(3) of the Exchange Act.

         "Public  Offering"  means an  underwritten  public  offering  of equity
  securities of USE pursuant to an effective  registration  statement  under the
  Securities Act.

         "Restricted Shares" means all USE Shares other than (a) USE Shares that
  have been registered under a registration statement pursuant to the Securities
  Act;  (b) USE Shares  with  respect to which a Sale has been made in  reliance
  upon,  and in  accordance  with,  Rule 144; or (c) USE Shares with  respect to
  which the  holder  thereof  shall have  delivered  to USE either (i) a written
  opinion, in form and substance reasonably satisfactory to USE, of counsel, who

                                       3
<PAGE>

  shall be reasonably satisfactory to USE, or (ii) a "no action" letter from the
  Commission,  to the effect that subsequent transfers of such USE Shares may be
  effected without registration under the Securities Act.

         "Restricted  Stockholders" mean  the  Zapco Stockholders and the  USE
Restricted Stockholders.

         "Rule  144"  means  Rule 144 (or any  successor  provision)  under  the
Securities Act.

         "Sale" or "Transfer" means any sale, assignment, transfer, distribution
  or other  disposition of Shares or of a participation  or other right therein,
  whether voluntarily or by operation of law.

         "Securities Act" means the Securities Act of 1933, as amended,  and the
  rules and regulations thereunder.

         "Series A Preferred Stock" means USE's Series A Preferred Stock.

         "Series C Preferred Stock" means USE's Series C Preferred Stock.

         "Share" means any USE Share or Zapco Share.

         "Stockholder"  means each Person (other than USE) who or which shall be
  a party to this  Agreement,  whether  in  connection  with the  execution  and
  delivery  hereof as of the date  hereof or  otherwise,  so long as such Person
  shall own, beneficially or of record, any Shares.

         "Subsidiary"  or  "Subsidiaries"  of any Person means any  corporation,
  partnership,  limited liability company,  joint venture,  association or other
  entity,  all of the capital stock or other similar  equity  interests of which
  are owned  beneficially  and of record by such Person  directly or  indirectly
  through one or more intermediaries.

         "USE" has the meaning specified in the preamble to this Agreement.

         "USE Common  Stock" means shares of common  stock,  par value $.01,  of
USE.

         "USE Plan" means USE's 2000 Executive Incentive Compensation Plan.

         "USE Preferred  Stock" means any share of preferred stock of USE of any
  series,  class or designation,  including the Series A Preferred Stock and the
  Series C Preferred Stock.

         "USE Restricted Stockholders" means  ESI, Henry Schneider and  Lawrence
Schneider.

         "USE Share" means any share of USE Common Stock or USE Preferred Stock.

         "Warrants" means USE's Series B Warrants.

                                       4

<PAGE>

         "Zapco Common Stock" means any share of common stock,  no par value per
share, of Zapco.

         "Zapco  Preferred Stock" means any share of preferred stock of Zapco of
  any series, class or designation.

         "Zapco Share" means any share of Zapco Common Stock or Zapco Preferred
Stock.

                                   ARTICLE II

                   CERTAIN OBLIGATIONS PRIOR TO EFFECTIVE TIME

         SECTION  2.01.  (a) Voting  Agreement.  Except as  provided  in Section
  2.01(b)  hereof each  Stockholder,  severally  and not jointly,  hereby agrees
  that,  from and  after  the date  hereof  and  until  the  earlier  of (i) the
  Effective Time, or (ii) the termination of the Merger  Agreement in accordance
  with its terms, at any meeting of either the  stockholders of USE or of Zapco,
  as  applicable,  however  called,  and in any  action by consent of either the
  stockholders of USE or of Zapco, as applicable, such Stockholder will vote (or
  cause to be voted) such  Stockholder's  Shares owned beneficially or of record
  by  such  Stockholder  at the  time  (including  any  Shares  for  which  such
  Stockholder  has been  appointed or granted a proxy or otherwise has the power
  to vote, it being understood that pursuant to the Voting Trust Agreement dated
  June 15, 1998 among certain  Stockholders of Zapco, Bernard Zahren is entitled
  to vote certain  Zapco  Shares,  including  1,900 Zapco Shares owned by Martin
  Laughlin, Michael Carolan, Richard Augustine and Stephen Rosenberg, and all of
  such  Zapco  Shares  shall be voted in the manner in which  Bernard  Zahren is
  obligated to vote his Zapco Shares pursuant to this  Agreement):  (A) in favor
  of the approval and adoption of the Merger  Agreement,  the Merger and all the
  transactions contemplated by the Merger Agreement and otherwise in such manner
  as may be  necessary  to  consummate  the  Merger;  (B)  against  any  action,
  proposal,  agreement  or  transaction  that  would  result  in a breach of any
  covenant, obligation,  agreement,  representation or warranty of USE or Zapco,
  as applicable,  contained in the Merger Agreement; and (C) against any action,
  proposal,  agreement or  transaction  (other than the Merger  Agreement or the
  transactions  contemplated thereby) that would result in any of the conditions
  to USE's or Zapco's, as applicable, obligations under the Merger Agreement not
  being fulfilled,  provided,  however, that the Zapco Stockholders shall not be
  obligated to vote in favor of the Merger pursuant to clause (A) above if prior
  to the meeting of Zapco's  shareholders  to approve the Merger  there occurs a
  Change of Control of USE, USE enters into a  transaction  that would result in
  such a Change of Control of USE or any Person (not  affiliated  with any party
  hereto) (an "Announcing  Person") formally announces its intention to commence
  a tender offer or exchange offer for 50% or more of USE's  outstanding  voting
  securities if such  announcing  Person has the  financial  means to consummate
  such a tender offer or exchange offer (it being understood that this provision
  shall not restrict  such  Stockholders  in their  capacity as  directors  from
  exercising  their  fiduciary  obligation to USE and its  stockholders  or from
  taking any action  pursuant to Section 6.01 and 6.02 of the Merger  Agreement)
  or  Section 2 of the  Termination  Fee  Agreement  (as  defined  in the Merger

                                       5
<PAGE>

  Agreement));  and further provided, however, that the USE Stockholders and CSI
  shall not be obligated  to vote in favor of the Merger  pursuant to clause (A)
  above if prior to the meeting of USE's  Shareholders  there occurs a Change of
  Control of Zapco or Zapco enters into a transaction  that would result in such
  a Change of Control of Zapco. No Stockholder shall enter into any agreement or
  understanding with any Person or entity to vote such  Stockholder's  shares or
  give instructions in any manner  inconsistent  with this Section 2.01(a).  The
  Stockholders acknowledge receipt and review of a copy of the Merger Agreement.

         (b) The parties  acknowledge  that the obligations of ESI under Section
  2.01(a)  above  and  3.01(d)  below  (except  as to voting in favor of the CSI
  Designee (as defined in Section  3.01(c))) are subject and  subordinate to the
  voting restrictions respecting its Shares contained in Section 7 of the Pledge
  Agreement  between  ESI and USE  dated  as of July 31,  2000,  as  amended  by
  Amendment  No.  1  dated  as  of  October  20,  2000  (the  "Pledge  Agreement
  Restrictions")  and in the event of any inconsistency  between Section 2.01(a)
  and the Pledge Agreement Restrictions, the Pledge Agreement Restrictions shall
  govern.

         SECTION 2.02. No Disposition or Encumbrance of Shares.  Each Restricted
  Stockholder,  severally  and  not  jointly,  hereby  agrees  that,  except  as
  contemplated by this Agreement, between the date hereof and the earlier of (a)
  the  Effective  Time,  or (b)  the  termination  of the  Merger  Agreement  in
  accordance  with its terms,  such Restricted  Stockholder  shall not (x) sell,
  transfer,   tender,   assign,   contribute  to  the  capital  of  any  Person,
  hypothecate,  give or otherwise dispose of, grant a proxy or power of attorney
  with respect to,  deposit into any voting trust,  or create or permit to exist
  any security interest,  lien, claim,  pledge,  option, right of first refusal,
  agreement,  limitation or other  restriction on such Restricted  Stockholder's
  voting rights,  or any charge or other  encumbrance  of any nature  whatsoever
  with  respect  to, any of such  Restricted  Stockholder's  Shares (or agree or
  consent to, or offer to do, any of the foregoing); provided, however, that the
  restrictions  contained  in this  Section  2.02  shall  not  apply  to (i) the
  placement or issuance of membership  interests of ESI and the  distribution of
  any USE  securities  held by ESI pursuant to any  operating  agreement of ESI,
  (ii) the placement,  transfer or  distribution  of any of the Warrants held by
  any USE  Restricted  Stockholder  to any other USE  Restricted  Stockholder or
  their  Affiliates  or in  connection  with  the  placement  of ESI  membership
  interests,  (iii) the conversion of any USE Series A Preferred Shares into USE
  Common Shares by any USE  Restricted  Stockholder  in accordance  with the USE
  Series A Preferred Shares Certificate of Designation, (iv) the exercise of any
  USE stock options or Warrants held by any USE Restricted  Stockholder;  or (v)
  the transfer of any Zapco Shares  among any Zapco  Stockholders  or holders of
  Zapco  options  or  warrants,  or of  any  USE  Shares  among  USE  Restricted
  Stockholders  or  any  transfers  to  Permitted  Transferees.   No  Restricted
  Stockholder  shall take any  action  that  would  make any  representation  or
  warranty of such  Restricted  Stockholder  herein  untrue or  incorrect in any
  material respect or have the effect of preventing or disabling such Restricted
  Stockholder  from  performing  its,  his or her  obligations  or  directly  or
  indirectly,  initiate,  solicit or  encourage  any Person to take actions that
  could  reasonably  be  expected  to  lead  to  the  occurrence  of  any of the
  foregoing.

                                       6
<PAGE>
         SECTION  2.03.  No  Solicitation  of   Transactions.   Each  Restricted
  Stockholder,  severally and not jointly,  agrees that between the date of this
  Agreement and the earlier of (a) the Effective Time, or (b) the termination of
  the Merger Agreement in accordance with its terms, such Restricted Stockholder
  will not (y)  solicit,  initiate,  consider,  encourage  or  accept  any other
  proposals or offers from any Person relating to any Competing Transaction,  or
  (z)  participate in any  discussions,  conversations,  negotiations  and other
  communications  regarding, or furnish to any other Person any information with
  respect to, or otherwise  cooperate  in any way,  assist or  participate,  in,
  facilitate  or  encourage  any effort or attempt by any other Person to seek a
  Competing Transaction. Each Restricted Stockholder immediately shall cease and
  cause to be terminated all existing discussions,  conversations,  negotiations
  and other communications with any Persons conducted heretofore with respect to
  any  of the  foregoing.  Notwithstanding  anything  to the  contrary  in  this
  Agreement,  however,  any Stockholder in his capacity as a director or officer
  of USE or Zapco shall be permitted (a) to take any action and  participate  in
  any discussions or  negotiations  permitted under Section 1 of the Termination
  Fee Agreement  between USE, Zapco and CSI of even date and (b) to exercise his
  fiduciary duties if an unsolicited proposal concerning a Competing Transaction
  is received. Each Zapco Stockholder shall notify USE, and each USE Stockholder
  shall notify Zapco,  in each case  promptly if any such proposal or offer,  or
  any inquiry or other contact with any Person with respect thereto, is made and
  shall,  in any such  notice to USE or Zapco,  as the case may be,  indicate in
  reasonable  detail the  identity of the Person  making such  proposal,  offer,
  inquiry or  contact  and the terms and  conditions  of such  proposal,  offer,
  inquiry or other contact.

         SECTION 2.04. Extraordinary Activities. Each Stockholder, severally and
  not jointly,  hereby agrees that,  except as  contemplated  by this Agreement,
  during the twenty  (20)  consecutive  trading  days  ending on the trading day
  which is two (2)  Business  Days prior to the  Effective  Time,  neither  such
  Stockholder  nor any Affiliates or Permitted  Transferees of such  Stockholder
  shall,  in the  course  of any one week  period,  make any  Sales,  transfers,
  assignments,  purchases  or other  acquisitions  of any  interest  in  (either
  directly or indirectly)  any USE Shares which Sales,  transfers,  assignments,
  purchases or other acquisitions exceed the average weekly number of USE Shares
  sold,  transferred,   assigned,   purchased  or  otherwise  acquired  by  such
  Stockholder  or the Affiliates or Permitted  Transferees  of such  Stockholder
  during the prior twelve (12) month period  (other than USE Shares  received in
  the Merger or USE Shares  purchased  in  connection  with the  exercise of any
  currently outstanding option or warrant to acquire USE Shares or conversion of
  any outstanding convertible securities of USE).

                                   ARTICLE III

                  CERTAIN OBLIGATIONS AFTER THE EFFECTIVE TIME

         SECTION  3.01.  Elections  to Board  of  Directors.  (a)  USE,  the USE
  Stockholders  and CSI and their  Permitted  Transferees  agree to exercise all
  authority under  applicable Law (i) to cause a vote on the approval of the USE
  Plan to be placed on the ballot for the  meeting  (the "USE  Meeting")  of the
  shareholders  of USE to approve the Merger and (ii) to cause Bernard J. Zahren
  and one designee of AJG Financial Services, Inc. (the "Gallagher Designee") to

                                       7
<PAGE>

  be placed on the ballot for the USE Meeting as a nominee  for  election to the
  Board of  Directors  of USE for a term  beginning  at the  Effective  Time and
  ending at the third following  shareholders  meeting of USE that elect members
  of USE's Board of Directors (the "First Term") on the  conditional  basis that
  Bernard J. Zahren's and the Gallagher  Designee's  eligibility to serve on the
  USE Board of Directors shall be subject to the consummation of the Merger.

         (b) USE, the Zapco  Stockholders,  CSI and their Permitted  Transferees
  agree to exercise all authority under  applicable Law to cause Larry Schneider
  to be placed on the ballot for the next shareholders meeting following the USE
  Meeting  that  elects  members of USE's  Board of  Directors  as a nominee for
  election  to the  Board of  Directors  of USE for a term  ending  at the third
  following  annual  shareholders  meeting that elects members of USE's Board of
  Directors  (the "Second  Term").  This Section  3.01(b) shall not apply to the
  Zapco Stockholders unless the Merger is consummated.

         (c)  USE,  the  Zapco  Stockholders,  the USE  Stockholders  and  their
  Permitted  Transferees agree to exercise all authority under applicable Law to
  cause M.  Stephen  Harkness or any other  person  designated  by CSI (the "CSI
  Designee") to be placed on the ballot for the annual  stockholders  meeting of
  USE in 2001 as a nominee for election to the Board of Directors for the Second
  Term.  This Section 3.01(c) shall not apply to the Zapco  Stockholders  unless
  the Merger is consummated.

         (d) Except as provided in Section 2.01(b) hereof,  each USE Stockholder
  shall take all actions  necessary to vote all USE Shares  entitled to vote and
  owned or held  beneficially or of record by such USE Stockholder at any annual
  or special stockholders' meeting at which one or more directors are elected in
  favor of, or shall take all  actions  by  written  consent in lieu of any such
  meeting  necessary to cause,  the approval of the USE Plan and the election of
  the  directors as set forth in Sections  3.01(a) and 3.10(c) to the First Term
  and the Second Term, as applicable.

         (e) Each Zapco Stockholder shall take all actions necessary to vote all
  USE Shares  entitled  to vote and owned or held  beneficially  or of record by
  such Zapco Stockholder at any annual or special stockholders' meeting at which
  one or more  directors  are  elected in favor of, or shall take all actions by
  written consent in lieu of any such meeting  necessary to cause,  the election
  of the  directors  as set forth in Sections  3.01(b) and 3.01(c) to the Second
  Term.

         (f) CSI  shall  take  all  actions  necessary  to vote  all CSI  Shares
  entitled  to vote and  owned or held  beneficially  or of record by CSI at any
  annual or special  stockholders'  meeting at which one or more  directors  are
  elected in favor of, or shall take all  actions by written  content in lieu of
  any such  meeting  necessary to cause,  the  election of the  directors as set
  forth in Sections  3.01(a) and (b) to the First Term and the Second  Term,  as
  applicable.

         (g) Except as provided in Section 2.01(b) hereof,  each USE Stockholder
  agrees that,  if, at any time,  such USE  Stockholder is then entitled to vote
  for the removal of directors of USE,  such USE  Stockholder  will not vote any
  Shares in favor of the  removal of any  director  elected  pursuant to Section
  3.01 (d) during the First Term or Second  Term,  as  applicable,  unless  such

                                       8

<PAGE>

  removal shall be for Cause (as defined below).  Each Zapco Stockholder  agrees
  that, if, at any time, such Zapco Stockholder is then entitled to vote for the
  removal of directors of USE, such Zapco  Stockholder  will not vote any Shares
  in favor of the removal of Henry Schneider or any director elected pursuant to
  Section 3.01 (e) before or during the Second Term unless such removal shall be
  for Cause.  CSI agrees that, if at any time,  CSI is then entitled to vote for
  the removal of  directors of USE, CSI will not vote any Shares in favor of the
  removal of Henry Schneider or any director elected pursuant to Section 3.01(f)
  before or during  the First  Term or Second  Term as  applicable  unless  such
  removal shall be for Cause.  "Cause"  shall mean (i) the director  having been
  indicted of a crime which  constitutes a felony under applicable law or having
  entered a plea of guilty or nolo contendere with respect thereto,  or (ii) the
  engaging by the director in illegal or fraudulent conduct with respect to USE.

         (h) Each  Stockholder  agrees to vote against any  proposal  that would
  have the effect of amending or terminating  Article III of USE's By-Laws as in
  effect at the Effective Time.

         (i) No party hereto shall enter into any agreement or undertaking  with
  any person or entity to vote such party's shares or give  instructions  in any
  manner inconsistent with this Agreement.

         SECTION 3.02.  Redemptions.  (a) If USE redeems any USE Common Stock or
Warrants held by any  Restricted  Stockholder  (a "Redeemed  Stockholder"),  USE
shall  contemporaneously  therewith offer to repurchase such number of shares of
USE Common Stock or Warrants, as the case may be (the "Parity  Securities"),  of
the other  Restricted  Stockholders  that it can offer to  repurchase  using the
Parity  Redemption  Amount (as  defined).  The term "Parity  Redemption  Amount"
means,  (1) with  respect to a  redemption  of shares of USE Common  Stock,  the
dollar amount equal to the product  obtained by multiplying (i) a fraction,  (A)
the numerator of which is the dollar amount (inclusive of the accrued but unpaid
dividends on USE Common Stock to be paid in connection with such  redemption) to
be paid by USE to the holders of such USE Common Stock in  connection  with such
redemption of such stock and (B) the  denominator of which is equal to the total
amount USE would have to pay to the holders of USE Common  Stock  (inclusive  of
the  accrued  but  unpaid  dividends  on the  USE  Common  Stock,  to be paid in
connection  with such  redemption) to redeem all the shares of USE Common Stock,
then  outstanding  (without giving effect to such redemption) by (ii) the number
of shares of USE Common Stock of the other Restricted  Stockholders and (2) with
respect to a  redemption  of  Warrants,  the dollar  amount equal to the product
obtained by multiplying (i) a fraction, (A) the numerator of which is the dollar
amount to be paid by USE to the holders of such Warrants in connection with such
redemption  of such  Warrants and (B) the  denominator  of which is equal to the
total  amount USE would have to pay to the holders of Warrants to redeem all the
Warrants,  then  outstanding  (without giving effect to such redemption) by (ii)
the number of Warrants of the other Restricted Stockholders.

                  (b) USE shall offer to repurchase the Parity Securities at the
redemption price (the "Redemption  Price") received by the Redeemed  Stockholder
as follows:

                                       9
<PAGE>

                  (i) Such offer (the "Offer")  shall be addressed by USE to the
                      other    Restricted     Stockholders     (the    "Eligible
                      Stockholders") at their addresses listed in this Agreement
                      (or to such other  address  that they shall  designate  in
                      writing in  accordance  with  Section 6.03  hereof).  Such
                      Offer shall  formally  notify (the  "Notice") the Eligible
                      Stockholders of USE's willingness to repurchase the Parity
                      Securities at the Redemption Price for cash.

                  (ii)The Eligible  Stockholders shall have, for a period of ten
                      (10) days after the  receipt of the  Notice,  the right to
                      sell their USE Common Stock or  Warrants,  as the case may
                      be, to USE for the Redemption  Price,  under the terms set
                      forth in this Section  3.02  (b)(ii) or  Warrants,  as the
                      case may be, below.

                  (iii) Each Eligible Stockholder shall notify USE in writing of
                      its desire to sell its USE Common  Stock or  Warrants,  as
                      the case may be, for the specified  Redemption Price. Each
                      Eligible   Stockholder   shall  have  the  right  to  have
                      repurchased a pro-rata  portion of its USE Common Stock or
                      Warrants,  as the case  may be,  based  on the  number  of
                      shares of USE Common  Stock or  Warrants,  as the case may
                      be,  held by such  Eligible  Stockholder  relative  to the
                      aggregate   number  of  shares  of  USE  Common  Stock  or
                      aggregate  number of Warrants,  as the case may be, of all
                      Eligible  Stockholders  who are interested in having their
                      USE  Common  Stock  or  Warrants,  as  the  case  may  be,
                      repurchased.  If any  Eligible  Stockholder  elects not to
                      have  repurchased  its  pro  rata  portion  of the  Parity
                      Securities  it shall  within ten (10) days so notify  USE.
                      Each  Eligible   Stockholders  who  has  elected  to  have
                      repurchased its pro rata portion of the Parity  Securities
                      also shall have the right to have repurchased a portion of
                      the pro rata portions of the Parity Securities which other
                      Eligible Stockholders elected not to have repurchased on a
                      pro-rata  basis,  based on the  number  of  shares  of USE
                      Common Stock or Warrants, as the case may be, held by such
                      Eligible  Stockholder  relative to the aggregate number of
                      shares  of  USE  Common  Stock  or  aggregate   number  of
                      Warrants, as the case may be, of all Eligible Stockholders
                      who elected to purchase,  until the Eligible  Stockholders
                      have  chosen  to  repurchase  all or less  than all of the
                      Parity Securities repurchased. Thereafter, a closing shall
                      take place.

                                   ARTICLE IV

                            RESTRICTIONS ON TRANSFER

         SECTION 4.01. General  Restriction.  From and after the Effective Time,
  the  Former  Zapco   Stockholders  agree  that  they  will  not,  directly  or
  indirectly,  make or solicit any Sale of any USE Shares,  except in compliance
  with the Securities Act and this Agreement.

                                       10

<PAGE>

         SECTION 4.02.  Legends.  (a) USE shall affix to each certificate
evidencing USE Shares of the Former Zapco Stockholders a legend in substantially
the following form:

        "THE SECURITIES  EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE  SECURITIES  ACT OF 1933,  AS  AMENDED.  NO  REGISTRATION  OF
         TRANSFER  OF SUCH  SECURITIES  WILL BE MADE ON THE BOOKS OF THE  ISSUER
         UNLESS  SUCH  TRANSFER  IS  MADE  IN   CONNECTION   WITH  AN  EFFECTIVE
         REGISTRATION  STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
         THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.

         "THE  SECURITIES  EVIDENCED BY THIS  CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS  ON  TRANSFER AS SET FORTH IN A  STOCKHOLDERS'  AND VOTING
         AGREEMENT,  DATED AS OF NOVEMBER  28,  2000,  AS IT MAY  THEREAFTER  BE
         AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL  EXECUTIVE OFFICES
         OF THE ISSUER.  NO  REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE
         MADE ON THE BOOKS OF THE  ISSUER  UNLESS  AND UNTIL  SUCH  RESTRICTIONS
         SHALL HAVE BEEN COMPLIED WITH."

         (b) USE shall affix to each  certificate  evidencing  USE Shares of any
  Stockholder  other than a Former Zapco  Stockholder a legend in  substantially
  the following form:

         "THE  SECURITIES  EVIDENCED BY THIS  CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS  ON  TRANSFER AS SET FORTH IN A  STOCKHOLDERS'  AND VOTING
         AGREEMENT,  DATED AS OF NOVEMBER  28,  2000,  AS IT MAY  THEREAFTER  BE
         AMENDED, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL  EXECUTIVE OFFICES
         OF THE ISSUER.  NO  REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE
         MADE ON THE BOOKS OF THE  ISSUER  UNLESS  AND UNTIL  SUCH  RESTRICTIONS
         SHALL HAVE BEEN COMPLIED WITH."

         (c) In the  event  that any USE  Shares  shall  cease to be  Restricted
  Shares,  USE shall,  upon the written request of the holder thereof,  issue to
  such holder a new  certificate  evidencing  such USE Shares  without the first
  paragraph  of  the  legend  required  by  Section  4.02(a)  endorsed  thereon;
  provided,  however,  that such holder shall furnish USE or its transfer  agent
  such certificates,  legal opinions or other information as USE or its transfer
  agent may  reasonably  require to confirm  that the legend is not  required on
  such  certificate.  In the event that any USE Shares shall cease to be subject
  to the  restrictions  on  transfer  set  forth in this  Agreement  but  remain
  Restricted  Shares, USE shall, upon the written request of the holder thereof,
  issue to such holder a new certificate  evidencing such USE Shares without the
  second paragraph of the legend required by Section 4.02(a).  In the event that
  any  Shares  shall  cease to be  entitled  to any  rights  and  subject to any
  obligations set forth in this Agreement,  USE shall,  upon the written request
  of the holder thereof,  issue to such holder a new certificate evidencing such
  USE Shares without the legend required by Section 4.02(b).

                                       11
<PAGE>

         SECTION 4.03. Lock-Up. Each Restricted  Stockholder hereby agrees that,
  for a period  of  twelve  (12)  months  following  the  Effective  Time,  such
  Restricted Stockholder shall not, directly or indirectly, (including via puts,
  calls or other derivatives) sell, offer to sell,  contract to sell (including,
  without limitation, any short sale), grant any option to purchase or otherwise
  transfer or dispose of (other than to  Permitted  Transferees  who agree to be
  similarly  bound) any USE Shares or rights,  options or warrants issued by USE
  ("USE  Rights") held by such  Restricted  Stockholder  at any time during such
  period;  provided,  however that such Restricted Stockholders may exercise USE
  Rights it being  understood  that the Shares issuable upon such exercise shall
  be  subject  to this  Agreement;  and  provided,  further  that  ESI  shall be
  permitted  to take such  action  as it deems  appropriate,  including  without
  limitation the sale or distribution of ESI membership  interests,  USE Shares,
  or the Warrants  pursuant to the Operating  Agreement by and among ESI and its
  members,  so long as upon any USE Shares or USE Right being distributed by ESI
  to any Stockholder such USE Shares and USE Rights shall be subject to the same
  extent as other USE Shares and USE Rights held by such Stockholders.

                                    ARTICLE V

           REPRESENTATIONS AND WARRANTIES OF USE AND THE STOCKHOLDERS

         Each  Stockholder,  severally and not jointly,  hereby  represents  and
  warrants  to USE (in the case of each  Zapco  Stockholder)  and to each  other
  Stockholder,  in each case in  respect  of such  Stockholder  only,  as to the
  matters set forth in Sections 5.01 through 5.03, and USE hereby represents and
  warrants  to each Zapco  Stockholder  as to the  matters set forth in Sections
  5.04 and 5.05:

         SECTION 5.01.  Authority  Relative to This Agreement.  Such Stockholder
  has all necessary  power and authority to execute and deliver this  Agreement,
  to perform such  Stockholder's  obligations  hereunder and to  consummate  the
  transactions  contemplated  hereby.  This Agreement has been duly executed and
  delivered  by such  Stockholder  and  constitutes  a legal,  valid and binding
  obligation  of such  Stockholder,  enforceable  against  such  Stockholder  in
  accordance with its terms.

         SECTION  5.02.  No  Conflict.  (a) The  execution  and delivery of this
  Agreement by such Stockholder do not, and the performance of this Agreement by
  such  Stockholder  shall  not,  (i)  conflict  with or  violate  its  charter,
  organizational documents, by-laws, operating agreement, partnership agreement,
  or similar  agreements  and  instruments,  if  applicable,  or any law,  rule,
  regulation,  order  judgment or decree  applicable to such  Stockholder  or by
  which the  Shares  owned by such  Stockholder  are bound or  affected  or (ii)
  result in any breach of, or constitute a default (or an event that with notice
  or lapse of time or both would become a default)  under, or give to others any
  rights of termination,  amendment,  acceleration or cancellation of, or result
  in the  creation of a lien or  encumbrance  on any of the Shares owned by such

                                       12
<PAGE>

  Stockholder  pursuant  to,  any note,  bond,  mortgage,  indenture,  contract,
  agreement, lease, license, permit, franchise or other instrument or obligation
  to which  such  Stockholder  is a party or by which  such  Stockholder  or the
  Shares owned by such Stockholder are bound or affected)

         (b) The execution and delivery of this Agreement by such Stockholder do
  not, and the  performance  of this  Agreement by such  Stockholder  shall not,
  require any consent,  approval,  authorization or permit of, or filing with or
  notification to, any governmental  authority,  domestic or foreign, except for
  applicable requirements, if any, of the Exchange Act.

         SECTION  5.03.  Title  to the  Shares.  As of  the  date  hereof,  such
  Stockholder  is the  record and  beneficial  owner of the number of Shares set
  forth  beneath such  Stockholder's  name on the  signature  page hereof.  Such
  Shares are all the Shares  owned,  either of record or  beneficially,  by such
  Stockholder.  The Shares owned by such Stockholder are owned free and clear of
  all security  interests,  liens,  claims,  pledges,  options,  rights of first
  refusal, agreements,  limitations on such Stockholder's voting rights, charges
  and other  encumbrances of any nature  whatsoever.  Except as provided in this
  Agreement,  such  Stockholder  has not  appointed or granted any proxy,  which
  appointment or grant is still  effective,  with respect to the Shares owned by
  such Stockholder.

         SECTION 5.04. Authority of USE Relative to This Agreement.  USE has all
  necessary  power and  authority  to execute and  deliver  this  Agreement,  to
  perform  its  obligations   hereunder  and  to  consummate  the   transactions
  contemplated  hereby.  This  Agreement has been duly executed and delivered by
  USE and constitutes a legal, valid and binding obligation of USE,  enforceable
  against USE in accordance with its terms.

         SECTION 5.05.  No USE Conflict.  (a) The execution and delivery of this
  Agreement by USE do not, and the  performance  of this  Agreement by USE shall
  not, (i) conflict with or violate its Certificate of  Incorporation or By-Laws
  or any law, rule,  regulation,  order judgment or decree  applicable to USE or
  (ii) result in any breach of, or  constitute  a default (or an event that with
  notice or lapse of time or both  would  become a  default)  under,  or give to
  others any rights of termination,  amendment, acceleration or cancellation of,
  or result in the creation of a lien or encumbrance on any of the properties or
  assets of USE  pursuant to, any note,  bond,  mortgage,  indenture,  contract,
  agreement, lease, license, permit, franchise or other instrument or obligation
  to which USE is a party or by which USE or its properties and assets are bound
  or affected).

         (b) The execution and delivery of this Agreement by USE do not, and the
  performance of this Agreement by USE shall not, require any consent, approval,
  authorization   or  permit  of,  or  filing  with  or  notification   to,  any
  governmental authority, domestic or foreign.

                                   ARTICLE VI

                                  MISCELLANEOUS

                                       13
<PAGE>

        SECTION 6.01.  Termination.  Unless otherwise expressly provided herein
  and except for Section 3.01(g), which shall terminate on the third anniversary
  hereof,  the  obligations  of the  parties  hereto  shall  terminate  upon the
  earliest of (a) the termination of the Merger Agreement in accordance with its
  terms, or (b) the later of (i) the date which is eighteen months following the
  date hereof and (ii) on the date upon which the Shareholder  votes required by
  Section  3.01(a),  3.01(b) and 3.01(c) have occurred.  Nothing in this Section
  6.01 shall relieve any party of liability for any breach of this Agreement.

         SECTION 6.02. Expenses. Except as expressly set forth herein, costs and
  expenses,  including,  without limitation,  fees and disbursements of counsel,
  financial advisors and accountants, incurred in connection with this Agreement
  and the transactions contemplated hereby shall be paid by the Person incurring
  such costs and expenses whether or not the closing of the Merger occurs.

         SECTION 6.03. Notices. All notices, requests, claims, demands and other
  communications  hereunder  shall be in writing and shall be given or made (and
  shall be deemed to have been duly given or made upon  receipt)  by delivery in
  person,  by courier  service,  by telecopy or by registered or certified  mail
  (postage prepaid,  return receipt  requested) to the respective parties at the
  following  addresses  (or at such  other  address  for a  party  as  shall  be
  specified in a notice given in accordance with this Section 6.03):

         (a)      If to USE, at:

                  One North Lexington Avenue, 4th Floor
                  White Plains, New York 10601
                  Facsimile No.:  (941) 271-5315
                  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.

         (b)      If to the USE Stockholders, to  the addresses set forth on the
signature pages hereof

         (c) If to the Zapco  Stockholders,  to the  addresses  set forth on the
signature pages hereof, with a copy to:

                                       14
<PAGE>

                  Shipman & Goodwin, LLP
                  One American Row
                  Hartford, CT 06103-2819
                  Telecopy:  (860) 251-5900
                  Attention:  John 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.

                  And

         (d)      If to CSI, at:

                  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 6.04.  Headings.  The  descriptive headings  contained  in this
Agreement are for convenience of reference only and shall not affect  in any way
the meaning or interpretation of this Agreement.

         SECTION  6.05.  Severability.  If any term or other  provision  of this
  Agreement  is  invalid,  illegal or  incapable  of being  enforced by any law,
  governmental  regulation or public  policy,  all other terms 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 the original intent of the parties as
  closely as possible  in an  acceptable  manner in order that the  transactions
  contemplated hereby are consummated as originally contemplated to the greatest
  extent possible.

                                       15
<PAGE>
         SECTION 6.06.  Entire  Agreement.  This  Agreement  and the  agreements
  referred to herein  constitute the entire agreement of the parties hereto with
  respect to the subject matter hereof and  supersedes all prior  agreements and
  undertakings,  both written and oral,  between USE and the  Stockholders  with
  respect to the subject matter hereof and thereof including without  limitation
  the letter agreements among USE, CSI and the USE Restricted Stockholders dated
  as of October 12, 2000.

         SECTION 6.07.  Assignment.  This  Agreement  may not  be  assigned  by
operation of law or otherwise except by Stockholders to Permitted Transferees in
connection with a transfer of Shares hereunder.

         SECTION 6.08. Amendment.  This Agreement may not be amended or modified
  except by an  instrument  in writing  signed by, or on behalf of,  each of the
  parties.  Any  party  to  this  Agreement  may (a)  extend  the  time  for the
  performance of any of the  obligations  or other acts of the other party,  (b)
  waive any  inaccuracies  in the  representations  and  warranties of the other
  party  contained  herein  or in any  document  delivered  by the  other  party
  pursuant  hereto  or (c)  waive  compliance  with  any of  the  agreements  or
  conditions of the other party contained  herein.  Any such extension or waiver
  shall be valid only if set forth in an  instrument  in  writing  signed by the
  party to be bound  thereby.  Any waiver of any term or condition  shall not be
  construed as a waiver of any subsequent  breach or a subsequent  waiver of the
  same term or condition,  or a waiver of any other term or  condition,  of this
  Agreement.  The  failure of any party to assert  any of its  rights  hereunder
  shall not constitute a waiver of any of such rights.

         SECTION 6.09.  Governing Law. This  Agreement  shall be governed by the
  laws of the State of New York,  without  regard to the principles of conflicts
  of law thereof. All actions and proceedings arising out of or relating to this
  Agreement shall be heard and determined in any New York state or federal court
  sitting in New York County, New York, and the parties hereto hereby consent to
  the jurisdiction of such courts in any such action or proceeding.

         SECTION 6.10.  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.

         SECTION  6.11.  Equitable  Relief.  The parties  hereto  agree that the
remedy at law for any breach of this Agreement is inadequate.  Accordingly,  the
parties  consent  and agree that an  injunction  may be issued to  restrain  any
breach or alleged  breach of this  Agreement,  with the posting of a bond or for
such  other  security  as may be  required  by the  court.  In the  event of any
controversy  concerning the purchase or sale of any USE Shares  hereunder or any
matter  relating  to the voting of the USE Shares,  the terms of this  Agreement
shall be  enforceable  in a court  by a decree  of  specific  performance.  Such
remedies  shall,  however,  be  cumulative  and not  exclusive,  and shall be in
addition to any other remedies which the parties may have.

                                       16
<PAGE>
         SECTION 6.12.  Jurisdiction  and Service of Process.  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,
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 6.13. Further Assurances. Each Stockholder and USE will execute
  and deliver  all such  further  documents  and  instruments  and take all such
  further  action as may be necessary in order to  consummate  the  transactions
  contemplated hereby.

         SECTION 6.14.  The  Stockholders  agree not to take any action to amend
  USE's Certificate of Incorporation or By-Laws in a manner which would create a
  conflict between such documents and this Agreement.

                                       17

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
  duly executed,  as of the day and year first above written, by, in the case of
 USE, its authorized signatory thereunto duly authorized.

                                  USE:

                                  U. S. ENERGY SYSTEMS, INC.

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

                                  USE STOCKHOLDERS:

                                  By:/s/ Howard A. Nevins
                                  -------------------------
                                         Howard A. Nevins
                                     Address:

                                 By: /s/ Lawrence Schneider
                                 --------------------------
                                         Lawrence Schneider
                                     Address:

                                 By: /s/ Henry Schnieder
                                 --------------------------
                                         Henry Schneider
                                     Address:

                                 ENERGY SYSTEMS INVESTORS, LLC

                                   By: /s/ Henry Schneider
                                   ---------------------------
                                   Name:   Henry Schneider
                                   Title:
                                   Address:

                                       18
<PAGE>

                              MARATHON CAPITAL, LLC

                                By: /s/ Theodore Brandt
                                -------------------------------
                                 Name:  Theodore Brandt
                                 Title: Manager
                                 Address:

                              CASTLEBRIDGE PARTNERS, LLC

                                By: /s/ Ethan Kahn
                                  ------------------------------
                                  Name: Ethan Kahn
                                  Title:Manager
                                  Address:

                              ZAPCO STOCKHOLDERS:

                              AJG Financial Services, Inc.

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

                               BERNARD J. ZAHREN

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

                                     19
<PAGE>

                                ENVIRONMENTAL OPPORTUNITIES FUND

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

                                ENVIRONMENTAL OPPORTUNITIES FUND/CAYMAN

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

                                FINOVA MEZZANINE CAPITAL CORP.

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

                                FREDERIC ROSE

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

                                 M & R ASSOCIATES

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

                                       20

<PAGE>

                                 MARTIN F. LAUGHLIN

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

                                 MICHAEL J. CAROLAN

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

                                 RICHARD J. AUGUSTINE

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

                                 CSI:

                                 CINERGY SOLUTIONS, INC.

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

                                       21

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