Document:

SHAREHOLDERS' AGREEMENT

                  THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is dated as of
_____ March, 2002, (the "Effective Date") by and among Scandinavian Energy
Finance Limited, an Irish corporation (the "Company"), Endoray Investments,
B.V., a Dutch company ("USE") which is a wholly owned subsidiary of US Energy
Systems, Inc. ("USE Parent"), USE Parent, EIC Investments (Jersey) Limited a
Jersey company ("EIC") which is a wholly owned subsidiary of A & A EIC
Electricity Investment Company, a Swiss corporation ("EIC Parent"), and EIC
Parent. Each of the parties to this Agreement (other than the Company and EIC
Parent) and any other individual, corporation, partnership, trust,
unincorporated organization or a government or any agency or political
subdivision thereof (a "Person") who shall become a party to or agree to be
bound by the terms of this Agreement after the date hereof is sometimes
hereinafter referred to as a "Shareholder."

                                    RECITALS

        A. WHEREAS, the Shareholders have formed the Company in order to pursue
the financing (debt and/or equity) development, ownership, management and
operation of private heating direct systems in Sweden.

        B. WHEREAS, as of the date hereof, USE Parent has subscribed for 2
ordinary shares of the Company of (euro)1 each ("Ordinary Shares") at par, USE
has subscribed for 50,998 Ordinary Shares at par and EIC has subscribed for
49,000 Ordinary Shares at par.

        C. WHEREAS, USE has made a capital contribution to the Company
comprising 51,338,544.60 Swedish Kronor and 167,976 USE Parent Common Shares and
EIC has made a capital contribution to the Company comprising 56,056,623.5
Swedish Kronor.

        D. The Company and the Shareholders desire, for their mutual benefit and
protection, to enter into this Agreement to set forth their respective rights
and obligations with respect to their Ordinary Shares (whether issued or
acquired hereafter, including all Ordinary Shares issuable upon the exercise of
warrants, options or other rights to acquire Ordinary Shares, or upon the
conversion or exchange of any security ("Rights")).

                  NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:

1.       MANAGEMENT

             1.1   Management. The management of the Company shall be conducted
in accordance with the provisions of this Agreement and the provisions of the

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Articles of Association, as amended (as amended and as may be amended from time
to time, the "Articles"), of the Company.

            1.2   Board of Directors; Board Composition; Removal and Vacancies.

                        (a)  Number of Directors. The Board of Directors of the
Company (the "Board") shall be comprised of five directors (the "Directors") who
shall be elected and removed as set forth in subsections (b) through (d) below.
A Director need not be a Shareholder.

                        (b) Election of Directors.  USE and EIC shall have the
right to designate three individuals and two individuals, respectively, as
nominees for election as Directors and as directors of any future direct or
indirect subsidiary of the Company (a "Future Subsidiary"). A Shareholder
entitled to designate Directors pursuant to the immediately preceding sentence
shall be referred to as a "Designating Shareholder." The Shareholders hereby
agree to vote their respective Ordinary Shares in favour of the election of the
Directors designated by each Designating Shareholder. If, at any time, a
Designating Shareholder shall notify the Company and the other Shareholder in
writing of such Designating Shareholder's desire to have removed from the Board
any Director designated by such Designating Shareholder, the Shareholders shall,
subject to the Companies Acts 1963 to 2001, (i) meet within five (5) days after
the date of such notice for the purpose of considering such removal and (ii)
vote at the meeting considering such removal their respective Ordinary Shares in
favour of such removal; provided that the Director to be removed shall continue
to hold office until so removed. Subject to the Companies Acts 1963 to 2001, a
Director may only be removed from the Board with the written consent of the
Designating Shareholder who designated such Director.

                        (c) Board of Directors.  The Board of the Company as of
the Subscription Time will consist of the following persons:

<TABLE>
<CAPTION>
<S>                      <C>                                       <C>

           ------------------------------------------------ ----------------------------------------
                          Name of Directors                         Designating Shareholder
           ------------------------------------------------ ----------------------------------------
           Goran Mornhed                                                      USE
           ----------------------------------------------- -----------------------------------------
           Allen J Rothman                                                    USE
           ----------------------------------------------- -----------------------------------------
           Michael Ryan                                                       USE
           ------------------------------------------------ ----------------------------------------
           Dominique Candrian                                                 EIC
           ------------------------------------------------ ----------------------------------------
           Marcel Bruehwiler                                                  EIC
           ------------------------------------------------ ----------------------------------------

</TABLE>

                  Each of such persons shall hold office until such person's
death, resignation or removal or until such person's successor shall have been
duly designated, where applicable, and elected by the Shareholders.

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                       (d) Vacancies; Action by Shareholders.  If a vacancy is
created on the Board by reason of the death, disability, removal or resignation
of any Director, the Shareholder, which, under Section 1.2(b), is entitled to
designate such Director, shall be entitled to designate a new nominee to serve
as Director. Upon notice from such Designating Shareholder to the Company and
the other Shareholder, the Shareholders shall (i) meet within five (5) days of
such notice for the purpose of considering the election of the designated
nominee to fill such vacancy and (ii) vote their Ordinary Shares in favour of
such nominee.

          1.3  Voting Requirements for Required Matters. The only matters to be
submitted to the Shareholders shall be matters expressly required to be
submitted to the Shareholders pursuant to this Agreement or the provisions of
the Laws of Ireland ("Irish Law"). Notwithstanding any other provision of this
Agreement to the contrary, the Board shall not without the approval of at least
four of the Directors at a properly convened Board meeting or a written
resolution of the Board, take any of the following actions on behalf of the
Company:

1.      Demand additional capital from the Shareholders

2.      Borrow money or guarantee the obligations of any Person not in the
        ordinary course of business, or mortgage, pledge or grant a security
        interest in assets not in the ordinary course of business, in any one
        transaction or a series of related transactions.

3.      Enter into a transaction or agreement with an Affiliate of a Shareholder
        or amend any such agreement other than as specifically set forth in this
        Agreement.

4.      Make unbudgeted acquisitions or loans, not in the ordinary course of
        business.

5.      Dispose of assets not in the ordinary course of business.

6.      Enter into any contract not in the ordinary course of business which
        requires unbudgeted expenditures, loans, commitments or liabilities.

7.      Authorise or issue any additional Ordinary Shares or other equity
        interests of the Company or any option or warrant to purchase such
        equity interests.

8.      Engage in a business activity other than the Business.

9.      Commence any process of dissolution, liquidation, winding up, insolvency
        , examinership or voluntary bankruptcy.

10.     Approve any merger or consolidation of the Company.

11.     Form any subsidiary.

12.     Amend or modify any credit agreement or implement any change in capital
        structure not in the ordinary course of business.

13.     Commence or settle any litigation that involves an amount in excess of
        $100,000.

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14.     Engage or terminate principal auditors or attorneys of the Company.

15.     Approve or adopt the Company's annual budget.

16.     Obtain approval for any Company budget and any material expenditures
        that deviate from the Company's budget during any Probation Period. A
        "Probation Period" is any period that commences when the Company's
        financial results, as reflected in an annual audited financial statement
        for the Company, differ materially adversely from the Company's pro
        forma projections (the projections for 2002 - 2022 are annexed hereto in
        Schedule 2) and terminates when the Company's financial results are no
        longer below the thresholds in such projections.

17.     Change or modify the dividend policy of the Company as provided for at
        Section 1.10.

18.     Take any material action or exercise or waive any material right with
        respect to Gigantissimo 2321 A.B. or any of its Affiliates provided that
        in the event Goran Ernston exercises his rights under section 5.1 of the
        Agreement between Goran Ernston and the Company dated March 2001 (the
        "Security Holders' Agreement"), the Shareholders will cause the
        directors designated by them to cause the Company to meet its
        obligations under such section and exercise the Company's option on Mr.
        Ernston's shares if necessary to comply with such provision and
        thereafter to sell such shares subject to a new option substantially
        similar to the Ernston option and Lantbrukskredit AB's approval rights
        unless four directors vote for the Company to retain the shares.

19.     Such other matters as the Shareholders or their designated Directors
        shall by mutual consent determine as being appropriate.

20.     Repurchase or redemption of the Company's shares by the Company.

21.     Take any material action or exercise or waive any material right with
        respect to the Company's financing agreements with Lantbrukskredit AB.

22.     Cause or request a change in the name of the Company or any entity
        which is directly or indirectly financed by the Company.

The matters required to be submitted to the Shareholders pursuant to this
Section 1.3 are referred to herein as the "Required Matters." For the purpose of
this Section 1.3, "in the ordinary course of business" shall mean business which
is substantially and materially consistent with the pro forma financial
projections of the Company as set out in Schedule 2 to this Agreement.

The Company shall acquire an option from Goran Ernston to acquire his share in
Gigantissimo 2321 AB. In the event such option is exercised, the Company will
acquire Mr. Ernston's rights and assume Ernston's obligations under the
shareholders' agreement respecting Gigantissimo 2321 AB including, without
limitation, his right to nominate up to five members of the Gigantissimo 2321 AB
board. In the event the Company nominates members of the Gigantissimo 2321 AB

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board, the Company's shareholders shall have the right to cause the Company to
nominate, remove and replace the Company's representatives to the Gigantissimo
2321 AB board in the same manner that the Shareholders nominate remove and
replace members of the Board pursuant to Section 1.2 hereof. Thus, for example,
if the Company had the right to nominate five members of the Gigantissimo 2321
AB board as of the date of this Agreement, USE would have the right to cause the
Company to nominate three USE designees, and EIC would have the right to cause
the Company to nominate two designees. Further, in the event the Company's
designees on the board of Gigantissimo 2321 AB or the Company as shareholder is
required to vote on a matter described in Section 1.3 hereof as it relates to
Gigantissimo 2321 AB, the Company's designees and the Company shall, to the
maximum extent permissible under applicable law, affect the determination of the
matter by Gigantissimo 2321 AB as if the decision to vote in favour or against
the matter were taken in accordance with Section 1.3 hereof. Notwithstanding the
above, a shareholder of the Company owning at least 30% of the shares of the
Company shall have the right to designate at least one member of the board of
Gigantissimo 2321 AB.

                  1.4         Procedure In The Event of Deadlock

                          (a)        Where:

                                        (i)      a proposed  transaction or
course of action by the Company  requires the consent of at least four Directors
pursuant to this Agreement or otherwise;

                                        (ii)     any two directors refuse to
provide the consent within ten Business Days of being first asked to do so; and

                                        (iii)    in the reasonable opinion of
USE or EIC, the inability of the Company to proceed with the proposed
transaction or course of action has the effect of preventing the Company from
continuing to achieve its business purposes,

or where a quorum is not present at two successive Board meetings duly convened,
either USE or EIC may give the other Shareholder written notice (a "Deadlock
Notice") to the effect that a deadlock exists.

                        (b) Within five business days of the service of a
Deadlock Notice, USE or EIC shall cause its nominees on the Board to prepare and
circulate to the other and the other Directors a written statement setting out
its position on the matter in dispute and its reasons for adopting such position
(each a "Position Statement"). Each Position Statement shall be considered by a
senior executive (e.g. Managing Director, Chief Executive Officer or President)
of USE and EIC then holding office who shall respectively use their reasonable
endeavours to resolve such dispute. If they agree upon a resolution or
disposition of the matter, they shall jointly execute a statement setting forth
the terms of such resolution or disposition and USE and EIC shall exercise the
voting rights and other powers of control available to them in relation to the
Company to procure that such resolution or disposition is fully and promptly
carried into effect.

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<PAGE>
                        (c) If a resolution or disposition is not agreed in
accordance with the provisions of Section 1.4(b) within 14 days after delivery
of both Position Statements, or such longer period as USE and EIC may agree in
writing, the matter(s) in dispute shall be referred to, and settled by, an
independent person acting as an expert (the "Expert"), whom shall be appointed
by agreement between USE and EIC or, in default of agreement between USE and EIC
, by the President for the time being of the Law Society of Ireland. The Expert
shall be a person familiar with corporate finance and corporate governance
issues and, if feasible, the energy sector.

                        (d) The Expert's determination shall be conducted on an
expedited basis such that the issues submitted are not rendered moot.

                        (e) Pending the submission in accordance with Section
1.4(c) and thereafter until the Expert makes his award, the Shareholders shall
continue to perform their obligations hereunder, without prejudice to a final
adjustment in accordance with any award made by the Expert.

                        (f)      In a reference, the Expert shall act as an
expert and not as an arbitrator.

                        (g)      The decision of the Expert, in the absence of
fraud or manifest error, shall be final and binding on both parties.

                        (h)      The Shareholders shall bear the Expert's costs
equally;

                        (i) The Shareholders shall with reasonable expedition
endeavour to agree any terms of reference of the Expert or procedures relating
to the determination (failing which the Expert shall determine his own terms of
reference and the procedures to be applied to the determination of any dispute
pursuant to this Section); and

                        (j) Each Shareholder shall promptly furnish to the
Expert all such assistance, documents, information and personnel as the Expert
may require for the purpose
of the determination.

        1.5 Approval of Required Matters Relating to Varmeland Teknik AB and
Narvarme Svergie AB Transactions. The Board has approved the execution, delivery
and performance of the agreements and instruments and other actions relating to
the financing of the Swedish district heating projects being purchased from the
Varmeland Teknik group (the "Swedish district heating transaction") set forth in
the resolution annexed at Schedule 1 to this Agreement. USE has been advised by
the Company's Swedish counsel that Schedule 1A contains a list of all the
material agreements and instruments relating to the Swedish district heating
transaction, however, EIC also acknowledges that it has had the opportunity to
make inquiry with the Company's Swedish counsel concerning the completeness and
accuracy of this Schedule. USE hereby warrants that all agreements and
instruments relating to the Company and the Swedish district heating project
financing, to which the Company is a party as at the date hereof, are referred
to in Schedule 1 to this Agreement.

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<PAGE>

        1.6 Limitation on Management Power. Notwithstanding anything set forth
herein or in the Articles and without limiting the authority of the Board to
oversee the management of the Company, no officer or employee of the Company
shall take any of the following actions without the prior approval of the Board
and, in the case of the actions described in Section 1.3, the required vote of
the Board: (i) change the line of business or enter into any new line of
business; (ii) retain any attorney or accountant to represent or provide
services to the Company; (iii) authorise or enter into any agreement or
arrangement between the Company and any of its officers, Directors, Shareholders
or Affiliates; (iv) the Required Matters; or (v) agree to do any of the
foregoing.

        1.7  Directors' Expenses. The Company shall reimburse directors for
all reasonable out-of-pocket expenses incurred in connection with their
attendance or participation at Board meetings or other Company related business.

        1.8  Action by Shareholders and Directors. Each Shareholder shall vote
its Ordinary Shares and take such other action, and cause its nominees to take
such action, as is necessary or appropriate in its capacity as Shareholder,
officer and/or director of the Company to carry out the provisions of this
Agreement.

       1.9  Additional Capital.

            (a) Notice.  If at any time and from time to time, the Board
determines by vote as required by Section 1.3 above that the Company requires
additional funds (the "Additional Capital") in excess of its then existing
capital, written notice shall be given to each Shareholder of (i) the total
amount of Additional Capital required, (ii) the reason the Additional Capital is
required, (iii) each Shareholder's proportionate share of the total Additional
Capital (determined in accordance with this Section), and (iv) the date each
Shareholder's Additional Capital is due and payable, which date shall be no
sooner than thirty (30) days after the notice has been given.

             (b) Shareholder's Share.  A Shareholder's proportionate share of
the total Additional Capital shall be equal to the product obtained by
multiplying the total Additional Capital required by (i) the number of Ordinary
Shares held by such Shareholder divided by (ii) the total number of Ordinary
Shares outstanding and the shares issued by the Company to each Shareholder, in
return for the Additional Capital shall be the same class of shares as already
held by that Shareholder..

             (c) Form of Payment. A Shareholder's proportionate share of the
Additional Capital shall be payable in cash or by certified check, wire
transferred federal funds of bank cashier's check or in such other form as the
Board approves by unanimous vote.

             (d) Issuance of Additional Shares. At the discretion of the Board,
the Additional Capital may be payable to the Company in return for the issue of
new shares or as a capital contribution. Should the Board determine that the
Additional Capital will be payable in return for new shares, the Shareholders
shall vote their shares in favour of all resolutions required to authorise the

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<PAGE>

issue of additional shares in exchange for the Additional Capital as follows:

                                  (i) The Company shall issue to each
                                      Shareholder one Ordinary Share for
                                      every euro such Shareholder provides
                                      to the Company pursuant to this Section.

             (e) Notwithstanding anything to the contrary in this Agreement, if
the Company requires [short term] funding in order to achieve its purposes and:

                                  (i)  the Company is unable to obtain such
                                       funding (debt or equity) from third
                                       parties because the Directors do not
                                       approve such funding pursuant to
                                       Section 1.3 hereof or for other reasons;
                                       and

                                  (ii) the Directors do not approve a capital
                                       call from the shareholders pursuant to
                                       Section 1.3 and 1.9(a) hereof;

                          then the shareholder whose directors voted in favour
of the capital call may either (A) fund an unsecured loan to the Company which
shall not exceed the Company's cash requirements to achieve its purposes but in
no event be more than twenty percent of the total shareholder's capitalisation
of the Company which shall bear an interest rate not in excess of 15% per annum
compounded semi-annually and which shall be paid from the Company's cash as and
when available before any dividends are made available or (B) make equity
funding in the form of a share subscription for Ordinary Shares at par and the
reminder in the form of a capital contribution but in no event shall such equity
funding exceed the Company's cash requirements to achieve its purpose and result
after such funding in either USE or EIC holding more than 60% of the issued and
outstanding Ordinary Shares of the Company. The shareholder whose directors
voted against the capital call referred to above shall vote all of its shares in
the Company and direct its nominee directors to vote in favour of any
resolutions required to give effect to the provisions contained in this
paragraph 1.9(e).

               1.10  Dividends. It is the intent of the Shareholders that the
primary source of their investment return in connection with this Agreement
shall be dividends and any other distributions from the Company which may
include, without limitation to the generality of the foregoing, loans to the
Shareholders and the repayment of capital contributions. Accordingly, the
Shareholders shall cause the Company to adopt appropriate policies of declaring
dividends at the highest level permitted by applicable law, consistent with
prudent business practices and having due regard for relevant business,
taxation, working capital, banking covenant and operational requirements.

               1.11  Maintenance of Books and Records; Accounts and Accounting
Method. Unless otherwise agreed, the Board shall cause the Company to keep full
and accurate accounts of the transactions of the Company in proper books and
records of account which shall set forth all information required by Irish law.
Such accounts shall be maintained in accordance with Generally Accepted

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Accounting Principles. For purposes of this Agreement, "Generally Accepted
Accounting Principles" means the generally accepted accounting principles in
effect in Ireland from time to time. Such books and records shall be available,
upon two (2) business days' notice to the Company, for inspection and copying at
reasonable times during business hours by any Shareholder or its duly Authorised
agents or representatives for any purpose reasonably related to such
Shareholder's interest as a Shareholder of the Company.

               1.12  Financial Statements. Promptly after the end of each fiscal
quarter, the Company shall have prepared, and delivered to each Shareholder, a
quarterly set of primary financial statements for the Company. This set of
primary financial statements shall include (i) a balance sheet reflecting the
assets, liabilities and capital accounts, comparative to the prior year and the
prior year-end, and (ii) statements of operations for the quarter and
year-to-date, comparative to the prior year. Upon the request of any
Shareholder, the Board shall cause the annual financial statements to be
examined by the Company's independent auditor and submitted for adoption at the
annual meeting of Shareholders.

               1.13  Additional Information. Upon the request of any Shareholder
, the Company shall prepare additional periodic or special reports of accounts
and/or business activity considered necessary by such equity holder, including
but not limited to, detailed reports of sales by location, detailed expense
reports, reports of capital expenditures, details of assets and liabilities, and
non-financial statistical and ratio data.

               1.14  Minutes of Meetings. The minutes of all proceedings and
copies of resolutions adopted at meetings of the Shareholders or the Board of
the Company shall be duly entered in the minute books which shall be kept at the
executive offices of the Company.

               1.15  Service Agreements. The Company shall enter into a
financial service agreement with EIC or its Affiliate or their subcontractor
pursuant to which EIC shall perform certain financial, risk management and asset
management services for the Company. Further, USE or its Affiliate or their
subcontractor shall enter into a technical service agreement with Gigantissimo
2321AB pursuant to which USE shall perform certain technical operations and
management consulting services for Gigantissimo 2321 AB. Notwithstanding the
above, both service agreements are subject to Board approval pursuant to Section
1.3 hereof. The Shareholders shall cause the Directors designated by them to
approve the service agreements and any renewal or modifications thereof provided
the terms and conditions are arms length and are substantially consistent with
the pro-forma financial statements annexed hereto at Schedule 2, including fee
caps, to assure such consistency. The service agreements shall have a term which
is consistent with the reporting period of the Company, it being understood that
the service agreements shall be renewed or amended following such term, provided
the Board has approved them pursuant to Section 1.3 hereof and this Section
1.15. The Company may also retain a third party to perform day to day
administrative and accounting functions or have such functions performed
internally.

              1.16  Cash Flow. The Cash Flow (as defined below) received by USE
and its Affiliates on the one hand and EIC and its Affiliates (in each case
other than the Company) on the other hand from their participation in the

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Company shall, on an annual basis, be proportionate to the parties respective
investments (as defined below) respecting the transaction relating to
Gigantissimo 2321 AB and its direct and indirect subsidiaries (the "Gigantissimo
Group"). "Cash Flow" for this purpose will include (i) distributions from the
Company, (ii) sale proceeds from the sale of Company shares in which
Shareholders participate pro rata to their share ownership (iii) fee
compensation and reimbursements received by USE and it's Affiliates (in each
case other than the Company) from the Company or the Narvarme Group (iv)
interest payments and principal repayments of shareholder loans made to the
Company provided such loans are made pro rata to share ownership, at the same
time and on the same terms and conditions and (v) proceeds from loans by the
Company to Shareholders made on a pro rata basis at the same time and on the
same terms and conditions. "Investments" shall include share subscription and
capital contributions made by USE and EIC to the Company (including cash and USE
shares) in accordance with this Agreement and the principal amount of such loans
that are made pro rata to share ownership at the same time and on the same terms
and conditions. All calculations shall be made on a cash pre-tax basis out of
the Company. For the purposes of valuing the proportionate investment of USE and
its Affiliates pursuant to this section 1.16, any investment made by way of
contributions of USE Parent shares shall be valued based on the average of the
closing price per share of USE Parent's common shares on the applicable market
as reported in the Wall Street Journal for the twenty (20) consecutive trading
days ending on the trading day which is the day such shares are issued by USE
Parent's in connection with share subscription or capital contribution in
question. In the event a shareholder believes that this section 1.16 has not
been adhered to in a given year it may, within 180 days of the end of such year
request the Company's auditor to examine the relevant facts and determine
whether this section 1.16 has been adhered to during the prior year and, if not,
whether an adjustment in Cash Flow is necessary to bring about such compliance.
Absent fraud or manifest error, such determination shall be binding on the
parties. EIC and USE will use all good faith efforts to cause the relevant
parties to the Swedish district heating transaction (including, without
limitation, the Company's borrowers and the Company's lenders) to recognise the
role and functions of EIC Partners AG and USE Canada Energy Corp. under their
respective services agreements such that: (i) USE maintains an overview of the
technical aspects of the Swedish district heating transaction; and (ii) EIC
maintains an overview of the financial aspects of the Swedish district heating
transaction; provided that EIC and USE shall cause their affiliated service
providers to share promptly with USE and EIC all relevant material information
and [analysis] learned or developed while performing their duties under the
various service agreements.

        2.  TRANSFERS permitted by tHE articles

            2.1   Definition of Shares. The term "Shares" as used in the balance
of this Agreement means the share capital of the Company of all classes,
including, without limitation, subscription rights and options with respect to
such share capital or stock received by way of dividend or upon any increase,
reduction, substitution or reclassification of Shares, or upon any merger,
consolidation or other reorganization of the Company.

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<PAGE>

            2.2    Additional Requirements of Transfer. Any transfer by a
Shareholder of Shares permitted by the Articles (a "Transfer") shall be further
subject to and conditional upon full compliance by the transferor and transferee
with each of the following conditions:

                     (a)  Each transferee shall have executed an agreement in
form and substance satisfactory to the Company, by which such transferee shall
have agreed to become a party to and bound by the terms and conditions of this
Agreement.

                     (b)  Any transfer, conveyance or other taxes resulting
from such Transfer, and any costs or expenses incurred by the Company in
connection with such Transfer shall be borne, jointly and severally, by the
transferor and/or the transferee and each transferor and transferee do hereby
jointly and severally agree to indemnify and hold harmless each other party
hereto from such taxes and jointly and severally indemnify and hold harmless the
Company from such other expenses, and agree to promptly reimburse the Company or
such other party, as the case may be, for any such taxes, costs or expenses.

                      (c)  No Transfer shall be made: (i) to a Person who, in
accordance with applicable law, lacks the capacity to own, or otherwise is
prohibited from owning, such Shares by reason of minority, incompetence or
otherwise; or (ii) to a Person otherwise prohibited by applicable law from
entering into such transaction or holding such Shares; or (ii) which violates
any other provision of this Agreement.

                      (d)  Upon the sale, assignment, donation or other
disposition of Shares owned by a Shareholder, such transferring Shareholder
shall cause its nominees to submit their resignations as directors and officers
of the Company, in form and substance satisfactory to the Company.

                       (e)  The transferor and transferee shall have delivered
to the Company such other agreements, instruments and other documents (including
opinions of counsel reasonably satisfactory to the Company) as the Company shall
request in order to demonstrate compliance of any such Transfer with the
provisions of this Agreement and applicable law.

                      (f)  The Transfer will not result in the Company any
Shareholder or any Affiliate of any Shareholder being subject to any additional
material regulatory burdens or adverse tax treatment.

       3. CONFIDENTIALITY

            3.1   Confidentiality.

                     (a)  Neither any Shareholder nor any of its officers,
directors, managers, employees, Affiliates, agents or advisors shall without the
prior written consent of the other parties: (i) reveal to any third party any
confidential or proprietary information, data, documents, know-how or trade
secrets of the other parties hereto other than information subject to
confidentiality provisions of any confidentiality agreement between EIC Parent
and USE Parent or other agreements entered into after the date hereof by the

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<PAGE>

Shareholders that do not relate to the Company or the Business ("Confidential
Information"); or (ii) use any Confidential Information in any manner which may
directly or indirectly adversely affect the other parties hereto or their
Affiliates; provided, however, that any Confidential Information may be
disclosed by such Shareholder or its Affiliates in response to ad hoc
information requests from the Swiss Exchange ("SWX") or the Frankfurt Securities
Exchange or if required by law or legal or regulatory process or as may be
required by the rules of or any agreement with the United States of America's
SEC, the General Stock Exchange, Inc., or NASDAQ (but only in accordance with
such law or legal or regulatory process) in compliance with the valid order of a
court of competent jurisdiction or in connection with the procurement of debt or
equity funding or a potential sale of the Shareholders' shares in the Company so
long as the receiving party agrees to be bound by the confidentiality provisions
contained in this Section 3.1. Confidential Information shall not include
information which has become available as a matter of public record through no
act or omission of such Shareholder, or any of its Affiliates, agents or
advisors, or to the extent such Confidential Information was in the possession
of such Shareholder or its Affiliates prior to its receipt from the other
parties or which was received from a third party without breach of
confidentiality obligations. Confidential Information shall not be used by the
receiving Shareholder for any reason outside of the purpose and scope of this
Agreement. The obligations established pursuant to this Section shall survive
any termination of this Agreement for a period of three (3) years, except that
there shall be no limit on the amount of time trade secrets must be
kept confidential.

                     (b)   Each Shareholder shall take reasonable efforts to
ensure that the Confidential Information is not disclosed to, or obtained from
it or its employees, officers or agents by, any Person other than personnel
employed by it or acting on its behalf who require to have access to it in order
to facilitate the transactions contemplated by this Agreement and the conduct of
the business of the Company in accordance with this Agreement.

                     (c)   The parties hereto agree that irreparable damage
shall occur in the event of a breach of Sections 3.1 (a) or (b) and that the
non-breaching parties shall be entitled to equitable relief in the event of any
such breach.

                  3.2      Competition of Shareholders Allowed.

                           None of USE Parent, USE, EIC Parent, EIC or any of
their respective Affiliates shall be prohibited by this
Agreement from engaging in any business or activities that are competitive to
those of the Company or any of the other Shareholders.

      4.  TERM AND TERMINATION

                4.1    Term of Agreement.  The term of this Agreement shall
continue in force until terminated as herein provided.

                4.2    Termination.  (a)    This Agreement shall terminate with
respect to the Company and all Shareholders upon the occurrence of any of the
following events:

                                       12
<PAGE>

                       (1)    The adjudication of the Company as a bankrupt, the
                  execution of an arrangement for the benefit of creditors of
                  the Company, the appointment of a receiver to the Company or
                  the voluntary or involuntary winding up of the Company.

                       (2)   The execution of a written instrument, by the
                  Company, each of the Shareholders terminating this Agreement,
                  or

                        (3)   Any public offering of share capital or other
                  securities of the Company.

                                          (b)  This Agreement shall
automatically terminate with respect to a Shareholder in the event that his
interest in his Shares completely terminates and, upon such complete
termination, such Shareholder shall have no further rights or obligations
hereunder other than those rights and obligations arising prior to such
termination and other than the obligations imposed by Article 3. If such
Shareholder subsequently acquires or reacquires Shares, he shall automatically
become bound once again by the terms of this Agreement. This Section in no event
shall be interpreted so as to relieve a Shareholder of liability for his breach
of or failure to comply with any term or provision hereof arising or existing
prior to or at the time of the termination of this Agreement.

            4.3   Effect of Termination. In the event of the termination of this
Agreement pursuant to Article 4, this Agreement shall forthwith become void and
have no effect, without any liability on the part of any party hereto; provided,
however, that the termination of this Agreement shall not relieve any party from
liability for any breach of this Agreement; and further provided, however, that
the following provisions of this Agreement shall survive termination: Sections
3.1, 3.2, 4.3, 5.3, 5.6, 6.1, 6.8, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.17,
6.22 and 6.23.

       5.  REPRESENTATIONS AND WARRANTIES AND COVENANTS

                5.1  EIC's Representations and Warranties. EIC and EIC Parent
represents and warrants to USE and USE Parent as follows:

                        (a)  Organization; Authority Relative to this Agreement.
EIC is a company duly organized, validly existing and in good standing under the
laws of Jersey. EIC Parent is a corporation duly organized and validly existing
and in good standing under the laws of Switzerland. EIC is a wholly owned
Subsidiary of EIC Parent. EIC and EIC Parent have all necessary company power
and authority to execute and deliver this Agreement, to perform their
obligations hereunder and to consummate the transactions contemplated hereby.

                        (b)  Due Execution and Delivery.  No other corporate
proceedings on the part of EIC and EIC Parent are necessary to Authorise this
Agreement. This Agreement has been duly and validly executed and delivered by
EIC and EIC Parent and, assuming it constitutes a valid and binding agreement of

                                       13
<PAGE>

EIC and EIC Parent, constitutes a legal, valid and binding agreement of EIC and
EIC Parent enforceable against EIC and EIC Parent in accordance with its terms.

                         (c)  Non-Contravention.  The execution and delivery by
EIC and EIC Parent of this Agreement do not and will not (i) contravene or
conflict with the Certificate of Incorporation or By-Laws of EIC and EIC Parent,
or (ii) contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to EIC and EIC Parent.

                         (d)  Required Filings and Consents.  The execution and
delivery by EIC and EIC Parent of this Agreement does not require any consent,
approval, authorization, or permit of, or filing with or notification to, any
governmental or regulatory authority, or otherwise require any consent of any
other Person.

                         (e)  Litigation.  As of the date hereof, there is no
action, suit, claim, investigation or proceeding pending against, or to the
knowledge of EIC and EIC Parent, threatened against EIC and EIC Parent or any of
their Affiliates before any court or arbitrator or any administrative,
regulatory or governmental body, or any agency or official which challenges or
seeks to enjoin any of the actions contemplated by this Agreement.

              5.2    USE's Representations and Warranties. USE and USE Parent
represents and warrants to EIC and EIC Parent as follows:

                         (a)   Organization; Authority Relative to this
Agreement.  USE Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware USE is a Company duly
organized, validly existing and in good standing under the laws of the
Netherlands. USE and USE Parent have all necessary corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby.

                        (b)  Due Execution and Delivery.  No other corporate
proceedings on the part of USE and USE Parent are necessary to Authorise this
Agreement. This Agreement has been duly and validly executed and delivered by
USE and USE Parent and, assuming it constitutes a valid and binding agreement of
USE and USE Parent, constitutes a legal, valid and binding agreement of USE and
USE Parent enforceable against USE and USE Parent in accordance with its terms.

                        (c)   Non-Contravention.  The execution and delivery by
USE and USE Parent of this Agreement does not and will not (i) contravene or
conflict with the Certificate of Incorporation or By-Laws of USE and USE Parent,
or (ii) contravene or conflict with or constitute a violation of any provision
of any law, regulation, judgment, injunction, order or decree binding upon or
applicable to USE and USE Parent.

                        (d)   Required Filings and Consents.  The execution and
delivery by USE and USE Parent of this Agreement does not require any consent,

                                       14
<PAGE>

approval, authorization, or permit of, or filing with or notification to, any
governmental or regulatory authority, or otherwise require any consent of any
other Person.

                        (e)   Litigation.  As of the date hereof, there is no
action, suit, claim, investigation or proceeding pending against, or to the
knowledge of USE and USE Parent, threatened against USE and USE Parent or any of
their Affiliates before any court or arbitrator or any administrative,
regulatory or governmental body, or any agency or official which challenges or
seeks to enjoin any of the actions contemplated by this Agreement.

              5.3  Tax. The Parties intend that the Company shall be treated as
a partnership for U.S. tax purposes and agree to refrain from taking any action
which would cause or result in any Project Company being treated as anything
other than a partnership for tax purposes. The Parties shall make capital
contributions to the Company in a tax efficient manner consistent with prudent
business practices. The parties shall cause the Company to take all actions
necessary to "check the box" for US tax purposes if requested by USE Parent.

              5.4  Compliance with Laws. Each of EIC and USE shall comply in all
material respects, and shall cause its respective "Subsidiaries" (as defined
below) to comply in all material respects, with all applicable laws, rules or
regulations of any other jurisdiction that are or may be applicable to the
Company in connection with the implementation of this Agreement. For purposes of
this Agreement, "Subsidiary" or "Subsidiaries" of any Person means any
corporation, partnership, limited liability company, joint venture or other
legal entity of which such Person (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, more than fifty percent (50%)
of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation, partnership, limited liability company, joint venture
or other legal entity.

               5.5   Regulatory Matters. The Parties shall cooperate with each
other to ensure that all information necessary for the making of (or responding
to any requests for further information consequent upon) any notifications or
filings made in respect of this Agreement, or the transactions contemplated
hereby, with any governmental agency or authority is supplied to the Party
responsible for such notification and filings in order that such filings are
properly, accurately and timely made.

                5.6  Indemnification.

                       (a)   Each Party hereto shall indemnify and hold harmless
the other Party and the other Party's officers,
directors, shareholders, Affiliates, successors and permitted assigns against
any claims, losses, liabilities, damages or expenses relating to or arising from
any (i) acts or omissions of the indemnifying Party or the indemnifying Party's
officers, directors, Affiliates, successors or permitted assigns that are in
breach of any agreement or any representation or warranty set forth in this
Agreement or (ii) gross negligence or wilful misconduct of the indemnifying
Party or the indemnifying Party's officers, directors, Affiliates, successors
and permitted assigns.

                                       15
<PAGE>
                        (b)  If any Party shall be entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party shall give prompt
notice to the Party from which such indemnity is sought (the "Indemnifying
Party") of any claim or proceeding pursuant hereto; provided, however, that the
delay or failure to so notify the Indemnifying Party shall not relieve the
Indemnifying Party from any obligation or liability except to the extent that
the Indemnifying Party has been prejudiced materially by such delay or failure.
The Indemnifying Party shall have the right, exercisable by giving written
notice to an Indemnified Party promptly after the receipt of written notice from
such Indemnified Party of such claim, to assume, at the Indemnifying Party's
expense, the defense of any such claim or proceeding, with counsel reasonably
satisfactory to such Indemnified Party; provided, however, that an Indemnified
Party shall have the right to employ separate counsel in any such claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party. The
Indemnifying Party shall not consent to entry of any judgment or enter into any
settlement that (i) does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release, in form and
substance reasonably satisfactory to the Indemnified Party, from all liability
in respect of such claim or litigation for which such Indemnified Party would be
entitled to indemnification hereunder and (ii) is not otherwise reasonably
satisfactory to the indemnified party.

       6.  MISCELLANEOUS.

                  6.1     Notices.  (a)     Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally by Federal Express or similar overnight courier service if addressed
to the Shareholders at the addresses set forth below:

                           if to EIC or EIC Parent:

                           A & A EIC Electricity Investment Company
                           62 Route de Frontenex
                           P.O. Box 6525
                           1211 Geneve 6
                           Switzerland

                           with a copy to:

                           EIC Investments (Jersey) Limited
                           No. 1 Seaton Place
                           St. Helier
                           Jersey JE4 8YJ
                           Channel Islands

                           with a copy to:

                           EIC Partners AG
                           P.O. Box 35

                                       16

<PAGE>
                          General - Wille Strasse 59
                          8706 Feldmeilen
                          Switzerland

                          Attention: Dominique Candrian
                          Telephone: +41-43-844 1000

                          Fax: +41-1-318 3411 (until 15 April 2002)
                          Fax: +41-43-844 1001 (from 15 April 2002).

                           and

                           if to USE or USE Parent:

                           U.S. Energy Systems, Inc.
                           One North Lexington Avenue
                           4th Floor
                           White Plains, New York 10601
                           Attention: Goran Mornhed, President and Chief
                           Operating Officer
                           Fax: ++1- 914-999-5190

                           With a copy to:
                           Robinson Brog Leinwand Greene
                           Genovese & Gluck P.C.
                           1345 Avenue of the Americas
                           New York, New York 10105-0143

                           With a copy to:
                           Endoray Investments, B.V.
                           C/o Insinger de Beaufort/Equity Trust Company N.V.
                           Officia 1, De Boelelaan 7
                           1083 HJ Amsterdam
                           The Netherlands
                           Fax: ++31 20 6427675

                           and if to the Company:

                           c/o McCann FitzGerald
                           2 Harbourmaster Place, IFSC, Dublin 1, Ireland

                           Attention: Michael Ryan
                           Fax: ++353-1-829-0010

         (b) Unless otherwise specified herein, such notices or other
communications shall be deemed effective (i) on the date delivered, if delivered

                                       17
<PAGE>

personally or by a nationally recognized overnight courier, (ii) one business
day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (iii) three business days after being sent, if
sent by registered or certified mail. Each of the parties herewith shall be
entitled to specify another address by giving notice as aforesaid to each of the
other parties hereto.

        6.2  Intellectual Property Rights. Any intellectual property rights held
by a Shareholder or its Affiliates that are made available to the other
Shareholder or to the Company in the implementation of this Agreement will be on
a non-exclusive and no profit basis, to the extent such Shareholder is legally
or contractually able to do so.

        6.3  Names and Logos. To further the objectives of this Agreement,
the Shareholders acknowledge and agree that the Company shall have the
non-exclusive right to use the names and logos of the Shareholders in connection
with the implementation of this Agreement subject to the prior written approval
of the Shareholder whose name and logos are being used.

         6.4  No Inconsistent Efforts or Agreements. No Shareholder shall
solicit proposals or enter into any agreements or arrangements of any kind with
any Person (other than a party hereto) with respect to the Company on terms
inconsistent with the provisions of this Agreement.

          6.5  Publicity; Publications. All media contacts and public
announcements by any Shareholder or any of its Affiliates regarding the matters
covered by this Agreement shall be mutually agreed upon by the parties hereto.
Unless otherwise agreed to by the parties hereto, media contacts and public
announcements relating to the Company shall be approved by the Board.
Notwithstanding the foregoing, the Shareholders and their Affiliates may make
such public announcements, reports, filings and disclosures concerning this
Agreement and the businesses of the Company as may be required in response to ad
hoc information requests from the SWX or the Frankfurt Securities Exchange or by
the rules of or any agreement with the SEC, the New York Stock Exchange, Inc. or
NASDAQ, provided, that, such disclosing Shareholder or Affiliate shall use
reasonable efforts to consult with the other Shareholder regarding the nature
and contents of the contemplated disclosure. Unless the parties hereto otherwise
agree, each and every advertisement by or on behalf of the Company shall have
the "EIC" name on the left side of such advertisement and the "U.S. Energy
Systems, Inc." name on the right side of such advertisement.

          6.6  Cooperation Regarding Developments. To assist in achieving the
purposes and intent of this Agreement and the transactions contemplated hereby,
each of the Shareholders shall from time to time brief the other on trends in
the industry, including legislative and legal developments, that impact markets
relating to the Company.

          6.7  Compliance with Laws. Each of the Shareholders shall comply in
all material respects, and shall cause its respective Subsidiaries to comply in
all material respects, with all applicable laws, rules or regulations of Ireland
or any other jurisdiction that are or may be applicable to the efforts hereunder
or the Company in connection with the implementation of this Agreement.

                                       18
<PAGE>

         6.8    Regulatory Matters. The parties hereto shall cooperate with
each other to ensure that all information necessary for the making of (or
responding to any requests for further information consequent upon) any
notifications or filings made in respect of this Agreement, or the transactions
contemplated hereby, with any governmental agency or authority is supplied to
the party responsible for such notification and filings in order that such
filings are properly, accurately and timely made.

         6.9    Assignment. This Agreement shall not be assigned by any party
hereto or by operation of law or otherwise, provided, however, that a merger of
the ultimate parent of any Shareholder shall not be deemed to be an assignment
by operation of law for the purposes of this Section 6.9.

         6.10   Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.

         6.11   No Consequential Damages. Except as otherwise provided in this
Agreement, it is agreed that no Party hereto will be responsible to the others
for any indirect, special, incidental or consequential loss or damage whatsoever
(including lost profits and opportunity costs) arising out of this Agreement.

         6.12    Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid and unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.

         6.13    Independent Parties. Nothing contained in this Agreement shall
be deemed or construed for any purpose to establish, between the Shareholders, a
partnership or joint venture, a principal-agent relationship, or an
employer-employee relationship, and neither Shareholder shall have the authority
to bind the other with respect to the Company other than as may be provided in
the operative documents executed by the Shareholders with respect to the
Company.

          6.14  Fees and Expenses. The Company will reimburse the Shareholders
and their Affiliates for all direct and indirect internal and external expenses
and costs on a fully loaded basis without profit incurred by them relating to
the Swedish district heating transaction including, without limitation, USE
Parent and EIC Parent, EIC or EIC Partners AG which will charge their employees'
time at the rate of the employees hourly base salary times a factor of 1.8.

                                       19
<PAGE>
          6.15    Entire Agreement. This Agreement and the letter agreement by
and among the parties hereto of even date contains the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral.

          6.16    Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies. This Agreement may be amended only with the prior written consent
of the Company, USE Parent, USE, EIC Parent and EIC. This Agreement may be
waived, only by a written instrument signed by the party hereto waiving
compliance. No delay on the part of any party in exercising any fight, power or
privilege hereunder shall operate as a waiver thereof nor shall any waiver on
the part of any party of any such right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.

          6.17    Governing Law. This Agreement shall be governed and construed
in accordance with the laws of Ireland applicable to agreements made and to be
performed entirely within Ireland, without regard to the conflict of laws rules
thereof. Except as set forth in section 1.16 hereof, any dispute or difference
of any kind whatsoever which arises or occurs between the parties in relation to
any thing or matter arising under, out of or in connection with this Agreement
shall be referred to arbitration under the Arbitration Rules of the Chartered
Institute of Arbitrations in Ireland.

          6.18   Further Assurances. Each of the parties shall execute and
deliver such other documents and take such other or further action as any other
party may reasonably request so as to consummate the transactions contemplated
hereby more effectively.

          6.19   Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

          6.20   Definitions.  The following terms, as used herein, have the
following meanings:

                           "Affiliate" of any Person means any other Person
directly or indirectly through one or more intermediary Persons, controlling,
controlled by or under common control with such Person.

                           "Business" shall mean the debt and equity financing
(debt and/or equity) development, ownership, management and operation of private
heating district systems in Sweden, and related activities other than the
generation, transmission or distribution of electric energy for sale.

                                       20

<PAGE>
                           "Code" shall mean the United States of America's
Internal Revenue Code of 1986, as amended.

                           "control" shall mean the power to direct the
management and policies of such Person directly or indirectly, by or through
stock ownership, agency or otherwise, or pursuant to or in connection with an
agreement, arrangement or understanding (written or oral) with one or more other
Persons by or through stock ownership, agency or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.

                           "Effective Date" shall have the meaning set forth in
the Merger Agreement.

                           "Fiscal Year" means a calendar year.

                           "Person" means an individual, corporation, limited
liability company, partnership, joint venture, association, trust,
unincorporated organization or other entity.

                6.21  Headings; Gender. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. The use of the neuter gender herein shall be
deemed to include the masculine and feminine genders wherever necessary or
appropriate, the use of the masculine gender shall be deemed to include the
neuter and feminine genders and the use of the feminine gender shall be deemed
to include the neuter and masculine genders wherever necessary or appropriate.

                6.22   Specific Enforcement. Each Shareholder acknowledges and
agrees that the covenants and undertakings contained in this Agreement relate to
matters which are of a special, unique and extraordinary character and that a
violation of any of the terms of this Agreement will cause irreparable injury to
the Company and the Shareholders and that the amount of such injury will be
difficult, if not impossible, to estimate or determine and cannot be adequately
compensated by monetary damages. Therefore, each Shareholder agrees that the
other parties hereto shall be entitled, in addition to all other rights and
remedies available under this Agreement and applicable law, as a matter of
course, to an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any violation or threatened
violation and compelling performance of any of such terms by a Shareholder and
by such other persons as the court shall order.

               6.23   Governing Documents. If there is any inconsistency between
the Articles and this Agreement, the provisions of the Articles shall be amended
and the provisions of this Agreement shall govern.

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

                                       21
<PAGE>
                                         ENDORAY INVESTMENTS, B.V.

                                         By:______________________________
                                             Name:
                                             Title:

                                         U.S. ENERGY SYSTEMS, INC.

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

                                         EIC INVESTMENTS (JERSEY) LIMITED

                                           /s/  Dominique Candrian
                                                ------------------------
                                                Name: Dominique Candrian
                                                Title: Director

                                        A & A EIC ELECTRICITY INVESTMENT COMPANY

                                          /s/ Dominique Candrin
                                              --------------------------
                                              Name: Dominique Candrian
                                              Title: C.E.O.

                                          PRESENT when the Common Seal
                                          of SCANDINAVIAN ENERGY FINANCE LIMITEd
                                          was affixed hereto:

                                          ___________________________
                                          Director

                                          ___________________________
                                          Director/Secretary

                                       22
<PAGE>
                                   SCHEDULE 1

List Varmeland Teknik AB and Narvarme Svergie AB Agreements referred to in
Section 1.5.

                                       23

<PAGE>

                                   SCHEDULE 1A

List of material agreements and instruments relating to the Swedish district
heating transaction.

                                       24
<PAGE>
                                   SCHEDULE 2

    Pro Forma financial projection of the Company referred to in Section 1.3.

                                       25Scandinavian Energy Finance Limited

                                       and

         Gigantissimo 2321 AB to be renamed Narvarme Acquisition III AB

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

                               FINANCING AGREEMENT

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

<PAGE>

                               FINANCING AGREEMENT

This financing agreement (the "Agreement") is made on March 11, 2002

BETWEEN

1.   Scandinavian Energy Finance Limited, a company  incorporated in Ireland,
     with the address c/o Michael Ryan, McCann Fitzgerald,  2 Harbourmaster
     Place, International Financial Service Centre, Dublin 1, Ireland, (the
     "Lender"); and

2.   Gigantissimo 2321 AB (name to be changed to Narvarme Acquisition III AB,
     (reg no 556614-6642), a company incorporated in Sweden, with the address
     Kanalvagen 15, 183 85 Taby, Sweden, (the "the Company").

     The Lender and the Company are jointly referred to as the "Parties" and
     each a "Party".

WHEREAS

1.   The Company shall issue a convertible  debenture  loan (the  "Convertible")
     to be subscribed for by the Lender subject to the terms and conditions
     herein.

2.   A  prerequisite  for the Lender's  subscription  of the Convertible  is the
     Parties'  agreement that the Company shall fulfil certain conditions as set
     out in this Agreement.

THEREFORE

the Parties agree as follows.

1.    Definitions

      All the references to the following definitions in these terms and
      conditions shall have the meaning presented below:

<PAGE>

           "Affiliate"          means in relation to any shareholder, any
                                company when more than 50 % of the voting rights
                                attached to the share capital is owned directly
                                or indirectly by that shareholder or which is
                                under the control of that shareholder or any
                                related person as defined in section 12.7 of the
                                Act.

           "Available           Cash" means all cash from all sources held by
                                the Company and its affiliates (the "Group")
                                which may be used to pay interest and principal
                                under the Convertible without violating
                                applicable law, any contractual covenants
                                binding on the Group previously consented for by
                                the Creditors holding a majority of the amount
                                of the Convertible from time to time and which
                                is not required to pay future expenses of the
                                Group in the judgement of the Creditors holding
                                a majority of the amount of this debenture from
                                time to time

           "Company"            Gigantissimo  2321  AB  to  be  renamed Narvarme
                                Acquisition  III AB, company registration number
                                556614-6642

           "Creditor"           a person in possession of a convertible note

           "Environmental Laws" shall mean all applicable federal, provincial,
           municipal, or local laws, statutes, regulations, rules, ordinances,
           orders or decisions and all common law requirements, relating to the
           environment; health and occupational safety.

           "Event of Default" means the events as set out in Sections 10.2 -
           10.5 below.

           "Hazardous Substances" includes, any contaminants, pollutants,
           dangerous substances, liquid wastes, industrial wastes, hauled liquid
           wastes, toxic substances, hazardous wastes, hazardous materials or
           hazardous substances whatsoever nature and type, that are regulated
           by or form the basic of liability under any Environmental Laws.

           "Material Agreements" shall mean any contract representing 3 % or
           more of gross revenue.

           "Permitted Liens" means the liens as set out in Schedule 2 to this
           Agreement.

<PAGE>

           "Permits" shall include all permits, certificates, approvals,
           registrations and licenses issued by any ministry, department,
           administrative or regulatory agency.

           "Person" shall mean any person not being a party to this Agreement.

           "Release" includes releasing, spilling, leaking, pumping, pouring,
           emitting, emptying, discharging, injecting, escaping, leaching,
           disposing or dumping.

           "Swedish Generally Accepted Accounting Principles" shall mean the
           accounting principles that are in accordance with applicable laws and
           general accepted accounting in Sweden.

2.         Postponement of interest and principal

           Under the terms of the Convertible the Company may at its own
           discretion postpone payment of interest. The parties agree that the
           Company shall only make such postponement if and to the extent there
           is no Available Cash as defined herein.

3.       The Convertible

3.1      The Shareholder have passed a resolution to issue the Convertible in
         accordance with the terms attached hereto as Schedule 1.

3.2      The Convertible shall be subscribed for by the Lender subject to the
         terms and conditions herein.

4.       Forthwith termination

         According to the terms of the Convertible, the Lender has a right to
         call for immediate payment upon 30 days written notice. The Parties
         have agreed that the Lender shall not use this possibility under the
         Convertible as long as there is no Event of Default under this
         Agreement or any corresponding events of default under any
         indebtedness in excess of SEK 500,000 to which the Group is a party.
<PAGE>

5.       Reporting covenants

5.1      The Company shall provide unaudited consolidated quarterly financial
         statements within 45 days of quarter end and audited annual
         consolidated financial statements including balance sheets, profit
         and loss statements and cash flow statement within 120 days of each
         fiscal year end. All quarterly financial statements to be accompanied
         by a certificate of no default setting out compliance calculations.
         In addition the Company shall issue monthly, operating statements
         within 15 days of month end for each district heating system operated
         by the Company and its direct and indirect subsidiaries.

6.       Positive covenants

6.1      So long as any amounts remain  outstanding and unpaid under the
         convertible  loans the Company will, and will ensure that its direct
         and indirect subsidiaries will:

6.1.1    Pay all amounts of principal and interest on the dates, times and at
         the place specified in the Terms or under any other agreement between
         the Lender and the Company.

6.1.2    Advise Lender of any change in the amount and the terms of any credit
         arrangement made with other permitted lenders or any action taken by
         another lender to recover amounts outstanding with such other lender.

6.1.3    Advise promptly after the happening of any event which will result in
         a material adverse change in the financial condition, business,
         operations, or prospects of the Company or its direct and indirect
         subsidiaries or the occurrence of any Event of Default or default
         under the Convertible or under any other agreement for borrowed
         money.

6.1.4    Do all things necessary to maintain in good standing its corporate
         existence and preserve and keep all material agreements, rights,
         franchises, licences, operations, contracts or other arrangements in
         full force and effect.

6.1.5    Pay all taxes, assessments and government charges, unless such taxes,
         assessments, or charges are being contested in good faith and
         appropriate reserves shall be made with funds set aside in a separate
         trust fund.

<PAGE>

6.1.6      Provide Lender and its representatives including, without limitation,
           EIC Partners AG with information and financial data as it may
           reasonably request from time to time.

6.1.7      Maintain property, plant and equipment in good repair and working
           condition with reasonable wear and tear excepted.

6.1.8      Inform Lender of any actual or threatened litigation and furnish the
           Lender with copies of details of any litigation or other proceedings,
           which might materially and adversely affect the financial condition,
           business, operations, or prospects of the Company.

6.1.9      Continue to carry on the business substantially currently being
           carried on by the Company and its direct and indirect subsidiaries at
           the date hereof.

6.1.10     Maintain adequate insurance on all of its assets, undertakings, and
           business risks.

6.1.11     Permit Lender or its authorised representatives, including without
           limitation EIC Partners AG, full and reasonable advance notice to its
           premises, business, financial and computer records and allow the
           duplication or extraction of adequate information therefrom.

6.1.12     Comply with applicable environmental regulations at all times.

6.1.13     Comply with contractual obligations and laws, including payment of
          taxes.

6.1.14    remains in the district energy business and maintaining all requisite
          licenses to do so.

6.1.15    comply and cause its direct and indirect subsidiaries to comply with
          all obligations to Lantbrukskredit relating to loans made by
          Lantbrukskredit to the Company and/or its subsidiaries.

6.1.16    maintain the legally required ratio between equity and registered
          share capital of the Group.

6.1.17    comply with the reasonable requests for co-operation from Lender's
          financial services consultant EIC Partners AG.
<PAGE>

6.2       The Company and its subsidiaries have acquired certain assets and
          shares from Narvarme Sverige AB and Varmeland Teknik AB and their
          Affiliates pursuant to (i) a Share Sale and Purchase Agreement by and
          among Varmeland Teknik AB and Gigantissimo 2324 AB (ii) an Asset
          Purchase Agreement regarding acquisition of assets by Gigantissimo
          2323 AB (iii) an Asset Purchase Agreement regarding acquisition of
          assets by Gigantissimo 2321 AB and related agreements including
          without limitation an Indemnification and Escrow Agreement by and
          among the parties to the aforementioned agreements (collectively the
          "Acquisition Agreements"). The Company shall, and shall cause its
          subsidiaries to, enforce all of their rights against the respective
          Sellers under such Acquisition Agreements in a diligent manner and
          shall keep Lender fully informed respecting such enforcement actions.

7.         Negative covenants

7.1        So long as any amounts remain outstanding under the convertible loans
           the Company will not and will ensure that its direct and indirect
           subsidiaries do not without the written consent of the Lender:

7.1.1      Create, incur, assume, or suffer to exist, any mortgage, deed of
           trust, pledge, lien, security interest, assignment, charge, or
           encumbrance (including without limitation, any conditional sale, or
           other title retention agreement, or finance lease) of any nature,
           respect to any of its assets or undertakings, now owned or hereafter
           acquired, except for those Permitted Liens set out in Schedule 2.

7.1.2      Create, incur, assume, or suffer to exist any other outside
           indebtedness for borrowed money (except for SEK 30,000,000
           convertible debenture issued to Lansforsakringar indebtedness
           resulting from Permitted Liens, if any) or guarantee or act as surely
           or agree to indemnify the debts of any other Person.

7.1.3      Merge or consolidate with any other outside Person, or acquire all or
           substantially all of the shares, assets or business of any other
           Person.

7.1.4      Sell, lease, assign, transfer, convey or otherwise dispose of any of
           its now owned or hereafter acquired assets (including, without
           limitation, shares of stock and indebtedness of subsidiaries,
           receivables and leasehold interests), except for inventory disposed

<PAGE>
           of in the ordinary course of business and replacement of equipment in
           the ordinary course of business.

7.1.5      Cease to carry on the business currently being carried on by each of
           the Company and its direct or indirect subsidiaries at the date
           hereof.

7.1.6      Permit any change of ownership or change in the capital structure of
           the Company or direct or indirect subsidiaries except in connection
           with the conversion of the convertible debentures issued by the
           Company to Lansforsakringar and the Lender or in connection with the
           exercise of the option granted by Goran Ernstson to the Lender
           respecting his shares in the Company.

7.1.7      Make third party guarantees without Lender's prior written consent
           (i.e. the Company will not provide its guarantee to anyone else
           including parent or related entities).

7.1.8      Effect a change in control of the Company or its direct or indirect
           subsidiaries except in connection with the conversion of the
           convertible debentures issued by the Company to Lansforsakringar and
           the Lender or in connection with the exercise of the option granted
           by Goran Ernstson to the Lender respecting his shares in the Company.

7.1.9      Enter into any further outside divestitures, investments, mergers,
           amalgamations or consolidations without Lender's prior written
           consent.

7.1.10     Pledge any security to any other party.

7.1.11     Permit any amendment or termination of material contracts.

7.1.12     Prepay any contractual obligations before they become due or prepay
           any amounts due under the Convertible prior to January 1, 2005.

7.1.13     Replace, amend or alternate the Articles of Association of the
           Company or its direct or indirect subsidiaries.

7.1.14     Enter into or grant any options to subscribe for shares or issue any
           securities convertible into shares or enter into any agreement for
           the same.

7.1.15     Voluntarily liquidate or wind-up the Company.

<PAGE>

7.1.16     Change the place of the registered office of the Company.

7.1.17     Reduce the capital by redemption of shares or any equivalent
           procedure.

7.1.18     Distribute profits by dividends or any other form of shareholders
           benefit unless so required by law or approved by the Lender.

7.1.19     Enter into any agreement which would likely have a material effect on
           the Company. "Material for these purposes is an agreement that has
           gross revenues or costs of more than SEK 500,000 per annum or which
           otherwise would likely have a material effect on the operations
           financial conditions, assets, business or prospects of the Company or
           its direct or indirect subsidiaries.

7.1.20     Enter into, terminate or modify any agreement between the Company,
           its direct or indirect subsidiaries on the one hand and any managing
           director, shareholder (other than a Group Company), employee or
           Affiliate of the same on the other hand.

7.1.21     Appoint or dismiss a managing director, a finance director or a
           technical director without the prior approval of Lender which
           approval shall not be unreasonably withheld or delayed.

7.1.22     Enter into any transaction or make any expenditures which separately
           or in the aggregate result in a material deviation from the budget
           approved by the Lender pursuant to Section 8 below.

7.1.23     Agree or commit to do any of the foregoing.

7.2        The provisions of Section 7 shall not prevent the Company from paying
           Ernstson such amount as is necessary to make Ernstson whole
           (including settlement costs and reasonable legal, accounting and
           other expenses for investigation or defence) on an after tax basis
           for any wealth tax payable by him in connection with his ownership of
           shares of the Company Swedco 3 provided that Ernstson advises
           Lantbrukskredit, SEFL and Lansforsakringar of any such tax assessed
           and takes any reasonable lawful action jointly suggested by
           Lantbrukskredit, SEFL and Lansforsakringar to reduce such tax
           liability before paying such tax.

7.3        Lender undertakes not to and to cause its affiliates from time to
           time not to make or submit any claim against Goran Ernstson regarding
<PAGE>

           any matter resulting from, arising out of or relating to this
           Agreement or the Loans described herein, provided that this
           restriction shall not prevent claims against Ersntson based on
           actions, measures or omissions by Ernstson after the closing date
           which constitute gross negligence or fraud or other criminal acts or
           a knowing violation of the Swedish Companies Act or a breach of an
           agreement to which Ernstson is a party or breach of any agreement to
           which the Company or its direct or indirect subsidiaries is a party
           committed by a the Company or its direct or indirect subsidiaries, if
           such breach is knowingly caused by the intentional acts of Ernstson.

8.         Budget

           On or before December 1 at each year, the Company shall submit an
           operating and capital budget for the coming calendar year for the
           Company and its direct and indirect subsidiaries to be approved by
           the Lender.

9.         Representations and warranties

9.1        The Company hereby represents and warrants, which representations and
           warranties shall be deemed to be continually repeated so long as any
           amounts remain outstanding and unpaid.

9.1.1      The Company and each of its direct and indirect subsidiaries are
           corporations duly incorporated and organised, validly existing and in
           good standing under the laws of Sweden and the Company and each of
           its direct and indirect subsidiaries has adequate corporate power and
           authority to carry on its business, own property, borrow monies and
           enter into agreements therefor and observe and perform the terms and
           provisions of this Agreement and the Convertibles.

9.1.2      There are no laws, statutes or regulations applicable to or binding
           upon the Company and no provisions in its charter documents or in any
           by laws, resolutions, contracts, agreements, or arrangements which
           would be contravened, breached, or violated as a result of the
           execution, delivery, performance, observance, of any terms of this
           Agreement or the Convertibles.

9.1.3      No Event of Default has occurred nor has any event occurred which,
           with the passage of time or the giving of notice, would constitute a
           default under any other agreement for borrowed money in excess of SEK
           500,000.

9.1.4      There are no actions, suits, or proceedings, including appeals or
           applications for review, or any knowledge of pending actions, suits,
           or proceedings against the Company or its subsidiaries, before any
           court or administrative agency which would result in any material
           adverse change in the property, assets, financial condition, business
           or operations of the Company or its direct or indirect subsidiaries.

9.1.5      All material authorisations, approvals, consents, licenses,
           exemptions, filings, registrations and other requirements of
           governmental, judicial and public bodies and authorities required to
           carry on its business and the business of its direct and indirect
           subsidiaries have been or will be obtained or affected and are or
           will be in full force and effect.

9.1.6      The financial statements delivered to Lender fairly present the
           financial position of the Company and its direct and indirect
           subsidiaries as at the dates and with respect to the periods
           applicable to such financial statements, and have been prepared by
           the Company in accordance with Swedish Generally Accepted Accounting
           Principles consistently applied.

9.1.7      All of the remittances required to be made by the Company and its
           direct and indirect subsidiaries to the federal government and all
           provincial and municipal governments have been made, are currently up
           to date and there are no outstanding affairs. Without limiting the
           foregoing, all employee source deductions, sales taxes, corporate
           income taxes, corporate capital taxes, payroll taxes and workers'
           compensation dues are currently paid and up to date except for those
           remittances being contested in good faith and adequately reserved
           for.

10.       Environmental representations and warranties

10.1       The Company represents and warrants (which representation and
           warranty shall continue throughout the term of this Agreement) that:

<PAGE>
           the business, properties and operations of the Company and its direct
           and indirect subsidiaries have been and are in material compliance
           with all Environmental Laws and Permits.

10.2       The Company and its direct and indirect subsidiaries have received no
           written notice of violation respecting Environmental Laws and
           Permits, and do not know of any facts which could give rise to such
           notice of violation. If the Company or its direct or indirect
           subsidiaries receive a notice respecting Environmental Laws and
           Permits, or are aware that a notice is about to be filed, the Company
           shall provide the Lender with a copy of such notice or information
           promptly upon receipt thereof.

10.3       The Company and its direct and indirect subsidiaries have not
           received any written request for information in connection with any
           federal, provincial, municipal or local inquiries as to Hazardous
           Substances or otherwise.

10.4       To the best of the Company's knowledge after due inquiry and
           investigation the Company and its direct and indirect subsidiaries
           have not used any of their facilities, or permitted them to be used,
           to generate, manufacture, refine, trust, transport, store, handle,
           dispose, transfer, produce or process Hazardous Substances except in
           material compliance with all Environmental Laws.

10.5       The Company and its subsidiaries have no material contingent
           liability of which the Company has actual knowledge in connection
           with the disposal, release or existence of Hazardous Substances on or
           offsite of their property or any facility owned or operated by third
           parties, but with respect to which the Company is alleged to have
           liability.

10.6       To the best of the Company's knowledge the Company and its
           subsidiaries have never been convicted of an offence for
           non-compliance with any Environmental Laws or been fined or otherwise
           sentenced or settled such prosecution short of conviction.

10.7       To the best of the Company's knowledge the Company has never
           defaulted in reporting to the proper authority on the happening of a
           substantial occurrence requiring it by Environmental Laws to do so.

10.8       The Company shall, at the request of the Lender from time to time,
           and at the Company's expense, obtain and provide to the Lender an

<PAGE>

           environmental audit or inspection report of the property from
           auditors or inspectors acceptable to the Lender.

10.9       The Company hereby indemnifies the Lender, its officers, directors,
           employees, agents and shareholders, and agrees to hold each of them
           harmless from all loss, claims, damages, expenses (including legal
           and audit expenses) which may be suffered of incurred in connection
           with the indebtedness under this Agreement unless such loss, claims,
           damages and expenses are caused by the negligent, wilful or unlawful
           acts or omissions of the Lender or its agents. The Lender will not
           settle any lawsuit or proceeding for which the Company must indemnify
           the Lender pursuant to the terms hereof without the prior consent of
           the Company, such consent not to be unreasonably withheld.

11.        Events of Default

11.1       The following events are deemed as Events of Default:

11.1.1     Non-payment of outstanding interest or principal when due except when
           payments are postponed in accordance with the terms of the
           Convertible.

11.1.2     If any representation, warranty or statement made hereunder or made
           in connection with the execution and delivery of this Agreement is
           materially false or misleading at any time.

11.1.3     If there is a breach or non-performance or non-observance of any term
           or condition of this Agreement except as described in Section 12.1.1
           and, if such default is capable of being remedied, the default
           continues unremedied for 30 Days after written notice to the Company
           of the occurrence.

11.1.4     If the Company or any one of its direct or indirect subsidiaries
           makes a general assignment for the benefit of creditors, files or
           presents a position, makes a proposal or commits any act of
           bankruptcy, or if any action is taken for the winding up, liquidation
           or the appointment of a liquidator, trustee in bankruptcy, custodian,
           curator, receiver or any other officer with similar powers or if a
           judgement or order shall be entered by any court approving a petition
           for reorganization, arrangement or composition of or in respect of
           the Company or any of its direct or indirect subsidiaries or if the
           Company or any of its direct or indirect subsidiaries is insolvent or
           declared bankrupt.

<PAGE>

11.1.5   If there exists a suspension of business by the Company for a period
         equal to 20 calendar days.

11.1.6   If action is taken by an encumbrancer against the Company or any of
         its direct or indirect subsidiaries to take possession of property or
         enforce proceedings against any material assets.

11.1.7   If any material final judgement for the payment of monies is made
         against the Company or any of its direct or indirect subsidiaries and
         it is not discharged within 20 Business Days from the imposition of
         such judgement.

11.1.8   If there exists any event, the effect of which with lapse of time or
         giving of notice, will constitute an event of default or a default
         under any other agreement for borrowed money in excess or SEK 500,000
         entered into by the Company or any of its direct or indirect
         subsidiaries.

11.1.9   If there exists any state of facts which have or are reasonably
         likely to have a material adverse effect on the business, operations,
         assets, financial condition or prospects of the Company or its direct
         or indirect subsidiaries such that their ability to comply with this
         Agreement or the Convertibles is materially impaired.

11.2     If an Event of Default occurs and is continuing, the Lender may by
         notice to the Borrower demand immediate repayment of the Convertibles
         and the Borrower agrees to pay the Convertibles in accordance with
         the notice subject to Section 2 of the Convertibles.

12.      Expenses

         The Company shall reimburse the Lender for all of its reasonable
         external and internal costs, on a fully loaded basis, without profit
         relating to the transaction covered by this Agreement including the
         cost relating prior to signing this Agreement, the future
         administration of the Convertible and the enforcement of its rights
         hereunder.

13.      Announcements

13.1     Announcement, Communication or Circular

<PAGE>

           The Borrower shall not without the Lender's written consent, make or
           send any announcement, communication or circular relating to the
           subject matter of this Agreement such consent not to be unreasonably
           withheld.

           Lender or any of its Affiliated Companies may however give adequate
           market information relating to their loan to the Borrower which
           information shall be disclosed to the chairman of the board of
           directors of the Borrower prior to it being released.

13.2       Content of Announcement

           Clause 13.1 does not apply to an announcement, communication or
           circular required by law or by the rules of any stock exchange or by
           any governmental authority, in which event the party required to make
           or send such announcement, communication or circular shall, where
           practicable, first consult with the Borrower as to the content of
           such announcement.

14.        Confidentiality

           The Parties shall hold in confidence and not use in any manner any
           confidential documents or other information concerning the businesses
           of any of the Parties, provided that these restrictions shall not
           apply to any information that (i) a Party has been required to
           disclose by law or by any applicable stock exchange regulations or
           (ii) a Party can show to have been, at the time of disclosure or use,
           in the public domain, by publication or otherwise, except by
           violation of this Agreement on behalf of any Party or their
           respective representatives.

15.      Miscellaneous

15.1     This Agreement can not be amended unless made in writing and duly
         signed by or on behalf of the Lender and the Company.

15.2     This Agreement can not be transferred, assigned, pledged or
         hypothecated by any Party hereto other than by operation of law.

<PAGE>

16.      Notices

16.1     Any notice or other  communication  under or in connection  with this
         Agreement  shall be given in writing or by facsimile to the Party due
         to receive such notice. Any such notice will be deemed to be given as
         follows:

         a) if in writing, when delivered; and

         b) if by facsimile, when received.

         However, a notice given in accordance with the above but received on
         a non-working day or after business hours in the place of receipt
         will only be deemed to be given at the opening of business on the
         next working day in that place.

16.2     The addresses and facsimile numbers of each Party for all notices under
         or in connection with this Agreement are:

           a) in the case of the Lender;

           c/o Michael Ryan
           Mc Cann Fitzgerald
           2 Harbourmaster Place
           International Financial Service Cente
           Dublin, Ireland
           353 1 824 0010

           with a copy to

           President
           US Energy Systems Inc.
           One Lexington
           Fourth Floor
           White Plains N.Y. 10601
           Fax: 914 993 5190

           With a copy to

           EIC Partners AG
           Generale-Wille Strasse 59 P.O. Box 35
           CH-8706 Feldmeilen Switzerland
           Fax: 41 1318 3411 until 15 April 2002

                  41 4384 410 01 as of 15 April 2002
<PAGE>

           b) in the case of the Company;

           Gigantissimo 2321 AB, to be renamed Narvarme Acquisition III AB,
           Kanalvagen 15, 183 85 Taby, Sweden

           or such other as a Party may notify to the other Party by no less
           than five (5) business day's notice .

           All notices and communication between the Parties shall be in English
           unless otherwise agreed.

17.        Governing law and disputes

17.1       This Agreement shall be governed by and construed and enforced in
           accordance with Swedish law.

17.2       Any dispute, controversy or claim arising out of or in connection
           with this Agreement, or the breach, termination or invalidity
           thereof, shall be settled by arbitration in accordance with the Rules
           of the Arbitration Institute of the Stockholm Chamber of Commerce.
           The arbitral tribunal shall be composed of three arbitrators. The
           place or arbitration including the making of the award shall be
           Stockholm, Sweden. The language to be used in the arbitral
           proceedings shall be English.

                                  _____________

           This Fnancing Agreement has been executed in two copies, of which the
parties have taken on each.

           Gigantissimo 2321 AB
           Stockholm, March 11, 2002

           By: _____________________                 By: _____________________

          Title: ____________________              Title: ____________________

<PAGE>

           PRESENT when the Common Seal of SCANDINAVIA ENERGY FINANCE LIMITED
was affixed hereto:

          _____________________________________

           Director

           _____________________________________

           Director/Secretary

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