<PAGE>

                                                                    EXHIBIT 10.3

                            TEEKAY LNG PARTNERS L.P.

                          2005 LONG-TERM INCENTIVE PLAN

SECTION 1. PURPOSE OF THE PLAN.

      The Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan (the "Plan") is
intended to promote the interests of Teekay LNG Partners L.P., a Marshall
Islands limited partnership (the "Partnership"), by providing incentive awards
to employees, consultants, and directors of Teekay GP L.L.C., a Marshall Islands
limited liability company (the "Company"), and its Affiliates who perform
services for the Partnership or its subsidiaries. The Plan is also contemplated
to enhance the ability of the Company and its Affiliates to attract and retain
the services of individuals who are essential for the growth and profitability
of the Partnership and to encourage them to devote their best efforts to
advancing the business of the Partnership and its subsidiaries.

SECTION 2. DEFINITIONS.

      As used in the Plan, the following terms shall have the meanings set forth
below:

      "ACQUISITION PRICE" means the higher of (a) the highest reported sales
price, regular way, of a Unit in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which the Units are listed
or on Nasdaq during the 60-day period prior to and including the date of a
Change of Control or (b) if the Change of Control is the result of a tender or
exchange offer or a negotiated acquisition of Units, the highest price per Unit
paid in such tender or exchange offer or acquisition. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other noncash consideration, the value of such securities
or other noncash consideration shall be determined by the Board in its sole
discretion.

      "AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.

      "AWARD" means an Option, Restricted Unit, Phantom Unit, Unit Appreciation
Right, cash-based award or other incentive payable in cash or in Units as may be

<PAGE>

designated by the Committee from time to time, and shall include any tandem DERs
granted with respect to a Phantom Unit.

      "AWARD AGREEMENT" means the written agreement by which an Award shall be
evidenced.

      "BOARD" means the Board of Directors of the Company.

      "CAUSE" unless otherwise defined in the instrument evidencing the Award or
in a written employment, services or other agreement between the Participant and
the Company or its Affiliate, means dishonesty, fraud, serious misconduct,
unauthorized use or disclosure of confidential information or trade secrets, or
conduct prohibited by criminal law (except minor violations), in each case as
determined by the Committee, whose determination shall be conclusive and
binding.

      "CHANGE OF CONTROL" means, and shall be deemed to have occurred upon the
consummation of one or more of the following events: (i) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of Teekay, the
Partnership, or the Company to any Person and/or its Affiliates, other than to
Teekay, the Partnership, the Company and/or any of their Affiliates; or (ii) the
consolidation, reorganization, merger or other transaction pursuant to which
more than 50% of the voting power of the outstanding equity interests in Teekay,
the Partnership, or the Company cease to be owned by the Persons who own such
interests as of the effective date of the initial public offering of Units.

      "COMMITTEE" means the Corporate Governance Committee of the Board or such
other committee of the Board appointed by the Board to administer the Plan,
which shall be composed of two or more directors, each of whom shall be a
"non-employee director" within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act, or any successor rule.

      "CONSULTANT" means an individual who performs services for the Partnership
or its subsidiaries and is not an Employee or a Director.

      "DER" means a contingent right, granted in tandem with a specific Phantom
Unit, to receive an amount in cash equal to, and at the same time as, the cash
distributions made by the Partnership with respect to a Unit during the period
such Phantom Unit is outstanding.

      "DIRECTOR" means a member of the Board who is not an Employee.

                                      -2-
<PAGE>

      "DISABILITY" unless otherwise defined by the Committee or in the
instrument evidencing the Award or in a written employment, services or other
agreement between the Participant and the Company or its Affiliate, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable to perform his or
her material duties for the Company or its Affiliate and to be engaged in any
substantial gainful activity, in each case as determined by the Committee, whose
determination shall be conclusive and binding.

      "EMPLOYEE" means any employee of the Company or an Affiliate who performs
services for the Partnership or its subsidiaries.

      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

      "FAIR MARKET VALUE" means the closing sales price of a Unit on the date of
determination (or if there is no trading in the Units on such date, on the next
preceding date on which there was trading) as reported in The Wall Street
Journal (or other reporting service approved by the Committee). In the event
Units are not publicly traded at the time a determination of Fair Market Value
is required to be made hereunder, the determination of Fair Market Value shall
be made in good faith by the Committee.

      "GOOD REASON" unless otherwise defined by the Committee or in the
instrument evidencing the Award or in a written employment, services or other
agreement between the Participant and the Company or its Affiliate, means the
Participant's voluntary resignation following any of the following events or
conditions and the failure of the Successor Company to cure such event or
condition within 30 days after receipt of written notice from the Participant:
(a) a change in the Participant's position which materially reduces the
Participant's level of responsibility; (b) a reduction in the Participant's
level of compensation (including base salary, fringe benefits or participation
in any corporate performance based bonus or incentive programs) by more than
15%; or (c) a relocation of the Participant's place of employment by more than
50 miles; provided and only if such change, reduction or relocation is effected
without the Participant's consent.

      "OPTION" means an option to purchase Units granted under the Plan.

      "PARTICIPANT" means any Employee, Consultant or Director granted an Award
under the Plan.

      "PARTNERSHIP AGREEMENT" means the First Amended and Restated Agreement of
Limited Partnership of Teekay LNG Partners L.P., as it may be amended or amended
and restated from time to time.

                                      -3-
<PAGE>

      "PERSON" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.

      "PHANTOM UNIT" means a phantom (notional) Unit granted under the Plan
which upon vesting entitles the Participant to receive a Unit or an amount of
cash equal to the Fair Market Value of a Unit, as determined by the Committee in
its discretion.

      "RESTRICTED PERIOD" means the period established by the Committee with
respect to an Award during which the Award remains subject to forfeiture and is
either not exercisable by or payable to the Participant, as the case may be.

      "RESTRICTED UNIT" means a Unit granted under the Plan that is subject to a
Restricted Period.

      "RETIREMENT" unless otherwise defined in the instrument evidencing the
Award or in a written employment, services or other agreement between the
Participant and the Company or its Affiliate, means "Retirement" as defined for
purposes of the Plan by the Committee or, if not so defined, means Termination
of Service on or after the date the Participant reaches the Company's normal
retirement age.

      "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time.

      "SEC" means the Securities and Exchange Commission, or any successor
thereto.

      "SUCCESSOR COMPANY" means the surviving company or the successor company,
as applicable, in connection with a Change of Control.

      "TEEKAY" means Teekay Shipping Corporation, a Republic of The Marshall
Islands corporation.

      "TERMINATION OF SERVICE" means a termination of employment or service
relationship with the Company or its Affiliates for any reason, whether
voluntary or involuntary, including by reason of death, Disability or
Retirement. Any question as to whether and when there has been a Termination of
Service for the purposes of an Award and the cause of such Termination of
Service shall be determined by the Committee, whose determination shall be
conclusive and binding. Transfer of a Participant's employment or service
relationship between the Company and any Affiliate shall not be considered a
Termination of Service for purposes of an Award.

                                      -4-
<PAGE>

Unless the Committee determines otherwise, a Termination of Service shall be
deemed to occur if the Participant's employment or service relationship is with
an entity that has ceased to be an Affiliate.

      "UDR" means a distribution made by the Partnership with respect to a
Restricted Unit.

      "UNIT" means a Common Unit of the Partnership.

      "UNIT APPRECIATION RIGHT" means an Award that, upon exercise, entitles the
holder to receive the excess of the Fair Market Value of a Unit on the exercise
date over the base price established for such Unit Appreciation Right. Such
excess may be paid in cash and/or in Units, as determined by the Committee in
its discretion.

SECTION 3. ADMINISTRATION.

      The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
of the Committee who are present at any meeting thereof at which a quorum is
present, or acts unanimously approved by the members of the Committee in
writing, shall be the acts of the Committee. Subject to the following and any
applicable law, the Committee, in its sole discretion, may delegate any or all
of its powers and duties under the Plan, including the power to grant Awards
under the Plan, to the Chief Executive Officer of the Company, subject to such
limitations on such delegated powers and duties as the Committee may impose, if
any. Upon any such delegation all references in the Plan to the "Committee",
other than in Section 8, shall be deemed to include the Chief Executive Officer;
provided, however, that such delegation shall not limit the Chief Executive
Officer's right to receive Awards under the Plan. Notwithstanding the foregoing,
the Chief Executive Officer may not grant Awards to, or take any action with
respect to any Award previously granted to, himself or herself or to any other
person who would be subject to Rule 16b-3 or who is a member of the Board.
Subject to the terms of the Plan and applicable law, and in addition to other
express powers and authorizations conferred on the Committee by the Plan, the
Committee shall have full power and authority to: (i) designate Participants;
(ii) determine the type or types of Awards to be granted to a Participant; (iii)
determine the number of Units to be covered by Awards; (iv) determine the terms
and conditions of any Award; (v) determine whether, to what extent, and under
what circumstances Awards may be settled, exercised, canceled, or forfeited;
(vi) interpret and administer the Plan and any instrument or agreement relating
to an Award made under the Plan; (vii) establish, amend, suspend, or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (viii) make any other determination
and take any other action that the Committee deems

                                      -5-
<PAGE>

necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time and shall be final, conclusive, and binding upon all Persons, including the
Company, the Partnership, any Affiliate of the Company or the Partnership, any
Participant, and any beneficiary of any Award.

SECTION 4. UNITS.

      (a) Limits on Units Deliverable. Subject to adjustment as provided in
Section 4(c), the number of Units available for delivery under the Plan is
1,000,000. There shall not be any limitation on the number of Awards that may be
granted and paid in cash. If any Award is forfeited or otherwise terminates or
is canceled without the delivery of Units, then the Units covered by such Award,
to the extent of such forfeiture, termination, or cancellation, shall again be
Units with respect to which Awards may be granted.

      (b) Sources of Units Deliverable Under Awards. Any Units delivered
pursuant to an Award shall consist, in whole or in part, of Units acquired in
the open market, from any Affiliate, the Partnership or any other Person, or any
combination of the foregoing.

      (c) Adjustments. In the event that the Committee determines that any
distribution (whether in the form of cash, Units, other securities, or other
property), recapitalization, split, reverse split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of Units
or other securities of the Partnership, issuance of warrants or other rights to
purchase Units or other securities of the Partnership, or other similar
transaction or event affects the Units such that an adjustment is determined by
the Committee to be appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or
all of (i) the number and type of Units (or other securities or property) with
respect to which Awards may be granted, (ii) the number and type of Units (or
other securities or property) subject to outstanding Awards, and (iii) the grant
or exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
that the number of Units subject to any Award shall always be a whole number.

SECTION 5. ELIGIBILITY.

      Any Employee, Consultant or Director shall be eligible to be designated a
Participant and receive an Award under the Plan.

                                      -6-
<PAGE>

SECTION 6. AWARDS.

      (a) Options. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom Options shall be granted, the
number of Units to be covered by each Option, the purchase price therefor and
the conditions and limitations applicable to the exercise of the Option,
including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine, that are not inconsistent with the
provisions of the Plan.

            (i) Exercise Price. The exercise price per Unit purchasable under an
      Option shall be determined by the Committee at the time the Option is
      granted and may be equal to or more than the Fair Market Value of a Unit
      as of the date of grant.

            (ii) Time and Method of Exercise. The Committee shall determine the
      Restricted Period, i.e., the time or times at which an Option may be
      exercised in whole or in part, which may include, without limitation,
      accelerated vesting upon the achievement of specified performance goals,
      and the method or methods by which payment of the exercise price with
      respect thereto may be made or deemed to have been made, which may
      include, without limitation, (1) cash, (2) check acceptable to the
      Company, (3) to the extent permitted by law, a "broker-assisted cashless
      exercise" through procedures approved by the Company, (4) tendering Units
      owned by the Participant for at least six months (or any shorter period
      necessary to avoid a charge for financial reporting purposes), other
      securities or other property, or (5) any combination thereof, having a
      Fair Market Value on the exercise date equal to the relevant exercise
      price.

            (iii) Termination of Service. The Committee shall establish and set
      forth in each instrument that evidences an Option whether the Option shall
      continue to be exercisable, and the terms and conditions of such exercise,
      after a Termination of Service, any of which provisions may be waived or
      modified by the Committee at any time. If not so established in the
      instrument evidencing the Option, the Option shall be exercisable
      according to the following terms and conditions, which may be waived or
      modified by the Committee at any time:

                  (A) Any portion of an Option that is not vested and
            exercisable on the date of a Participant's Termination of Service
            shall expire on such date.

                                      -7-
<PAGE>

                  (B) Any portion of an Option that is vested and exercisable on
            the date of a Participant's Termination of Service shall expire on
            the earliest to occur of

                        (1) if the Participant's Termination of Service occurs
                  for reasons other than Cause, Retirement, Disability or death,
                  the date that is three months after such Termination of
                  Service;

                        (2) if the Participant's Termination of Service occurs
                  by reason of Retirement or Disability, the five-year
                  anniversary of such Termination of Service;

                        (3) if the Participant's Termination of Service occurs
                  by reason of death, the two-year anniversary of such
                  Termination of Service; and

                        (4) the last day of the maximum term of the Option (the
                  "Option Expiration Date").

                  Notwithstanding the foregoing, if a Participant dies after his
            or her Termination of Service but while an Option is otherwise
            exercisable, the portion of the Option that is vested and
            exercisable on the date of such Termination of Service shall expire
            upon the earlier to occur of (y) the Option Expiration Date and (z)
            the two-year anniversary of the date of death, unless the Committee
            determines otherwise.

                  Also notwithstanding the foregoing, in case a Participant's
            Termination of Service occurs for Cause, all Options granted to the
            Participant shall automatically expire upon first notification to
            the Participant of such termination, unless the Committee determines
            otherwise. If a Participant's employment or service relationship
            with the Company is suspended pending an investigation of whether
            the Participant shall be terminated for Cause, all the Participant's
            rights under any Option shall likewise be suspended during the
            period of investigation. If any facts that would constitute
            termination for Cause are discovered after a Participant's
            Termination of Service, any Option then held by the Participant may
            be immediately terminated by the Committee, in its sole discretion.

                  (C) A Participant's change in status from an employee to a
            consultant, advisor or independent contractor or a change in status
            from a consultant, advisor or independent contractor to an employee
            shall not

                                      -8-
<PAGE>

            be considered a Termination of Service for purposes of this Section
            6(a)(iii).

      (b) Restricted Units and Phantom Units. The Committee shall have the
authority to determine the Employees, Consultants and Directors to whom
Restricted Units or Phantom Units shall be granted, the number of Restricted
Units or Phantom Units to be granted to each such Participant, the duration of
the Restricted Period, the conditions under which the Restricted Units or
Phantom Units may become vested or forfeited, which may include, without
limitation, the accelerated vesting upon the achievement of specified
performance goals, and such other terms and conditions as the Committee may
establish with respect to such Awards, including whether DERs are granted with
respect to the Phantom Units and whether UDRs are attached to the Restricted
Units.

            (i) DERs. To the extent provided by the Committee, in its
      discretion, a grant of Phantom Units may include a tandem DER grant, which
      may provide that such DERs shall be paid directly to the Participant, be
      credited to a bookkeeping account (with or without interest in the
      discretion of the Committee) subject to the same vesting restrictions as
      the tandem Phantom Unit Award, or be subject to such other provisions or
      restrictions as determined by the Committee in its discretion.

            (ii) UDRs. To the extent provided by the Committee, in its
      discretion, a grant of Restricted Units may provide that distributions
      made by the Partnership with respect to the Restricted Units shall be
      subject to the same forfeiture and other restrictions as the Restricted
      Unit and, if restricted, such distributions shall be held, without
      interest, until the Restricted Unit vests or is forfeited with the UDR
      being paid or forfeited at the same time, as the case may be. Absent such
      a restriction on the UDRs in the grant agreement, UDRs shall be paid to
      the holder of the Restricted Unit without restriction.

            (iii) Lapse of Restrictions.

                  (A) Phantom Units. Unless a different payment time is
            specified in the Award Agreement, upon or as soon as reasonably
            practical following the vesting of each Phantom Unit, subject to the
            provisions of Section 9(b), the Participant shall be entitled to
            receive from the Company one Unit or cash equal to the Fair Market
            Value of a Unit, as determined by the Committee in its discretion.

                  (B) Restricted Units. Upon or as soon as reasonably practical
            following the vesting of each Restricted Unit, subject to the
            provisions of Section 9(b), the Participant shall be entitled to
            have the restrictions

                                      -9-
<PAGE>

            removed from his or her Unit certificate or book entry so that the
            Participant then holds an unrestricted Unit.

      (c) Unit Appreciation Rights. The Committee shall have the authority to
determine the Employees, Consultants and Directors to whom Unit Appreciation
Rights shall be granted, the number of Units to be covered by each grant, the
base price thereof and the conditions and limitations applicable to the exercise
of the Unit Appreciation Right, including the following terms and conditions and
such additional terms and conditions, as the Committee shall determine, that are
not inconsistent with the provisions of the Plan.

            (i) Base Price. The base price per Unit Appreciation Right shall be
      determined by the Committee at the time the Unit Appreciation Right is
      granted and may be equal to or more than the Fair Market Value of a Unit
      as of the date of grant.

            (ii) Time of Exercise. The Committee shall determine the Restricted
      Period, i.e., the time or times at which a Unit Appreciation Right may be
      exercised in whole or in part, which may include, without limitation,
      accelerated vesting upon the achievement of specified performance goals.

      (d) Other Unit or Cash-Based Awards. Subject to the terms of the Plan and
such other terms and conditions as the Committee deems appropriate, the
Committee may grant other incentives payable in cash or in Units under the Plan.

      (e) General.

            (i) Awards May Be Granted Separately or Together. Awards may, in the
      discretion of the Committee, be granted either alone or in addition to, in
      tandem with, or in substitution for any other Award granted under the Plan
      or any award granted under any other plan of the Company or any Affiliate.
      Awards granted in addition to or in tandem with other Awards or awards
      granted under any other plan of the Company or any Affiliate may be
      granted either at the same time as or at a different time from the grant
      of such other Awards or awards.

            (ii) Limits on Transfer of Awards.

                  (A) Except as provided in (C) below or as provided in the
            Award Agreement, each Option and Unit Appreciation Right shall be
            exercisable only by the Participant during the Participant's
            lifetime, or by the person to whom the Participant's rights shall
            pass by will or by the applicable laws of descent and distribution.

                                      -10-
<PAGE>

                  (B) Except as provided in (C) below, no Award and no right
            under any such Award may be assigned, alienated, pledged, attached,
            sold or otherwise transferred or encumbered by a Participant
            otherwise than by will or by the applicable laws of descent and
            distribution.

                  (C) To the extent specifically provided by the Committee with
            respect to an Option or Unit Appreciation Right grant, an Option or
            Unit Appreciation Right may be transferred by a Participant without
            consideration to immediate family members or related family trusts,
            limited partnerships or similar entities or on such terms and
            conditions as the Committee may from time to time establish.

            (iii) Term of Awards. The term of each Award shall be for such
      period as may be determined by the Committee.

            (iv) Unit Certificates/Book Entry. All certificates for Units or
      other securities of the Partnership delivered under the Plan pursuant to
      any Award or the exercise thereof shall be subject to such stop transfer
      orders and other restrictions as the Committee may deem advisable under
      the Plan or the rules, regulations, and other requirements of the SEC, any
      stock exchange upon which such Units or other securities are then listed,
      and any applicable federal or state laws, and the Committee may cause a
      legend or legends to be put on any such certificates to make appropriate
      reference to such restrictions. In lieu of delivering certificates for
      Units, the Committee may, in its sole discretion, effect the issuance of
      Units under the Plan in book entry.

            (v) Consideration for Grants. Awards may be granted for such
      consideration, including services, as the Committee determines.

            (vi) Delivery of Units or other Securities and Payment by
      Participant of Consideration. Notwithstanding anything in the Plan or any
      grant agreement to the contrary, delivery of Units pursuant to the
      exercise or vesting of an Award may be deferred for any period during
      which, in the good faith determination of the Committee, the Company is
      not reasonably able to obtain Units to deliver pursuant to such Award
      without violating the rules or regulations of any applicable law or
      securities exchange.

            No Units or other securities shall be delivered pursuant to any
      Award until payment in full of any amount required to be paid pursuant to
      the Plan or the applicable Award Agreement (including, without limitation,
      any exercise price or tax withholding) is received by the Company.

                                      -11-
<PAGE>

SECTION 7. CHANGE OF CONTROL

      (a) Effect of a Change of Control. Notwithstanding any other provision of
the Plan to the contrary, unless the Committee shall determine otherwise at the
time of grant with respect to a particular Award, in the event of a Change of
Control:

            (i) All outstanding Awards shall become fully and immediately vested
      and exercisable, and all applicable deferral and restriction limitations
      shall lapse immediately prior to the Change of Control, unless such Awards
      are converted, assumed, or replaced by the Successor Company.
      Notwithstanding the foregoing, with respect to Options or Unit
      Appreciation Rights, the Committee, in its sole discretion, may instead
      provide that a Participant's outstanding Options and Unit Appreciation
      Rights shall terminate upon consummation of such Change of Control and
      that each such Participant shall receive, in exchange therefor, a cash
      payment equal to the amount (if any) by which (a) the Acquisition Price
      multiplied by the number of Units subject to such outstanding Options or
      Unit Appreciation Rights (whether or not then exercisable) exceeds (b) the
      aggregate exercise price for such Options or Unit Appreciation Rights.

            (ii) For the purposes of this Section 7(a), an Award shall be
      considered converted, assumed or replaced by the Successor Company if
      following the Change of Control the option or right confers the right to
      purchase or receive, for each Unit subject to the Award immediately prior
      to the Change of Control, the consideration (whether units, cash, or other
      securities or property) received in the Change of Control by holders of
      Units for each Unit held on the effective date of the Change of Control
      (and if holders were offered a choice of consideration, the type of
      consideration chosen by the holders of a majority of the outstanding
      Units); provided, however, that if such consideration received in the
      Change of Control is not solely equity of the Successor Company, the
      Committee may, with the consent of the Successor Company, provide for the
      consideration to be received upon the exercise of the Option or the
      vesting of the right, for each Unit subject thereto, to be solely equity
      of the Successor Company substantially equal in fair market value to the
      per Unit consideration received by holders of Units in the Change of
      Control. The determination of such substantial equality of value of
      consideration shall be made by the Committee and its determination shall
      be conclusive and binding.

      (b) Change of Control Cash-Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change of Control (the "Exercise
Period"), if the Committee shall so determine at, or at any time after, the time
of grant, a Participant holding an Option or Unit Appreciation Right shall have
the right,

                                      -12-
<PAGE>

whether or not the Option or Unit Appreciation Right is fully exercisable and in
lieu of the payment of the purchase price for the Units being purchased under
the Option, and by giving notice to the Company, to elect to surrender all or
part of the Option or Unit Appreciation Right to the Company and to receive
cash, within 30 days of such notice, in an amount equal to the amount by which
the Acquisition Price per Unit on the date of such election shall exceed the
exercise price per Unit under the Option or Unit Appreciation Right multiplied
by the number of Units granted under the Option or Unit Appreciation Right as to
which the right granted under this Section 7(b) shall have been exercised.

      (c) Acceleration and Exercise Following a Change of Control. If following
a Change of Control, a Participant's employment is subsequently terminated
without Cause or for Good Reason within 24 months of the Change of Control, any
such Awards that remain unvested shall become fully and immediately vested and
exercisable upon the date of the Participant's termination, all applicable
deferral and restriction limitations shall lapse, and an Award that is an Option
or a Unit Appreciation Right shall remain exercisable until the later of the
date five years after the date of such termination and the date the Award would
have expired by its terms if the Participant's employment had not been
terminated.

SECTION 8. AMENDMENT AND TERMINATION.

      Except to the extent prohibited by applicable law:

      (a) Amendments to the Plan. Except as required by the rules of the
principal securities exchange on which the Units are traded, the Board or the
Committee may amend, alter, suspend, discontinue, or terminate the Plan in any
manner, including increasing the number of Units available for Awards under the
Plan, without the consent of any partner, Participant, other holder or
beneficiary of an Award, or other Person.

      (b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter any Award theretofore granted, provided no
change, other than pursuant to Section 8(c), in any Award shall materially
reduce the benefit to Participant without the consent of such Participant.

      (c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(c) of the Plan) affecting the Partnership or the
financial statements of the Partnership, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to

                                      -13-
<PAGE>

prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan or such Award.

SECTION 9. GENERAL PROVISIONS.

      (a) No Rights to Award. No Person shall have any claim to be granted any
Award under the Plan, and there is no obligation for uniformity of treatment of
Participants. The terms and conditions of Awards need not be the same with
respect to each recipient.

      (b) Tax Withholding. The Company or any Affiliate is authorized to
withhold from any Award, from any payment due or transfer made under any Award
or from any compensation or other amount owing to a Participant the amount (in
cash, Units, other securities, Units that would otherwise be issued pursuant to
such Award or other property) of any applicable taxes payable in respect of the
grant of an Award, its exercise, the lapse of restrictions thereon, or any
payment or transfer under an Award or under the Plan and to take such other
action as may be necessary in the opinion of the Company to satisfy its
withholding obligations for the payment of such taxes.

      (c) No Right to Employment or Services. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, to continue as a Consultant, or to remain on the
Board, as applicable. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment or terminate a consulting relationship,
free from any liability or any claim under the Plan, unless otherwise expressly
provided in the Plan, any Award Agreement or other agreement.

      (d) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the Republic of the Marshall Islands without regard to its
conflict of laws principles.

      (e) Severability. If any provision of the Plan or any award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, person or award and the remainder of the Plan and any
such Award shall remain in full force and effect.

                                      -14-
<PAGE>

      (f) Other Laws. The Committee may refuse to issue or transfer any Units or
other consideration under an Award if, in its sole discretion, it determines
that the issuance or transfer of such Units or such other consideration might
violate any applicable law or regulation, the rules of the principal securities
exchange on which the Units are then traded, or entitle the Partnership or an
Affiliate to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.

      (g) No Trust or Fund Created. Neither the Plan nor any award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any participating Affiliate and a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company or any participating Affiliate pursuant to
an Award, such right shall be no greater than the right of any general unsecured
creditor of the Company or any participating Affiliate.

      (h) No Fractional Units. No fractional Units shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Units or whether such fractional Units or any rights thereto
shall be canceled, terminated, or otherwise eliminated.

      (i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

      (j) Facility Payment. Any amounts payable hereunder to any person under
legal disability or who, in the judgment of the Committee, is unable to properly
manage his financial affairs, may be paid to the legal representative of such
person, or may be applied for the benefit of such person in any manner which the
Committee may select, and the Company and its Affiliates shall be relieved of
any further liability for payment of such amounts.

      (k) Participation by Affiliates. In making Awards to Consultants and
Employees employed by an entity other than by the Company, the Committee shall
be acting on behalf of the Affiliate, and to the extent the Partnership has an
obligation to reimburse the Company for compensation paid to Consultants and
Employees for services rendered for the benefit of the Partnership, such
payments or reimbursement payments may be made by the Partnership directly to
the Affiliate, and, if made to the Company, shall be received by the Company as
agent for the Affiliate.

                                      -15-
<PAGE>

      (1) Gender and Number. Words in the masculine gender shall include the
feminine gender, the plural shall include the singular and the singular shall
include the plural.

SECTION 10. TERM OF THE PLAN.

      The Plan shall be effective on the date of its approval by the Board and
shall continue until the earlier of (a) the date terminated by the Board and (b)
the date Units are no longer available for the payment of Awards under the Plan.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award granted prior to such termination, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.

                                      -16-