IN REM PROMISSORY NOTE
$100,000.00 August 1, 1997
Due: January 2, 2005 Lafayette, Louisiana
FOR VALUE RECEIVED, Benjamin B. Blanchet (the "Borrower"),
promises to pay to the order of XCL LTD., a Delaware corporation
(the "Lender"), at its office at 110 Rue Jean LaFitte, Lafayette,
Louisiana 70508, the principal sum of ONE HUNDRED THOUSAND AND
NO/100 ($100,000.00) DOLLARS, or so much thereof as may be
outstanding from time to time.
The aggregate outstanding principal shall bear interest at
six and one-half (6.5%) percent per annum from date hereof until
paid.
All payments of interest shall be computed on the per annum
basis of a year of 365 days or 366 days, as the case may be, for
the actual number of days (including the first day, but excluding
the last day) elapsed.
The Borrower shall repay the aggregate outstanding principal
in eight annual installments of $12,500.00 beginning on the 2nd
day of January 1998 and continuing on the 2nd day of each
succeeding January, and the Borrower shall pay the balance of all
outstanding principal at maturity on January 2, 2005. (Each
January 2 commencing January 2, 1998 through and including
January 2, 2005 is sometimes referred to herein as a "Payment
Date".) The Borrower shall pay interest on the aggregate
outstanding principal annually in arrears (together with payments
of principal) on each Payment Date. For so long as Borrower is
employed by Lender, payment of principal and interest shall be
made solely out of Bonus Funds (as defined below) paid to
Borrower by Lender as described below.
All payments and prepayments made by the Borrower hereunder
shall be made in lawful money of the United States to the Lender
in immediately available funds on the date that such payment is
required to be made. If the day for any payment or prepayment
hereunder falls on a day which is not a Business Day, then for
all purposes of this Note, the same shall be deemed to have
fallen on the next following Business Day, and such extension of
time shall in such case be included in the computation of
payments of interest For the purposes of this paragraph "Business
Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks in Lafayette, Louisiana.
Lender has agreed to pay to Borrower on January 2 of each
year commencing on January 2, 1998 and ending on January 2, 2005,
a bonus in the amount of the principal and interest due hereunder
on that date (the "Bonus Funds"). For so long as Borrower is
employed by Lender, principal and interest due hereunder shall be
paid solely from such Bonus Funds and Borrower shall have no
personal liability for repayment of this Note from any source
other than such Bonus Funds. Lender does specifically covenant
and agree, for itself, its successors and assigns, that for so
long as Borrower is employed by Lender, Lender shall enforce
payment of this Note solely from Bonus Funds due Borrower by
Lender. These provisions are not intended as any release or
discharge of the indebtedness represented by this Note, but are
intended as a covenant not to sue.
The following event shall be considered an "Event of
Default" as that term is used herein: The Borrower fails to make
payment when due of any principal or interest installment on this
Note after Lender has terminated Borrower from employment with
Cause (as defined below) or after Borrower has resigned from
employment with Lender without Good Reason (as defined below) and
such failure to make payment shall continue unremedied for a
period of thirty (30) days after written notice thereof is given
by the Lender to the Borrower. Upon the happening of an Event of
Default (including the passage of the cure period), the Lender
may by written notice to the Borrower declare the entire
principal amount of this Note plus interest accrued hereon to be
immediately due and payable.
Any of the following events shall be considered an "Event of
Cancellation" as that term is used herein: (i) For so long as
Borrower is employed by Lender, Lender fails timely to pay
Borrower the Bonus Funds due Borrower from which Borrower is to
make payments under this Note, (ii) Lender shall terminate
Borrower from employment without Cause (as defined below),
(iii) Borrower shall resign from employment with Lender with Good
Reason (as defined below), or (iv) Borrower shall die or become
disabled. Upon the occurrence of any Event of Cancellation, this
Note shall automatically be cancelled and shall be of no further
force and effect. Upon the occurrence of any Event of
Cancellation, the Lender shall immediately mark this Note "Paid
in Full" and return it to Borrower and no further amounts shall
be due by Borrower to Lender hereunder including any interest
amounts that otherwise would have accrued since the last Payment
Date or any portion of the principal and/or interest payment that
otherwise would have been due at the next Payment Date. If
Borrower is required to bring judicial proceedings in order to
enforce the provisions hereof, Lender agrees to pay Borrower his
reasonable attorneys' fees in connection therewith.
As used herein, the Lender shall have "Cause" to terminate
Borrower's employment upon (i) the willful and continued failure
by the Borrower to substantially perform his duties under that
certain Employment Term Sheet by and between Borrower and Lender
dated August 1, 1997 (the "Employment Term Sheet") or that
certain Services Agreement by and between Borrower and Lender
dated August 1, 1997 (the "Services Agreement") (other than any
such failure resulting from the Borrower's incapacity due to
physical or mental illness), after written demand for substantial
performance is delivered by the Lender that specifically
identifies the manner in which the Lender believes the Borrower
has not substantially performed his duties, (ii) Borrower's
embezzlement of funds of the Lender or (iii) Borrower's
conviction of a felony after lapse of all appeals. For purposes
of this paragraph, no act, or failure to act, on the Borrower's
part shall be considered "willful" unless done or omitted to be
done, by him not in good faith and without reasonable belief that
his action or omission was in or not opposed to the best interest
of Lender. Notwithstanding the foregoing, Borrower shall not be
deemed to have been terminated for Cause under any circumstances
without (i) reasonable written notice to Borrower setting forth
the reasons for Lender's intention to terminate for Cause (the
"Initial Notice"), (ii) a thirty (30) day period following
Borrower's receipt of the notice to cure the alleged reasons
described in the Notice, (iii) a written notice to Borrower
following the thirty-day cure period referred to in the preceding
clause (ii) stating whether Lender continues to intend to
terminate for Cause and setting forth the reasons therefor (the
"Follow Up Notice"), (iv) an opportunity for the Borrower,
together with his counsel, following Borrower's receipt of the
Follow Up Notice, to be heard before a committee of three members
of Lender's board of directors and (v) delivery to the Borrower
of a Notice of Termination from a committee of three members of
Lender's board of directors finding that in the good faith
opinion of such committee, the Borrower was guilty of conduct set
forth above in clause (i), (ii) or (iii) of the preceding
sentence and specifying the particulars thereof in detail.
As used herein, Borrower shall have "Good Reason" to resign
from employment with Lender if (i) a change in control (as
defined below) of Lender shall take place at any time during the
twenty-four (24) months immediately preceding termination of
employment by the Borrower, (ii) the Lender fails to comply with
any material provision of this Note, the Employment Term Sheet or
the Services Agreement, (iii) the Lender purports to terminate
Borrower's employment other than pursuant to a valid Notice of
Termination following the procedure set forth in the preceding
paragraph, (iv) Borrower's duties, authority or responsibilities
are materially altered (as reasonably determined by Borrower)
from those described in the Employment Term Sheet, (v) there is a
material change from the date of this Note in the manner in which
Lender is operated or in Lender's business, (vi) Lender has taken
or intends to take actions that Borrower, in his reasonable
judgment, believes are illegal, immoral, unethical or not in the
best interests of Lender or its shareholders, (vii) Borrower has
a conflict of interest in his obligations to Lender or to a third
party in a matter that was not originally accepted by Borrower in
violation of the Services Agreement that, in Borrower's
reasonable judgment, can only reasonably be cured by his
resignation from employment with Lender, or (viii) Borrower's
health should become impaired to an extent that makes his
continued performance of his duties hereunder hazardous to his
physical or mental health or to his life.
For purposes of this Note, a "Change in Control" of the
Lender shall mean a change of control of a nature that would be
required to be reported in response to item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities and Exchange
Act of 1934 (the "Exchange Act"), provided that, without
limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), is or becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Lender
representing 30% or more of the combined voting power of Lender's
then outstanding securities.
As used herein, Borrower shall be considered disabled if, as
a result of his incapacity due to physical or mental illness, he
shall have been absent from his duties as described in the
Employment Term Sheet for the entire period of ninety (90)
consecutive days.
Lender shall have no right to set off any funds of the
Borrower (other than Bonus Funds as defined herein) in the
possession of Lender against any amounts due by Borrower to
Lender hereunder.
This Note shall be governed by and construed under the laws
of the State of Louisiana.
IN WITNESS WHEREOF, the Borrower has caused this Note to be
executed and delivered as of the day first written above.
___________________________________
Benjamin B. Blanchet