Document:

exv10w1

 

Exhibit 10.1

SEPARATION AGREEMENT, CONSULTING AGREEMENT

AND RELEASE BETWEEN

P. BLAKE DUPUIS

AND

MITCHAM INDUSTRIES, INC.

     This Separation Agreement, Consulting Agreement and Release (the
“Agreement”) is made and entered into by and between P. Blake Dupuis (the
“Employee” or “Dupuis”) and Mitcham Industries, Inc. and its subsidiaries and
affiliates (the “Company”) (Employee and the Company are sometimes referred to
singularly as a “Party” and collectively as the “Parties”).

RECITATIONS

     WHEREAS, Employee voluntarily resigned from his employment with the
Company on May 14, 2004 (the “Separation Date”) (See Exhibit A hereto); and

     WHEREAS, Employee has been an at-will employee of the Company for several
years in the capacity of Chief Financial Officer, and has also served in other
capacities, and as such has extensive knowledge of the Confidential Information
(as that term is defined in Section 11(c)); and

     WHEREAS, Employee and the Company wish to provide a mutually acceptable
agreement and settlement of any claims concerning the use or disclosure of
Confidential Information and goodwill, including providing clear guidelines
regarding the use and disclosure of Confidential Information and protection of
goodwill; and

     WHEREAS, Employee and the Company wish to amicably resolve all issues
related to Employee’s interest in vested and unvested stock options restricted
stock awarded to him during his employment with the Company under the Company’s
stock option and award plans (See Section 7 hereof and Exhibit B hereto);

     WHEREAS, the consideration for Employee’s waiver of rights or claims,
including claims under the Age Discrimination in Employment Act, are the sums
of money and other benefits referred to in Sections 6, 7 and 8 herein, which
sums and benefits exceed that to which Employee is already entitled; and

     WHEREAS, the Employee and the Company wish to otherwise amicably settle
fully and finally any and all differences between them.

AGREEMENT

     In consideration of the premises and mutual promises herein contained, the
Parties agree as follows:

	1.	 	No Admission. Neither the making of this Agreement nor the fulfillment
of any condition or obligation of this Agreement constitutes an admission
of any liability or wrongdoing on the part of either Party. All liability
by either Party to the other has been and is expressly denied.

 

 

	2.	 	Entire Agreement. This Agreement, including the Exhibits hereto,
supersedes and replaces any and all other agreements, written or verbal,
between the Company and Employee. Employee represents and acknowledges
that in entering into this Agreement, he does not rely and has not relied
upon any representation or statement made by the Company or any of its
agents, representatives or attorneys with regard to the subject matter,
basis or effect of this Agreement or otherwise, other than the
representations contained in this Agreement.
	 
	3.	 	Effective Date. This Agreement shall become effective and enforceable on
the day that it is executed by both Parties (the “Effective Date”).
	 
	4.	 	Voluntary Agreement. Employee represents that he has carefully read and
fully understands all the provisions of this Agreement, that he is
competent to execute this Agreement, and that he is knowingly and
voluntarily entering into this Agreement of his own free will and accord,
without reliance upon any statement or representation of any person or
parties released, or their representatives, concerning the nature and
extent of the damages or legal liability therefor.
	 
	5.	 	Employee Acknowledgments. Employee acknowledges that:

	a.	 	He has been advised by the Company to consult with the
attorney of his choice prior to signing this Agreement.
	 
	b.	 	He understands he has at least 21 days from the date this
Agreement was given to him within which to consider this Agreement,
and that he may accept this offer and its terms by executing this
Agreement and returning a signed copy of this Agreement to John F.
Schwalbe at the address set forth in Section 18(h).
	 
	c.	 	He would not be entitled to receive the sums of money and
other benefits offered to him and referred to in Sections 6, 7 and 8
below but for his entering into this Agreement.
	 
	d.	 	He understands he may revoke this Agreement after the date he
signs it by providing written notice of the revocation to the
Company no later than the seventh day after he signs it. As such,
all payment and other obligations of the Company contained in this
Agreement are subject to this seven-day revocation period.

	6.	 	Payments and Reimbursements.

a. Pre-Separation Date Services and Expenses. Employee acknowledges that
the Company has already paid to him all salary and wages due to him up to
and including the Separation Date, and that he is not entitled to any
payment or other remuneration for any bonus, sick leave, vacation leave,
or other employment benefits, except as specifically set forth in this
Agreement. Within 10 business days of its receipt from the Employee of
an

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expense reimbursement request, together with detailed itemized
expenses, the Company will reimburse Employee for Employee’s reasonable
out-of-pocket expenses incurred in connection with his performance of his job duties prior to the Separation
Date. Such request for reimbursement must, however, be received from the
Employee by July 15, 2004.

b. Severance Payment. Within 10 business days after the Company’s
receipt of a fully executed copy of this Agreement, the Company shall pay
to Employee, in one lump sum, subject to the usual deductions for
payroll taxes and benefits, a total severance payment equivalent to three
months of Employee’s gross monthly pay of $15,833, or $47,500.00
(FORTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS AND NO CENTS). Employee
acknowledges that such sum represents a severance payment in exchange for
agreeing to a full release of any and all claims arising out of his
employment relationship with the Company. Such payment shall not be
considered compensation for purposes of determining benefits payable
under any Company benefit plan, program, agreement or arrangement, and no
service credit shall be given after the Separation Date.

c. Outplacement Services Reimbursement. Within 10 business days of its
receipt from the Employee of an expense reimbursement request together
with detailed itemized expenses, the Company shall reimburse Dupuis for
up to $10,000 (TEN THOUSAND DOLLARS AND NO CENTS) of outplacement and
employment counseling services expenses actually incurred by him in
connection with his search for a new position, beginning May 15, 2004 and
ending on the earlier of April 14, 2005, or the first date on which
Dupuis begins full-time employment.

	7.	 	Options and Restricted Stock. All options granted to Employee during his
employment with the Company are listed on Exhibit B hereto. On August 15,
2002, the Company granted to Employee under the 2000 Stock Option Plan
(the “2000 Plan”) an option to purchase up to 45,000 shares of the
Company’s common stock at a purchase price of $1.99 per share, the right
to purchase up to 30,000 shares of which has not yet vested. On July 17,
2003, the Company granted to Employee under the 1994 Stock Option Plan
(the “1994 Plan”) an option to purchase up to 20,000 shares of the
Company’s common stock at a purchase price of $1.90 per share, none of
which has yet vested (the right to purchase a total of 50,000 shares of
which has not yet vested under the foregoing two option grants to purchase
a total of up to 65,000 shares, the “Non-Vested Portion”). Pursuant to
the provisions of the 2000 Plan and the 1994 Plan, Employee must exercise
the foregoing options within the 90 days after the termination of his
employment and may, during such time, purchase only the number of shares
of underlying stock that are currently vested. In consideration for the
Employee’s agreements contained herein, the Company shall, as of the
Effective Date (a) accelerate the vesting of the Non-Vested Portion (see
Exhibit B); and (b) grant to Dupuis an option under the 2000 Plan to
purchase up to 110,000 shares of the Company’s common stock, the form of
which option is attached hereto as Exhibit C (such option, the “New
Option”). However, all other options granted to the Employee prior to the
Separation Date shall be cancelled (see Exhibit B), and the 12,000 shares
of restricted stock awarded to him under the 1998 Stock Awards Plan (the
“1998 Plan”) shall be forfeited in accordance with the terms of the 1998
Plan.

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	8.	 	Consulting Agreement.

	a.	 	Consulting Fees. As additional consideration for the
execution of this Agreement and subject to the terms hereof, the
Company shall pay to Dupuis an aggregate fee of $189,996.00 (ONE
HUNDRED EIGHTY-NINE THOUSAND NINE HUNDRED NINETY-SIX DOLLARS AND NO
CENTS) (the “Consulting Fees”) for 12 months of consultation
services for the period beginning May 15, 2004 and ending April 14,
2005 (the “Consulting Period”). Specifically, the Company shall pay
the Consulting Fees in 12 monthly gross amounts of $15,833.00 each,
on or before the third day of each month, with the first such
monthly payment due on or before July 3, 2004, and the last such
payment due on or before June 3, 2005. The Consulting Fees are
separate from and additional to any compensation earned by Dupuis
under Section 6(b) above.
	 
	b.	 	Consultant’s Duties. During the Consulting Period, Dupuis,
upon written or oral request of the Company, shall:

(i) assist the Company in the orderly completion of transactions
and the transition of projects that were undertaken during his
employment, and consult with and advise the Company concerning
issues related to including ongoing business, financial or
contractual related matters arising from operations or proposed
operations of the Company of which he has knowledge or information;

(ii) consult with and advise the Company concerning any litigation,
arbitration or disputes arising from any contracts or operations or
proposed operations of the Company of which he has knowledge or
information, and otherwise assist the Company in the protection of
the Company’s interests in such litigation, arbitration or
disputes; and

(iii) otherwise make himself available from time to time for such
other reasonable assignments.

     Except upon Dupuis’s prior written consent, he shall not be required to
spend more than 40 hours per month on any of the foregoing duties. If Dupuis
shall have at the time of such request have obtained other employment, the
Company will coordinate the performance of any of the foregoing duties so as
not to unreasonably interfere with any duties or obligations of his new
employment. In his capacity as a consultant to the Company, Dupuis will report
to and communicate only with John F. Schwalbe, whose contact information is set
forth in Section 18(h), and shall not communicate with any other party related
to the Company.

	c.	 	Independent Contractor Status. The means, methods and
details of performing any services to the Company hereunder shall be
under Dupuis’s control, and he shall therefore be an independent
contractor rather than an employee, agent, partner, joint venturer,
or representative of the Company. Dupuis shall at all times
represent and disclose he is an independent contractor of the
Company and shall not represent to any third party that he is an
employee, agent, covenantor, or representative of the

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	 	 	Company. Dupuis shall provide such services in a professional,
loyal, and timely manner. Subject to the promises contained
herein, Dupuis is free to provide services to parties other than
the Company.
	 
	d.	 	Benefits.

(i) Continuation Coverage Payments. The Company has given notice
to the Dupuis regarding continuation of his current group medical
plan coverage [THE COMPANY WILL SOON PROVIDE A TEXAS STATE
CONTINUATION ELECTION FORM]. The Company shall pay directly to the
issuer of its group medical insurance plan, the continuation
coverage premium for Dupuis and his spouse for the nine-month
period beginning June 1, 2004 and ending February 28, 2005. For
each of the months of March, April and May 2005, on or before the
third day of each such month, the Company shall pay to Dupuis with
the Consulting Fee for such month an additional $710.12 per month,
which represents the current premium cost for group medical
coverage for Dupuis and his spouse under the Company’s group
medical plan.

(ii) No Benefits as an Employee. Dupuis acknowledges that, as an
independent contractor to the Company, he is not entitled during
the Consulting Period to participation in, coverage under, or
benefits from the Company or any of its employee benefit plans,
funds, programs or arrangements sponsored or maintained by the
Company for its employees (except to the extent that Dupuis
participates through the group medical insurance continuation plan
as provided in section 10(d)(i) in accordance with the Texas
Insurance Code). If for any reason Dupuis’s relationship with the
Company during the Consulting Period is determined to be that of an
“employee” rather than that of an independent contractor, Dupuis
expressly waives and declines, from the date hereof, participation
in, coverage under, or benefits from the Company or any of its
employee benefit plans, funds, programs or arrangements sponsored
or maintained by the Company for its employees.

e. Termination of Consulting Services Agreement. The agreement to
provide consulting services shall terminate upon the following events:

(i) Death. The agreement to provide consulting services shall
terminate upon the death of Dupuis and, in such case, the Company
will pay to Dupuis’s estate any unpaid Consulting Fees for the
remainder of the Consulting Period.

(ii) With Cause. The Company may terminate the agreement to
provide consulting services for cause by giving notice to Dupuis
that one or more of the following events have occurred:

(a) Dupuis’s refusal to perform reasonable consulting
services requested by the Company, after written notice from
the Company indicating such failure and the subsequent
failure of Dupuis to begin providing the

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reasonable consulting services requested by the Company
within six business days of such notice;

(b) Dupuis’s breach of any provision contained herein
concerning nondisclosure or non-solicitation;

(c) Dupuis’s material breach of any provision of this
Agreement after receipt of written notice from the Company
indicating such breach and the subsequent failure of Dupuis
to cure such breach within six business days of such notice.

In the event of termination of the agreement to provide consulting
services for cause, the Company will pay to Dupuis any unpaid Consulting
Fees for services rendered prior to the date that notice of termination
is given.

(iii) Termination by Dupuis. Dupuis may notify the Company that he
no longer wishes to provide consulting services as provided in
Section 8(b), and, in such event, the Company will pay to Dupuis
any unpaid Consulting Fees due for services rendered prior to the
effective date of such resignation.

(iv) Without Cause. The Company may terminate the consulting
services under this Agreement for reasons other than those set
forth in Section 8(e)(ii) by written notice to Dupuis. In such
event, the Company will continue to pay remainder of the Consulting
Fees over the remainder of the Consulting Period, and will continue
to pay the continuation coverage premiums and other payments set
forth in Section 8(d)(i). Dupuis’s sole remedy for any breach of
this Agreement by the Company will be the payment of any remaining
amounts of Consulting Fees for the Consulting Period.

(v) No Effect on Provisions Concerning Nondisclosure and
Non-Solicitation. Any termination of this agreement to provide
consulting services shall not affect Dupuis’s obligations Section
11(a) through (d) or Section 13of this Agreement.

	9.	 	Release. As a material inducement to the Company to enter into this
Agreement, Dupuis hereby irrevocably and unconditionally releases, acquits
and forever discharges the Company and each of the Company and its current
or former parent, owners, stockholders, predecessors, successors, assigns,
agents, directors, officers, employees, representatives, attorneys,
divisions, subsidiaries, affiliates and all persons acting by, through,
under or in concert with any of them, (collectively, the “Releasees” or
“Released Parties”), from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts
and expenses (including attorneys’ fees and costs actually incurred), of
any nature whatsoever, known or unknown (“Claim” or “Claims”) which Dupuis
now has, owns, holds, or which Dupuis at any time heretofore had, owned,
or held against Releasees, including, but not limited to:

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	a.	 	all Claims under the Age Discrimination in Employment Act of 1967, as
amended;
	 
	b.	 	all Claims under Title VII of the Civil Rights Act of 1964,
as amended, and 42 U.S.C. § 1981;
	 
	c.	 	all Claims under the Employee Retirement Income Security Act
of 1974, as amended;
	 
	d.	 	all Claims arising under the Americans With Disabilities Act
of 1990, as amended;
	 
	e.	 	all Claims arising under the Family and Medical Leave Act of
1993, as amended;
	 
	f.	 	all Claims related to Employee’s employment with the Company;
	 
	g.	 	all Claims of unlawful discrimination based on age, sex,
race, religion, national origin, handicap, disability, equal pay,
sexual orientation or otherwise;
	 
	h.	 	all Claims of wrongful discharge, retaliation, whistle
blowing, breach of an implied or express employment contract,
negligent or intentional infliction of emotional distress, libel,
defamation, breach of privacy, fraud, breach of any implied covenant
of good faith and fair dealing and any other federal, state, or
local common law or statutory claims, whether in tort or in
contract;
	 
	i.	 	all Claims related to unpaid wages, salary, overtime
compensation, bonuses, severance pay, vacation pay or other
compensation or benefits arising out of Dupuis’s employment with the
Company; and
	 
	j.	 	all Claims arising under any federal, state or local
regulation, law, code or statute.

     In short, Dupuis is voluntarily giving up his right to sue the Company for
any alleged wrongdoing which preceded the date that Dupuis signed this
Agreement, except that Dupuis does not relinquish his right to challenge this
Agreement on the basis that it was not knowing and voluntary. However, Dupuis
hereby reaffirms that this Agreement is knowing and voluntary. Dupuis knows
that he is voluntarily giving up his right to sue the Company in exchange for
the sums of money and other benefits referenced in Sections 6, 7 and 8 above.
Dupuis further acknowledges that if he does not sign this Agreement, he will
not receive the sums of money and other benefits referenced in Sections 6, 7
and Section 8 above.

(initials)

     Dupuis further agrees not to institute any proceedings against the
Company or its current or former officers, directors, shareholders, agents,
employees, successors or assigns to challenge provisions of this Agreement
concerning nondisclosure, non-competition, or non-solicitation, and Dupuis
irrevocably waives all defenses to the strict enforcement of such provisions.
Dupuis quitclaims and releases any claim he may have to any ownership, license,
or other interest in the Confidential Information and goodwill of the Company
and acknowledges that the Company is the exclusive owner of the Confidential
Information and goodwill.

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	10.	 	No Lawsuits Filed or to be Filed. As a material inducement to the
Company to enter into this Agreement, Employee represents that he has
filed no lawsuits or administrative complaints against the Company and, if
he has filed any lawsuits or administrative complaints against the
Company, he will notify the Company of such lawsuits or administrative
complaints and cause them to be dismissed with prejudice. It is
understood and agreed that the release of liability described in this
Agreement is a material provision of this Agreement. Accordingly,
Employee knowingly and voluntarily covenants and promises not to sue or
otherwise pursue legal action against the Company, other than for breach
of this Agreement, and further covenants and promises that if Employee
recovers in any legal action, the Company shall be entitled to
restitution, recoupment or a setoff from Employee in the amount of the
payments and other benefits paid under Sections 6 and 8, and to cancel the
New Option.
	 
	11.	 	Restricted Activities. In addition to the otherwise enforceable
agreements and promises contained herein, Dupuis further agrees as
follows:

	a.	 	Non-Interference with Customers or Suppliers. During the
one-year period beginning on the Effective Date and ending on the
one-year anniversary of the Effective Date (the “Restricted
Period”), Dupuis will not, without the express prior written consent
of an authorized officer of the Company, directly or indirectly, in
one or a series of transactions, recruit, solicit or otherwise
induce or influence, any supplier, customer or any other person or
entity that has a business relationship with the Company, or had a
business relationship with the Company within the 12-month period
preceding the Restricted Period, to discontinue, reduce or modify
such business relationship with the Company.
	 
	b.	 	Non-Solicitation of Employees. The Parties acknowledge that
the employees of the Company are an integral part of the Company and
that it is extremely important for the Company to use its maximum
efforts to prevent the loss of such employees. The Parties
therefore agree that it is necessary to afford fair protection to
the Company from the loss of any such employees. Consequently, as
material inducement to the Company to pay Dupuis the payments and
provide the other benefits described in Sections 6, 7 and 8, Dupuis
covenants and agrees that for the Restricted Period, he shall not,
directly or indirectly, hire or engage or attempt to hire or engage
any individual who shall have been an employee of the Company, at
any time during the one-year period prior to the Effective Date,
whether for or on his behalf or for any entity in which he has have
a direct or indirect interest, whether as a proprietor, partner,
co-venturer, financier, investor, stockholder, director, officer,
employer, employee, servant, agent, representative or otherwise.
	 
	c.	 	Confidential Information. Dupuis acknowledges and agrees
that he had access to certain Confidential Information (as that term
is defined below), trade secrets and proprietary data of the
Company, by virtue of Dupuis’s employment with the Company, and
Dupuis’s participation in the Company’s activities and business. As
a further material inducement to the Company to pay Dupuis the
payments and provide the other benefits described in Sections 6, 7
and 8, Dupuis agrees to

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	 	 	maintain the secrecy of all Confidential Information (as
hereinbelow defined) and agrees not to disclose such Confidential
Information to any person(s), (s), partnership(s), corporation(s)
or other entity of any nature whatsoever, and agrees to maintain
such Confidential Information in the strictest confidence and
trust. “Confidential Information” means, in whatever form
(tangible or intangible, including electronic data recorded or
retrieved by any means), any and all trade secrets, confidential
knowledge, proprietary data, and information owned by the Company,
furnished by the Company to Dupuis, or developed by the Company,
contractor, or employee of the Company that relates to the business
or activities of the Company, including technical specifications,
diagrams, flow charts, methods, processes, procedures, discoveries,
concepts, calculations, techniques, formula, systems, designs,
research and development plans, marketing plans, business plans,
business opportunities, cost and pricing data, customer records and
lists, general financial and marketing know-how, copyrightable
works and applications for registrations thereof, pending
applications for letters patent of the United States and foreign
countries, and any such that are issued, granted or published, in
common law, state and federal rights relating to and under any
trademarks, trade names or service marks (and also including any of
the foregoing provided to Dupuis by or on behalf of the Company,
prior to the Effective Date), but expressly excluding information
which:

(i) was available to the public prior to the time of disclosure to,
or discovery of production by Dupuis;

(ii) becomes available to the public through no act or omission of
Dupuis; or

(iii) becomes available to Dupuis through or from a third party who
is not under any obligation of confidentiality to the Company.

Dupuis hereby expressly acknowledges and agrees that if he shall seek to
disclose, divulge, reveal, report, publish, transfer or use, for any
purpose whatsoever, any Confidential Information, he shall bear the
burden of proving that any such information has become publicly available
such that his actions do not constitute a breach of any of his
obligations hereunder. Dupuis may disclose Confidential Information if
required to disclose such information by law or court order, but before
doing so he must provide notice to the Company with regard to such
potential disclosure.

	d.	 	Reformation. Dupuis agrees that the scope of the
restrictions of this Section 11 are reasonable and valid. If a court
finds that the provisions of this Section 11 are overly broad with
respect to time, scope of activity or otherwise, such court may
reform such provision so as to provide the maximum protection
legally affordable to the Company. The time period provided in any
subsection of this Section 11 shall be extended for any period in
which Dupuis violates his promises in such subsection, but such
extension shall not be greater than one year. An alleged or actual
breach of this Agreement by the Company will not be a defense to
enforcement of the provisions of this Section 11 or other
obligations of Dupuis to the Company. Dupuis

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	 	 	further irrevocably waives his right to bring any suit or claim
against the Company, including a claim for declaratory relief, to
challenge the enforceability of any of the covenants contained in
Section 11, and irrevocably waives all defenses to the strict
enforcement of the covenants contained in this Section 11.

	12.	 	DUPUIS HAS CAREFULLY READ AND CONSIDERED THE PROVISIONS OF THIS AGREEMENT
AND, HAVING DONE SO, AGREES THAT THE RESTRICTIONS SET FORTH HEREIN ARE
REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE BUSINESS
INTERESTS AND GOODWILL OF THE AND ITS BUSINESS, OFFICERS, DIRECTORS AND
EMPLOYEES. DUPUIS FURTHER AGREES THAT THE RESTRICTIONS SET FORTH IN THIS
AGREEMENT ARE NECESSARY TO PROTECT THE CONFIDENTIALITY OF ITS CONFIDENTIAL
INFORMATION AND TRADE SECRETS AND GOODWILL AND LEGITIMATE BUSINESS
INTERESTS.
	 
	13.	 	No Disparagement. Dupuis shall not make or cause to be made any
derogatory, negative or disparaging statements, either written or verbal,
about the Company or any Released Party.
	 
	14.	 	Future Cooperation in Litigation. In all future litigation involving the
Company for which the Company requests Dupuis’s cooperation, he will fully
cooperate with the Company. In return for his cooperation, the Company
shall pay Dupuis for all the reasonable costs incurred by Dupuis due to
his cooperation.
	 
	15.	 	Return of Company Property. Dupuis acknowledges that on or before the
date Dupuis executes this Agreement, he has returned or will return to the
Company any and all property, including Confidential Information of the
Company, such as (but not limited to) marketing plans and related
information, product development plans and related information, trade
secret information, pricing information, vendor information, financial
information, telephone lists, computer software and hardware, keys, credit
cards, vehicle, telephone, and office equipment.
	 
	16.	 	Tax Payments and Withholding. Dupuis acknowledges that he has received
no opinion or advice from the Company regarding the taxability, if any, of
payments to be made to him under this Agreement. To the extent any option
of such payments are considered to be taxable income to Dupuis, he will be
solely and exclusively responsible for the entire amount of taxes on such
income. If the Company is required by law to pay or withhold any taxes on
such payments to Dupuis as a result of his failure to do so, then he shall
immediately reimburse the Company for the full amount of such payments and
any costs or expenses related to the Company’s actions in obtaining such
reimbursement.
	 
	17.	 	Nondisclosure of Agreement. The Parties shall not now or in the future
disclose or cause to be disclosed the term of this Agreement except (a) as
may be necessary in filing tax returns or as may be required to be
disclosed in the Company’s SEC filings; (b) in connection with enforcing
the terms and conditions of this Agreement in a court of law as

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	 	 	provided herein; (c) in response to a valid subpoena or other lawful
process; or (d) except as otherwise required by applicable law.
	 
	18.	 	Miscellaneous.

a. Opportunity to Cure Breach. If either Party determines that the other
has breached this Agreement, the non-breaching Party will notify the
Party in breach of that fact in writing, and the Party in breach will be
afforded six business days to cure the breach.

b. Venue. Any controversy or claim arising out of or relating to this
Agreement or otherwise concerning this Agreement SHALL be brought in a
court of competent jurisdiction in Walker County, Texas. The provisions
of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies of the State of Texas or any other
jurisdiction in which enforcement of this Agreement is sought in the
event that the choice of forum provision in this Agreement is found
invalid.

c. Governing Law. The provisions of this Agreement shall be construed in
accordance with the laws of the State of Texas without regard to its
conflicts of law principles.

d. No Transfer. Dupuis represents and warrants that he has not sold,
assigned, transferred, conveyed, or otherwise disposed of, to any third
party, by operation of law or otherwise, any action, cause of action,
suit, debt, obligation, account, contract, agreement, covenant,
guarantee, controversy, judgment, damage, claims, counterclaims,
liability, or demand of any nature whatsoever relating to any matter
covered in this Agreement.

e. No waiver; amendment. No waiver of any of the terms of this Agreement
shall be valid unless in writing and signed by both Parties. No waiver
or default of any term of this Agreement shall be deemed a waiver of any
subsequent breach or default of the same or similar nature. This
Agreement may not be changed except by writing signed by both Parties.

f. Successors and Assignees. This Agreement shall be binding upon Dupuis
and upon his heirs, administrators, representatives, executors, trustees,
successors and, as relates to the receipt of payments and other benefits
hereunder, permitted assignees, and shall inure to the benefit of the
Company and the Releasees, and to their heirs, administrators,
representatives, executors, trustees, successors, and assignees.

g. Further Cooperation. The Parties will promptly execute any and all
other documents that are necessary and appropriate to effectuate the
terms of this Agreement.

h. Notices. Any notice, requests, demands and other communications to
be given under this Agreement shall be in writing and shall be delivered
(a) in the case of the Company, to John F. Schwalbe, 10900 Richmond
Avenue, #219, Houston, Texas, 77042, telecopier no. (713) 974-2210, and
(b) in case of Dupuis, to him at 3302 Birchland Court, Kingwood, Texas
77345. All such notices and other communications shall be deemed validly
given, made or served:

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(i) on the date on which it is delivered personally
with receipt acknowledged;

(ii) five business days after it shall have been sent
by registered or certified mail (receipt requested and postage
prepaid);

(iii) one business day after it is sent by overnight
courier (charges prepaid); or

(iv) on the same business day when sent before 5:00
p.m., recipient’s time, and on the next business day when sent
after 5:00 p.m., recipient’s time, by telecopier, transmission
confirmed.

i. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be considered to be one and the same
instrument.

j. Equitable Relief. The Company shall be entitled to enforce its rights
under any provision of this Agreement and to exercise all the rights
existing in its favor. The Parties agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of
Sections 8(e) and 11 of this Agreement and that the Company may, in its
sole discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief, including
temporary restraining orders, preliminary injunctions, and permanent
injunctions in order to enforce or to prevent any violation of such
provisions of this Agreement against Dupuis.

k. Non-Compliance. All of the payments and benefits provided for Dupuis
in this Agreement (other than the severance payment provided for in
Section 6(b)) are conditioned upon his compliance with the provisions of
Section 11(a) through (d) and Section 13 of this Agreement, which are
material and important terms of this Agreement. If either: (i) Dupuis
violates any such provision, or (ii) Dupuis challenges the validity of
such covenants (though he is prohibited from doing under Section 11(d) of
this Agreement), and all or any part of Sections 11(a) through (d) of
this Agreement is held to be unenforceable, invalid or illegal for any
reason whatsoever by a court of competent jurisdiction, then Dupuis
agrees to immediately return all monies paid to him or on his behalf
under Section 8 of this Agreement, and the Company shall be entitled to
terminate all such payments and benefits and to cancel the New Option,
without waiving the right to pursue any other available legal or
equitable remedies.

12

 

EXECUTED on the 24th day of June, 2004.

	 	 	 
	

	 	/s/P. Blake Dupuis

	

	 	P. BLAKE DUPUIS
	 
	 	 
	

	 	MITCHAM INDUSTRIES, INC.
	 
	 	 
	

	 	By: /s/Billy F. Mitcham, Jr.

	

	 	Its:President & CEO

13

 

EXHIBIT A

Resignation of Employee

	 	 	 
	To:

	 	Board of Directors – Mitcham Industries, Inc.
	 
	 	 
	

	 	May 14, 2004

Gentlemen:

Please accept my voluntary resignation from the Board of Directors of Mitcham
Industries, Inc., effective Wednesday, May 12, 2004, as well as from all
positions I hold as an officer of Mitcham Industries, Inc., effective as of
Friday, May 14, 2004, including, without limitation, as Chief Operating
Officer, Chief Financial Officer and Secretary.

Sincerely,

/s/ P. Blake Dupuis

P. Blake Dupuis

 

 

EXHIBIT B

Stock Options

The following incentive stock options were granted to Employee prior to the
Separation Date:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Original	 	 	 	 	 	 	 	 	 	Vested Prior	 	Exercised/	 	Unvested	 	 
	Date	 	Expiration	 	Options	 	Exercise	 	to the	 	Canceled Prior to	 	Prior to the	 	 
	of Grant
	 	Date
	 	Granted
	 	Price
	 	Separation Date
	 	the Separation Date
	 	Separation Date
	 	Footnotes

	09/29/98
	 	 	09/29/08	 	 	 	60,000	 	 	$	7.375	 	 	 	60,000	 	 	 	0	 	 	 	0	 	 	 	(1	)
	02/23/99
	 	 	02/23/09	 	 	 	10,500	 	 	$	3.56	 	 	 	10,500	 	 	 	0	 	 	 	0	 	 	 	(1	)
	07/27/00
	 	 	07/27/10	 	 	 	45,000	 	 	$	5.13	 	 	 	45,000	 	 	 	0	 	 	 	0	 	 	 	(1	)
	07/18/01
	 	 	07/18/11	 	 	 	30,000	 	 	$	5.00	 	 	 	20,000	 	 	 	0	 	 	 	10,000	 	 	 	(1	)
	08/15/02
	 	 	08/15/12	 	 	 	45,000	 	 	$	1.99	 	 	 	15,000	 	 	 	0	 	 	 	30,000	 	 	 	(2	) (3)
	07/17/03
	 	 	07/17/13	 	 	 	20,000	 	 	$	1.90	 	 	 	0	 	 	 	0	 	 	 	20,000	 	 	 	(2	) (3)
	 
	 	Totals:	 	 	210,500	 	 	 	 	 	 	 	150,500	 	 	 	0	 	 	 	60,000	 	 	 	 	 

	 	

	 	(1)	 	The indicated options (vested and unvested) shall be canceled
as of the Effective Date.
	 
	 	(2)	 	As of the Effective Date, the expiration date of the
indicated options shall be August 12, 2004.
	 
	 	(3)	 	All of the indicated options shall be vested as of the
Effective Date.

As of the Effective Date, Employee shall have the following incentive stock
options:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Exercisable
	Date of Grant
	 	Expiration Date
	 	Exercise Price
	 	Number of Options

	08/15/02
	 	 	08/12/04	 	 	$	1.99	 	 	 	45,000	 
	07/17/03
	 	 	08/12/04	 	 	$	1.90	 	 	 	20,000	 
	 
	 	Totals:	 	 	 	 	 	 	65,000	 

 

 

EXHIBIT C

MITCHAM INDUSTRIES, INC.

NONQUALIFIED STOCK OPTION AGREEMENT

(2000 STOCK OPTION PLAN)

     Mitcham Industries, Inc., a Texas corporation (the “Company”), has granted
to P. Blake Dupuis (the “Optionee”), an option (“Option”) to purchase a total
of 110,000 shares of Common Stock (the “Shares”), at the price set forth below
and in all respects subject to the terms, definitions and provisions of the
Company’s 2000 Stock Option Plan (the “Plan”) adopted by the Company, the terms
of which are incorporated herein by reference. Capitalized terms used but not
defined in this Option shall have the same meanings as are given to them in the
Plan.

     1. Grant and Nature of Option. This Option is being granted to the
Optionee in connection with the consulting agreement contained in the
Separation Agreement, Consulting Agreement and Release of even date herewith
between the Company and the Optionee (the “Separation Agreement”). This Option
is intended by the Company and the Optionee to be a Nonqualified Stock Option
that does not qualify for any special tax benefits to the Optionee. This
Option is not an Incentive Stock Option and is not subject to Section 5(b) of
the Plan.

     2. Exercise Price. The exercise price is $4.50 for each Share (the
“Exercise Price”), which is at least 100% of the fair market value (as defined
in the Plan) of a share of Common Stock on the date of grant.

     3. Exercise of Option. This Option shall be immediately exercisable,
subject to the provisions of Section 9 of the Plan and the provisions of this
Option.

     This Option is exercisable by written notice stating the election to
exercise the Option, the number of Shares in respect of which this Option is
being exercised, and such representations and agreements as to the holder’s
investment intent with respect to such Shares as may be required by the
Company. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the Exercise Price in full.
This Option shall be deemed exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.

     No Shares will be issued on the exercise of this Option unless such
issuance and such exercise complies with all relevant provisions of any
applicable law including, without limitation, the Securities Act of 1933, as
amended (the “Securities Act”), the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the Shares may then be listed, and shall be
further subject to approval of counsel for the Company with respect to such
compliance. Assuming such compliance, for income tax purposes, the Shares
shall be considered transferred to the Optionee on the date on which this
Option is exercised with respect to such Shares.

     4. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Board:

 

 

     (a) cash;

     (b) certified or cashier’s check; or

     (c) surrender of other shares of Common Stock of the Company that
(i) either have been owned by the Optionee for more than six months on
the date of surrender or were not acquired, directly or indirectly, from
the Company and (ii) have a fair market value on the date of surrender
equal to the aggregate Exercise Price of the Shares as to which this
Option is being exercised.

     5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method or payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require the Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.

     6. Forfeitures. If an Optionee is convicted of or pleads guilty or nolo
contendere to any felony criminal offense or any civil offense involving either
fraud or the unauthorized closure of confidential information of the Company,
the Committee may then determine that all outstanding options of the Optionee
that have not been exercised are forfeited. The Board has determined that, as
is allowed by Section 9(b) of the Plan, this Option shall not be forfeited, and
the term during which this Option may be exercised shall not be affected,
solely because of the termination of the Optionee’s consulting agreement with
the Company. However, this Option may be forfeited in accordance with the
provisions of Section 18(k) of the Separation Agreement.

     7. Non-Transferability of Option. This Option may not be transferred in
any manner other than by will or by the laws of descent or distribution and may
be exercised during the lifetime of the Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators,
heirs, successors and assigns of the Optionee.

     8. Term of Option. This Option may not be exercised more than five years
from the date of grant of this Option, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.

DATE OF GRANT: June 24, 2004.

	 	 	 	 	 
	 	 	MITCHAM INDUSTRIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/Billy F. Mitcham, Jr.

	

	 	 	 	Billy F. Mitcham, Jr.
	

	 	 	 	Chief Executive Officer and President

 

 

     The Optionee acknowledges receipt of a copy of the 2000 Stock Option Plan
and represents that he is familiar with the terms and provisions thereof, and
hereby accepts this Option subject to all of the terms and provisions thereof.
The Optionee has reviewed the 2000 Stock Option Plan and this Option in their
entirety and fully understands all provisions of this Option. The Optionee
hereby agrees to accept as binding, conclusive and final all decisions or
interpretations of the Board upon any questions arising under the 2000 Stock
Option Plan. The Optionee further agrees to notify the Company upon any change
in the residence address indicated below:

Dated: June 24, 2004.

	 	 	 	 	 
	 	 	/s/P. Blake Dupuis

	

	 	P. Blake Dupuis	 	 
	 
	 	 	 	 
	

	 	Residence Address:
	 	3302 Birchland Court

Kingwood, Texas 77345<PAGE>
                                                                     EXHIBIT 4.1

                                    EXHIBIT A

                                 PROMISSORY NOTE

$___________________               Houston, Texas              September 8, 2004

      FOR VALUE RECEIVED, the undersigned, BLUE DOLPHIN ENERGY COMPANY, a
Delaware corporation ("BORROWER"), promises to pay to the order of
__________________ ("LENDER"), in lawful money of the United States of America,
the principal amount of _________________________________ AND NO/100
($__________), plus such additional amounts that may be added to principal
pursuant to the terms of this Note or any of the Loan Documents (as defined
below), together with interest on the principal balance from time to time
remaining unpaid at the rate and upon the terms provided in this Note. Unless
otherwise defined in this Note, or unless the context of this Note otherwise
requires, each capitalized term used in this Note shall have the meaning given
to such term in such applicable Loan Document.

      1.    Defined Terms. As used in this Note,

      BASE RATE means, from day to day, an annual rate of interest equal to the
lesser of (a) 12% and (b) the Maximum Rate.

      BUSINESS DAY means any day other than a Saturday, Sunday or other day on
which commercial banks are authorized to close under the laws of, or are in fact
closed in, the City of Houston, Harris County, Texas.

      DEBTOR RELIEF LAW means Title 11 of the United States Code and all other
applicable liquidation, conservatorship, bankruptcy, fraudulent transfer,
assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief laws of the United States or other applicable jurisdictions from
time to time in effect and affecting the rights of creditors generally.

      DEFAULT is defined in Section 11 below.

      DEFAULT RATE means, from day to day, an annual rate of interest equal to
the lesser of (a) the 18% and (b) the Maximum Rate.

      EXTENDED MATURITY DATE means the earlier to occur of (a) the first
anniversary of the date of this Note, and (b) the date upon which the Obligation
has been accelerated pursuant to Section 11 below.

      GAAP means generally accepted accounting principles in the U.S. set out in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board as in effect from time to time.

<PAGE>

      GOVERNMENTAL AUTHORITY means any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, administrative tribunal, central bank or other entity
exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of, or pertaining to, government.

      INVESTORS means all the Lenders, as defined in the Mortgage.

      LOAN DOCUMENTS means, collectively, this Note, the Mortgage, the Note and
Warrant Purchase Agreement, the Warrants, the Additional Warrants (as defined in
the Note and Warrant Purchase Agreement), and all other documents and
instruments executed and delivered in connection with this Note, in each case as
the same may be renewed, extended, amended, restated or otherwise modified from
time to time.

      MATURITY DATE means the earlier to occur of (a) December 7, 2004, and (b)
the date upon which the Obligation has been accelerated pursuant to Section 11
below.

      MAXIMUM AMOUNT and MAXIMUM RATE, respectively, mean the maximum
non-usurious amount and the maximum non-usurious rate of interest that, under
applicable law, Lender is permitted to contract for, charge, take, reserve or
receive on the Obligation.

      MORTGAGE is defined in Section 15 below.

      OBLIGATION means all Principal Debt, interest, and other amounts due under
this Note and all other present and future debt, liabilities and obligations,
whether direct or indirect (including those acquired by assumption), absolute or
contingent, due or to become due, and all renewals, increases and extensions
thereof, or any part thereof, now or in the future owed to Lender by Borrower or
any other obligor under any Loan Document, together with all interest accruing
thereon, reasonable fees, costs and expenses payable under the Loan Documents or
in connection with the enforcement of rights under the Loan Documents.

      PERSON means any individual, partnership, limited partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture, syndicate, Governmental
Authority or other entity or organization of whatever nature.

      PRINCIPAL DEBT means, when determined, the outstanding principal amount of
this Note.

      PRIOR LIEN INSTRUMENTS has the meaning given to such term in the Mortgage.

      NOTE AND WARRANT PURCHASE AGREEMENT means that certain Note and Warrant
Purchase Agreement dated the same date as this Note among Borrower, Lender and
other Investors, as defined therein, covering the Warrants.

      SALVAGE CONTRACT has the meaning given to such term in the Prior Lien
Instruments.

      SUBSIDIAR(Y)IES means all Persons controlled directly or indirectly by
Borrower, or in which Borrower directly or indirectly owns an equity or voting
interest of ten percent (10%) or more. For purposes hereof, "controlled" means
the power to direct the management or policies of a person, whether through
voting securities, by contract or otherwise.

                                       2
<PAGE>

      VOTING AGREEMENT means that certain Shareholder Voting Agreement of
Borrower dated of even date hereof among Borrower, the Investors and certain
shareholders of Borrower.

      WARRANTS means, collectively, those certain 1,250,000 Warrants issued to
Lender and other Investors on the date of this Note to acquire Borrower voting
common stock pursuant to the terms and conditions of the Note and Warrant
Purchase Agreement.

      2.    Interest Rate. Subject to Section 4 and Section 7 below, the unpaid
Principal Debt from time to time outstanding shall accrue interest from the date
of this Note until maturity at a fixed rate which shall be equal to the Base
Rate.

      3.    Use of Proceeds; Payment Terms; Extension of Maturity Date.

            (a)   Borrower shall use the proceeds of this Note for working
      capital and other lawful corporate purposes, and may not use such proceeds
      for any other purpose.

            (b)   Accrued but unpaid interest under this Note shall be due and
      payable monthly in arrears, commencing on the date that is one month from
      the date hereof and continuing to be due and payable on the same date of
      each month thereafter until the Maturity Date; provided that, so long as
      no Default exists on such interest payment date, from the date of this
      Note until the Maturity Date, a portion of the interest due under this
      Note equal to 8% per annum that has accrued during such period shall not
      be payable on such interest payment date, but shall continue to accrue on
      a daily basis and shall be due and payable on the Maturity Date. The
      outstanding Principal Debt plus all accrued and unpaid interest on this
      Note and all other Obligations shall be due and payable on the Maturity
      Date.

            (c)   No later than 15 days after the date hereof, Borrower will
      file a preliminary proxy statement on Schedule 14A with the Securities and
      Exchange Commission, which will include a proposal for the stockholders of
      the Borrower to vote on, among other matters, the issuance of the
      Additional Warrants (as defined under, and further described in, the Note
      and Warrant Purchase Agreement), and provided that no Default exists on
      the Maturity Date but subject to issuance of the Additional Warrants and
      such other documents as Lender may reasonably request, upon at least seven
      (7) days' prior written notice by Borrower to Lender designating the
      Extended Maturity Date, together with evidence of stockholder approval of
      the issuance of the Additional Warrants, the Maturity Date shall be
      renewed and extended to the Extended Maturity Date, and Borrower and
      Lender agree to execute a note modification agreement (or similar
      instrument) to this Note evidencing such renewal and extension at
      Borrower's sole cost and expense.

      4.    Default Rate. After the date this Note matures or is accelerated,
the Principal Debt shall accrue interest at the Default Rate, until all amounts
due or past due are paid (whether payment is made before or after entry of a
judgment) or the Default is otherwise cured or waived.

      5.    Prepayment. Borrower may prepay this Note in whole or in part at any
time, but no earlier than three Business Days after the Special Meeting (as
defined in the Note and Warrant Purchase Agreement); provided that, upon such
prepayment Borrower shall pay a

                                       3
<PAGE>

prepayment fee in an amount equal to 6% of the Principal Debt prepaid. All
prepayments under this Note shall be applied to the principal or interest of
this Note. This Note represents a single advance term loan made on the date of
this Note and any amount prepaid or paid under this Note may not be re-borrowed.

      6.    Calculation of Interest. Interest will be calculated on the basis of
actual number of days elapsed (including the first day but excluding the last
day), but computed as if each calendar year consisted of 365 days. All interest
rate determinations and calculations by Lender are conclusive and binding,
absent manifest error.

      7.    Maximum Rate. Regardless of any provision in this Note or in any
Loan Document it is the intention of Borrower and Lender that Lender not (a)
contract for, charge, take, reserve, receive, or apply, as interest on all or
any part of the principal of this Note any amount in excess of the Maximum Rate
or the Maximum Amount or (b) receive any unearned interest, in violation of any
applicable law. If any acceleration of the maturity of this Note or any payment
under this Note or any other Loan Document produces a rate in excess of the
Maximum Rate or if Lender shall for any reason receive any such unearned
interest or if any transaction contemplated hereby or by any other Loan Document
would otherwise be usurious under applicable law, then (i) the aggregate of all
interest under applicable usury laws that is contracted for, charged, taken,
reserved, received or applied under this Note, the other Loan Documents, or
otherwise shall under no circumstances exceed the Maximum Amount, (ii) neither
Borrower nor any other Person shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Amount, (iii) any
excess or unearned interest shall be deemed to be and shall be treated as a
partial prepayment or repayment of principal and any remaining excess or
unearned interest will be refunded to Borrower, and (iv) the provisions of this
Note and the Loan Documents shall immediately be deemed reformed, without the
necessity of the execution of any new document or instrument, so as to comply
with all applicable usury laws. In determining whether interest paid or payable
exceeds the Maximum Rate or the Maximum Amount, Lender shall, to the maximum
extent permitted under applicable law (w) treat all advances under this Note and
the other Loan Documents as a single extension of credit, (x) characterize any
non-principal payment as an expense, fee or premium rather than as interest, (y)
exclude voluntary prepayments or repayments and their effects, and (z) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term of this Note. However, if the Note is paid in full before the
end of its full contemplated term, and if the interest received for its actual
period of existence exceeds the Maximum Rate or the Maximum Amount, Lender shall
refund any excess (and Lender may not, to the extent permitted by law, be
subject to any penalties provided by any laws for contracting for, charging,
taking, reserving or receiving interest in excess of the Maximum Amount). If the
Laws of the State of Texas are applicable for purposes of determining the
"Maximum Rate" or the "Maximum Amount," the "Maximum Rate" may not exceed the
"weekly ceiling" from time to time in effect under Chapter 303 of the Texas
Finance Code, as amended and in effect from time to time.

      8.    Conditions to Advance. Lender shall advance to Borrower all of the
proceeds under this Note in a single advance upon execution and delivery to
Lender of each of the following documents in form and substance satisfactory to
Lender (i) this Note, (ii) the Mortgage, (iii) the Note and Warrant Purchase
Agreement, (iv) the Warrants, (v) the Voting Agreement, (vi) a letter agreement
among Borrower, the Collateral Agent designated in the

                                       4
<PAGE>

Mortgage ("Collateral Agent"), and Tetra Applied Technologies, Inc. (together
with its successors and assigns) in form and substance satisfactory to the
parties thereto, (vii) a Secretary's Certificate containing (1) a copy of
Borrower's resolutions authorizing this Note and related Loan Documents and
transactions thereby, (2) a copy of Borrower's organizational documents, and (3)
an incumbency certificate of Borrower's authorized officers, and (viii) such
other documents or instruments that Lender may request.

      9.    Representations. Borrower does hereby certify, warrant and represent
unto, and agrees with, Lender as follows: (i) the Salvage Contract and Prior
Lien Instruments are in good standing and, to the best knowledge and belief of
Borrower, no uncured breaches or defaults exist thereunder; (ii) the unpaid
unpaid balance of the Salvage Contract on this date is $668,000; (iii) no amount
other than the outstanding amount under the Salvage Contract is claimed to be
owing or secured by the Prior Line Instruments; and (iv) upon the occurrence of
an event of default under the Salvage Contract, the Prior Lien Instruments or
any other agreement or instrument secured by any Prior Lien Instrument, Borrower
shall provide Collateral Agent with written notice of such default within three
(3) Business Days of knowledge of such default.

      10.   Negative Covenant. During the term of this Note, without prior
consent of the Collateral Agent, Borrower will not allow any material change to
be made in the character of its business, nor will it allow any Subsidiary to
make any material change to be made in the character of any of their businesses.

      11.   Default. The term "DEFAULT" means the occurrence of any one or more
of the following events:

            (a)   The failure of Borrower to pay any part of the principal or
      interest under this Note when and as required to be paid or a default
      occurs under the Mortgage.

            (b)   The failure of Borrower or any obligor to punctually and
      properly perform, observe and comply with any covenant, agreement or
      condition in this Note or in any other Loan Document (not described in (a)
      above), and such failure continues for 10 days.

            (c)   Borrower or any Subsidiary (i) voluntarily seeks, consents to,
      or acquiesces in the benefit of any Debtor Relief Law, (ii) becomes a
      party to or is made the subject of any proceeding provided for by any
      Debtor Relief Law (other than as a creditor or claimant), and (A) the
      petition is not controverted within 10 days and is not dismissed within 60
      days, or (B) an order for relief is entered under Title 11 of the United
      States Code, (iii) makes an assignment for the benefit of creditors, or
      (iv) fails (or admits in writing its inability) to pay its debts generally
      as they become due.

            (d)   There is entered against Borrower or any Subsidiary (i) a
      final judgment or order for the payment of money in the aggregate amount
      exceeding $100,000 (individually or in the aggregate and net of applicable
      insurance if the insurer has accepted coverage) or (ii) one or more
      non-monetary final judgments that could be, or could reasonably be
      expected to have, individually or in the aggregate, a Material Adverse
      Effect on Borrower's consolidated financial condition, and, in either case
      (A)

                                       5
<PAGE>

      enforcement proceedings are commenced by any creditor upon such judgment
      or order, or (B) there is a period of 10 consecutive days during which a
      stay of enforcement of such judgment, by reason of a pending appeal or
      otherwise, is not in effect.

            (e)   Borrower or any Subsidiary enters into, or is subject to, any
      agreement or other action (i) for the sale of all or substantially all of
      its assets, (ii) for any (x) sale, transfer or conveyance of its equity
      interests (other than the Warrants; the Additional Warrants or the
      Director Warrants in either case to be issued under, and as defined in,
      the Note and Warrant Purchase Agreement), (y) merger or (z) other business
      combination and in the case of clause (y) or (z), and is not the survivor
      of such merger or business combination, (iii) for the dissolution of
      Borrower or such Subsidiary otherwise fails to maintain all licenses,
      permits or franchises to maintain its status as a corporation in existence
      and good standing in its state of incorporation and in each other State
      where it is required to qualify to transact business, (iv) for the
      incurrence of any indebtedness other than (A) the indebtedness evidenced
      by this Note, (B) any other indebtedness to Lender, or (C) as previously
      disclosed in writing to Lender before the date hereof.

            (f)   Any warrant of attachment, sequestration or similar proceeding
      against Borrower or any Subsidiary's assets is not stayed within 10 days
      or diligently contested in good faith by appropriate proceedings
      diligently pursued with adequate reserves being made in accordance with
      GAAP.

            (g)   Any representation or warranty made to Lender (or its
      representatives) by Borrower or such grantor or obligor or contained in
      any Loan Document, at any time proves to have been incorrect, incomplete
      or misleading when made.

            (h)   Except for trade accounts payable in the ordinary course of
      business, Borrower or any Subsidiary fails to pay when due (after lapse of
      any applicable grace period) any debt or obligation which (individually or
      in the aggregate) exceeds $50,000, or any default exists under any
      agreement which permits any Person to cause any debt or obligation which
      (individually or in the aggregate) exceeds $50,000 to become due and
      payable by Borrower or such Subsidiary before its stated maturity.

            (i)   Borrower or such Subsidiary breaches or defaults under any
      term, condition, provision, representation or warranty contained in any
      agreement, including any agreement with Lender (other than this Note and
      the other Loan Documents), and the effect of such breach or default could
      reasonably be expected to result in a Material Adverse Effect on the
      consolidated financial condition of Borrower and Borrower fails for 5
      Business Days to commence and thereafter diligently pursue a cure.

If a Default occurs, after the expiration of any applicable grace or notice and
opportunity to cure periods, the holder of this Note shall be entitled to (i)
declare the entire unpaid principal of, and all accrued and unpaid interest on,
this Note immediately due and payable, without notice of intent to accelerate,
notice of acceleration, any other notice, demand, or presentment, all of which
are hereby waived, (ii) foreclose any liens or security interests securing all
or any part of the debt evidenced by this Note, (iii) exercise its offset rights
under Section 14 below, (iv) exercise any of its rights under the other Loan
Documents, or (v) proceed to protect, enforce, and

                                       6
<PAGE>

exercise any other right or remedy to which the holder may be entitled by
agreement, at law, or in equity.

      12.   No Waiver. No delay on the part of the holder of this Note in the
exercise of any right or remedy available to the holder shall operate as a
waiver of such right or remedy. No single or partial exercise of a particular
right or remedy shall operate as a waiver of that particular right or remedy or
any other right or remedy.

      13.   Waiver. Except as provided in this Note, Borrower and any party
which may be or become liable for the payment of any amounts due under this Note
(including any surety, endorser, or guarantor) jointly and severally waive (to
the extent permitted by law) all applicable exemption rights (whether arising by
constitution, law, or otherwise), all valuation and appraisement rights,
presentment and demand for payment, protest, notice of protest and nonpayment,
notice of the intention to accelerate, and notice of acceleration and agree that
their liability on this Note shall not be affected by any renewal or extension
in the time of payment hereof, by any indulgences, or by any release or change
in any security for the payment of this Note, and hereby consent to any and all
renewals, extensions, indulgences, releases, or changes, regardless of the
number of such renewals, extensions, indulgences, releases, or changes.

      14.   Collection Costs; Fees and Expenses. If this Note is placed in the
hands of an attorney for collection, or if it is collected through any legal
proceedings, Borrower agrees to pay the court costs, reasonable attorneys' fees,
and other costs of collection incurred by or on behalf of the holder of this
Note. Borrower shall promptly pay upon demand (a) all reasonable costs, fees and
expenses paid or incurred by Lender in connection with the negotiation,
preparation, delivery and execution of this Note and the Loan Documents,
including those incurred in connection with the preparation, execution and
delivery of collateral documents, and any related or subsequent amendment,
waiver or consent (including in each case, the reasonable fees and expenses of
Lender's counsel), (b) all due diligence, closing, and post-closing costs
including filing fees, recording costs, lien searches, corporate due diligence,
third-party expenses, appraisals (if required by Lender), title insurance (if
required by Lender), environmental surveys (if required by Lender), and other
related due diligence, closing and post-closing costs and expenses, and (c) all
costs, fees and expenses of Lender incurred in connection with the enforcement
of this Note and the Loan Documents or the exercise of any rights arising under
the Loan Documents (including reasonable attorneys' fees, expenses and costs
paid or incurred in connection with any negotiation, workout or restructure and
any action taken in connection with any Debtor Relief Laws), all of which shall
be a part of the Obligation and shall accrue interest, if not paid upon demand,
at the Default Rate until repaid.

      15.   Set-Off Rights. While a Default exists, Lender (and each of its
affiliates) is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply (a) any and all deposits
(general or special, time or demand, provisional or final) at any time held by
Lender (or its affiliates) and (b) any other debt at any time owing by Lender
(or any of its affiliates) to or for the credit or the account of Borrower,
against the Obligation even if Lender has not made demand under this Note and
the Obligation is unmatured. Lender agrees to promptly notify Borrower after any
such set off and application is made; provided that, the failure to give such
notice shall not affect the validity of such set off and application. The rights

                                       7
<PAGE>

of Lender under this Section 14 are in addition to other rights and remedies
(including other rights of set off) that Lender may have.

      16.   Collateral. This Note is secured by the security interests in, and
liens granted under, that certain Deed of Trust, Mortgage, Assignment of
Proceeds, Security Agreement and Financing Statement dated the same date as this
Note by Blue Dolphin Pipe Line Company to F. Gardner Parker Trustee, for the
benefit of Investors, covering the collateral described therein (the
"MORTGAGE"). The Mortgage is incorporated into this Note by reference for all
purposes.

      17.   Applicable Law. This Note shall be construed, and its performance
enforced, in accordance with the laws of the State of Texas.

      18.   Remedies of Lender. Lender shall have all rights, remedies, and
recourse granted in this Note and all other Loan Documents and those available
at law or equity and the same (a) shall be cumulative and concurrent, (b) may be
pursued separately, successively, or concurrently against Borrower or any other
liable party or against any one or more of them in such order as Lender, in its
sole discretion, shall determine, (c) may be exercised as often as occasion
therefor shall arise, it being agreed by Borrower and any other liable party
that the exercise or failure to exercise any of the same shall in no event be
construed as a waiver or release thereof or of any other right, remedy, or
recourse, and (d) are intended to be, and shall be, nonexclusive.

      19.   Subordination. Anything herein or any Loan Document to the contrary,
the security interests created under the Mortgage shall be subordinate to the
security interests granted by Blue Dolphin Pipeline Company to MCNIC Offshore
Pipeline & Processing Company ("MCNIC") in and to the "Collateral" as defined in
and pursuant to that certain Pledge and Security Agreement dated February 1,
2002 ("MCNIC SECURITY AGREEMENT"). Should an event of default occur pursuant to
the terms of the MCNIC Security Agreement, such act shall constitute an event of
default hereunder. In such event and to the extent MCNIC commences any remedial
action under the MCNIC Security Agreement, the Collateral Agent on behalf of the
Investors may, at its option, cure the default under the MCNIC Security
Agreement. Any costs incurred by the Collateral Agent in curing such default
shall constitute an advance from Lender to Borrower of a portion of such
advance, such portion to be determined by multiplying the amount of the costs
incurred by Collateral Agent by a fraction, the numerator of which is the
original principal amount of this Note and the denominator of which is the
aggregate original principal amount of all the "Notes" (as defined in the
Mortgage), which amount shall be immediately due and payable, shall bear
interest at the maximum non-usurious rate permitted by applicable law, shall be
secured by the Mortgage and shall be deemed to be made at the instance of
Borrower, and the Collateral Agent and Investors shall be subrogated to the
rights of the person to whom any payment is made. Should the Collateral, as
defined in the MCNIC Security Agreement, be sold by virtue of a foreclosure sale
(or other sale) authorized pursuant to the terms of the MCNIC Security
Agreement, and should such sale be for an amount in excess of the indebtedness
secured by the MCNIC Security Agreement, such residue, up to the amount of the
indebtedness under the "Notes," as defined in the Mortgage (including any
authorized fees and expenses) shall be paid directly by MCNIC to Collateral
Agent for the ratable benefit of the Investors.

                                        8
<PAGE>

      20.   Notices. Anything herein to the contrary, any notice by Borrower
required hereunder shall be satisfied if such notice is provided to Western Gulf
Pipeline Partners, LP at c/o Peregrine Management, LLC, 14701 St. Mary's Lane,
Suite 800, Houston, Texas 77079.

      21.   ENTIRE AGREEMENT. THIS NOTE (AS AMENDED OR REPLACED FROM TIME TO
TIME) AND THE OTHER WRITTEN LOAN DOCUMENTS EXECUTED BY BORROWER AND LENDER (OR
BY BORROWER FOR THE BENEFIT OF LENDER) REPRESENT THE FINAL AGREEMENT BETWEEN
BORROWER AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY BORROWER AND LENDER. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN BORROWER AND LENDER.

                                    BORROWER:

                                    BLUE DOLPHIN ENERGY COMPANY,
                                    a Delaware corporation

                                    By:_________________________________________
                                           Ivar Siem
                                           Chairman and Chief Executive Officer

                                        9

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