Document:

1996-- -                                                       WARRANT A
-----------------                                              -----------------
WARRANT NO.                                                   Number of Shares

          THIS  WARRANT  HAS NOT BEEN  REGISTERED  UNDER THE UNITED  STATES
          SECURITIES  ACT OF  1933,  AS  AMENDED,  AND  MAY  NOT  BE  SOLD,
          HYPOTHECATED  OR  OTHERWISE  TRANSFERRED  OR  DISPOSED  OF IN THE
          ABSENCE  OF SUCH  REGISTRATION,  UNLESS  AN  EXEMPTION  FROM  THE
          REQUIREMENT  OF  SUCH  REGISTRA  TION  IS  AVAILABLE   UNDER  THE
          CIRCUMSTANCES AT THE TIME OBTAINING.

         Void After 5:00 P.M. Denver, Colorado Time on February 12, 2001

                            PEASE OIL AND GAS COMPANY
                          Common Stock Purchase Warrant

     PEASE OIL AND GAS COMPANY, a NEVADA corporation ("Pease" or the "Company"),
hereby    certifies    that,   ----------------,     with    an    address    of
-------------------------------------------------------,   or  ------  permitted
assigns, for valuable consideration received, is entitled,  subject to the terms
and  conditions  herein set forth,  to  purchase  from the Company up to -------
fully paid and nonassessable  shares of Common Stock, $0.10 par value per share,
of the  Company,  at the per  share  purchase  price of  $0.75  per  share  (the
"Purchase Price"),  at any time or from time to time on or after the date hereof
and up to 5:00 P.M. Denver,  Colorado time on February 12, 2001 (the "Expiration
Date").  The number and  character of such shares of Common Stock are subject to
adjustment as provided herein.

     1. Definitions.  As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:

          (a) "Act" shall mean the Securities Act of 1933, as amended.

          (b)  "Additional  Shares  of  Common  Stock"  shall  mean  all  shares
     (including treasury shares) of Common Stock issued or sold (or, pursuant to
     Section  3.7  hereof,  deemed to be issued) by the  Company  after the date
     hereof,  whether or not subsequently  reacquired or retired by the Company,
     other than shares of Common Stock issuable pursuant to this Warrant.

          (c)  "Adjusted  Exercise  Price"  shall have the meaning  specified in
     Section 3.2 hereof.

          (d) "Company" means Pease Oil and Gas Company or any corporation which
     shall  succeed to or assume the  obligations  of Pease Oil and Gas  Company
     hereunder.

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          (e) "Common  Stock" shall mean the Common  Stock,  par value $0.10 per
     share, of the Company and any stock into which such common stock shall have
     been  changed  or any stock  resulting  from any  reclassification  of such
     common  stock,  and shall  include  all other  stock of any class  (however
     designated)  of the Company  the  holders of which have the right,  without
     limitation  as to  amount,  either to all or to a share of the  balance  of
     current dividends and liquidating  dividends after the payment of dividends
     and distributions of any shares entitled to preference.

          (f) "Convertible Securities" shall mean any evidences of indebtedness,
     shares of stock (other than Common Stock) or other  securities  directly or
     indirectly  convertible into or exchangeable  for Common Stock,  other than
     any securities issuable pursuant to this Warrant.

          (g) "Market  Price",  as used with  reference to any share of stock on
     any specified date, shall mean:

               (i) if such  stock  is  listed  and  registered  on any  national
          securities  exchange or traded on The Nasdaq Stock Market  ("Nasdaq"),
          (A) the last  reported  sale price on such  exchange or Nasdaq of such
          stock on the business day immediately preceding the specified date, or
          (B) if there shall have been no such reported sale price of such stock
          on the business day  immediately  preceding  the specified  date,  the
          average of the last  reported sale price on such exchange or on Nasdaq
          on (x) the day next preceding the specified date for which there was a
          reported sale price and (y) the day next succeeding the specified date
          for which there was a reported sale price; or

               (ii) if such stock is not at the time listed on any such exchange
          or traded on Nasdaq  but is traded on the  over-the-counter  market as
          reported by the National Quotation Bureau or other comparable service,
          (A) the average of the closing bid and asked  prices for such stock on
          the business day  immediately  preceding the specified date, or (B) if
          there shall have been no such  reported  bid and asked prices for such
          stock on the business day  immediately  preceding the specified  date,
          the  average  of the last  bid and  asked  prices  on (x) the day next
          preceding the specified  date for which such  information is available
          and (y) the day next  succeeding  the  specified  date for which  such
          information is available; or

               (iii) if clauses (i) and (ii) above are not applicable,  the fair
          value per share of such  stock as  determined  in good  faith and on a
          reasonable  basis by the Board of  Directors  of the  Company  and, if
          requested,  set forth in a certificate delivered to the holder of this
          Warrant upon the exercise hereof.

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          (h) "Options" shall mean rights, options or warrants to subscribe for,
     purchase  or  otherwise   acquire   either  Common  Stock  or   Convertible
     Securities.

          (i) "Other  Securities"  shall mean any stock and other  securities of
     the Company or any other person  (corporate or otherwise) which the holders
     of this  Warrant at any time shall be entitled  to  receive,  or shall have
     received,  upon the exercise of this Warrant,  in lieu of or in addition to
     the Common Stock, or which at any time shall be issuable or shall have been
     issued to holders of the Common Stock in exchange for, in addition to or in
     replace  ment of the Common Stock or Other  Securities  pursuant to Section
     3.5 or otherwise.

          (j) "Purchase Price" shall mean $0.75 per share, subject to adjustment
     as provided herein.

     2. Exercise of Warrant.

     2.1.  Manner of  Exercise.  This  Warrant  may be  exercised  by the holder
hereof,  in whole or in part  (but not as to fewer  than  10,000  shares  of the
Common Stock unless,  at the time of exercise,  this Warrant entitles the holder
to purchase fewer than 10,000 shares of the Common  Stock),  on any business day
on or after the date hereof and before the Expiration Date, by surrender of this
Warrant,  with the  form of  subscription  at the end  hereof  (or a  reasonable
facsimile thereof) duly executed by such holder, to the Company at its office in
Grand Junction,  Colorado,  and, except as otherwise provided in Section 2.1(b),
accompanied by payment, by certified or official bank check payable to the order
of the Company,  in the amount  obtained by multiplying (x) the number of shares
of the Common Stock (without giving effect to any adjustment therein) designated
in such form of subscription (or such reasonable  facsimile) by (y) the Purchase
Price,  and such  holder  shall  thereupon  be entitled to receive the number of
shares of the Common Stock determined as provided hereunder.

     2.2. When Exercise Effective. Each exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the business
day on which this Warrant shall have been surrendered to the Company as provided
in Section 2.1, and the person(s) in whose name(s) the certificate(s) for shares
of the  Common  Stock (or  Other  Securities)  that are to be  issued  upon such
exercise in accordance  with Section 2.3 shall be deemed the holder(s) of record
thereof at such time.

     2.3. Delivery of Stock Certificates,  etc. As soon as practicable after the
exercise of this Warrant in full or in part in accordance  herewith the Company,
at its expense (including the payment by it of any applicable issue taxes), will
cause to be issued in the name of and delivered to the holder hereof, or as such
holder  (upon  payment  by such  holder of any  applicable  transfer  taxes) may
direct,

          (a) a certificate or certificates,  marked with an appropriate  legend
     referring to the terms of this Warrant and any applicable  restrictions  on
     such shares  imposed by the Federal or any state  securities  laws, for the

                                      - 3 -

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     number of full shares of the Common  Stock (or Other  Securities)  to which
     such  holder  shall be entitled  upon such  exercise  plus,  in lieu of any
     fractional share to which such holder would otherwise be entitled,  cash in
     an amount equal to the same  fraction of the Market Price of one full share
     of the Common  Preferred  Stock on the business day next preceding the date
     of such exercise, and

          (b) in case such  exercise is in part only,  a new Warrant or Warrants
     of like tenor,  calling in the  aggregate on the face or faces  thereof for
     the number of shares of the Common Stock equal  (without  giving  effect to
     any adjustment therein) to the number of such shares called for on the face
     of this Warrant  minus the number of shares  designated  by the holder upon
     such exercise as provided in Section 2.1.

     3. Common Stock Issuable Upon Exercise.

     3.1. General.  The number of shares of the Common Stock which the holder of
this  Warrant  shall be  entitled  to receive  upon the  exercise  hereof or, if
securities or other property in addition to or in lieu of the Common Stock shall
by reason of the  operation of the  provisions  of this Section be issuable upon
such exercise,  the amount and kind of such securities or other property,  shall
be adjusted or determined as provided in this Section 3.

     3.2.  Adjusted  Exercise  Price.  The number of shares of the Common  Stock
which the holder of this Warrant  shall be entitled to receive upon the exercise
hereof shall be  determined  by  multiplying  the number of shares of the Common
Stock  which,  but for the  provisions  of this  Section 3, would  otherwise  be
issuable upon such  exercise,  as  designated  by the holder hereof  pursuant to
Section  2.1, by the fraction of which the  numerator is the per share  Purchase
Price and the  denominator is the per share  Adjusted  Exercise Price (as herein
defined) in effect on the date of such exercise. The per share Adjusted Exercise
Price of the Common Stock shall  initially be the Purchase  Price (as defined in
Section 1) and shall be adjusted and readjusted from time to time as provided in
this Section 3 (and, as so adjusted or readjusted,  shall remain in effect until
a further adjustment or readjustment thereof is required by this Section 3).

     3.3. Stock Dividends, Stock Splits, etc. In case the Company at any time or
from time to time after the date hereof shall declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision of the outstanding
shares of the Common  Stock into a greater  number of shares of the Common Stock
(by  reclassification  or  otherwise  than by payment of a dividend in shares of
Common Stock),  then, in any such event,  the per share Adjusted  Exercise Price
per share  shall be  adjusted  effective  as of the close of business on (i) the
record date for the  determination  of  shareholders  entitled  to receive  such
dividend if such dividend is in fact paid, or (ii) the day immediately preceding
the day upon which such subdivision shall become effective (any such day, as the
case may be, shall be referred to herein as the "Subdivision  Effective  Date"),
by multiplying the per share Adjusted Exercise Price in effect immediately prior
to the  Subdivision  Effective  Date by the fraction of which (x) the  numerator

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shall be the number of shares of the Common Stock outstanding  immediately prior
to the Subdivision Effective Date and (y) the denominator shall be the number of
shares of the Common  Stock  outstanding  immediately  prior to the  Subdivision
Effective  Date plus the number of shares of the Common Stock  issuable upon the
payment of such dividend or the  consummation of such  subdivision,  as the case
may be.

     3.4.  Adjustments for Combinations,  etc. In case the outstanding shares of
the Common  Stock shall be  combined or  consolidated,  by  reclassification  or
otherwise, into a lesser number of shares of Common Stock, the Adjusted Exercise
Price  shall be  adjusted,  effective  as of the  close of  business  on the day
immediately  preceding the day upon which such  combination or  consolidation is
effective (the  "Combination  Effective  Date"),  by  multiplying  the per share
Adjusted Exercise Price in effect immediately prior to the Combination Effective
Date by the fraction of which (x) the numerator shall be the number of shares of
the Common Stock outstanding immediately prior to the Combination Effective Date
and (y) the  denominator  shall be the  number  of shares  of the  Common  Stock
outstanding immediately after the Combination Effective Date.

     3.5. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
etc. In case the Company,  after the date hereof,  (a) shall consolidate with or
merge  into any  other  person  and  shall not be the  continuing  or  surviving
corporation  of such  consolidation  or  merger,  or (b) shall  permit any other
person to  consolidate  with or merge into the Company and the Company  shall be
the continuing or surviving person but, in connection with such consolidation or
merger,  the Common Stock shall be changed into or exchanged  for stock or other
securities  or  property  of any other  person,  or (c)  shall  effect a capital
reorganization   or   reclassification   of  the  Common  Stock  (other  than  a
reclassification  subject to Sections 3.3 or 3.4),  then, and in each such case,
proper  provision  shall be made so that the  holder of this  Warrant,  upon the
exercise  hereof  at any time  after  the  consummation  of such  consolidation,
merger,  reorganization or  reclassification,  shall be entitled to receive,  in
lieu of the Common Stock (or Other Securities) issuable upon such exercise prior
to such consummation,  the stock and other securities and property to which such
holder would have been  entitled  upon such  consummation  if such holder had so
exercised  this  Warrant  immediately  prior  thereto,  subject  to  adjustments
(subsequent  to such corporate  action) as nearly  equivalent as possible to the
adjustments provided for in this Section 3.

     4. No Dilution or  Impairment.  The Company  will not, by  amendment of its
articles  of  organization  or through any  reorganization,  transfer of assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this  Warrant,  but will at all times in good  faith  assist in the
carrying  out of all such terms and in the  taking of all such  action as may be
necessary  or  appropriate  in order to protect the rights of the holder of this
Warrant against dilution or other impairment.

                                      - 5 -

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     5. Notices of Record Date, etc. In the event of

         (a) any taking by the  Company of a record of the  holders of any class
         of securities  for the purpose of determining  the holders  thereof who
         are  entitled to receive any  dividend  or other  distribution,  or any
         right to subscribe  for,  purchase or  otherwise  acquire any shares of
         stock of any class or any other  securities or property,  or to receive
         any other right, or

         (b) any capital  reorganization of the Company, any reclassification or
         recapitalization of the capital stock of the Company or any transfer of
         all or substantially  all the assets of the Company to any other person
         or any  consolidation  or merger  involving  the  Company and any other
         person, or

         (c) any voluntary or involuntary dissolution, liquidation or winding-up
         of the Company,

the Company will give to the holder of this Warrant a notice  specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend,  distribution  or right,  and stating the amount and character of
such  dividend,  distribution  or right,  and (ii) the date or expected  date on
which any such  reorganization,  reclassification,  recapitalization,  transfer,
consolidation,  merger, dissolution,  liquidation or winding-up is to take place
and the time, if any such time is to be fixed, as of which the holders of record
of the Common Stock (or Other  Securities)  shall be entitled to exchange  their
shares of the  Common  Stock  (or  Other  Securities)  for  securities  or other
property    deliverable    upon    such    reorganization,     reclassification,
recapitalization,  transfer, consolidation,  merger, dissolution, liquidation or
winding-up.  Unless  otherwise  required by law to be given sooner,  such notice
shall be mailed within a reasonable time prior to the date therein specified.

     6.  Reservation  of Stock,  etc. The Company will at all times  reserve and
keep  available out of its  authorized  but unissued  Common  Stock,  solely for
issuance and  delivery  upon the  exercise of this  Warrant,  the full number of
shares of Common Stock (or Other  Securities) then issuable upon the exercise of
this Warrant.  All shares of the Common Stock issuable upon the exercise of this
Warrant shall be duly authorized,  and when issued and paid for in full, validly
issued,  fully  paid and  non-assessable  with no  liability  on the part of the
holders thereof.

     7. Registration Rights.

     (a) Definitions.  For purposes of this Section 7, the following terms shall
have the following respective meanings:

          (i) "Commission"  shall mean the United States Securities and Exchange
Commission or any other Federal agency at the time administering the Act.

          (ii) The term "holder or holders of Registrable  Stock" shall mean the
holders of Common Stock or Other Securities issued pursuant to this Warrant.

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          (iii) The terms "register," "registered" and "registration" refer to a
registration  effected  by  preparing  and filing a  registration  statement  or
similar  document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document by the Commission.

          (iv) The term  "Registration  Period" shall mean the period commencing
on the date hereof and ending (a) if this Warrant  shall expire  without  having
been exercised in whole or in part,  the Expiration  Date or (b) if this Warrant
shall  have been  exercised  in whole or in part,  at such time as all shares of
Registrable  Stock have been sold by the initial  holder or can be sold publicly
without registration under the Act.

          (v) The term "Registrable  Stock" means (a) the shares of Common Stock
issued  or  issuable  upon  the  exercise  of this  Warrant,  and (b) any  Other
Securities issued or issuable pursuant to this Warrant; provided,  however, that
shares of Registrable Stock shall cease to be Registrable Stock if they are sold
or transferred  pursuant to a registered  public  offering or other  transaction
which does not result in restrictions on resale being imposed on the transfer by
virtue  of  Federal  or  state   securities  laws;  and  provided  further  that
Registrable  Stock shall cease to be Registrable  Stock if the holder could sell
or transfer such securities held by him in one or more transactions  pursuant to
Rule 144 promulgated under the Act.

     (b) Incidental Registration ("Piggyback").

          (i) If,  during the  Registration  Period,  the Company at any time or
from time to time proposes to file with the Commission a registration  statement
under the Act with respect to any proposed distribution of any of its securities
(other than a  registration  to be effected  on Form S-4,  S-8 or other  similar
limited  purpose form),  whether for sale for its own account or for the account
of any other person holding  registration  rights with respect to the securities
of the  Company,  then the Company  shall give written  notice of such  proposed
filing to the holders of Registrable  Stock at least thirty (30) days before the
anticipated  filing date,  and such notice shall describe in detail the proposed
registration and distribution  (including those jurisdictions where registration
or  qualification  under the  securities or blue sky laws is intended) and shall
offer the holders of Registrable  Stock the  opportunity to register such number
of shares of Registrable  Stock as the holders of Registrable Stock may request.
Upon receipt by the Company by the anticipated  filing date of written  requests
from the holders of Registrable Stock ("Participating  Holders") for the Company
to register their  Registrable  Stock, the Company shall permit, or in the event
of an  underwritten  offering,  shall use its best efforts to cause the managing
underwriter or  underwriters of such proposed  underwritten  offering to permit,
the  Participating  Holders to include such  securities  in such offering on the
same terms and  conditions  as any similar  securities  of the Company  included
therein;  provided,  however, that if in the opinion of the managing underwriter
or underwriters  of such offering,  the inclusion of the total amount or kind of
securities which it or the Company, and any other persons or entities, intend to
include in such offering would interfere,  hinder,  delay, reduce or prevent the

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effectiveness  or sale of the Company's shares of Common Stock proposed to be so
registered or would  otherwise  adversely  affect the success of such  offering,
then the amount or kind of  securities  to be offered  for the  accounts  of the
Company  and  each  holder  of  Common  Stock  (including   without   limitation
Registrable  Stock) or securities  convertible  into or  exercisable  for Common
Stock  proposed  to be  registered  (other than any  persons  exercising  demand
registration  rights)  shall be reduced (or  eliminated)  in proportion to their
respective  values  to the  extent  necessary  to  reduce  the  total  amount of
securities  to be  included  in such  offering  on  behalf  of such  holders  of
securities to the amount recommended by such managing underwriter.  For purposes
of this  Section,  "value"  shall mean  principal  amount  with  respect to debt
securities  and the  proposed  offering  price per share with  respect to equity
securities.  Notwithstanding the foregoing, if, at any time after giving written
notice of its intention to register Common Stock or other securities convertible
into or  exercisable  for  Common  Stock and prior to the  effectiveness  of the
registration  statement filed in connection with such registration,  the Company
determines  for any reason  either not to effect such  registration  or to delay
such  registration,  the Company  may, at its  election,  by delivery of written
notice to the Participating  Holders,  (i) in the case of a determination not to
effect  registration,   relieve  itself  of  its  obligations  to  register  any
Registrable Stock in connection with such  registration,  or (ii) in the case of
determination  to  delay  the  registration,  delay  the  registration  of  such
Registrable  Stock for the same period as the delay in the  registration of such
other shares of Common Stock or other securities convertible into or exercisable
for Common Stock.

          (ii)  Exception.  The Company  shall not be required to include any of
the Registrable Stock of a Participating Holder in any registration statement or
post-effective  amendment prepared at its own instance unless such Participating
Holder shall furnish such information and sign such documents as may be required
by the  Commission  or reasonably  requested by the Company in  accordance  with
generally accepted practices, in connection with such proposed distribution.

     (c)  Covenants of the Company with Respect to  Registration.  In connection
with any registration  under this Section 7, the Company shall, as expeditiously
as is reasonably possible:

          (i) Prepare and file with the Commission a registration statement with
respect to the Participating Holders' Registrable Stock and, subject to the last
sentence  of  Section  7(b(i)  hereof,  use  its  best  efforts  to  cause  such
registration statement to become effective.

          (ii)  Prepare  and  file  with  the  Commission  such  amendments  and
supplements to such  registration  statement and  prospectus  used in connection
with  such  registration  statement  as may be  necessary  to  comply  with  the
provisions of the Act with respect to the disposition of all securities  covered
by such registration statement.

          (iii) Furnish to the Participating Holders such numbers of copies of a
prospectus,  including, if applicable,  a preliminary prospectus,  in conformity
with the  requirements  of the Act,  and such  other  documents  as the  selling
shareholders  may reasonably  request in order to facilitate the  disposition of
Registrable Stock owned by the Participating Holders.

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<PAGE>

          (iv) Use its best  efforts to  register  and  qualify  the  securities
covered by such  registration  statement under such other securities or blue sky
laws of such  jurisdictions  within  the  United  States as shall be  reasonably
requested by the  Participating  Holders;  provided,  however,  that the Company
shall not be  required in  connection  therewith  or as a  condition  thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.

          (v) In the event of any underwritten  public offering,  enter into and
perform its obligations under an underwriting  agreement, in usual and customary
form, with the managing underwriter of such offering.  The Participating Holders
shall also enter into and perform their obligations under such an agreement.

          (vi) Notify the Participating  Holders,  at any time when a prospectus
relating to Registrable Stock covered by such registration statement is required
to be  delivered  under the Act,  of the  happening  of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes  an untrue  statement  of a material  fact or omits to state a material
fact required to be stated therein or necessary to make the  statements  therein
not misleading in the light of the circumstances then existing.

          (vii) Furnish to the Participating Holders, on the date that shares of
Registrable  Stock are delivered to the underwriters for sale in connection with
a registration  pursuant to this Section 7, if such securities are being sold by
underwriters,  or, on the date that the  registration  statement with respect to
such  securities  becomes  effective,  (i) an opinion as to matters of law only,
dated such date,  of counsel  representing  the Company for the purposes of such
registration,  in form and substance as is customarily  given to underwriters in
an underwritten public offering,  addressed to the underwriters,  if any, and to
the  Participating  Holders  and  (ii)  a  letter  dated  such  date,  from  the
independent  certified public accountants of the Company,  in form and substance
as  is  customarily  given  by  independent   certified  public  accountants  to
underwriters in an underwritten public offering,  addressed to the underwriters,
and to the Participating Holders.

     (d) The Company shall pay all costs,  fees and expenses in connection  with
all  registration  statements  filed  under this  Section 7  including,  without
limitation,  the Company's legal and accounting fees, printing expenses and blue
sky fees and  expenses,  but not  including the fees and expenses of counsel for
the Participating  Holders in connection with such  registration.  However,  the
Company  shall  not  pay  for   underwriting   discounts  and   commissions  and
underwriters'  expenses  allocable to the Registrable  Stock being registered or
state transfer taxes.

     (e) Indemnification.

          (i) The Company shall indemnify each  Participating  Holder under this
Agreement,  its officers and directors and any person  controlling it within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange  Act,  against
any loss, claim, damage,  expense or liability (including without limitation all
expenses reasonably incurred in investigating,  preparing,  or defending against
any claim whatsoever,  such expenses to be reimbursed by the Company as they are

                                      - 9 -

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incurred)  to which it may become  subject  under the Act,  the  Exchange Act or
otherwise,  arising  out of or based  upon (i) any untrue  statement  or alleged
untrue statement of a material fact contained in any  registration  statement or
prospectus or any amendments or supplements  thereto in which  Registrable Stock
is included or in any  application,  statement  or other  document  filed by the
Company with the Commission or any securities exchange or in any jurisdiction in
connection with  qualifying  such shares under the securities  laws thereof,  or
(ii) the omission or alleged  omission  therefrom of a material fact required to
be stated  therein or necessary to make the statements  therein not  misleading,
unless such  statement  or omission is made in reliance  upon and in  conformity
with  written  information  furnished  to the  Company  by or on  behalf of such
Participating   Holder  or  an  underwriter   expressly  for  use  in  any  such
registration statement or other document.

          (ii)  Each  Participating   Holder  shall,  as  a  condition  to  such
registration of Registrable Stock, agree to indemnify the Company,  its officers
and  directors  and any person  controlling  the  Company  within the meaning of
Section 15 of the Act or Section  20(a) of the Exchange  Act,  against any loss,
claim, damage or expense or liability (including without limitation all expenses
reasonably  incurred in investigating,  preparing or defending against any claim
whatsoever,  such  expenses  to be  reimbursed  by the  undersigned  as they are
incurred)  to which they may become  subject  under the Act, the Exchange Act or
otherwise,  arising  out of or based  upon (i) any untrue  statement  or alleged
untrue statement of a material fact contained in any  registration  statement or
prospectus or any amendments or supplements  thereto in which  Registrable Stock
is included or in any  application,  statement  or other  document  filed by the
Company with the Commission or any securities exchange or in any jurisdiction in
connection with  qualifying  such shares under the securities  laws thereof,  or
(ii) the omission or alleged  omission  therefrom of a material fact required to
be stated  therein or necessary to make the statements  therein not  misleading,
provided in each case that such  statement or omission is made in reliance  upon
and in  conformity  with written  information  furnished to the Company by or on
behalf of such  Participating  Holder expressly for use in any such registration
statement or other document,  or (iii) any misuse by the Participating Holder of
any prospectus  included in the  registration  statement or any violation of the
Act by the  Participating  Holder in connection with the sale or distribution of
his or her Registrable Stock under the registration statement.

          (iii)  Promptly  upon  receipt  by a  party  claiming  indemnification
hereunder of notice of the commencement of any action involving a claim referred
to above,  such  indemnified  party will, if a claim in respect thereof is to be
made  against a party which may be required to indemnify  such party  hereunder,
give written notice to the latter of the  commencement  of such action.  In case
any such action is brought against an indemnified  party, the indemnifying party
shall be entitled to participate in and to assume the defense of such action, to
the  extent  that it may wish,  with  counsel  reasonably  satisfactory  to such
indemnified  party.  Except as set forth herein,  the indemnified  party and any
party  cooperating  in the defense of such claim shall not settle or  compromise
any such claim or admit  liability  without the express  written  consent of the
indemnifying party. The indemnified party shall have the right to be represented
by an advisory counsel and accountants,  at its own expense, and the indemnified

                                     - 10 -

<PAGE>

party shall be kept fully  informed of such action,  suit or  proceeding  at all
stages thereof whether or not the indemnified  party is so represented.  After a
period of thirty days  following  the date the written  notice of such claim was
given to the indemnifying  party the indemnified party may settle any such claim
(and the  amount of any such  settlement  shall be  subject  to  indemnification
hereunder)  unless within such thirty-day  period the  indemnifying  party shall
have provided the indemnified  party with notice and evidence to the indemnified
party's  satisfaction that the indemnifying party reasonably disputes such claim
and has the financial ability to meet its indemnification obligations hereunder.
Notwithstanding the foregoing, the indemnified party may immediately cause to be
paid or  discharged  any asserted  claim the  nonpayment  of which would have an
immediate  substantial  adverse  impact on the  indemnified  party and any claim
which the  indemnifying  party has not disputed  within thirty days of notice as
provided above.

          (iv)  If the  indemnification  provided  for in this  Section  7(e) is
unavailable or  insufficient  to hold harmless an  indemnified  party under such
subsection in respect of any losses, claims, damages or liabilities or action in
respect thereof or referred to therein,  then each  indemnifying  party shall in
lieu of indemnifying  such  indemnified  party  contribute to the amount paid or
payable by such indemnified party as a result of such losses,  claims,  damages,
liabilities  or actions in such  proportion  as is  appropriate  to reflect  the
relative fault of the Company,  on the one hand, and the Participating  Holders,
on the other,  in connection  with the statements or omissions which resulted in
such  losses,  claims,  damages,  liabilities  or  actions  as well as any other
relevant  equitable  considerations,  including  the  failure to give the notice
required  under such  subsections.  The relative  fault shall be  determined  by
reference to, among other things, whether the untrue or alleged untrue statement
of a material  fact  relates to  information  supplied by the Company on the one
hand, or the Participating Holders, on the other hand, and the parties' relative
intent,  knowledge,  access to information and opportunity to correct or prevent
such statement or omission. The Company and the Participating Holders agree that
it would not be just and  equitable  if  contribution  pursuant to this  Section
7(e)(iv)  were  determined  by pro rata  allocation  or by any  other  method of
allocation which did not take account of the equitable  considerations  referred
to above in this subsection.  No person guilty of fraudulent  misrepresentations
(within the meaning of Section 11(f) of the Securities  Act),  shall be entitled
to  contribution   from  any  person  who  is  not  guilty  of  such  fraudulent
misrepresentations.

          (v) The obligations of the Company and the Participating Holders under
this Section 7(e) shall survive the  completion  of any offering of  Registrable
Stock in a registration statement under this Section 7.

          (vi) The rights of  indemnification  contained in this Section 7 shall
not be deemed to be the exclusive  remedy of the parties  hereto and such rights
shall be in addition to any other rights or remedies  which any party hereto may
have at law or equity.

     (f) Assignment of Registration  Rights. The undersigned's  rights set forth
in this Section 7 shall  automatically  be deemed  assigned to any transferee or
assignee of this Warrant or shares of Common Stock or Other Securities  issuable
hereunder,  provided  that  immediately  following  such  transfer  the  further

                                     - 11 -

<PAGE>

disposition of such securities by the transferee or assignee is restricted under
the Act;  provided  however,  that, the  termination of  registration  rights in
respect of any shares of Registrable  Stock shall be binding upon any transferee
of such shares. Upon the request of any such holder, the Company will confirm in
writing to any  transferee  of such  holder's  Registrable  Stock the  Company's
continuing  obligation to afford such  transferee  the benefits of the Company's
agreements contained in this Section 7, but no failure of the Company to confirm
such  obligations  shall in any way impair such  transferee's  rights under this
Section 7.

     8. Substitution of Warrants.

     8.1. Exchange of Warrants.  Subject to the provisions  appearing at the top
of the first page of this Warrant  concerning,  inter alia, the sale,  transfer,
encumbrance or other disposition of this Warrant,  upon surrender or exchange of
this Warrant, properly endorsed, to the Company, the Company at its expense will
issue and  deliver to or upon the order of the holder  thereof a new  Warrant or
Warrants  of like  tenor,  in the name of such  holder or as such  holder  (upon
payment by such holder of any applicable transfer taxes) may direct,  calling in
the  aggregate  on the face or faces  thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant or Warrants so surrendered.

     8.2.   Replacement  of  Warrant.   Upon  receipt  of  evidence   reasonably
satisfactory  to the Company of the loss,  theft,  destruction  or mutilation of
this  Warrant  and,  in the case of any such loss,  theft or  destruction,  upon
delivery of an indemnity agreement  reasonably  satisfactory to the Company, or,
in the case of any such  mutilation,  upon  surrender and  cancellation  of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like tenor.

     9. Ownership of Warrant.  Until this Warrant is transferred on the books of
the  Company,  the  Company  may treat the person in whose name this  Warrant is
issued as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary,  except that, if and when this Warrant is properly  assigned in
blank,  the Company may (but shall not be obligated  to) treat the bearer hereof
as the absolute  owner of this  Warrant for all  purposes,  notwithstanding  any
notice to the contrary. A Warrant, if properly assigned, may be exercised to the
extent  provided  herein by a new  holder  without  first  having a new  Warrant
issued.

     10. Notices,  etc. All notices and other communications from the Company to
the holder of this Warrant or from the holder of this Warrant shall be delivered
personally,  by facsimile  (if confirmed and followed by delivery by first class
mail),  reputable overnight courier service, or mailed by first class registered
or certified mail,  postage prepaid,  to the Company at 751 Horizon Court, Suite
203, P. O. Box 60219, Grand Junction,  Colorado 81506-8758,  Attn: President, or
to the  holder at such  address  as may have been  furnished  to the  Company in
writing by such  holder,  or,  until an address is so  furnished,  to and at the
address of the last holder of this  Warrant who has so  furnished  an address to
the  Company.  Any such notice shall be deemed to have been given on the date of
personal delivery,  facsimile, delivery to a reputable overnight courier service
or deposit in the mail.

                                     - 12 -

<PAGE>

     11.  Warrant  Holder Not a  Shareholder.  Holder  shall  not,  by virtue of
anything  contained in this  Agreement or  otherwise,  prior to exercise of this
Warrant,  be entitled  to any right  whatsoever,  either in law or equity,  of a
shareholder of the Company,  including without limitation,  the right to receive
dividends  or to vote or to  consent or to receive  notice as a  shareholder  in
respect of the  meetings of  shareholders  or the  election of  directors of the
Company or any other matter;  provided however that all holders of Warrants will
be  entitled to notice if: (a) the Company  grants  holders of its Common  Stock
rights to purchase any shares of capital stock or any other  rights,  or (b) the
Company authorizes a reclassification,  capital  reorganization,  consolidation,
merger or sale of substantially all of its assets.

     12.  Nontransferable.  This  Warrant is  nontransferable  without the prior
consent of the  Company.  Any such  transfer  shall be made in  accordance  with
Section 8.1 above.

     13.  Miscellaneous.  The Company may from time to time  supplement or amend
this Warrant  without the approval of the holder in order to cure any  ambiguity
or to be correct or  supplement  any  provision  contained  herein  which may be
defective  or  inconsistent  with any  other  provision,  or to make  any  other
provisions in regard to matters or questions herein arising  hereunder which the
Company may deem necessary or desirable and which shall not materially adversely
affect the  interest  of the  holder.  This  Warrant  and any term hereof may be
amended,  changed,  waived,  discharged or  terminated  only by an instrument in
writing  signed by the Company and consented to in writing by the holder of this
Warrant.  If for any reason any provision,  paragraph or term of this Warrant is
held to be invalid or  unenforceable,  all other valid  provisions  herein shall
remain in full force and effect and all terms, provisions and paragraphs of this
Warrant  shall be deemed to be  severable.  This Warrant  shall be construed and
enforced in  accordance  with and  governed by the laws of the state of Colorado
applicable to contracts made and to be performed entirely therein.  The headings
in this Warrant are for reference purposes only and shall not limit or otherwise
affect the meaning hereof.

Dated as of:      February 12, 1996.

                                           PEASE OIL AND GAS COMPANY

                                           By:
                                              ----------------------------------
                                               Willard H. Pease, Jr., President

                                     - 13 -

<PAGE>

                              FORM OF SUBSCRIPTION

                [To be signed only upon exercise of the Warrant]

To:  PEASE OIL AND GAS COMPANY

     The  undersigned,  the holder of the  within  Warrant,  hereby  irrevocably
elects to exercise the purchase  right  represented  by such Warrant for, and to
purchase  thereunder,  ------------* shares of the Common Stock of PEASE OIL AND
GAS COMPANY and herewith makes payment of  $-----------  therefor,  and requests
that the  certificates  for such shares be issued in the name of, and  delivered
to, ------------------,  whose address is -----------------------------------.

Dated:

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

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

                           (Signature must conform in all
                           respects to the name of the holder
                           as specified on the face of the
                           Warrant)

                           -----------------------------------------
                                       (Address)

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

*        Insert the number of shares  called for on the face of the Warrant (or,
         in the case of a partial exercise,  the portion thereof as to which the
         Warrant  is  being  exercised),  in  either  case  without  making  any
         adjustment  for  additional  Common  Stock or any other  stock or other
         securities  or  property  or cash  which,  pursuant  to the  adjustment
         provisions of the Warrant, may be deliverable upon exercise.

                                     - 14 -

<PAGE>

                               FORM OF ASSIGNMENT

                [To be signed only upon transfer of the Warrant]

     For value  received,  the undersigned  hereby sells,  assigns and transfers
unto  ------------  the right  represented  by the within  Warrant  to  purchase
----------- shares of the Common Stock of PEASE OIL AND GAS COMPANY to which the
within  Warrant  relates,  and  appoints  ------------------------  Attorney  to
transfer  such right on the books of PEASE OIL AND GAS COMPANY,  with full power
of substitution in the premises.

Dated:

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

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

                          (Signature must conform in all
                           respects to the name of the holder
                           as specified on the face of the
                           Warrant)

                           -----------------------------------------
                                    (Address)

Signed in the presence of:

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

                                     - 15 -PEASE OIL AND GAS COMPANY
                             1996 STOCK OPTION PLAN

     1.  Purpose of Plan.  The purpose of this 1996  Employee  Stock Option Plan
("Plan") is to secure and retain employees  responsible for the success of Pease
Oil and Gas Company  ("Company"),  to motivate  such persons to exert their best
efforts on behalf of the Company,  to encourage  stock  ownership and to provide
such  persons  with  proprietary  interests  in, and a greater  concern for, the
welfare of, and an incentive to continue service with, the Company.

     For  purposes  of  this  Plan,  the  term  "Company"  shall  include  where
appropriate  in  the  context  used  any  "parent  corporation"  or  "subsidiary
corporation"  of the Company,  as those terms are defined in Sections 424(e) and
(f) of the Code,  whether in  existence  on the date of  adoption of the Plan or
formed after the adoption of this Plan.

     Options  issued  pursuant  to this Plan  will  constitute  incentive  stock
options  within the meaning of ss. 422 of the Internal  Revenue Code of 1986, as
amended ("Code"),  at the time of grant  ("Incentive  Stock Options"),  or other
options ("Nonstatutory Stock Options"). Incentive Stock Options and Nonstatutory
Stock Options may both be granted hereunder and any option granted which for any
reason does not qualify as an Incentive  Stock  Option  shall be a  Nonstatutory
Stock  Option;  provided,  however,  that in no event shall an  Incentive  Stock
Option and a  Nonstatutory  Stock Option  granted to any Optionee under a single
stock option agreement be subject to a "tandem"  exercise  arrangement such that
the exercise of one such Option  affects the  Optionees's  right to exercise the
other Option granted under such stock option agreement.

     Unless the  context  requires  otherwise,  the term  "Option"  in this Plan
refers to both Incentive Stock Options and Nonstatutory Stock Options.

     2. Stock Subject to the Plan.  The number of shares of the  Company's  $.10
par value common stock ("Common Stock") which may be optioned under this Plan is
350,000 shares. Such shares may consist, in whole or in part, of unissued shares
or treasury shares. The maximum number of shares issuable pursuant to this Plan,
including shares subject to outstanding options,  shall be subject to adjustment
as provided in Section 6 of this Plan.  The  aggregate  fair market value of the
shares subject to Incentive  Stock Options  granted to any Optionee which become
exercisable  in a  particular  calendar  year  shall not  exceed  $100,000.  For
purposes  of such  limitation,  the fair market  value of Common  Stock shall be
determined  as of the date of grant  and the  limitations  shall be  applied  by
taking into account  Incentive Stock Options in the order granted.  For purposes
of this Plan, market value of shares subject to an option shall be determined as
follows:

          (i) If the Common Stock is listed on the New York Stock Exchange,  the
     American Stock Exchange or such other securities exchange designated by the
     Committee, or admitted to unlisted trading privileges on any such exchange,
     or if the Common Stock is quoted on a National  Association  of  Securities
     Dealers,  Inc. system that reports  closing  prices,  the fair market value
     shall be the  closing  price of the Common  Stock as  reported  by the Wall

                                      - 1 -

<PAGE>

     Street Journal on the day the fair market value is to be determined,  or if
     no such price is  reported  for such day,  then the  determination  of such
     closing  price shall be as of the last  immediately  preceding day on which
     the closing price is so reported; or

          (ii) If the  Common  Stock is not so listed or  admitted  to  unlisted
     trading privileges or so quoted, the fair market value shall be the average
     of the last reported  highest bid and the lowest asked prices quoted on the
     National  Association  of Securities  Dealers,  Inc.  Automated  Quotations
     System or, if not so quoted, then by the National Quotation Bureau, Inc. on
     the day the fair market value is determined; or

          (iii) If the Common  Stock is not so listed or  admitted  to  unlisted
     trading privileges or so quoted, and bid and asked prices are not reported,
     the fair market value shall be determined in such reasonable  manner as may
     be prescribed by the Committee.

     If any  outstanding  Option  under this Plan for any  reason  expires or is
terminated,  the shares of Common Stock allocable to the unexercised  portion of
such Option may again be optioned  under this Plan  subject to the  limitations,
terms and  conditions  of this  Plan.  The Board of  Directors,  and the  proper
officers  of the  Company,  shall  from  time to time  take  appropriate  action
required  for  delivery of Common  Stock,  in  accordance  with any  exercise of
Options under this Plan.

     3. Administration.  Administration of the Plan shall be administered by the
Compensation  Committee of the Board of  Directors  of the Company,  hereinafter
referred to as the  "Committee."  The  Committee  shall  consist of at least two
members of the Board of  Directors  having full  authority to act in the matter,
none of whom during the one year prior to such  appointment  or while serving on
the  Committee,  is granted  an Option  under this Plan or is granted or awarded
equity  securities  pursuant  to any  other  plan of the  Company  or any of its
affiliates,  except as permitted by Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act").  If the Committee thus  established  shall
consist  of fewer than two  members at the time of any action by the  Committee,
then the  directors  shall  select  enough  other  shareholders  to serve on the
Committee  to have two  members and to meet any  requirements  of ss. 422 of the
Code and regulations  adopted thereunder and regulations  adopted under the 1934
Act.

     Once  appointed,  the  Committee  shall  continue to serve until  otherwise
directed by the Board. From time to time, the Board may increase the size of the
Committee  and appoint  additional  members  thereof,  remove  members  (with or
without cause) and appoint new members in substitution therefor,  fill vacancies
however caused,  or remove all members of the Committee and thereafter  directly
administer the Plan.

     With respect to persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all  applicable  conditions  of Rule
16b-3 or its  successors  under the 1934 Act. To the extent any provision of the
Plan or action by the Committee fails to so comply,  it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.

                                      - 2 -

<PAGE>

     Subject to compliance with Section 16 of the 1934 Act, members of the Board
who are either eligible for Options or who have been granted Options may vote on
any matters affecting the administration of the Plan or the grant of any Options
pursuant to the Plan,  except that no such member shall act upon the granting of
an Option to  himself,  but any such  member may be counted in  determining  the
existence  of a quorum at any meeting of the Board  during which action is taken
with respect to the granting of Options to such member.

     The decision of a majority of those present at any meeting of the Committee
where a quorum  consisting  of a majority  of the  Committee  is  present  shall
constitute the decision of the Committee.

     The Committee is authorized and empowered to administer the Plan insofar as
it relates to Options and,  consistent with the terms of the Plan, to (a) select
the  employees to whom Options are to be granted and to fix the number of shares
and other terms and  conditions of the Options to be granted;  (b) determine the
date upon which  Options  shall be granted and the terms and  conditions  of the
granted Options in a manner  consistent  with the Plan,  which terms need not be
identical  as  between  Options or  Optionees;  (c)  interpret  the Plan and the
Options  granted  under  the  Plan;  (d)  adopt,  amend  and  rescind  rules and
regulations for the administration of the Plan insofar as it relates to Options;
and (e) direct the Company to execute  Stock Option  agreements  pursuant to the
Plan.

     All such actions of the Committee shall be binding upon all participants in
the Plan.

     4.  Eligibility.  The  employees  of the  Company  who shall be eligible to
receive  grants  of  Options  under  this  Plan  shall be those  key  employees,
including  officers or directors of the Company who are also employees,  who are
from time to time  responsible  for the  management,  growth or  success  of the
business of the Company and who shall have been selected by the  Committee.  The
Company  may  also  grant  Options  to  Consultants  and  Directors  who are not
employees of the Company; provided,  however, that Consultants and Directors who
are not employees are eligible to receive only Nonstatutory Options.

     The persons to receive  Options  under the Plan shall be selected from time
to time by the  Committee,  in its  sole  discretion,  and the  Committee  shall
determine,  in its sole  discretion,  the  number of shares to be covered by the
Options granted to each person selected.  Subject to the exception under Section
5(b), no person may be granted an Option if such person,  at the time the Option
is granted,  owns shares of Common Stock  possessing  more than 10% of the total
combined  voting power of all classes of stock of the  Company.  For purposes of
calculating such stock ownership,  the attribution  rules of stock ownership set
forth in Section 424(d) of the Code shall apply. Accordingly,  an Optionee, with
respect to whom such 10% limitation is being determined,  shall be considered as
owning  Common  Stock owned  directly  or  indirectly  by or for the  Optionee's
brothers and sisters (whether by the whole or half-blood), spouse, ancestors and

                                      - 3 -

<PAGE>

lineal descendants;  and any Common Stock owned directly or indirectly by or for
a corporation,  partnership, estate or trust, shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.

     5. Terms and Conditions.  The Plan shall become effective upon the approval
of a  majority  of the  holders  of  the  Company's  Common  Stock  present,  or
represented,  and  entitled  to  vote,  at  a  meeting  at  which  a  quorum  of
stockholders of the Company is present or represented.  Such approval must occur
within 12 months after the date this Plan is adopted by the Board of  Directors.
It shall  continue  in effect  for a period  of ten  years  from the date of its
effectiveness.

     All  Options  granted  under  this Plan  shall be  subject to the terms and
conditions of this Plan, including all of the following:

          (a) Option  Price.  Subject to the  provisions  of Section  5(b),  the
     Option price per share shall be  determined  by the Committee but shall not
     be less than 100% of the fair  market  value of such shares at the time the
     Option is granted.

          (b) More than 10%  Shareholder.  If an employee  owns more than 10% of
     the total  combined  voting power of all classes of stock of the Company as
     determined  under  Section  4, at the time an  Incentive  Stock  Option  is
     granted under this Plan, the Committee may issue an Incentive  Stock Option
     to such person at 110% of the fair market  value of the Common  Stock.  Any
     Incentive   Stock  Option  granted  to  any  such  employee  shall  not  be
     exercisable after the expiration of five years from the date such Incentive
     Stock Option is granted.

          (c) Limitations on Grant of Options.  Subject to the limitations under
     Section  5(b) of this  Plan,  no  Option  shall  be  granted  which  may be
     exercised more than ten years after the date it was granted.

          (d) Limitations on Exercise of Option.  No Optionee  granted an Option
     under this Plan may exercise such Option for six months  following the date
     of grant of the Option and unless at all times during the period  beginning
     on the date of the  granting  of the  Option  and  ending  on the day three
     months  before the date of such  exercise such Optionee was employed by the
     Company or a  corporation  or  subsidiary  thereof  issuing or assuming the
     Option in a transaction set forth under Section 6 of this Plan.

          (e) Payment for Shares.  Payment in full,  in cash,  shall be made for
     all shares  issued  pursuant to the exercise of an Incentive  Stock Option,
     provided that the  Committee  may permit  payment to be made with shares of
     the  Company's  Common Stock owned by the Optionee to be valued at the fair
     market value at the date of exercise.  All Options  shall be exercised  for
     100  shares,  or a multiple  thereof,  or for the full number of shares for
     which the Option is then  exercisable.  No Optionee shall have the right to

                                      - 4 -

<PAGE>

     dividends or other rights of a stockholder  with respect to shares  subject
     to an Option until the Optionee has given written notice of exercise of the
     Optionee's Incentive Stock Option and paid in full for such shares.

          (f) Manner of Exercise.  Any Option granted  pursuant to this Plan may
     be  exercised  at such  time or times as set  forth in the  Option,  by the
     delivery of written  notice to any officer of the  Company,  other than the
     Optionee,  together  with  payment in full,  for the number of shares to be
     purchased  pursuant  to such  exercise.  Such  notice  (i) shall  state the
     election to exercise  the Option,  (ii) shall state the number of shares in
     respect  of which the  Option is being  exercised,  (iii)  shall  state the
     Optionee's address, (iv) shall state the Optionee's social security number,
     (v) shall contain such representations and agreements concerning Optionee's
     investment  intent with  respect to such shares of Common Stock as shall be
     satisfactory  to  the  Company's   counsel,   (vi)  shall  state  that  the
     certificate  evidencing the shares may be stamped with a restrictive legend
     and the shares evidenced by such  certificate  will constitute  "restricted
     securities" as defined in Rule 144 promulgated  under the Securities Act of
     1933,  as  amended  (the  "Act")  (unless  the  shares to be  acquired  are
     registered under the Act) and (vii) shall be signed and dated by Optionee.

          (g)  Conditions  of  Issuance  of Shares.  Shares  shall not be issued
     pursuant to the  exercise of an Option  unless the  exercise of such Option
     and the issuance and delivery of such Shares pursuant  thereto shall comply
     with all relevant  provisions of law, including,  without  limitation,  the
     Act,  the 1934  Act,  the  rules and  regulations  promulgated  thereunder,
     applicable state securities law, and the requirements of any stock exchange
     or automated quotation system upon which the Share may be listed or quoted,
     and shall be subject to the approval of legal  counsel for the Company with
     respect to such compliance.

          (h)  Limitation  on  Transfer  of Shares.  Unless  shares  issued upon
     exercise are at the time of exercise  registered  under the Act, all shares
     of Common Stock  acquired by an Optionee upon exercise of an Option granted
     under this Plan shall be deemed to be "restricted securities" as defined in
     Rule 144  promulgated  under the Act and the  certificate  evidencing  such
     shares shall contain a legend as follows:

               "The securities represented by this certificate may not be
               offered for sale,  sold or  otherwise  transferred  except
               pursuant to an effective  registration statement under the
               Securities  Act of 1933  (the  `Act')  or  pursuant  to an
               exemption   from   registration   under   the   Act,   the
               availability   of  which  is  to  be  established  to  the
               satisfaction of the Company."

          (i) Other Representations or Warranties. As a further condition to the
     exercise  of any Option  granted  under this Plan,  the Company may require
     each Optionee to make any representation and warranty to the Company as may
     be required by any applicable law or regulation.

                                      - 5 -

<PAGE>

          (j) Holding Period of Shares.  No shares of Common Stock acquired upon
     exercise of an Incentive Stock Option granted under this Plan shall be sold
     or otherwise disposed of, within the meaning of Section 424(c) of the Code,
     at any time before the sooner of two years from the date of the grant of an
     Incentive  Stock  Option  under  this  Plan or one year  after  the date of
     exercise of the  Incentive  Stock  Option.  However,  an  Optionee  who has
     acquired  shares of Common Stock upon  exercise of a stock  option  granted
     under this Plan, who transfers such shares to a trustee, receiver, or other
     similar  fiduciary in any  proceeding  under Title 11 of the United  States
     Bankruptcy  Law or any other similar  insolvency  proceeding at a time when
     such  Optionee  is  insolvent  shall  not have  been  deemed to have made a
     transfer or disposition for purposes of this subsection,  nor shall one who
     acquires the shares from the Company with another  person in joint  tenancy
     be deemed to have made a transfer or  disposition.  Shares of Common  Stock
     acquired by exercise of a  Nonstatutory  Stock  Option under the Plan shall
     not be sold or  otherwise  disposed of at any time before one year from the
     date of the grant of the Nonstatutory Stock Option.

          (k) Death of  Optionee.  If an Optionee  dies,  any Option  previously
     granted to the Optionee shall be exercisable by the personal representative
     or  administrator  of the deceased  Optionee's  estate,  or by any trustee,
     heir, legatee or beneficiary  (collectively  referred to for convenience as
     the "legal  representative")  who shall have  acquired the Option  directly
     from the Optionee by will or by the laws of descent and distribution at any
     time  within one year after his  death,  but not more than ten years  [five
     years if Section  5(b) is  applicable]  after the date of  granting  of the
     Option, provided the deceased Optionee was entitled to exercise such Option
     at the time of his death.  Prior to the  exercise of any such  Option,  the
     legal  representative of the deceased Optionee shall furnish to the Company
     written notice of such exercise,  together with a certified copy of letters
     testamentary or other proof deemed sufficient by the Committee of the right
     of the legal  representative to exercise such Option in accordance with the
     provisions of this Plan.

          (l)  Retirement.   If  an  Optionee's   employment  with  the  Company
     terminates by reason of retirement,  any Option  previously  granted to him
     shall be exercisable as determined in the sole  discretion of the Committee
     at any time within three months after the date of such termination, but not
     more than ten years [five years if Section  5(b) is  applicable]  after the
     date of granting of the Option, and then only to the extent to which it was
     exercisable  at the  time  of such  termination  by  retirement;  provided,
     however, that if the Optionee dies within three months after termination by
     retirement,  any  unexercised  Option,  to  the  extent  to  which  it  was
     exercisable at the time of his death,  shall  thereafter be exercisable for
     one year  after the date of his  death,  but not more than ten years  [five
     years if Section  5(b) is  applicable]  after the date of  granting  of the
     Option.

          (m) Disability.  If an Optionee becomes disabled within the meaning of
     Section  22(e)(3)  of the  Code,  and at the  time of such  disability  the
     Optionee is entitled to  exercise an Option,  the  Optionee  shall have the
     right to  exercise  such  Option  within  one year  after  such  disability

                                      - 6 -

<PAGE>

     provided  that the  Optionee  exercises  within ten years after the date of
     grant thereof [or five years if Section 5(b) is applicable],  and then only
     to the extent to which it was exercisable at the time of such disability.

          (n)  Optionee's  Termination.  If  an  Optionee  ceases  to  serve  an
     Employee,  Consultant or Director, as the case may be, for any reason other
     than death, retirement or disability,  any Option previously granted to the
     Optionee which was  exercisable at the time of termination  shall terminate
     three months after the date of such  termination or at such earlier time as
     provided in the terms of the Option granted to the Optionee.  To the extent
     that an Option is not  exercised  within  the time  specified  herein,  the
     Option shall terminate.

          (o) Leave of  Absence.  For the  purposes  of this Plan (i) a leave of
     absence,  duly authorized in writing by the Company for military service or
     sickness,  or for any other purpose approved by the Company,  if the period
     of such leave does not exceed 90 days and (ii) a leave of absence in excess
     of 90  days,  duly  authorized  in  writing  by the  Company  provided  the
     Optionee's  right to  re-employment  is guaranteed  either by statute or by
     contract, shall not be deemed a termination of employment.

          (p)  Nontransferability  of Options. No Option granted under this Plan
     will be  transferable  by the  Optionee  other  than by will or the laws of
     descent and distribution.  During the lifetime of the Optionee,  the Option
     will be exercisable only by Optionee.

          (q)  Exercisability  of Options.  No Optionee  granted an Option under
     this Plan shall be entitled  to exercise  such Option at any time after the
     expiration of such Option as specified in the option certificate evidencing
     such Option.

     6.  Adjustments  Upon  Recapitalization,  Merger,  Etc. If the  outstanding
shares  of $.10  par  value  Common  Stock of the  Company  shall at any time be
changed or exchanged by declaration of a stock dividend,  split-up,  subdivision
or  combination  of shares,  recapitalization,  merger,  consolidation  or other
corporate  reorganization  in which the Company  (including  a merger or similar
reorganization  which  effects a  reincorporation  of the Company in a different
county or province) is the surviving corporation,  the number and kind of shares
subject to this Plan or  subject  to any  Options  previously  granted,  and the
Option prices, shall be appropriately and equitably adjusted,  so as to maintain
the proportionate  number of shares without changing the aggregate Option price.
In the  event of a  dissolution  or  liquidation  of the  Company,  or a merger,
consolidation,  sale  of  all or  substantially  all of  its  assets,  or  other
corporate  reorganization in which the Company is not the surviving  corporation
and the holder of Common Stock receives securities of another corporation,  then
any  outstanding  Options  hereunder shall terminate as of the effective date of
such event;  provided that  immediately  prior to such event each Optionee shall
have the right to exercise any  unexpired  Option in whole or in part whether or
not the Option would  otherwise be  exercisable.  The Company  shall afford each
person who holds an Incentive Stock Option under this Plan with at least 30 days
advance  written  notice of such event.  The  existence of this Plan,  or of any

                                     - 7 -
<PAGE>

Options  hereunder,  shall not in any way prevent any  transaction  described in
this section, nor shall anything contained in this Plan prevent the substitution
of a new Option by a surviving corporation.

     7. Use of  Proceeds.  Proceeds  from the sale of stock  pursuant to Options
granted  under this Plan shall  constitute  general  funds of the Company may be
used for such general  corporate  purposes as the  Company's  Board of Directors
shall determine.

     8. Reservation of Issuance of Shares. The Company shall at all times during
the  duration of this Plan reserve and keep  available  such number of shares of
Common Stock as will be  sufficient to satisfy the  requirements  of all Options
granted  pursuant to this Plan,  and shall pay all  original  issue and transfer
taxes with  respect to the  issuance of shares  pursuant to the exercise of such
Options,  and shall pay all of the fees and  expenses  necessarily  incurred  in
connection with the exercise of such Options and the issuance of such shares.

     9. Amendments. The Board of Directors may amend, alter, or discontinue this
Plan, but no amendment,  alteration or discontinuation shall be made which would
impair the rights of any Optionee under any Options previously granted,  without
the  Optionee's  consent,  or which,  without the approval of the  stockholders,
would:

          (i) except as is  provided  in Section 6 of this  Plan,  increase  the
     total number of shares reserved for the purposes of this Plan;

          (ii)  decrease  the Option  price to less than 100% of the fair market
     value or 110% if Section 5(b) is  applicable on the date of the granting of
     the Option;

          (iii)  change the persons  (or class of  persons)  eligible to receive
     Options under this Plan; or

          (iv) so long as the Company has a class of equity security  registered
     under Section 12 of the 1934 Act, make any material amendment to the Plan.

     Any such  amendment  or  termination  of the Plan shall not affect  Options
already granted and such Options shall remain in full force and effect as if the
Plan had not been  amended  or  terminated,  unless  mutually  agreed  otherwise
between the Optionee and the Board in a writing signed by both parties.

     10. Indemnification. In addition to such other rights of indemnification as
they may have as  directors,  the  members  of the  Committee  and the  Board of
Directors  shall be  indemnified  by the Company  against  reasonable  expenses,
including  attorneys'  fees actually  incurred in connection with the defense of
any action, suit or proceeding,  or in connection with any appeal therefrom,  to
which  they or any of them  may be a party  by  reason  of any  action  taken or
failure  to act under or in  connection  with this  Plan or any  Option  granted
hereunder,  or shares  purchased  pursuant to the exercise of Options under this
Plan, and against all amounts paid by them in settlement  thereof (provided such

                                      - 8 -

<PAGE>

settlement is approved by independent  legal counsel selected by the Company) or
paid by them in  satisfaction  of judgment in any  action,  suit or  proceeding,
except in relation  to matters as to which it shall be adjudged in such  action,
suit or  proceeding,  that such member of the Board of  Directors  is liable for
gross  negligence,  fraud  or  willful  misconduct  in  the  performance  of the
director's  duties  so long as  within  60 days  after  institution  of any such
action, suit or proceeding,  the director shall in writing offer the Company the
opportunity,  at its own  expense,  to handle and defend  such  action,  suit or
proceeding.

     11.  Miscellaneous.  Unless the context requires otherwise,  words denoting
the singular may be  construed  as denoting the plural,  and words  denoting the
plural may be construed as denoting the singular, and words of one gender may be
construed as denoting such other gender as is  appropriate.  Paragraph  headings
are  not to be  considered  part of  this  Plan  and  are  included  solely  for
convenience  and are not  intended  to be full or accurate  descriptions  of the
contents thereof.

Adopted by Shareholders:    August 30, 1996

                                             PEASE OIL AND GAS COMPANY
                                             organized under the laws of Nevada
ATTEST:

                                             By /s/ Willard H. Pease, Jr.
                                                --------------------------------
                                                Willard H. Pease, Jr., Chairman

/s/ Patrick J. Duncan
---------------------------------------
Patrick J. Duncan, Secretary

S E A L

                                      - 9 -

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