U.S. ENERGY SYSTEMS, INC.
STOCK OPTION AGREEMENT
Name of Optionee: Bernard Zahren
Date of Grant: Effective Date of Merger
Number of Shares Subject to Option: 500,000
Exercise Price Per Share: $6.00
Type of Option: Non-qualified Stock Option
Expiration Date: [ ], 2010 (subject to earlier termination)
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1. Grant of Option. U.S. Energy Systems, Inc. (the "Company") hereby grants to
the Optionee identified above (the "Optionee") an option (the "Option") to
purchase up to the number of shares of the Company's Common Stock, $0.01
par value per share set forth above (the "Shares"), at an exercise price
per share equal to the exercise price set forth above (the "Exercise
Price"). The Option is not intended to qualify as an ISO. The Option was
issued pursuant to the (a) Company's 2000 Executive Incentive Compensation
Plan (the "Plan") and (b) employment agreement dated as of November
28, 2000 between the Company and the Optionee (the "Employment Agreement"),
both of which are incorporated herein for all purposes. The Option shall be
subject to the terms and conditions set forth herein, the Plan and the
Employment Agreement. The Optionee hereby acknowledges receipt of a copy of
the Plan and Employment Agreement and agrees to be bound by all of the
terms and conditions hereof and thereof. In the event of any inconsistency
between the Employment Agreement on the one hand and the Plan or this Stock
Option Agreement on the other hand, the Employment Agreement shall govern.
In the event of any inconsistency between the Plan and this Stock Option
Agreement, the Plan shall govern.
2. Definitions. Unless otherwise provided herein, terms used herein that are
defined in the Plan or the Employment Agreement and not defined herein
shall have the meanings attributed thereto in the Plan or the Employment
Agreement, as the case may be.
3. Exercise Schedule. (a) Except as otherwise provided in this Stock Option
Agreement, the Employment Agreement, or the Plan, the Option shall be
exercisable in whole or in part as and when it vests. The term "exercise"
or "exercisable" as used herein shall include the conversion of the Option
in the manner contemplated by Section 12 hereof.
(b) The Options shall vest immediately upon the Effective Time;
provided, however, that notwithstanding anything to the contrary herein,
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the Plan or the Employment Agreement, the Option shall not vest until the
Plan shall have been approved by a Majority of the Shareholders; provided
that if the Stock Option becomes a Voted Matter as defined in Section 3(d)
of the Employment Agreement the Option shall not vest until the Option and
the Plan shall have been approved by a Majority of the Shareholders.
4. Method of Exercise. The Option shall be exercisable in whole or in part by
written notice which shall state the election to exercise the Option, the
number of Shares in respect of which the Option is being exercised, and
such other representations and agreements as to the holder's investment
intent with respect to such Shares as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be accompanied by
payment of the exercise price in the manner contemplated by Section 5
hereof. This Option shall be deemed to be exercised after both (a) receipt
by the Company of such written notice accompanied by the exercise price and
the Option and (b) arrangements that are reasonably satisfactory to the
Committee have been made for Optionee's payment to the Company of the
amount that is necessary to be withheld in accordance with applicable
Federal or state withholding requirements. The Company and the Optionee
shall work cooperatively, expeditiously and in good faith to make such
withholding arrangements. No Shares will be issued pursuant to the Option
unless and until such issuance and such exercise shall comply with all
relevant provisions of applicable law, including the requirements of any
stock exchange (including any automated system of quotation) upon which the
Shares then may be traded or quoted.
5. Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Optionee: (a)
cash; (b) check; (c) with Shares that have been held by the Optionee for at
least 6 months (or such other Shares as the Company determines will not
cause the Company to realize a financial account charge); (d) as provided
in Section 12 of this Stock Option Agreement; or (e) such other
consideration or in such other manner as may be determined by the Board or
the Committee in its absolute discretion.
6. Termination of Option. Subject to earlier termination as provided in the
following sentence, the Option shall terminate on, and in no event shall
the Option be exercisable after, [the tenth anniversary of the Effective
Date], 2010. The Option shall terminate and expire on the day following the
Plan Date (as defined below) unless the Plan has been approved by a
Majority of the Shareholders by the latter of (I) 30 days following the
Effective Date and (II) the first anniversary of the adoption of the Plan
by the Company's Board of Directors (the "Plan Date") provided that if the
Option becomes Voted Matter as defined in Section 3(d) of the Employment
Agreement the Option shall expire on the day following the Plan Date unless
the Plan and the Option are approved by a Majority of the Shareholders by
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the Plan Date. Any unexercised portion of the Option shall automatically
and without notice terminate and become null and void on the terms and
conditions and at the time(s) set forth in the Employment Agreement.
7. Transferability. The Option is not transferable otherwise than by will or
the laws of descent and distribution, and during the lifetime of the
Optionee the Option shall be exercisable only by the Optionee. The terms of
the Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
8. No Rights of Stockholder Nor Rights to Continued Employment. Neither the
Optionee nor any personal representative (or beneficiary) shall be, or
shall have any of the rights and privileges of, a stockholder of the
Company with respect to any shares of Stock purchasable or issuable upon
the exercise of the Option, in whole or in part, prior to the date the
Option is deemed to have been exercised. Notwithstanding Section 1 of this
Stock Option Agreement, neither the Option nor this Stock Option Agreement
shall confer upon the Optionee any right to continued employment or service
with the Company.
9. Inapplicability of Section 9 of the Plan. The provisions of Section 9 of
the Plan shall not be applicable to the Option.
10. Law Governing. This Agreement shall be governed in accordance with and
governed by the internal laws of the State of Delaware.
11. Notices. Any notice under this Agreement shall be in writing and shall be
given in the manner specified in Section 13 of the Employment Agreement.
12. Conversion. (a) In lieu of exercise of any portion of the Option as
provided herein, and the payment of the exercise price therefor in the
manner contemplated by clauses (a), (b), (c) and (e) of Section 5 hereof,
the Option (or any portion thereof) may, at the election of the Optionee,
be converted into the nearest whole number of Shares determined pursuant to
the following formula:
Number of Shares = NOS multiplied by (MVPS minus EP)
( MVPS )
where:
NOS is the number of Options to be exercised;
MVPS is the Market Value Per Share on the date of exercise.
For purposes of the Option and this Stock Option Agreement, Market Value
Per Share shall be the closing price of a Share as of the day in question,
as reported with respect to the principal market or quotation system in
which Shares are then traded or quoted, or, if no such closing prices are
reported, on the basis of the closing bid price as of the day in question
on the principal market or quotation system on which Shares are then traded
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or quoted, or, if not so traded or quoted, as furnished by a professional
securities dealer making a market in such stock selected by the Committee;
and
EP is the Exercise Price in effect on the business day next preceding the
date of exercise.
(b) Notwithstanding anything to the contrary herein, the conversion
privilege afforded under this Section 12 may only be used if, at the date
of exercise, the Market Value Per Share is greater than the Exercise Price
then in effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of [ ],
2000.
COMPANY:
U.S. ENERGY SYSTEMS, INC.
By:_________________________________
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby
accepts this Option subject to all of the terms and provisions thereof.
Optionee has reviewed the Plan and this Option in their entirety, has had
an opportunity to obtain the advice of counsel prior to executing this
Option, and fully understands all provisions of the Option.
Dated: [ ], 2000 OPTIONEE:
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Bernard Zahren
