Exhibit 10.2

 

EXECUTION COPY

 

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SECURITY AGREEMENT

 

Dated as of February 25, 2005

 

among

 

SABINE PASS LNG, L.P.,

as Borrower,

 

SOCIÉTÉ GÉNÉRALE,

as Agent

 

and

 

HSBC BANK USA, NATIONAL ASSOCIATION,

as Collateral Agent

 

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TABLE OF CONTENTS

 

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ARTICLE I DEFINITIONS AND INTERPRETATION    1 1.01    Certain Defined Terms    1
        1.02    Interpretation    3 ARTICLE II THE COLLATERAL    3 2.01    Grant
   3 2.02    Perfection    5 2.03    Preservation and Protection of Security
Interests    5 2.04    Attorney-in-Fact    6 2.05    Instruments    6 2.06   
Use of Collateral    6 2.07    Rights and Obligations    6 2.08    Continuing
Security Interest; Termination    7 2.09    Partial Release    7 2.10   
Intellectual Property    8 ARTICLE III COLLATERAL ACCOUNTS    8 ARTICLE IV
REPRESENTATIONS AND WARRANTIES    9 4.01    Title    9 4.02    No Other
Financing Statements    9 4.03    Perfection Representations    9 4.04    Other
Perfection Matters    9 4.05    Fair Labor Standards Act    10 ARTICLE V
COVENANTS    10 5.01    Books and Records    10 5.02    Legal Status    10 5.03
   Sales and Other Liens    10 5.04    Further Assurances    11 ARTICLE VI
REMEDIES    11 6.01    Events of Default, Etc.    11 6.02    Deficiency    12
6.03    Private Sale    12 6.04    Application of Proceeds    13 ARTICLE VII
COLLATERAL AGENT MAY PERFORM    13 ARTICLE VIII REINSTATEMENT    13 ARTICLE IX
EXCULPATORY PROVISIONS    13 9.01    Exculpation of Collateral Agent    13

 

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ARTICLE X MISCELLANEOUS    14         10.01    No Waiver; Remedies Cumulative   
14 10.02    Notices    14 10.03    Expenses    14 10.04    Amendments, Etc.   
15 10.05    Successors and Assigns    15 10.06    Actions Taken by Collateral
Agent    15 10.07    Survival    15 10.08    Agreements Superseded    15 10.09
   Severability    15 10.10    Captions    16 10.11    Counterparts    16 10.12
   Governing Law; Submission to Jurisdiction    16 10.13    Certain Matters
Relating to Collateral Located in the State of Louisiana    16 10.14    Waiver
of Jury Trial    17

 

Annex A   —    Project Documents Schedule 4.04   —    UCC Filing Offices

 

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SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of February 25, 2005 (this “Agreement”), is
made among SABINE PASS LNG, L.P., a Delaware limited partnership (the
“Borrower”), SOCIÉTÉ GÉNÉRALE as administrative agent (the “Agent”) and HSBC
BANK USA, NATIONAL ASSOCIATION as collateral agent (the “Collateral Agent”) on
behalf of and for the benefit of the Secured Parties.

 

RECITALS

 

A. Pursuant to the Credit Agreement, dated as of February 25, 2005 (the “Credit
Agreement”), among the Borrower, each of the lenders that is or may from time to
time become a party thereto (collectively, the “Lenders”), SOCIÉTÉ GÉNÉRALE, in
its capacities as a Lender and as Agent for the Lenders (in such capacity, the
“Agent”), and HSBC BANK USA, NATIONAL ASSOCIATION, as Collateral Agent, the
Lenders have agreed to make certain Loans to the Borrower, on the terms and
subject to the conditions of the Credit Agreement. In addition, the Borrower
may, from time to time, be obligated to various of said Lenders (or their
Affiliates) in respect of Permitted Swap Agreements (as defined in the Credit
Agreement).

 

B. It is a requirement under the Credit Agreement and a condition precedent to
the making of the Loans that the Borrower shall have executed and delivered this
Agreement.

 

C. To induce the Lenders to enter into, and extend credit under, the Credit
Agreement and the Permitted Swap Agreements, the Borrower has agreed to pledge
and grant a security interest in the Collateral to the Collateral Agent as
collateral security for the Secured Obligations.

 

NOW THEREFORE, in consideration of the promises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

1.01 Certain Defined Terms.

 

(a) Unless otherwise defined herein, all capitalized terms used in this
Agreement that are defined in the Credit Agreement (including those terms
incorporated by reference) shall have the respective meanings assigned to them
in the Credit Agreement.

 

(b) The terms “Accounts”, “Chattel Paper”, “Commercial Tort Claims”, “Deposit
Account”, “Document”, “Electronic Chattel Paper”, “Equipment”, “Fixtures”,
“General Intangibles”, “Goods”, “Instrument”, “Inventory”, “Investment
Property”, “Letter of Credit”, “Letter-of-Credit Rights”, “Payment Intangible”,
“Proceeds”, “Record” and “Software” shall have the respective meanings ascribed
thereto in Article 9 of the Uniform Commercial Code. In

 

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addition to the terms defined in the preamble, recitals and the first sentence
of this Section 1.01(b), the following terms shall have the following respective
meanings:

 

“Assigned Agreement” shall have the meaning assigned to that term in Section
2.01.

 

“Collateral” shall have the meaning assigned to that term in Section 2.01.

 

“Copyrights” shall mean, collectively, (a) all copyrights, copyright
registrations and applications for copyright registrations, (b) all renewals and
extensions of all copyrights, copyright registrations and applications for
copyright registration and (c) all rights, now existing or hereafter coming into
existence: (i) to all income, royalties, damages and other payments (including
in respect of all past, present or future infringements) now or hereafter due or
payable under or with respect to any of the foregoing, (ii) to sue for all past,
present and future infringements with respect to any of the foregoing and (iii)
otherwise accruing under or pertaining to any of the foregoing throughout the
world.

 

“Intellectual Property” shall mean all Copyrights, all Patents and all
Trademarks, together with (a) all inventions, processes, production methods,
proprietary information, know-how and trade secrets, (b) all licenses or user or
other agreements granted to the Borrower with respect to any of the foregoing,
in each case whether now or hereafter owned or used, (c) all information,
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, engineering
reports, test reports, manuals, materials standards, processing standards,
performance standards, catalogs, computer and automatic machinery software and
programs, (d) all field repair data, sales data and other information relating
to sales or service of products now or hereafter manufactured, (e) all
accounting information and all media in which or on which any information or
knowledge or data or records may be recorded or stored and all computer programs
used for the compilation or printout of such information, knowledge, records or
data, (f) all licenses, consents, permits, variances, certifications and
approvals of governmental agencies now or hereafter held by the Borrower, in
each case, to the extent assignable and (g) all causes of action, claims and
warranties now owned or hereafter acquired by the Borrower in respect of any of
the foregoing.

 

“Motor Vehicles” means motor vehicles, tractors, trailers and other like
property, whether or not the title thereto is governed by a certificate of title
or ownership.

 

“Patents” shall mean, collectively, (a) all patents and patent applications, (b)
all reissues, divisions, continuations, renewals, extensions and
continuations-in-part of all patents or patent applications and (c) all rights,
now existing or hereafter coming into existence: (i) to all income, royalties,
damages, and other payments (including in respect of all past, present and
future infringements) now or hereafter due or payable under or with respect to
any of the foregoing, (ii) to sue for all past, present and future infringements
with respect to any of the foregoing and (iii) otherwise accruing under or
pertaining to any of the foregoing throughout the world, including all
inventions and improvements described or discussed in all such patents and
patent applications.

 

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“Trademarks” shall mean, collectively, (a) all trade names, trademarks and
service marks, logos, trademark and service mark registrations and applications
for trademark and service mark registrations, (b) all renewals and extensions of
any of the foregoing and (c) all rights, now existing or hereafter coming into
existence: (i) to all income, royalties, damages and other payments (including
in respect of all past, present and future infringements) now or hereafter due
or payable under or with respect to any of the foregoing, (ii) to sue for all
past, present and future infringements with respect to any of the foregoing and
(iii) otherwise accruing under or pertaining to any of the foregoing throughout
the world, together, in each case, with the product lines and goodwill of the
business connected with the use of, or otherwise symbolized by, each such trade
name, trademark and service mark. Notwithstanding the foregoing, “Trademark”
does not and shall not include any Trademark that would be rendered invalid,
abandoned, void or unenforceable by reason of its being included as a Trademark
for the purposes of this Agreement.

 

“Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code as in
effect in the State of New York from time to time; provided, that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of any security interests hereunder in any Collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than New
York, “UCC” shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for the purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.

 

1.02 Interpretation. The principles of construction and interpretation set forth
in Sections 1.02 and 1.03 of the Credit Agreement shall apply to, and are hereby
incorporated by reference in, this Agreement.

 

ARTICLE II

 

THE COLLATERAL

 

2.01 Grant. As collateral security for the prompt payment in full when due
(whether at stated maturity, upon acceleration, on any optional or mandatory
prepayment date or otherwise) and performance of the Secured Obligations, the
Borrower hereby pledges and grants to the Collateral Agent, for the benefit of
the Secured Parties, a security interest in all of its right, title and interest
in and to the following property, assets and revenues, whether now owned or in
the future acquired by it and whether now existing or in the future coming into
existence and wherever located (collectively, the “Collateral”):

 

(a) the Collateral Accounts and all amendments, extensions, renewals, and
replacements thereof whether under the same or different account number,
together with all funds, cash, monies, credit balances, financial assets,
investments, Instruments, certificates of deposit, promissory notes, and any
other property (including any Permitted Investments) at any time on deposit
therein or credited to any of the foregoing, all rights to payment or withdrawal
therefrom, and all proceeds, accounts receivable arising in the ordinary course,
products, accessions, profits, gains, and interest thereon of or in respect of
any of the foregoing;

 

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(b) the agreements, contracts and documents listed in Annex A (including all
exhibits and schedules thereto) and each additional Project Document to which
the Borrower is or may from time to time be a party or of which it is or may
from time to time be a beneficiary, whether executed by the Borrower or by an
agent on behalf of the Borrower, as each such agreement, contract and document
may be amended, supplemented or modified and in effect from time to time (such
agreements, contracts and documents, being individually, an “Assigned
Agreement”, and collectively, the “Assigned Agreements”) including all rights of
the Borrower (i) to receive moneys thereunder, whether or not earned by
performance or for property that has been or is to be sold, leased, licensed,
assigned or otherwise disposed of pursuant thereto, (ii) to receive proceeds of
any performance or payment bond, liability or business interruption insurance,
indemnity, warranty, guaranty or letters of credit with respect thereto, (iii)
to all claims of the Borrower for damages arising out of, for breach of or
default thereunder by any party other than the Borrower and (iv) to take any
action to terminate, amend, supplement, modify or waive performance thereof, to
perform thereunder and to compel performance and otherwise exercise all remedies
thereunder;

 

(c) all Accounts, Deposit Accounts, Instruments, Documents, Chattel Paper
(including Electronic Chattel Paper), Letters of Credit and Letter-of-Credit
Rights, Inventory, Equipment, Fixtures (including, without limitation, those
located on or forming part of the Site), Investment Property, Payment
Intangibles, Software and, to the extent not already covered by the other
enumerated categories of Collateral described in this clause (c), all Goods and
General Intangibles; including, without limitation, all LNG and Gas owned by the
Borrower and the Project to be constructed on or near the Site pursuant to the
plans and specifications set forth in the EPC Contract, all other machinery,
apparatus, installation facilities, including all goods of the Borrower that are
spare parts and related supplies, and all goods obtained by the Borrower in
exchange for any such goods, all substances, if any, commingled with or added to
such goods, all upgrades and other improvements to such goods and all other
tangible personal property owned by the Borrower or in which the Borrower has
rights, and all fixtures and all parts thereof and accessions thereto;

 

(d) all Investment Property and “Financial Assets” and “Securities Account”
(each as defined in the UCC);

 

(e) all Commercial Tort Claims;

 

(f) all Government Approvals now or hereafter held in the name, or for the
benefit, of the Borrower or of the Project; provided, that any Government
Approval that by its terms (other than to the extent any such term would be
rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the
UCC) or by operation of law would be breached or become void, voidable,
terminable or revocable if mortgaged, pledged or assigned hereunder or if a
security interest therein was granted hereunder, are, in each case, expressly
excepted from the Collateral to the extent necessary so as to avoid such
voidness, avoidability, terminability or revocability;

 

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(g) all Records of the Borrower directly related to, or necessary for the use
of, the foregoing Collateral included in clauses (a) - (e);

 

(h) all Intellectual Property; and

 

(i) all other tangible and intangible personal Property whatsoever of the
Borrower and all cash, products, offspring, rents, revenues, issues, profits,
royalties, income, benefits, accessions, Equity Contribution Amounts, additions,
substitutions and replacements of and to any and all of the foregoing, including
all Proceeds of and to any of the Property the Borrower described in the
preceding paragraphs of this Section 2.01 (including, without limitation, any
Loss Proceeds or other Proceeds of insurance thereon (whether or not the
Collateral Agent is loss payee thereof), and any indemnity, warranty or
guarantee, payable by any reason of loss or damage to or otherwise with respect
to any of the foregoing, and all causes of action, claims and warranties now or
hereafter held by the Borrower in respect of any of the items listed above).

 

2.02 Perfection. Concurrently with the execution and delivery of this Agreement,
the Borrower shall (a) file such financing statements and other documents in
such offices as shall be necessary or as the Collateral Agent may reasonably
request to perfect and establish the priority of the Liens granted by this
Agreement, (b) subject to Section 2.05, deliver and pledge to the Collateral
Agent any and all Instruments comprising any part of the Collateral, endorsed or
accompanied by such instruments of assignment and transfer in such form and
substance as the Collateral Agent may request and (c) take all such other
actions as shall be necessary or as the Collateral Agent may reasonably request
to perfect and establish the priority of the Liens granted by this Agreement.

 

2.03 Preservation and Protection of Security Interests. The Borrower shall:

 

(a) subject to Section 2.05, upon the acquisition after the date hereof by the
Borrower of any Instruments comprising any part of the Collateral, promptly
deliver and pledge to the Collateral Agent all such Instruments, endorsed or
accompanied by such instruments of assignment and transfer in such form and
substance as the Collateral Agent may reasonably request;

 

(b) give, execute, deliver, file or record any and all financing statements,
notices, contracts, agreements or other instruments, obtain any and all
Government Approvals and take any and all steps that may be necessary or as the
Collateral Agent may reasonably request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of, the Liens
granted by this Agreement or to enable the Collateral Agent to exercise and
enforce its rights, remedies, powers and privileges under this Agreement with
respect to such Liens;

 

(c) maintain, hold and preserve full and accurate Records concerning the
Collateral, and stamp or otherwise mark such Records in such manner as may
reasonably be required in order to reflect the Liens granted by this Agreement;
and

 

(d) at any time upon request of the Collateral Agent, cause the Collateral Agent
to be listed as the lienholder on any certificate of title or ownership covering
any Motor Vehicle (other than Motor Vehicles constituting Inventory) and within
120 days of such request deliver evidence of the same to the Agent.

 

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2.04 Attorney-in-Fact. Subject to the rights of the Borrower under Sections 2.05
and 2.06, the Borrower hereby appoints the Collateral Agent as its
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and, following the occurrence and during the continuation of an Event
of Default, taking any action and executing any instruments which the Collateral
Agent may deem necessary or reasonably advisable to accomplish the purposes of
this Agreement, to preserve the validity, perfection and priority of the Liens
granted by this Agreement and to exercise its rights, remedies, powers and
privileges under Article VI of this Agreement. This appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, the Collateral Agent shall be entitled under
this Agreement, following the occurrence and during the continuation of an Event
of Default (a) to ask, demand, collect, sue for, recover, receive and give
receipt and discharge for amounts due and to become due under and in respect of
all or any part of the Collateral, (b) to receive, endorse and collect any
Instruments or other drafts, documents and Chattel Paper in connection with
clause (a) above (including any draft or check representing the proceeds of
insurance or the return of unearned premiums), (c) to file any claims or take
any action or proceeding that the Collateral Agent may deem necessary or
reasonably advisable for the collection of all or any part of the Collateral,
including the collection of any compensation due and to become due under any
contract or agreement with respect to all or any part of the Collateral and (d)
to execute, in connection with any sale or disposition of the Collateral under
Article VI, any endorsements, assignments, bills of sale or other instruments of
conveyance or transfer with respect to all or any part of the Collateral.

 

2.05 Instruments. So long as no Event of Default shall have occurred and be
continuing, the Borrower may retain for collection in the ordinary course of
business any Instruments comprising any part of the Collateral obtained by it in
the ordinary course of business, and the Collateral Agent shall, promptly upon
the request, and at the expense, of the Borrower make appropriate arrangements
for making any Instruments pledged by the Borrower available to the Borrower for
purposes of presentation, collection or renewal. Any such arrangement shall be
effected, to the extent deemed appropriate by the Collateral Agent, against
trust receipt or like document. Proceeds of Instruments shall be applied by the
Borrower in accordance with the terms and provisions of the Collateral Agency
Agreement.

 

2.06 Use of Collateral. So long as no Event of Default shall have occurred and
be continuing, the Borrower shall, in addition to its rights under Section 2.05
in respect of the Collateral, be entitled, subject to the rights, remedies,
powers and privileges of the Collateral Agent under Articles III and VI, to use
and possess the Collateral and to exercise its rights, title and interests
therein in any lawful manner not prohibited by this Security Agreement, the
Credit Agreement, or the other Financing Documents.

 

2.07 Rights and Obligations.

 

(a) The Borrower shall remain liable to perform its duties and obligations under
the contracts and agreements included in the Collateral in accordance with their
respective terms to the same extent as if this Agreement had not been executed
and delivered. The exercise

 

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by the Collateral Agent or any Lender of any right, remedy, power or privilege
in respect of this Agreement shall not release the Borrower from any of its
duties and obligations under such contracts and agreements. Neither the
Collateral Agent nor any Lender shall have a duty, obligation or liability under
such contracts and agreements or in respect to any Government Approval included
in the Collateral by reason of this Agreement or any other Financing Document,
nor shall the Collateral Agent or any Lender be obligated to perform any of the
duties or obligations of the Borrower under any such contract or agreement or
any such Government Approval or to take any action to collect or enforce any
claim (for payment) under any such contract or agreement or Government Approval.

 

(b) No Lien granted by this Agreement in the Borrower’s right, title and
interest in any contract, agreement or Government Approval shall be deemed to be
a consent by the Collateral Agent or any Lender to any such contract, agreement
or Government Approval.

 

(c) No reference in this Agreement to proceeds or to the sale or other
disposition of Collateral shall authorize the Borrower to sell or otherwise
dispose of any Collateral except to the extent otherwise expressly permitted by
the terms of any Financing Document.

 

(d) Neither the Collateral Agent nor any Lender shall be required to take steps
necessary to preserve any rights against prior parties to any part of the
Collateral.

 

2.08 Continuing Security Interest; Termination. This Agreement shall create a
continuing assignment of and security interest in the Collateral and shall (a)
remain in full force and effect until the Termination Date, (b) be binding upon
the Borrower, its successors and assigns and (c) inure, together with the rights
and remedies of the Collateral Agent hereunder, to the benefit of the Collateral
Agent and the other Secured Parties and their respective successors, transferees
and assigns. Upon the occurrence of the Termination Date, this Agreement and
each provision hereof (including any provision providing for the appointment of
the Collateral Agent as attorney-in-fact for the Borrower) shall terminate, and
upon receipt of written notice from the Agent that the Termination Date has
occurred, the Collateral Agent shall forthwith cause to be assigned, transferred
and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect of the Collateral, to or on the order of the Borrower. The Collateral
Agent shall also execute and deliver to the Borrower, at the Borrower’s expense,
upon receipt of written notice from the Agent of such Termination Date, such
Uniform Commercial Code termination statements and such other documentation as
shall be reasonably requested by the Borrower to effect the termination and
release of the Liens granted by this Agreement.

 

2.09 Partial Release. Any distributions, payments or other releases from the
Collateral Accounts (whether in the form of cash, Instruments or otherwise)
properly made to or on behalf of the Borrower in accordance with the terms and
conditions of the Collateral Agency Agreement and the other Financing Documents,
including Restricted Payments, and any property comprising part of the
Collateral sold or otherwise disposed of as permitted by, and in accordance
with, Section 8.11(a) of the Credit Agreement shall, in each case, be released
from the Liens granted hereunder and shall no longer be part of the Collateral.
With respect to any property disposed of in accordance with Section 8.11(a) of
the Credit Agreement, upon written

 

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confirmation from the Agent, which confirmation shall not be unreasonably
withheld or delayed, the Collateral Agent shall execute such documents as the
Borrower may reasonably request evidencing the release of the Lien created by
any of the Financing Documents upon such property.

 

2.10 Intellectual Property. For the purpose of enabling the Collateral Agent to
exercise its rights, remedies, powers and privileges under Article VI at that
time or times as the Collateral Agent is lawfully entitled to exercise those
rights, remedies, powers and privileges, and for no other purpose, the Borrower
hereby grants to the Collateral Agent, to the extent assignable, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to the Borrower) to use, assign, license or sublicense any
Intellectual Property of the Borrower which is directly related to, or necessary
and incidental to the use of, any of the Collateral, together with reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout of those
items.

 

ARTICLE III

 

COLLATERAL ACCOUNTS

 

The Borrower agrees and confirms that (a) pursuant to the Collateral Agency
Agreement, it has caused to be established at the Collateral Agent each of the
Construction Account, Construction Payment Subaccount, Punchlist Retention
Subaccount, the Operating Account, the Debt Service Reserve Account, the Debt
Service Accrual Account, the Insurance Proceeds Account, the Income Tax Reserve
Account, the Distribution Account and the Revenue Account, in each case in the
name of the Collateral Agent and (b) it has instructed (or, on or before the
effectiveness of each Project Document that is entered into after the date
hereof, will instruct) each of the other parties to the Project Documents that
all payments constituting Project Revenues due or to become due to the Borrower
under or in connection with each such Project Document shall be made directly to
the Collateral Agent for deposit to the Revenue Account in accordance with the
terms of the Collateral Agency Agreement. If, notwithstanding the foregoing, any
such payment or proceeds are remitted directly to the Borrower, the Borrower
shall hold such funds in trust for the Collateral Agent and shall promptly remit
such payments for deposit to the Revenue Account in accordance with the
Collateral Agency Agreement. In addition to the foregoing, the Borrower agrees
that if the proceeds of any Collateral hereunder (including the payments made in
respect of the Collateral Accounts) shall be received by it, the Borrower shall
as promptly as possible transfer such Proceeds to the Collateral Agent for
deposit to the Reserve Account. Until so deposited, all such proceeds shall be
held in trust by the Borrower for and as the property of the Collateral Agent
and shall not be commingled with any other funds or property of the Borrower.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

As of and on the date hereof, and as of and on the date of each extension of
credit by the Lenders pursuant to the Credit Agreement, the Borrower represents
and warrants to the Collateral Agent for the benefit of the Secured Parties as
follows:

 

4.01 Title. The Borrower is the sole beneficial owner of the Collateral in which
it purports to grant a security interest pursuant to Section 2, and such
Collateral is free and clear of all Liens, except for Permitted Liens.

 

4.02 No Other Financing Statements. The Borrower has not executed and is not
aware of any currently effective financing statement or other instrument similar
in effect that is on file in any recording office covering all or any part of
the Borrower’s interest in the Collateral, except such as may have been filed
pursuant to this Agreement and the other Financing Documents evidencing
Permitted Liens, and so long as any portion of the Commitments have not been
terminated or any of the Secured Obligations remain unpaid, the Borrower will
not execute or authorize to be filed in any public office any financing
statement (or similar statement or instrument of registration under the law of
any jurisdiction) or statements relating to the Collateral, except for (i)
financing statements filed or to be filed in respect of and covering the
security interests granted hereby by the Borrower, (ii) financing statements
filed or to be filed in respect of Permitted Liens or (iii) precautionary
financing statements filed or to be filed in respect of operating leases of
equipment entered into by the Borrower. The Borrower has not assigned any of its
rights under the Instruments referred to in Section 2.01(c) except as expressly
permitted under the Financing Documents. The Borrower has not consented to, and
is not otherwise aware of, any Person, other than the Collateral Agent and
Securities Intermediary, having either control (within the meaning of common law
applicable to this Agreement), sole dominion, or “control” (within the meaning
of the Uniform Commercial Code) over any interest in any Collateral Accounts or
any funds or other property deposited therein.

 

4.03 Perfection Representations.

 

(a) The name of the Borrower shown on the signature pages to this Agreement is
the exact legal name of the Borrower. The Borrower’s “location” (within the
meaning of the Uniform Commercial Code) is Delaware. The offices where the
Borrower keeps Records concerning the Collateral and a set of the original
counterparts of the Assigned Agreements are located at the addresses specified
for the Borrower in Section 10.02, or such other location as specified in the
most recent notice delivered pursuant to Section 5.01.

 

(b) The Borrower has not (1) within the period of four months prior to the date
hereof, changed its “location” (within the meaning of the UCC), (2) changed its
name, or (3) heretofore become a “new debtor” (within the meaning of the UCC)
with respect to a currently effective security agreement previously entered into
by any other Person.

 

4.04 Other Perfection Matters. Upon the filing of financing statements or other
appropriate instruments pursuant to the Uniform Commercial Code in the offices
set forth on

 

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Schedule 4.04 attached hereto, the Collateral Agent’s Liens in the Collateral
granted hereunder shall be valid, continuing (subject to any requirement of the
Uniform Commercial Code with respect to the filing of continuation statements),
and perfected to the extent any such Lien may be perfected by the filing of a
financing statement or other appropriate instrument. Upon the execution and
delivery of the Collateral Agency Agreement and the establishment of the
Collateral Accounts, the Collateral Agent’s Liens in the Collateral Accounts and
in any funds or other property from time to time deposited therein shall be
valid, continuing, and perfected to the extent any such Lien may be perfected by
“control” (within the meaning of the Uniform Commercial Code). All other action
necessary or reasonably requested by the Collateral Agent to protect and perfect
the Liens in the Collateral has been duly taken with respect to any Collateral
that the Borrower now owns or in which the Borrower now has a right. The Liens
granted by this Agreement in favor of the Collateral Agent for the benefit of
the Secured Parties are subject to no other Liens, except Permitted Liens.

 

4.05 Fair Labor Standards Act. Any goods now or hereafter produced by the
Borrower or any of its Subsidiaries included in the Collateral have been and
will be produced in compliance with the requirements of the Fair Labor Standards
Act, as amended.

 

ARTICLE V

 

COVENANTS

 

5.01 Books and Records. The Borrower shall (a) stamp or otherwise mark the
Records in its possession that relate to the Collateral in such manner as the
Collateral Agent may reasonably require in order to reflect the Liens granted by
this Agreement and (b) give the Collateral Agent at least thirty (30) calendar
days’ notice before it changes the office where the Borrower keeps the Records.

 

5.02 Legal Status. The Borrower shall not change its type of organization or
jurisdiction of organization without the Collateral Agent’s prior written
consent, not to be unreasonably withheld. The Borrower shall not change the name
under which it does business from the name shown on the signature pages to this
Agreement without giving the Collateral Agent thirty (30) days’ prior written
notice.

 

5.03 Sales and Other Liens. The Borrower shall not (a) dispose of any Collateral
(except as expressly permitted pursuant to any of the Financing Documents), (b)
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
upon any Collateral or (c) file or suffer to be on file or authorize to be
filed, in any jurisdiction, any financing statement or like instrument with
respect to all or any part of the Collateral in which the Collateral Agent is
not named as the sole secured party for the benefit of the Secured Parties
(except for financing statements related to Permitted Liens and precautionary
financing statements filed or to be filed in respect of operating leases of
equipment entered into by the Borrower).

 

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5.04 Further Assurances.

 

(a) The Borrower agrees that, from time to time upon the written request of the
Collateral Agent, the Borrower will execute and deliver such further documents
and do such other acts and things as the Collateral Agent may reasonably request
in order fully to effect the purposes of this Agreement.

 

(b) The Borrower hereby authorizes the Collateral Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of the Borrower where permitted
by law. Copies of any such statement or amendment thereto shall be promptly
delivered to the Borrower.

 

(c) The Borrower shall pay all filing, registration and recording fees or
re-filing, re-registration and re-recording fees, and all other expenses
incident to the execution and acknowledgment of this Agreement, any agreement
supplemental hereto and any instruments of further assurance, and all federal,
state, county and municipal stamp taxes and other taxes, duties, imposts,
assessments and charges arising out of or in connection with the execution and
delivery of this Agreement, any agreement supplemental hereto and any
instruments of further assurance.

 

ARTICLE VI

 

REMEDIES

 

6.01 Events of Default, Etc. Subject to the provisions of Section 10.05 hereof,
if any Event of Default shall have occurred and be continuing:

 

(a) the Collateral Agent in its sole discretion may require the Borrower to, and
the Borrower shall, assemble the Collateral owned by it at such place or places,
reasonably convenient to both the Collateral Agent and the Borrower, designated
in the Collateral Agent’s request;

 

(b) the Collateral Agent in its sole discretion may make any reasonable
compromise or settlement it deems desirable with respect to any of the
Collateral and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms of all or any part of the
Collateral;

 

(c) the Collateral Agent in its sole discretion may, in its name or in the name
of the Borrower or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange for all
or any part of the Collateral, but shall be under no obligation to do so;

 

(d) the Collateral Agent in its sole discretion may, upon ten (10) Business
Days’ prior written notice to the Borrower of the time and place, with respect
to all or any part of the Collateral which shall then be or shall thereafter
come into the possession, custody or control of the Collateral Agent or any
other Secured Party or any of their respective agents, sell, lease or otherwise
dispose of all or any part of such Collateral, at such place or places and at
such time or times as the Collateral Agent deems best, for cash, on credit or
for future delivery (without thereby assuming any credit risk) and at

 

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public or private sale, without demand of performance or notice of intention to
effect any such disposition of or time or place of any such sale (except such
notice as is required above or by applicable statute and cannot be waived), and
the Collateral Agent or any other Secured Party or any other Person may be the
purchaser, lessee or recipient of any or all of the Collateral so disposed of at
any public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of whatsoever
kind, including any right or equity of redemption (statutory or otherwise), of
the Borrower, any such demand, notice and right or equity being hereby expressly
waived and released to the extent permitted by applicable Government Rule. The
Collateral Agent shall not be obligated to make any sale pursuant to any such
notice. The Collateral Agent may, in its sole discretion, at any such sale
restrict the prospective bidders or purchasers as to their number, nature of
business and investment intention to the extent necessary to comply with
applicable Government Rule. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the sale may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the Collateral
Agent until the full selling price is paid by the purchaser thereof, but neither
the Collateral Agent nor any other Secured Party shall incur any liability in
case of the failure of such purchaser to take up and pay for the Collateral so
sold, and, in case of any such failure, such Collateral may again be sold
pursuant to the provisions hereof; and

 

(e) the Collateral Agent shall have, and in its sole discretion may exercise,
all of the rights, remedies, powers and privileges with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or not
the Uniform Commercial Code is in effect in the jurisdiction where such rights,
remedies, powers and privileges are asserted) and such additional rights,
remedies, powers and privileges to which a secured party is entitled under the
laws in effect in any jurisdiction where any rights, remedies, powers and
privileges in respect of this Agreement or the Collateral may be asserted,
including the right, to the maximum extent permitted by applicable Government
Rule, to exercise all voting, consensual and other powers of ownership
pertaining to the Collateral as if the Collateral Agent were the sole and
absolute owner of the Collateral (and the Borrower agrees to take all such
action as may be appropriate to give effect to such right).

 

The proceeds of, and other realization upon, the Collateral by virtue of the
exercise of remedies under this Section 6.01 shall be applied in accordance with
Section 6.04.

 

6.02 Deficiency. If the proceeds of, or other realization upon, the Collateral
by virtue of the exercise of remedies under Section 6.01 are insufficient to
cover the costs and expenses of such exercise and the payment in full of the
other Secured Obligations, the Borrower shall remain liable for any deficiency.

 

6.03 Private Sale. The Collateral Agent and the Lenders shall incur no liability
as a result of the sale, lease or other disposition of all or any part of the
Collateral at any private sale pursuant to Section 6.01 conducted in a
commercially reasonable manner. To the extent

 

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permitted by applicable Government Rule, the Borrower hereby waives any claims
against the Collateral Agent or any Lender arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations, even if the Collateral
Agent accepts the first offer received and does not offer the Collateral to more
than one offeree.

 

6.04 Application of Proceeds. Except as otherwise expressly provided in this
Agreement, the proceeds of, or other realization upon, all or any part of the
Collateral by virtue of the exercise of remedies under Section 6.01, and any
other cash at the time held by the Collateral Agent under Article III or this
Article VI at the time of the exercise of such remedies, shall be applied by the
Collateral Agent in accordance with the terms of the Collateral Agency
Agreement.

 

As used in this Article VI, “proceeds” of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any property received under any bankruptcy, reorganization
or other similar proceeding as to the Borrower or any issuer of, or account
debtor or other Borrower on, any of the Collateral.

 

ARTICLE VII

 

COLLATERAL AGENT MAY PERFORM

 

If the Borrower fails to perfect or maintain the Liens created hereunder, or
fails to maintain the required priority of the Liens created hereunder, the
Collateral Agent may, but shall not be obligated to, (after three (3) Business
Days’ notice to the Borrower), unless the Borrower is diligently pursuing a cure
for such failure that cannot be obtained more quickly by the Collateral Agent’s
performance as specified herein, itself perform, or cause the performance of,
such obligations, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by the Borrower.

 

ARTICLE VIII

 

REINSTATEMENT

 

This Agreement and the Lien created hereunder shall automatically be reinstated
if and to the extent that for any reason any payment by or on behalf of the
Borrower in respect of the Secured Obligations is rescinded or must otherwise be
restored by any holder of the Secured Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise.

 

ARTICLE IX

 

EXCULPATORY PROVISIONS

 

9.01 Exculpation of Collateral Agent. Notwithstanding anything herein to the
contrary, the liability of the Collateral Agent shall be limited, and the
Collateral Agent shall be entitled to indemnification and other protections as
provided in Article VI of the Collateral Agency Agreement, which provisions are
incorporated by reference as if set forth in full herein.

 

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13

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ARTICLE X

 

MISCELLANEOUS

 

10.01 No Waiver; Remedies Cumulative. No failure or delay by any Secured Party
in exercising any remedy, right, power or privilege under this Agreement or any
other Financing Document shall operate as a waiver of that remedy, right, power
or privilege, nor shall any single or partial exercise of that remedy, right,
power or privilege preclude any other or further exercise of that remedy, right,
power or privilege or the exercise of any other remedy, right, power or
privilege. The remedies, rights, powers and privileges provided by this
Agreement are cumulative and not exclusive of any remedies, rights, powers or
privileges provided by the other Financing Documents or by applicable Government
Rule.

 

10.02 Notices. All notices, requests and other communications provided for in
this Agreement shall be given or made in writing (including by telecopy) and
delivered to the intended recipient at the address specified below or, as to any
party, at such other address as is designated by that party in a notice to each
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy or personally delivered or, in the case of a mailed notice or notice
sent by courier, upon receipt, in each case given or addressed as provided in
this Section 10.02.

 

If to the Borrower:

 

Sabine Pass LNG, L.P.

717 Texas Ave.

Ste 3100

Houston, TX 77002

Attn: Don Turkleson

 

If to the Collateral Agent:

 

HSBC Bank USA, National Association

452 Fifth Avenue

New York, NY 10018

Attn: Corporate Trust

 

With a copy to:

 

DLA Piper Rudnick Gray Cary US LLP

One Liberty Place

1650 Market Street, Suite 4900

Philadelphia, PA 19103

Attn: Peter Tucci, Esq.

 

10.03 Expenses. The Borrower hereby agrees to reimburse each of the Secured
Parties for all reasonable costs and expenses incurred by them (including,
without limitation, the fees and expenses of legal counsel) in connection with
(a) any Default and any enforcement or collection proceeding resulting
therefrom, including, without limitation, all manner of

 

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14

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participation in or other involvement with (i) performance by the Agent of any
obligations of the Borrower in respect of the Collateral that the Borrower has
failed or refused to perform, (ii) bankruptcy, insolvency, receivership,
foreclosure, winding up or liquidation proceedings, or any actual or attempted
sale, or any exchange, enforcement, collection, compromise or settlement in
respect of any of the Collateral, and for the care of the Collateral and
defending or asserting rights and claims of the Agent in respect thereof, by
litigation or otherwise, including expenses of insurance, (iii) judicial or
regulatory proceedings and (iv) workout, restructuring or other negotiations or
proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (b) the enforcement of this Section
10.03, and all such costs and expenses shall be Secured Obligations entitled to
the benefits of the collateral security provided pursuant to Article II.

 

10.04 Amendments, Etc. No provision of this Agreement may be waived, modified or
supplemented except by an instrument in writing signed by the Borrower, the
Agent and the Collateral Agent. Any modification, supplement or waiver shall be
for such period and subject to such conditions as shall be specified in the
written instrument effecting the same and shall be binding upon the Borrower and
each of the Secured Parties, and any such waiver shall be effective only in the
specific instance and for the purpose for which given.

 

10.05 Successors and Assigns. This Agreement, together with the other Financing
Documents, shall be binding upon and inure to the benefit of the Borrower, the
Secured Parties, and each of their respective successors and permitted assigns.
The Borrower shall not assign or transfer its rights or obligations under this
Agreement without the prior written consent of the Collateral Agent.

 

10.06 Actions Taken by Collateral Agent. All actions taken by the Collateral
Agent shall be at the direction of the Agent with the consent of such Lenders as
may be required by Section 9.01 or 10.09 of the Credit Agreement, as applicable.

 

10.07 Survival. Each representation and warranty made, or deemed to be made, in
or pursuant to this Agreement shall survive the making or deemed making of that
representation and warranty, and no Secured Party shall be deemed to have
waived, by reason of making any extension of credit, any Default that may arise
by reason of that representation or warranty proving to have been false or
misleading, notwithstanding that such or any other Secured Party may have had
notice or knowledge or reason to believe that such representation or warranty
was false or misleading at the time that extension of credit was made.

 

10.08 Agreements Superseded. This Agreement, together with the other Financing
Documents, constitutes the entire agreement and understanding among the parties
to this Agreement with respect to the matters covered by this Agreement and
supersedes any and all prior agreements and understandings, written or oral,
with respect to such matters.

 

10.09 Severability. Any provision of this Agreement that is held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions of this Agreement, and the invalidity, illegality or unenforceability
of a particular provision in a particular jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

 

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15

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10.10 Captions. The table of contents, captions and section headings appearing
in this Agreement are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.

 

10.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any party to this Agreement may execute this Agreement by
signing any such counterpart; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signatures are physically attached to the same counterpart. Delivery of an
executed counterpart of a signature page to this Agreement by hand or by
telecopy shall be effective as the delivery of a fully executed counterpart of
this Agreement.

 

10.12 Governing Law; Submission to Jurisdiction. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN SUCH STATE. THE BORROWER
HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT
COURT AND STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. THE BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE GOVERNMENT RULE, ANY OBJECTION THAT IT MAY NOW OR
IN THE FUTURE HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

10.13 Certain Matters Relating to Collateral Located in the State of Louisiana.
With respect to Collateral which is located in the state of Louisiana,
notwithstanding anything contained herein to the contrary:

 

(a) Acceleration Upon Default, Executory Process; Confession of Judgment. When
an Event of Default has occurred and is continuing, the Collateral Agent may, at
its option, declare the Secured Obligations at once due and payable without
further demand, notice or putting the Borrower in default, and cause all and
singular the Collateral to be seized and sold under executory or other legal
process, issued by any court of competent jurisdiction, with or without
appraisement, at the option of the Collateral Agent, to the highest bidder, for
cash.

 

(b) Confession of Judgment. For purposes of foreclosure by executory process,
the Borrower hereby confesses judgment in favor of the Collateral Agent for the
full amount of the Secured Obligations, including principal and interest,
together with all attorney’s fees and costs, and any and all monies that may
become due to the Collateral Agent under the terms hereof or secured hereby.

 

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16

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(c) Borrower’s Waiver of Rights. To the fullest extent permitted by law, the
Borrower hereby waives:

 

(i) the benefit of appraisement provided for in Articles 2332, 2336, 2723 and
2724 of the Louisiana Code of Civil Procedure, to the extent applicable, and all
other laws conferring the same;

 

(ii) the demand and three (3) days notice of demand as provided in Articles 2639
and 2721 of the Louisiana Code of Civil Procedure;

 

(iii) the notice of seizure provided by Articles 2293 of the Louisiana Code of
Civil Procedure; and

 

(iv) the three (3) days delay provided for in Articles 2331 and 2722 of the
Louisiana Code of Civil Procedure.

 

(d) Special Appointment of Collateral Agent as Agent. In addition to all of the
rights and remedies of the Collateral Agent hereunder, so long as this Agreement
remains in effect, the Collateral Agent is, pursuant to Louisiana R.S. 9:5388,
hereby appointed by the Borrower as agent and attorney-in-fact of the Borrower,
coupled with an interest, to carry out and enforce all or any specified portion
of the incorporeal rights comprising part of the Collateral.

 

(e) Civil Law Terminology. All references in this Agreement to “real property”,
“personal property”, “easements” and “receiver” shall mean and include
“immovable property”, “movable property”, “servitudes” and “keeper”
respectively.

 

10.14 Waiver of Jury Trial. THE BORROWER AND THE COLLATERAL AGENT (ON BEHALF OF
ITSELF AND EACH OTHER SECURED PARTY) HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE GOVERNMENT RULE, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

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17

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the day and year first above written.

 

SABINE PASS LNG, L.P.

By:

 

Sabine Pass LNG – G.P., Inc.

   

its General Partner

   

By:

 

/s/ Graham McArthur

--------------------------------------------------------------------------------

   

Name:

 

Graham McArthur

   

Title:

 

Treasurer

 

 

Security Agreement

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HSBC BANK USA, NATIONAL ASSOCIATION,

as Collateral Agent

By:

 

/s/ Deirdra N. Ross

--------------------------------------------------------------------------------

Name:

 

Deirdra N. Ross

Title:

 

Assistant Vice President

 

Security Agreement

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SOCIÉTÉ GÉNÉRALE,

as Agent

By:

  

/s/ Leon Valera

--------------------------------------------------------------------------------

Name:

  

Leon Valera

Title:

  

Director

Address for Notices:

1221 Avenue of the Americas

New York, NY 10020

Attn: Robert Preminger

Telephone: 212-278-5703

Fax: 212-278-6136

 

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ANNEX A

 

Project Documents

 

1. Material Project Documents.

 

2. Other Project Documents.

 

3. Non-Material Project Documents.

 

Security Agreement

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Schedule 4.04

UCC Filing Offices

 

1. Secretary of State of the State of Delaware

 

2. Clerk of Court of Cameron Parish, Louisiana, for inclusion in the Louisiana
Secretary of State Master UCC Index

 

Security Agreement