The Lycanthrope

The Lycanthrope is a side quest in Book II. It is given by Xed in Western Kessian Basin.

Journal entry
"Xed, a mysterious traveler you met at the crossroads in the Western Kessian Basin, said he will give you 400 gold piece if you kill Harpen, the magick dealer in Everdale. Xed says he has evidence that Harpen is a Lycanthrope - an evil mage that can change from man to wolf. Return with Harpen's pelt to claim the reward."

Walkthrough
After entering Western Kessian Basin from Greenriven Lake, follow the road north and Xed can be found camping at the crossroad. Talk to him to receive the quest. From Xed's location go east and enter Wolfenwood. Make your way to the end of the road and enter Central Farrock Range. Harpen can be found in his shop in Everdale.

You can either attack him right away or confront him first. Upon being told about Xed's accusation, Harpen will deny it and counter that it's Xed who's the Lycanthrope, explaining that he burned down Xed's den who managed to escape and is now trying to kill him. He then offers you 500 gold to kill Xed, at which point you have three options.

If you choose to decide that you're unable to make a judgement and thus will not take anyone's side, this quest will end unresolved. If you choose to believe Harpen, he will give you a new quest, The Lycanthrope, Part 2, and this quest will be abandoned.

If you choose not to believe Harpen, he will transform into a hostile Dire Wolf, revealing the truth. Alternatively, if you attack him without confronting him first, after being "killed", he transforms into the Dire Wolf. The Dire Wolf can be a formidable threat to lower-level characters. You can lead it out into the streets to attract attention and help from Travet and Ara, the two other NPCs in Everdale, who will turn hostile towards the Dire Wolf and attack it.

The Dire Wolf will drop the Lycanthrope Pelt upon being killed. Return it to Xed to complete the quest and receive the reward.

Rewards

 * 600 XP
 * 400 gold