Document:

U.S. ENERGY SYSTEMS, INC.

                   AMENDED AND RESTATED STOCK OPTION AGREEMENT

Name of Optionee:    Goran Mornhed

Date of Grant:    May 10, 2000

Number of Shares Subject to Option:    1,000,000

Exercise Price Per Share:      $4.00

Type of Option:  Non-qualified Stock Option

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

1.                Amendment  and  Restatement  of Option  Granted May 10,  2000;
                  Grant of Option.  (a) On May 10, 2000,  U.S.  Energy  Systems,
                  Inc. (the  "Company")  granted to the Optionee (as defined) an
                  option (the "Prior  Option"),  to acquire the number of shares
                  of the Company's Common Stock set forth above.  This agreement
                  amends and restates the Prior Option.

                  (b) The Company hereby grants to the Optionee identified above
                  (the  "Optionee")  an option (the  "Option") to purchase up to
                  the number of shares of the Company's Common Stock,  $0.01 par
                  value per share set forth above (the "Shares"), at an exercise
                  price per share  equal to the  exercise  price set forth above
                  (the "Exercise Price").  The Option is not intended to qualify
                  as an ISO. The Option was issued pursuant to the (a) Company's
                  2000 Executive  Incentive  Compensation  Plan (the "Plan") and
                  (b) employment  agreement dated as of May 10, 2000 between the
                  Company and the Optionee (the "Employment Agreement"), both of
                  which are  incorporated  herein for all  purposes.  The Option
                  shall be subject to the terms and conditions set forth herein,
                  the Plan and the  Employment  Agreement.  The Optionee  hereby
                  acknowledges  receipt  of a copy of the  Plan  and  Employment
                  Agreement  and  agrees  to be  bound by all of the  terms  and
                  conditions   hereof   and   thereof.   In  the  event  of  any
                  inconsistency between the Employment Agreement on the one hand
                  and the Plan or this Stock Option Agreement on the other hand,
                  the  Employment  Agreement  shall govern.  In the event of any
                  inconsistency   between   the  Plan  and  this  Stock   Option
                  Agreement, the Plan shall govern.

2.                Definitions.  Unless  otherwise  provided  herein,  terms used
                  herein  that  are  defined  in  the  Plan  or  the  Employment
                  Agreement and not defined herein shall have the

<PAGE>

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

3.                Exercise Schedule.   (a)  This Option vests in full as  of the
                  Date of Grant set forth above.

                  (b) Notwithstanding  anything to the contrary herein, the Plan
                  or  the  Employment   Agreement,   the  Option  shall  not  be
                  exercisable  until  the Plan  shall  have been  approved  by a
                  Majority of the  Shareholders  by November  15, 2000  provided
                  that if the Stock Option  becomes a Voted Matter as defined in
                  Section 3(d) of the Employment Agreement, the Option shall not
                  be  exercisable  until the Option and the Plan shall have been
                  approved by a Majority  of the  Shareholders  by November  15,
                  2000.

4.                Method of Exercise.  The Option shall be exercisable in  whole
                  or in part by written notice which shall state the election to
                  exercise the Option, the number of Shares in respect  of which
                  the  Option is being exercised, and such other representations
                  and  agreements  as to  the holder's investment  intent  with
                  respect  to  such Shares as  may be  required by  the  Company
                  pursuant to the provisions of  the Plan.  Such written  notice
                  shall  be signed  by the Optionee and shall  be  delivered  in
                  person or by certified mail  to  the Secretary of the Company.
                  The  written  notice shall  be accompanied by payment  of  the
                  exercise price in the manner contemplated by Section 5 hereof.
                  This Option shall be deemed to  be  exercised  after  both (a)
                  receipt by  the Company of such written notice accompanied  by
                  the  exercise price and the Option and  (b) arrangements  that
                  are  reasonably  satisfactory to the Committee have  been made
                  for Optionee's payment to the Company  of  the  amount that is
                  necessary to be withheld in accordance with applicable Federal
                  or state  withholding requirements.  The  Company  and  the
                  Optionee shall work cooperatively, expeditiously  and in  good
                  faith  to make such withholding arrangements.  No Shares  will
                  be  issued  pursuant  to the Option  unless  and  until  such
                  issuance and such  exercise  shall  comply with all  relevant
                  provisions of  applicable law, including the requirements  of
                  any  stock  exchange (including any  automated  system  of
                  quotation) upon which the Shares then may be traded or quoted.

5.                Method of Payment.  Payment of the exercise price shall be by
                  any  of  the  following, or a combination  thereof, at  the
                  election of the Optionee: (a) cash; (b) check; (c) with Shares
                  that have been held by the Optionee for at least 6 months (or
                  such other Shares as the Company determines will not cause the
                  Company  to  realize  a  financial  account charge); (d)  as
                  provided in Section 9 of this Stock Option Agreement; or  (e)
                  such other consideration or in such other manner as may  be
                  determined  by  the Board or the Committee  in  its  absolute
                  discretion.

<PAGE>

6.                Termination of  Option.  Subject  to  earlier  termination  as
                  provided in this Section 6, the Option shall terminate on, and
                  in  no  event  shall  the  Option be exercisable after, May 9,
                  2010.  The Option shall terminate and  expire on  November 16,
                  2000 unless the Plan has been  approved  by a  Majority of the
                  Shareholders by November 15, 2000 provided  that if the Option
                  becomes  Voted  Matter  as  defined  in  Section 3(d)  of  the
                  Employment Agreement the Option shall  expire on November  16,
                  2000 unless the Plan and the Option are approved by a Majority
                  of  the  Shareholders  by November 15, 2000.  Any  unexercised
                  portion  of the Option shall automatically and without  notice
                  terminate and become null and void on the terms and conditions
                  and at the time(s) set forth in the Employment Agreement.

7.                Transferability. The Option is not transferable otherwise than
                  by will or the laws of descent  and  distribution,  and during
                  the lifetime of the  Optionee the Option shall be  exercisable
                  only by the Optionee. The terms of the Option shall be binding
                  upon the  executors,  administrators,  heirs,  successors  and
                  assigns of the Optionee.

8.                No Rights of Stockholder Nor Rights to Continued Employment.
                  Neither  the  Optionee  nor  any personal  representative (or
                  beneficiary) shall be, or shall have any of  the  rights  and
                  privileges of, a stockholder of  the  Company with respect to
                  any shares of Stock purchasable or issuable upon the exercise
                  of the Option, in whole or in part, prior  to  the  date  the
                  Option  is  deemed  to  have  been exercised. Notwithstanding
                  Section 1 of this Stock Option Agreement, neither the Option
                  nor this Stock Option Agreement shall confer upon the Optionee
                  any right to continued employment or service with the Company.

9.                Conversion.  (a) In lieu of  exercise  of any  portion  of the
                  Option as provided  herein,  and the  payment of the  exercise
                  price  therefor in the manner  contemplated  by Sections 5(a),
                  5(b),  5(c)  and  5(e)  hereof,  the  Option  (or any  portion
                  thereof)  may, at the election of the  Optionee,  be converted
                  into the nearest whole number of Shares determined pursuant to
                  the following formula:

                           Number of Shares = NOS multiplied by (MVPS minus EP)
                                                                 -------------
                                                                  ( MVPS )

                           where:

                           NOS is the number of Options to be exercised;

                           MVPS is the  Market  Value  Per  Share on the date of
                           exercise, which shall be determined in the manner set
                           forth in Section 9(c); and

                           EP is the  Exercise  Price in effect on the  business
                           day next preceding the date of exercise.

<PAGE>

                  (b)  Notwithstanding  anything  to the  contrary  herein,  the
                  conversion privilege afforded under this Section 9 may only be
                  used if, at the date of  exercise,  the Market Value Per Share
                  is greater than the Exercise Price then in effect.

                  (c)  For   purposes  of  the  Option  and  this  Stock  Option
                  Agreement,  Market Value Per Share shall be the closing  price
                  of a Share as of the day in question, as reported with respect
                  to the  principal  market or quotation  system in which Shares
                  are then traded or quoted,  or, if no such closing  prices are
                  reported,  on the basis of the closing bid price as of the day
                  in question on the  principal  market or  quotation  system on
                  which  Shares are then traded or quoted,  or, if not so traded
                  or quoted,  as furnished by a professional  securities  dealer
                  making a market in such stock selected by the Committee.

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

11.               Notices.  Any notice under this Agreement  shall be in writing
                  and shall be given in the  manner  specified  in Section 13 of
                  the Employment Agreement.

IN WITNESS  WHEREOF,  the undersigned have executed this Agreement as of May 10,
2000.

                                      COMPANY:

                                      U.S. ENERGY SYSTEMS, INC.

                                      By:Lawrence I. Schneider
                                         ----------------------
                                         Lawrence I. Schneider,
                                         Chief Executive Officer

         Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof,  and hereby accepts
this Option  subject to all of the terms and  provisions  thereof.  Optionee has
reviewed the Plan and this Option in their  entirety,  has had an opportunity to
obtain  the  advice  of  counsel  prior to  executing  this  Option,  and  fully
understands all provisions of the Option.

                                        OPTIONEE:

                                        /s/ Goron Mornhead
                                        -------------------------------
                                            Goran MornhedPLEDGE  AGREEMENT  dated as of July 31,  2000,  by and  between  Energy
Systems Investors, L.L.C., a Delaware limited liability company with its offices
at c/o Lawrence I. Schneider, 920 Park Avenue, Apt. 4D, New York, New York 10028
(the  "Pledgor") and U.S.  Energy  Systems,  Inc., a Delaware  corporation  (the
"Pledgee")  with  offices at 515 N.  Flagler  Drive,  Suite 702 West Palm Beach,
Florida 33401.

                               W I T N E S E T H:

         WHEREAS, Pledgee has issued to the Pledgor 861,110 shares of the Series
A Convertible  Preferred  Stock in Pledgee (the "Stock" or the "Series A Stock")
in connection with Pledgor's exercise of an option (the "Option") to acquire the
Stock; and

         WHEREAS, in connection with the exercise of the Option, the Pledgor has
delivered  to Pledgee a limited  recourse  promissory  note (the "Note") of even
date herewith in the original principal amount of $7,741,378.90  (which together
with  the   interest,   fees  and  charges   thereon  are  referred  to  as  the
"Obligations"); and

         WHEREAS, the Pledgor has agreed to pledge the Pledged Collateral (as
defined) to secure its performance of the Obligations;

         NOW,  THEREFORE,  in  consideration  of the  premises  and  the  mutual
covenants herein contained, Pledgor and Pledgee agree as follows:

         1.       Pledge.

                  (a)  As  collateral   security  for  the  performance  of  the
Obligations  by  Pledgor,   Pledgor  hereby  pledges,   hypothecates,   assigns,
transfers,  sets over and delivers unto Pledgee and grants to Pledgee a security
interest in the following (the "Pledged Collateral"):

                           (i)      the Stock and the certificates representing
the Stock, and all cash, securities,  dividends, increases,  distributions  and
profits received therefrom  or in connection therewith, including distributions
or payments in partial or complete  liquidation  or  redemption,  or as a result
of  reclassification, readjustment,  reorganizations or changes  in  the capital
structure of the issuer thereof or upon  conversion of the Stock into securities
of the issuer thereof; and

                           (ii)     all products and proceeds of  the  foregoing
and all general  intangibles and  contract  rights  related  thereto,  including
without  limitation, all  revenues, distributions,  dividends,  property,
registration rights, contract rights and other rights and interests that Pledgor
is, or may hereafter  become, entitled to receive on account of any collateral
described in Section 1(a).

                  (b)  Notwithstanding  the  foregoing,  the Pledged  Collateral
shall not include the Pledged Collateral released pursuant to Section 13 of this
Pledge Agreement.

<PAGE>

                  (c) The security interest granted hereby shall be evidenced by
delivery of the  certificates  evidencing the Stock on the date hereof  together
with undated  assignments  separate from the  certificate(s)  endorsed in blank,
executed by Pledgor, covering all of the certificates evidencing the Stock.

         2.  Representations  and  Warranties.   Pledgor  hereby  represent  and
warrants to Pledgee as follows:

                  (a) Pledgor is a limited  liability company duly organized and
validly  existing  under the laws of the State of Delaware and has all requisite
legal right,  power and authority and all necessary  licenses and permits to own
and  operate  its  assets and  properties  and to carry on its  business  as now
conducted.

                  (b) Pledgor has all requisite legal right, power and authority
to  execute,  deliver and perform  the terms and  provisions  of the Note,  this
Pledge  Agreement  and all  other  instruments  and  documents  delivered  by it
pursuant hereto and thereto. Pledgor has taken all necessary action to authorize
the execution,  delivery and performance of the Note, this Pledge  Agreement and
all other  instruments  and  documents  delivered  or to be delivered by Pledgor
pursuant  hereto and  thereto.  The Note,  this Pledge  Agreement  and all other
instruments and documents executed and delivered or to be executed and delivered
pursuant  hereto and thereto  constitute and will  constitute  legal,  valid and
binding  obligations of Pledgor  enforceable  against Pledgor in accordance with
their respective terms.

                  (c)  Neither the  execution  and  delivery  of the Note,  this
Pledge  Agreement nor any of the  instruments  and documents  delivered or to be
delivered pursuant hereto and thereto,  nor the consummation of the transactions
herein  contemplated or therein,  nor compliance  with the provisions  hereof or
thereof, will violate any law or regulation, or any order, writ or decree of any
court or governmental  instrumentality,  or will conflict with, or result in the
breach  of, or  constitute  a  default  in any  respect  under,  any  indenture,
mortgage,  deed of trust,  agreement or other  instrument  to which Pledgor is a
party, or by which Pledgor or any of its properties may be bound or affected, or
will result in the creation or  imposition  of any lien,  charge or  encumbrance
upon any of the property of Pledgor (except as contemplated hereunder),  or will
violate any provision of the Articles of Organization or the Operating Agreement
(each as amended to date) of Pledgor.

                  (d) Pledgor is not in default under any  indenture,  mortgage,
deed of trust, agreement or other instrument to which it is a party, or by which
it or any of its  properties  may be bound or affected  except for such defaults
which, individually or in the aggregate, will not have a material adverse effect
on the  business,  operations,  property,  assets  or  condition  (financial  or
otherwise), of Pledgor.

                  (e) Pledgor is not in default with respect to any order, writ,
injunction or decree of any court or of any federal,  state,  municipal or other
governmental  authority,  or in violation of any law,  statute or  regulation to
which it is, or any of its properties are subject except

<PAGE>

for such defaults or violations  which,  individually or in the aggregate,  will
not have a material adverse effect on the business, operations, property, assets
or condition (financial or otherwise), of Pledgor.

                  (f) All authorizations,  consents, registrations,  exemptions,
approvals  and licenses  (governmental  or otherwise) or the taking of any other
action  (including,  without  limitation,  by the members or manager of Pledgor)
which are required as a condition to the validity or enforceability of the Note,
this Pledge Agreement or any of the instruments or documents  delivered or to be
delivered  pursuant  hereto or thereto have been effected or obtained and are in
full force and effect.

                  (g)  Pledgor is the legal and  equitable  owner of the Pledged
Collateral free and clear of liens, claims,  encumbrances and security interests
of every kind and nature.  The security  interest  granted by Pledgor to Pledgee
under this Pledge  Agreement  constitutes a valid and perfected  first  priority
security interest in and lien on the Pledged Collateral.  The Pledged Collateral
is not subject to any other adverse claim, lien or encumbrance whatsoever.

                  (h)   There  are  no   actions,   suits,   investigations   or
administrative  proceedings of or before any court,  arbitrator or  governmental
authority, pending or, to the best of its knowledge threatened,  against Pledgor
or any of its  properties  or  assets,  which  (i)  either in any case or in the
aggregate,  if adversely  determined,  would materially and adversely affect the
business, operations,  prospects,  properties, assets or condition (financial or
otherwise),  of Pledgor or (ii) question the validity or  enforceability of this
Pledge  Agreement or any action to be taken in connection with the  transactions
contemplated hereby.

                  (i) After giving effect to the  transactions  contemplated  by
the Note and this Pledge Agreement, there does not exist any condition, event or
act which  constitutes an Event of Default (as defined herein)  hereunder (or an
event of default  under the Note) or which,  after  notice or lapse of time,  or
both,  would  constitute  an Event of Default  hereunder (or an event of default
under the Note).

                  (j)  The  Pledgor's   total  assets   (excluding  the  Pledged
Collateral) less its total liabilities (excluding the Obligations), as otherwise
determined in accordance  with U.S.  generally  accepted  accounting  principles
("GAAP") ("Net Worth"), is not less than $100,000 as of the date hereof.

         3. Events of Default.  Pledgor shall be in default under this Agreement
if any of the following events ("Events of Default") shall occur:

                           (a)      Pledgor  shall fail to pay or perform any of
its Obligations when due after any applicable notice, grace or cure period;

                           (b)      There  shall  occur  any  event  which would
permit Pledgee to

<PAGE>

accelerate amounts outstanding to Pledgee  pursuant to  the Note or any document
underlying, evidencing or securing any of the Obligations to Pledgee;

                           (c)      Any representation or warranty made by or on
behalf of Pledgor herein  or in any other certificate, agreement, instrument  or
statement  delivered  to  Pledgee  by  or  on  behalf of  Pledgor is reasonably
determined  by Pledgee to have been misleading in any material respect as of the
time made or furnished;

                           (d)      The  liens  granted  hereunder  shall ever
become unenforceable or cease to be perfected, first priority liens, as a result
of any action or omission of Pledgor;

                           (e)      Pledgor shall fail to perform or observe any
term, covenant, condition or agreement  required to be performed or  observed by
it hereunder and such failure is not cured within five days after the giving  of
notice to Pledgor of such failure.

         4.       Rights and Remedies of Pledgee Upon and After Default

                  (a) Upon the occurrence of an Event of Default, in addition to
any and all other rights and  remedies  which  Pledgee may then have  hereunder,
under  other  contracts  or  agreements  between  Pledgor  and  Pledgee,   under
applicable law, or otherwise,  Pledgee may at the option of Pledgee: (i) declare
the  entire  unpaid  balance  of  principal  and  all  accrued  interest  on the
Obligations  immediately due and payable,  without written  notice,  demand,  or
presentment,  which are  hereby  waived;  (ii)  reduce  its  claim to  judgment,
foreclose or otherwise  enforce its security  interest in all or any part of the
Pledged   Collateral  by  any   available   judicial   procedure;   (iii)  after
notification,  if any, provided for herein, sell or otherwise dispose of, at the
office of Pledgee,  or elsewhere,  as chosen by Pledgee,  all or any part of the
Pledged  Collateral,  and any such sale or other disposition may be as a unit or
in  parcels,  by  public  or  private  proceedings,  and by  way of one or  more
contracts  (it being agreed that the sale of any part of the Pledged  Collateral
shall not exhaust  Pledgee's  power of sale,  but sales may be made from time to
time until all of the Pledged  Collateral has been sold or until the Obligations
have been paid in full, provided,  however that Pledgee shall have no obligation
to sell the Pledged Collateral  piecemeal,  it being  specifically  acknowledged
that a sale  of all of the  Pledged  Collateral  to one  purchaser  in a  single
transaction shall be conclusively presumed to be commercially  reasonable),  and
at any such sale it shall not be  necessary  to exhibit the Pledged  Collateral;
(iv) at its  discretion,  retain the Pledged  Collateral in  satisfaction of the
Obligations  whenever the  circumstances are such that Pledgee is entitled to do
so under the Uniform  Commercial Code as in effect from time to time in New York
(the "Code"); (v) apply by appropriate judicial proceedings for appointment of a
receiver for the Pledged  Collateral,  or any part thereof,  and Pledgor  hereby
consents to any such  appointment;  (vi) purchase the Pledged  Collateral at any
public sale in accordance with the Code;  (vii) purchase the Pledged  Collateral
at any private sale in accordance  with the Code; and (viii) exercise the rights
set forth in Section 4 hereof in accordance with the Code.

                  (b)  Pledgee  is  authorized,  at  any  sale  of  the  Pledged
Collateral,  if it deems it advisable,  to restrict the  prospective  bidders or
purchasers to those persons who will represent

<PAGE>

and agree that they are purchasing for their own account,  for  investment,  and
not with a view to distribution or sale of any of the Pledged  Collateral.  Upon
any such sale, Pledgee shall have the right to deliver,  assign, and transfer to
the purchaser thereof the Pledged Collateral so sold. Each purchaser at any such
sale shall hold the property  sold  absolutely,  free from any claim or right of
whatsoever  kind,  including  any equity or right of redemption of Pledgor which
hereby specifically waives all rights of redemption, stay, or appraisal which it
has or may have  under any rule of law or  statute  now  existing  or  hereafter
adopted,  and such  waiver  shall be deemed to have  been  made  after  default.
Pledgee  shall give Pledgor five days'  written  notice of its intention to make
any such public or private sale. At any such sale the Pledged  Collateral may be
sold in one lot as an entirety or in separate parcels, as Pledgee may elect, and
any such election shall be presumed to be commercially reasonable. Pledgee shall
not be obligated to make any such sale pursuant to any such notice. Pledgee may,
without notice or  publication,  adjourn any public or private sale or cause the
same to be  adjourned  from time to time by  announcement  at the time and place
fixed for the sale,  and such sale may be made at any time or place to which the
same may be so adjourned.  In case of any sale of all or any part of the Pledged
Collateral on credit or for future delivery,  the Pledged Collateral so sold may
be retained by Pledgee until the selling price is paid by the purchaser thereof,
but  Pledgee  shall not  incur  any  liability  in case of the  failure  of such
purchaser to take and pay for the Pledged  Collateral  so sold,  and, in case of
any such failure,  such Pledged  Collateral  may again be sold upon like notice.
Pledgee may also,  at its  discretion,  proceed by a suit or suits at law, or in
equity to foreclose the pledge and sell the Pledged  Collateral,  or any portion
thereof,  under  a  judgment  or  decree  of a  court  or  courts  of  competent
jurisdiction.  If any consent, approval or authorization of any state, municipal
or other  governmental  department,  agency or authority  should be necessary to
effectuate  any sale or other  disposition  of the  Pledged  Collateral,  or any
partial disposition of the Pledged Collateral, or any part thereof, Pledgor will
execute  all such  applications  and other  instruments  as may be  required  in
connection with securing any such consent,  approval or authorization,  and will
otherwise use its best efforts to secure the same.

                  (c) Notwithstanding  anything to the contrary herein,  Pledgor
recognizes  that  Pledgee  may be unable to effect (or to do so only after delay
which would  adversely  affect the value that might be realized from the Pledged
Collateral) a public sale of all or part of the Pledged  Collateral by reason of
certain  prohibitions  contained in the  Securities Act of 1933, as amended (the
"Securities Act") and may be compelled to resort to one or more private sales to
a restricted  group of  purchasers  who will be obligated to agree,  among other
things, to acquire such securities for their own account, for investment and not
with a view of the distribution or resale thereof.  Pledgor agrees that any such
private sale may be at prices and on terms less  favorable to the seller than if
sold at public sales and that the making of such  private  sales shall be deemed
to have  been  commercially  reasonable.  Pledgor  agrees  that  Pledgee  has no
obligation to delay sale of any such securities for the period of time necessary
to permit the registration of such Pledged Collateral  pursuant to a public sale
under the Securities Act.  Pledgee shall be entitled to rely upon the advice and
opinion of any qualified appraiser, dealer/broker or investment banker as to the
commercially reasonable price obtainable for the Pledged Collateral, but Pledgee
shall not be obligated to solicit or rely upon such advice or opinion.

<PAGE>

                  (d)  The  proceeds  of  any  collection,   recovery,  receipt,
appropriation,  realization or sale of the Pledged Collateral,  or any component
thereof, shall be applied by Pledgee as follows:

                           (i)      First, to the payment of all costs, expenses
and charges of the Pledgee,  as such, or the  reimbursement  of the Pledgee  for
the prior payment of such costs, expenses and  charges  incurred  in  connection
with the collection, sale, care and safekeeping of the Pledged Collateral or any
component  thereof (including the expenses of any sale or other  proceeding, the
expenses of any taking, reasonable  attorneys' fees  and  expenses, court costs,
any other expenses incurred  or  expenditures or advances made by the Pledgee in
the  protection, enforcement  or  exercise  of its rights,  powers or  remedies
hereunder) with interest on any such reimbursement at the rate of twelve percent
per annum from the date of payment.

                           (ii)     Second, to the payment of  the  Obligations,
in  whole or  in  part, in such order  as  Pledgee  may  elect, whether  such
Obligations  are then due or not due.  The Pledgor  shall remain  liable for any
deficiency  only to the extent provided for in the Note.

                           (iii)            Third, to the  payment of  any other
amounts required by applicable law including, without limitation of the Code.

                           (iv)     Fourth, to  the  extent of  any  surplus
thereafter remaining  to the Pledgor or as a court of competent jurisdiction may
direct.

                  (e)  In  the  event  that  the  proceeds  of  any  collection,
recovery,  receipt,  appropriation,  realization  or sale  are  insufficient  to
satisfy the  Obligations  and/or the foregoing,  Pledgor shall be liable for the
deficiency only to the extent provided for in the Note.

         5. Pledgor's Covenants.

                  (a)  Pledgor  covenants  and  agrees to: (i) from time to time
promptly  execute  and deliver to Pledgee  all such stock  powers,  assignments,
certificates, supplemental writings, financing statements and other items and do
all other acts or things a Pledgee  may  request in order more fully to evidence
and perfect the  interest of Pledgee in the Pledged  Collateral;  (ii)  promptly
furnish  Pledgee  with any  information  or writings  which  Pledgee may request
concerning the Pledged Collateral; (iii) allow Pledgee to inspect all records of
Pledgor relating to the Pledged  Collateral or the Obligations,  and to make and
take away copies of such records;  (iv) promptly notify Pledgee of any change in
any fact or  circumstances  warranted or  represented  by Pledgor in this Pledge
Agreement or in any other writing  furnished by Pledgor to Pledgee in connection
with the Pledged  Collateral or the Obligations;  (v) promptly notify Pledgee of
any claim, action or proceeding  affecting title to the Pledged  Collateral,  or
any part  thereof,  or the  security  interest  herein,  and,  at the request of
Pledgee,  appear  in and  defend,  at  Pledgor's  expense,  any such  action  or
proceeding;  (vi) promptly, after being requested by Pledgee, pay to Pledgee the
amount of all reasonable  expenses,  including  reasonable  attorney's  fees and
other  legal  expenses,  incurred  by Pledgee  in  perfecting,  maintaining  and
enforcing the security interest in the Pledged Collateral;

<PAGE>

and (vii)  promptly upon Pledgee's  request  certify to Pledgee (in such form as
Pledgee requests) its compliance with the Net Worth Requirement (as defined).

                  (b)  Pledgor  covenants  and agrees  that,  without  the prior
written  consent  of  Pledgee  which  may  be  withheld  in  Pledgee's  absolute
discretion, Pledgor will not: (i) sell, assign or transfer any rights of Pledgor
in the Pledged Collateral; (ii) grant any options or other rights in the Pledged
Collateral;  nor (iii)  create any other  security  interest  in,  mortgage,  or
otherwise encumber the Pledged  Collateral,  or any part thereof,  or permit the
same to be or become subject to any lien, attachment, execution,  sequestration,
other legal or equitable  process,  or any encumbrance of any kind or character,
except the security interest herein created.

                  (c) Pledgor covenants and agrees that (i) at no time while any
of the Obligations  are outstanding  shall its Net Worth be less than the lesser
of (the "Net  Worth  Requirement")  (A)  $100,000  or (B) the  Obligations  then
outstanding, and (ii) it will promptly notify Pledgee of its non-compliance with
the Net Worth Requirement.

         6.       Voting Rights; Dividends; Etc., Prior to Default.

                  (a) As long as no Event of  Default,  or event  which with the
giving of notice or lapse of time or both would  constitute  an Event of Default
shall have occurred after the date hereof and be  continuing,  and Pledgee shall
not have given written notice to Pledgor of its intention to foreclosure upon or
otherwise dispose of the Pledged Collateral or to exercise its voting rights (or
terminate Pledgor's voting rights) pertaining to the Pledged Collateral:

                           (i)      Pledgor shall have the  right  to  vote  the
Pledged Collateral on all corporate questions in a manner not inconsistent  with
this Pledge Agreement and in particular, Section 7 hereof;

                           (ii)     Pledgor  shall  be  entitled to receive  and
retain any and all ordinary  cash dividends on  the Pledged  Collateral, but any
and  all stock and/or liquidating dividends, distributions in property,  returns
of  capital  or other  distributions  made on  or  in respect of  the  Pledged
Collateral, whether  resulting  from  a  subdivision, combination  or
reclassification  of the  outstanding capital  stock  of the issuer  thereof  or
received in  exchange for  the Pledged  Collateral or any part  thereof or as  a
result of the  conversion of the Pledged Collateral into any other securities or
assets  or  as  a result  of  any merger, consolidation, acquisition   or  other
exchange  of  assets to which  any  such issuer  may  be  a  party or otherwise,
shall be and become part of the Pledged Collateral hereunder and, if received by
Pledgor,  shall be held in trust for the benefit of the Pledgee and forthwith be
delivered by Pledgor to Pledgee (accompanied by proper instruments of assignment
and/or  stock powers  executed by  Pledgor   in  accordance  with  Pledgee's
instructions) and held by Pledgee subject to the terms of this Pledge Agreement.
Any such  distribution (other than ordinary cash dividends) received in the form
of cash  or money  shall be applied as  a prepayment  of the  Obligations in the
manner contemplated by Section 3 of the Note.

                  (b)      Upon (i)  the occurrence after the date hereof of an
Event of Default or any

<PAGE>

event  which  with the  giving  of  notice  or the  lapse of time or both  would
constitute an Event of Default, and (ii) the giving of written notice by Pledgee
to Pledgor of its intention to (A) foreclosure upon or otherwise  dispose of the
Pledged  Collateral or (B) exercise its voting rights  pertaining to the Pledged
Collateral  and/or  terminating the voting rights of the Pledgor with respect to
the Pledged Collateral,  all rights of Pledgor to exercise the voting rights and
powers  which it is  entitled to exercise  pursuant  to section  6(a)(i)  hereof
and/or to receive the  dividends  which it is  authorized  to receive and retain
pursuant to section  6(a)(ii) hereof shall cease, at the option of Pledgee,  and
all such rights shall  thereupon  become  vested in Pledgee which shall have the
sole and exclusive right and authority to exercise such voting rights and powers
and/or to receive and retain the  dividends  which  Pledgor  would  otherwise be
authorized  to retain  pursuant to section 6(a) hereof.  Pledgee  shall have the
right upon the occurrence of an Event of Default to notify and direct the issuer
of the  Pledged  Collateral  (including  the  Pledgee)  to  thereafter  make all
payments,  distributions,  dividends  and any  other  distributions  payable  in
respect  thereof  directly to the Pledgee.  Any and all money and other property
paid over to or received by Pledgee  pursuant to the  provisions of this section
6(b) shall be retained by Pledgee as additional  collateral hereunder and may be
applied (and upon Pledgor's  written request all cash shall promptly be applied)
in accordance with the provisions hereof.

         7. Voting; Designation of Shares. (a) Pledgor shall take such action as
may be required so that all Pledged  Collateral is, unless the Pledgee otherwise
consents in  writing,  voted on all matters to be voted on by the holders of the
Pledgee's  capital  stock (i) voting  together  as a single  class,  in the same
proportion  as the votes cast by the holders of such  outstanding  capital stock
voting  together as a single class or (ii) voting as a separate  class or series
of outstanding  capital stock,  in the same  proportion as the votes cast by the
holders of the applicable  outstanding  class or series,  as the case may be, or
(iii) if applicable, both (i) and (ii).

                  (b) Nothing in this Section 7 shall be construed to afford the
holders of any Series A Stock any voting  rights  other than those to which they
are entitled by law, the Corporation's  Certificate of Incorporation  (including
any applicable certificate of designations or other similar instrument),  or the
by-laws of the Corporation as in effect from time to time.

         8. Authority of Pledgee. Pledgee shall have and be entitled to exercise
all such powers hereunder as are specifically  delegated to Pledgee by the terms
hereof, together with such powers as are reasonably incidental thereto.  Pledgee
and any director,  officer,  employee,  agent or representative of Pledgee shall
not be liable for any action taken or omitted to be taken by them or any of them
hereunder or in connection  herewith,  except for their own gross  negligence or
willful  misconduct;   nor  shall  Pledgee  be  responsible  for  the  validity,
effectiveness  or  sufficiency  hereof or of any document or security  furnished
pursuant thereto or in connection herewith. Pledgee shall be entitled to rely on
any  communication,  instrument  or  document  believed  by it to be genuine and
correct and to have been signed or sent by the proper person or persons. Pledgor
hereby  agrees to reimburse  Pledgee,  on demand,  for all  reasonable  expenses
incurred by it in connection  with the  administration  and  enforcement of this
Pledge  Agreement  and agrees to indemnify  and hold Pledgee  harmless  from and
against  any  and  all  liability  incurred  by it  hereunder  or in  connection
herewith,  unless such  liability  shall be due to willful  misconduct  or gross
negligence on the part of

<PAGE>

Pledgee.  Other than the exercise of reasonable care in the physical  custody of
the  Pledged   Collateral   while  held  by  Pledgee,   Pledgee  shall  have  no
responsibility  for or obligation or duty with respect to all or any part of the
Pledged  Collateral  or any  matter or  proceeding  arising  out of or  relating
thereto,  including,  without limitation,  any obligation or duty to collect any
sums due in respect  thereof or to protect or preserve any rights  against prior
parties or any other rights pertaining  thereto,  it being understood and agreed
that Pledgor shall be responsible  generally for the  preservation of all rights
in the Pledged  Collateral.  Without  limiting the  generality of the foregoing,
Pledgee shall be  conclusively  deemed to have exercised  reasonable care in the
custody of the Pledged  Collateral if Pledgee takes such action, for purposes of
preserving rights in the Pledged  Collateral,  as Pledgor may reasonably request
in writing, but no failure or omission or delay by Pledgee in complying with any
such  request by  Pledgor,  and no  refusal  by Pledgee to comply  with any such
request by Pledgor shall be deemed to be a failure to exercise reasonable care.

         9.   Attorney-in-Fact.   Pledgor  hereby  appoints  Pledgee   Pledgor's
attorney-in-fact  for the purpose of carrying out the  provisions of this Pledge
Agreement and taking any action and executing any  instrument  which Pledgee may
deem necessary or advisable to accomplish the purposes hereof, which appointment
is irrevocable and coupled with an interest.  Without limiting the generality of
the foregoing,  Pledgee shall have the right and power, except and to the extent
otherwise  provided in  subsection  6(a),  to  receive,  endorse and collect all
checks  and other  orders  for the  payment  of money  made  payable  to Pledgor
representing  any dividend or other  distribution  payable or  distributable  in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same.

         10. Performance by Pledgee.  Should any covenant,  duty or agreement of
Pledgor fail to be performed in  accordance  with its terms  hereunder,  Pledgee
may,  but shall  never be  obligated  to,  perform or  attempt  to perform  such
covenant,  duty or  agreement on behalf of Pledgor,  and any amount  expended by
Pledgee in such performance or attempted  performance shall become a part of the
Obligations,  and, at the request of Pledgee,  Pledgor agrees to pay such amount
promptly to Pledgee at Pledgee's  office  together with interest  thereon at the
rate provided in the Note.

         11. Proceeds.  Should the Pledged Collateral, or any part thereof, ever
be in any manner  converted by its issuer or maker into another type of property
or any money or other  proceeds ever be paid or delivered to Pledgor as a result
of Pledgor's rights in the Pledged Collateral, then, in any such event, all such
property, money and other proceeds,  except only ordinary cash dividends (unless
and until payable to Pledgee  pursuant to subsection 6(b) hereof),  shall become
part of the Pledged Collateral, and shall be delivered to Pledgee by Pledgor and
if in the  form of  cash or  money  shall  be  applied  as a  prepayment  of the
Obligations in the manner contemplated by Section 3 of the Note.

         12. No Waiver;  Cumulative Remedies.  No failure on the part of Pledgee
to exercise,  and no delay in exercising,  any right,  power or remedy hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such right, power or remedy by Pledgee

<PAGE>

preclude  any other or further  exercise  thereof or the  exercise  of any other
right,  power or remedy.  All  remedies  hereunder  are  cumulative  and are not
exclusive of any other remedies provided by law.

         13.  Termination.  This  Pledge  Agreement  shall  terminate  when  the
Obligations  have been fully paid and  performed,  at which time  Pledgee  shall
reassign and redeliver to Pledgor, or to such person or persons as Pledgor shall
designate, against receipt, such of the Pledged Collateral (if any) as shall not
have been sold or otherwise  applied by Pledgee pursuant to the terms hereof and
shall  be  held by him  hereunder,  together  with  appropriate  instruments  of
reassignment  and  release.  The security  interest  created  hereby will,  with
respect to a portion of the  Pledged  Collateral,  be  released  when and to the
extent  that  the  related  Obligations  have  been  satisfied.   In  connection
therewith,  for each  $8.99 in  principal  amount of  Obligations  that are paid
(including the payment of all accrued interest, fees and charges related to such
principal  amount),  the security interest shall be released with respect to one
share of Series A Stock (or the related  number of shares of Common Stock issued
upon  conversion  of such shares of Series A Stock).  As and when the  principal
amount  of the Note is paid,  Pledgor  shall  designate,  subject  to  Pledgee's
approval  which  shall  not  be  unreasonably   withheld,   which   certificates
representing  the  Pledged   Collateral  shall  no  longer  be  subject  to  the
limitations imposed by Section 7 hereof.

         14. Notices.  All notices,  requests,  demands and other communications
which are  required  or may be given  under this  Pledge  Agreement  shall be in
writing  and  shall be  deemed  to have  been  duly  given or made:  if by hand,
immediately  upon  delivery;  if  by  telex,  telecopier,  telegram  or  similar
electronic device,  immediately upon sending,  provided it is sent on a business
day, but if not, then  immediately  upon the beginning of the first business day
after being sent;  if by Federal  Express,  Express Mail or any other  overnight
delivery  service,  on the first business day after  dispatch;  and if mailed by
certified mail, return receipt requested, three (3) business days after mailing.
All notices,  requests and demands are to be given or made to the parties at the
addresses set forth on the first page of this Pledge Agreement (or to such other
address  as  either  party  may  designate  by  notice  in  accordance  with the
provisions of this paragraph).

         15.  Binding  Agreement;  Assignment.  This Pledge  Agreement,  and the
terms,  covenants and conditions hereof,  shall be binding upon and inure to the
benefit of the parties hereto,  and their respective  heirs,  successors,  legal
representatives  and  assigns,  except that  Pledgor  shall not be  permitted to
assign  this  Pledge  Agreement  or  any  interest  herein  or  in  the  Pledged
Collateral,  or any part  thereof,  or otherwise  pledge,  encumber or grant any
option with respect to the Pledged Collateral,  or any part thereof, or any cash
or property held by Pledgee as additional  collateral security under this Pledge
Agreement.

         16.  Miscellaneous.  Neither this Pledge  Agreement nor any  provisions
hereof may be amended, modified, waived, discharged or terminated orally nor may
any of the Pledged Collateral be released or the pledge or the security interest
created hereby extended, except by an instrument in writing duly signed by or on
behalf of the Pledgee  hereunder or except to the extent  otherwise  provided in
Section 13 herein.  The paragraph  headings used herein are for  convenience  of
reference  only and shall not  define or limit  the  provisions  of this  Pledge
Agreement. This

<PAGE>

Pledge  Agreement  may be  executed in two or more  counterparts,  each of which
shall be deemed an original  and all of which  together  shall  constitutes  one
agreement.

         17. Severability. In case any lien, security interest or other right of
any party hereto  shall be held to be invalid,  illegal or  unenforceable,  such
invalidity,  illegality and/or unenforceability shall not affect any other lien,
security interest or other right granted hereby.

         18.  Governing  Laws.  This Pledge  Agreement  shall be governed by and
construed in accordance  with the laws of the State of New York,  without regard
to its choice of law principles.

         IN  WITNESS  WHEREOF,  the  parties  hereunto,  intending  to be  bound
hereunder,  have  set  their  hands on the date  and at the  place  first  above
written.

                               U.S. ENERGY SYSTEMS, INC.

                           By: Goran Mornhed
                               ------------------------
                               Goran Mornhed, President

                              ENERGY SYSTEMS INVESTORS, L.L.C.

                            By:Henry Schneider
                               -------------------------
                               Henry Schneider, Manager

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