PEASE OIL & GAS CO /CO/
PREFERRED STOCK SURRENDER AGREEMENT
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>0005.htm
<DESCRIPTION>PREFERRED STOCK SURRENDER AGREEMENT
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<TITLE>Preferred Stock Surrender Agreement</TITLE>
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<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PREFERRED
STOCK SURRENDER AGREEMENT</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
AGREEMENT dated effective November 1, 2000, is by and between <B>PEASE OIL AND
GAS COMPANY,</B> a Nevada corporation (&#147;Company&#148;) and the undersigned,
each of which is a holder of the Company&#146;s Series B 5% PIK Cumulative
Convertible Preferred Stock (each holder is referred to herein as a
&#147;Holder&#148; and all the holders are referred together as the
&#147;Holders&#148;). </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Agreement is made with reference to the following agreed facts: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
The names of the Holders and the number of shares of the Company&#146;s Series B
5% PIK Cumulative Convertible Preferred Stock (the &#147;Series B
Preferred&#148;) owned by each is set forth on <U>Schedule 1</U> attached
hereto. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
Pursuant to an "Agreement Not to Sell or Convert Securities," dated effective
May 24, 1999 (the "Lock-Up Agreement"), the Company and the Holders agreed,
among other things, that no Holder would convert Series B Preferred into Company
common stock and that the dividends on the Series B Preferred shall be deferred
during the time when the Company sought to complete a merger with Carpatsky
Petroleum Inc. ("CPI").</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
Under an &#147;Exchange Agreement and Irrevocable Proxy,&#148; dated on various
dates in August 1999, each Holder of Series B Preferred agreed, among other
things, to: (i) exchange all outstanding Series B Preferred for common stock of
the Company on or before the date of completion of the merger with CPI, (ii) to
vote to approve the merger with CPI and related matters, and (iii) that the
Lock-Up Agreement was to remain in full force and effect until the later of
closing or termination of the merger with CPI, or November 15, 1999. The Company
has not paid or accrued dividends on the Series B Preferred since September 1,
1999. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.
The Company and the Holders believe that it is in the best interest of the
Company to terminate the Merger Agreement with CPI, subject to the matters set
forth in this Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E.
The Company and each of the Holders have agreed that until this Agreement is
signed by the parties, the Holders shall be precluded from converting or
transferring any of their Series B Preferred. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>NOW,
THEREFORE,</B> in consideration of the foregoing and the respective covenants
and agreements set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and confirmed, the
Company and the Holders hereto agree as follows: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
1.</B> <B>Exchange Series B Preferred.</B> On or before October 31, 2000 (the
&#147;Closing Date&#148;), each Holder shall surrender all certificates
representing its Series B Preferred, together with all other dividend rights,
conversion rights, voting rights or other rights which may be applicable to the
Series B Preferred, to the Company. In exchange for surrender of the Series B
Preferred, the Company shall, on the Closing Date, pay to each Holder the sum
set forth on <B><U>Schedule 1</U></B><U></U> and issue and deliver to each
Holder a warrant to purchase that number of shares of the Company&#146;s common
stock set forth on <B><U>Schedule 1</U></B><U></U> (the &#147;Warrants&#148;) to
this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
2.</B> <B>Company Warrants.</b> Each Warrant issued to a Holder shall be in a
form, and shall represent the rights, terms and conditions applicable to the
purchase of Company common stock as the form of Warrant attached hereto as
<u>Exhibit B</u> and incorporated herein by reference.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
3.</B> <B>Termination of Certain Rights.</B> Upon completion of the exchange on
the Closing Date, the rights and privileges of the Holders, as described in the
Preferred Stock Purchase Agreement dated effective December 31, 1997 and the
Certificate of Designation of Series B 5% PIK Cumulative Convertible Preferred
Stock, as amended, as filed with the Secretary of State of Nevada December 31,
1997, which designated a total of 145,300 shares of the Company&#146;s Series B
Preferred and set forth the rights and privileges applicable thereto (the
&#147;Series B Preferred Designation&#148;) shall be terminated. Following the
exchange, Holders&#146; rights as security holders of the Company shall solely
as holders of the Warrants, and not as holders of preferred stock of any class. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
4.</B> <B>Agreement Not to Sell or Convert Series B Preferred.</B> Each Holder
agrees that pending the Closing Date, as described above, the Holder shall not
convert or seek to convert the Series B Preferred held by Holder into Company
common stock. Further, each Holder agrees that Holder will not sell or transfer,
including making any short sale or similar transaction, any shares of the
Company&#146;s Series B Preferred or the Company&#146;s common stock, either
publicly or privately. If the Closing Date has not occurred by December 15,
2000, then any Holder may, upon 15 days prior written notice delivered to the
Company, sell or transfer Series B Preferred stock held by it, or seek to
convert Holder&#146;s Series B Preferred in accordance with the conversion
rights applicable to Series B Preferred. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
5.</B> <B>No Further Dividends on Series B Preferred.</B> Provided that the
Closing Date occurs on or before December 15, 2000, then all unpaid dividends on
the Series B Preferred shall be waived by all of the Holders and the Company
shall have no obligation to pay any Holder any unpaid dividends on the Series B
Preferred. If the Closing Date has not occurred by December 15, 2000, then the
Company shall be obligated to the Holders only to pay dividends on the Series B
Preferred, at the rate described in the Series B Designation, from October 31,
2000 through the earlier of the date on which the Series B Preferred is (i)
converted into Company common stock, or (ii) redeemed by the Company. All other
unpaid dividends on the Series B Preferred, whether or not accrued or declared,
are hereby waived by the Holders. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
6.</B> <B>Representations and Warranties and the Company.</B> The Company
represents and warrants to the Holders as follows:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.1</B>
<B>Organization, Qualifications and Corporate Power.</B></FONT></P>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of Nevada and is duly licensed or qualified
to transact business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification except where the failure to be licensed or qualified would not
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and its subsidiaries taken as
a whole. The Company has the corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform this Agreement, and to issue, sell
and deliver the Warrants. </FONT>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
Except for wholly-owned subsidiaries of the Company, the identify of which has
been disclosed to the Purchasers and except for agreements to participate in the
acquisition, exploration, drilling and/or development of various oil and gas
properties, the Company does not (i) own of record or beneficially, directly or
indirectly, (A) any shares of capital stock or securities convertible into
capital stock of any other corporation or (B) any participating interest in any
partnership, joint venture or other noncorporate business enterprise or (ii)
control, directly or indirectly, any other entity. Each of the subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification except where the failure to be licensed or qualified would not
have a material adverse effect on the Company and its subsidiaries taken as a
whole. Each of the subsidiaries has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted. All of the outstanding shares of capital stock of each
of the subsidiaries are owned beneficially and of record by the Company, one of
its other subsidiaries, or any combination of the Company and/or one or more of
its other subsidiaries, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances of any nature whatsoever; and there are no
outstanding subscriptions, warrants, options, convertible securities, or other
rights (contingent or other) pursuant to which any of the subsidiaries is or may
become obligated to issue any shares of its capital stock to any person other
than the Company or one of the other subsidiaries. </FONT>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.2</B>
<B>Authorization of Agreements, Etc.</B></FONT></P>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
The execution and delivery by the Company of this Agreement, the performance by
the Company of its obligations hereunder, and the issuance, sale and delivery of
the Warrants have been duly authorized by all requisite corporate action and
will not violate any provision of applicable law, any order of any court or
other agency of government, the Articles of Incorporation of the Company, as
amended (the &#147;Charter&#148;), or the Bylaws of the Company, as amended, or
any provision of any indenture, agreement or other instrument to which the
Company, any of its subsidiaries or any of their respective properties or assets
is bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries except for such
violations or conflicts which would not have a material adverse effect on the
Company and its subsidiaries taken as a whole. </FONT>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
The Warrants have been duly authorized and, when exercised in accordance with
the terms of the Warrants, the common stock to be issued upon exercise will be
validly issued, fully paid and nonassessable shares of common stock of the
Company and will be free and clear of all liens, charges, restrictions, claims
and encumbrances imposed by or through the Company. The issuance, sale and
delivery of the Warrants is not subject to any preemptive right of stockholders
of the Company or to any right of first refusal or other right in favor of any
person. </FONT>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.3</B>
<B>Validity.</B> This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, Insolvency, moratorium and similar laws
affecting the rights of creditors generally). The obligations of the Company set
forth in the Warrants, when the Warrants are executed and delivered in
accordance with this Agreement, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with its respective terms
(subject, as to enforcement of remedies, to the discretion of courts in awarding
equitable relief and to applicable bankruptcy, reorganization, insolvency,
moratorium and similar laws affecting the rights of creditors generally).
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.4</B>
<B>SEC Documents.</B> The Company has filed all registration statements, proxy
statements, reports and other documents required to be filed by it under the
Securities Act of 1933, as amended (&#147;Securities Act&#148;), or the
Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;)
(collectively, the &#147;SEC Documents&#148;). Each SEC Document complied as to
form when filed in all material respects with the rules and regulations of the
SEC and did not on the date of filing contain any untrue statement of a material
tact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.5</B>
<B>Authorized Capital Stock.</B> The authorized capital stock of the Company
consists of 4,000,000 shares of $0.10 par value common stock, and 2,000,000
shares of $0.01 par value preferred stock, of which 595,000 are undesignated,
145,000 shares have been designated as Series B Preferred and the balance have
been retired. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Charter, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws (subject, as to enforcement of remedies, to the discretion of
courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally). Except for option plans pursuant to which the Company is
authorized to grant stock purchase options to employees, officers, directors and
consultants, of which options to purchase 42,514 shares of common stock at
exercise prices ranging from $5.00 to $29.70 (average exercise price: $17.04),
are currently outstanding, and except for warrants pursuant to which other
persons may purchase or otherwise acquire up to 203,532 shares of common stock
of the Company at exercise prices ranging from $5.00 to $37.50 (average exercise
price: $15.17), as described in the SEC Documents, and except for the intention
by the Board of Directors of the Company to authorize the issuance to Patrick J.
Duncan, President, at or before the Closing: (a) 150,000 shares of the
Company&#146;s common stock, and (b) a Warrant to purchase up to 600,000 shares
of the Company&#146;s common stock at an exercise price of $0.50 per share,
exercisable only as follows: (i) as to 300,000 shares, if the Company&#146;s
reported closing sales price for its common stock is at least $1.50 for 80% of
the trading days in a one month period, and (ii) as to 300,000 shares, only if
the Company&#146;s reported closing sales price for its common stock is at least
$2.00 for 80% of the trading days in a three month period, there is no other
subscription, warrant, option, convertible security, or other right (contingent
or other) to purchase or otherwise acquire equity securities of the Company
authorized or outstanding and there is no commitment by the Company to issue
shares, subscriptions, warrants, options, convertible securities, or other such
rights or to distribute to holders of any of its equity securities any evidence
of indebtedness or asset, except pursuant to this Agreement or other similar
agreements with other holders of Series B Preferred and except conversion rights
of holders of the Company&#146;s outstanding 10% Convertible Debentures, due
April 15, 2001. Except as provided for in the Charter, or as disclosed in the
SEC Documents, the Company has no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or any interest
therein, to make any payment in satisfaction of any appraisal rights properly
perfected, or to pay any dividend or make any other distribution in respect
thereof. To the Company&#146;s knowledge, there are no voting trusts or
agreements, stockholders agreements, pledge agreements, buy-sell agreements,
rights of first refusal or preemptive rights relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto), except for rights of holders of Series B
Preferred. All of the outstanding securities of the Company were issued in
compliance with all applicable federal and state securities laws. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.6</B>
<B>Financial Statements.</B> All of the financial statements included in the SEC
Documents have been prepared with generally accepted accounting principles
consistently applied and fairly present the consolidated financial position of
the Company and its subsidiaries, as of the dates of such reports and the
consolidated results of their operations and cash flows for the periods upon
which the reports are based. Since June 30, 2000, (i) there has been no change
in the assets, liabilities or financial condition of the Company and its
subsidiaries (on a consolidated basis) from that reflected in the Form 10-QSB
for the quarter ending June 30, 2000, except for changes in the ordinary course
of business which in the aggregate have not been materially adverse and (ii)
none of the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries (on a consolidated basis) has been
materially adversely affected by any occurrence or development, individually or
in the aggregate, whether or not insured against. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.7</B>
<B>Subsequent Events.</B> Since June 30, 2000, the Company has not (i) issued
any stock, bond or other corporate security, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute, accrued
or contingent) other than current liabilities shown since June 30, 2000 and
current liabilities incurred since June 30, 2000, in the ordinary course of
business, (iv) declared or made any payment or distribution to stockholders or
purchased or redeemed any share of its capital stock or other security, (v)
mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens for current real property taxes not yet due and
payable, (vi) sold, assigned or transferred any of its tangible assets except in
the ordinary course of business, or canceled any debt or claim, (vii) suffered
any loss of property or waived any right of substantial value whether or not in
the ordinary course of business, (viii) made any material change in the manner
of business or operations of the Company, (ix) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby,
or (x) entered into any commitment (contingent or otherwise) to do any of the
foregoing. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.8</B>
<B>Litigation; Compliance With Law.</B> There is no material (i) action, suit,
claim, proceeding or investigation pending or, to the Company&#146;s knowledge,
threatened against or affecting the Company, at law or in equity, or before or
by any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending or (iii) governmental inquiry pending
or, to the Company&#146;s knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification of the Company
to hold or receive any license or permit). The Company is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Company of any court or of any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. The Company has complied with all laws, rules, regulations and orders
applicable to its business, operations, properties, assets, products and
services, and the Company has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted except where the failure to comply or to have a license, permit or
other authorization would not have, a material adverse effect on the Company and
its subsidiaries taken as a whole. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.9</B>
<B>Oil and Gas Properties.</B> Each of the Company and its subsidiaries has good
and defensible title to all of its respective interests in oil and gas leases,
free and clear of any encumbrances, subject only to liens for taxes or charges
of mechanics or materialmen not yet due and to encumbrances under gas sales
contracts, operating agreements, unitization and pooling agreements and other
similar agreements as are customarily found in connection with comparable
exploration, drilling and producing operations and to title defects and other
encumbrances that are, singularly und in the aggregate, not material in amount
and do not interfere with its use or enjoyment of its oil and gas properties.
Each of the Company and its subsidiaries has complied in all material respects
with its obligations under the terms of the oil and gas leases in which it
purports to own an interest, and all of such leases are in full force and effect
(except where the failure so to comply or to be in full force and effect will
not have a Material adverse effect) upon the Company and its subsidiaries taken
as a whole. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.10</B>
<B>Taxes.</B> The Company has filed all tax returns, federal, state, county and
local, required to be filed by it, and the Company has paid all taxes shown to
be due by such returns as well as all other taxes, assessments and governmental
charges which have become due or payable including, without limitation, all
taxes which the Company is obligated to withhold from amounts owing to
employees, creditors and third parties. All such taxes with respect to which the
Company has become obligated pursuant to elections made by the Company in
accordance with generally accepted practice have been paid and adequate reserves
have been established for all taxes accrued but not yet payable. The federal
income tax returns of the Company have never been audited by the Internal
Revenue Service. No deficiency assessment with respect to or proposed adjustment
of the Company&#146;s federal, state, county or local taxes is pending or, to
the Company&#146;s knowledge, threatened. There is no tax lien, whether imposed
by any federal, state, county or local taxing authority, outstanding against the
assets, properties or business of the Company. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.11</B>
<B>Other Agreements.</B> The Company is not a party to or otherwise bound by any
written or oral contract or instrument or other restriction which individually
or in the aggregate could have a Material adverse effect on the Company and its
subsidiaries taken as a whole. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.12</B>
<B>Government Approvals.</B> Subject to the accuracy of the representations and
warranties of the Holders set forth in Section 4, no registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Warrants or, other than filings pursuant to
state securities laws. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
7.</B> <B>Representation and Warranties of the Holders.</B> Each Holder
severally represents and warrants to the Company that:</FONT></P>

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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
it is a corporation, limited partnership or limited liability company or other
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization or a trust duly formed under the laws of the
state of its formation. </FONT>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
it has full power and authority and has taken all required action necessary to
permit it to execute, deliver and perform this Agreement, which constitute the
legal, valid and binding obligations of each such Holder, enforceable against
each such Holder in accordance with its terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally). </FONT>
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<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
neither the execution or delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in a breach or violation of. or
constitute a default under, the governing documents of the Holders, or any
agreement, indenture or other instrument to which the Holders are a party or by
which any of them are bound or to which any of their properties are subject, nor
will the performance by the Holders of their obligations hereunder violate any
applicable law or result in the creation or imposition of any lion, charge,
claim or encumbrance upon any property or assets of the Holders. No permit,
consent, approval, authorization or order of any Governmental Authority or other
Person is required in connection with the consummation by the Holders of the
transactions contemplated by this Agreement, except such as have been obtained
and as otherwise contemplated by this Agreement. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)
it is an &#147;accredited investor&#146; within the meaning of Rule 501 under
the Securities Act and was not organized for the specific purpose of acquiring
the Warrants. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)
it or its investment adviser has had an opportunity to discuss, ask questions
and receive answers concerning the Company&#146;s business, management and
financial affairs with the Company&#146;s management sand has been permitted to
have access to all information which it has requested in order to evaluate the
merits and risks of the purchase of the Warrants. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)
the Warrants being purchased by it are being acquired for its own account for
the purpose of investment and not with a view to or for sale in connection with
any distribution thereof. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)
it understands that (1) the Warrants have not been registered under the
Securities Act or the securities laws of any state by reason of their issuance
in a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof and/or Rule 506 promulgated under the
Securities Act, (2) the shares of common stock issued upon exercise of the
Warrants must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration and (3)
the certificates representing the Warrants will bear the following legend: </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
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 &#147;Act&#148;), or pursuant to an
exemption from registration under the Act, the availability of which is to be
established to the satisfaction of the company.</FONT></TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
8.</B> <B>Conditions to the Obligations of the Holders and the Company.</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.1</B>
<B>Conditions to the Obligations of the Holders.</B> The obligation of each
Holder to surrender its Series B Preferred for Warrants on the Closing Date is
subject to the satisfaction, on or before the Closing Date, of the following
conditions:</FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)</B>
<B>All Proceedings to be Satisfactory.</B> All corporate and other proceedings
to be taken by the Company in connection with the transactions contemplated
hereby shall be satisfactory in form and substance to the Holders and the
Holders shall have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)</B>
<B>Exchange of Series B Preferred.</B> Holders of all outstanding Series B
Preferred of the Company shall have agreed to surrender or to exchange all
outstanding Series B Preferred at or prior to the Closing Date. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.2</B>
<B>Conditions to the Obligations of the Company.</B> The obligation of the
Company to issue and deliver the Warrants on the Closing Date is subject to the
following conditions:</FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)</B>
<B>Surrender of Series B Preferred.</B> The holders of all outstanding Series B
Preferred (consisting of the Holders and six other holders who will surrender
all 99,503 shares of Series B Preferred owned in exchange for a like number of
shares of the Company&#146;s Series C Redeemable Preferred Stock) shall have
surrendered all Series B Preferred for cancellation or exchange pursuant to this
Agreement or other similar agreements on or before the Closing Date. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
9.</B> <B>Covenants of the Company.</B> The Company covenants and agrees with
each of the Holders that so long as a majority of the Warrants issued by the
Company pursuant to the terms of this Agreement are held by the Holders as a
group: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.1</B>
<B>Financial Statements, Reports, Etc.</B> The Company shall furnish to each Holder
promptly upon sending, making available or filing the same, all press releases,
reports and financial statements that the Company sends or makes available to
its stockholders or directors or files with the SEC. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.2</B>
<B>Reserve for Additional Shares.</B> The Company shall at all times reserve and keep
available out of its authorized but unissued shares of common stock, for the
purpose of issuing shares of common stock upon exercise of all of the Warrants,
such number of its duly authorized shares of its common stock as shall be
sufficient to permit all the Warrants to be exercised. If at any time the number
of authorized but unissued shares of common stock shall not be sufficient to
comply with the terms of this Agreement or to permit exercise of all of the,
Warrants, the Company will forthwith take such corporate action as may be
necessary, including holding a special meeting of its stockholders to approve an
Amendment to the Company&#146;s Charter, to increase its authorized but unissued
shares of common stock to such number of shares as shall be sufficient for such
purposes. The Company will obtain any authorization, consent, approval or other
action by or make any filing with any court or administrative body that may be
required under applicable state corporate and securities laws in connection with
the issuance of shares of common stock. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.3</B>
<B>Keeping of Records and Books of Account.</B> The Company shall keep, and
cause each subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
Company and such subsidiary, and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be made.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.4</B>
<B>Comply With Registration Obligations.</B> The Company shall satisfy its
obligations to register the shares underlying the Warrants as set forth in the
form of Warrant attached as <U>Exhibit B</U>.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.5</B>
<B>Only Fixed Price Conversion.</B> While any of the Series C Preferred is
outstanding, the Company will not issue any security or create any options,
warrants or other rights, which are convertible into any security of the Company
at a price which is not fixed at the time of issuance or creation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.6</B>
<B>Restructure of Outstanding Debt.</B> The parties acknowledge that the Company
intends to seek extensions of the maturity for the Company&#146;s outstanding
$2.8 million of Convertible Debentures, due April 15, 2001 from the individual
debentureholders. In connection with seeking such extension, the Company shall
not reduce the conversion price of the Debentures below $1.50 per share of
common stock, materially increase the obligations of the Company under the
Debentures, issue other equity of the Company to the debentureholders, or make
any other change to the Debentures that would materially and adversely impact
the Holders of the outstanding Series C Preferred without, in any case, first
obtaining the written consent of the Holders of 80% of the Series C Preferred
then outstanding. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>
10.</B> <B>Miscellaneous.</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.1</B>
<B>Publicity.</B> Without the prior approval of the other parties, no party
shall issue, make or distribute any press release, public announcement or other
publicity or disclosure (each a &#147;Release&#148;) that refers to the
Holders&#146; investment in or contracts or agreements with the Company, except
in each instance, if, upon the advice of counsel, the party believes such
Release is required by applicable law or regulations, or by a court or agency
having jurisdiction, in which case such party shall use its best efforts to give
the other parties written notice thereof, provide the text of such Release and
permit the other parties reasonable opportunity to review and comment upon the
relevant portions of such Release. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.2</B>
<B>Expenses.</B>  Each party hereto will pay its own expenses in connection with
the transactions contemplated hereby.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.3</B>
<B>Survival of Agreements.</B> All covenants and agreements made herein, or made in the
Registration Agreement or any certificate or instrument delivered to the Holders
pursuant to or in connection with this Agreement or the Registration Agreement,
shall survive the execution and delivery of this Agreement and the Registration
Agreement, the issuance, sale and delivery of the Shares, and the issuance and
delivery of any of the Additional Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder or thereunder
or in connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company. The Company shall not be
liable to the Holders in respect to the representations and warranties made
herein unless claims have been initiated against it on or before the date that
is twelve (12) months from the date of this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.4</B>
<B>Brokerage.</B> Each party hereto will indemnify and hold harmless the others against
and in respect of any claim for brokerage or other commissions relative to this
Agreement or to the transactions contemplated hereby, based in any way an
agreements, arrangements or understandings made or claimed to have been made by
such party with any third party. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.5</B>
<B>Parties in Interest.</B> All representations, covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. Without limiting the generality of the foregoing,
all representations, covenants and agreements benefitting the Holders shall
inure to the benefit of holders who may purchase any shares in a private
transaction from time to time of the shares sold by the Company pursuant to the
terms of this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.6</B>
<B>Notices.</B> All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person or mailed by certified or
registered mail, return receipt requested, addressed as follows: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;Pease Oil and Gas Company<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;751 Horizon Court, Suite 203<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;P. O. Box 60219<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Grand Junction, Colorado  81506-8718<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Attention: Patrick J. Duncan, President</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>With a copy to:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;Alan W. Peryam, Esq.<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Alan W. Peryam, LLC<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1120 Lincoln Street, Suite 1000<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Denver, Colorado 80203</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Holders:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;To the addresses set forth on <U>Schedule 1</U> hereto</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>or, in any such case, at
such other address or addresses as shall have been furnished in writing by such
party to the others.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.7</B>
<B>Governing Law.</B>  This Agreement shall be governed by and construed in
accordance with the laws of the state of Colorado.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.8</B>
<B>Entire Agreement.</B> This Agreement, including the Schedules and Exhibits
hereto, constitutes the sole and entire agreement of the parties with respect to
the subject matter hereof. All Schedules and Exhibits hereto are hereby
incorporated herein by reference.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.9</B>
<B>Counterparts.</B> This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.10</B>
<B>Amendments.</B> This Agreement may not be amended or modified, and no
provisions hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the shares of Series B Preferred to be
surrendered by Holders pursuant to the terms of this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.11</B>
<B>Severability.</B> If any provision of this Agreement shall be declared void or
unenforceable by any judicial or administrative authority, the validity of any
other provision and of the entire Agreement shall not be affected thereby. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.12</B>
<B>Title and Subtitles.</B> The titles and subtitles used in this Agreement are
for convenience only and are not to be considered in construing or interpreting
any term or provision of this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.13</B>
<B>Certain Defined Terms.</B> As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined): </FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&#147;person&#148; shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or any agency or
political subdivision thereof, or other entity. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
&#147;subsidiary&#148; shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by the Company, or by one or more of
its subsidiaries, or by the Company and one or more of its subsidiaries. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
&#147;Governmental Authority&#148; shall mean (i) the United States of America
or any state within the United States of America and (ii) any court or any
governmental department, commission, board, bureau, agency or other
instrumentality of the United States of America or of any state within the
United States of America. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.14</B>
<B>Grounds for Termination.</B>  This Agreement may be terminated at any time
prior to Closing:</FONT></P>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
By mutual agreement of the Company, on one hand, and the Holders, on the
other hand; and </FONT>
</TD>
</TR>
</TABLE>
<BR>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%>&nbsp;</TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
By the Company or any Holder if the Closing shall not have occurred on or before
December 15, 2000, provided, however, that no party shall be entitled to
terminate this Agreement under this Section 10.14(b) if the Closing has failed
to occur because such party negligently or willfully failed to perform or
observe in any material respect its covenants and agreements hereunder. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.15</B>
<B>Effect of Termination.</B> In the event that the Closing does not occur as a
result of any party hereto exercising its rights to terminate pursuant to
Section 10.14, then this Agreement shall be null and void and, except as
expressly provided herein, no party shall have any rights or obligations under
this Agreement, except that nothing herein shall relieve any party from
liability for any willful or negligent failure to perform or observe in any
material respect any agreement or covenant contained herein. In the event the
termination of this Agreement results from the willful or negligent failure of
any party to perform in any material respect any agreement or covenant herein,
then the other parties shall be entitled to all remedies available at law or in
equity and shall be entitled to recover court costs and reasonable attorneys'
fees in addition to any other relief to which such party may be entitled.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the parties hereto have executed this Agreement effective on
the day and year first above written.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>PEASE OIL AND GAS COMPANY</B><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a Nevada corporation</FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ATTEST</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By: <U>/s/ Patrick J. Duncan&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Patrick J.
Duncan, President</FONT></P>
<BR>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By: <U>/s/ Marilyn L.
Adams&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marilyn L. Adams, Secretary</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>PURCHASERS:</b></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The entities listed on the attached
<U>Schedule 1</U></FONT></P>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SCHEDULE 1</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Schedule of
Investors</U></FONT></H1>

<PRE>
                                                                     Cash
                                                                    Payment
                                          Number of Shares            for              Number
Name and Address                        of Series B Preferred      Exchange         of Warrants        Signature
----------------                        ---------------------      --------         ------------       ---------
The MADAV IX Foundation                         2,000               $66,667            33,333
Attn: Mr. Barry Reis                                                                                   By <U>/s/ Barry Reis   </U>
1750 Euclid Avenue                                                                                          Barry Reis, Treasurer
Cleveland, OH 44115
Ramat Securities, Ltd.                           325                 10,833             5,417
Chagrin Plaza East, Suite 200                                                                          By <U>/s/ David S. Zlatin</U>
23811 Chagrin Blvd.                                                                                        David S. Zlatin, COO
Beachwood, OH 04122
First Union Securities                          1,000                33,333            16,667
(Custodian)                                                                                            By <U>/s/ Howard Amster </U>
FBO Howard Amster IRA,                                                                                      Howard Amster
10700 Wheat First Drive,
WF 1030
Glen Allen, VA 23060-9243
Tamar Securities Inc.                           3,000               100,000             50,000
                                               ------               -------            -------
Chagrin Plaza East, Suite 200                                                                          By <U> /s/ Tamra F. Gould </U>
23811 Chagrin Blvd.                                                                                         Tamra F. Gould
Beachwood, OH 04122
         Total                                  6,325              $210,833            105,417
                                                =====               =======            =======
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