Document:

exv10w12

 

Exhibit 10.12

SUBORDINATED PROMISSORY NOTE

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD UNLESS IT HAS BEEN REGISTERED
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.

THIS INSTRUMENT AND THE RIGHTS AND OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH HEREIN TO THE SENIOR DEBT (AS HEREINAFTER DEFINED); AND EACH HOLDER OF THIS
INSTRUMENT, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND BY THE SUBORDINATION
PROVISIONS HEREIN.

 

			
	$50,000,000
	 	July ___, 2007

     FOR VALUE RECEIVED, QUICKSILVER GAS SERVICES LP, a Delaware limited partnership
(“Payor”), HEREBY AGREES TO PAY to the order of QUICKSILVER RESOURCES INC., a Delaware
corporation, or its successors and assigns (together with its successors and assigns, the
“Subordinated Creditor”), in lawful currency of the United States of America, in
immediately available funds, at such location or bank account as the Subordinated Creditor shall
from time to time designate, the principal amount of Fifty Million and 00/100 Dollars
($50,000,000), together with interest, compounded quarterly, on the unpaid principal balance
outstanding from time to time from the date hereof until the Maturity Date (as hereinafter defined)
at a rate of interest per annum equal to the lesser of (a) the Note Rate (as hereinafter defined)
or (b) the Highest Lawful Rate (as hereinafter defined); provided, however, that,
notwithstanding the foregoing, in the event the Payor fails to make any payment of any portion of
the principal of this Note when due and payable (including, without limitation, due to a Blockage
Event), at the request of the Subordinated Creditor, interest on such overdue amount (including,
without limitation, interest with respect to such overdue amount to the extent permitted by
applicable law) shall accrue at a rate of interest per annum equal to the lesser of (a) the Note
Rate plus two percent (2.00%) and (b) the Highest Lawful Rate. Capitalized terms used in this
Subordinated Promissory Note (this “Note”), but not defined herein shall have the meanings
specified therefor in the Credit Agreement, dated as of July ___, 2007 (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”), among Payor,
as the borrower, the Lenders party thereto, Bank of America, N.A., as L/C Issuer thereunder, Bank
of America, N.A., as Administrative Agent (or any successor administrative agent appointed pursuant
to Article IX of the Credit Agreement, the “Administrative Agent”) for the Lenders
thereunder, and the other Agents party thereto.

     1. Principal. Subject to the subordination provisions contained in Section 7
hereof, Payor promises to pay the principal on this Note in equal consecutive quarterly
installments of $275,000.00 on the last Business Day of each calendar quarter, beginning on
March 31, 2008, and to pay the entire remaining outstanding principal balance on this Note on
January

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___, 2013 (the “Maturity Date”); provided, that, if the final maturity
date of the Senior Debt (as hereinafter defined) is extended to any date later than July___, 2012
(such later date being referred to herein as the “Extended Senior Maturity Date”), the
Maturity Date shall be automatically extended without further action by Payor or the Subordinated
Creditor to the date that is six months after such Extended Senior Maturity Date, and the amount of
the quarterly installments of principal will be reamortized to create equal quarterly installments
of the remaining outstanding principal balance on this Note over the remaining term of this Note as
extended. Notwithstanding anything to the contrary herein, any amounts paid or prepaid hereunder
may not be reborrowed thereafter. Furthermore, notwithstanding anything to the contrary herein,
all amounts payable pursuant to this Note (including, without limitation, all principal and
interest payments, and prepayments thereof) may, at the request of the Subordinated Creditor, be
paid, in whole or in part, using Equity Interests of Payor.

     2. Interest. Subject to the subordination provisions contained in Section 7
hereof, Payor also promises to pay interest on the unpaid principal amount from time to time
outstanding hereunder from the date hereof until such principal amount is paid in full at the
applicable rate per annum set forth above, which interest shall be payable quarterly on the last
Business Day of each calendar quarter, beginning March 31, 2008, and on the Maturity Date,
(a) by capitalizing the accrued and unpaid interest on this Note and adding it to the then unpaid
principal amount hereof, or (b) at the request of the Subordinated Creditor, by wire transfer of
immediately available funds, in lawful currency of the United States of America, to a bank account
designated by the Subordinated Creditor to Payor on or prior to the applicable due date therefor.
Interest on this Note will be calculated based on a 360-day year and paid for the actual number of
days elapsed.

     As used herein, the term “Note Rate” shall mean a rate of interest per annum equal to
the Adjusted Eurodollar Rate for an Interest Period of three (3) months, plus the Applicable Rate
for Eurodollar Loans for such day as determined pursuant to the terms of the Credit Agreement,
regardless of whether such interest rate is in effect for any Borrowings outstanding under the
Credit Agreement, plus one percent (1.00%). The Note Rate shall change effective upon each change
in the Applicable Rate under the Credit Agreement and shall remain in effect until the next change
in the Applicable Rate effected pursuant to the Credit Agreement. Each determination by the
Subordinated Creditor of the Note Rate shall, except in cases of manifest error, be final,
conclusive and binding. If the Subordinated Creditor determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining
the Adjusted Eurodollar Rate or the Eurodollar Rate, as applicable, pursuant to the terms of the
Credit Agreement, for the Interest Period specified above, then, at the option of the Subordinated
Creditor, and in the Subordinated Creditor’s sole discretion, the Note Rate shall be determined by
the Subordinated Creditor by reference to (a) the Adjusted Eurodollar Rate for such other Interest
Period as the Subordinated Creditor may select in its sole discretion, or (b) the interest rate
applicable to ABR Loans as provided in the Credit Agreement, in each case, plus the Applicable Rate
for such Type of Loan

     3. Prepayments. Subject to the subordination provisions contained in Section
7 hereof, this Note may be prepaid in full or in part at any time and from time to time without
premium or penalty. The prepayment of any principal amount of this Note shall be made together
with all accrued and unpaid interest thereon through the date of prepayment and all

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accrued and unpaid costs and expenses then payable hereunder. In the event of a partial
prepayment, the Subordinated Creditor shall record the date and amount of any such prepayments on
the reverse side of this Note, and interest shall cease to accrue on such prepaid principal
amounts.

     4. Note Events of Default.

          (a) The occurrence of any of the following events constitutes an event of default under this
Note (each, a “Note Event of Default”):

     (i) Payor defaults in the payment of any portion of the principal of, interest on, or
other amounts owing under, this Note when due and payable, except to the extent a failure to
pay is due to a Blockage Event; or

     (ii) Payor or any other Person (other than the Subordinated Creditor) fails to perform
or observe any other term, covenant or agreement contained in this Note, and such default
shall continue unremedied for a period of thirty (30) days after the earlier to occur of (A)
the date upon which a Responsible Officer of the General Partner becomes aware of such
default and (B) the date upon which written notice thereof is given to Payor by the
Subordinated Creditor; or

     (iii) an Event of Default (as defined in the Credit Agreement) shall occur; or

     (iv) any representation or warranty at any time made by Payor or any other Person in
this Note shall be, or shall prove to have been, false or misleading in any material respect
when so made; or

     (v) this Note shall cease, for any reason, to be in full force and effect; any
provision of this Note shall for any reason cease to be valid and binding on or enforceable
against Payor; the validity or enforceability of this Note is contested by Payor or any
other Person; or Payor denies it has any further liability or obligation under this Note.

     (b) Subject to the subordination provisions contained in Section 7 hereof, upon the
occurrence and during the continuance of any Note Event of Default, the Subordinated Creditor shall
have the right, without notice, demand, presentment, notice of nonpayment or nonperformance,
protest, notice of protest, notice of intent to accelerate, notice of acceleration or any other
notice or action of any kind, ALL OF WHICH PAYOR HEREBY EXPRESSLY WAIVES AND RELINQUISHES, (i) by
notice to Payor, to declare the entire principal amount then outstanding on this Note, and all
accrued and unpaid interest thereon and all other accrued and unpaid amounts hereunder, immediately
due and payable, whereupon all such principal, interest and other amounts shall become immediately
due and payable, and the Subordinated Creditor may proceed to enforce the payment of such
principal, interest and other amounts, or part thereof, in such manner as the Subordinated Creditor
may elect and (ii) to exercise all rights and remedies available to it under this Note or at law or
in equity;

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provided, however, subject to the terms hereof, upon the occurrence of any Event of Default defined
in clause (h) or (i) of Article VIII of the Credit Agreement (in the case of clause (h) of Article
VIII of the Credit Agreement, upon the expiration of the sixty (60) day period mentioned therein),
the unpaid principal amount of this Note, and all accrued and unpaid interest thereon and all other
accrued and unpaid amounts hereunder, shall automatically become due and payable without further
act of the Subordinated Creditor.

     5. Ranking. All obligations evidenced hereby shall (a) be subordinated pursuant to
the subordination provisions contained in Section 7 hereof to the prior payment in full of
the Senior Debt, (b) rank pari passu with all unsubordinated indebtedness of Payor (other than the
Senior Debt), and (c) rank senior to any subordinated indebtedness of Payor.

     6. Amendment and Restatement. Upon the payment in full of the Senior Debt, Payor
hereby agrees, if requested by the Subordinated Creditor, to execute and deliver to the
Subordinated Creditor a new note that will amend and restate this Note, which amended and restated
note shall, among other things, include those provisions of the Credit Agreement (including,
without limitation, the applicable provisions for determining the interest rate under the Credit
Agreement, the covenants contained in Articles VI and VII of the Credit Agreement, the Events of
Default (as defined in the Credit Agreement) contained in Article VIII of the Credit Agreement and
the applicable defined terms contained in the Credit Agreement that are used in such interest rate
provisions, covenants and Events of Default) as the Subordinated Creditor in its sole discretion
shall determine appropriate to include in such amended and restated note, the provisions of the
Credit Agreement so included in such amended and restated note to include (a) such modifications
thereto, in the Subordinated Creditor’s sole discretion, necessary to conform such provisions (for
example, definitions) for use in the context of such amended and restated note, and (b) any other
changes thereto (including, but not limited to, changing the methodology for determining the Note
Rate) requested by the Subordinated Creditor and consented to by Payor, such consent not to be
unreasonably withheld, conditioned or delayed.

     7. Subordination Provisions. (a) The aggregate principal amount owing to the
Subordinated Creditor from time to time under this Note, all accrued and unpaid interest thereon
(if any), and any and all other Indebtedness evidenced by or otherwise owing in respect of this
Note, whether now or hereafter existing, including, without limitation, all such Indebtedness
under, or in respect of, any and all extensions, modifications, substitutions, amendments,
amendments and restatements, renewals, refinancings and refundings of any or all of the foregoing
Indebtedness, and any instrument or agreement evidencing, governing or otherwise setting forth the
terms of any such Indebtedness or other Indebtedness incurred in any such extension, modification,
substitution, amendment, amendment and restatement, renewal, refinancing or refunding, in each case
whether direct or indirect, absolute or contingent, and whether for principal, interest (including,
without limitation, interest accruing after the filing of a petition initiating any Insolvency
Proceeding (as hereinafter defined), whether or not such interest accrues after the filing of such
petition for purposes of any applicable Insolvency Laws (as hereinafter defined), or is an allowed
claim in such Insolvency Proceeding), premiums, fees, indemnification obligations, contract causes
of action, costs, expenses or otherwise (all such Indebtedness being, collectively, the
“Subordinated Debt”) is and shall be subordinate and junior in right of payment, to the
extent and in the manner hereinafter set forth, to the prior payment in full of all Indebtedness,
whether now or hereafter existing, including, without

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limitation, all Lender Indebtedness, under or in respect of: (i) the Credit Agreement, the
Notes, the Security Instruments, the other Loan Documents and the Hedging Agreements entered into
by Payor or any of its Subsidiaries with any Lender or Secured Affiliate (the “Secured Hedging
Agreements”) and (ii) any and all extensions, modifications, substitutions, amendments,
amendments and restatements, renewals and refundings of any or all of the foregoing Indebtedness,
and any instrument or agreement evidencing, governing or otherwise setting forth the terms of any
such Indebtedness or other Indebtedness incurred in any such extension, modification, substitution,
amendment, amendment and restatement, renewal or refunding, in each case whether direct or
indirect, absolute or contingent, and whether for principal, interest (including, without
limitation, interest accruing after the filing of a petition initiating any Insolvency Proceeding,
whether or not such interest accrues after the filing of such petition for purposes of any
applicable Insolvency Laws, or is an allowed claim in such Insolvency Proceeding), premiums, fees,
indemnification obligations (exclusive of indemnification obligations not then owing which survive
the termination or expiration of the Credit Agreement or the other Loan Documents, to the extent
demand therefor has not been made or threatened as of the date of such termination or expiration),
contract causes of action, costs and expenses pursuant to the Loan Documents (all such Indebtedness
being, collectively, the “Senior Debt”). For all purposes of this Note, the Senior Debt
shall not be deemed to have been paid in full (“paid in full” or “payment in full”)
until (A) such Senior Debt (exclusive of indemnification obligations not then owing which survive
the termination or expiration of the Credit Agreement or the other Loan Documents, to the extent
demand therefor has not been made or threatened as of the date of such termination or expiration,
and Cash Collateralized L/C Obligations) has been indefeasibly paid in full in cash, (B) the
termination of all of the Commitments, and (C) there are no Letters of Credit (exclusive of Letters
of Credit which have been Cash Collateralized) issued under the Loan Documents.

          (b) Until all of the Senior Debt shall have been paid in full, subject to the proviso to this
sentence and the last sentence of this Section 7(b), no payment or distribution of any
property or assets of Payor of any kind or character (including, without limitation, any payment
that may be payable in respect of, or turnover of funds to be applied to, the Subordinated Debt by
reason of any other Indebtedness or obligations of Payor being subordinated to payment of the
Subordinated Debt) shall be made by or on behalf of Payor for or on account of any Subordinated
Debt or any purchase, redemption or other acquisition thereof (including, without limitation, by
way of set-off, counterclaim or otherwise), and the Subordinated Creditor shall not ask, demand,
sue for, take or receive from Payor, directly or indirectly, in cash or other property or by
set-off or in any other manner (including, without limitation, from or by way of collateral),
payment of all or any of the Subordinated Debt; provided, however, that
notwithstanding the foregoing or anything to the contrary contained herein or in the Loan
Documents, if no Blockage Event then exists or would result therefrom, Payor (i) may and shall make
any and all regularly scheduled payments in respect of the Subordinated Debt, including any missed
payments (and default interest thereon at the then applicable rate provided herein) that it was
prohibited from making to the Subordinated Creditor during the existence of any Blockage Event, to
the Subordinated Creditor with no further notice, consent or action by the Administrative Agent,
the Lenders or the Secured Affiliates, and (ii) may make, at any time and from time to time in
whole or in part, any prepayments of this Note to the Subordinated Creditor with no further notice,
consent or action by the Administrative Agent, the Lenders or the Secured Affiliates. Payor and
the Subordinated Creditor (by its acceptance

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hereof) acknowledge and agree that, as of the date of this Note, a Blockage Event of the type
described in clause (C) of the definition thereof exists. As used herein, the term “Blockage
Event” shall mean (A) an Event of Default exists on the date of any payment on this Note, (B) a
judicial proceeding is pending with respect to any Event of Default on the date of any payment on
this Note, or (C) the Consolidated Leverage Ratio as of the end of the Fiscal Quarter immediately
preceding the date of any principal payment on this Note is equal to or greater than 3.5 to 1.0 and
would be equal to or greater than 3.5 to 1.0 after giving pro forma effect to any such principal
payment (in each case as calculated pursuant to the following sentence). Notwithstanding anything
to the contrary contained in the Credit Agreement, including in the definitions of Consolidated
Leverage Ratio, Consolidated Funded Debt or Funded Indebtedness, the Consolidated Leverage Ratio
for purposes of this Section 7(b) only shall be calculated to include any Indebtedness
remaining on this Note after giving pro forma effect to any such permitted payment hereunder.
Notwithstanding the foregoing or anything to the contrary contained herein, (1) nothing in this
Note shall prevent the occurrence of any Note Event of Default, the acceleration by the
Subordinated Creditor of any of the indebtedness hereunder after the acceleration of the Senior
Debt or the giving of any notice by the Subordinated Creditor to Payor with respect thereto, (2)
Payor may at all times pay interest hereunder by capitalization of the accrued and unpaid interest
as described in Section 2 of this Note, and (3) at the request of the Subordinated
Creditor, Payor may at all times make payments or prepayments, in whole or in part, with respect to
this Note using Equity Interests of Payor and/or using the proceeds from the contemporaneous sale
or issuance of Equity Interests of Payor.

          (c) In the event of any dissolution, winding up, liquidation, arrangement, reorganization,
adjustment, protection, relief or composition of Payor or its debts, whether voluntary or
involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or
other similar action or proceeding under the United States Federal Bankruptcy Code or any other
federal or state bankruptcy or insolvency laws or any similar Governmental Rule of any other
jurisdiction covering the protection of creditors’ rights or the relief of debtors (collectively,
the “Insolvency Laws”) or upon an assignment for the benefit of creditors or any other
marshalling of the property, assets and liabilities of Payor or otherwise (each, an “Insolvency
Proceeding”), the Administrative Agent, for the ratable benefit of the L/C Issuer, Lenders and
Secured Affiliates (collectively, the “Secured Parties”), shall be entitled to receive
payment in full of all of the Senior Debt (whether or not any or all of the Senior Debt has been
declared due and payable prior to the date on which such Senior Debt otherwise would have become
due and payable) before the Subordinated Creditor (or anyone claiming through or on its behalf
(including, without limitation, any receiver, trustee or other similar Person) is entitled to
receive or retain any payment or distribution of any kind or character on account of all or any of
the Subordinated Debt, and, to that end, any payment or distribution of any kind or character
(whether in cash, property or securities) that otherwise would be payable or deliverable upon or
with respect to the Subordinated Debt in any such Insolvency Proceeding (including, without
limitation, any payment that may be payable in respect of, or turnover of funds to be applied to,
the Subordinated Debt by reason of any other Indebtedness or obligations of Payor being
subordinated to payment of the Subordinated Debt) shall be paid or delivered forthwith directly to
the Administrative Agent, for the account of the Secured Parties, in the same form as so received
(with any necessary endorsement or assignment) for application (in the case of cash) to, or to be
held as collateral (in the case of noncash property or securities) for, the payment,

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prepayment and/or cash collateralization of the Senior Debt until all of the Senior Debt shall
have been paid in full.

          (d) So long as the Senior Debt shall not have been paid in full, the Subordinated Creditor
shall not (i) ask, demand, sue for, take or receive from Payor, directly or indirectly, in cash or
other property or by set-off or in any manner (including, without limitation, from or by way of
collateral), payment of all or any of the Subordinated Debt, except such payments as otherwise
expressly permitted herein when no Blockage Event has occurred and is continuing, (ii) commence, or
join with any creditor other than the Administrative Agent in commencing, or directly or indirectly
cause Payor to commence, or assist Payor in commencing, any Insolvency Proceeding, or (iii) request
or accept any collateral or other security for all or any portion of the Subordinated Debt. If the
Subordinated Creditor, in contravention hereof, shall commence, prosecute or participate in any of
the actions, suits or proceedings referred to above in this paragraph, then the Administrative
Agent may intervene and interpose as a defense or plea the terms of this Note in its own name or in
the name of the Subordinated Creditor.

          (e) Until such time as all of the Senior Debt has been paid in full, if any Insolvency
Proceeding is commenced by or against Payor, the Subordinated Creditor authorizes and empowers the
Administrative Agent to file proofs of claim of the Subordinated Debt on behalf of the Subordinated
Creditor in any statutory or non-statutory proceeding as the agent and attorney-in-fact for the
Subordinated Creditor if the Subordinated Creditor fails to file such proofs of claim on or before
the date that is ten (10) days prior to the date such proofs of claim must be filed by the
Subordinated Creditor in accordance with applicable law; provided, however, that
(i) the foregoing authorization and empowerment (A) imposes no obligation on the Administrative
Agent to take any such action, and (B) is granted only for the specific and limited purpose for
which it is given, and (ii) the Administrative Agent shall have, prior to taking any such action,
given 15 days prior written notice (which notice may be given up to 60 days prior to the expiration
of the time to file such claim) to the Subordinated Creditor that it intends to file such claim or
proof of debt. Notwithstanding anything to the contrary herein, in no event may the Administrative
Agent, any Lender or any Secured Affiliate vote or take any other action related to any claim with
respect to the Subordinated Debt on behalf of the Subordinated Creditor, and such agency and
appointment of attorney-in-fact shall not extend to any such right to vote or take any other action
related to any such claim of the Subordinated Creditor, which rights to vote and take action the
Subordinated Creditor is hereby authorized to exercise and take.

          (f) All payments or distributions upon or with respect to the Subordinated Debt that are
received by the Subordinated Creditor contrary to the provisions of this Note shall be received in
trust for the benefit of the Administrative Agent, shall be segregated from other property or funds
of the Subordinated Creditor and shall be paid or delivered forthwith directly to the
Administrative Agent, for the account of the Secured Parties, in the same form as so received (with
any necessary endorsement or assignment), to be applied (in the case of cash) to, or held as
collateral (in the case of noncash property or securities) for, the payment, prepayment and/or cash
collateralization of the Senior Debt until all of the Senior Debt shall have been paid in full.

          (g) To the extent that Payor, the Subordinated Creditor or any of their respective
subsidiaries or any other Credit Party or guarantor of or provider of collateral for the

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Senior Debt shall make any payment on the Senior Debt that is subsequently invalidated,
declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee,
receiver or any other party under any applicable Insolvency Law or equitable cause (any such
payment being a “Voided Payment”), then to the extent of such Voided Payment, that portion
of the Senior Debt that had been previously satisfied by such Voided Payment shall be reinstated
and continue in full force and effect as if such Voided Payment had never been made. To the extent
that the Subordinated Creditor shall have received any payments subsequent to the date of the
initial receipt of such Voided Payment by the Administrative Agent or any of the Secured Parties
and such payments have not been invalidated, declared to be fraudulent or preferential or set aside
or required to be repaid to a trustee, receiver or any other party under any applicable Insolvency
Law or equitable cause, the Subordinated Creditor shall be obligated and hereby agrees that any
such payment so made or received shall be deemed to have been received in trust for the benefit of
the Administrative Agent, and the Subordinated Creditor (by its acceptance hereof) hereby agrees to
pay to the Administrative Agent, upon demand, the full amount so received by the Subordinated
Creditor during such period of time to the extent necessary to fully restore to the Secured Parties
the amount of such Voided Payment, which amount shall be applied as set forth in the immediately
preceding paragraph.

          (h) The Subordinated Creditor will not:

          (i) (A) cancel or otherwise discharge any of the Subordinated Debt (except (1) upon
payment in full of the Senior Debt, (2) by a conversion of all or any part of the
Subordinated Debt to a capital contribution to Payor in return for Equity Interests of Payor
or (3) as otherwise permitted by the Credit Agreement), or (B) convert or exchange any of
the Subordinated Debt into or for any other Indebtedness (other than any other Subordinated
Debt);

          (ii) sell, assign, pledge, encumber or otherwise dispose of any of the Subordinated
Debt other than the pledge of the instruments and agreements evidencing the Subordinated
Debt to the Global Administrative Agent (as defined in the Parent Credit Agreement) pursuant
to the Parent Credit Agreement or any of the other Combined Loan Documents (as defined in
the Parent Credit Agreement) or a transfer or other disposition of such instruments and
agreements in connection with a foreclosure under the Parent Credit Agreement or any of the
other Combined Loan Documents (as defined in the Parent Credit Agreement); or

          (iii) contest, or cause or encourage any other Person to contest, at any time, the
validity, perfection, priority or enforceability of the subordination provisions of this
Note, the Senior Debt, the agreements evidencing the Senior Debt or the security interests
or the Liens granted to the Administrative Agent or any of the other Secured Parties
pursuant thereto.

          (i) Subject to the payment in full of the Senior Debt, the Subordinated Creditor shall be
subrogated to the rights of the Lenders and the Secured Affiliates to receive payments or
distributions of assets of Payor in respect of the Senior Debt until the Subordinated Debt shall be
paid in full. For the purposes of such subrogation, payments or distributions to the
Administrative Agent, for the account of the Lenders and the Secured Affiliates, of any cash,

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property or securities to which the Subordinated Creditor would be entitled except for the
provisions of this Note shall be deemed, as between Payor and its creditors (other than the
Lenders, the Secured Affiliates and the Subordinated Creditor), to be a payment by Payor to or on
account of the Subordinated Debt, it being understood that the provisions of this Section
7(i) are, and are intended solely, for the purpose of defining the relative rights of the
Subordinated Creditor, on the one hand, and the Administrative Agent, the Lenders and the Secured
Affiliates, on the other hand.

          (j) The Lenders or other holders of the Senior Debt may, at any time and from time to time,
without any consent of or notice to the Subordinated Creditor or any other holder of the
Subordinated Debt and without impairing or releasing the obligations of the Subordinated Creditor
hereunder:

          (i) change the manner, place or terms of payment of, or change or extend the time of
payment of, or renew payment or change or extend the time or payment of, or renew or alter,
the Senior Debt (including any change in the rate of interest thereon), or amend, supplement
or otherwise modify in any manner any Loan Document or other instrument, agreement or other
document under which any of the Senior Debt is outstanding;

          (ii) sell, exchange, release, not perfect and otherwise deal with any of the property
or assets of any Person at any time pledged, assigned or mortgaged to secure the Senior
Debt;

          (iii) release any Person liable in any manner under or in respect of the Senior Debt;

          (iv) exercise or refrain from exercising any rights against Payor, any of the other
Credit Parties or any of their respective Subsidiaries or any other Person;

          (v) apply to the Senior Debt any sums from time to time received by or on behalf of the
Administrative Agent or any of the Secured Parties; or

          (vi) sell, assign, transfer or exchange any of the Senior Debt.

          (k) Each of Payor and the Subordinated Creditor will, if reasonably requested by the
Administrative Agent, further mark their respective books of account in such a manner as shall be
effective to give proper notice of the effect of the subordination provisions of this Note. Each of
Payor and the Subordinated Creditor will, at Payor’s sole expense and at any time and from time to
time, promptly execute and deliver all further instruments and documents, and take all further
actions, that may be necessary or that the Administrative Agent may reasonably deem advisable and
may request in order to protect any right or interest granted or intended to be granted under the
subordination provisions of this Note or to enable the Administrative Agent or any of the other
Secured Parties to exercise and enforce its rights and remedies hereunder.

          (l) The Subordinated Creditor shall, upon reasonable request from time to time, from Payor,
any Secured Party or any other holder of Senior Debt or any party who intends to extend Senior Debt
to Payor, provide to the holder(s) of Senior Debt or any such prospective

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holder(s) of Senior Debt a written acknowledgment by the Subordinated Creditor addressed to
such holder(s) of Senior Debt to the effect that such holder of Senior Debt is a holder of the
Senior Debt entitled to the benefits of this Note, or, in the case of a prospective holder of
Senior Debt, to the effect that the credit to be extended by such prospective holder will be Senior
Debt and that such prospective holder will be entitled to the benefits of this Note.

          (m) Payor acknowledges and agrees that the provisions of this Note, including, without
limitation, the foregoing subordination provisions are, and are intended to be, an inducement and a
consideration to each Secured Party, whether the Senior Debt held by such Secured Party was created
or acquired before or after the issuance of this Note, to acquire and continue to hold, or to
continue to hold, such Senior Debt and such Secured Party shall be deemed conclusively to have
relied on the provisions of this Note, including, without limitation, such subordination
provisions, in acquiring and continuing to hold, or in continuing to hold, such Senior Debt.

          (n) The foregoing provisions regarding subordination are and are intended solely for the
purpose of defining the relative rights of the holders of the Senior Debt, on the one hand, and the
holders of the Subordinated Debt, on the other hand. Such provisions are for the benefit of the
holders of the Senior Debt and shall inure to the benefit of, and shall be enforceable by, the
Administrative Agent, on behalf of itself and the other Secured Parties, directly against the
holders of the Subordinated Debt, and no holder of the Senior Debt shall be prejudiced in its right
to enforce the subordination of any of the Subordinated Debt by any act or failure to act by Payor
or any Person in custody of its property or assets. The subordination provisions herein shall
constitute a continuing offer to each and every holder of Senior Debt from time to time and such
holders are intended third party beneficiaries hereof. Nothing contained in the foregoing
provisions is intended to or shall impair, as between Payor and the holders of the Subordinated
Debt, the obligations of Payor to such holders.

     8. WAIVER. PAYOR HEREBY WAIVES PROMPTNESS, DILIGENCE, PRESENTMENT FOR PAYMENT,
DEMAND, NOTICE OF DISHONOR AND PROTEST AND ANY OTHER NOTICE WITH RESPECT TO THIS NOTE.

     9. Amendments, Etc. None of the provisions of this Note may be waived, amended,
supplemented or otherwise modified except in a writing signed by Payor and the Subordinated
Creditor; provided, however, that, until the Senior Debt has been paid in full, no
amendment, waiver or modification of this Note (including, without limitation, the subordination
provisions hereof), and no consent to any departure herefrom, that would violate Section 7.17 of
the Credit Agreement shall be effective unless the same shall be in writing and also signed by the
Administrative Agent, and then, in each case, such waiver, modification or consent shall be
effective only in the specific instance and for the specific purpose for which given.

     10. No Waiver; Cumulative Remedies. No failure on the part of the Subordinated
Creditor or the Administrative Agent to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or a consent thereto; nor shall a single or
partial exercise of any such right, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies provided herein are
cumulative and are not exclusive of any remedies provided by applicable law or in equity.

10

 

     11. Notices. All notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by facsimile or electronic mail (e-mail), as follows:

	 	 	 	 	 
	 

	 	If to Payor:
	 	Quicksilver Gas Services LP
	 

	 	 	 	c/o Quicksilver Gas Services GP LLC
	 

	 	 	 	777 West Rosedale Street, Suite 300
	 

	 	 	 	Fort Worth, Texas 76104
	 

	 	 	 	Attention: MarLu Hiller
	 

	 	 	 	FAX: 817-665-5016
	 

	 	 	 	Electronic Mail (E-mail): mhiller@qrinc.com
	 
	 	 	 	 
	 

	 	If to the Subordinated	 	 
	 

	 	Creditor:
	 	Quicksilver Resources Inc.
	 

	 	 	 	777 West Rosedale Street, Suite 300
	 

	 	 	 	Fort Worth, Texas 76104
	 

	 	 	 	Attention: MarLu Hiller
	 

	 	 	 	FAX: 817-665-5016
	 

	 	 	 	Electronic Mail (E-mail): mhiller@qrinc.com
	 
	 	 	 	 
	 

	 	If to the Administrative	 	 
	 

	 	Agent:
	 	Bank of America, N.A.
	 

	 	 	 	700 Louisiana Street, 8th Floor
	 

	 	 	 	TX4-213-08-14
	 

	 	 	 	Houston, Texas 77002
	 

	 	 	 	Attention: Ronald E. McKaig
	 

	 	 	 	FAX: 713-247-7286
	 

	 	 	 	Electronic Mail (E-mail):
	 

	 	 	 	ronald.e.mckaig@bankofamerica.com

     12. Assignment. This Note shall be binding upon the successors and assigns of Payor
and shall inure to the benefit of the Subordinated Creditor and its successors and assigns;
provided, however, that Payor shall not assign, delegate or otherwise transfer any of its rights or
obligations under this Note without the prior written consent of the Subordinated Creditor.

     13. No Credit Support. Payor and the Subordinated Creditor (by its acceptance hereof)
acknowledge and agree that this Note is not secured by any mortgage, Lien, pledge, charge,
financing statement, security interest, hypothecation, or other security instrument of any type.
Payor and the Subordinated Creditor (by its acceptance hereof) further acknowledge and agree that
this Note is not supported directly or indirectly by any Guarantee of any person or entity. Payor
and the Subordinated Creditor (by its acceptance hereof) further agree that Payor will not grant,
or cause any other Credit Party to grant any Lien securing this Note or provide any Guarantee for
the payment of this Note until the Senior Debt has been paid in full.

     14. Severability. Any provision of this Note which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof; and any such prohibition

11

 

or unenforceability in any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.

     15. Usury Savings Clause. (a) It is the intention of the parties hereto to comply
with applicable state and federal usury laws (now or hereafter enacted). Accordingly,
notwithstanding any provision to the contrary in this Note, in no event (including, but not limited
to, prepayment or acceleration of the maturity of any obligation) shall this Note require the
payment or permit the collection of interest in excess of the Highest Lawful Rate. If, under any
circumstance whatsoever, any provision of this Note shall provide for the payment or collection of
interest in excess of the Highest Lawful Rate, then, ipso facto, the obligation to
be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the
Subordinated Creditor shall ever receive anything of value as interest or deemed interest by
applicable law under this Note or otherwise an amount that would exceed the Highest Lawful Rate,
such amount that would be excessive interest shall be applied to the reduction of the principal
amount owing under this Note or on account of any other indebtedness of Payor to the Subordinated
Creditor, and not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal of this Note and such other indebtedness, such excess shall be refunded to
Payor. In determining whether or not the interest paid or payable with respect to any indebtedness
of Payor to the Subordinated Creditor, under any specified contingency, exceeds the Highest Lawful
Rate, Payor and the Subordinated Creditor shall, to the maximum extent permitted by applicable law,
(i) characterize any non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate and
spread the total amount of interest throughout the full term of such indebtedness so that interest
thereon does not exceed the maximum amount permitted by applicable law, and/or (iv) allocate
interest between portions of such indebtedness, to the end that no such portion shall bear interest
at a rate greater than that permitted by applicable law.

          (b) If at any time the interest rate hereunder (the “Stated Rate”) exceeds the Highest
Lawful Rate, then the rate at which interest shall accrue hereunder shall automatically be limited
to the Highest Lawful Rate, and shall remain at the Highest Lawful Rate until the total amount of
interest accrued hereunder equals the total amount of interest that would have accrued but for the
operation of this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until
the Stated Rate again exceeds the Highest Lawful Rate, in which case the immediately preceding
sentence shall apply.

     16. Jurisdiction, Etc. (a) THIS NOTE SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS
OF THE STATE OF TEXAS. Payor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the United States District Court for the Northern
District of Texas and of any Texas State court sitting in Tarrant or Dallas County, Texas, and any
appellate court from any thereof, for purposes of any action or proceeding arising out of or
relating to this Note, or for recognition or enforcement of any judgment, and Payor hereby
irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding
may be heard and determined in any such court. Payor agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Note shall affect any right that
the Subordinated Creditor may otherwise have to bring any action or proceeding relating to this
Note in the courts of any jurisdiction.

12

 

          (b) Payor irrevocably and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Note in any such court. Payor hereby
irrevocably waives, to the fullest extent permitted by applicable law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such court.

          (c) Payor agrees to not assert any claim against the Subordinated Creditor, any of its
affiliates or any of their respective directors, officers, attorneys, agents and advisers, for
special, indirect, consequential or punitive damages arising out of or otherwise relating to this
Note, any of the transactions contemplated herein or the actual or proposed use of the loan
evidenced by this Note.

     17. Relationship of the Parties. Notwithstanding any business or personal
relationship between Payor and the Subordinated Creditor, or any officer, director or employee of
the Subordinated Creditor, that may exist or have existed, the relationship between Payor and the
Subordinated Creditor under and with respect to this Note is solely that of debtor and creditor,
the Subordinated Creditor has no fiduciary or other special relationship with Payor by virtue of
this Note, Payor and the Subordinated Creditor are not partners or joint venturers, and no term or
condition of any of this Note shall be construed so as to deem the relationship between Payor and
the Subordinated Creditor to be other than that of debtor and creditor.

     18. Right of Set-off. Subject to the subordination provisions contained in
Section 7 hereof, the Subordinated Creditor is hereby authorized at any time and from time
to time, to the fullest extent permitted by applicable law, to set off and apply any and all
indebtedness, obligations or liabilities at any time owing by the Subordinated Creditor to or for
the credit or the account of Payor against any and all of the obligations of Payor now or hereafter
existing under this Note, whether or not the Subordinated Creditor shall have made any demand under
this Note and although such obligations may be unmatured. The rights of the Subordinated Creditor
under this Section 18 are in addition to other rights and remedies (including, without
limitation, other rights of set off) which the Subordinated Creditor may have.

     19. Costs and Expenses. Subject to the subordination provisions contained in
Section 7 hereof, Payor agrees to pay on demand all costs and expenses incurred by the
Subordinated Creditor in connection with the preparation, execution, delivery, administration,
modification and amendment of this Note, including, without limitation, the reasonable attorneys’
fees and expenses of the Subordinated Creditor with respect thereto and with respect to advising
the Subordinated Creditor as to its rights and responsibilities under this Note. Subject to the
subordination provisions contained in Section 7 hereof, Payor further agrees to pay on
demand all losses, costs and expenses, if any (including attorneys’ fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of
this Note, including, without limitation, attorneys’ fees and expenses in connection with the
enforcement of rights under this Section 19. In addition, Payor shall pay any and all
stamp and other taxes payable or determined to be payable in connection with the execution and
delivery of this Note, and agrees to save the Subordinated Creditor harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or omission to pay such
taxes.

13

 

     20. Representations and Warranties. Payor hereby represents and warrants to the
Subordinated Creditor that (a) Payor’s execution, delivery and performance of this Note have been
authorized by all necessary action; (b) it has the requisite power and authority to execute,
deliver and perform its obligations under this Note; (c) this Note has been duly executed and
delivered to the Subordinated Creditor by Payor; and (d) this Note is the legal, valid and binding
obligation of Payor, enforceable against Payor in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforceability of
creditors’ rights generally and by general principles of equity.

     21. WAIVER OF JURY TRIAL. PAYOR HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE.

     22. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF.

     23. ENTIRE AGREEMENT. THIS NOTE REPRESENTS THE FINAL, ENTIRE AGREEMENT BETWEEN THE
PARTIES REGARDING THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

     24. No Recourse. Notwithstanding anything to the contrary in this Note, in no event
shall the Subordinated Creditor have any recourse against the assets of the Subordinated Creditor
or any of its Restricted Subsidiaries (as such term is defined in the First Supplemental Indenture,
dated as of March 16, 2006, by and among the Subordinated Creditor, the subsidiary guarantors
parties thereto and The Bank of New York, as Trustee (as successor in interest to JPMorgan Chase
Bank, National Association), as such First Supplemental Indenture may be amended, modified,
restated, supplemented or replaced from time to time, or any comparable term in any other
documentation now or hereafter evidencing any Indebtedness of the Subordinated Creditor) for any of
the Subordinated Debt pursuant to this Note.

[Signature on Following Page]

14

 

     IN WITNESS WHEREOF, Payor has caused this instrument to be duly executed and delivered to the
Subordinated Creditor by a Responsible Officer of the general partner of Payor on behalf of Payor
as of July ___, 2007.

	 	 	 	 	 	 	 	 	 
	 	 	QUICKSILVER GAS SERVICES LP,	 	 
	 	 	a Delaware limited partnership
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Quicksilver Gas Services GP LLC,	 	 
	 	 	 	 	a Delaware limited liability company, its	 	 
	 	 	 	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 	 
	 

	 	 	 	 	 	     MarLu Hiller,	 	 
	 

	 	 	 	 	 	     Vice President — Treasurer	 	 

[Signature Page]

 

ENDORSEMENT

			
	PAY TO THE ORDER OF	 	
 

	 	 	 	 	 
	 	QUICKSILVER RESOURCES INC.

 	 
	Dated:                      ,       	By:  	 	 
	 	 	Name:  	Philip W. Cook 	 
	 	 	Title:  	Senior Vice President — Chief Financial
Officer 	 
	 

Endorsementexv10w37

 

Exhibit 10.37

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of June 1, 2007 (the
“Effective Date”), is hereby entered into in the State of Maryland by and between SUCAMPO
PHARMACEUTICALS, INC., a Delaware corporation (the “Company”), and SACHIKO KUNO, Ph.D.
(“Employee”).

     WHEREAS, Employee is one of the founders of the Company and has been employed by the Company
for some time, most recently as its President, Chairman of the Board of Directors and as a member
of the Board of Directors, pursuant to the terms of an Employment Agreement effective as of June
16, 2006 and amended by Letter Agreement dated October 30, 2006;

     WHEREAS, Employee has voluntarily resigned from her positions with the Company as President,
Chairman of its Board of Directors, and as a member of its Board of Directors effective May 31,
2007;

     WHEREAS, Employee possesses certain skills, experience or expertise which will be of continued
value to the Company;

     WHEREAS, the parties acknowledge that Employee’s abilities and services are unique and will
continue to significantly enhance the business prospects of the Company; and

     WHEREAS, in light of the foregoing, the Company desires to continue to employ Employee in a
part-time capacity as Advisor, International Business Development, Founding CEO and Co-Founder, and
Employee desires to accept such employment.

 

 

     NOW, THEREFORE, in consideration of the promises and the mutual covenants and agreements
herein contained, the Company and Employee hereby agree as follows:

Article 1. Employment Agreement

     1.1 Employment and Duties

          The Company offers and Employee hereby accepts part-time employment with the Company for the
Term (as hereinafter defined) as Advisor, International Business Development, Founding CEO and
Co-Founder, and in connection therewith, agrees to perform such duties as Employee shall reasonably
be assigned by President and CEO, Dr. Ryuji Ueno consistent with Employee’s working schedule of
eight (8) hours per week. Employee hereby warrants and represents that Employee has no contractual
commitments or other obligations to third parties inconsistent with Employee’s acceptance of this
employment and performance of the obligations set forth in this Agreement. Employee shall perform
such duties and carry out Employee’s responsibilities hereunder faithfully and to the best of
Employee’s ability. Employee will perform all of Employee’s responsibilities in compliance with
all applicable laws.

Article 2. Employment Term

     2.1 Term

     The term of Employee’s employment hereunder (the “Term”) shall be deemed to commence
on the Effective Date and shall end on the first anniversary of the Effective Date, unless sooner
terminated as hereinafter provided; provided, however, that the Term shall be
automatically renewed and extended for an additional period of one (1) year on each anniversary

2

 

thereafter unless either party gives a written notice of non-renewal to the other party at
least sixty (60) days prior to such anniversary.

     2.2 Survival on Merger or Acquisition

     In the event the Company is acquired during the Term, or is the non-surviving party in a
merger, or sells all or substantially all of its assets, this Agreement shall not automatically be
terminated, and the Company agrees to use its best efforts to ensure that the transferee or
surviving company shall assume and be bound by the provisions of this Agreement.

Article 3. Compensation and Benefits

     3.1 Compensation

     (a) Base Salary. The Company shall pay Employee a salary at an annual rate
that is not less than Seventy-six Thousand Dollars ($76,000.00), to be paid in bi-weekly
installments, in arrears (the “Base Salary”). Thereafter, the Base Salary will be
reviewed by the Compensation Committee of the Board of Directors (the “Compensation
Committee”) at least annually, and its recommendations shall be reviewed and approved by the
independent members of the Board. Base Salary may, in the sole discretion of the
independent Directors, be increased, but not decreased (unless mutually agreed by Employee
and the Company).

     (b) Bonuses. Employee shall be eligible to receive an annual bonus award in
recognition of Employee’s contributions to the success of the Company pursuant to the
Company’s management incentive bonus program as it may be amended or modified from time to
time. The bonus award shall be based on an annual incentive target of fifty

3

 

percent (50%) of Employee’s Base Salary and determined by the Compensation Committee’s
assessment of Employee’s achievement of annual objectives. The Compensation Committee’s
recommendation shall be reviewed and approved by the independent members of the Board. The
decision to make an award and the amount of any award shall be determined by the independent
Directors, in their sole discretion.

     (c) Withholding Taxes. All compensation due to Employee shall be paid subject
to withholding by the Company to ensure compliance with all applicable laws and regulations.

     3.2 Participation in Benefit Plans

     Based upon Employee’s part-time working schedule, Employee will not be eligible to participate
in employee benefit plans or programs of the Company, except as expressly provided in this
Agreement.

     3.3 Expenses

     The Company will pay or reimburse Employee for all reasonable and necessary out-of-pocket
expenses incurred by Employee in the performance of Employee’s duties under this Agreement.
Employee shall provide to the Company detailed and accurate records of such expenses for which
payment or reimbursement is sought, and Company payments shall be in accordance with the regular
policies and procedures maintained by the Company from time to time.

4

 

     3.4 Parking

     During the Term, the Company shall either provide parking for Employee’s automobile at the
Company’s expense or reimburse Employee for such expense.

Article 4. Termination of Employment

     4.1 Termination Upon Death or Disability

     This Agreement, and Employee’s employment hereunder, shall terminate automatically and without
the necessity of any action on the part of the Company upon the death of Employee. In addition, if
at any time during the Term, Employee shall become physically or mentally disabled (as determined
by an independent physician competent to assess the condition at issue), whether totally or
partially, so that Employee is unable substantially to perform Employee’s duties and services
hereunder, with or without reasonable accommodation, for either (i) a period of sixty (60)
consecutive calendar days, or (ii) ninety (90) consecutive or non-consecutive calendar days during
any consecutive five (5) month period (the “Disability Date”), the Company may terminate this
Agreement and Employee’s employment hereunder by written notice to Employee after the Disability
Date (but before Employee has recovered from such disability).

     4.2 Company’s and Employee’s Right to Terminate

     This Agreement and Employee’s employment hereunder may be terminated at any time and for any
reason by the Company or by Employee, upon thirty (30) days prior written notice to the other. In
the event the Company should give Employee notice of termination, the Company may, at its option,
elect to provide Employee with salary in lieu of Employee’s continued active employment during the
notice period.

5

 

Article 5. Employment Covenants

     5.1 Definitions

     As used in this Article 5 of the Agreement, the following terms shall have the meaning set
forth for each below:

     (a) “Affiliate” shall mean a person or entity that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or under common control
with another person or entity, including current and former directors and officers of such
an entity.

     (b) “Confidential Information” shall mean all confidential and proprietary
information of the Company, its Predecessors and Affiliates, whether in written, oral,
electronic or other form, including but not limited to trade secrets; technical, scientific
or business information; processes; works of authorship; Inventions; discoveries;
developments; systems; chemical compounds; computer programs; code; algorithms; formulae;
methods; ideas; test data; know how; functional and technical specifications; designs;
drawings; passwords; analyses; business plans; information regarding actual or demonstrably
anticipated business, research or development; marketing, sales and pricing strategies; and
information regarding the Company’s current and prospective consultants, customers,
licensors, licensees, investors and personnel, including their names, addresses, duties and
other personal characteristics. Confidential Information does not include information that
(i) is in the public domain, other than as a result of an act of misappropriation or breach
of an obligation of confidentiality by any person; (ii)

6

 

Employee can verify by written records kept in the ordinary course of business was in
Employee’s lawful possession prior to its disclosure to Employee; (iii) is received by
Employee from a third party without a breach of an obligation of confidentiality owed by the
third party to the Company and without the requirement that Employee keep such information
confidential; or (iv) Employee is required to disclose by applicable law, regulation or
order of a governmental agency or a court of competent jurisdiction. If Employee is
required to make disclosure pursuant to clause (iv) of the preceding sentence as a result of
the issuance of a court order or other government process, Employee shall (a) promptly, but
in no event more than 72 hours after learning of such court order or other government
process, notify, pursuant to Section 6.1 below, the Company; (b) at the Company’s expense,
take all reasonable necessary steps requested by the Company to defend against the
enforcement of such court order or other government process, and permit the Company to
intervene and participate with counsel of its choice in any proceeding relating to the
enforcement thereof; and (c) if such compelled disclosure is required, Employee shall
disclose only that portion of the Confidential Information that is necessary to meet the
minimum legal requirement imposed on Employee.

     (c) “Employee Work Product” shall mean all Confidential Information and
Inventions conceived of, created, developed or prepared by Employee (whether individually or
jointly with others) before or during Employee’s entire course of employment with the
Company, during or outside of working hours, which relate in any manner to the actual or
demonstrably anticipated business, research or development of the Company, or result from or
are suggested by any task assigned to Employee or any work performed by Employee for or on
behalf of the Company or any of its Affiliates.

7

 

     (d) “Invention” shall mean any apparatus, biological processes, cell line,
chemical compound, creation, data, development, design, discovery, formula, idea,
improvement, innovation, know-how, laboratory notebook, manuscript, process or technique,
whether or not patentable or protectable by copyright, or other intellectual property in any
form.

     (e) “Predecessor” shall mean an entity, the major portion of the business and
assets of which was acquired by another entity in a single transaction or in a series of
related transactions.

     (f) “Trade Secrets,” as used in this Agreement, will be given its broadest
possible interpretation under the law applicable to this Agreement.

     5.2 Nondisclosure and Nonuse 

     Employee acknowledges that prior to and during Employee’s entire course of employment with the
Company, Employee has had and will have occasion to create, produce, obtain, gain access to or
otherwise acquire, whether individually or jointly with others, Confidential Information.
Accordingly, during the term of Employee’s employment with the Company and at all times thereafter,
Employee shall keep secret and shall not, except for the Company’s benefit, disclose or otherwise
make available to any person or entity or use, reproduce or commercialize, any Confidential
Information, unless specifically authorized in advance by the Company in writing.

8

 

     5.3 Other Confidentiality Obligations 

     Employee acknowledges that the Company may, from time to time, have agreements with other
persons or entities or with the U.S. Government or governments of other countries, or agencies
thereof, which impose confidentiality obligations or other restrictions on the Company. Employee
hereby agrees to be bound by all such obligations and restrictions and shall take all actions
necessary to discharge the obligations of the Company thereunder, including, without limitation,
signing any confidentiality or other agreements required by such third parties.

     5.4 Return of Confidential Information 

     At any time during Employee’s employment with the Company, upon the Company’s request, and in
the event of Employee’s termination of employment with the Company for any reason whatsoever,
Employee shall immediately surrender and deliver to the Company all records, materials, notes,
equipment, drawings, documents and data of any nature or medium, and all copies thereof, relating
to any Confidential Information (collectively the “the Company Materials”) which is in Employee’s
possession or under Employee’s control. Employee shall not remove any of the Company Materials
from the Company’s business premises or deliver any of the Company Materials to any person or
entity outside of the Company, except as required in connection with Employee’s duties of
employment. In the event of the termination of Employee’s employment for any reason whatsoever,
Employee shall promptly sign and deliver to the Company a Termination Certificate in the form of
Exhibit B attached hereto.

     5.5 Confidential Information of Others 

     Employee represents that Employee’s performance of all the terms of this Agreement and
Employee’s employment with the Company do not and will not breach any agreement to keep in

9

 

confidence proprietary information, knowledge or data with regard to which Employee has
obligations of confidentiality or nonuse, and Employee shall not disclose to the Company or cause
the Company to use any such confidential proprietary information, knowledge or data belonging to
any previous employer of Employee or other person, except as such disclosure or use may be
authorized in writing by the previous employer or other person. Employee represents that Employee
has not brought and will not bring to the Company or use at the Company any confidential materials
or documents of any former employer or other person that are not generally available to the public,
unless express written authorization for their possession and use has been obtained from such
former employer or other person. Employee agrees not to enter into any agreement, whether written
or oral, that conflicts with these obligations.

     5.6 Other Obligations 

     The terms of this Section 5 are in addition to, and not in lieu of, any statutory or other
contractual or legal obligation to the Company to which Employee may be subject relating to the
protection of Confidential Information.

     5.7 Assignment of Confidential Information and Inventions; Works Made for Hire

     Employee hereby assigns to the Company all right, title and interest in all intellectual
property, including any patent applications, trade secrets, know how, copyrights, software, or
trademarks associated with the Employee Work Product and Confidential Information. Employee hereby
acknowledges and agrees that all Employee Work Product subject to copyright protection constitutes
“work made for hire” under United States copyright laws (17 U.S.C. § 101) and is owned exclusively
by the Company. To the extent that title to any Employee Work Product subject to copyright
protection does not constitute a “work for hire,”

10

 

and to the extent title to any other Employee Work Product does not, by operation of law or
otherwise, vest in the Company, all right, title, and interest therein, including, without
limitation, all copyrights, patents and trade secrets, and all copyrightable or patentable subject
matter, are hereby irrevocably assigned to the Company. Employee shall promptly disclose to the
Company in writing all Employee Work Product. Employee shall, without any additional compensation,
execute and deliver all documents or instruments and give the Company all assistance it requires to
transfer all right, title, and interest in any Employee Work Product to the Company; to vest in the
Company good, valid and marketable title to such Employee Work Product; to perfect, by registration
or otherwise, trademark, copyright and patent protection of the Company with respect to such
Employee Work Product; and otherwise to protect the Company’s trade secret and proprietary interest
in such Employee Work Product. Employee hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as Employee’s agents and attorneys-in-fact to act for and
on Employee’s behalf, and to execute and file any documents and to do all other lawfully permitted
acts to further the purposes of this Section 5.7 with the same legal force and effect as if
executed by Employee.

     5.8 Representations 

     Employee represents that, to the best of her knowledge, none of the Inventions will violate or
infringe upon any right, patent, copyright, trademark or right of privacy, or constitute libel or
slander against or violate any other rights of any person, firm or corporation, and that Employee
will not knowingly create any Invention which causes any such violation.

11

 

     5.9 Inventions, Intellectual Property and Equipment Not Transferred 

     Employee has set forth on Exhibit C attached hereto a complete list and brief description of
all Inventions, intellectual property and equipment located at the Company which is owned directly
or indirectly by Employee and which shall not be transferred to the Company pursuant to this
Agreement. Except as so listed, Employee agrees that she will not assert any rights under any
intellectual property as having been made or acquired by Employee prior to being employed by the
Company. The Company may, at its discretion, require detailed disclosures and materials
demonstrating ownership of the intellectual property so listed.

     5.10 Effect of Patent Access Agreement

     Pursuant to the Patent Access Agreement among Sucampo AG (“SAG”), Sucampo Pharmaceuticals,
Inc. (“SPI”), Sucampo Pharma, Ltd. (“SPL”), and Sucampo Pharma Europe, Ltd. (“SPE”), SAG has
licensed certain of its patented technology and know-how to SPI, SPL, and SPE on an exclusive basis
in their respective Territories (as that term is defined in the Patent Access Agreement). The
Patent Access Agreement contains provisions pursuant to which patented technology or know-how owned
by SAG is either (i) not licensed to SPI, SPL, or SPE, or (ii) if licensed by SAG to SPI, SPL, or
SPE, will be transferred back or revert to SAG under certain circumstances. In the event that the
provisions of this Agreement and the Patent Access Agreement conflict with respect to the transfer
of or right to use any patented technology or know-how covered by the Patent Access Agreement, the
parties agree that the provisions of the Patent Access Agreement shall control.

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     5.11 Conflicting Employment

     During the Term, and without prior approval of the Board of Directors, Employee shall not
directly or indirectly engage in any activity competitive with or adverse to the Company’s business
or welfare.

     5.12 Covenant Not to Compete

     Employee agrees to be bound and abide by the following covenant not to compete:

     (a) Term and Scope. During Employee’s employment with the Company and for a
period of twelve (12) months after Employee’s separation from employment for any reason
whatsoever, Employee will not render to any Conflicting Organization (as hereinafter
defined), services, directly or indirectly, anywhere in the world in connection with any
Conflicting Product (as hereunder defined), except that Employee may accept employment with
a Conflicting Organization whose business is diversified (and which has separate and
distinct divisions) if Employee first certifies to the Company in writing that such
prospective employer is a separate and distinct division of the Conflicting Organization and
that Employee will not render services directly or indirectly in respect of any Conflicting
Product. Such twelve (12) month time period shall be tolled during any period that Employee
is engaged in activity in violation of this covenant.

     (b) Judicial Construction. Employee and the Company agree that, if the period
of time or the scope of this Covenant Not to Compete shall be adjudged unreasonably
overbroad in any court proceeding, then the period of time and/or scope shall be modified
accordingly, so that this covenant may be enforced with respect to such

13

 

services or geographic areas and during such period of time as is judged by the court
to be reasonable.

     (c) Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:

     “Conflicting Product” means any product, method or process, system or
service of any person or organization other than the Company that is the same as,
similar to or interchangeable with any product, method or process, system or service
involving prostones, prostone compounds or derivates, or any prostone-related
technology.

     “Conflicting Organization” means any person or organization which is
engaged in research on or development, production, marketing, licensing, selling,
servicing or other commercialization of any Conflicting Product.

     5.13 Non-Solicitation

     For twelve (12) months after termination of employment with the Company for any reason,
Employee shall not directly or indirectly solicit or hire, or assist any other person in soliciting
or hiring, any person employed by the Company (as of the date of Employee’s termination) or any
person who, as of the date of Employee’s termination, was in the process of being recruited by the
Company, or induce any such employee to terminate his or her employment with the Company.

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     5.14 Judicial Enforcement

     In the event of a breach or violation of any provision of this Article 5 by Employee, the
parties agree that, in addition to any other remedies it may have, the Company shall be entitled to
equitable relief for specific performance, and Employee hereby agrees and acknowledges that the
Company has no adequate remedy at law for the breach of the employment covenants contained herein.

Article 6. Miscellaneous

     6.1 Notices

     All notices or other communications which are required or permitted hereunder shall be deemed
to be sufficient if contained in a written instrument given by personal delivery, air courier or
registered or certified mail, postage prepaid, return receipt requested, addressed to such party at
the address set forth below or such other address as may thereafter be designated in a written
notice from such party to the other party:

	 	To Company: 	 Sucampo Pharmaceuticals, Inc.

4733 Bethesda Avenue, Suite 450

Bethesda, Maryland 20814

Attention: Chairperson, Board of Directors
	 
	 	To Employee: 	 Sachiko Kuno, Ph.D.

24687 Yacht Club Road

St. Michael, Maryland 21663

All such notices, advances and communications shall be deemed to have been delivered and received
(i) in the case of personal delivery, on the date of such delivery, (ii) in the case of air
courier, on the business day after the date when sent and (iii) in the case of mailing, on the
third business day following such mailing.

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     6.2 Headings

     The headings of the articles and sections of this Agreement are inserted for convenience only
and shall not be deemed a part of or affect the construction or interpretation of any provision
hereof.

     6.3 Modifications; Waiver

     No modification of any provision of this Agreement or waiver of any right or remedy herein
provided shall be effective for any purpose unless specifically set forth in a writing signed by
the party to be bound thereby. No waiver of any right or remedy in respect of any occurrence or
event on one occasion shall be deemed a waiver of such right or remedy in respect of such
occurrence or event on any other occasion.

     6.4 Entire Agreement

     This Agreement, together with the Exhibits hereto, contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other agreements, oral or
written, heretofore made with respect thereto including, without limitation, that certain agreement
between Employee and the Company dated and effective as of June 16, 2006, as amended by letter
agreement dated October 30, 2006.

     6.5 Severability

     Any provision of this Agreement that may be prohibited by, or unlawful or unenforceable under,
any applicable law of any jurisdiction shall, as to such jurisdiction, be ineffective without
affecting any other provision hereof. To the full extent, however, that the provisions of such

16

 

applicable law may be waived, they are hereby waived, to the end that this Agreement be deemed
to be a valid and binding agreement enforceable in accordance with its terms.

     6.6 Controlling Law

     This Agreement has been entered into by the parties in the State of Maryland and shall be
continued and enforced in accordance with the laws of Maryland.

     6.7 Arbitration

     Any controversy, claim, or breach arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in the State of Maryland in accordance with the rules of
the American Arbitration Association for commercial disputes and the judgment upon the award
rendered shall be entered by consent in any court having jurisdiction thereof; provided,
however, that this provision shall not preclude the Company from seeking injunctive or
similar relief from the courts to enforce its rights under the Employment Covenants set forth in
Article 5 of this Agreement. It is understood and agreed that, in the event the Company gives
notice to Employee of termination for Cause and it should be finally determined in a subsequent
arbitration that Employee’s termination was not for Cause as defined in this Agreement, then the
remedy awarded to Employee shall be limited to such compensation and benefits as Employee would
have received in the event of Employee’s termination other than for Cause at the same time as the
original termination.

     6.8 Assignments

     Subject to obtaining Employee’s prior approval, which shall not be unreasonably withheld or
delayed, the Company shall have the right to assign this Agreement and to delegate

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all rights, duties and obligations hereunder to any entity that controls the Company, that the
Company controls or that may be the result of the merger, consolidation, acquisition or
reorganization of the Company and another entity. Employee agrees that this Agreement is personal
to Employee and Employee’s rights and interest hereunder may not be assigned, nor may Employee’s
obligations and duties hereunder be delegated (except as to delegation in the normal course of
operation of the Company), and any attempted assignment or delegation in violation of this
provision shall be void.

     6.9 Read and Understood

     Employee has read this Agreement carefully and understands each of its terms and conditions.
Employee has sought independent legal counsel of Employee’s choice to the extent Employee deemed
such advice necessary in connection with the review and execution of this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

	 	 	 	 	 
	 	 	SUCAMPO PHARMACEUTICALS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ryuji Ueno
	 

	 	 	 	 
	 

	 	 	 	[NAME]
	 

	 	Its:
	 	Chairperson, Board of Directors
	 
	 	 	 	 
	 	 	/s/ Sachiko Kuno
	 	 	 
	 	 	SACHIKO KUNO, Ph.D.

18

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