Document:

Exhibit
10.3

 

*** indicates material
has been omitted pursuant to a Confidential Treatment Request filed with the
Securities and Exchange Commission.  A
complete copy of this agreement has been filed with the Securities and Exchange
Commission.

 

 

 

 

LNG TERMINAL
USE AGREEMENT

 

between

 

 

CONOCOPHILLIPS
COMPANY

 

 

and

 

 

FREEPORT
LNG DEVELOPMENT, L.P.

 

 

dated
July 2, 2004

 

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1 DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2
  SERVICES AND SCOPE

  	
   

  
	
  2.1

  	
  Services
  to be Provided by FLNG

  	
   

  
	
  2.2

  	
  Additional
  Services

  	
   

  
	
  2.3

  	
  Activities
  Outside Scope of this Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3
  SALE AND PURCHASE OF SERVICES

  	
   

  
	
  3.1

  	
  Services
  Quantity

  	
   

  
	
  3.2

  	
  Customer’s Use of
  Services Quantity

  	
   

  
	
  3.3

  	
  Gas Redelivery

  	
   

  
	
  3.4

  	
  Failure
  to Take Delivery of Gas at Delivery Point

  	
   

  
	
  3.5

  	
  Freeport
  Services Manual

  	
   

  
	
  3.6

  	
  Services
  Relating to Gas Storage Facilities

  	
   

  
	
  3.7

  	
  Interpretation
  of Agreement upon Shared Facilities Expansion

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4
  COMPENSATION FOR SERVICES

  	
   

  
	
  4.1

  	
  Fee

  	
   

  
	
  4.2

  	
  Retainage

  	
   

  
	
  4.3

  	
  Services
  Unavailability

  	
   

  
	
  4.4

  	
  New Regulatory Costs or
  Taxes

  	
   

  
	
  4.5

  	
  Services Provided
  to Other Customers

  	
   

  
	
  4.6

  	
  Relief
  from Certain Payments for Annual Shortfall

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5
  SCHEDULING

  	
   

  
	
  5.1

  	
  Customer LNG Receipt
  Schedule

  	
   

  
	
  5.2

  	
  Gas
  Delivery Procedure

  	
   

  
	
  5.3

  	
  Standard

  	
   

  
	
  5.4

  	
  Scheduling Representative

  	
   

  
	
  5.5

  	
  Scheduling
  Coordination Among Customer and Other Customers

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6
  RELEASE OF SERVICES

  	
   

  
	
  6.1

  	
  General

  	
   

  
	
  6.2

  	
  Temporary
  Release

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7
  TERM

  	
   

  
	
  7.1

  	
  Term

  	
   

  
	
  7.2

  	
  Commencement of Deliveries

  	
   

  
	
  7.3

  	
  Delay Caused by Force
  Majeure

  	
   

  
	
  7.4

  	
  Construction Progress
  Reports

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8
  FREEPORT FACILITY

  	
   

  
	
  8.1

  	
  Freeport
  Facility

  	
   

  
	
  8.2

  	
  Modifications to
  Freeport Facility

  	
   

  
	
  8.3

  	
  Customer Inspection Rights

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9
  TRANSPORTATION AND UNLOADING

  	
   

  
	
  9.1

  	
  LNG Vessels

  	
   

  

 

i

 

	
  9.2

  	
  Freeport
  Facility Marine Operations Manual

  	
   

  
	
  9.3

  	
  LNG
  Vessel Inspections; Right to Reject LNG Vessel

  	
   

  
	
  9.4

  	
  Advance
  Notices Regarding LNG Vessel and Cargoes

  	
   

  
	
  9.5

  	
  Notice of
  Readiness

  	
   

  
	
  9.6

  	
  Berthing
  Assignment

  	
   

  
	
  9.7

  	
  Unloading Time

  	
   

  
	
  9.8

  	
  Unloading at the
  Freeport Facility

  	
   

  
	
  9.9

  	
  LNG
  Vessel Not Ready for Unloading; Excess Berth Time

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10
  RECEIPT OF LNG

  	
   

  
	
  10.1

  	
  Title, Custody and Risk of Loss

  	
   

  
	
  10.2

  	
  No Encumbrance

  	
   

  
	
  10.3

  	
  Receipt of LNG

  	
   

  
	
  10.4

  	
  Quality and
  Measurement of Customer’s LNG

  	
   

  
	
  10.5

  	
  Off-Specification
  LNG

  	
   

  
	
  10.6

  	
  Customer’s
  Responsibility and Reimbursement

  	
   

  
	
  10.7

  	
  Subsequent
  Deliveries

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11
  REDELIVERY OF GAS

  	
   

  
	
  11.1

  	
  General

  	
   

  
	
  11.2

  	
  Customer’s Responsibility

  	
   

  
	
  11.3

  	
  Specifications
  and Measurement of Gas at the Delivery Point

  	
   

  
	
  11.4

  	
  Nonconforming
  Gas

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12
  PAYMENT

  	
   

  
	
  12.1

  	
  Monthly
  Statements

  	
   

  
	
  12.2

  	
  Other
  Statements

  	
   

  
	
  12.3

  	
  Adjustments

  	
   

  
	
  12.4

  	
  Payment Due
  Dates

  	
   

  
	
  12.5

  	
  Payment

  	
   

  
	
  12.6

  	
  Nonpayment

  	
   

  
	
  12.7

  	
  Disputed
  Statements

  	
   

  
	
  12.8

  	
  Final
  Settlement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13
  CUSTOMER CREDIT AND FLNG SECURED FINANCING

  	
   

  
	
  13.1

  	
  Material
  Adverse Change

  	
   

  
	
  13.2

  	
  UCC-1

  	
   

  
	
  13.3

  	
  Secured
  Financing

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14
  DUTIES, TAXES AND OTHER GOVERNMENTAL CHARGES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 15
  INSURANCE

  	
   

  
	
  15.1

  	
  FLNG’s
  Insurance

  	
   

  
	
  15.2

  	
  Customer’s
  Insurance

  	
   

  
	
  15.3

  	
  Port
  Liability Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 16
  LIABILITIES

  	
   

  
	
  16.1

  	
  Limitation of Liability
  of FLNG

  	
   

  
	
  16.2

  	
  Consequential Loss or
  Damage

  	
   

  
	
  16.3

  	
  Parties’
  Liability; Relationship of Shareholders

  	
   

  

 

ii

 

	
  16.4

  	
  Liability
  for Personal Injury

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 17
  FORCE MAJEURE

  	
   

  
	
  17.1

  	
  Events
  of Force Majeure

  	
   

  
	
  17.2

  	
  Limitation
  on Scope of Force Majeure Protection

  	
   

  
	
  17.3

  	
  Notice

  	
   

  
	
  17.4

  	
  Measures

  	
   

  
	
  17.5

  	
  No
  Extension of Term

  	
   

  
	
  17.6

  	
  Settlement of
  Industrial Disturbances

  	
   

  
	
  17.7

  	
  Allocation
  of Services

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 18
  CURTAILMENT OF SERVICES OR TEMPORARY DISCONTINUATION OF SERVICES

  	
   

  
	
  18.1

  	
  Scheduled
  Curtailment or Temporary Discontinuation of Services

  	
   

  
	
  18.2

  	
  Unscheduled
  Curtailment or Temporary Discontinuation of Services

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 19
  ASSIGNMENT

  	
   

  
	
  19.1

  	
  Restrictions on
  Assignment

  	
   

  
	
  19.2

  	
  Permitted Assignments

  	
   

  
	
  19.3

  	
  Assignment as Novation

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 20
  TERMINATION

  	
   

  
	
  20.1

  	
  Early Termination Events

  	
   

  
	
  20.2

  	
  Other Termination Provisions

  	
   

  
	
  20.3

  	
  Consequences of Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 21
  APPLICABLE LAW

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 22 DISPUTE
  RESOLUTION

  	
   

  
	
  22.1

  	
  Dispute Resolution

  	
   

  
	
  22.2

  	
  Expert Determination

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 23
  CONFIDENTIALITY

  	
   

  
	
  23.1

  	
  Confidentiality Obligation

  	
   

  
	
  23.2

  	
  Public Announcements

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 24
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  24.1

  	
  Representations
  and Warranties of Customer

  	
   

  
	
  24.2

  	
  Representations
  and Warranties of FLNG

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 25
  NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 26
  MISCELLANEOUS

  	
   

  
	
  26.1

  	
  Amendments

  	
   

  
	
  26.2

  	
  Approvals

  	
   

  
	
  26.3

  	
  Successors and Assigns

  	
   

  
	
  26.4

  	
  Waiver

  	
   

  
	
  26.5

  	
  No Third Party Beneficiaries

  	
   

  
	
  26.6

  	
  Rules
  of Construction

  	
   

  
	
  26.7

  	
  Survival of
  Rights

  	
   

  
	
  26.8

  	
  Rights
  and Remedies; Specific Performance

  	
   

  
	
  26.9

  	
  Interpretation

  	
   

  

 

iii

 

	
  26.10

  	
  Disclaimer
  of Agency

  	
   

  
	
  26.11

  	
  No
  Sovereign Immunity

  	
   

  
	
  26.12

  	
  Severance of Invalid
  Provisions

  	
   

  
	
  26.13

  	
  Compliance
  with Laws

  	
   

  
	
  26.14

  	
  Conflicts
  of Interest

  	
   

  
	
  26.15

  	
  Expenses

  	
   

  
	
  26.16

  	
  Scope

  	
   

  
	
  26.17

  	
  Counterpart Execution

  	
   

  
	
   

  	
   

  	
   

  
	
  Annex I

  	
  –

  	
   

  	
  Measurements and Tests for LNG at Receipt Point

  	
   

  
	
  Annex II

  	
  –

  	
   

  	
  Measurements and Tests for Gas at Delivery
  Point

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  –

  	
   

  	
  Freeport Services Manual

  	
   

  
	
  Exhibit B

  	
  –

  	
   

  	
  Other Credit Agreement Amounts

  	
   

  

 

iv

 

LNG TERMINAL USE AGREEMENT

 

This LNG TERMINAL USE
AGREEMENT (the “Agreement”), dated as of this 2nd day of July, 2004 (the “Effective
Date”), is made by and between CONOCOPHILLIPS COMPANY, a company
incorporated under the laws of Delaware with its principal office at 600 North
Dairy Ashford, Houston, Texas 77079 (“Customer”); and FREEPORT LNG DEVELOPMENT, L.P.,
a Delaware limited partnership with a place of business at 1200 Smith Street,
Suite 600, Houston, Texas, U.S.A. 77002 (“FLNG”).

 

RECITALS

 

WHEREAS, FLNG intends to construct, own and
operate an LNG terminal facility near Freeport, Texas capable of performing
certain LNG terminalling services, including: the berthing of LNG vessels; the
unloading, receiving and storing of LNG; the regasification of LNG; the storage
of natural gas; and the transportation and delivery of natural gas to a
pipeline interconnection point at Stratton Ridge, Texas;

 

WHEREAS, Customer will purchase LNG for
importation into the United States and desires to purchase such LNG
terminalling services from FLNG; and

 

WHEREAS, FLNG desires to make such LNG
terminalling services available to Customer and to Other Customers in
accordance with the terms hereof;

 

NOW, THEREFORE, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the Parties hereto and for the mutual covenants contained herein, FLNG and
Customer hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

In addition to any terms
or expressions defined elsewhere in this Agreement, the terms or expressions
set forth below shall have the following meanings in this Agreement:

 

1.1          “Actual FOC” means fixed operating costs
and maintenance capital arising out of, relating to, or connected with the
Freeport Facility actually incurred by FLNG acting as a Reasonable and Prudent
Operator; provided that the amount of
fixed operating costs and maintenance capital shall be reduced by (a) any insurance proceeds (including proceeds from
business interruption insurance policies which premiums were included in Actual
FOC) received by FLNG which have the effect of offsetting fixed operating
costs; (b) any premiums for business interruption insurance if the proceeds
from such insurance would not have the effect of offsetting fixed operating
costs; (c) any indemnities,
liabilities, damages, credits or
rebates received by FLNG from third parties (excluding Other Customers) which
offset amounts included in Actual FOC; (d) any indemnities, liabilities, or damages received by FLNG from Other Customers which offset amounts included in
Actual FOC; (e) any bonuses paid to employees of FLNG to the extent that such
bonuses are based on or attributable to distributions to any of FLNG’s limited

 

1

 

partners; (f) any New Taxes and New Regulatory Costs borne by FLNG
pursuant to Section 4.4; (g) any permitting, engineering, development,
financing, design and environmental remediation costs paid to third parties
which costs are directly related to the development of any modification that
significantly expands the Freeport Facility; (h) Awards; (i) all indemnities, liabilities, and other
damages arising from any arbitral award, expert determination, judgment, or
settlement payable by FLNG to any Indemnitee (as defined in the Partnership
Agreement of FLNG); (j) fixed operating costs and maintenance capital
which are incurred outside the normal course of business and which benefit
solely Other Customers; (k) marketing expenses paid to third parties related solely to potential Other
Customers; (l) costs incurred in
connection with Tranche B Loans and TPS Loans (each as defined in the Credit
Agreement); and (m) Excluded Credit Agreement Amounts.  For the avoidance of doubt,
Actual FOC shall not include capital expenditures (other than maintenance
capital) incurred by FLNG, amounts payable by Customer under the *** and other
debt service.

 

1.2          “Adverse
Weather Conditions” means weather and sea conditions actually
experienced at or near the Freeport Facility that are sufficiently severe
either: (a) to prevent an LNG Vessel from proceeding to berth, or unloading or
departing from berth, in accordance with one or more of the following: (i)
regulations published by a Governmental Authority, (ii) an Approval, or (iii)
an order of a Pilot; or (b) to cause an actual determination by the Master
of an LNG Vessel that it is unsafe for such vessel to berth, unload or depart
from berth.

 

1.3          “Affiliate”
means a Person (other than a Party) that directly or indirectly controls, is
controlled by, or is under common control with, a Party to this Agreement, and
for such purposes the terms “control”, “controlled by” and other derivatives
shall mean the direct or indirect ownership of more than fifty percent (50%) of
the voting rights in a Person.

 

1.4          “Aggregate
Actual Capacity” means the sum of Customer Actual Capacity in
a Contract Year plus the aggregate quantity of LNG received at the Freeport
Facility for the account of each Other Customer in such Contract Year.

 

1.5          “Aggregate
Contracted Capacity” means the sum of the Customer Contracted
Capacity plus the aggregate quantity of LNG contracted at the Freeport Facility
(and any quantities of LNG received by FLNG in excess of such contracted
quantity) for the account of each Other Customer in such Contract Year.

 

1.6          “Agreement”
means this agreement, together with the Annexes and Exhibits attached hereto,
which are hereby incorporated into and made a part hereof, as the same may be
hereafter amended.

 

1.7          “Alternate
***” shall have the meaning set forth in Section 3.3(c)(ii).

 

1.8          “Approvals”
means all consents, authorizations, licenses, waivers, permits, approvals and
other similar documents from or by a Governmental Authority.

 

1.9          “Arrival Date”
shall have the meaning set forth in Section 5.1(b)(i).

 

1.10        “Arrival
Location” shall have the meaning set forth in Section 9.5(a).

 

1.11        “Awards”
means all indemnities, liabilities, and other damages arising from any arbitral
award, expert determination, judgment, or settlement paid by FLNG to Customer
under

 

2

 

this Agreement or paid by FLNG under an LNG terminalling services
agreement with Other Customers, such indemnities,
liabilities, and other damages being determined after deduction of any proceeds of insurance, indemnities, liabilities, damages, credits or rebates received by FLNG which
have the effect of offsetting such Awards.

 

1.12        “Awards
Installment” shall have the meaning set forth in
Section 4.1(a)(i)e.

 

1.13        “Base Rate”
means: (a) the interest rate per annum equal to (i) the prime rate
(sometimes referred to as the base rate) for corporate loans as published by The Wall
Street Journal in the money rates section on the applicable
date, or (ii) in the event The Wall Street Journal ceases or fails to
publish such a rate, the prime rate (or an equivalent thereof) in the United
States for corporate loans determined as the average of the rates referred to
as prime rate, base rate or the equivalent thereof, quoted by J.P. Morgan Chase
& Co. of New York, or any successor thereof, for short term corporate loans
in New York on the applicable date; plus (b) *** percent (***%).  The Base Rate shall change as and when the
underlying components thereof change, without notice to any Person.

 

1.14        “British
Thermal Unit” or “BTU” means the amount of heat required to
raise the temperature of one (1) avoirdupois pound of pure water from 59.0
degrees Fahrenheit to 60.0  degrees Fahrenheit at an absolute
pressure of 14.696 pounds per square inch.

 

1.15        “Budgeted
FOC”
means fixed operating costs and maintenance capital arising out of, relating
to, or connected with the Freeport Facility pursuant to the budgets prepared
pursuant to the Stockholders Agreement dated as of the date hereof between Freeport LNG-GP, Inc., a Delaware
corporation, Michael S. Smith and Customer, as amended from time to time;
provided that the amount of fixed operating costs and maintenance
capital shall be reduced by (a) any
insurance proceeds (including proceeds from business interruption insurance
policies which premiums were included in Actual FOC) received by FLNG which
have the effect of offsetting fixed operating costs; (b) any premiums for
business interruption insurance if the proceeds from such insurance would not
have the effect of offsetting fixed operating costs; (c) any indemnities, liabilities, damages, credits or rebates received by FLNG from
third parties (excluding Other Customers) which offset amounts included in
Actual FOC; (d) any indemnities,
liabilities, or damages received
by FLNG from Other Customers which offset amounts included in Actual FOC; (e)
any bonuses paid to employees of FLNG to the extent that such bonuses are based
on or attributable to distributions to any of FLNG’s limited partners; (f) any
New Taxes and New Regulatory Costs borne by FLNG pursuant to Section 4.4;
(g) any permitting, engineering, development, financing, design and
environmental remediation costs paid to third parties which costs are directly
related to the development of any modification that significantly expands the
Freeport Facility; (h) Awards; (i) all indemnities, liabilities, and other damages arising from any arbitral
award, expert determination, judgment, or settlement payable by FLNG to any
Indemnitee (as defined in the Partnership Agreement of FLNG); (j) fixed
operating costs and maintenance capital which are incurred outside the normal
course of business and which benefit solely Other Customers; (k) marketing
expenses paid to third parties related
solely to potential Other Customers; (l) costs incurred in connection with Tranche B Loans and TPS
Loans (each as defined in the Credit Agreement); and (m) Excluded Credit
Agreement Amounts.  For the avoidance of doubt, Budgeted FOC
shall not include capital expenditures (other than maintenance

 

3

 

capital) incurred by FLNG, amounts payable by Customer under the *** and
other debt service.

 

1.16        “Build-Up
Period” means the period of time commencing on the Commercial Start
Date and ending on the day prior to the Plateau Inception Date.

 

1.17        “Business Day”
means any day other than a weekend day or U.S. Federal banking holiday in
Houston, Texas.

 

1.18        “C Ratio” means the ratio that the
Customer Actual Capacity bears to the Aggregate Actual Capacity.

 

1.19        “Cargo”
means a quantity of LNG expressed in MMBTU carried by an LNG Vessel in relation
to which FLNG will render Services hereunder.

 

1.20        “Central Time”
means Central Time Zone, as adjusted for Daylight Saving Time and Standard
Time.

 

1.21        “Claims”
shall have the meaning set forth in Section 10.2 of this Agreement.

 

1.22        “Commercial
Start Date” shall have the meaning set forth in Section 7.2.

 

1.23        “Contract
Year” means each annual period starting on October 1 and ending
on September 30 during the Term of this Agreement; provided, however, that
(a) the first Contract Year shall commence on the Commercial Start Date and end
on the following September 30, and (b) the last Contract Year shall
commence on October 1 immediately preceding the last day of the Term and
end on the last day of the Term as set forth in Section 7.1.

 

1.24        “Conversion Date” shall have the
meaning set forth in the Credit
Agreement.

 

1.25        “Credit
Agreement” means that certain Credit Agreement executed as of the
date hereof between FLNG, Freeport LNG-GP, Inc.,  Customer, and various
financial institutions, as in effect on the date hereof.

 

1.26        “Crest
Contract” means that
certain Settlement and Purchase Agreement dated as of June 14, 2001 by and
among Cheniere Energy, Inc., a Delaware corporation, CXY Corporation, a Texas
corporation, Crest Energy, L.L.C., a Texas limited liability company, Crest
Investment Company, a Texas corporation, FLT, and Jamal Daniel.

 

1.27        “Crest
Installment” shall have the meaning set forth in
Section 4.1(a)(i)d.

 

1.28        “Crest Payment” means the amount
estimated to be payable by FLT for the following month pursuant to
Section 1.03(a) of the Crest Contract.

 

1.29        “Crest Reconciliation” shall have the
meaning set forth in Section 4.1(a)(i)d.

 

1.30        “Cubic Meter”
means a volume equal to the volume of a cube each edge of which is one (1)
meter.

 

1.31        “Customer”
means ConocoPhillips Company, unless and until substituted in whole by an
assignee by novation in accordance with Article 19, whereupon such
assignee shall become Customer for all purposes.

 

1.32        “Customer
Actual Capacity” means the aggregate quantity of LNG received at the
Freeport Facility for the account of Customer in a Contract Year.

 

4

 

1.33        “Customer
Contracted Capacity” means the sum of the Maximum LNG Reception
Quantity for such Contract Year plus any quantities of LNG received under
Section 3.1(d) in excess of the Maximum LNG Reception Quantity.

 

1.34        “Customer LNG
Receipt Schedule” shall have the meaning set forth in
Section 5.1(f).

 

1.35        “Customer’s
Inventory” means, at any given time, the quantity in MMBTUs that
represents LNG and Gas (whether or not such Gas is Regasified LNG or Gas
derived or produced from sources other than Regasified LNG) held for Customer’s
account.  For the avoidance of doubt,
Customer’s Inventory shall (i) be determined after deduction of Retainage in
accordance with Sections 3.1(b)(ii) and 4.2 and (ii) include Temporary Release
Inventory.

 

1.36        “Customer’s
LNG” means, for the purposes of Services, LNG received at the
Receipt Point for Customer’s account.

 

1.37        “***”
shall have the meaning set forth in Section 4.1(a)(i)a.

 

1.38        “***”
shall have the meaning set forth in Section 4.1(a)(i)a.

 

1.39        “Delivery
Point” means the point of interconnect between the Freeport Facility
Pipeline and a Downstream Pipeline at Stratton Ridge, Texas.

 

1.40        “Dispute”
means any dispute, controversy or claim (of any and every kind or type, whether
based on contract, tort, statute, regulation, or otherwise) arising out of,
relating to, or connected with this Agreement, including any dispute as to the
construction, validity, interpretation, termination, enforceability or breach
of this Agreement, as well as any dispute over arbitrability or jurisdiction.

 

1.41        “Downstream
Pipeline” means all Gas pipelines downstream of the Delivery Point
which transport Gas from the Freeport Facility.

 

1.42        “Effective
Date” means the date set forth in the preamble of this Agreement.

 

1.43        “Excess
Reception Fee” shall have the meaning set forth in
Section 4.1(c).

 

1.44        “Excluded
Credit Agreement Amounts” means (a) amounts arising from or relating
to any prepayments under, or any breach of, or default under, the Credit
Agreement, including (i) any interest at the Default Rate (as defined in the
Credit Agreement) and (ii) any amount due by FLNG in connection with the
exercise by the Indemnified Persons (as defined in the Credit Agreement) of any
of their rights or remedies in connection with the Credit Agreement or the
documents executed in connection therewith (including amounts payable pursuant
to Section 9.1 of the Credit Agreement and acceleration of the principal, interest
or any other amounts); (b) amounts payable pursuant to Section 9.2 of the
Credit Agreement; and (c) amounts arising from or relating to any actions taken
with respect to the Financing Documents (as defined in the Credit Agreement),
including any restructuring, amendment or other modification thereof or any
consent or waiver thereunder.

 

1.45        “Expansion
Company” shall have the meaning set forth in Section 3.7(a).

 

1.46        “Expected
Receipt Quantity” means, with respect to a given Cargo, Customer’s
reasonable estimate of the quantity of LNG (in MMBTUs) that such Cargo is
expected to unload at the Freeport Facility, taking into consideration (a) the
expected composition of

 

5

 

the Cargo
anticipated to be loaded at the Loading Port, (b) the expected loaded volume of
such Cargo, (c) the natural boil-off, and fuel gas used by the vessel in excess
of natural boil-off, expected during shipment of the Cargo, (d) the anticipated
time required from the commencement of loading of such Cargo to the completion
of unloading of such Cargo, and (e) the anticipated quantity of heel to be
retained by such Cargo.  For purposes of
this Agreement, the term “Expected Receipt Quantity” shall be the estimate set
forth in the notice delivered pursuant to Section 5.1(b)(ii), as may be
subsequently amended pursuant to Section 9.4(a).

 

1.47        “Extension
Term” shall have the meaning set forth in Section 7.1(b).

 

1.48        “Fee”
shall have the meaning set forth in Section 4.1.

 

1.49        “FERC”
means the Federal Energy Regulatory Commission or a successor regulatory
agency.

 

1.50        “FLNG”
means Freeport LNG Development, L.P., unless and until substituted by an
assignee by novation in accordance with Article 19, whereupon such
assignee shall become FLNG for all purposes.

 

1.51        “FLNG
Component” shall have the meaning set forth in
Section 4.1(a)(i)b.

 

1.52        “FLT”
means Freeport LNG Terminal, LLC, a Delaware limited liability company, and its
successors and assigns.

 

1.53        “FOC
Installment” shall have the meaning set forth in
Section 4.1(a)(i)c.

 

1.54        “FOC Ratio”
means the ratio calculated for any given Contract Year, determined as follows:

 

(a)           Customer Contracted
Capacity; divided by

 

(b)           the Aggregate
Contracted Capacity;

 

provided, however, that
for each Contract Year during the Build-up Period the FOC Ratio shall in no
event exceed two thirds (2/3).

 

1.55        “FOC
Reconciliation” shall have the meaning set forth in
Section 4.1(a)(i)c.

 

1.56        “Force
Majeure” shall have the meaning set forth in Section 17.1.

 

1.57        “for Customer”,  “for
Customer’s account”, “on behalf of Customer” or other phrases
containing similar wording shall include LNG delivered to the Freeport Facility
at Customer’s direction or LNG delivered to the Freeport Facility by a
Temporary Customer, as the context may require, and shall include Customer’s
Inventory (including any Temporary Release Inventory).

 

1.58        “Freeport
Facility” means the following FLNG facilities in Brazoria County
near Freeport, Texas used to provide Services hereunder, as such facilities
will be constructed and modified from time to time in accordance with this
Agreement: (a) the LNG receiving terminal facility as further described in
Section 8.1(b) (including the port, berthing and unloading facilities, LNG
storage facilities, and regasification facilities, together with equipment and
facilities related thereto); and (b) the Freeport Facility Pipeline.  For the avoidance of doubt, “Freeport
Facility” excludes any Gas Storage Facility.

 

6

 

1.59        “Freeport
Facility Leases” means the following three leases: (a) that certain
Ground Lease and Development Agreement between Brazos River Harbor Navigation
District of Brazoria County, Texas and FLNG dated as of December 12, 2002,
(b) that certain Ground Lease and Slip Development Agreement between Brazos
River Harbor Navigation District of Brazoria County, Texas and FLNG Land, Inc.
dated as of January 19, 2004, and (c) that certain Ground Lease and Dock
Development Agreement between Brazos River Harbor Navigation District of
Brazoria County, Texas and FLNG Land, Inc. dated as of January 28, 2004.

 

1.60        “Freeport
Facility Marine Operations Manual” shall have the meaning set forth
in Section 9.2.

 

1.61        “Freeport
Facility Pipeline” means the pipeline approximately nine (9) miles
in length and at least thirty-six (36) inches in diameter, with a maximum
allowable operating pressure of no less than 1440 psig, which pipeline is
constructed and operated as a part of the Freeport Facility to (a) interconnect
with one or more Downstream Pipelines at Stratton Ridge, Texas and (b)
transport to the Delivery Point either Regasified LNG and/or Gas stored in one
or more Gas Storage Facilities.

 

1.62        “Freeport
Services Manual”  shall have the meaning set forth in
Section 3.5.

 

1.63        “***”
means the internet based computer
system used by FLNG to communicate with Customer and Other Customers regarding
the scheduling of LNG terminalling services at the Freeport Facility.

 

1.64        “Gas”
means any hydrocarbon or mixture of hydrocarbons consisting predominantly of
methane which is in a gaseous state.

 

1.65        “Gas Storage
Facility” means an underground Gas storage facility near Stratton
Ridge, Texas owned, operated, contracted or otherwise made available to FLNG or
one or more of its Affiliates for the purposes of storing Gas solely for the
account of Customer and Other Customers.

 

1.66        “Governmental
Authority” means, in respect of any country, any national, regional,
state, or local government, any subdivision, agency, commission or authority
thereof (including any maritime authorities, port authority or any
quasi-governmental agency) having jurisdiction over a Party, the Freeport
Facility, a Gas Storage Facility, Customer’s Inventory, an LNG Vessel, a
Transporter or a Downstream Pipeline, as the case may be, and acting within its
legal authority.

 

1.67        “GPA”
shall have the meaning set forth in Annex I.

 

1.68        “Gross
Heating Value” means the quantity of heat expressed in BTUs produced
by the complete combustion in air of one (1) cubic foot of anhydrous gas, at a
temperature of 60.0 degrees Fahrenheit and at an absolute pressure of 14.696
pounds per square inch, with the air at the same temperature and pressure as
the gas, after cooling the products of the combustion to the initial
temperature of the gas and air, and after condensation of the water formed by
combustion.

 

1.69        “GSF
Amendments”  shall have the meaning set forth in
Section 3.6.

 

1.70        “Henry Hub
Price”  shall mean, with respect to any month, the final settlement
price in dollars per MMBTU for the NYMEX Henry Hub Natural Gas futures contract
for Gas to

 

7

 

be delivered
during such month, such final price to be based upon the last trading day for
the contract for such month; provided, however that if the NYMEX Henry Hub
Natural Gas futures contract settlement price ceases to be published for any
reason, the Parties shall select a comparable index to be used in its place
that maintains the intent and economic effect of the original index.

 

1.71        “Incremental
Costs” shall have the meaning set forth in Section 4.1(b).

 

1.72        “International
LNG Terminal Standards” means, to the extent not inconsistent with
the express requirements of this Agreement, the international standards and practices
applicable to the design, equipment, operation or maintenance of LNG receiving
and regasification terminals, established by the following (such standards to
apply in the following order of priority): (i) a Governmental Authority
having jurisdiction over FLNG; (ii) the Society of International Gas Tanker and
Terminal Operators (“SIGTTO”); and (iii) any other
internationally recognized non-governmental agency or organization with whose
standards and practices it is customary for Reasonable and Prudent Operators of
LNG receiving and regasification terminals to comply.  In the event of a conflict between any of the priorities noted
above, the priority with the lowest roman numeral noted above shall prevail.

 

1.73        “International
LNG Vessel Standards” means, to the extent not inconsistent with the
expressed requirements of this Agreement, the international standards and
practices applicable to the ownership, design, equipment, operation or
maintenance of LNG vessels established by the following (such standards to
apply in the following order of priority): (i) a Governmental Authority; (ii)
the International Maritime Organization; (iii) SIGTTO; and (iv) any other
internationally recognized non-governmental agency or organization with whose
standards and practices it is customary for Reasonable and Prudent Operators of
LNG vessels to comply.  In the event of
a conflict between any of the priorities noted above, the priority with the
lowest roman numeral noted above shall prevail.

 

1.74        “Liabilities”
means all liabilities, costs, claims,
disputes, demands, suits, legal or administrative proceedings, judgments,
damages, losses and expenses (including reasonable attorneys’ fees and other
reasonable costs of litigation or defense), and any and all fines, penalties and
assessments of, or responsibilities to, Governmental Authorities.

 

1.75        “Liquids”
means liquid hydrocarbons capable of being extracted from LNG at the Freeport
Facility, consisting predominately of ethane, propane, butane and longer-chain
hydrocarbons.

 

1.76        “Loading Port”
means the port at which a Cargo is loaded on board an LNG Vessel.

 

1.77        “LNG”
means Gas in a liquid state.

 

1.78        “LNG
Suppliers” means, in relation to performance of the obligations of
FLNG and Customer under this Agreement, those Persons who agree in writing
pursuant to an agreement to supply or sell LNG to Customer or a Temporary
Customer for delivery to the Freeport Facility.

 

1.79        “LNG Supply
Project”  means a Person (other than Customer or an
Affiliate of Customer) engaged in supplying LNG originating from ***, provided
that Customer or

 

8

 

its Affiliate
directly or indirectly controls more than *** percent (***%) of the voting
rights in such Person.

 

1.80        “LNG Vessel”
means an ocean-going vessel suitable for transporting LNG that Customer, a
Temporary Customer, or an LNG Supplier uses for transportation of LNG to the
Freeport Facility.

 

1.81        “Major
Customer” means Customer and any Other Customer whose terminal use
agreement entitles such Other Customer to berth, unload and deliver at the
Freeport Facility quantities of LNG greater than *** MMBTUs  per Contract Year for a
contractual term of at least *** (***) years.

 

1.82        “Major
Customer Allocation Priority” shall have the meaning set forth in
Section 17.7.

 

1.83        “***”
shall have the meaning set forth in Section 3.3(b).

 

1.84        “Maximum LNG Reception Quantity”
means  390,550,000 MMBTUs of LNG per
Contract Year; provided, that:

 

(a)           during
the Build-Up Period, the Maximum LNG Reception Quantity shall be *** MMBTUs,
provided that for the first Contract Year, the Maximum LNG Reception Quantity
shall be prorated based upon the ratio that the number of days during such
Contract Year bears to three hundred sixty-five (365); and

 

(b)           for the
last Contract Year, the Maximum LNG Reception Quantity shall be prorated based
upon the ratio that the number of days during such Contract Year bears to three
hundred sixty-five (365).

 

1.85        “***”
shall have the meaning set forth in Section 3.3(c).

 

1.86        “MMBTU”
means 1,000,000 BTUs.

 

1.87        “Monthly
Component” means twelve (12); provided, however, that for the first
and last Contract Year, Monthly Component shall mean the number of months in
the respective Contract Year with the first and last months in such Contract
Year being prorated based upon the number of days in such month.

 

1.88        “Nomination
Notice”  shall have the
meaning set forth in Section 5.2(c).

 

1.89        “Non-Major
Customer” means any Other Customer other than a Major Customer.

 

1.90        “NOR Window”
shall have the meaning set forth in Section 9.5(b)(ii).

 

1.91        “Notice of
Readiness” or “NOR” shall have the meaning set forth in
Section 9.5.

 

1.92        “Other Credit
Agreement Amounts” means the amounts set forth in Exhibit B.

 

1.93        “Other
Customers” means, from time to time, Persons (other than Customer
and Temporary Customers) receiving LNG terminalling services from the Freeport
Facility similar to the Services.

 

1.94        “Party”
and “Parties” means FLNG and
Customer, and their respective successors and assigns.

 

1.95        “Payment
Period” shall have the meaning set forth in Section 4.1.

 

1.96        “Peaking Gas”
shall have the meaning set forth in Section 3.1(b)(iii).

 

9

 

1.97        “Person”
means any individual, corporation, partnership, trust, unincorporated
organization or other legal entity, including any Governmental Authority.

 

1.98        “Pilot”
means any Person engaged by Transporter to come on board an LNG Vessel to
assist the Master in pilotage, mooring and unmooring of such LNG Vessel and to
assist in coordinating the unloading of LNG at the Freeport Facility.

 

1.99        “Pipeline
Standards” means, to the extent not inconsistent with the express
requirements of this Agreement, the standards and practices applicable to the
design, equipment, operation or maintenance of Gas pipelines, established by
the following (such standards to apply in the following order of priority):
(i) a Governmental Authority having jurisdiction over FLNG; and (ii) any
nationally recognized non-governmental agency or organization with whose
standards and practices it is customary for Reasonable and Prudent Operators of
U.S. Gas pipelines to comply.  In the
event of a conflict between any of the priorities noted above, the priority
with the lowest roman numeral noted above shall prevail.

 

1.100      “Plateau
Inception Date” means October 1, 2009.

 

1.101      “Port Charges”
means all third-party charges of whatsoever nature (including rates, tolls, and
dues of every description) in respect of an LNG Vessel entering or leaving the
Freeport Facility, including charges imposed by fire boats, tugs and escort
vessels, the U.S. Coast Guard, a Pilot, and any other Person assisting an LNG
Vessel to enter or leave the Freeport Facility.  For purposes of this Agreement, the term “Port Charges” shall
include, to the extent applicable to LNG Vessels, Port Use Fees (excluding
rent) and Thru-put Fees (as such terms are defined under the Freeport Facility
Leases) but shall exclude all other fees under the Freeport Facility Leases.

 

1.102      “psig”
means pounds per square inch gauge.

 

1.103      “Reasonable
and Prudent Operator” means a Person seeking in good faith to
perform its contractual obligations, and in so doing, and in the general
conduct of its undertaking, exercising that degree of skill, diligence,
prudence and foresight which would reasonably and ordinarily be expected from a
skilled and experienced operator engaged in the same type of undertaking under
the same or similar circumstances and conditions.

 

1.104      “Receipt
Point” means the point at the Freeport Facility at which the flange
coupling of the Freeport Facility’s receiving line joins the flange coupling of
the LNG unloading manifold on board an LNG Vessel.

 

1.105      “Regasified
LNG” means Gas derived from the conversion of LNG (received by FLNG
at the Receipt Point) from its liquid state to a gaseous state.

 

1.106      “Release
Notice” shall have the meaning set forth in Section 6.2(b)(i)c.

 

1.107      “Reservation
Fee” shall have the meaning set forth in Section 4.1(a).

 

1.108      “Retainage”
shall have the meaning set forth in Section 4.2.

 

1.109      “Scheduled
Unloading Window” means, for any applicable Contract Year, an
Unloading Window allocated either to Customer or any Other Customer pursuant to
Article 5.

 

10

 

1.110      “Scheduling
Period” means a Contract Year plus the three (3) month period
immediately following such Contract Year.

 

1.111      “Scheduling
Representative” means the individual appointed by Customer in
accordance with Section 5.4.

 

1.112      “Services”
shall have the meaning set forth in Section 2.1, as expanded from time to
time in accordance with Section 2.2.

 

1.113      “Services
Quantity” shall have the meaning set forth in Section 3.1(b).

 

1.114      “Services
Unavailability” shall have the meaning set forth in
Section 4.3.

 

1.115      “Shared
Facilities Expansion” shall have the meaning set forth in
Section 3.7(a).

 

1.116      “Sole Opinion”
means an opinion, judgment or discretion of a Party that is not intended to be
capable of being challenged in any legal or arbitral proceeding whatsoever.

 

1.117      “Standard
Cubic Foot”  means the quantity of Gas, free of water
vapor, occupying a volume of one (1) Actual Cubic Foot at a temperature of 60.0
degrees Fahrenheit and at an absolute pressure of 14.696 pounds per square
inch.  For purposes of this
Section 1.117, “Actual Cubic Foot” means a volume equal to
the volume of a cube whose edge is one (1) foot.

 

1.118      “Storage”
means the retention by FLNG of Customer’s Inventory for a period of time in
tanks or other facilities at the Freeport Facility (including the Freeport
Facility Pipeline) or in a Gas Storage Facility.

 

1.119      “Storage
Standards” means, to the extent not inconsistent with the express
requirements of this Agreement, the standards and practices applicable to the
design, equipment, operation or maintenance of Gas storage facilities,
established by the following (such standards to apply in the following order of
priority): (i) a Governmental Authority having jurisdiction over FLNG; and
(ii) any nationally recognized non-governmental agency or organization with
whose standards and practices it is customary for Reasonable and Prudent
Operators of Gas storage facilities to comply. 
In the event of a conflict between any of the priorities noted above,
the priority with the lowest roman numeral noted above shall prevail.

 

1.120      “Taxes”
means all customs, taxes, royalties, excises, fees, duties, levies, sales and use taxes and value added taxes, charges
and all other assessments, which may
now or hereafter be enacted, levied or imposed, directly or indirectly,
by a Governmental Authority, except Port Charges.

 

1.121      “Temporary
Customer” shall have the meaning set forth in Section 6.2(a).

 

1.122      “Temporary
Release” shall have the meaning set forth in Section 6.2(a).

 

1.123      “Temporary
Release Inventory” means, at any given time, the quantity in MMBTUs
that represents (a) the LNG received at the Receipt Point for Temporary
Customer’s account; and (b) Gas, whether or not such Gas is Regasified LNG or
Gas derived or produced from sources other than Regasified LNG, held for
Temporary Customer’s account.

 

1.124      “Term”
shall have the meaning set forth in Section 7.1.

 

11

 

1.125      “Transporter”
means any Person who owns or operates an LNG Vessel.

 

1.126      “Unloading
Window” means a forty-eight (48) hour window starting at 6:00 a.m.,
Central Time on a specified day and ending forty-eight (48) consecutive hours
thereafter during which FLNG would make available berthing and LNG unloading
services at the Freeport Facility to either Customer or one of the Other
Customers.

 

ARTICLE 2

SERVICES AND SCOPE

 

2.1          Services to be Provided by FLNG

 

During the Term, FLNG
shall, acting as a Reasonable and Prudent Operator, make available the
following services to Customer (such available services being herein referred
to as the “Services”) in the manner set forth in Article 3:

 

(a)           the berthing of LNG Vessels at the Freeport Facility;

 

(b)           the unloading and receipt of
LNG from LNG Vessels at the Receipt Point;

 

(c)           the regasifying of LNG
held in Storage;

 

(d)           Storage of Customer’s
Inventory;

 

(e)           the transportation and delivery of Gas in the Freeport Facility Pipeline
to the Delivery Point (it being acknowledged that FLNG may, at its
option, cause Gas to be redelivered to Customer from sources other than
Regasified LNG); and

 

(f)            other activities directly related to performance
by FLNG of the foregoing.

 

2.2          Additional Services

 

From time to time,
the representatives of FLNG and Customer may supplement this Agreement in
accordance with Section 26.1 to provide that FLNG will also make available
services to Customer in addition to the Services set forth in Section 2.1
(including bunkering services).

 

2.3          Activities Outside Scope of this
Agreement

 

For greater certainty, the Parties confirm
that the following activities, inter alia, are not Services provided by
FLNG to Customer and, therefore, such activities are outside of the scope of
this Agreement:

 

(a)           harbor, mooring and
escort services, including those relating
to tugs, service boats, fire boats, and other escort vessels;

 

(b)           the construction,
operation, ownership, maintenance, repair and removal of facilities downstream
of the Delivery Point;

 

(c)           the transportation of Gas beyond the Delivery Point;

 

(d)           the marketing of Gas
and all activities related thereto (except as expressly provided in
Section 3.4); and

 

(e)           the removal, marketing
and transportation of Liquids and all activities related thereto.  For the avoidance of doubt, FLNG reserves
the right to separate and/or

 

12

 

extract Liquids from LNG
upstream of the Delivery Point, provided that such separation does not result
in Gas failing to meet the quality specifications at the Delivery Point
required under Section 11.3.

 

ARTICLE 3

SALE AND PURCHASE OF SERVICES

 

3.1          Services Quantity

 

(a)           Purchase and Sale of
Services.  During each Contract
Year, FLNG shall make available to Customer, and Customer shall purchase and
pay (in respect of the Payment Period) an amount equal to the Fee for, the
Services Quantity.

 

(b)           Services Quantity.  The quantity of Services FLNG shall make
available to Customer (the “Services Quantity”) during a Contract Year,
and for which Customer shall purchase and pay for  (in respect of the Payment Period)  pursuant to Section 3.1(a), shall consist of the following:

 

(i)            Unloading
of LNG.  FLNG shall make the Freeport Facility available during
Unloading Windows to allow berthing, unloading
and receipt of Customer’s LNG in a
quantity up to the Maximum LNG Reception Quantity;

 

(ii)           Storage
of Customers’ Inventory.  FLNG shall
cause Customer’s Inventory, net of Retainage, to be held temporarily in Storage
until redelivered in accordance with Section 3.1(b)(iii) below; and

 

(iii)          Redelivery
of Gas at Delivery Point.  Subject
to the provisions of this Agreement, including Sections 3.3(a), 3.3(b) and
3.3(c), FLNG shall, on a daily basis, make Gas from Customer’s Inventory
available to Customer at the Delivery Point at the rate nominated by Customer
pursuant to Section 5.2(c), which nominated rate shall be no less than the
*** and no more than the ***; provided, however, that FLNG shall:

 

a.             on
a daily basis, make Gas in excess of the *** (“Peaking Gas”) available from
the Freeport Facility to Customer at the Delivery Point in the quantities
determined pursuant to Sections 5.2(a) and 5.2(b)(v), but subject to the
allocation under Section 3.3(d); and

 

b.             in
the event FLNG elects to provide Gas Storage Facilities and the GSF Amendments
have been entered into, offer Peaking Gas to Customer and Other Customers
according to Sections 3.3(d) and 5.2.

 

(c)           Expiration of
Services Quantity.  Subject to
Section 10.7, if Customer does not use any portion of the Services
Quantity made available to Customer pursuant to the terms of this Agreement,
including any portion of the Services Quantity not used in connection with a
Temporary Release, Customer’s right to such unused portion of the Services
Quantity shall expire.

 

(d)           Excess Reception.  Notwithstanding the provisions of
Section 3.1(b)(i), in relation to any Contract Year, FLNG may, in its Sole
Opinion, allow berthing, unloading

 

13

 

and receipt of Customer’s
LNG in quantities in excess of the Maximum LNG Reception Quantity.  Any such reception by FLNG of quantities in
excess of the Maximum LNG Reception Quantity shall be subject to the Parties’
prior agreement upon a temporary increase in the *** for a specified period of
time in order to allow Customer to receive redelivery of such excess quantities
within a reasonable time.  The berthing,
unloading and receipt of such quantities in excess of the Maximum LNG Reception
Quantity shall not be construed to alter or release the obligations of the
Parties under this Agreement, except that Customer shall pay the Excess
Reception Fee for such excess quantities and except as otherwise provided in
the preceding sentence.

 

3.2          Customer’s Use of Services Quantity

 

Customer shall be
entitled to use the Services Quantity in whole or in part by itself, or may
contract with one or more third parties for a Temporary Release of such
Services Quantity pursuant to the terms and conditions of Section 6.2.

 

3.3          Gas Redelivery

 

(a)           No Pre-Delivery
Right.  On any given day during a
Contract Year, Customer shall not be entitled to receive quantities of Gas in
excess of Customer’s Inventory.

 

(b)           ***.  For purposes of this Agreement, the term “***”
means (i) the *** divided by (ii) ***; provided that the *** may
increase as a result of the Large LNG Vessel Gas Redelivery Adjustment pursuant
to Section 3.3(c).

 

(c)           ***. For
purposes of this Agreement, the term “***” means, for any day in which Customer
is nominating pursuant to Section 5.2(c) (a “Nomination Day”), the lesser
of:

 

(i)            (a) the
sum of (x) *** and (y) *** divided by (b) the lesser of thirty (30) or
the number of days from and including the Nomination Day until the last day of
Customer’s next Scheduled Unloading Window; or

 

(ii)           the “Alternate
Minimum Gas Redelivery Rate” as notified pursuant to
Section 5.2(a), such amount being:

 

a.             the
sum of: (x) ***; (y) ***; and (z) the aggregate of the following, calculated
for each Cargo expected to arrive in such month at the Freeport Facility for
Customer’s account after the day in the relevant month that precedes the last
day of such month by eight (8) days: (A) the quantity in MMBTUs of ***, divided
by (B) *** and multiplied by (C) the number of ***, from and
including the last day of the applicable Scheduled Unloading Window to and
including the***; divided by

 

b.             ***;

 

provided, however, if the
Expected Receipt Quantity for a particular Cargo scheduled to be delivered to
the Freeport Facility in the following month exceeds *** MMBTUs, then FLNG
shall have the right, in its notice under Section 5.2(a), to require ***
to allow Other Customers to unload at the Freeport Facility their respective
maximum LNG reception quantity on a *** over the Contract Year

 

14

 

(such higher minimum rate
being the “Large LNG Vessel Gas Redelivery Adjustment”), and further
provided that if the application of the Large LNG Vessel Adjustment results in
the *** exceeding the *** for a particular day, the *** shall automatically
increase by the amount of such excess.

 

(d)           Peaking Gas.  FLNG shall give due consideration to the
notices provided to it by Customer and Other Customers electing to nominate
quantities of Peaking Gas (the “Nominees”) pursuant to Sections 5.2(c) and
5.2(d) and shall allocate such Peaking Gas among the Nominees as follows:

 

(i)            First,
to each Nominee in an amount not to exceed the lesser of (a) the quantity of
Peaking Gas nominated by such Nominee, and (b) the product of (x) the quantity
of ***, and (y) a fraction, the numerator of which is such Nominee’s ***, and
the denominator of which is the aggregate *** of all Nominees;

 

(ii)           Second,
if any excess quantity of Peaking Gas remains available, then to each Nominee
with unfulfilled nominations for such Peaking Gas in an amount not to exceed
the lesser of (a) the quantity of Peaking Gas nominated by such Nominee and not
received under the prior allocation, and (b) the product of (x) the excess
quantity of ***, and (y) a fraction, the numerator of which is the Nominee’s
***, and the denominator of which is the aggregate *** of all Nominees with
unfulfilled nominations for such ***; and

 

(iii)          Third,
if any excess quantity of Peaking Gas remains available, then by repeating the
allocation in Section 3.3(d)(ii) until the entire quantity of Peaking Gas
made available by FLNG has been allocated or all nominations for such Peaking
Gas have been filled.

 

3.4          Failure to Take Delivery of Gas at
Delivery Point

 

If on any day
Customer fails materially to take redelivery of any Gas at the Delivery Point
at the rate nominated by Customer pursuant to Article 5 and such failure
is for reasons other than a Force Majeure or reasons attributable to FLNG, then
FLNG may, at its option, take title to same free and clear of any Claims, and  sell
or otherwise dispose of such Customer’s Inventory using good faith efforts to
obtain the best available prices and to minimize costs.  FLNG shall credit to Customer’s account the
net proceeds from the sale or other disposition of Customer’s Inventory to
which it takes title hereunder, minus actual and reasonable transportation
costs, third party charges, and an administrative fee of $0.05 per MMBTU;
provided, however, that if the amount of the credit exceeds the amount due to
FLNG under the next monthly statement, then FLNG agrees to pay any such excess
amount to Customer within five (5) Business Days after delivery of such monthly
statement.

 

3.5          Freeport Services Manual

 

Acting as a
Reasonable and Prudent Operator, FLNG shall develop and maintain a single
services manual applicable to Customer and all Other Customers which contains
detailed implementation procedures necessary for performance of this Agreement
and agreements with Other Customers with regard to the matters set forth in
Exhibit A attached hereto

 

15

 

(but excluding the
matters governed by the Freeport Facility Marine Operations Manual).  In developing such a manual, FLNG shall
provide Customer with a preliminary draft of the same (the “Preliminary
Services Manual”).  If
Customer desires to consult with FLNG regarding the contents of the Preliminary
Services Manual, Customer shall, no later than fifteen (15) days from delivery
of said manual by FLNG, request to meet with FLNG by providing notice thereof
to FLNG, and FLNG shall, no later than thirty (30) days after receipt of such
notice, meet with Customer to discuss said manual.  If (a) Customer does not submit the foregoing notice to FLNG on a
timely basis or (b) Customer and FLNG meet pursuant to such a notice and are
able during such meeting to agree upon revisions to the draft, then such draft,
as so revised (and as amended from time to time), shall constitute the “Freeport
Services Manual”.  If
Customer and FLNG meet pursuant to the foregoing notice and are unable during
such meeting to agree upon revisions to the Preliminary Services Manual, then
FLNG shall determine, while using its reasonable efforts to accommodate
Customer’s views, the Freeport Services Manual.  In the event FLNG intends to amend the Freeport Services Manual, then
FLNG shall follow the procedure set forth above in relation to the Preliminary
Services Manual.  FLNG shall deliver to
Customer and all Other Customers a copy of the Freeport Services Manual and any
amendments thereto promptly after they have been finalized or amended, as the
case may be.  The Parties shall comply
with the Freeport Services Manual in all material respects.  FLNG will undertake to develop a Freeport
Services Manual that is consistent with this Agreement; however, in the event
of a conflict between the terms of this Agreement and the Freeport Services
Manual, the terms of this Agreement shall control.

 

3.6          Services Relating to Gas Storage
Facilities

 

In the event FLNG
elects to provide one or more Gas Storage Facilities, the Parties shall
negotiate in good faith to amend this Agreement to:

 

(a)           add flexibility for
Customer and Other Customers to the scheduling and operational provisions of
this Agreement commensurate with the capabilities of the Gas Storage
Facilities, including deleting the Large LNG Vessel Gas Redelivery Adjustment
and amending Section 5.2(d); and

 

(b)           ***.

 

The foregoing
amendments are herein referred to as the “GSF Amendments”.  For the avoidance of doubt, Actual FOC and Budgeted FOC shall not
include fixed operating costs of, and maintenance capital on, the Gas Storage
Facilities unless and until the Parties specifically agree the GSF Amendments.

 

3.7          Interpretation of Agreement upon
Shared Facilities Expansion

 

(a)           Shared Facilities
Expansion.  Subject to the expansion
meeting the requirements of Section 8.2, FLNG may cause an expansion of
the Freeport Facility to be owned by the following (each an “Expansion
Company”): (x) an Affiliate of FLNG; or (y) Freeport LNG Expansion,
L.P., a limited partnership intended to be organized and existing under the
laws of the State of Delaware (any such expansion being a “Shared Facilities Expansion”).  Under any Shared Facilities Expansion:

 

16

 

(i)            the
Expansion Company shall provide LNG terminalling services at the Freeport
Facility pursuant to terminal use agreements entered into between the Expansion
Company and Customer and/or Other Customers (each an “Expansion Company TUA”); and

 

(ii)           operations
of shared facilities within the Freeport Facility shall be coordinated pursuant
to agreements between and among FLNG, the Expansion Companies and the secured
lenders of FLNG and the Expansion Companies.

 

(b)           Interpretation.  In the event of a Shared Facilities
Expansion, the Parties confirm their intention that the Parties’ rights and
obligations hereunder shall nonetheless be construed as if:

 

(i)            all
references to “FLNG” (including in Sections 1.1, 1.15, 1.58, 4.4, 4.5, 8.1
and 8.2 but excluding this Section 3.7) include both FLNG and the
Expansion Companies; and

 

(ii)           all
references to “Freeport Facility” (including in Section 1.93) include
the Shared Facility Expansions.

 

(c)           Effects.  Notwithstanding the interpretation of this
Agreement set forth in (b) above, (i) the Expansion Companies shall not be
construed as being parties to this Agreement and (ii) without limiting the
foregoing or Section 26.5, nothing in this Agreement shall be construed to
create (A) on behalf of the Parties, any duty to, or standard of care with
reference to, or any obligation or liability to, any Expansion Company; or (B)
on behalf of the Expansion Companies, any duty to, or standard of care with
reference to, or any obligation or liability to, the Parties.  Customer’s sole recourse and remedy under
this Agreement for a breach hereof or a default hereunder shall be solely
against FLNG and its assets. To the extent this Agreement requires FLNG to take
or refrain from taking any action, FLNG is responsible for causing the
Expansion Companies to take or refrain from taking such action.

 

(d)           Limits.  For the avoidance of doubt, this
Section 3.7 shall not apply to the addition of Gas Storage Facilities,
which addition shall be governed by Section 3.6.

 

ARTICLE 4

COMPENSATION FOR SERVICES

 

4.1          Fee  

 

Customer shall, as full
compensation for the performance by FLNG of its obligations under this
Agreement (including the provision of Peaking Gas), bear the Retainage and pay
to FLNG the sum of the following components (such sum collectively referred to
as the “Fee”)
in respect of the period from the later of the Commercial Start Date or the
Conversion Date until the end of the Term (the “Payment Period”):

 

(a)           Reservation Fee.

 

(i)            A
monthly reservation fee (the “Reservation Fee”) consisting of the
following:

 

17

 

a.             ***;

 

b.             A
monthly amount (the “FLNG Component”), calculated as the product
of:

 

(x)            the Maximum LNG
Reception Quantity divided by the Monthly Component; multiplied by

 

(y)           $0.05;

 

c.             A
monthly installment in relation to certain fixed operating costs of FLNG (the “FOC
Installment”) that is subject to adjustment in accordance with a
yearly reconciliation (the “FOC Reconciliation”), wherein the FOC
Installment and the FOC Reconciliation are calculated as follows:

 

(x)            The FOC Installment
shall equal the FOC Ratio multiplied by the Budgeted FOC for the following month; and

 

(y)           The FOC Reconciliation
shall equal the positive or negative difference between (i) the FOC Ratio multiplied
by the Actual FOC attributable to the prior year and (ii) the sum of all
FOC Installments attributable to and paid for the prior year;

 

d.             A
monthly installment (the “Crest Installment”) that is subject to
adjustment in accordance with a yearly reconciliation (the “Crest
Reconciliation”), wherein the Crest Installment and the Crest
Reconciliation are calculated as follows:

 

(x)            The Crest Installment
shall equal the C Ratio multiplied by the Crest Payment; and

 

(y)           The Crest
Reconciliation shall equal the positive or negative difference between (i) the
actual amount paid by FLT to Crest Investment Company under the Crest Contract
and attributable to the prior year multiplied by the C Ratio and (ii)
the sum of all Crest Installments attributable and paid for the prior year; and

 

e.             A
monthly payment equal to all Awards (other than any New Taxes or New Regulatory Costs borne by FLNG) incurred in
the prior month (the “Awards Installment”), but excluding Awards under
LNG terminalling services agreements with Other Customers;

 

(ii)           The ***
shall be payable monthly currently.  The
FLNG Component, the FOC Installment and the Crest Installment shall be payable
monthly in advance.  The Awards
Installment shall be payable monthly in arrears.  The FOC Reconciliation and the Crest Reconciliation shall be payable
annually in arrears in March of each year;

 

18

 

(b)           Incremental Costs.  The following incremental costs (the “Incremental
Costs”) payable in arrears:

 

(i)            the actual electric
power cost associated with the Services provided hereunder to Customer,
calculated as an amount equal to (x) all electric power costs
incurred at the Freeport Facility and, provided the GSF Amendments have been
entered into, the Gas Storage Facilities (excluding costs associated with
providing Peaking Gas from Gas Storage Facilities under
Section 3.1(b)(iii), which shall be compensated according to the GSF
Amendments) during the applicable period multiplied by (y) a fraction,
the numerator of which is Customer’s LNG received at the Freeport Facility
during such period and the denominator of which is the quantity of LNG received
at the Freeport Facility during such period for the account of Customer and all
Other Customers (provided, however, that FLNG shall use reasonable efforts to minimize
all such electric power costs, and obtain the best commercial rates for
electric services available at the location of the Freeport Facility given the
intended use of the Freeport Facility and its twenty-four (24) hour operation);

 

(ii)           the
actual amount of all reasonable incremental direct costs, if any, incurred by
FLNG for berthing an LNG Vessel after sunset at the Freeport Facility;

 

(iii)          the
actual amount of all reasonable incremental direct costs, if any, incurred by
FLNG when an LNG Vessel arrives more than three (3) hours after the ETA set
forth in the Final Notice delivered pursuant to Section 9.4(c)(iv),
provided that if such a delay is directly caused by a Governmental Authority or
Force Majeure or Adverse Weather Conditions, then fifty percent (50%) of  such
reasonable incremental direct costs; and

 

(iv)          excess
berth fees, if any, under Section 9.9(b)(iii); and

 

(c)           Excess Reception Fee.  An excess reception fee (the “Excess
Reception Fee”) if, in any Contract Year, FLNG receives quantities
of LNG for Customer’s account in excess of the Maximum LNG Reception Quantity, payable in arrears upon Customer
exceeding the Maximum LNG Reception Quantity. 
The Excess Reception Fee shall equal (i) the amount by which
Customer’s LNG received in the Contract Year exceeds the Maximum LNG Reception
Quantity for such Contract Year (ii) multiplied by  $***  per
MMBTU.

 

4.2          Retainage

 

For purposes of this
Agreement, the term “Retainage” means the aggregate of (a) the
actual amount of all LNG used as fuel for the Freeport Facility multiplied
by a fraction, the numerator of which is Customer Actual Capacity and the
denominator of which is Aggregate Actual Capacity, and (b) Customer’s allocable
portion of all other unavoidable actual losses in Gas and LNG inventory in the
ordinary course of business at the Freeport Facility in connection with
performance of the Services, such allocable portion to be

 

19

 

based on the ratio that
the Customer Actual Capacity for a Contract Year bears to the Aggregate Actual
Capacity for such Contract Year.

 

4.3          Services Unavailability

 

If some or all of the
Services are unavailable to Customer on any day (or portion of a day) during
the Term as a result of (a) an unexcused failure of FLNG, (b) Force Majeure, or
(c) an unscheduled curtailment or temporary discontinuation of Services
pursuant to Section 18.2 (collectively a “Services Unavailability”),
the Parties agree that the Reservation Fee shall ***.  For the avoidance of doubt, the foregoing is without prejudice to
the fact that Customer shall not be obligated to pay the Reservation Fee other
than in respect of the Payment Period.

 

4.4          New Regulatory Costs or Taxes

 

If, subsequent to the
Effective Date:

 

(a)           FERC or any other
Governmental Authority as a result of change in law or regulation requires FLNG
to incur any material cost not originally foreseen at the time of this
Agreement (“New Regulatory Costs”); or

 

(b)           any Governmental
Authority imposes any new material Taxes on the Services or increases
materially the rate of existing Taxes on the Services (“New Taxes”) other than Taxes
on the capital revenue or income derived by FLNG;

 

then the Parties shall
meet with a view to agreeing on amendments to this Agreement with respect to
the equitable allocation of such New Regulatory Costs and/or New Taxes by and
among the Parties and Other Customers. 
If the Parties fail to reach agreement within ninety (90) days of the
commencement of such negotiations, either Party shall have the right within
thirty (30) days thereafter to request arbitration pursuant to Article 22
to allocate the effect of New Regulatory Costs or New Taxes between the Parties
and Other Customers.  The arbitrators
shall determine a method by which the effects thereof may be equitably
allocated among the Parties and the Other Customers.  The arbitrators shall be authorized to modify this Agreement in
accordance with their resolution of such allocation.  The terms “equitable allocation” or “equitably allocated” under
this Section 4.4 shall take into account the timing of when FLNG incurs
New Regulatory Costs and/or New Taxes, the portions of LNG terminalling
services contracted by Customer and by Other Customers with FLNG, the remaining
duration of the Term and of the term of the terminal use agreement with each
Other Customer, and the useful life of any capital items installed or upgraded
as a result of the event that gave rise to the New Regulatory Cost or New Tax.

 

4.5          Services Provided to Other Customers

 

(a)           Identity of Other
Customers.  FLNG shall from time to
time inform Customer of the identity of all Other Customers who have signed
with FLNG terminal use agreements having a term of at least *** years.

 

(b)           No Representation or
Warranty.  Customer acknowledges
that (a) the compensation paid by Customer from time to time for Services may
be less than, or more than, the price paid by Other Customers for the same or
similar LNG

 

20

 

terminalling services,
and (b) FLNG makes no representations or warranties to Customer in this regard.

 

(c)           Terminal Use
Agreements with Other Customers.  In
its negotiation of terminal use agreements with Other Customers, FLNG shall use
best efforts to include shipping, scheduling and operational provisions that
are consistent in all material respects with the provisions in Article 5,
Article 8, Article 9, Article 10, Article 11 and
Article 17 herein.

 

4.6          Relief from Certain Payments for Annual
Shortfall

 

(a)           Relief from Payment
for Annual Shortfall.  If Customer’s
LNG for a Contract Year is less than the Maximum LNG Reception Quantity for
such Contract Year, the amounts paid by Customer under Section 4.1(a)(i)b
shall be adjusted (pursuant to the provisions of Sections 4.6(b) and 4.6(c)) to
relieve Customer from paying $0.05 on any Annual Shortfall.  For purposes of this Section 4.6, an “Annual
Shortfall”
shall mean the positive quantity in MMBTUs resulting after applying the
following formula:

 

	
  Annual Shortfall

  	
  =

  	
  Maximum LNG Reception
  Amount for Contract Year  –  Available LNG for the Contract Year

  

 

(b)           Monthly Reduction of
FLNG Component. Notwithstanding Section 4.6(a) but subject to
Section 4.6(c), Customer shall be entitled to a reduction in the FLNG
Component for any month if Customer delivers a certificate signed by an
authorized representative of Customer confirming that a Monthly Shortfall
occurred in the immediately prior month (the “QS Month”).  For purposes of this Section 4.6(b), a
“Monthly
Shortfall”
shall mean the positive quantity in MMBTUs resulting after applying the
following formula:

 

	
  Monthly Shortfall

  	
  =

  	
  (Maximum LNG Reception
  Amount for Contract Year / Monthly Component) – Available LNG for the QS
  Month

  

 

Upon timely receipt of
the aforementioned certificate, the FLNG Component for the QS Month shall be
reduced by the Monthly Shortfall multiplied by $0.05.  Such reduction in the FLNG Component shall
be reflected as a credit to Customer in the monthly statement issued under
Section 12.1 as follows: (i) if such certificate is received on or before
the fifth (5th) day of the month immediately following the QS Month,
the credit to Customer for such difference shall be reflected in the next
monthly statement issued by FLNG; or (ii) if such certificate is received after
the fifth (5th) day of the month immediately following the QS Month,
the credit to Customer for such difference shall be reflected in the monthly
statement issued by FLNG in the month following the month in which the
certificate was received, provided that such certificate was received at least
thirty (30) days prior to the end of the Contract Year.

 

(c)           Annual
Reconciliation.  If one or more
reductions in the FLNG Component occurred during the Contract Year under
Section 4.6(b), then within sixty (60) days after the end of the Contract
Year, Customer shall deliver to FLNG a

 

21

 

detailed statement,
confirmed by an independent auditing firm appointed by Customer, of the amount
of the Annual Shortfall.  In the event
Customer is unable within a reasonable time to cause an independent auditing
firm to issue such a confirmation for a commercially reasonable price, then
Customer shall not be required to obtain such confirmation but shall make
sufficient information available to FLNG to enable FLNG to determine the
accuracy of such detailed statement. 
The sum of all FLNG Components for such prior Contract Year shall be
adjusted via a reconciliation (the “Annual Shortfall Reconciliation”), which
shall equal the positive or negative difference between (i) the sum of all FLNG
Components for such Contract Year (as adjusted pursuant to Section 4.6(b))
and (ii) the sum of all FLNG Components for such Contract Year which should
have been payable as a result of the Annual Shortfall confirmed by the
independent auditing firm.  The Annual
Shortfall Reconciliation shall be reflected as a charge or credit, as the case
may be, to Customer in the monthly statement issued by FLNG under
Section 12.1.

 

(d)           Available LNG.  For purposes of this Section 4.6, “Available
LNG” means ***.  For the
purposes of this Section 4.6, quantities of LNG attributable to a
Temporary Release or to an assignment of a portion of the Services Quantity
under Section 19.2 shall be deemed to be Available LNG.  Notwithstanding this                Section 4.6(d), Available LNG shall
be deemed to equal the Maximum LNG Reception Amount for each Contract Year
during the Build-Up Period.  For the
avoidance of doubt, the above determination of Available LNG shall at all times
include Customer’s LNG.

 

ARTICLE 5

SCHEDULING

 

5.1          Customer LNG Receipt Schedule

 

(a)           FLNG Deliverables.  Not later than one hundred twenty (120) days
prior to the beginning of each Scheduling Period, FLNG shall provide to the
Scheduling Representative a non-binding written assessment of the dates of any
planned maintenance to or modifications of the Freeport Facility for such
Scheduling Period and the expected impact of such activities on the
availability of Services.  FLNG shall
limit the number of days of any planned maintenance to or modifications of the
Freeport Facility and shall meet the requirements of Article 18.

 

(b)           Notice from
Scheduling Representative.  Not
later than one hundred five (105) days prior to the beginning of each
Scheduling Period, the Scheduling Representative shall notify FLNG of the
following:

 

(i)            a
programming schedule for the unloading of (x) up to the Maximum LNG
Reception Quantity over the course of the next Contract Year as well as (y) up
to *** percent (***%) of the Maximum LNG Reception Quantity for the next
succeeding Contract Year (such percentage to be adjusted to reflect any partial
Contract Year) over the course of the last three months

 

22

 

of the Scheduling
Period, which schedule shall specify, for each Unloading Window, the
proposed arrival date (the “Arrival Date”) of the applicable LNG Vessel
and which Arrival Date must (x) result in a delivery pattern whereby deliveries
in any given month do not materially exceed the *** divided by the
Monthly Component, (y) result in deliveries in any given month ***, and (z)
take into consideration the planned maintenance and modification dates
furnished to Customer by FLNG as set forth in Section 5.1(a); and

 

(ii)           for each
Arrival Date proposed pursuant to Section 5.1(b)(i), the name of the LNG
Vessel expected to deliver LNG to the Freeport Facility (if the identity of the
LNG Vessel is known to Customer at such time), the Expected Receipt Quantity,
and the anticipated quality (expressed in terms of Gross Heating Value) of the
LNG to be delivered at the Receipt Point during the Scheduling Period.

 

(c)           Notices from Other
Customers.  Customer acknowledges
that Other Customers will submit similar notices to FLNG regarding the matters
provided for in Section 5.1(b).

 

(d)           Preliminary Receipt
Schedule.  *** shall take into
consideration the notices that it receives from the Scheduling Representative
and the Other Customers and, not later than ninety (90) days prior to the
beginning of each Scheduling Period, *** shall issue to *** via the *** (or via
an alternative *** if the *** is unavailable) a preliminary receipt
schedule for such Scheduling Period (the “*** Preliminary Receipt Schedule”).  In issuing a *** Preliminary Receipt
Schedule for a particular Scheduling Period, *** shall not alter, absent
*** request, any Scheduled Unloading Window allocated to *** for the last ***
months of the Customer LNG Receipt Schedule for the prior Scheduling
Period.  Customer may propose to FLNG to
change any such Scheduled Unloading Window, and FLNG agrees to give due
consideration to, and use reasonable efforts to accommodate, such change.  The *** Preliminary Receipt
Schedule shall set forth (i) the *** and (ii) *** for purposes of changes
pursuant to Section 5.1(i).

 

(e)           Other ***
Preliminary Receipt Schedules and Mutual Cooperation. 
*** acknowledges that *** will issue to *** via the *** a
preliminary receipt schedule similar to the *** Preliminary Receipt
Schedule described in Section 5.1(d), but customized for each such
*** (“*** Preliminary
Receipt Schedules”).  ***
also acknowledges that conflicts will occur in the preparation of the
Preliminary Receipt Schedule and *** Preliminary Receipt Schedules because
of the joint use of the Freeport Facility among Customer and Other Customers.  Accordingly, the Parties agree to cooperate
with each other to resolve any such conflict.

 

(f)            Consultation;
Customer LNG Receipt Schedule.  If
the Scheduling Representative desires to consult with *** regarding the
contents of the *** Preliminary Receipt Schedule, the Scheduling Representative
shall, no later than fifteen (15) days from the issuance of the *** Preliminary
Receipt Schedule, request to meet with *** by providing notice thereof (the “Consultation
Notice”) to ***, and ***

 

23

 

shall, no later than
fifteen (15) days after receipt of the Consultation Notice, meet with the
Scheduling Representative to discuss the *** Preliminary Receipt Schedule.  If (i) the Scheduling Representative does
not submit a Consultation Notice to *** on a timely basis or (ii) the
Scheduling Representative and *** meet pursuant to a Consultation Notice and
are able during such meeting to agree upon revisions to the *** Preliminary
Receipt Schedule, then such *** Preliminary Receipt Schedule, as so revised
(and as updated from time to time for such Scheduling Period by *** via the
***, such updates to be made in accordance with this Agreement and the Freeport
Services Manual) shall constitute the “Customer LNG Receipt Schedule”.  If the Scheduling Representative and ***
meet pursuant to a Consultation Notice and are unable during such meeting to
agree upon revisions to the *** Preliminary Receipt Schedule, then *** shall
determine, while using its reasonable efforts to accommodate Customer’s views,
the Customer LNG Receipt Schedule with the understanding that, for
purposes of such determination, no Major Customer shall be given any preference
in scheduling over any other Major Customer but Major Customers shall be given
preferential consideration in scheduling over Non-Major Customers.  FLNG shall issue via the *** (or via an
alternative *** if the *** is unavailable) the Customer LNG Receipt
Schedule no later than sixty (60) days prior to the first day of the
Scheduling Period.  The Customer LNG
Receipt Schedule shall set forth (i) *** and (ii) ***.

 

(g)           Other Customer LNG
Receipt Schedules.  Customer acknowledges that FLNG shall
issue to each Other Customer a final receipt schedule similar to the
Customer LNG Receipt Schedule described in Section 5.1(f) but
customized for each such Other Customer (such schedules referred to as “Other
Customer LNG Receipt Schedules”).

 

(h)           Adjustment to
Scheduling Periods.  Upon written
request by the Customer, FLNG shall use reasonable efforts to modify the time
periods expressly set forth in Sections 5.1(a), 5.1(b), 5.1(d), and 5.1(f) to
allow Customer to interface these periods with corresponding time periods for
scheduling agreed upon by Customer and its LNG Suppliers.  For purposes of this Section 5.1(h),
FLNG shall be deemed to have used reasonable efforts if FLNG rejects Customer’s
request because it determines, acting as a Reasonable and Prudent Operator,
that any such modification would infringe on the rights of Other Customers.

 

(i)            Customer Changes to
Customer LNG Receipt Schedule.  The
Parties agree as follows:

 

(i)            Subject
to the terms of this Section 5.1(i), at any time following the issuance of
the Customer LNG Receipt Schedule, the Scheduling Representative may submit to
FLNG a written request to change a Scheduled Unloading Window to an Unloading
Window that is not presently allocated to Customer or Other Customers and which
FLNG is making available to Customer and Other Customers under the Customer LNG
Receipt Schedule (such request to change, a “Customer Open Window Request”).  Customer understands that (x) Other
Customers shall also have the right to submit to FLNG similar scheduling
requests

 

24

 

(each an “Other
Customer  Open Window Request”), (y) *** and (z) ***
as soon as possible but not later than 5:00 p.m., Central Time of the Business
Day following the date of receipt by FLNG of the applicable Open Window
Request.  Upon accepting an Open Window Request,
FLNG shall notify Customer and Other Customers thereof via the *** (or via an
alternative electronic means of transmitting written communications if the ***
is unavailable).  Notwithstanding
anything herein to the contrary, Customer shall use its reasonable efforts to keep
to a minimum the number of Customer Open Window Requests it submits to FLNG.

 

(ii)           Subject
to the terms of this Section 5.1(i), at any time following the issuance of
the Customer LNG Receipt Schedule, the Scheduling Representative may submit to
FLNG a written request to change a Scheduled Unloading Window to a forty-eight
(48) hour period that is unavailable to Customer under the Customer LNG Receipt
Schedule (such change, a “Change Request”).  Customer acknowledges that any Change Request will *** and
***.  Accordingly, FLNG shall *** any
Change Request and shall notify Customer thereof via the *** (or via an
alternative electronic means of transmitting written communications if the ***
is unavailable) within three (3) Business Days of its receipt of a Change
Request.  Notwithstanding anything
herein to the contrary, Customer shall use *** to keep to a minimum the number
of Change Requests it submits to FLNG, and FLNG shall use its reasonable
efforts to accommodate Customer’s Change Requests.

 

(j)            Other Modifications
Due to Services Unavailability.  If,
for any Scheduled Unloading Window, Customer is unable, due to a Services
Unavailability, to berth and unload an LNG Vessel, each affected Scheduled
Unloading Window allocated to Customer during such period shall be ***, to the
extent affected.  In the event a
Scheduled Unloading Window is so ***, such *** shall be without prejudice to
Customer’s rights and remedies hereunder. 
Except as otherwise provided in Section 5.1(i), the Customer LNG
Receipt Schedule shall be considered firm and shall not be subject to
change by FLNG; provided, however, that FLNG ***, with preference to Major
Customers, if such Services Unavailability caused the *** of one or more
Scheduled Unloading Windows allocated to Customer and/or Other Customers, in
order to maximize efficient usage of the Freeport Facility to assist Customer
and Other Customers to unload quantities of LNG which would otherwise have been
unloaded at the Freeport Facility during such cancelled Scheduled Unloading
Windows.  Moreover, in the event of a
Services Unavailability, FLNG shall make reasonable efforts to *** of
redelivery of Gas for Customer and Other Customers to maximize efficient usage
of the Freeport Facility to assist Customer and Other Customers to *** which
would otherwise have been received at the Delivery Point during such Services
Unavailability.

 

5.2          Gas Delivery Procedure

 

(a)           Preliminary
Nomination Schedule.  Not later than
the fifteenth (15th) day of each month, commencing the month
immediately prior to the Commercial Start Date,

 

25

 

FLNG shall provide to the
Scheduling Representative a nomination schedule (the “Preliminary Nomination Schedule”)
that sets forth, for each day of the ensuing month, the following:

 

(i)            the ***
and the ***; and

 

(ii)           all ***
which, at the time of notification of the Preliminary Nomination Schedule, FLNG
acting as a Reasonable and Prudent Operator *** from the Freeport Facility;
provided, however, that FLNG shall not be obligated to offer or deliver *** to
Customer or Other Customers to the extent that a Reasonable and Prudent
Operator would not obligate itself to do so under similar circumstances and
conditions.

 

For the avoidance
of doubt, FLNG shall be obligated to make available to Customer the quantities
of *** notified in the Preliminary Nomination Schedule, as allocated pursuant
to Section ***.

 

(b)           Daily Records.  Commencing on the Commercial Start Date,
FLNG shall, on each Business Day by the time specified in the Freeport Services
Manual, post on the *** for access by Customer certain daily records (the “Daily
Records”), including the following:

 

(i)            the ***
and the *** for the next Business Day (and, if applicable, for each
non-Business Day occurring between the next Business Day and the Business Day
following the next Business Day), taking into account adjustments thereto since
issuance of the Preliminary Nomination Schedule;

 

(ii)           Customer’s
Inventory held as of 11:59 p.m., Central Time on the day preceding the posting
of the Daily Records;

 

(iii)          the
estimated quantity of Customer’s Inventory expected to be held in Storage as of
11:59 p.m., Central Time on the Business Day on which the Daily Records are
posted, taking into account expected receipts and deliveries during such
Business Day;

 

(iv)          if
applicable, the estimated quantity of Customer’s Inventory expected to be held
in Storage as of 11:59 p.m., Central Time on each non-Business Day occurring
between the Business Day on which the Daily Records are posted and the next
Business Day, taking into account expected receipts and deliveries during such
Business Days; and

 

(v)           either
(x) the total quantity of ***, if any, which FLNG acting as a Reasonable and
Prudent Operator has determined on such Business Day will be *** on the
Business Day following the posting of the Daily Records or (y) if such posting
falls on a Business Day that precedes any non-Business Day, the total quantity
of ***, if any, which FLNG acting as a Reasonable and Prudent Operator has determined
on such Business Day ***; provided, however, that FLNG shall not be obligated
to offer or deliver *** to Customer or Other Customers to the extent that a
Reasonable and Prudent Operator would not obligate itself to do so under
similar circumstances and conditions; provided further, however, that,

 

26

 

notwithstanding
the foregoing, the total quantity posted on the Daily Records may not be less
than that provided pursuant to Section 5.2(a)(ii).

 

(c)           Gas Nomination.  Commencing on the Commercial Start Date, the
Scheduling Representative shall, on each Business Day by the time specified in
the Freeport Services Manual, nominate the quantities of Gas (including Peaking
Gas, if available) that Customer desires to be delivered to it at the Delivery
Point on the next Business Day and any intervening days that are not Business
Days (such next day hereinafter referred to as a “Delivery Date”) by providing
notice thereof (the “Nomination Notice”) to FLNG.  Subject to Section 3.3(a), the
quantities nominated by the Scheduling Representative in a Nomination Notice
shall in no event be less than the *** nor more than the ***, except in the
case of nominations of *** where the Scheduling Representative must, in the Nomination
Notice, request the *** as well as the quantities of *** requested by Customer
for delivery.  In the event FLNG does
not receive a Nomination Notice on a timely basis, the Scheduling
Representative shall be deemed to have nominated the *** unless Customer has
nominated in writing for multiple days a higher amount not to exceed the ***.

 

(d)           Variations in Daily
Redelivery Rates.  FLNG shall use
reasonable efforts to designate in the Freeport Services Manual certain blocks
of time during a day on which Customer and Other Customers may elect to vary
the rates by which FLNG is to redeliver Gas nominated for a given day without
exceeding the total quantity of Gas nominated. 
If FLNG chooses to designate such blocks of time and Customer desires to
vary its rates, Customer shall, in a Nomination Notice, set forth the specific
quantities of Gas to be redelivered by FLNG during such blocks.  The Freeport Services Manual shall include
provisions which ensure that, if FLNG chooses to designate such blocks of time,
Customer shall be allocated at least its pro-rata share of such variable rates
in daily Gas redelivery, such allocation to be on a non-discriminatory basis
between Customer and Other Customers.

 

(e)           Other Customer
Nomination Notices.  Customer
acknowledges that Other Customers shall provide to FLNG notices similar to the
Nomination Notice described in Section 5.2(c).

 

(f)            Allocation of ***.  Customer understands that if quantities of
*** are made available to Customer and Other Customers pursuant to Sections
5.2(a) and 5.2(b)(v), each of Customer and the Other Customers shall have the
option to nominate all or any portion of such quantities through the notices
provided for in Sections 5.2(c) and 5.2(d). 
FLNG shall allocate such *** as provided in Section 3.3(d) and, for
any given day, shall notify Customer of the quantities of *** allocated to
Customer within the time specified in the Freeport Services Manual.

 

5.3          Standard  

 

FLNG shall act as
a Reasonable and Prudent Operator in performing the scheduling activities
required by this Article 5.

 

27

 

5.4          Scheduling Representative

 

By no later than
one month prior to the Commercial Start Date, Customer shall appoint an
individual to act as Scheduling Representative for the purposes of this
Article 5; provided, however, that Customer shall have the right to change
the identity of the Scheduling Representative at any time by notice to
FLNG.  Unless otherwise stated herein,
Customer hereby authorizes the Scheduling Representative to do and perform any
and all acts for and on behalf of Customer with regard to scheduling matters
provided for in this Article 5.

 

5.5          Scheduling Coordination Among
Customer and Other Customers

 

Customer shall
have the right to request FLNG to arrange a joint meeting with Other Customers
with respect to any matter in relation to the performance of this
Article 5.  FLNG shall use
reasonable efforts to organize such a meeting, provided that FLNG may elect to
include additional Other Customers if ***. 
If the Other Customers invited by FLNG agree to participate in such a
joint meeting between Customer, Other Customers and FLNG, the joint meeting
shall be held as soon as possible. 
Unless otherwise agreed, any such joint meeting shall be held in
Houston, Texas or by telephone, as appropriate.

 

ARTICLE 6

RELEASE OF SERVICES

 

6.1          General

 

Customer may assign (a)
all or a part of the Services Quantity as a Temporary Release in accordance
with Section 6.2, or (b) all or a part of the Services Quantity in
accordance with Article 19.

 

6.2          Temporary Release

 

(a)           General.  Customer may from time to time assign part
of the Services Quantity in writing to a third party (a “Temporary Customer”) on a
temporary basis for not more than the remainder of the then existing Scheduling
Period (each such partial assignment referred to herein as a “Temporary
Release”).  Customer shall
have the right to have occurring at any given time up to *** Temporary Release
for each *** MMBTUs of Maximum LNG Reception Quantity.

 

(b)           Conditions.  A Temporary Release shall be subject to the
following conditions:

 

(i)            Notice
and Consent.  No Temporary Release
shall be permitted, or shall become effective, unless and until:

 

a.             The
proposed Temporary Release is consistent with the terms and conditions of this
Agreement;

 

b.             The
Services Quantity that Customer seeks to assign by way of a proposed Temporary
Release includes only Scheduled Unloading Windows under the Customer LNG
Receipt Schedule;

 

c.             Customer
has (x) delivered to FLNG a written notice in the form set forth in the
Freeport Services Manual (a “Release Notice”) disclosing in sufficient
detail the terms and conditions of the

 

28

 

proposed Temporary Release relevant to the Services Quantity for FLNG
to be able to carry out its obligations under this Article 6, including
the proposed effective date and expiration date of the Temporary Release but
excluding any sensitive pricing information related thereto, and (y) furnished
to FLNG all information reasonably requested by FLNG with respect to such
Temporary Release to the extent necessary for FLNG to carry out its obligations
under this Agreement; and

 

d.             Except
as otherwise provided below, FLNG has consented to the Temporary Release by
executing the Release Notice, such consent not to be unreasonably withheld or
delayed; provided, however, that a Temporary Release to an Affiliate of
Customer or an LNG Supply Project that complies in all respects with the
provisions of Sections 6.2(b)(i)a through 6.2(b)(i)c shall not require the
consent of FLNG.

 

(ii)           Temporary
Releases for Subsequent Scheduling Periods.  Notwithstanding the requirement in Section 6.2(a) that a
proposed Temporary Release relate to the then existing Scheduling Period, in
order to assist Customer in its long-term business planning, Customer shall be
entitled to submit to FLNG from time to time Temporary Releases for subsequent
Scheduling Periods.  Subject to the same
consent rights (if any) set forth in Section 6.2(b)(i)d, FLNG shall
execute a Release Notice for such Temporary Release for a subsequent Scheduling
Period.

 

(iii)          Authorization.  Following the execution by FLNG of the
Release Notice, FLNG shall be authorized to perform the specified portion of
the Services Quantity for Temporary Customer, subject to the provisions of this
Agreement.  In relation to a Temporary Release, Temporary Customer
shall be fully authorized to act on behalf of Customer, and FLNG shall be entitled to rely on the
nominations, notices and other submissions communicated to FLNG by the
Temporary Customer in relation to the Temporary Release as if such nominations, notices and other
submissions had been made by Customer itself. 
In the event of a conflict between the terms of the nominations, notices
and other submissions issued by the
Temporary Customer in relation to the Temporary Release and those issued
by Customer, the terms issued by Customer shall control.

 

(iv)          No
Effect on ***.  For the avoidance of
doubt, a Temporary Release shall in no event increase the ***.

 

(v)           Performance.  Commencing on the Release Date and
continuing through the expiration or termination of the Temporary Release, (i)
FLNG shall perform the Services assigned to Temporary Customer under the
Temporary Release, and (ii) Customer shall cause Temporary Customer to perform,
for the benefit of FLNG, all requirements and obligations of Customer under
this Agreement in relation to the Temporary Release.

 

29

 

(vi)          Expiration
of Temporary Release.  Except as
otherwise provided herein, FLNG shall render Services to Temporary Customer for
the period set forth in the Temporary Release (such period herein referred to
as the “Temporary
Term”).  Customer’s
Nomination Notices shall ensure that the Temporary Release Inventory is reduced
to zero (0) MMBTUs as of the last day of the Temporary Term.  In the event that the Temporary Release
Inventory is not reduced to zero (0) MMBTUs on the last day of the Temporary
Term, the Temporary Release Inventory remaining thereafter shall be deemed
solely as Customer’s Inventory.

 

(vii)         Remedial Actions.  In the
event Temporary Customer’s actions are materially inconsistent with the
requirements of this Agreement, FLNG shall provide written notice thereof to
Customer.  Customer shall (x) inform
FLNG within five (5) days of its receipt of FLNG’s notice of the remedial
actions it intends to take to cause Temporary Customer’s actions to be
materially consistent with the
requirements of this Agreement, and (y) cause Temporary Customer to be in
compliance herewith in all material respects within thirty (30) days after
delivery of FLNG’s notice.  In the event
Customer is unable to cause Temporary Customer to be in compliance herewith in
all material respects, FLNG may terminate the Temporary Release by written
notice to Customer.

 

(viii)        Responsibility.  Customer shall ensure that each Temporary
Release is performed in a manner consistent with the Release Notice and the
terms and provisions of this Agreement. 
Notwithstanding anything in this Article 6 to the contrary, FLNG
shall invoice Customer in accordance with the provisions of Section 12.1
for the Fee attributable to a Temporary Release, and Customer shall pay, or
cause to be paid, the Fee attributable
to a Temporary Release.  No Temporary
Release or anything in this Section 6.2 shall relieve Customer or FLNG of
any responsibility or liability under this Agreement.  Customer shall remain liable
to FLNG for all obligations of Customer and Temporary Customer in connection
with any Temporary Release. FLNG shall remain liable to Customer for all
obligations of FLNG in connection with any Temporary Release.

 

(ix)           No
Third Party Beneficiary.  A
Temporary Customer is not intended to be, and shall not be construed to be, a
third-party beneficiary of this Agreement, nor shall a Temporary Release, or
anything contained in this Agreement, create any contractual or
quasi-contractual relationship or obligation between any Temporary Customer and
FLNG.

 

ARTICLE 7

TERM

 

7.1          Term

 

(a)           Initial Term.  Subject to the provisions of this Agreement,
the term of this Agreement (the “Term”) shall consist of the Initial Term
and, if applicable, any Extension Term. 
The initial term of this Agreement (the “Initial Term”) shall

 

30

 

commence on the
Commercial Start Date, and shall continue thereafter until February 28,
2033 (the day on which the initial term of the Freeport Facility Leases
expire).

 

(b)           Extensions.  Except as otherwise provided herein, at the
expiration of the Initial Term, Customer shall have the right to up to six (6)
additional ten (10) year extension terms (each an “Extension Term”), the first
of which shall commence on March 1, 2033 and continue until
February 28, 2043.  If Customer
desires to extend this Agreement by any Extension Term, Customer must notify
FLNG’s of its good faith desire to elect the applicable Extension Term at least
four (4) years prior to the expiration of the then current term.  Notwithstanding the foregoing, Customer
shall not have the right to elect an Extension Term in the event any of the
Freeport Facility Leases are either not in effect at the time of its election
notice or will not be in effect during the period of any such Extension Term.

 

7.2          Commencement of Deliveries

 

In accordance with
the procedure set forth in this Section 7.2, FLNG shall notify Customer of
the date on which Services for Customer will commence at the Freeport Facility
(the final date so notified being the “Commercial Start Date”).  The Commercial Start Date shall be a date
within the period from April 1, 2007 to March 31, 2008 (such period
being the “First Window Period”). 
The First Window Period shall be narrowed pursuant to the following
provisions:

 

(a)           No later than
December 1, 2006, FLNG shall notify Customer of a two hundred seventy
(270) day window (“Second Window Period”) falling within the
First Window Period for the Commercial Start Date; provided that if FLNG fails
to give timely notice of same, the Second Window Period shall be the latest
possible two hundred seventieth (270th) day window period within the
First Window Period;

 

(b)           No later than ninety
(90) days in advance of the first day of the Second Window Period, FLNG shall
notify Customer of a one hundred eighty (180) day window (“Third Window Period”) falling
within the Second Window Period for the Commercial Start Date; provided that if
FLNG fails to give timely notice of same, the Third Window Period shall be the
latest  possible
one hundred eighty (180) day window period within the Second Window Period;

 

(c)           No later than sixty
(60) days in advance of the first day of the Third Window Period, FLNG shall
notify Customer of a ninety (90) day window (“Fourth Window Period”)
falling within the Third Window Period for the Commercial Start Date; provided
that if FLNG fails to give timely notice of same, the Fourth Window Period
shall be the latest possible ninety (90) day window period within the Third
Window Period;

 

(d)           No later than thirty
(30) days in advance of the first day of the Fourth Window Period, FLNG shall
notify Customer of a sixty (60) day window (“Fifth Window Period”) falling
within the Fourth Window Period for the Commercial Start Date; provided that if
FLNG fails to give timely notice of same, the Fifth Window

 

31

 

Period shall be the
latest possible sixty (60) day period within the Fourth Window Period;

 

(e)           No later than fifteen
(15) days in advance of the first day of the Fifth Window Period, FLNG shall
notify Customer of a thirty (30) day window (“Sixth Window Period”) falling
within the Fifth Window Period for the Commercial Start Date; provided that if
FLNG fails to give timely notice of same, the Sixth Window Period shall be the
latest possible thirty (30) day period within the Fifth Window Period;

 

(f)            No later than seven
(7) days in advance of the first day of the Sixth Window Period, FLNG shall
notify Customer of a fifteen (15) day window (“Final Window Period”) falling
within the Sixth Window Period for the Commercial Start Date; provided that if
FLNG fails to give timely notice of same, the Final Window Period shall be the
latest possible fifteen (15) day period within the Sixth Window Period; and

 

(g)           No later than three (3)
days in advance of the first day of the Final Window Period, FLNG shall notify
Customer of the Commercial Start Date falling within the Final Window Period;
provided that if FLNG fails to give timely notice of same, the Commercial Start
Date shall be the latest possible day in the Final Window Period.

 

The Commercial Start Date
shall be the date so notified, regardless of whether any unloading of
Customer’s LNG at the Freeport Facility actually occurs on such date.

 

7.3          Delay Caused by Force Majeure

 

Should an event of Force
Majeure occur that has the effect of delaying the Commercial Start Date, then
the Commercial Start Date shall be postponed or delayed to fully address the
effects of such event.

 

7.4          Construction Progress Reports

 

Upon a request in writing
of Customer but not more frequently than every quarter until the Commercial
Start Date, FLNG shall furnish to Customer an interim progress report
(collectively the “Progress Reports”) specifying the progress
since the last report and the expected progress towards completing the
construction, testing and operational start-up of the Freeport Facility.  Each Progress Report shall include the
status and progress of all construction, an update of the construction
schedule, and any other information which Customer has reasonably requested to
enable Customer to evaluate the status and progress of construction, testing
and operational start-up of the Freeport Facility.

 

ARTICLE 8

FREEPORT FACILITY

 

8.1          Freeport Facility

 

(a)           Standard of
Operation.

 

(i)            By the
Commercial Start Date, FLNG shall cause the Freeport Facility to be engineered,
constructed and commissioned in a good and workman-like

 

32

 

manner, in
conformance with this Agreement and in material compliance with all Approvals
necessary to commence operations of the Freeport Facility.

 

(ii)           On and
after the Commercial Start Date, FLNG shall at all times engineer, construct,
modify, maintain and operate (or cause to be engineered, constructed, modified,
maintained and operated):

 

a.             the
Freeport Facility in accordance with the following: (x) International LNG
Terminal Standards, including those dealing with the environment, health and
safety; and (y) to the extent not inconsistent with International LNG Terminal
Standards, such good and prudent practices as are generally followed in the LNG
industry by Reasonable and Prudent Operators of LNG receiving and
regasification terminals;

 

b.             the
Freeport Facility Pipeline in accordance with (x) Pipeline Standards, including
those dealing with the environment, health and safety; and (y) to the extent
not inconsistent with Pipeline Standards, such good and prudent practices as
are generally followed by Reasonable and Prudent Operators of U.S. Gas
pipelines; and

 

c.             each
Gas Storage Facility in accordance with (x) Storage Standards, including those
dealing with the environment, health and safety; and (y) to the extent not
inconsistent with Storage Standards, such good and prudent practices as are
generally followed by Reasonable and Prudent Operators of Gas storage
facilities.

 

(b)           Facilities to be
Provided.  Without limiting
Section 8.1(a), the Freeport Facility shall at all times after the
Commercial Start Date include at least the following:

 

(i)            appropriate
systems for communications with LNG Vessels;

 

(ii)           berthing
facilities at Quintana Island, Texas capable of receiving an LNG Vessel having
a displacement of no more than 150,000 tonnes, an overall length of no more
than 1,050 feet, a beam of no more than 165 feet, and a draft of no more than
42 feet, which LNG Vessels can safely reach, fully laden, and safely depart,
and at which LNG Vessels can lie safely berthed and unload safely afloat;

 

(iii)          lighting
sufficient to permit unloading operations (other than berthing or departing
berth) by day or by night, to the extent permitted by Governmental Authorities
(it being acknowledged, however, that FLNG shall in no event be obligated to
allow nighttime berthing operations at the Freeport Facility if FLNG
determines, acting as a Reasonable and Prudent Operator, that such operations
during nighttime hours could pose safety or operational risks to the Freeport
Facility, an LNG Vessel, or a third party);

 

(iv)          unloading
facilities capable of receiving LNG at a rate of no less than 10,000 Cubic
Meters per hour when the pressure at the Receipt Point is at

 

33

 

least 5.6 bars
(gauge), with three (3) unloading arms each having a reasonable operating
envelope to allow for ship movement and manifold strainers of sixty (60) mesh;

 

(v)           a vapor
return line system of sufficient capacity to transfer to an LNG Vessel
quantities of Gas necessary for the safe unloading of LNG at required rates,
pressures and temperatures;

 

(vi)          facilities
allowing ingress and egress between the Freeport Facility and the LNG Vessel by
(x) representatives of Governmental Authorities for purposes of unloading
operations; and (y) representatives of Customer and/or an independent surveyor
for purposes of conducting tests and measurements of LNG on board the LNG
Vessel in accordance with Annex I;

 

(vii)         LNG
storage facilities  with  a total gross capacity of at least three
hundred twenty thousand (320,000) Cubic Meters of LNG;

 

(viii)        LNG
regasification facilities with a total daily capacity of at least  1,605,000
MMBTUs; and

 

(ix)           the
Freeport Facility Pipeline with a total daily capacity at the Delivery Point of
at least  2,140,000
MMBTUs, with suitable interconnections with Downstream Pipelines capable of
accepting such volumes.

 

(c)           Facilities Not
Provided.  For the avoidance of
doubt, services and facilities not provided at the Freeport Facility include
the following: (i) facilities and loading lines for liquid or gaseous nitrogen
to service an LNG Vessel; (ii) facilities for providing bunkers; and (iii)
facilities for the handling and delivery to the LNG Vessel of ship’s stores,
provisions and spare parts; provided, however, that if Customer requests, the
Parties shall discuss in good faith the possibility of expanding the services
and facilities at the Freeport Facility to include such excluded items.

 

8.2          Modifications to Freeport Facility

 

(a)           Freeport Facility.  Customer acknowledges that it is familiar
with the general specifications and locations for the LNG berthing and unloading
facilities of the Freeport Facility as of the date hereof.  FLNG acknowledges that such specifications
have taken into consideration the necessary ship-shore compatibility in
relation to typical LNG tankers existing as of the Effective Date.  After the date hereof, Customer shall
ensure, at no cost to FLNG except as set forth in Section 8.2(b), that
each of the LNG Vessels is fully compatible with the Freeport Facility.  Should an LNG Vessel fail materially either
to be compatible with the Freeport Facility, or to be in compliance with the
provisions of Article 9, Customer shall not employ such LNG Vessel until
it has been modified to be so compatible or to so comply.

 

(b)           Modifications.  FLNG shall have the right, but not the
obligation, to from time to time modify the Freeport Facility, its
specifications or the location of the berthing and unloading facilities
(including via construction or acquisition of other facilities) in order to
perform the Services or any other mode of LNG, Gas, or

 

34

 

energy-related services,
subject to (x) such modifications not rendering the Freeport Facility
incompatible with an LNG Vessel, (y) such modifications not reducing the
Services Quantity except as allowed in Section 18.1 and (z) such
modifications not otherwise conflicting with each Party’s rights and
obligations under this Agreement, including the requirements of Sections
5.1(a), 8.1(b) and 18.1. 
Notwithstanding (x) but subject to (y) and (z) in the foregoing sentence,
FLNG may make such modifications in a manner that would render it incompatible
with an LNG Vessel provided that:

 

(i)            such
modification is made pursuant to a change in International LNG Terminal
Standards; or

 

(ii)           the LNG
Vessel is capable of being modified to maintain compatibility with both the
Freeport Facility and other terminals in its normal/intended trade and, in
connection with a modification (other than pursuant to paragraph (i) above),
FLNG reimburses Customer for the reasonable actual costs incurred by Customer
in causing Transporter to modify the LNG Vessel to maintain compatibility with
the Freeport Facility as so modified; provided, further, that Customer shall
use its reasonable efforts to minimize costs to be borne by FLNG hereunder, shall
notify FLNG reasonably in advance of the nature and expected cost of all such
LNG Vessel modifications by Transporter, and shall certify to FLNG the actual
amount and detail of all costs incurred for which such reimbursement from FLNG
is requested.

 

8.3          Customer Inspection Rights

 

On and after the
Commercial Start Date and upon obtaining FLNG’s prior written consent, which
consent shall not be unreasonably withheld or delayed, a reasonable number of
Customer’s designated representatives (including LNG Suppliers and Temporary
Customers) may from time to time inspect the operation of the Freeport Facility
so long as such inspection occurs from 8:00 a.m. to 5:00 p.m. on a Business
Day.  Any such inspection shall be at
Customer’s sole risk and expense.  Customer
(and its designees) shall carry out any such inspection without any
interference with or hindrance to the safe and efficient operation of the
Freeport Facility.  Customer’s right to
inspect and examine the Freeport Facility shall be limited to verifying FLNG’s
compliance with FLNG’s obligations under this Agreement and shall not entitle
Customer to make direct requests to FLNG regarding any aspect of the Freeport
Facility.  No inspection (or lack
thereof) of the Freeport Facility by Customer hereunder, or any requests or
observations made to FLNG or its representatives by or on behalf of Customer in
connection with any such inspection, shall (a) modify or amend FLNG’s
obligations, representations, warranties and covenants under this Agreement or under
any agreement or instrument contemplated by this Agreement; or
(b) constitute an acceptance or waiver by Customer of FLNG’s obligations
under this Agreement.

 

35

 

ARTICLE 9

TRANSPORTATION AND UNLOADING

 

9.1          LNG Vessels

 

(a)           Customer to Cause
LNG Vessels to Comply.  As between
Customer and FLNG, Customer shall be responsible for the transportation of LNG
from the Loading Port to the Freeport Facility.  In this regard, Customer shall cause each LNG Vessel to comply
with the requirements of this Article 9 in all respects.

 

(b)           Approvals and
Documentation.  Each LNG Vessel
shall comply with the regulations of, and obtain all Approvals required by,
Governmental Authorities to enable such LNG Vessel to enter, leave and carry
out all required operations at the Freeport Facility.  Each LNG Vessel shall at all times have on board valid
documentation satisfactory to FLNG evidencing all such Approvals.  Each LNG Vessel shall comply fully with the
International Safety Management Code for the Safe Operation of Ships and
Pollution Prevention effective July 1, 1998, and at all times be in
possession of a valid safety management certificate.

 

(c)           Fireboats, Escort
Vessels and Port Charges.  Customer
shall arrange for, or cause the appropriate Person to arrange for, such number
and types of fireboats and escort vessels as are required by Governmental
Authorities to attend the LNG Vessel so as to permit safe and efficient
movement of the LNG Vessel within the maritime safety areas located in the
approaches to and from the Freeport Facility. 
Customer shall pay, or cause to be paid, all Port Charges directly to
the appropriate Person; provided, however, that FLNG shall be solely
responsible for payment of all charges under the Freeport Facility Leases other
than, to the extent applicable to LNG Vessels, the Port Use Fees (excluding
rent) and Thru-Put Fees.  Should FLNG
amend any of the Freeport Facility Leases, such amendments shall not operate to
increase the Port Charges.

 

(d)           Requirements.  Each
LNG Vessel must satisfy the following requirements:

 

(i)            Specifications.  Except as otherwise mutually agreed in
writing by the Parties, each LNG Vessel shall be compatible with the
specifications of the Freeport Facility identified in Section 8.1(b).  Notwithstanding the foregoing, in the event
an LNG Vessel is compatible with the specifications set forth in
Section 8.1(b) or otherwise acceptable to FLNG, but a Governmental
Authority or Pilot prohibits or otherwise hinders the utilization of such LNG
Vessel, Customer’s obligations under this Agreement shall not be excused or
suspended by reason of Customer’s inability (pursuant to the foregoing) to use
such a vessel as an LNG Vessel.  FLNG will provide reasonable
assistance to Customer in Customer’s attempt to remove any such prohibition or
hindrance.

 

(ii)           LNG
Vessel Capacity.  Except as
otherwise agreed in writing by FLNG, each LNG Vessel shall have an LNG cargo
containment capacity of no less than one hundred twenty thousand (120,000)
Cubic Meters, determined at the time of loading of LNG.

 

36

 

(iii)          Condition
of the LNG Vessel.  Each LNG Vessel
shall be in compliance with International LNG Vessel Standards.  The location of the unloading manifold shall
allow a safe margin for movement of the arms within the operating envelope.

 

(iv)          Classification
Society.  Each LNG Vessel shall at
all times be maintained in class with any of the American Bureau of Shipping,
Lloyds Register of Shipping or Det Norske Veritas or any other classification
society that is mutually agreeable to the Parties.

 

(v)           Construction.  Each LNG Vessel shall have been constructed
to all applicable International LNG Vessel Standards (including the
International Code For the Construction and Equipment of Ships Carrying
Liquefied Gases in Bulk).

 

(vi)          Operation
and Maintenance.  Each LNG Vessel
shall comply with, and shall be fully equipped, supplied and maintained to
comply with, all applicable International LNG Vessel Standards.  Unless approved by FLNG in writing, which
approval shall not be unreasonably withheld or delayed, an LNG Vessel shall be
prohibited from engaging in any maintenance, repair or in-water surveys while
berthed at the Freeport Facility.  Each
LNG Vessel shall comply fully with the guidelines of any Governmental Authority
of the United States, including the National Oceanographic and Atmospheric
Administration (NOAA), in relation to actions to avoid strikes in U.S. waters
with protected sea turtles and cetaceans (e.g., whales and other marine
mammals) and with regard to the reporting of any strike by the LNG Vessel which
causes injury to such protected species.

 

(vii)         Crew.  The officers and crew of each LNG Vessel
shall have the ability, experience, licenses and training commensurate with the
performance of their duties in accordance with internationally accepted
standards as adopted on first-class LNG vessels and as required by Governmental
Authorities and any labor organization having jurisdiction over the LNG Vessel
or her crew.  Without in any way
limiting the foregoing:

 

a.             all
shipboard personnel shall hold valid certificates of competence in accordance
with the requirements of the law of the flag state of the LNG Vessel and any
applicable requirements of the laws of the United States of America;

 

b.             the
Master, chief engineer, chief mate and cargo engineer (and such other officers
of the LNG Vessel having responsibilities associated with the preparation of
the LNG Vessel for unloading) shall be trained and certified to a standard
customary for an operator of a first-class LNG vessel of the type and tonnage
of the LNG Vessel and in compliance with the International Convention on
Standards of Training, Certification and Watchkeeping for Seafarers, 1978;

 

37

 

c.             the
Master, chief engineer, all cargo engineers, and all deck officers shall be
fluent in written and oral English and shall maintain all records and provide
all reports with respect to the LNG Vessel in English, and there shall
otherwise be on board sufficient personnel with a good working knowledge of the
English language to enable cargo handling and unloading to be carried out
efficiently and safely and to enable communications between the LNG Vessel and
those unloading the LNG Vessel to be carried out quickly and efficiently; and

 

d.             none
of the LNG Vessel’s Master, officers or crew shall, while serving on the LNG
Vessel, abuse the use of drugs or alcohol, and Transporter shall maintain a
written policy to such effect, such policy to meet or exceed the standards of
the Oil Companies International Marine Forum’s Guidelines for the Control of
Drugs and Alcohol Aboard Ship, 1995, as amended from time to time.  If any Master, officer or crew member abuses
the use of drugs or alcohol, such individual shall be dismissed from service on
the LNG Vessel.

 

(viii)        Communications.  Each
LNG Vessel shall have communication equipment complying with applicable
regulations of Governmental Authorities and permitting such LNG Vessel to be in
constant communication with the Freeport Facility and with other vessels in the
area (including fireboats, escort vessels and other vessels employed in port
operations).

 

(ix)           Pumping
Time.  Provided that the Freeport
Facility supplies a suitable vapor return line meeting the requirements of
Section 8.1(b)(v),  then:

 

a.             an
LNG Vessel with an LNG cargo containment capacity less than or equal to one
hundred forty thousand (140,000) Cubic Meters shall be capable of unloading LNG
in a maximum of fifteen (15) hours; and

 

b.             an
LNG Vessel with an LNG cargo containment capacity greater than one hundred
forty thousand (140,000) Cubic Meters shall be capable of unloading LNG in the
number of hours derived after applying the following formula:

 

15 + x
= maximum LNG unloading time (in hours)

 

where:

 

y =      the LNG cargo containment
capacity of the LNG Vessel in excess of 140,000 Cubic Meters; and

 

x =       y/10,000 Cubic Meters

 

Time for connecting, cooling, stripping and disconnecting, and cooling
of liquid arms, shall not be included in the computation of pumping time.

 

38

 

9.2          Freeport Facility Marine Operations
Manual

 

Acting as a Reasonable
and Prudent Operator, FLNG shall develop and maintain a single marine
operations manual that governs activities at the Freeport Facility, applies to
all LNG Vessels and vessels used by Other Customers, and is consistent with
International LNG Vessel Standards (but excluding the matters governed by the
Freeport Services Manual).  In
developing such a manual, FLNG shall provide Customer with a preliminary draft
of the same (the “Preliminary Marine Operations Manual”).  If Customer desires to consult with FLNG
regarding the contents of the Preliminary Marine Operation Manual, Customer
shall, no later than fifteen (15) days from delivery of said manual by FLNG,
request to meet with FLNG by providing notice thereof to FLNG, and FLNG shall,
no later than thirty (30) days after receipt of such notice, meet with Customer
to discuss said manual.  If (a) Customer
does not submit the foregoing notice to FLNG on a timely basis or (b) Customer
and FLNG meet pursuant to such a notice and are able during such meeting to
agree upon revisions to the draft, then such draft, as so revised (and as
amended from time to time) shall constitute the “Freeport Facility Marine Operations
Manual”.  If Customer and
FLNG meet pursuant to the foregoing notice and are unable during such meeting
to agree upon revisions to the Preliminary Marine Operations Manual, then FLNG
shall determine, while using its reasonable efforts to accommodate Customer’s
views, the Freeport Facility Marine Operations Manual.  In the event FLNG intends to amend the
Freeport Facility Marine Operations Manual, then FLNG shall follow the
procedure set forth above in relation to the Preliminary Marine Operations
Manual.  FLNG shall deliver to Customer
and all Other Customers a copy of the Freeport Facility Marine Operations
Manual and any amendments thereto promptly after they have been finalized or
amended, as the case may be.  The
Parties shall comply with the Freeport Facility Marine Operations Manual in all
material respects.  FLNG will undertake
to develop a Freeport Facility Marine Operations Manual that is consistent with
this Agreement; however, in the event of a conflict between the terms of this
Agreement and the Freeport Facility Marine Operations Manual, the terms of this
Agreement shall control.

 

9.3          LNG Vessel Inspections; Right to Reject
LNG Vessel  

 

(a)           Inspections.  During the Term, on prior reasonable notice
to Customer, FLNG may, at its sole risk,  send its representatives (including an
independent internationally recognized maritime consultant) to inspect during
normal working hours any LNG Vessel as FLNG may consider necessary to ascertain
whether the LNG Vessel complies with the provisions of this Agreement.  FLNG shall bear the costs and expenses in
connection with any inspection conducted hereunder.  Any such inspection may include, as far as is practicable having
regard to the LNG Vessel’s operational schedule, examination of the LNG
Vessel’s hull, cargo and ballast tanks, machinery, boilers, auxiliaries and
equipment; examination of the LNG Vessel’s deck and engine scrap/rough and fair
copy/official log books; review of records of surveys by the LNG Vessel’s
classification society and relevant Governmental Authorities; and review of the
LNG Vessel’s operating procedures and performance of surveys, both in port and
at sea.  Any inspection carried out
pursuant to this Section 9.3(a): (i) shall not interfere with, or hinder,
any LNG Vessel’s safe and efficient construction or operation; and (ii) shall
not

 

39

 

entitle FLNG or any of
its representatives to make any request or recommendation directly to
Transporter except through Customer.  No
inspection (or lack thereof) of an LNG Vessel hereunder shall (i) modify
or amend Customer’s obligations, representations, warranties and covenants
under this Agreement or under any agreement or instrument contemplated by this
Agreement; or (ii) constitute an acceptance or waiver by FLNG of
Customer’s obligations under this Agreement.

 

(b)           Right to Reject LNG
Vessel.  Without prejudice to any other rights and remedies
arising hereunder or by law or otherwise, FLNG shall have the right to reject
any LNG Vessel that Customer intends to use to deliver LNG to the Freeport
Facility if such LNG Vessel does not comply materially with the provisions of
this Agreement, provided that:

 

(i)            neither
the exercise nor the non-exercise of such right shall reduce the responsibility
of Customer to FLNG in respect of such vessel and her operation, nor increase
FLNG’s responsibilities to Customer or third parties for the same; and

 

(ii)           Customer’s
obligations under this Agreement shall not be excused or suspended by reason of
Customer’s inability (pursuant to the foregoing) to use a vessel as an LNG
Vessel.

 

9.4          Advance Notices Regarding LNG Vessel
and Cargoes

 

(a)           Changes in Expected
Receipt Quantity.  If, subsequent to
issuing the notice required under Section 5.1(b)(ii) herein, Customer has
reason to foresee a change in the Expected Receipt Quantity for a particular
Arrival Date, Customer shall promptly provide notice thereof to FLNG and
include in such notice Customer’s new estimate of the Expected Receipt
Quantity.  To the extent such new
estimate increases the Expected Receipt Quantity contained in any prior notice
for that Scheduled Unloading Window, FLNG shall use reasonable endeavors to
accept such larger quantity but shall at all times retain the right not to
accept such new estimate if, in its Sole Opinion, such increase will result in
excess inventory at the Freeport Facility.

 

(b)           LNG Vessel
Nomination.  As soon as possible but
no later than five (5) days prior to the scheduled loading date for a Cargo,
Customer shall notify FLNG of the information specified below:

 

(i)            name of
LNG Vessel and, in reasonable detail, the age, dimensions, specifications,
operator, safety record, and condition of such LNG Vessel;

 

(ii)           name of
Loading Port;

 

(iii)          expected
departure date of LNG Vessel from Loading Port;

 

(iv)          estimated
arrival date at the Freeport Facility; and

 

(v)           any
changes in the Expected Receipt Quantity since Customer’s prior notice.

 

In the event
Customer has a reason to foresee a change in the information specified above,
Customer shall promptly provide notice thereof to FLNG.

 

40

 

Moreover, if the
vessel that Customer proposes to use as an LNG Vessel has not, within the
immediately preceding Contract Year, delivered LNG to the Freeport Facility,
Customer shall endeavor to notify FLNG thereof as soon as possible but in no
event later than twenty (20) days prior to the first day of the applicable Scheduled
Unloading Window.

 

(c)           LNG Vessel Movements.  With respect to each Cargo of LNG to be
delivered hereunder, Customer shall give, or cause the Master of the LNG Vessel
to give, to FLNG the following notices:

 

(i)            A first
notice (“First
Notice”), which shall be sent upon the departure of the LNG Vessel
from the Loading Port and which shall set forth the time and date that loading
was completed, the volume (expressed in Cubic Meters) of LNG loaded on board
the LNG Vessel, the estimated time of arrival of the LNG Vessel at the Arrival
Location (“ETA”), and any operational deficiencies in the LNG Vessel that
may affect its performance at the Freeport Facility or berth;

 

(ii)           A second
notice (“Second
Notice”), which shall be sent ninety-six (96) hours prior to the ETA
set forth in the First Notice, stating the LNG Vessel’s then ETA.  If, thereafter, such ETA changes by more
than six (6)  hours, Customer shall give promptly, or cause the Master of
the LNG Vessel to give promptly, to FLNG notice of the corrected ETA;

 

(iii)          A
third notice (“Third Notice”), which shall be sent twenty-four (24) hours
prior to the ETA set forth in the Second Notice (as corrected), confirming or
amending such ETA.  If, thereafter, such
ETA changes by more than three (3) hours, Customer shall give promptly, or
cause the Master of the LNG Vessel to give promptly, to FLNG notice of the
corrected ETA;

 

(iv)          A fourth
notice (“Final
Notice”), which shall be sent twelve (12) hours prior to the ETA set
forth in the Third Notice (as corrected), confirming or amending such ETA.  If, thereafter, such ETA changes by more
than one (1) hour, Customer shall give promptly, or cause the Master of the LNG
Vessel to give promptly, to FLNG notice of the corrected ETA; and

 

(v)           An NOR,
which shall be given at the time prescribed in Section 9.5 below.

 

(d)           Characteristics of
Cargoes.  With the First Notice,
Customer shall notify FLNG, or cause FLNG to be notified, for FLNG’s
information only, of the following characteristics of the LNG comprising its
Cargo as determined at the time of loading:

 

(i)            Gross
Heating Value per unit;

 

(ii)           molecular
percentage of hydrocarbon components and nitrogen;

 

(iii)          average
temperature; and

 

(iv)          density at
loading.

 

41

 

(e)           Right to Reject
Certain Quantities.  Without prejudice to any other rights and
remedies arising hereunder or by law or otherwise, FLNG shall for any reason
(including limitations in LNG Storage) have the right to reject unloading of
that quantity of LNG on board an LNG Vessel that exceeds by more than five
percent (5%) the Expected Receipt Quantity for such Cargo as specified in,
whichever applicable, (i) the notice delivered pursuant to
Section 5.1(b)(ii) and utilized by FLNG for the purposes of determining
the Customer LNG Receipt Schedule or (ii) any subsequent notice delivered
pursuant to Section 9.4(a) and accepted by FLNG.

 

9.5          Notice of Readiness

 

(a)           Issuance. 
Subject to any applicable restrictions, including any nighttime
transit restrictions imposed by Governmental Authorities or Pilots or any other
reasonable timing restrictions imposed by FLNG, the Master of an LNG Vessel or
its agent shall give to FLNG its notice of readiness to unload (berth or no
berth) (“Notice
of Readiness” or “NOR”) upon arrival of such LNG Vessel at
the specific location off the Freeport Facility designated for such purposes in
the Freeport Facility Marine Operations Manual (such location referred to as
the “Arrival
Location”).

 

(b)           Effectiveness.  An NOR given under Section 9.5(a) shall
become effective as follows:

 

(i)            For an
LNG Vessel arriving at the Arrival Location at any time before 6:00 a.m.,
Central Time on the first day of the Scheduled Unloading Window allocated to
such LNG Vessel, an NOR shall be deemed effective
at the earlier of (x) 6:00 a.m., Central Time on the first day of such
Scheduled Unloading Window; or (y) the time unloading commences;

 

(ii)           For an
LNG Vessel arriving at the Arrival Location at any time between the period of
6:00 a.m., Central Time on the first day of the Scheduled Unloading Window
allocated to such LNG Vessel and two (2) hours before sunset, Central Time on
the second day of such Scheduled Unloading Window (such period referred to as
the “NOR
Window”), an NOR shall become effective at the time of its issuance;
or

 

(iii)          For
an LNG Vessel arriving at the Arrival Location at any time after the expiration
of the NOR Window, an NOR shall become
effective upon FLNG’s notice to the LNG Vessel that it is ready to receive the
LNG Vessel at berth.

 

9.6          Berthing Assignment

 

(a)           General Rule.  FLNG shall determine the berthing sequence
of all LNG Vessels and other vessels at the Freeport Facility in order to
ensure compliance with the Customer LNG Receipt Schedule and the Other
Customer LNG Receipt Schedules.  If an
LNG Vessel arrives not ready to unload for any reason, FLNG may refuse to allow
it to berth.

 

(b)           Timely Arrival.  FLNG shall berth an LNG Vessel arriving
before or during its NOR Window at the first opportunity that FLNG reasonably
determines such

 

42

 

LNG Vessel will not
interfere with unloading by any other scheduled vessel but in no event later
than two (2) hours prior to sunset at the Freeport Facility on the second day
of the Scheduled Unloading Window allocated to such LNG Vessel (hereinafter
referred to as the “Berthing Deadline”); provided, however,
that if FLNG does not berth such LNG Vessel by the Berthing Deadline,
Customer’s sole recourse and remedy for FLNG’s breach thereof is demurrage
pursuant to Section 9.7(c) and excess boil-off pursuant to
Section 9.7(d).

 

(c)           Late Arrival.  FLNG shall berth an LNG Vessel
arriving after its NOR Window at the first opportunity that FLNG reasonably
determines such LNG Vessel will not interfere with unloading by any scheduled
vessel.

 

9.7          Unloading Time

 

(a)           Allotted Unloading
Time.  The allotted unloading time for each LNG Vessel (“Allotted
Unloading Time”) shall be thirty-six (36) hours, subject to
extensions for:

 

(i)            reasons
attributable to Customer, a Pilot, a Governmental Authority, the LNG Vessel or
its Master, crew, owner or operator;

 

(ii)           Adverse
Weather Conditions;

 

(iii)          Force
Majeure;

 

(iv)          unscheduled
curtailment or temporary discontinuation of operations at the Freeport Facility
in accordance with Section 18.2;

 

(v)           occupancy
of the berth by an LNG vessel that arrived at berth at the Freeport Facility no
later than two (2) hours prior to sunset on the second day of the Scheduled
Unloading Window allocated to such vessel, which shall result in an extension
of no more than nine (9) hours;

 

(vi)          failure to
send the Final Notice; and

 

(vii)         nighttime
transit restrictions.

 

(b)           Actual Unloading
Time.  The actual unloading time for
each LNG Vessel (“Actual Unloading Time”) shall commence when
the NOR is effective under Section 9.5(a) and shall end when the unloading
and return lines of the LNG Vessel are disconnected from the Freeport
Facility’s unloading and return lines.

 

(c)           Demurrage  at
the Freeport Facility.

 

(i)            In the
event Actual Unloading Time exceeds Allotted Unloading Time (including any
extension in accordance with Section 9.7(a)) (“Demurrage Event”), FLNG shall
pay to Customer as liquidated damages demurrage in United States dollars (which
shall be prorated for a portion of a day) determined in accordance with the
rate set out in the following table:

 

43

 

	
  LNG Vessel Cargo Capacity

  	
   

  	
  Demurrage
  Rate

  in $/day

  	
   

  
	
  Less than
  120,000 Cubic Meters

  	
   

  	
  Rate to be established
  by agreement of the Parties

  	
   

  
	
  120,000 Cubic
  Meters or greater up to, but not including, 160,000 Cubic Meters

  	
   

  	
  $55,000

  	
   

  
	
  160,000 Cubic
  Meters or greater up to, but not including, 200,000 Cubic Meters

  	
   

  	
  $65,000

  	
   

  
	
  200,000 Cubic
  Meters or greater

  	
   

  	
  $83,000

  	
   

  

 

(ii)           If a
Demurrage Event occurs, Customer shall invoice FLNG for such demurrage pursuant
to Section 12.2.

 

(d)           Excess Boil-Off.  If an LNG Vessel is delayed in berthing at
the Freeport Facility and/or in commencement of unloading due to an event
occurring at the Freeport Facility and for a reason that would not result in an
extension of Allotted Unloading Time under Section 9.7(a), and if, as a result
thereof, the commencement of unloading is delayed beyond twenty-four (24) hours
after the Notice of Readiness is effective, then, for each full hour by which
commencement of unloading is delayed beyond such twenty-four (24) hour period,
FLNG shall pay Customer as liquidated damages an amount, on account of excess
boil-off, equal to the Henry Hub Price multiplied by the quantity in
MMBTUs equal to 0.125% of the Cargo per day. 
Customer shall invoice FLNG for such excess boil-off pursuant to
Section 12.2.

 

9.8          Unloading at the Freeport Facility

 

(a)           Efficiency.  FLNG shall cooperate with Transporters (or
their agents) and with the Master of each LNG Vessel to facilitate the
continuous and efficient delivery of LNG hereunder.

 

(b)           Vapor Return Line.  During unloading of each Cargo of LNG, FLNG
shall return to the LNG Vessel Gas in such quantities as are necessary for the
safe unloading of the LNG at such rates, pressures and temperatures as may be
required by the design of the LNG Vessel, and such returned Gas shall not be
deemed to be volume unloaded for Customer’s account.

 

9.9          LNG Vessel Not Ready for Unloading;
Excess Berth Time

 

(a)           Vessel Not Ready for
Unloading.  If any LNG Vessel,
previously believed to be ready for unloading, is determined to be not ready
after being berthed, FLNG may direct the LNG Vessel’s Master to vacate the
berth and proceed to anchorage, whether or not other LNG vessels are awaiting
the berth, unless it appears reasonably certain to FLNG that such LNG Vessel
can be made ready without disrupting the overall unloading schedule of the
Freeport Facility or operations of the Freeport Facility.  When an unready LNG Vessel at anchorage
becomes ready for unloading, its Master shall notify FLNG.  Upon the reberthing of any LNG Vessel vacated
pursuant to this Section 9.9(a), Customer shall be responsible for

 

44

 

any actual costs incurred
by FLNG acting as a Reasonable and Prudent Operator as a result of such LNG
Vessel not being ready for unloading, with FLNG using reasonable efforts to
minimize such costs.

 

(b)           Berth Limitations.

 

(i)            An LNG
Vessel shall complete unloading and vacate the berth as soon as possible but
not later than the following allowed berth time:

 

a.             twenty-four
(24) hours after berthing is complete, in the case of an LNG Vessel with an LNG
cargo containment capacity less than or equal to one hundred forty thousand
(140,000) Cubic Meters; or

 

b.             in
accordance with the following formula, in the case of an LNG Vessel with an LNG
cargo containment capacity greater than one hundred forty thousand (140,000)
Cubic Meters:

 

24 + x
= allowed berth time (in hours) after berthing is complete

 

where:

 

y =    the LNG cargo containment
capacity of the LNG Vessel in excess of 140,000 Cubic Meters; and

 

x =     y/10,000 Cubic Meters

 

Notwithstanding
the foregoing, the aforementioned time restrictions shall be extended for: (a)
reasons attributable to FLNG; (b) reasons attributable to a Pilot or to a
Governmental Authority; (c) Adverse Weather Conditions; (d) Force Majeure; and
(e) nighttime transit restrictions.

 

(ii)           If an LNG
Vessel fails to depart at the end of its allowed berth time, FLNG may direct
the LNG Vessel to vacate the berth and proceed to sea at utmost dispatch.

 

(iii)          If
an LNG Vessel fails to vacate the berth after expiration of its allowed berth
time after receipt of FLNG’s notice to do so under this Section 9.9,
Customer shall reimburse FLNG for any and all reasonable and actual damages
FLNG incurs as a result thereof, including amounts FLNG becomes contractually
obligated to pay as demurrage to any of the Other Customers or to pay any Other
Customer for excess boil-off.

 

(iv)          Subject to
this Section 9.9, in the event an LNG Vessel fails to vacate the berth and
Customer is not taking actions to cause it to vacate the berth, FLNG may effect
such removal at the expense of the Customer.

 

ARTICLE 10

RECEIPT OF LNG

 

10.1        Title, Custody and Risk of Loss

 

(a)           Title to
Customer’s Inventory.  Subject to Section 3.4, title
with respect to Customer’s Inventory shall remain with Customer even during
periods when it is in the possession and control of FLNG (including while held
at a Gas Storage

 

45

 

Facility and as provided
in Section 10.5).  For the avoidance of doubt, title
and risk of loss with respect to Retainage shall pass to FLNG at the Receipt Point.

 

(b)           Possession, Risk of
Loss and Control.  Possession, risk
of loss and control of Customer’s LNG shall pass from Customer to FLNG upon
delivery of same at the Receipt Point. 
Possession, risk of loss and control of Customer’s Inventory shall pass
from FLNG to Customer upon delivery of same at the Delivery Point.

 

10.2        No Encumbrance

 

(a)           Customer’s Covenants.  Customer warrants to FLNG that (i) Customer
has title to all of Customer’s Inventory, other than to the Temporary Release
Inventory; and (ii) the relevant Temporary Customer has title to all of the
Temporary Release Inventory.  Customer
covenants that Customer’s Inventory shall remain free of all encumbrances and
Liabilities therefor, and that no circumstances will exist which could give
rise to any Liabilities or encumbrances relating thereto (collectively, “Claims”)
other than (i) those that may be caused by acts or omissions of FLNG or Other
Customers or (ii) those arising out of or relating to an assignment for
financing purposes or other security interest for financing purposes.  Customer agrees to fully defend, indemnify
and hold FLNG and its Affiliates harmless against all Claims regarding
Customer’s Inventory, including Claims brought by Other Customers, other than
any Claims caused by acts or omissions of FLNG or Other Customers.  For purposes of this Section 10.2, the
term “encumbrance”
shall include any mortgage, pledge, lien, charge, adverse claim, proprietary
right, assignment by way of security, security interest, title retention,
preferential right or trust arrangement or any other security agreement or
arrangement having the effect of security.

 

(b)           FLNG’s Covenants.  FLNG covenants that it has the right to
deliver to Customer at the Delivery Point all Gas held for Customer’s account
free from all Claims relating thereto. 
FLNG covenants that Customer’s Inventory, while in FLNG’s possession or
control, shall remain free of all Claims, other than those that may be caused
by Customer’s acts or omissions.  FLNG
also covenants that the net proceeds resulting from any sale of Customer’s
Inventory under Section 3.4 shall remain free of all Claims, other than
those that may be caused by Customer’s acts or omissions.  FLNG agrees to fully defend, indemnify and
hold Customer and its Affiliates harmless from and against all Claims regarding
Customer’s Inventory or such net proceeds, other than Claims caused by the acts
or omissions of Customer.

 

(c)           Allocation of
Inventory Loss.  In the event of
loss of LNG or Gas at the Freeport Facility (other than Retainage), such loss
shall be allocated based on the ratio that Customer’s Inventory bears to the
sum of the Customer’s Inventory and the inventory of Other Customers.

 

10.3        Receipt of LNG

 

The receipt of LNG
from an LNG Vessel at the Receipt Point shall be carried out by use of pumps
and other equipment on the LNG Vessel under such reasonable and customary
conditions specified in the Freeport Facility Marine Operations Manual;
provided that

 

46

 

such reasonable
and customary conditions for the receipt of LNG specified in the Freeport
Facility Marine Operations Manual shall not (a) exceed the specifications of
the LNG Vessel, provided that such specifications meet the requirements of this
Agreement;  or (b) violate the
requirements of a Governmental Authority having jurisdiction over the LNG
Vessel.

 

10.4        Quality and Measurement of Customer’s
LNG

 

Customer’s LNG shall be measured and tested
in accordance with Annex I.  Customer
shall ensure that all LNG delivered at the Receipt Point for Customer’s account
shall conform to the following specifications:

 

(a)           Gross Heating Value.

 

(i)            LNG when
delivered by Customer to FLNG shall have, in a gaseous state, a Gross Heating
Value of not less than 950 BTU per Standard Cubic Foot and not more than 1150
BTU per Standard Cubic Foot.

 

(ii)           If the
Gross Heating Value of LNG to be delivered hereunder is higher than the limits
set forth in Section 10.4(a)(i) by reason of boil-off occurring during a
delay (other than a delay which extends Allotted Unloading Time under
Section 9.7(a)) caused by FLNG in unloading an LNG Vessel of more than
thirty (30) hours after the NOR becomes effective, such LNG shall be deemed to
have met the quality specifications of this Agreement regarding Gross Heating
Value.

 

(b)           Components.

 

(i)            At the
Receipt Point, the LNG delivered by Customer to FLNG shall, when in a gaseous
state, contain not less than eighty-five (85) molecular percentage
(85 MOL%) of methane (C1) and, for the components and
substances listed below, such LNG shall not contain more than the following:

 

a.             Nitrogen
(N2), 2.0  MOL%;

 

b.             Ethane
(C2), 11 MOL%;

 

c.             Propane
(C3), 3.5 MOL%;

 

d.             Butanes
(C4) and heavier, 2 MOL%;

 

e.             Pentanes
(C5) and heavier, 0.15 MOL%;

 

f.              Hydrogen
sulfide (H2S), .25 grains per 100 Standard Cubic Feet (.25
grains/100 SCF); and

 

g.             Total
sulfur content, 5 grains per 100 Standard Cubic Feet (5 grains/100 SCF).

 

(ii)           The LNG
when delivered by Customer to FLNG shall contain no water, mercury, active
bacteria or bacterial agents (including sulfate reducing bacteria or acid
producing bacteria) or other contaminants or extraneous material.

 

47

 

10.5        Off-Specification LNG

 

(a)           Refusal of Off-Spec
LNG.  Without prejudice to any other
rights and remedies of FLNG hereunder, subject to Section 10.5(b), FLNG
may refuse to take delivery of all or part of any LNG not conforming to the
quality specifications set forth in Section 10.4 (“Off-Spec LNG”).  However, if FLNG refuses to take delivery of
LNG and such LNG is subsequently determined not to have been Off-Spec LNG, then
FLNG shall pay all Liabilities incurred by Customer as a result of FLNG’s
refusal, with Customer using reasonable efforts to minimize such Liabilities.

 

(b)           Notice.  Customer shall provide notice to FLNG as
soon as reasonably practicable of any existing or anticipated failure of the
LNG available for delivery to FLNG hereunder to conform to the quality
specifications set forth in Section 10.4, giving details of the nature and
expected magnitude of the variance, the cause of the non-compliance and the
probable duration thereof, including the Cargoes and Scheduled Unloading
Windows to be affected thereby.  If so
notified, FLNG shall as soon as possible inform Customer whether it intends to
reject any of such Off-Spec LNG.  If
FLNG is notified by Customer prior to the commencement of unloading of a Cargo
at the Freeport Facility that the LNG is Off-Spec LNG and the quantity is
delivered to the Freeport Facility, FLNG shall use reasonable endeavors to take
delivery of any Cargoes which it would otherwise be entitled to reject;
provided, however that FLNG shall be entitled to delay unloading of Off-Spec
LNG for the period of time reasonably required for FLNG to determine whether it
can take delivery of such Off-Spec LNG pursuant to this
Section 10.5(b).  Subject to FLNG
first using its reasonable endeavors to take delivery of any Cargoes containing
Off-Spec LNG, FLNG shall:

 

(i)            notify
Customer that FLNG will take delivery of some or all of the affected Cargoes,
without prejudice to FLNG’s rights and remedies with respect to such Off-Spec
LNG other than FLNG’s right to reject said Cargo; or

 

(ii)           reject
all or any of the affected Cargoes.

 

Unless FLNG was notified
by Customer of Off-Spec LNG, FLNG shall provide notice to Customer as soon as
reasonably practicable of any Off-Spec LNG, giving details of the nature and
expected magnitude of the variance and the affected Cargo.

 

10.6        Customer’s Responsibility and
Reimbursement

 

(a)           No Continuing Waiver.  Acceptance of Off-Spec LNG shall not prevent
FLNG from refusing future deliveries of Off-Spec LNG.  No waiver by FLNG of any default by Customer of any of the
specifications set forth in this Article 10 shall ever operate as a
continuing waiver of such specification or as a waiver of any subsequent
default, whether of a like or different character.

 

(b)           Delivery of a Cargo
of Off-Spec LNG.  If FLNG accepts
delivery of a Cargo of Off-Spec LNG which it would otherwise be entitled to
reject, Customer shall:

 

(i)            bear the
financial responsibility for all reasonable and actual incremental costs (other
than capital costs) and Liabilities incurred by FLNG or any of

 

48

 

FLNG’s Affiliates,
in each case acting as a Reasonable and Prudent Operator, in connection with
receiving and treating Off-Spec LNG by such means as are appropriate, including
mixing such Off-Spec LNG with lower calorific value Gas or injecting nitrogen,
with FLNG using reasonable efforts to minimize such costs; and

 

(ii)           indemnify
and hold harmless FLNG, its Affiliates and their respective directors, officers
and employees from any and all Liabilities, including any of same attributable
to claims of any Person (including Temporary Customers) and any Other
Customers, which arise out of, are incident to or result from the acceptance,
handling, disposal or use of Off-Spec LNG.

 

(c)           Extended Delivery of
Off-Spec LNG.  If (i) Customer
notifies FLNG pursuant to Section 10.5(b) of an anticipated delivery of
two (2) or more Cargoes of Off-Spec LNG and (ii) the Parties agree for FLNG to
incur incremental capital costs in order to accept delivery of such Cargoes,
then Customer shall, in addition to its payment and indemnification obligations
under Section 10.6(b), bear the financial responsibility for and directly
fund, at FLNG’s election, all such incremental capital costs.

 

10.7        Subsequent Deliveries

 

Unless otherwise
requested by Customer, any quantities of LNG which were, under the Customer LNG
Receipt Schedule, scheduled to be unloaded during the Contract Year but were
actually unloaded at the Freeport Facility within the first *** days in the
following Contract Year shall be, for the purposes of the Maximum LNG Reception Quantity, deemed to
have been received by FLNG in the Contract Year in which such quantities were
originally scheduled to be unloaded.

 

ARTICLE 11

REDELIVERY OF GAS

 

11.1        General

 

(a)           Delivery Point.  Subject to Section 3.3(a), the volume
of Gas nominated by Customer for any day pursuant to Section 5.2 shall be
delivered at the Delivery Point.

 

(b)           Commingled Stream.  Customer acknowledges and agrees that
Customer’s Inventory shall be delivered by FLNG in a commingled stream,
including that combined with LNG received by FLNG from Temporary Customers and
any Other Customers.  Customer furthers
acknowledges and agrees that Customer shall have no right to receive Gas of the
same quality as Customer’s LNG, provided that the specifications of the
commingled Gas stream at the Delivery Point satisfy the requirements set forth
in Section 11.3.

 

(c)           Odorization.  FLNG will deliver Customer’s Inventory at
the Delivery Point in its natural state without the addition of any odorizing
agent, and FLNG shall not be obligated to add odorizing agents to any Gas
unless required to do so by a Governmental Authority.  FLNG does not assume any responsibility for

 

49

 

Liabilities by reason of the fact that it has
not odorized Customer’s Inventory prior to its delivery to Customer.

 

11.2        Customer’s Responsibility

 

(a)           Downstream
Arrangements.  Customer shall
arrange for the purchase and transportation of Gas by Downstream Pipelines in
order to meet its obligations to take redelivery of Gas in accordance with the
provisions of Section 3.4 at the rates nominated pursuant to
Article 5.  Customer shall be
solely responsible for making all necessary arrangements with third parties at
or downstream of the Delivery Point to enable FLNG to deliver Gas to Downstream
Pipelines on a timely basis pursuant to the terms and conditions of this
Agreement.  Customer shall also be
solely responsible for ensuring that all such arrangements are consistent with
the terms and conditions of this Agreement and shall require all relevant third
parties to confirm to FLNG all of Customer’s nominations and scheduling of
deliveries of Gas, such confirmation to be by telephone, electronic
transmission, or other means acceptable to FLNG.  Such third-party arrangements shall be timely communicated to,
and coordinated with, FLNG, and FLNG shall have no liability whatsoever for any
failure of any such third party to provide downstream arrangements.  The manner in which Customer’s Inventory is
transported from or purchased at the Delivery Point shall be subject to the
rules, guidelines, and policies of the Downstream Pipeline transporting or
purchasing any such Gas (as may be changed from time to time by the Downstream
Pipeline).  Customer and FLNG recognize
that the receipt and delivery on the Downstream Pipeline’s facilities of Gas
shall be subject to the operational procedures of such Downstream Pipeline.

 

(b)           Imbalance Charges.  In the event a Downstream Pipeline imposes
scheduling fees, imbalance charges, cash out costs or similar costs, fees or
damages for imbalances associated with Customer’s Gas (“Imbalance Charges”), Customer
shall be obligated to use its reasonable efforts to avoid imposition of such
Imbalance Charges.  Customer shall
indemnify and hold harmless FLNG, its Affiliates and their respective
directors, officers and employees from all Liabilities arising out of, incident
to or resulting from any Imbalance Charge directly resulting from Customer’s
acts or omissions.  FLNG shall indemnify
and hold harmless Customer, its Affiliates and their respective directors,
officers and employees from all Liabilities arising out of, incident to or
resulting from any Imbalance Charge directly resulting from FLNG’s acts or
omissions.  FLNG will use reasonable
efforts to minimize any Imbalance Charges and will notify Customer of any
Imbalance Charges included in or imposed by any operational balancing
agreement.

 

(c)           Limitation.  Customer shall ensure that its Gas
transportation and sales arrangements are in compliance with all applicable
laws and regulations.  In this regard,
Customer agrees that it shall transport, or cause to be transported, Customer’s
Inventory only into intra-state Gas pipelines or storage facilities unless
otherwise approved by Governmental Authorities.

 

50

 

11.3        Specifications and Measurement of Gas
at the Delivery Point

 

Gas delivered to Customer at the Delivery
Point shall be measured and tested in accordance with Annex II.  FLNG shall ensure that all Gas delivered at
the Delivery Point for Customer’s account shall conform to the following
specifications:

 

(a)           Gross Heating Value.  Gas when delivered by FLNG to Customer shall
have a Gross Heating Value of not less than 950 BTU per Standard Cubic Foot and
not more than 1150 BTU per Standard Cubic Foot.

 

(b)           Components.

 

(i)            At the
Delivery Point, Gas delivered by FLNG to Customer shall contain not less than
eighty-five (85) molecular percentage (85 MOL%) of methane (C1)
and, for the components and substances listed below, such Gas shall not contain
more than the following:

 

a.             Nitrogen
(N2), three (3) MOL%;

 

b.             Pentanes
(C5) and heavier, 0.16 MOL%;

 

c.             Hydrogen
sulfide (H2S), .25 grains per 100 Standard Cubic Feet (.25
grains/100 SCF);

 

d.             Total
sulfur content, 5 grains per 100 Standard Cubic Feet (5  grains/100 SCF);

 

e.             Oxygen
(O2), ten (10) parts per million;

 

f.              Carbon
dioxide (CO2), two (2) MOL%; and

 

g.             Water
(H2O), seven (7) pounds per one million (1,000,000) cubic feet.

 

(ii)           Gas when
delivered by FLNG to Customer shall contain no mercury, active bacteria or
bacterial agents (including sulfate reducing bacteria or acid producing
bacteria) or other contaminants or extraneous material.

 

(c)           Gas Delivery
Pressure.  Customer’s Inventory shall be delivered at
the Delivery Point at the appropriate pipeline pressure; provided, however,
that such pressure shall be at least 1000 psig but shall not be required to
exceed a maximum pressure of 1200 psig.

 

11.4        Nonconforming
Gas

 

(a)           Right to Reject.  Without prejudice to any other rights and
remedies of Customer hereunder, Customer shall have the right to reject Gas
that does not conform to the specifications set forth in Section 11.3 (“Nonconforming
Gas”); provided that Customer shall first use reasonable endeavors
to take delivery of any Nonconforming Gas which it would otherwise be entitled
to reject.

 

(b)           FLNG Indemnity.  If Customer accepts delivery of Nonconforming
Gas, FLNG shall indemnify and hold harmless Customer, its Affiliates and their
respective directors, officers and employees from any and all Liabilities,
including any of same attributable to claims of any Person (including Other
Customers, a Downstream Pipeline, a Downstream Purchaser and Temporary
Customers),

 

51

 

which arise out of, are
incident to or result from the acceptance, handling, disposal or use of
Nonconforming Gas.  If Customer accepts
delivery of Nonconforming Gas, FLNG shall bear the financial responsibility for
all reasonable and actual incremental costs (other than capital costs) and
Liabilities incurred by Customer or any of Customer’s Affiliates, in each case
acting as a Reasonable and Prudent Operator, in connection with accepting
delivery of Nonconforming Gas.

 

ARTICLE 12

PAYMENT

 

12.1        Monthly Statements

 

Between the first (1st)
day of each month and the tenth (10th) day of each month, commencing with the
month prior to the Commercial Start Date, FLNG shall deliver to Customer a
statement setting forth the following:

 

(a)           ***;

 

(b)           the FLNG Component for
the following month;

 

(c)           the FOC Installment for
the following month;

 

(d)           with respect to the
March statement, a charge or credit, as applicable, for the FOC
Reconciliation for the prior year;

 

(e)           the Crest Installment
for the following month;

 

(f)            the Awards
Installment, if any, for the prior month;

 

(g)           with respect to the
March statement, a charge or credit, as applicable, for the Crest
Reconciliation for the prior year;

 

(h)           the Incremental Costs,
if any, for the prior month; and

 

(i)            a charge or credit for
any adjustment to the FLNG Component made under Section 4.6.

 

All statements delivered
by FLNG to Customer shall as much as practicable account separately for the Fee
related to each Temporary Release from all other amounts owed by Customer.  FLNG shall reflect the Retainage for the
prior month on any such statement.

 

12.2        Other Statements

 

If any other amount is
due from one Party to the other hereunder and if provision for the invoicing of
that amount due is not made elsewhere in this Article 12, then the Party
to whom such amount is due shall furnish a statement therefor to the other
Party, along with pertinent information showing the basis for the calculation
thereof.  Upon request, the Party who issued a statement
under this Article 12 (including under Section 12.1) shall provide
reasonable supporting documentation to substantiate any amount claimed to be
due.

 

52

 

12.3        Adjustments

 

If, within two (2) years
of the issuance of a statement, either Party acquires information indicating
the necessity of an adjustment to such statement rendered hereunder, then the
Party acquiring the information shall promptly serve on the other Party a
written notice setting forth that information. 
Unless otherwise provided herein, after obtaining that information, the
Party that prepared the prior statement which by reason of that information must
be adjusted, shall promptly prepare and serve on the other Party an adjusted
statement, showing the necessary payment, the calculation of the payment
amount, and the Party from whom the payment is owing.

 

12.4        Payment Due Dates

 

(a)           Due Date for Monthly
Statement.  Each monthly statement
submitted pursuant to Section 12.1 shall become due and payable on the
later of (i) ten (10) days after delivery by FLNG of such monthly statement or
(ii) the twenty-fifth (25th) day of the month in which such monthly
statement was received; provided that if such day is not a Business Day, it
shall become due and payable on the next Business Day.

 

(b)           Due Date for Other
Statements.  Each statement
submitted pursuant to Section 12.2 shall become due and payable on the
thirtieth (30th) day after the date on which it is received;
provided that if such payment due date is not a Business Day, the due date for
such payment shall be extended to the next Business Day.  For purposes of this Section 12.4(b), a
facsimile copy of an invoice shall be deemed received by a Party on the next
Business Day following the day on which it was sent.

 

(c)           Interest.  If the full amount of any statement is not
paid when due, the unpaid amount thereof shall bear interest at the Base Rate,
compounded annually, from and including the day following the due date up to
and including the date when payment is made.

 

12.5        Payment

 

Each Party shall pay, or
cause to be paid, in United States dollars in immediately available funds, all
amounts that become due and payable by such Party pursuant to any statement
issued hereunder, to a bank account or accounts designated by and in accordance
with instructions issued by the other Party. 
Each payment of any amount owing under Section 4.1(a) and each
payment of undisputed amounts (the disputed portion of which is addressed under
Section 12.7) owing under any other provisions hereunder (in each case,
except an obvious error in computation, which shall be disregarded pursuant to
Section 12.7) shall be in the full amount due without reduction or offset
for any reason (except as expressly allowed under this Agreement), including
Taxes, exchange charges, or bank transfer charges.  Notwithstanding the preceding sentence, the paying Party shall
not be responsible for a designated bank’s disbursement of amounts remitted to
such bank, and a deposit in immediately available funds of the full amount of
each statement with such bank shall constitute full discharge and satisfaction
of the statement.

 

53

 

12.6        Nonpayment

 

The term “Cumulative
Delinquency Amount” shall mean, with respect to a Party, the
cumulative amount (expressed in United States dollars) that is owed by that
Party to the other Party under this Agreement and is past due and not being
disputed under Section 12.7. 
Without prejudice to a Party’s right of offset, if a Party’s failure to
pay when due an amount owing hereunder causes its Cumulative Delinquency Amount
to exceed *** times the sum of the *** and the FOC Installment, then the Party
to which such amount is owed shall have the right, upon giving thirty (30) days
written notice (such notice hereinafter referred to as the “Delinquency
Notice”) to the owing Party, to suspend performance of its
obligations under this Agreement until such amount, with interest in accordance
with Section 12.4(c), has been paid in full; provided, however, that (a)
no such suspension of a Party’s obligations under this Section 12.6 shall
excuse the owing Party from the performance of its obligations hereunder, and
(b) in the event that FLNG suspends performance under this Section 12.6,
Customer shall continue to be liable for the Fee pursuant to
Article 4.  If any such Cumulative
Delinquency Amount has not been paid within sixty (60) days after the issuance
of the Delinquency Notice, then the Party to whom such amount is owed shall
have the right, upon not less than thirty (30) days notice to the other Party,
to terminate this Agreement without the necessity of any further action, unless
within that thirty (30) day period, the Party to which such amount is owed
receives payments from or on behalf of the owing Party equal to the Cumulative
Delinquency Amount.  Any such
termination shall be without prejudice to any other rights and remedies of the
terminating Party arising hereunder or by law or otherwise, including the right
of such Party to receive payment in respect of all obligations and claims that
arose or accrued prior to such termination or by reason of such default by the
owing Party.

 

12.7        Disputed Statements

 

In the event of
disagreement concerning any statement, Customer or FLNG (as the case may be)
shall make provisional payment of the total amount owing under
Section 4.1(a) and the undisputed amounts under the remaining provisions
hereof and shall immediately notify the other Party of the reasons for such
disagreement, except that in the case of an obvious error in computation,
Customer or FLNG (as the case may be) shall pay the correct amount disregarding
such error.  Statements may be contested
by Customer or FLNG (as the case may be) only if, within a period of two (2)
years after a Party’s receipt thereof, Customer or FLNG (as the case may be)
serves on the other Party notice questioning their correctness.  If no such notice is served, statements
shall be deemed correct and accepted by both Parties.  Promptly after resolution of any Dispute as to a statement, the
amount of any overpayment or underpayment (plus interest as provided in Section 12.4(c))
shall be paid by FLNG or Customer to the other, as the case may be.

 

12.8        Final Settlement

 

Within sixty (60) days
after expiration of the Term, FLNG and Customer shall determine the amount of
any final reconciliation payment.  After
the amount of the final settlement has been determined, FLNG shall send a
statement to Customer, or Customer shall send a statement to FLNG, as the case
may be, in United States dollars for amounts due under this Section 12.8,
and FLNG or Customer, as the case may be, shall pay such final statement no later
than twenty (20) days after the date of receipt thereof.

 

54

 

ARTICLE 13

CUSTOMER CREDIT AND FLNG SECURED FINANCING

 

13.1        Material Adverse Change

 

If at any time during the
term of this Agreement, a Customer Material Adverse Change shall occur, FLNG
may, in its Sole Opinion and without prejudice to any other rights or remedies
it may have hereunder or in law or equity, require reasonable further
assurances of Customer’s creditworthiness, financial responsibility and ability
to perform its obligations hereunder as a condition of FLNG’s further
performance under this Agreement, and Customer shall comply with such further
assurances.  FLNG shall notify Customer
requiring such assurances, including, in form and amount reasonably
satisfactory to FLNG, any one or more of prepayments, a letter of credit and/or
a bank guarantee.  “Customer Material Adverse Change”
for the purposes of this Section 13.1 means adverse changes, events or
effects that have occurred or been threatened which could reasonably be likely
to (a) materially adversely affect the business, operations, properties,
condition (financial or otherwise), assets or liabilities of Customer; (b)
prevent or materially delay the performance by Customer of its obligations
under this Agreement; or (c) create a reasonable basis for FLNG to have serious
doubts about the creditworthiness, financial responsibility or ability to
perform by Customer of its obligations under this Agreement; provided, however,
that Customer Material Adverse Change shall not include any adverse change,
event or effect on the global energy industry as a whole, including those
impacting energy prices or the value of oil and gas assets, the risks of which
adverse changes are expressly recognized by FLNG as an assumed risk of entering
into transactions of the nature contemplated by this Agreement.  Upon Customer’s failure to provide to FLNG,
in form and amount satisfactory in FLNG’s reasonable opinion, assurances of
Customer’s creditworthiness, financial responsibility and ability to perform
its obligations hereunder within forty-five (45) days following FLNG’s request
for such assurance, FLNG may terminate this Agreement upon notice to Customer
given no less than ten (10) days in advance of the effective date of such
termination.

 

13.2        UCC-1

 

FLNG shall execute and
file (and re-file upon expiration), and grants to Customer the right to execute
and file (and re-file upon expiration) on FLNG’s behalf, in the proper office
of the proper jurisdiction a UCC-1 for the purpose of giving notice to the
creditors of FLNG that (a) Customer’s Inventory is owned by Customer, (b) for
purposes of the Uniform Commercial Code, the nature of the relationship between
Customer and FLNG with regard to such LNG and Gas is that of bailer and bailee
(and if the form of the UCC-1 then in effect contained a “bailment” box to be
checked, the bailment relationship would be indicated), and (c) neither FLNG
nor its creditors shall have any ownership or other right arising from such
bailment.  Nothing contained in a UCC-1
shall act as an amendment to the terms of this Agreement.

 

13.3        Secured Financing

 

(a)           Acknowledgement.  In the event FLNG obtains any secured
financing (except those rising out of the operation of law for the procurement
or installation of fixtures and equipment), FLNG shall obtain from the lender
providing such

 

55

 

financing an
acknowledgement that (i) Customer’s Inventory is owned by Customer, and (ii)
neither FLNG nor such lender shall have any ownership or other right arising
from this Agreement except as expressly provided in Sections 3.4 and 10.2(b).

 

(b)           Non-Disturbance.  In the event FLNG obtains any secured
financing (except those rising out of the operation of law for the procurement
or installation of fixtures and equipment), FLNG shall obtain from the lender
providing such financing a non-disturbance agreement protecting the rights of
Customer under this Agreement in the event of a foreclosure or other realization
by such lender on its collateral. 
Customer acknowledges and agrees that in order to obtain such
non-disturbance agreement, Customer may be required to execute and deliver to
such lender an agreement to attorn to such lender on the terms of this Agreement
in the event of a foreclosure or other realization by such lender on its
collateral, and the obligation of FLNG to obtain a non-disturbance agreement
shall be conditioned on Customer providing such agreement to attorn.  For purposes of this Section 13.3(b), “attorn”
shall mean that Customer would recognize the lender as the holder of FLNG’s
rights and obligations under this Agreement.

 

ARTICLE 14

DUTIES, TAXES AND OTHER GOVERNMENTAL CHARGES

 

Customer shall be
responsible for and pay, or cause to be paid, all Taxes that may be imposed or
levied on Customer’s Inventory and the LNG Vessels.  Notwithstanding the foregoing, neither Party shall be responsible
for Taxes on the capital revenue or income derived by the other Party.

 

ARTICLE 15

INSURANCE

 

15.1        FLNG’s Insurance

 

FLNG shall be
responsible for obtaining and maintaining (a) insurance for the Freeport
Facility to the extent required by applicable law; and (b) additional
insurance, as is reasonably necessary and available on reasonable commercial terms,
against such other risks and at such levels as a Reasonable and Prudent
Operator of a shared use LNG receiving and regasification terminal would
obtain.  FLNG shall obtain such
insurance from a reputable insurer (or insurers) reasonably believed to have
adequate financial reserves.  Any
insurance policy required pursuant to this Section 15.1 shall contain a
standard waiver of subrogation endorsement and shall name Major Customers as an
additional insured.  Upon the request of
Customer, FLNG shall provide to Customer satisfactory evidence that the
insurance required pursuant to this Section 15.1 is in effect.  In any event, FLNG shall be required to
obtain the following insurance coverages:

 

(a)           Commercial General
Liability Insurance;

 

(b)           Worker’s Compensation;

 

(c)           “All-Risk” Property
Insurance;

 

(d)           Wharf Owner’s Legal
Liability Insurance;

 

56

 

(e)           Pollution Insurance
(which may be included within Commercial General Liability Insurance); and

 

(f)            Loss of Product
Insurance (including Customer’s Inventory).

 

15.2        Customer’s Insurance

 

(a)           LNG Vessel Insurance.  Customer shall ensure that each LNG Vessel
procures and maintains (i) insurance in accordance with the following
provisions; or (ii) self-insurance reasonably acceptable to FLNG.  Except in the case of self-insurance,
insurance shall establish insurance coverages consistent with insurances to the
standards which a shipowner operating reputable LNG vessels, as a Reasonable
and Prudent Operator, should observe in insuring LNG vessels of similar type,
size, age and trade as such LNG Vessel.   
In this regard:

 

(i)            Hull and
Machinery Insurance shall be placed and maintained with reputable marine
underwriters; and

 

(ii)           Protection
& Indemnity Insurance (“P&I Insurance”) shall be placed and
maintained as an unlimited entry, if such entry is available, with and subject
to and on the basis of the rules of any of the reputable P&I insurance
associations experienced in providing P&I Insurance for LNG vessels (“Approved
Provider”).  The terms of the
P&I Insurance shall be those of the standard rules of the Approved
Provider, provided that special provisions resulting from Transporter’s
acceptance, if it does so, of the Port Liability Agreement pursuant to
Section 15.3 shall be incorporated into the terms of Transporter’s P&I
Insurance.

 

(b)           Evidence of
Insurance.  Prior to the
commencement of deliveries to the Freeport Facility and thereafter at least
once each Contract Year, Customer shall furnish the following evidence of
insurance to FLNG in relation to each LNG Vessel: (a) certificates of
insurance, certificates of entry and (if FLNG reasonably requests) detailed
written information concerning all required insurance policies and the latest
rules of the particular Approved Provider; or (b) in the event the LNG Vessel
is self-insured pursuant to Section 15.2(a), a letter of self insurance.

 

15.3        Port Liability Agreement

 

(a)           Form.  By no later than ***, the Parties shall
agree on a form of “Port Liability Agreement” to be signed by each Transporter,
such agreement to govern the Transporter’s liability for damage to the Freeport
Facility caused by the LNG Vessel.  The
Port Liability Agreement shall include:

 

(i)            ***; and

 

(ii)           Transporter’s
obligation to obtain the agreement of its Protection and Indemnity Association
to cover the liabilities provided for in the Port Liability Agreement.

 

Upon the Parties agreeing
upon the form of “Port Liability Agreement”, this Agreement shall be amended to
incorporate such form by reference.

 

57

 

(b)           Right to Reject.  In the event a Transporter fails to execute
a Port Liability Agreement, FLNG shall have the right under Section 9.3(b)
to reject Transporter’s LNG Vessel until such time as the Port Liability
Agreement is executed; provided, however, that FLNG shall not reject an LNG
Vessel if Customer demonstrates that Transporter’s failure to execute a Port
Liability Agreement was due to Transporter’s inability to obtain P&I Insurance
on commercially reasonably terms for the liabilities provided for in the Port
Liability Agreement.

 

ARTICLE 16

LIABILITIES

 

16.1        Limitation of Liability of FLNG

 

In no case shall
the Liabilities of FLNG to Customer arising out of, relating to, or connected with
an Event under this Agreement exceed *** times the sum of the *** and the FOC
Installment; provided, however, that the foregoing limitation shall not apply
to Liabilities caused by the Gross Negligence/Willful Misconduct of FLNG.  For purposes of this Section 16.1, an “Event”
means any occurrence or series of occurrences having the same origin, and “Gross
Negligence/Willful Misconduct” means any act or failure to act
(whether sole, joint or concurrent) by FLNG which was intended to cause, or
which was in reckless disregard of or wanton indifference to, harmful
consequences FLNG knew, or should have known, such act or failure would have on
the safety or property of another Person.

 

16.2        Consequential Loss or Damage

 

No Party shall be liable
to the other Party for or in respect of:

 

(a)           any consequential loss
or damage, except to the extent provided in Sections 3.4, 6.2(b)(viii),
8.2(b)(ii), 9.9, 10.2, 10.6, 11.2(b), and 11.4 of this Agreement;

 

(b)           loss of profits or
business interruption to the extent such amounts do not constitute
consequential loss or damage; or

 

(c)           any special, incidental
or punitive damages,

 

suffered or incurred by
the other Party or any Person resulting from breach of or failure to perform
this Agreement or the breach of any representation or warranty hereunder,
whether express or implied, and whether such damages are claimed under breach
of warranty, breach of contract, tort, or other theory or cause of action at
law or in equity, except to the extent such damages have been awarded to a
third party and are subject to allocation between or among the parties to the
Dispute.  For purposes of this
Agreement, any amounts payable by Customer to its Gas purchasers or Gas
suppliers for replacement Gas or other similar Liabilities shall be deemed to
be a consequential loss or damage.

 

16.3        Parties’ Liability; Relationship of
Shareholders

 

Customer’s sole recourse
and remedy under this Agreement for a breach hereof or a default hereunder  shall
be against FLNG and its assets.  Except
as otherwise provided herein, FLNG’s sole recourse and remedy under this
Agreement shall be against Customer and its assets for a breach hereof or a
default hereunder.

 

58

 

16.4        Liability for Personal Injury

 

Notwithstanding any other
provisions of this Agreement, no indemnity set forth in Sections 3.4, 10.2,
10.6 and 11.4 of this Agreement shall apply to claims or damages for personal
injury, illness or wrongful death.

 

16.5        Indemnification
Obligations Offset by Insurance Proceeds

 

The obligations of
Customer to indemnify FLNG under Sections 10.2(a), 10.6(b), and 11.2(b) and the
obligations of FLNG to indemnify Customer under Section 10.2(b) and
11.4(b) (collectively, the “Indemnification Obligations”) shall be
reduced to the extent of any insurance proceeds received by such indemnitee
which have the effect of offsetting such Liabilities to otherwise be
indemnified; provided, however, unless otherwise provided in this Agreement, no
Party shall be required to obtain any insurance for Liabilities under the
Indemnification Obligations.

 

ARTICLE 17

FORCE MAJEURE

 

17.1        Events of Force Majeure

 

Neither Party shall be
liable to the other for any delay or failure in performance hereunder if and to
the extent such delay or failure is a result of Force Majeure.  Subject to the provisions of this
Article 17, the term “Force Majeure” shall mean any act, event,
or circumstance that is not reasonably within the control of and that prevents
or delays a performance by a Party. 
Nothing in this Article 17 shall be construed to require a Party to
observe a higher standard of conduct than that required of a Reasonable and
Prudent Operator as a condition to claiming the existence of Force Majeure.

 

17.2        Limitation on Scope of Force Majeure Protection

 

***.

 

17.3        Notice

 

A Force Majeure
event shall take effect at the moment such an event or circumstance
occurs.  Upon the occurrence of a Force
Majeure that prevents, interferes with or delays the performance by FLNG or
Customer, in whole or in part, of any of its obligations hereunder, the Party
affected shall give notice thereof to the other Party describing such event and
stating the obligations the performance of which are affected (either in the
original or in supplemental notices) and stating, as applicable:

 

(a)           the estimated period
during which performance may be prevented, interfered with or delayed,
including, to the extent known or ascertainable, the estimated extent of such
reduction in performance;

 

(b)           the particulars of the
program to be implemented to resume normal performance hereunder;

 

(c)           the anticipated portion
of the Services Quantity for a Contract Year that will not be made available or
received, as the case may be, by reason of Force Majeure; and

 

59

 

(d)           where Section 17.7
applies, the quantity of Services that FLNG reasonably expects to allocate to
Customer.

 

Such notices shall thereafter be updated at least monthly during the
period of such claimed Force Majeure specifying the actions being taken to
remedy the circumstances causing such Force Majeure.

 

17.4        Measures

 

In order to resume
normal performance of this Agreement within the shortest time practicable, the
Party affected by the Force Majeure shall take all measures to this end which
are reasonable under the circumstances, taking into account the consequences
resulting from such event of Force Majeure. 
Prior to resumption of normal performance, the Parties shall continue to
perform their respective obligations under this Agreement to the extent not
excused as a result of such event of Force Majeure.

 

17.5        No Extension of Term

 

The Term shall not
be extended as a result of or by the duration of an event of Force Majeure.

 

17.6        Settlement of Industrial Disturbances

 

Settlement of
strikes, lockouts, or other industrial disturbances shall be entirely within
the discretion of the Party experiencing such situations, and nothing herein
shall require such Party to settle industrial disputes by yielding to demands
made on it when it considers such action inadvisable.

 

17.7        Allocation of Services

 

If, as a result of
an event of Force Majeure, FLNG is unable to meet its contractual obligations
to Customer and any Other Customers under LNG terminal use agreements, FLNG
shall allocate the available capability of the Freeport Facility to perform
activities similar to the Services in the following order of priority (such
allocation herein referred to as the “Major Customer Allocation Priority”):

 

(a)           first
among Major Customers only, based on the ratio that the Maximum LNG Reception
Quantity bears to the Aggregate Contracted Capacity for the remainder of such
Contract Year (but including Major Customers only); and

 

(b)           then
the remaining capability, if any, among Non-Major Customers based on the same
ratio (but including Non-Major Customers only).

 

During the period
of Force Majeure, FLNG shall not (i) provide LNG terminalling services to any
Other Customer who is not an Other Customer at the time the Force Majeure
commenced; or (ii) otherwise take any action which would reduce Customer’s
allocation under Section 17.7.

 

60

 

ARTICLE 18

CURTAILMENT OF SERVICES OR

TEMPORARY DISCONTINUATION OF SERVICES

 

18.1        Scheduled Curtailment or Temporary
Discontinuation of Services

 

If FLNG has notified
Customer in connection with the preparation of the Customer LNG Receipt
Schedule in Section 5.1 of maintenance to or modification of the
Freeport Facility, FLNG shall have the right to curtail or temporarily discontinue
the Gas redelivery portion of the Services during the allotted time period
specified in such schedule, but only to the extent due to such maintenance or
modification.  During the period of such
curtailment or temporary discontinuation of Services, FLNG shall, from time to
time, use reasonable endeavors to update Customer on the expected progress
towards completing the maintenance or modification, whichever is
applicable.  For purposes of this
Section 18.1, a curtailment of or temporary discontinuation of Services
shall last no more than three (3) consecutive days.  Notwithstanding the foregoing, FLNG agrees that, for purposes of
this Section 18.1, neither a curtailment nor a temporary discontinuation
of Services shall reduce FLNG’s obligations to allow berthing, unloading and
receipt of Customer’s LNG in a quantity up to the Maximum LNG Reception
Quantity.

 

18.2        Unscheduled Curtailment or Temporary
Discontinuation of Services

 

In addition to the rights
set forth in Section 18.1, FLNG shall have the right to curtail or
temporarily discontinue the Services, in whole or in part, at any time in order
to (a) repair the Freeport Facility or (b) protect persons and property,
including the Freeport Facility, from harm or damage due to operational or
safety conditions.  FLNG shall use
reasonable endeavors to provide Customer a notice of curtailment or temporary
discontinuation as is reasonable under the circumstances, and such notice may
be issued for a specific period of time or until further notice is given.  FLNG shall use reasonable endeavors to
minimize any curtailment or discontinuation of Services to Customer.  If, as a result of any unscheduled
curtailment or temporary discontinuation of Services pursuant to this
Section 18.2, FLNG is unable to meet its contractual obligations to
Customer and any Other Customers under LNG terminal use agreements, FLNG shall
allocate the available capability of the Freeport Facility to perform
activities similar to the Services in accordance with the Major Customer Allocation
Priority.  If a curtailment or temporary
discontinuation of Services occurs under this Section 18.2, FLNG may
direct Customer to adjust receipts of LNG and deliveries of Customer’s
Inventory, as the case may be, with preference given to Major Customers.  Notwithstanding the foregoing, FLNG shall
have no responsibility to inform Transporters, LNG Vessels, Downstream
Pipelines, LNG Suppliers, or any other Persons involved in the transaction as
to such curtailment or temporary discontinuation of Services.

 

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ARTICLE 19

ASSIGNMENT

 

19.1        Restrictions on Assignment

 

(a)           Consent of Other
Party Required.  Except as otherwise
provided in this Article 19, neither this Agreement nor any rights or
obligations hereunder may be assigned by any Party without the prior written
consent of the other Party, which consent  shall not be unreasonably withheld.  For greater certainty, a Temporary Release
under Section 6.2 shall not be regarded as an assignment under this
Article 19.

 

(b)           Obligation of
Assignee.  If consent is granted
pursuant to Section 19.1(a) or in the case of an assignment permitted
under Section 19.2 (other than Sections 19.2(c) and 19.2(d)), the assignee
to such assignment must, as a condition to such assignment, deliver to the
non-assigning Party its written undertaking to be bound by and perform all
obligations of the assignor under this Agreement.

 

19.2        Permitted Assignments

 

(a)           Affiliates of FLNG.  Notwithstanding the provisions of
Section 19.1, FLNG may freely assign all of its rights under this
Agreement to an Affiliate, upon notice to, but without requiring the consent
of, Customer.  For greater certainty, in
the event of any assignment of FLNG’s rights and obligations under this
Agreement to an Affiliate of FLNG, FLNG shall not be relieved of any
liabilities or obligations hereunder unless and until such assignment meets all
of the requirements for a novation of this Agreement set forth in
Section 19.3.

 

(b)           Affiliates of
Customer.  Notwithstanding the
provisions of Section 19.1, Customer may freely assign all of its rights
under this Agreement to (i) an Affiliate upon notice to, but without requiring
the consent of, FLNG and (ii) an LNG Supply Project upon the written consent of
FLNG, which consent shall not be unreasonably withheld.  For greater certainty, in the event of any
assignment (other than a Partial Assignment) of Customer’s rights and
obligations under this Agreement to an Affiliate of Customer or to LNG Supply
Project, Customer shall not be relieved of any liabilities or obligations
hereunder unless and until such assignment meets all of the requirements for a
novation of this Agreement set forth in Section 19.3.

 

(c)           Financing.

 

(i)            Notwithstanding
the provisions of Section 19.1, FLNG shall be entitled to assign,
mortgage, or pledge all or any of its rights, interests, and benefits hereunder
to secure payment of any indebtedness incurred or to be incurred in connection
with the construction and term financing of the Freeport Facility, and Customer
shall provide to the lenders to whom such indebtedness is owed a consent to
assignment or similar document in form and substance customary for similar
financing transactions and agreed by such lenders and Customer.  Such an assignment to lenders shall not
relieve FLNG of any liabilities or obligations hereunder.

 

(ii)           Notwithstanding
the provisions of Section 19.1, Customer shall be entitled to assign,
mortgage, or pledge all or any of its rights, interests, and

 

62

 

benefits hereunder
to secure payment of any indebtedness incurred or to be incurred, and FLNG
shall provide to the lenders to whom such indebtedness is owed a consent to
assignment or similar document in form and substance customary for similar
financing transactions and agreed by such lenders and FLNG.  Such an assignment to lenders shall not
relieve Customer of any liabilities or obligations hereunder.

 

(d)           Partial Assignments
for Periods of *** Years or More. 
Notwithstanding the provisions of Section 19.1 and subject to the
provisions of this Section 19.2(d), Customer shall under this
Section 19.2(d) be entitled to assign all or a part of its right to use
the Services Quantity for a period that is no less than *** years (a “Partial
Assignment”) if such Partial Assignment is for a Maximum LNG
Reception Quantity of no less than *** MMBTUs per Contract Year and is to:

 

(i)            an
Affiliate upon notice to, but without requiring the consent of, FLNG if (x) the
assignee under the Partial Assignment demonstrates to FLNG that its
creditworthiness (including credit support from an irrevocable letter of
credit, a parent guarantee or other security) at the time of the assignment is
the same or better than the creditworthiness of Customer or is otherwise acceptable
to FLNG; and (y) such assignment does not otherwise materially adversely affect
FLNG rights and obligations under this Agreement or the Financing Documents;

 

(ii)           an LNG
Supply Project upon the written consent of FLNG, which consent shall not be unreasonably
withheld; or

 

(iii)          any
other Person upon the written consent of FLNG, which consent shall not be
unreasonably withheld;

 

Any Partial Assignment is subject to (a) the assignee executing a
terminal use agreement with FLNG (a “Parallel TUA”); and (b) Customer agreeing
to appropriate modifications to the Gas redelivery provisions of this Agreement
to ensure that FLNG is at all times capable of performing this Agreement and
the Parallel TUA and appropriate modifications to the quantity provisions to
reflect such assignment.  The terms of
the Parallel TUA shall be substantially the same as the terms of this Agreement
except to the extent necessary to reflect the differences necessary to
implement the Partial Assignment.  For
the avoidance of doubt, Customer shall have no obligation or liability under
the Parallel TUA and the assignor shall be relieved of all rights and
obligations hereunder to the extent of the assignment from and after the
effective date of the assignment.

 

19.3        Assignment as Novation

 

Except as otherwise
provided in Section 19.2(c) or Section 19.2(d), an assignment under
this Article 19 shall not serve as a novation of this Agreement unless and
until, but shall serve as a novation if:

 

(a)           the assignee delivers
to the non-assigning Party its written undertaking to be bound by and perform
all obligations of the assignor under this Agreement, as if it were the
assignor; and

 

63

 

(b)           in the case of
Customer, assignee demonstrates to FLNG that its creditworthiness (including
credit support from an irrevocable letter of credit, a parent guarantee or
other security) at the time of the assignment is the same or better than the
creditworthiness of Customer or is otherwise acceptable to FLNG.

 

In the event of a
novation, the assignee shall be deemed to be a Party to this Agreement for all
purposes with respect to rights and obligations pertaining to operations
hereunder from and after the effective date of the assignment and the assignor
shall be relieved of all rights and obligations hereunder from and after the
effective date of the assignment.

 

ARTICLE 20

TERMINATION

 

20.1        Early Termination Events

 

(a)           General.  If, during the period of construction of the
Freeport Facility, Customer reasonably determines that the Conversion Date will
not occur by ***, then Customer may terminate this Agreement (such termination
referred to as an “Early Termination Event”) pursuant to the
other provisions of this Section 20.1.

 

(b)           Notice.  Upon
the occurrence of an Early Termination Event, Customer shall give notice
thereof to FLNG.

 

(c)           Cure.  At
any time after the expiration of a period of thirty (30) days after Customer
gives notice of an Early Termination Event pursuant to Section 20.1(b),
Customer may terminate this Agreement with immediate effect by giving notice of
such termination to FLNG; provided, however, that Customer may not terminate
this Agreement if the circumstances constituting the Early Termination Event
have been fully remedied or have ceased to apply.

 

20.2        Other Termination Provisions

 

This Agreement is also
subject to the termination provisions provided in Section 12.6 and
Article 13.

 

20.3        Consequences of Termination

 

Termination of this
Agreement under this Article 20 or any other provision of this Agreement
shall be without prejudice to any other rights and remedies of either Party
arising hereunder or by law or otherwise which arose or accrued prior to or as
a result of such termination or by reason of default of either Party.

 

ARTICLE 21

APPLICABLE LAW

 

The substantive laws of
the State of New York, United States of America, exclusive of any conflicts of
laws principles that could require the application of any other law, shall
govern this Agreement for all purposes, including the resolution of all
Disputes between the Parties.

 

64

 

ARTICLE 22

DISPUTE RESOLUTION

 

22.1        Dispute Resolution

 

(a)           Arbitration.  Any Dispute shall be exclusively and
definitively resolved through final and binding arbitration, it being the
intention of the Parties that this is a broad form arbitration agreement
designed to encompass all possible Disputes.

 

(b)           Rules.  The arbitration shall be conducted in
accordance with the International Arbitration Rules (the “Rules”) of the American
Arbitration Association (“AAA”) (as then in effect).

 

(c)           Number of
Arbitrators.  Three (3) arbitrators
shall conduct the arbitration, unless the parties to the Dispute agree to a
sole arbitrator within thirty (30) days after the filing of the
arbitration.  For greater certainty, for
purposes of this Section 22.1(c), the filing of the arbitration means the
date on which the claimant’s request for arbitration is received by the other
parties to the Dispute.

 

(d)           Method of
Appointment of the Arbitrators.

 

If the arbitration is to
be conducted by three (3) arbitrators and there are only two (2) parties to the
Dispute, then each party to the Dispute shall appoint one (1) arbitrator within
thirty (30) days of the filing of the arbitration, and the two arbitrators so
appointed shall select the presiding arbitrator within thirty (30) days after
the latter of the two arbitrators has been appointed by the parties to the
Dispute.  If a party to the Dispute
fails to appoint its party-appointed arbitrator or if the two party-appointed
arbitrators cannot reach an agreement on the presiding arbitrator within the
applicable time period, then the AAA  shall serve as the appointing authority,
and shall appoint the remainder of the three arbitrators not yet appointed.  If the arbitration is to be conducted by
three arbitrators and there are more than two parties to the Dispute, then
within thirty (30) days of the filing of the arbitration, all claimants shall
jointly appoint one arbitrator and all respondents shall jointly appoint one
arbitrator, and the two arbitrators so appointed shall select the presiding
arbitrator within thirty (30) days after the latter of the two arbitrators has
been appointed by the parties to the Dispute. 
If either all claimants or all respondents fail to make a joint
appointment of an arbitrator or if the party-appointed arbitrators cannot reach
an agreement on the presiding arbitrator within the applicable time period,
then the AAA as the appointing authority shall appoint the remainder of the
three arbitrators not yet appointed.

 

(e)           Consolidation.  If the parties to the Dispute initiate
multiple arbitration proceedings, the subject matters of which are related by
common questions of law or fact and which could result in conflicting awards or
obligations, then all such proceedings may be consolidated into a single
arbitral proceeding.

 

(f)            Place of
Arbitration.  Unless otherwise
agreed by all parties to the Dispute, the place of arbitration shall be
Houston, Texas.

 

(g)           Language.  The arbitration proceedings shall be
conducted in the English language, and the arbitrators shall be fluent in the
English language.

 

65

 

(h)           Entry of Judgment.  The award of the arbitral tribunal shall be
final and binding.  Judgment on the
award of the arbitral tribunal may be entered and enforced by any court of
competent jurisdiction.

 

(i)            Notice.  All notices required for any arbitration
proceeding shall be deemed properly given if sent in accordance with Article 25.

 

(j)            Qualifications and
Conduct of the Arbitrators.  All
arbitrators shall be and remain at all times wholly impartial, and, once
appointed, no arbitrator shall have any ex parte communications with any of the
parties to the Dispute concerning the arbitration or the underlying Dispute
other than communications directly concerning the selection of the presiding
arbitrator, where applicable.

 

(k)           Interim Measures.  Any party to the Dispute may apply to a
court for interim measures (i) prior to the constitution of the arbitral
tribunal (and thereafter as necessary to enforce the arbitral tribunal’s
rulings); or (ii) in the absence of the jurisdiction of the arbitral tribunal
to rule on interim measures in a given jurisdiction.  The Parties agree that seeking and obtaining such interim
measures shall not waive the right to arbitration.  The arbitrators (or in an emergency the presiding arbitrator
acting alone in the event one or more of the other arbitrators is unable to be
involved in a timely fashion) may grant interim measures including injunctions,
attachments and conservation orders in appropriate circumstances, which
measures may be immediately enforced by court order.  Hearings on requests for interim measures may be held in person,
by telephone, by video conference or by other means that permit the parties to
the Dispute to present evidence and arguments.

 

(l)            Scope of Award;
Costs and Attorneys’ Fees.  The
arbitral tribunal is authorized to grant any remedy or relief that it deems
just and equitable and within the scope of the agreement of the Parties,
including specific performance.  The
arbitral tribunal is authorized to award costs and attorneys’ fees and to
allocate them among the parties to the Dispute. The costs of the arbitration
proceedings, including attorneys’ fees, shall be borne in the manner determined
by the arbitral tribunal.

 

(m)          Interest.  The award shall include interest, as
determined by the arbitral award, from the date of any default or other breach
of this Agreement until the arbitral award is paid in full.  Interest shall accrue at the Base Rate.

 

(n)           Currency of Award.  The arbitral award shall be made and payable
in dollars, free of any tax or other deduction.

 

(o)           Waiver of Challenge
to Decision or Award.  To the extent
permitted by law, the Parties hereby waive any right to appeal from or
challenge any arbitral decision or award, or to oppose enforcement of any such
decision or award before a court or any governmental authority, except with
respect to the limited grounds for modification or non-enforcement provided by
any applicable arbitration statute or treaty.

 

(p)           Confidentiality.  Any arbitration or expert determination
relating to a Dispute (including a settlement resulting from an arbitral award,
documents exchanged or produced during an arbitration proceeding, and
memorials, briefs or other

 

66

 

documents prepared for
the arbitration) shall be confidential and may not be disclosed by the parties
to the Dispute, their employees, officers, directors, counsel, consultants, and
expert witnesses, except (in accordance with Article 23) to the extent
necessary to enforce this Section 22.1 or any arbitration award, to
enforce other rights of a party to the Dispute, or as required by law;
provided, however, that breach of this confidentiality provision shall not void
any settlement, expert determination or award.

 

22.2        Expert Determination

 

For any decision referred
to an expert by the Parties under Annex I or Annex II, the Parties hereby agree
that such decision shall be conducted expeditiously by an expert selected
unanimously by the parties to the Dispute. 
The expert is not an arbitrator of the Dispute and shall not be deemed
to be acting in an arbitral capacity. 
The Party desiring an expert determination shall give the other parties
to the Dispute notice of the request for such determination.  If the parties to the Dispute are unable to
agree upon an expert within ten (10) days after receipt of the notice of
request for an expert determination, then, upon the request of any of the
parties to the Dispute, the International Centre for Expertise of the
International Chamber of Commerce shall appoint such expert and shall
administer such expert determination through the ICC’s Rules for
Expertise.  The expert shall be and
remain at all times wholly impartial, and, once appointed, the expert shall
have no ex parte communications with any of the parties to the Dispute
concerning the expert determination or the underlying Dispute.  Both Parties agree to cooperate fully in the
expeditious conduct of such expert determination and to provide the expert with
access to all facilities, books, records, documents, information and personnel
necessary to make a fully informed decision in an expeditious manner.  Before issuing a final decision, the expert
shall issue a draft report and allow the parties to the Dispute to comment on
it.  The expert shall endeavor to resolve
the Dispute within thirty (30) days (but no later than sixty (60) days) after his
appointment, taking into account the circumstances requiring an expeditious
resolution of the matter in dispute. 
The expert’s decision shall be final and binding on the Parties.

 

ARTICLE 23

CONFIDENTIALITY

 

23.1        Confidentiality Obligation

 

Except as otherwise
expressly provided in Section 4.5(a), a Party shall not communicate this
Agreement to third parties without the written consent of the other Party.  Furthermore, information or documents that
come into the possession of a Party (the “Recipient”) by means of, or on behalf of,
the other Party (the “Discloser”) in connection with this
Agreement may not be used nor communicated to Persons (other than the Parties)
without the written consent of the Discloser. 
Notwithstanding the prior two sentences, either Party shall have the
right to disclose this Agreement and such information or documents without
obtaining the other Party’s prior consent in any of the situations described
below:

 

(a)           to accountants, other
professional consultants or underwriters, provided such disclosure is solely to
assist the purpose for which the aforesaid were so engaged

 

67

 

and further provided that
such Persons agree to hold such information or documents under terms of
confidentiality equivalent to this Section 23.1, and for the benefit of
the Parties;

 

(b)           to bona fide
prospective purchasers of all or a part of a Party’s or its Affiliate’s
business, bona fide prospective assignees of all or part of a Party’s interest
in this Agreement, or providers of finance to either Party in relation to this
Agreement or the Freeport Facility, provided that such Persons agree to hold
such information or documents under terms of confidentiality equivalent to this
Section 23.1, and for the benefit of the Parties;

 

(c)           to legal counsel,
provided such disclosure is solely to assist the purpose for which the
aforesaid were so engaged;

 

(d)           if required by any
court of law or any law, rule, or regulation, or if requested by a Governmental
Authority having or asserting jurisdiction over a Party and having or asserting
authority to require such disclosure in accordance with that authority
(including in connection with the resolution of a Dispute under
Article 22), or pursuant to the rules of any recognized stock exchange or
agency established in connection therewith;

 

(e)           to the operator of a
Gas Storage Facility, to Temporary Customers, to prospective Temporary
Customers, to Transporters, to LNG Suppliers and to any of the purchasers under
the Customer’s Gas sales contracts from Customer’s Inventory, in each case only
to the extent required for the administration of such contracts, and provided
that such Persons agree to hold such information or documents under terms of
confidentiality equivalent to this Section 23.1, and for the benefit of
the Parties;

 

(f)            to its Affiliates, its
shareholders and partners, or its shareholders’ and partners’ Affiliates,
provided that such recipient entity has a bona fide business need for such
information and agrees to hold such information or documents under terms of
confidentiality equivalent to this Section 23.1;

 

(g)           to any Government
Authorities to the extent such disclosure assists FLNG and Customer in
obtaining Approvals;

 

(h)           to an expert in
connection with the resolution of a Dispute pursuant to Section 22.2 or to
an arbitration tribunal in connection with the resolution of a Dispute under
Section 22.1;

 

(i)            to the extent any such
information or document has entered the public domain other than through the
fault or negligence of the Party making the disclosure;

 

(j)            to Other Customers by
FLNG only in order to allow FLNG to perform its obligations under
Section 4.5(c) herein;

 

(k)           to the extent Recipient
already possessed the information or document prior to receipt from Discloser
(other than by breach of this Article 23) without an obligation of
confidence;

 

(l)            to the extent
Recipient acquired the information or document from a third party (other than
by breach of this Article 23) without an obligation of confidence; and

 

68

 

(m)          to the extent the
information or document was independently developed by or for Recipient.

 

Notwithstanding the
foregoing, each Party acknowledges and agrees that certain providers of finance
to FLNG as well as FLNG’s shareholders and partners may disclose this Agreement
and information or documents disclosed pursuant to this Section 23.1 if
required by any court of law or any law, rule, or regulation, or if requested
by a Governmental Authority having or asserting jurisdiction over such Persons
and having or asserting authority to require such disclosure in accordance with
that authority, or pursuant to the rules of any recognized stock exchange or
agency established in connection therewith. 
The obligations of this Article 23 shall terminate two (2) years
after the termination of this Agreement.

 

23.2        Public Announcements

 

(a)           General.  Neither Party may issue or make any public
announcement, press release or statement regarding this Agreement unless, prior
to the release of the public announcement, press release or statement, such
Party furnishes the other Party with a copy of such announcement, press release
or statement, and obtains the approval of the other Party; provided that,
notwithstanding any failure to obtain such approval, no Party shall be
prohibited from issuing or making any such public announcement, press release
or statement if it is necessary to do so in order to comply with the applicable
laws, rules or regulations of any Governmental Authority, legal proceedings or
stock exchange having jurisdiction over such Party.

 

(b)           Promotional
Materials.  Notwithstanding any
provision in Section 23.2(a) to the contrary, either Party may, with the
consent of the other Party (not to be unreasonably withheld), use the following
in external announcements and publications: (i) information concerning the
signing of this Agreement; (ii) the general nature of the Services; and (iii)
the general nature of Customer’s involvement in the Freeport Facility project;
provided, however, that the Party making such external announcement or
publication shall not, in doing so, use the trademark, service mark and
tradename of the other Party without such other Party’s prior written consent.

 

ARTICLE 24

REPRESENTATIONS AND WARRANTIES

 

24.1        Representations and Warranties of Customer

 

As of the date hereof and
until the expiration of this Agreement, Customer represents, undertakes and
warrants that:

 

(a)           Customer is and shall
remain duly organized and in good standing under the laws of Delaware, duly
qualified to do business in those jurisdictions where the nature of its
activities or property requires such qualification and to perform its
obligations under this Agreement;

 

(b)           Customer has taken all
necessary action to authorize the execution, delivery and performance of its
obligations hereunder;

 

69

 

(c)           Customer has not
retained, employed or used any broker or intermediary in connection with the
negotiation of this Agreement and has no obligation to any third party by way
of commissions, finder’s fees or similar fees with respect to the execution of
this Agreement; and

 

(d)           neither the execution,
delivery nor performance of this Agreement, nor the consummation of any action
contemplated herein, conflicts or will conflict with, results or will result in
a breach of, or constitutes or will constitute a default under, any provision
of Customer’s constitutive instruments or any law, judgment, order, decree,
rule or regulation of any court, administrative agency or other instrumentality
of any Governmental Authority or of any other agreement or instrument to which
Customer is a party.

 

24.2        Representations and Warranties of FLNG

 

As of the date hereof and
until the expiration of this Agreement, FLNG represents, undertakes and
warrants that:

 

(a)           FLNG is and shall
remain duly organized and in good standing under the laws of Delaware, duly
qualified to do business in those jurisdictions where the nature of its
activities or property requires such qualification and to perform its
obligations under this Agreement;

 

(b)           FLNG has taken all
necessary action to authorize the execution, delivery and performance of its
obligations hereunder;

 

(c)           FLNG has not retained,
employed or used any broker or intermediary in connection with the negotiation
of this Agreement and has no obligation to any third party by way of
commissions, finder’s fees or similar fees with respect to the execution of
this Agreement; and

 

(d)           neither the execution, delivery
nor performance of this Agreement, nor the consummation of any action
contemplated herein, conflicts or will conflict with, results or will result in
a breach of, or constitutes or will constitute a default under, any provision
of FLNG’s constitutive instruments or any law, judgment, order, decree, rule or
regulation of any court, administrative agency or other instrumentality of any
Governmental Authority or of any other agreement or instrument to which FLNG is
a party.

 

ARTICLE 25

NOTICES

 

Except as otherwise specifically provided, all notices
authorized or required between the Parties by any of the provisions of this
Agreement shall be in writing (in English) and delivered in person or by
courier service or by facsimile with written confirmation of complete
transmission, in each case addressed to such Party at the address specified
hereunder.  Oral communication does not
constitute notice for purposes of this Agreement and telephone numbers for the
Parties are listed below as a matter of convenience only.  The foregoing notwithstanding, notices given
from LNG Vessels at sea may be given by radio, and notices required under
Article 5 may be given by e-mail or via the ***.  A notice given under any provision of this Agreement shall be
deemed delivered only when received by the Party to whom such notice is
directed, and the time

 

70

 

for such Party to deliver any notice in response to
such originating notice shall run from the date the originating notice is
received.  “Received” for purposes of
this Article 25 shall mean actual delivery of the notice to the address of
the Party specified hereunder or to be thereafter notified in accordance with
this Article 25 or, in the event notice was given by radio from an LNG
Vessel at sea, actual receipt of the communication by radio.  Each Party shall have the right to change
its address at any time and/or designate that copies of all such notices be
directed to another Person at another address, by giving written notice thereof
to the other Party.

 

	
  FREEPORT
  LNG DEVELOPMENT L.P.

  	
  CONOCOPHILLIPS
  COMPANY

  
	
   

  	
   

  
	
  Attention: President

  	
  Attention: General Manager, LNG

  
	
  1200 Smith Street, Suite 600

  	
  600 North Dairy Ashford

  
	
  Houston, Texas 77002-4310

  	
  Houston, Texas 77079

  
	
  Fax: (713) 980-2903

  	
  Fax:  (281)
  293-4830

  
	
  Telephone: (713) 980-2888

  	
  Telephone: (281) 295-4395

  

 

ARTICLE 26

MISCELLANEOUS

 

26.1        Amendments

 

This Agreement may
not be amended, modified, varied or supplemented except by an instrument in
writing signed by FLNG and Customer.

 

26.2        Approvals

 

After satisfaction of the
Conditions Precedent, each Party shall use reasonable endeavors to maintain in
force all of its respective Approvals necessary for its performance under this
Agreement.  Customer and FLNG shall
cooperate with each other wherever necessary for this purpose.

 

26.3        Successors and Assigns

 

This Agreement shall
inure to the benefit of and be binding upon the respective successors and
permitted assigns of the Parties.

 

26.4        Waiver

 

No failure to exercise or
delay in exercising any right or remedy arising from this Agreement shall
operate or be construed as a waiver of such right or remedy.  Performance of any condition or obligation
to be performed hereunder shall not be deemed to have been waived or postponed
except by an instrument in writing signed by the Party who is claimed to have
granted such waiver or postponement.  No
waiver by either Party shall operate or be construed as a waiver in respect of
any failure or default not expressly identified by such written waiver, whether
of a similar or different character, and whether occurring before or after that
waiver.

 

71

 

26.5        No Third Party Beneficiaries

 

The interpretation of
this Agreement shall exclude any rights under legislative provisions conferring
rights under a contract to Persons not a party to that contract.  Nothing in this Agreement shall otherwise be
construed to create any duty to, or standard of care with reference to, or any
obligation or liability to, any Person other than a Party.

 

26.6        Rules of Construction

 

(a)           Drafting.  Each provision of this Agreement shall be
construed as though all Parties participated equally in the drafting of the
same.  Consequently, the Parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable to this Agreement.

 

(b)           Priority.

 

(i)            In the
event of a conflict between the terms of this Agreement excluding Annexes I and
II and Exhibits A and B (the “Base Agreement”) and the terms of Annexes I
and II and Exhibits A and B, all terms of the Base Agreement shall take
precedence over Annexes I and II and Exhibits A and B.

 

(ii)           In the
event that any conflict arises between this Agreement and the Freeport Facility
Marine Operations Manual, this Agreement shall prevail. In the event that any
conflict arises between this Agreement and the Freeport Services Manual, this
Agreement shall prevail.

 

26.7        Survival of Rights

 

Any termination or
expiration of this Agreement shall be without prejudice to any rights,
remedies, obligations and Liabilities which may have accrued to a Party
pursuant to this Agreement or otherwise under applicable law.  All rights or remedies which may have
accrued to the benefit of either Party (and any of this Agreement’s provisions
necessary for the exercise of such accrued rights or remedies) prior to the
termination or expiration of this Agreement shall survive such termination or
expiration.  Furthermore, the provisions
of Article 12, Article 14, Article 16, Article 21,
Article 22, Article 23 (for two (2) years after the termination of
this Agreement), Article 25, and Article 26 shall survive the
termination or expiration of this Agreement.

 

26.8        Rights and Remedies; Specific Performance

 

Except where this
Agreement expressly provides to the contrary, the rights and remedies contained
in this Agreement are cumulative and not exclusive of any rights and remedies
provided by law.  FLNG acknowledges that
no adequate remedy at law exists for a failure of FLNG to provide the Services
Quantity and that the continuation of such failure unremedied would cause
Customer to suffer irreparable harm. 
Accordingly, FLNG agrees that Customer is entitled, in addition to other
remedies which may be available at law or in equity, to specific performance by
FLNG of its obligations to provide the Services Quantity.

 

72

 

26.9        Interpretation

 

(a)           Headings.  The topical headings used in this Agreement
are for convenience only and shall not be construed as having any substantive
significance or as indicating that all of the provisions of this Agreement
relating to any topic are to be found in any particular Article.

 

(b)           Singular and Plural.  Reference to the singular includes a
reference to the plural and vice versa.

 

(c)           Gender.  Reference to any gender includes a reference
to all other genders.

 

(d)           Article.  Unless otherwise provided, reference to any
Article, Section, Annex or Exhibit means an Article, Section, Annex or Exhibit
of this Agreement.

 

(e)           Include.  The words “include”  and “including” shall mean include
or including without limiting the generality of the description preceding such
term and are used in an illustrative sense and not a limiting sense.

 

(f)            Time Periods.  References to “day,”  “month,” “quarter” and “year”
shall, unless otherwise stated or defined, mean a day, month, quarter and year
of the Gregorian calendar, respectively. 
For the avoidance of doubt, a “day” shall commence at 24:00 midnight.

 

(g)           Statutory References.  Unless the context otherwise requires, any
reference to a statutory provision is a reference to such provision as amended
or re-enacted or as modified by other statutory provisions from time to time
and includes subsequent legislation and regulations made under the relevant
statute.

 

(h)           Currency.  References to all dollars in any form shall
be a reference to the lawful currency from time to time of the United States of
America.

 

26.10      Disclaimer of Agency

 

The
rights, duties, obligations and Liabilities of the Parties under this Agreement
shall be individual, not joint or collective. 
It is not the intention of the Parties to create, nor shall this
Agreement be deemed or construed to create, a partnership, joint venture or
other association or a trust.  This
Agreement shall not be deemed or construed to authorize any Party to act as an
agent, servant or employee for the other Party for any purpose whatsoever
except as explicitly set forth in this Agreement.  In their relations with each other under this Agreement, the
Parties shall not be considered fiduciaries.

 

26.11      No Sovereign Immunity

 

Any Party that now or
hereafter has a right to claim sovereign immunity for itself or any of its
assets hereby waives any such immunity to the fullest extent permitted by the
laws of any applicable jurisdiction. 
This waiver includes immunity from (i) any expert determination or
arbitration proceeding commenced pursuant to this Agreement; (ii) any
judicial, administrative or other proceedings to aid the expert determination
or arbitration commenced pursuant to this Agreement; and (iii) any effort to
confirm, enforce, or execute any decision, settlement, award, judgment, service
of process, execution order or attachment (including pre-judgment attachment)
that results from an expert determination, mediation, arbitration or any
judicial or administrative proceedings

 

73

 

commenced pursuant to
this Agreement.  Each Party acknowledges
that its rights and obligations hereunder are of a commercial and not a
governmental nature.

 

26.12      Severance of Invalid Provisions

 

If and for so long as any
provision of this Agreement shall be deemed to be judged invalid for any reason
whatsoever, such invalidity shall not affect the validity or operation of any
other provision of this Agreement except only so far as shall be necessary to
give effect to the construction of such invalidity, and any such invalid
provision shall be deemed severed from this Agreement without affecting the
validity of the balance of this Agreement.

 

26.13      Compliance with Laws

 

In performance of their
respective obligations under this Agreement, each Party agrees to comply with
all applicable laws, statutes, rules, regulations, judgments, decrees,
injunctions, writs and orders, and all interpretations thereof, of all
Governmental Authorities having jurisdiction over such Party.

 

26.14      Conflicts of Interest

 

(a)           Restriction on FLNG
as Other Customer.  FLNG shall avoid
any conflict between its own interests and the interests of Customer in
relation to obtaining LNG terminalling services from the Freeport
Facility.  In this regard, FLNG shall
not become one of the Other Customers hereof unless Customer has first
consented in writing (such consent not to be unreasonably withheld or delayed)
to such expanded business role by FLNG.

 

(b)           Affiliated Customer
Limitations. If it is expected that any of FLNG’s joint venture partners or
affiliated entities or any partner, shareholder, member, or other direct or
indirect equity owner of FLNG or an Affiliate thereof (each an “Affiliated
Customer”) will become one of the Other Customers during the Term
hereof, FLNG shall provide Customer sixty (60) days prior notice thereof.  Thereafter, if Customer requests such a
meeting, the Parties shall meet to discuss the Affiliated Customer’s
arrangements with FLNG regarding LNG terminalling services.  In the event an Affiliated Customer becomes
an Other Customer, the following additional restrictions shall apply:

 

(i)            No
Affiliated Customer shall be a Major Customer;

 

(ii)           No
Affiliated Customer shall be given any preference in scheduling over Customer;
and

 

(iii)          In
relation to any rights hereunder which are based on FLNG’s Sole Opinion
(including FLNG’s right under Section 3.1 to allow berthing, unloading and
receipt of Customer’s LNG in quantities in excess of the Maximum LNG Reception
Quantity), FLNG shall not, in exercising such rights, give any preference to an
Affiliated Customer which would adversely affect Customer’s rights hereunder;

 

provided that neither
Customer nor any of its Affiliates (collectively “ConocoPhillips”) shall at any
time be considered an Affiliated Customer, and neither The Dow Chemical Company
nor any of its affiliates (collectively “Dow”)

 

74

 

shall at any time be
considered an Affiliated Customer.  In
this regard, in relation to any rights under this Agreement which are based on
FLNG’s Sole Opinion (including FLNG’s right under Section 3.1 to allow
berthing, unloading and receipt of Customer’s LNG in quantities in excess of
the Maximum LNG Reception Quantity), FLNG shall not, in exercising such rights,
give any preference to Dow which would adversely affect Customer’s rights under
this Agreement.

 

(c)           Conflicts Generally.  Except as provided in paragraphs (a) and (b)
above, the Parties and their Affiliates are free to engage or invest (directly
or indirectly) in an unlimited number of activities or businesses, any one or
more of which may be related to or in competition with the business activities
contemplated under this Agreement, without having or incurring any obligation
to offer any interest in such business activities to the other Party.

 

26.15      Expenses

 

Each Party shall be
responsible for and bear all of its own costs and expenses incurred in
connection with the preparation and negotiation of this Agreement.

 

26.16      Scope

 

This Agreement
constitutes the entire agreement between the Parties relating to the subject
matter hereof and supersedes and replaces any provisions on the same subject
contained in any other agreement between the Parties, whether written or oral,
prior to the date of the original execution hereof.

 

26.17      Counterpart Execution

 

This Agreement may be
executed in any number of counterparts and each such counterpart shall be
deemed an original Agreement for all purposes, provided that no Party shall be
bound to this Agreement unless and until both Parties have executed a
counterpart.

 

IN WITNESS WHEREOF, each
of the Parties has caused this Agreement to be duly executed and signed by its
duly authorized officer as of the Effective Date.

 

	
   

  	
  FREEPORT LNG DEVELOPMENT, L.P.

  
	
   

  	
   

  
	
   

  	
  By:  Freeport LNG-GP, Inc., its General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael S. Smith

  
	
   

  	
   

  	
  Michael S. Smith

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONOCOPHILLIPS COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ S.L.
  Cornelius

  
	
   

  	
  Name:

  	
   S.L. Cornelius

  
	
   

  	
  Title:

  	
   Vice President

  
						

 

75

 

ANNEX
I

 

MEASUREMENTS AND TESTS FOR LNG AT
RECEIPT POINT

 

1.             Parties to Supply
Devices

 

a)         General.  Unless otherwise agreed, Customer and FLNG
shall supply equipment and conform to procedures that are in accordance with
the latest appropriate International Organization for Standards (“ISO”)
documents.

 

b)         Customer Devices.  Customer or Customer’s agent shall supply,
operate and maintain, or cause to be supplied, operated and maintained,
suitable gauging devices for the liquid level in LNG tanks of the LNG Vessels,
pressure and temperature measuring devices, and any other measurement or
testing devices which are incorporated in the structure of LNG vessels or
customarily maintained on board ship.

 

c)         FLNG Devices.  FLNG shall supply, operate and maintain, or
cause to be supplied, operated and maintained, devices required for collecting
samples and for determining quality and composition of the LNG and any other
measurement or testing devices which are necessary to perform the measurement
and testing required hereunder at the Freeport Facility.

 

d)         Dispute.  Any Dispute arising under this Annex I shall
be submitted to an expert under Section 22.2.

 

2.             Selection of
Devices

 

All devices provided for in this Annex I  shall
be approved by FLNG, acting as a Reasonable and Prudent Operator.  The required degree of accuracy (which shall
in any case be within the permissible tolerances defined herein and in the
applicable standards referenced herein) of such devices selected shall be
mutually agreed upon by Customer and FLNG. 
In advance of the use of any device, the Party providing such device
shall cause tests to be carried out to verify that such device has the required
degree of accuracy.

 

3.             Verification of
Accuracy and Correction for Error

 

a)             Accuracy.  Accuracy of devices used shall be tested and
verified at the request of either Party, including the request by a Party to
verify accuracy of its own devices. 
Each Party shall have the right to inspect at any time the measurement
devices installed by the other Party, provided
that the other Party is notified in advance. 
Testing shall be performed only when both Parties are represented, or
have received adequate advance notice thereof, using methods recommended by the
manufacturer or any other method agreed to by FLNG and Customer.  At the request of any Party hereto, any test
shall be witnessed and verified by an independent surveyor mutually agreed upon
by Customer and FLNG.  Permissible
tolerances shall be as defined herein or as defined in the applicable standards
referenced herein.

 

i

 

b)            Inaccuracy.  Inaccuracy of a device exceeding the
permissible tolerances shall require correction of previous recordings, and
computations made on the basis of those recordings, to zero error with respect
to any period which is definitely known or agreed upon by the Parties as well
as adjustment of the device.  All  invoices issued during such period shall be
amended accordingly to reflect such correction, and an adjustment in payment
shall be made between Customer and FLNG. 
If the period of error is neither known nor agreed upon, and there is no
evidence as to the duration of such period of error, corrections shall be made
and invoices amended for each receipt of LNG made during the last half of the
period since the date of the most recent calibration of the inaccurate
device.  However, the provisions of this
Paragraph 3 shall not be applied to require the modification of any invoice
that has become final pursuant to Section 12.7.

 

c)             Costs and Expenses
of Test Verification.  All costs and
expenses for testing and verifying FLNG’s measurement devices shall be borne by
FLNG, and all costs and expenses for testing and verifying Customer’s
measurement devices shall be borne by Customer.  The fees and charges of independent surveyors for measurements
and calculations shall be borne directly by Customer.

 

4.             Tank Gauge Tables
of LNG Vessels

 

a)             Initial
Calibration.  Customer shall provide
FLNG or its designee, or cause FLNG or its designee to be provided, with a
certified copy of tank gauge tables for each tank of each LNG Vessel verified
by a competent impartial authority or authorities mutually agreed upon by the
Parties.  Such tables shall include
correction tables for list, trim, tank contraction and any other items
requiring such tables for accuracy of gauging.

 

b)            Presence of
Representatives.  FLNG and Customer
shall each have the right to have representatives present at the time each LNG
tank on each LNG Vessel is volumetrically calibrated.

 

c)             Recalibration.  If the LNG tanks of any LNG Vessel suffer
distortion of such nature as to create a reasonable doubt regarding the
validity of the tank gauge tables described herein (or any subsequent
calibration provided for herein), Customer or Customer’s agent shall
recalibrate the damaged tanks, and the vessel shall not be employed as an LNG
Vessel hereunder until appropriate corrections are made.  If mutually agreed between Customer and FLNG
representatives, recalibration of damaged tanks can be deferred until the next
time when such damaged tanks are warmed for any reason, and any corrections to
the prior tank gauge tables will be made from the time the distortion
occurred.  If the time of the distortion
cannot be ascertained, the Parties shall mutually agree on the time period for
retrospective adjustments.

 

5.             Accuracy of
Measurement

 

All measuring equipment must be maintained,
calibrated and tested in accordance with the manufacturer’s recommendations. In
the absence of a manufacturer’s

 

ii

 

recommendation, the minimum frequency of
calibration shall be 180 days, unless otherwise mutually agreed between the
Parties.  Documentation of all tests and
calibrations will be made available by the Party performing the same to the
other Party.  Acceptable accuracy and
performance tolerances will be:

 

	
  Temperature:

  	
  +/- 0.2
  degrees Celsius at -160 degrees Celsius

  
	
   

  	
   

  
	
  Pressure:

  	
  +/- 2% of
  the calibrated span of the measuring device

  
	
   

  	
   

  
	
  Level Gauge:

  	
  +/- 5
  millimeter

  
	
   

  	
   

  
	
  Level Gauge

  Systems Comparison:

  	
  +/- 5
  millimeter

  

 

6.             Gauging and
Measuring LNG Volumes Delivered  

 

a)             Gauge Tables.  Upon FLNG’s representative and the
independent surveyor’s, if present, arriving on board the LNG Vessel prior to
the commencement of or during unloading, Customer or Customer’s representative
shall make available to them a certified copy of tank gauge tables for each
tank of the LNG Vessel.

 

b)            Gauges.  Volumes of LNG delivered pursuant to this
Agreement shall be determined by gauging the LNG in the tanks of the LNG
Vessels before and after unloading. 
Each LNG Vessel’s tank shall be equipped with two sets of level gauges,
each set utilizing a different measurement principle.  Comparison of the two systems, designated as Primary and
Secondary Measurement Systems, shall be performed from time to time to ensure
compliance with the acceptable performance tolerances stated herein.

 

c)             Gauging Process.  Gauging the liquid in the tanks of the LNG
Vessels and measuring of liquid temperature, vapor temperature and vapor
pressure in each LNG tank, trim and list of the LNG Vessels, and atmospheric
pressure shall be performed, or caused to be performed, by Customer before and
after unloading.   FLNG’s representative
shall have the right to be present while all measurements are performed and
shall verify the accuracy and acceptability of all such measurements.  The first gauging and measurements shall be
made immediately before the commencement of unloading.  The second gauging and measurements shall
take place immediately after the completion of unloading.  The liquid level in the LNG Vessel before
and after the unloading shall be determined by at least two separate tank
gaugings to be conducted at least 15 minutes apart.

 

d)            Records.  Copies of gauging and measurement records
shall be furnished to FLNG immediately upon completion of unloading.

 

e)             Gauging Liquid
Level of LNG.  The level of the LNG
in each LNG tank of the LNG Vessel shall be gauged by means of the primary
gauging device installed in the LNG Vessel for that purpose.  The level of the LNG in each tank shall be
logged or printed.

 

iii

 

f)             Determination of
Temperature.  The temperature of the
LNG and of the vapor space in each tank shall be measured by means of a
sufficient number of properly located temperature measuring devices to permit
the determination of average temperature. 
Temperatures shall be measured at the same time as the liquid level
measurements and shall be logged or printed.

 

g)            Determination of
Pressure.  The pressure of the vapor
in each LNG tank shall be determined by means of pressure measuring devices
installed in each LNG tank of the LNG Vessels. 
The atmospheric pressure shall be determined by readings from the
standard barometer installed in the LNG Vessels.  Pressures shall be measured at the same time as the liquid level
measurements and shall be logged or printed.

 

h)            Determination of
Density.  The LNG density shall be
calculated using the method described within ISO 6578-91, Refrigerated
Hydrocarbon Liquids – Static Measurement. 
This method shall be updated to conform to any official published
revision of that document.  Should any
improved data, method of calculation or direct measurement device become
available which is acceptable to the Parties, such improved data, method or
device shall then be used.  If density
is determined by measurements, the results shall be measured at the same time
as the liquid level measurements and shall be logged or printed.

 

i)              Determination of
Properties of Gas Returned to LNG Vessel. 
The volume of Gas shall be the same as the volume of LNG unloaded from
the LNG Vessel.  The temperature and
pressure of the Gas shall be the values measured on board the LNG Vessel after
unloading.  The Gas compressibility
factors shall be calculated from the equation for low pressures given in the
Technical Data Book-Petroleum Refining, Fourth Edition page 6-86, American
Petroleum Institute using the method of pseudocritical temperature,
pseudocritical pressure and the mixture acentric factor given on page 6-99.  The critical temperatures for pure gases are
given in ISO 6578-91.  The critical
pressures for pure gases are given in GPA Standard 2145-03 – Table of Physical
Constants for Hydrocarbons and Other Compounds of Interest to the Natural Gas
Industry.  The acentric factors for pure
gases are given in Table 6A2.14 of the Technical Data Book or Annex H of ISO
6578-91.

 

7.             Samples for
Quality Analysis

 

a)             General.  Flow proportional representative liquid
samples shall be collected from an appropriate point located as close as
practical to the unloading line starting two hours after the beginning of
transfer and ending two hours before the end of transfer.  The sampling equipment will conform to ISO
8943-91, Refrigerated Light Hydrocarbon Fluids – Sampling of Liquefied Natural
Gas – continuous method.  Samples taken
when biphasic or overheated LNG is suspected to be in the main transfer line
will be disregarded.  These incremental
samples will be passed through a vaporizer, and samples of the vaporized liquid
will be analyzed.  The resulting
analyses, which are proportional to time, will be mathematically flow rate
weighted to yield an analysis that is representative of the unloaded

 

iv

 

Cargo.  This flow rate weighted analysis shall be
used for all appropriate calculations associated with the delivered Cargo.  Should the automatic sampling system fail
during the unloading, manual samples shall be collected and analyzed for
accounting purposes.

 

b)            Manual Samples.  Prior to the end of the unloading cycle, two
spot samples shall be collected from the vaporizer.  Spot samples shall be collected in accordance with Gas Processors
Association (“GPA”) Standard 2166 - Obtaining Gas Samples for
Analysis by Gas Chromatography - or by other mutually agreeable methods.  The samples shall be properly labeled and
then distributed to Customer and FLNG. 
FLNG shall retain one sample for a period of thirty (30) days, unless
the analysis is in dispute.  If the
analysis is in dispute, the sample will be retained until the Dispute is
resolved.

 

c)             Samples of Gas
Returned to LNG Vessel.  After
steady state unloading conditions have been achieved, a Gas sample will be
collected.  Additional samples will be
collected at approximately equal time intervals during the steady state portion
of the unloading.  At least four samples
will be collected during each unloading. 
The samples will be collected in accordance with GPA Standard 2166 –
Obtaining Gas Samples for Analysis by Gas Chromatography.  The sample point will be immediately
upstream of the vapor return arm.  An
average composition of the samples collected and analyzed during an unloading
will be used as the composition of the Gas returned to the LNG Vessel.

 

Sampling and analysis methods
and procedures that differ from the above may be employed with the mutual
agreement of the Parties.

 

8.             Quality Analysis

 

a)             Certification and
Deviation.  Chromatograph
calibration gasses shall be provided and their composition certified by an
independent third party.  From time to
time, deviation checks shall be performed to verify the accuracy of the gas
composition mole percentages and resulting calculated physical properties.  Analyses of a sample of test gas of known
composition resulting when procedures that are in accordance with the above
mentioned standards have been applied will be considered as acceptable if the
resulting calculated Gross Real Heating Value is within +/- 0.3% of the known
Gross Real Heating Value of the test gas sample.  If the deviation exceeds the tolerance stated, the Gross Real
Heating Value, Relative Density and Compressibility previously calculated will
be corrected immediately.  Previous
analyses will be corrected to the point where the error occurred, if this can
be positively identified to the satisfaction of both Parties.  Otherwise it shall be assumed that the drift
has been linear since the last recalibration and correction shall be based on
this assumption.

 

b)            GPA Standard 2261.  All samples shall be analyzed by FLNG to determine
the molar fraction of the hydrocarbon and other components in the sample by gas
chromatography using a mutually agreed method in accordance with GPA Standard
2261 - Method of Analysis for Gas and Similar Gaseous Mixtures by

 

v

 

Gas Chromatography,
current as of January 1, 1990 and as periodically updated or as otherwise
mutually agreed by the Parties.  If
better standards for analysis are subsequently adopted by GPA or other
recognized competent impartial authority, upon mutual agreement of Customer and
FLNG, they shall be substituted for the standard then in use, but such
substitution shall not take place retroactively.  A calibration of the chromatograph or other analytical instrument
used shall be performed by FLNG immediately prior to the analysis of the sample
of LNG delivered.  FLNG shall give
advance notice to Customer of the time FLNG 
intends to conduct a calibration thereof, and Customer shall have the
right to have a representative present at each such calibration; provided, however, FLNG will not be
obligated to defer or reschedule any calibration in order to permit the
representative of Customer to be present.

 

c)             GPA Standards 2377
and 2265.  FLNG shall determine the
presence of Hydrogen Sulfide (H2S) by use of GPA Standard 2377 - Test of
Hydrogen Sulfide and Carbon Dioxide in Gas Using Length of Stain Tubes.  If necessary, the concentration of H2S and
total sulfur will be determined using one or more of the following methods as
is appropriate: gas chromatography, Gas Processors Standard 2265 - Standard for
Determination of Hydrogen Sulfide and Mercaptan Sulfur in Gas (Cadmium sulfate
- Iodometric Titration Method) or any other method that is mutually acceptable.

 

9.             Operating
Procedures

 

a)             Notice.  Prior to conducting operations for
measurement, gauging, sampling and analysis provided in this Annex I, the Party
responsible for such operations shall notify the appropriate representatives of
the other Party, allowing such representatives reasonable opportunity to be
present for all operations and computations; provided that the absence of the other Party’s representative
after notification and opportunity to attend shall not prevent any operations
and computations from being performed.

 

b)            Independent
Surveyor.  At the request of either
Party any measurement, gauging, sampling and analysis shall be witnessed and
verified by an independent surveyor mutually agreed upon by Customer and FLNG.  The results of such surveyor’s verifications
shall be made available promptly to each Party.

 

c)             Preservation of
Records.  All records of measurement
and the computed results shall be preserved by the Party responsible for taking
the same, or causing the same to be taken, and made available to the other
Party for a period of not less than three (3) years after such measurement and
computation.

 

10.           Quantities Delivered

 

a)             Calculation of
MMBTU Quantities.  The quantity of
MMBTUs delivered as LNG and returned to the LNG Vessel as Gas shall be
calculated by FLNG and verified by Customer. 
Either Party may, at its own expense, require the measurements and
calculations and/or their verification by an independent surveyor, mutually
agreed

 

vi

 

upon by the Parties.  Consent to an independent surveyor proposed
by a Party shall not be unreasonably withheld by the other Party.

 

b)            Determination
of Gross Real Heating Value.  All component values shall be in accordance with
the latest revision of ISO 6578 and the latest revision of the reference
standards therein.

 

c)             Determination of Volume of LNG Unloaded. 

 

(i)            The LNG
volume in the tanks of the LNG Vessel before and after unloading shall be
determined by gauging on the basis of the tank gauge tables provided for in
Paragraph 6.  The volume of LNG
remaining in the tanks after unloading of the LNG Vessel shall be subtracted
from the volume before unloading and the resulting volume shall be taken as the
volume of the LNG delivered from the LNG Vessel.

 

(ii)           Gas
returned to the LNG Vessel during unloading shall not be deemed to be volume
unloaded for Customer’s account.

 

(iii)          If
failure of the primary gauging and measuring devices of an LNG Vessel should
make it impossible to determine the LNG volume, the volume of LNG unloaded shall
be determined by gauging the liquid level using the secondary gauging and
measurement devices.  If an LNG Vessel
is not so equipped, the volume of LNG delivered shall be determined by gauging
the liquid level in the Freeport Facility’s onshore LNG storage tanks
immediately before and after unloading the LNG Vessel, and such volume shall
have added to it an estimated LNG volume, agreed upon by the Parties, for
boil-off from such tanks during the unloading of such LNG Vessel and have added
to it the volume of any LNG that has been pumped from the LNG Vessel’s tanks
during unloading.  FLNG shall provide
Customer, or cause Customer to be provided with, a certified copy of tank gauge
tables for each onshore LNG tank which is to be used for this purpose, such tables
to be verified by a competent impartial authority.

 

d)            Determination of Quantities Unloaded.  The
quantities of MMBTUs sold and delivered shall be computed by FLNG by means of
the following formula:

 

Q = (VL1–VL2)
* DL2 * HVL2  –  (VL1 – VL2) * HVG2

 

Where:

 

Q:            represents
the quantity of MMBTUs unloaded

 

VL1:         represents the volume of
LNG in Cubic Meters on board the vessel prior to unloading.

 

VL2:         represents the volume of
LNG in Cubic Meters on board the vessel after unloading.

 

vii

 

DL2:         represents the density
value of the unloaded LNG in kilograms per Cubic Meter.

 

HVL2:      represents the Gross Real
Heating Value of the LNG unloaded from the vessel in BTUs per kilogram.

 

HVG2:      represents the Gross Heating
Value of Gas returned to the LNG Vessel during unloading expressed as BTUs per
Cubic Meter at the conditions in the LNG Vessel board tanks after unloading.

 

HVG2 =
(TS / TG2) * ( PG2 / PS) * (ZS
/ ZG2) * HS,V

 

Where:

 

	
  TS,
  PS, ZS

  	
  =

  	
  Values at
  standard reference conditions

  
	
   

  	
   

  	
   

  
	
  TG2,
  PG2, ZG2

  	
  =

  	
  Values at
  conditions of the gas in the LNG Vessel board tanks after unloading.

  
	
   

  	
   

  	
   

  
	
  HS,V

  	
  =

  	
  Gross
  heating value on volume basis (ideal) from ISO 6578

  

 

The units used and reported for
mass and Gross Real Heating Value will be kilograms and BTUs/kilogram
respectively.  The reference conditions
for the determination of the BTUs received by FLNG are:

 

	
  Temperature:

  	
  15o Celsius

  
	
   

  	
   

  
	
  Atmospheric
  Pressure:

  	
  14.697 psia
  (101.325 kPA)

  

 

The Parties consider
that, at the time this Agreement is executed, the above formula represents the
industry standard for determining the quantities of BTUs received by FLNG.  If the industry standard changes during the
term of this Agreement, the Parties will consult on changes needed to adjust
the formula to the then-current industry standard.  If the Parties are unable to agree on such changes, either Party
may refer the matter to an expert for determination under Section 22.2.

 

viii

 

ANNEX
II

 

MEASUREMENTS AND TESTS FOR GAS AT
DELIVERY POINT

 

1.             Applicability.  The measurement procedures in this Annex II
shall apply to the  measurement of Gas
delivered by FLNG for Customer’s account at the Delivery Point.

 

2.             Unit of
Measurement.  All Gas delivered at
the Delivery Point shall be measured in MMBTUs.

 

3.             Metering.

 

(a)           Metering Equipment.  FLNG shall supply, operate and maintain (or
cause to be supplied, operated and maintained at or near the Delivery Point)
the following:

 

i)              meters with
redundancy and other equipment as is necessary to accurately measure the volume
of Gas delivered at the Delivery Point hereunder;

 

ii)             devices for
collecting samples and for determining the quality and composition of Gas
delivered at the Delivery Point hereunder; and

 

iii)            and any other
measurement or testing devices which are necessary to perform the measurement
and testing required hereunder at the Delivery Point

 

(collectively, the “Downstream
Metering Equipment”).  The
Downstream Metering Equipment shall be designed and installed in accordance
with the current recommendations of the American Gas Association, Report No. 3.

 

(b)           Check Measurement
Equipment and Access.  Customer may,
at Customer’s expense, install and operate, at or near the Downstream Metering
Equipment, check measuring equipment similar to the Downstream Metering
Equipment to monitor the accuracy of the measurements made by the Downstream
Metering Equipment.  Such check metering
equipment will be installed and operated by Customer so that it does not unreasonably
interfere with the operation of the Downstream Metering Equipment or the
Freeport Facility Pipeline.

 

(c)           General.  A pressure transmitter shall be installed on
each meter tube to measure the static pressure at the plane of the upstream
differential pressure tapping.  The
temperature of the flowing Gas shall be measured on each meter tube by a
platinum resistance thermometer installed in a thermowell so that the probe tip
is in the center one-third of the pipe. 
Each meter run shall be provided with a dedicated microprocessor-based
flow computer system powered by an appropriate back-up power supply.

 

(d)           Measuring and
Density Standards.  Gas shall be
measured by orifice meters or other mutually agreeable measuring devices.  Orifice meters shall be constructed and
operated, Gas shall be measured, and properties shall be determined in
accordance with American Gas Association, Report No. 3 and any subsequent
modification and amendment thereof.  The
compressibility and density shall be calculated in accordance with the latest
revision of the American Gas Association, Report No. 3.  Metering equipment shall include the use of
flange connections

 

 

and, where necessary,
flow conditioners, straightening vanes, and pulsation dampening devices.  Meter tubes shall be of a design
incorporating suitable access for periodic internal inspection, including
access for internal inspection of the upstream side of the flow
conditioner.  Electronic gas measurement
with a continuous readout of pressure, temperature, and Gas flow rate shall be
used.  The differential low flow cut-off
point shall be set at a value no greater than ten percent (10%) of the
calibrated range.  Mechanical pressure,
differential pressure, and temperature chart recorders shall be used as primary
backup for the electronic gas measurement. 
All computations shall be made as prescribed in the above cited
standard.

 

(e)           Ultrasonic Metering
Standard.  All ultrasonic metering
shall comply with the American Gas Association, Report No. 9  and
any subsequent modification and amendment thereof.

 

4.             Determination of
Gross Heating Value.

 

(a)           GPA 2261 and 2145.  The heating value of the Gas delivered by
FLNG at the Delivery Point shall be determined by gas chromatograph.  The composition of the Gas shall be continuously
measured by on-line chromatographs.  The
Gross Heating Value of the Gas shall be calculated using results from the
on-line chromatograph.  The
chromatographs will analyze all hydrocarbon components, up to and including at
least the Nonanes+ group, and inerts having a concentration of greater than
0.002 mol percent.  The determination of
Gas composition shall be in accordance with the GPA Standard 2261 – Analysis
for Natural Gas and Similar Gaseous Mixtures by Gas Chromatography.  All physical properties used in quality and
quantity calculations shall be based on these compositional analyses and the
component values published in GPA 2145, or the latest revision thereof.  Water vapor content shall be included in the
component analyses.  The sample analysis
cycle time shall be less than six minutes. 
The maximum response time from sample probe to analyzer shall be four
minutes.  In the event of failure of the
on-line Gas chromatograph, chromatograph analysis of samples collected
proportional to the flow through the meters shall be used.  Auto-calibration of the Gas chromatograph
shall be conducted on a weekly basis or as otherwise mutually agreed by the
Parties.

 

(b)           GPA 2145.  Back-up composite samples of the flowing Gas
shall be obtained weekly to be used for relative density (specific gravity),
Gross Heating Value, and compressibility factors in case of electronic
failure.  Composite sampling of the
flowing stream shall be by use of a mutually agreeable continuous sampler,
designed and installed to sample proportionally to the flow rate.  The end point of each composite sample
chromatographic analysis shall be the Nonane+ fraction, and values for this
fraction shall be based on the C9 value in the latest revision of GPA Standard
2145 – Table of Physical Constants of Paraffin Hydrocarbons and Other
Components of Natural Gas.  All
component values shall be in accordance with such standard.

 

(c)           Deviation Checks.  Monthly gas chromatograph deviation checks
shall be made on Gas composition mole percentages and resulting Gross Heating
Value.

 

ii

 

Analyses of a sample of
test Gas of known composition resulting when procedures that are in accordance
with the above mentioned standards have been applied will be considered as
acceptable if the resulting calculated Gross Heating Value is within plus or
minus 5 BTU per Standard Cubic Foot of the known Gross Heating Value.  If the deviation exceeds the tolerance
stated, Gross Heating Value, relative density, and compressibility previously
calculated will be corrected immediately. 
Previous analyses will be corrected to the point where the error
occurred.  If the point that the error
occurred cannot be determined, previous analyses will be corrected for one-half
the period since the last verification test, not to exceed a correction period
of six months.

 

(d)           Corrections for
Water Content.  The heating value on
a dry basis for Gas containing water shall be corrected in accordance with
standards followed by the American Gas Association.  Moisture content of flowing Gas shall be determined as often as
found necessary in real practice by use of a mutually acceptable calculation or
test instrument, which could include a Meco Moisture Analyzer.

 

5.             Operating
Procedures

 

(a)           Notice.  Prior to conducting operations for
measurement, calibration, sampling and analysis provided in Annex II, the Party
responsible for such operations shall notify the appropriate representatives of
the other Party, allowing such representatives reasonable opportunity to be
present for all operations and computations; provided that the absence of the
other Party’s representative after notification and opportunity to attend shall
not prevent any operations and computations from being performed.

 

(b)           Independent Surveyor.  At the request of either Party any
measurement, calibration, sampling and analysis shall be witnessed and verified
by an independent surveyor mutually agreed upon by Customer and FLNG.  The results of such surveyor’s verifications
shall be made available promptly to each Party.

 

(c)           Preservation of
Records.  All records of measurement
and the computed results shall be preserved by the Party responsible for taking
the same, or causing the same to be taken, and made available to the other
Party for a period of not less than three (3) years after such measurement and
computation.

 

6.             Verification.  At least once each month, and in addition,
from time to time upon at least two weeks prior written notice by either Party
to the other, FLNG shall verify or cause to be verified the accuracy of the
Downstream Metering Equipment.  When as
a result of such test any of the Downstream Metering Equipment is found to be
out of calibration by no more than 1% when compared to the manufacturer’s
specifications for such equipment, no adjustment shall be made to Customer’s
LNG.  If the testing of the Downstream
Metering Equipment demonstrates that any meter is out of calibration by more
than 1% when compared to the manufacturer’s specifications for such equipment,
the applicable Downstream Metering Equipment reading for the actual period
during which out of calibration measurements were made shall be estimated as
follows, in descending order of priority:

 

iii

 

(a)           by using the
registration of any check meter or meters if installed and accurately
registering;

 

(b)           by correcting the error
if the percentage of error is ascertainable by calibration, test, or
mathematical calculation; or

 

(c)           by estimating the
quantity of delivery by measuring deliveries during prior periods under similar
conditions when any meter was registering accurately.

 

If the actual period that
such equipment has been out of calibration cannot be determined to the mutual
satisfaction of FLNG and Customer, the adjustment shall be for a period equal
to one-half of the time elapsed since the most recent test.  The difference (which may be a positive or
negative amount) shall be reflected in an adjustment to Customer’s Inventory.

 

7.             Costs.  The cost of the monthly testing and
calibration of the Downstream Metering Equipment shall be borne  by
FLNG.  The cost of any testing and
calibration of the Downstream Metering Equipment beyond the monthly test
permitted above shall also be paid by FLNG, unless the request to test any of
the Downstream Metering Equipment is made by Customer and the results of such
test requested by Customer demonstrate that the Downstream Metering Equipment
is less than 1% out of calibration, in which case the cost of such testing and
calibration shall be for Customer’s account. 
Each Party shall comply with any reasonable request of the other Party
concerning the sealing of the Downstream Metering Equipment, the presence of a
representative of Customer when the seals are broken and tests are conducted,
and other matters affecting the accuracy, testing and calibration of the
Downstream Metering Equipment.

 

8.             Dispute.  Any Dispute arising under this Annex II
shall be submitted to an expert under Section 22.2.

 

iv

 

EXHIBIT A

 

FREEPORT SERVICES MANUAL

 

The Freeport Services
Manual referred to in Section 3.5 shall be limited to the following
matters and other matters of a similar nature:

 

1.     Details associated with the
implementation of Section 5.1 among FLNG, Customer and Other Customers

 

2.     Details associated with the
Gas delivery procedures in Section 5.2 among FLNG, Customer and Other
Customers

 

3.     Details associated with the
content and format of the ***

 

4.     Form of the Release Notice
referred to in Section 6.2(b)(i)c

 

5.     Details associated with the
invoicing process under Article 12, including:

a.     Format of invoices
(electronic and original)

b.     Numbering systems/codes for
all invoice-related documents

 

 

EXHIBIT B

 

OTHER
CREDIT AGREEMENT AMOUNTS

 

The following amounts
under the Credit Agreement, to the extent not included in Excluded Credit
Agreement Amounts, are “Other Credit Agreement Amounts”:

 

1.             any amounts paid by
FLNG under Section 2.10 of the Credit Agreement;

 

2.             costs of the
Administrative Agent (as defined in the Credit Agreement) paid by FLNG;

 

3.             costs passed on to
FLNG from any Lender pursuant to Section 2.12 of the Credit Agreement;

 

4.             premiums paid by FLNG for business
interruption insurance pursuant to Section 5.9 of the Credit Agreement to
the extent the proceeds from such insurance have the effect of offsetting the
amounts under the Credit Agreement that make up the ***; and

 

5.             all costs of the Collateral Agent and the
Depositary Agent if such function is undertaken by Customer or an Affiliate of
Customer.Exhibit 10.6

 

ASSURED GUARANTY LTD. 2004

LONG-TERM INCENTIVE PLAN

 

SECTION 1

GENERAL

 

1.1.  Purpose.  The Assured Guaranty Ltd. 2004 Long-Term
Incentive Plan (the “Plan”) has been established by Assured Guaranty Ltd. (the
“Company”) to (i) attract and retain persons eligible to participate in the
Plan; (ii) motivate Participants, by means of appropriate incentives, to
achieve long-range goals; (iii) provide incentive compensation opportunities
that are competitive with those of other similar companies; and (iv) further
identify Participants’ interests with those of the Company’s other shareholders
through compensation that is based on the Company’s common shares; and thereby
promote the long-term financial interest of the Company and the Subsidiaries,
including the growth in value of the Company’s equity and enhancement of
long-term shareholder return.

 

1.2.  Participation.  Subject to the terms and conditions of the
Plan, the Committee shall determine and designate, from time to time, from
among the Eligible Individuals, those persons who will be granted one or more
Awards under the Plan, and thereby become “Participants” in the Plan.

 

1.3.  Operation,
Administration, and Definitions. 
The operation and administration of the Plan, including the Awards made
under the Plan, shall be subject to the provisions of Section 5 (relating
to operation and administration). 
Capitalized terms in the Plan shall be defined as set forth in the Plan
(including the definition provisions of Section 9).

 

SECTION 2

OPTIONS AND SARS

 

2.1.  Definitions.

 

(a)                                  The grant of an
“Option” entitles the Participant to purchase Shares at an Exercise Price
established by the Committee.  Any
Option granted under this Section 2 may be either an incentive stock
option (an “ISO”) or a non-qualified option (an “NQO”), as determined in the
discretion of the Committee.  An “ISO”
is an Option that is intended to satisfy the requirements applicable to an
“incentive stock option” described in section 422(b) of the Code.  An “NQO” is an Option that is not intended
to be an “incentive stock option” as that term is described in
section 422(b) of the Code.

 

(b)                                 A stock appreciation
right (an “SAR”) entitles the Participant to receive, in cash or Shares (as
determined in accordance with subsection 2.5), value equal to (or
otherwise based on) the excess of: (a) the Fair Market Value of a specified
number of Shares at the time of exercise; over (b) an Exercise Price
established by the Committee.

 

2.2.  Exercise Price.  The “Exercise Price” of each Option and SAR
granted under this Section 2 shall be established by the Committee or
shall be determined by a method established by the Committee at the time the
Option or SAR is granted.  The Exercise
Price shall not be less

 

 

than 100% of the Fair Market Value of a Share on the date of grant (or,
if greater, the par value, if any, of a Share).

 

2.3.  Exercise.  An Option and an SAR shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee.  In no
event, however, shall an Option or SAR expire later than ten years after the
date of its grant.

 

2.4.  Payment of Option
Exercise Price.  The payment of the
Exercise Price of an Option granted under this Section 2 shall be subject
to the following:

 

(a)                                  Subject to the
following provisions of this subsection 2.4, the full Exercise Price for
Shares purchased upon the exercise of any Option shall be paid at the time of
such exercise (except that, in the case of an exercise arrangement approved by
the Committee and described in paragraph 2.4(c), payment may be made as soon as
practicable after the exercise).

 

(b)                                 Subject to applicable
law, the full Exercise Price shall be payable in cash, by promissory note, or
by tendering, by either actual delivery of shares or by attestation, Shares
acceptable to the Committee, and valued at Fair Market Value as of the day of
exercise, or in any combination thereof, as determined by the Committee;
provided that, except as otherwise provided by the Committee, payments made with
Shares in accordance with this paragraph (b) shall be limited to Shares held by
the Participant for not less than six months prior to the payment date.

 

(c)                                  Subject to applicable
law, the Committee may permit a Participant to elect to pay the Exercise Price
upon the exercise of an Option by irrevocably authorizing a third party to sell
Shares (or a sufficient portion of the Shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to
pay the entire Exercise Price and any tax withholding resulting from such
exercise.

 

2.5.  Settlement of Award.  Settlement of Options and SARs is subject to
subsection 5.7.

 

2.6.  No Repricing.  Except for either adjustments pursuant to
paragraph 5.2(f) (relating to the adjustment of Shares), or reductions of the
Exercise Price approved by the Company’s shareholders, the Exercise Price for
any outstanding Option may not be decreased after the date of grant nor may an
outstanding Option granted under the Plan be surrendered to the Company as
consideration for the grant of a replacement Option with a lower Exercise
Price.

 

2.7.  Grants of Options and
SARs.  An Option may but need not be
in tandem with an SAR, and an SAR may but need not be in tandem with an
Option.  If an Option is in tandem with
an SAR, the Exercise Price of both the Option and SAR shall be the same, and
the exercise of the Option or SAR with respect to a Share shall cancel the
corresponding tandem SAR or Option right with respect to such Share.  If an SAR is in tandem with an Option but is
granted after the grant of the Option, or if an Option is in tandem with an SAR
but is granted after the grant of the SAR, the later granted tandem Award shall
have the same Exercise Price as the earlier granted Award, but the Exercise
Price for the later granted Award may be less than the Fair Market Value of the
Share at the time of such grant.

 

2

 

SECTION 3

FULL VALUE AWARDS

 

3.1.  Definition.  A “Full Value Award” is a grant of one or
more Shares or a right to receive one or more Shares in the future, with such
grant subject to one or more of the following, as determined by the Committee:

 

(a)                                  The grant shall be in
consideration of a Participant’s previously performed services, or surrender of
other compensation that may be due.

 

(b)                                 The grant shall be
contingent on the achievement of performance or other objectives during a
specified period.

 

(c)                                  The grant shall be
subject to a risk of forfeiture or other restrictions that will lapse upon the
achievement of one or more goals relating to completion of service by the
Participant, or achievement of performance or other objectives.

 

The grant of Full Value Awards may also be subject to such other
conditions, restrictions and contingencies, as determined by the Committee.

 

3.2.  Restrictions on Awards.

 

(a)                                  The Committee may
designate a Full Value Award granted to any Participant as “performance-based
compensation” as that term is used in section 162(m) of the Code.  To the extent required by Code
section 162(m), any Full Value Award so designated shall be conditioned on
the achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures selected by the Committee.  For Awards under this Section 3 intended to be
“performance-based compensation,” the grant of the Awards and the establishment
of the performance objectives shall be made during the period required under
Code section 162(m).

 

(b)                                 If the right to become
vested in a Full Value Award is conditioned on the completion of a specified
period of service with the Company or the Subsidiaries, without achievement of
Performance Measures or other performance objectives (whether or not related to
the Performance Measures) being required as a condition of vesting, and without
it being granted in lieu of other compensation, then the required period of
service for full vesting shall be not less than three years (subject to
acceleration of vesting, to the extent permitted by the Committee, in the event
of the Participant’s death, disability, retirement, change in control or
involuntary termination).

 

SECTION 4

CASH INCENTIVE AWARDS

 

A Cash Incentive Award is the grant of a right to receive a payment of
cash (or in the discretion of the Committee, Shares having value equivalent to
the cash otherwise payable) that is contingent on achievement of performance or
other objectives over a specified period established by the Committee.  The grant of Cash Incentive Awards may also
be subject to such other conditions, restrictions and contingencies, as
determined by the Committee.  The

 

3

 

Committee may designate a Cash Incentive Award granted to any
Participant as “performance-based compensation” as that term is used in
section 162(m) of the Code.  To the
extent required by Code section 162(m), any such Award so designated shall
be conditioned on the achievement of one or more performance objectives.  The performance objectives shall be based on
Performance Measures as selected by the Committee.  For Awards under this Section 4 intended to be
“performance-based compensation,” the grant of the Awards and the establishment
of the performance objectives shall be made during the period required under
Code section 162(m).

 

SECTION 5

OPERATION AND ADMINISTRATION

 

5.1.  Effective Date.  The Plan shall be effective on the date
immediately prior to the date of the initial public offering of the shares of
the Company (the “Effective Date”).  The
Plan shall be unlimited in duration and, in the event of Plan termination,
shall remain in effect as long as any Awards under it are outstanding;
provided, however, that no Awards may be granted under the Plan after the
ten-year anniversary of the Effective Date.

 

5.2.  Shares and Other
Amounts Subject to Plan.  The Shares
for which Awards may be granted under the Plan shall be subject to the
following:

 

(a)                                  The Shares with
respect to which Awards may be made under the Plan shall be: (i) shares
currently authorized but unissued; (ii) to the extent permitted by applicable
law, currently held or acquired by the Company as treasury shares, including
shares purchased in the open market or in private transactions (it being
recognized that at the time of adoption of the Plan the Company is not
permitted to have treasury shares); or (iii) shares purchased in the open
market by a direct or indirect wholly-owned subsidiary of the Company (as
determined by the Chief Executive Officer or the Chief Financial Officer of the
Company).  The Company may contribute to
the subsidiary or trust an amount sufficient to accomplish the purchase in the
open market of the Shares to be so acquired (as determined by the Chief
Executive Officer or the Chief Financial Officer of the Company).

 

(b)                                 Subject to the
following provisions of this subsection 5.2, the maximum number of Shares
that may be delivered to Participants and their beneficiaries under the Plan
shall be 7,500,000 Shares.

 

(c)                                  To the extent
provided by the Committee, any Award may be settled in cash rather than Shares.

 

(d)                                 Only Shares, if any,
actually delivered to the Participant or beneficiary on an unrestricted basis
with respect to an Award shall be treated as delivered for purposes of the
determination under paragraph (b) above, regardless of whether the Award is
denominated in Shares or cash. 
Consistent with the foregoing:

 

(i)                                     To the extent any
Shares covered by an Award are not delivered to a Participant or beneficiary
because the Award is forfeited or canceled, or the Shares are not delivered on
an unrestricted basis (including, without limitation, by reason of the Award
being settled in cash or used to satisfy the applicable tax withholding

 

4

 

obligation), such Shares shall not be deemed to have been delivered for
purposes of the determination under paragraph (b) above.

 

(ii)                                  If the exercise price
of any Option granted under the Plan or the tax withholding obligation with
respect to any Award granted under the Plan is satisfied by tendering Shares to
the Company (by either actual delivery or by attestation), only the number of
Shares issued net of the Shares tendered shall be deemed delivered for purposes
of determining the number of Shares available for delivery under the Plan.

 

(e)                                  Subject to paragraph
5.2(f), the following additional maximums are imposed under the Plan:

 

(i)                                     The maximum number
of Shares that may be delivered to Participants and their beneficiaries with
respect to ISOs granted under the Plan shall be 7,500,000 Shares; provided,
however, that to the extent that Shares not delivered must be counted against
this limit as a condition of satisfying the rules applicable to ISOs, such
rules shall apply to the limit on ISOs granted under the Plan.

 

(ii)                                  The maximum number of
Shares that may be covered by Awards granted to any one Participant during any
one-calendar-year period pursuant to Section 2 (relating to Options and
SARs) shall be 2,500,000 Shares.  For
purposes of this paragraph (ii), if an Option is in tandem with an SAR, such
that the exercise of the Option or SAR with respect to a Share cancels the
tandem SAR or Option right, respectively, with respect to such Share, the
tandem Option and SAR rights with respect to each Share shall be counted as
covering but one Share for purposes of applying the limitations of this
paragraph (ii).

 

(iii)                               The maximum number of
Shares that may be issued in conjunction with Awards granted pursuant to
Section 3 (relating to Full Value Awards) shall be 2,500,000 Shares.

 

(iv)                              For Full Value Awards
that are intended to be “performance-based compensation” (as that term is used
for purposes of Code section 162(m)), no more than 1,250,000 Shares ay be
delivered pursuant to such Awards granted to any one Participant during any
one-calendar-year period; provided that Awards described in this paragraph (iv)
that are intended to be performance-based compensation shall be subject to the
following:

 

(A)                              If the Awards are
denominated in Shares but an equivalent amount of cash is delivered in lieu of
delivery of Shares, the foregoing limit shall be applied based on the
methodology used by the Committee to convert the number of Shares into cash.

 

(B)                                If delivery of Shares
or cash is deferred until after Shares have been earned, any adjustment in the
amount delivered to reflect actual or deemed investment experience after the
date the Shares are earned shall be disregarded.

 

5

 

(v)                                 For Cash Incentive
Value Awards that are intended to be “performance-based compensation” (as that
term is used for purposes of Code section 162(m)), the maximum amount
payable to any Participant with respect to any performance period shall equal
$500,000 multiplied by the number of calendar months included in that
performance period; provided that Awards described in this paragraph (v), that
are intended to be performance-based compensation, shall be subject to the
following:

 

(A)                              If the Awards are
denominated in cash but an equivalent amount of Shares is delivered in lieu of
delivery of cash, the foregoing limit shall be applied to the cash based on the
methodology used by the Committee to convert the cash into Shares.

 

(B)                                If delivery of Shares
or cash is deferred until after cash has been earned, any adjustment in the
amount delivered to reflect actual or deemed investment experience after the
date the cash is earned shall be disregarded.

 

(f)                                    In the event of a
corporate transaction involving the Company (including, without limitation, any
share dividend, share split, extraordinary cash dividend, recapitalization,
reorganization, merger, amalgamation, consolidation, split-up, spin-off, sale
of assets or subsidiaries, combination or exchange of shares), the Committee
may adjust Awards to preserve the benefits or potential benefits of the
Awards.  Action by the Committee may
include: (i) adjustment of the number and kind of shares which may be delivered
under the Plan; (ii) adjustment of the number and kind of shares subject to
outstanding Awards; (iii) adjustment of the Exercise Price of outstanding
Options and SARs; and (iv) any other adjustments that the Committee determines
to be equitable (which may include, without limitation, (A) replacement of
Awards with other Awards which the Committee determines have comparable value
and which are based on shares of a company resulting from the transaction, and
(B) cancellation of the Award in return for cash payment of the current value
of the Award, determined as though the Award is fully vested at the time of
payment, provided that in the case of an Option, the amount of such payment may
be the excess of value of the Shares subject to the Option at the time of the
transaction over the exercise price).

 

5.3.  General Restrictions.  Delivery of Shares or other amounts under
the Plan shall be subject to the following:

 

(a)                                  Notwithstanding any
other provision of the Plan, the Company shall have no obligation to recognize
an exercise of an Option or SAR or deliver any Shares or make any other
distribution of benefits under the Plan unless such exercise, delivery or
distribution complies with all applicable laws (including, without limitation,
the requirements of the United States Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity or other
regulatory authority with respect to the issue of shares and securities by the
Company.

 

6

 

(b)                                 To the extent that the
Plan provides for issuance of share certificates to reflect the issuance of
Shares, the issuance may be effected on a non-certificated basis, to the extent
not prohibited by or may be made in compliance with applicable law, the
Bye-laws of the Company, or the applicable rules of any stock exchange.

 

5.4.  Tax Withholding.  All distributions under the Plan are subject
to withholding of all applicable taxes, and the Committee may condition the
delivery of any Shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. 
Except as otherwise provided by the Committee and subject to applicable
law, such withholding obligations may be satisfied (i) through cash payment by
the Participant; (ii) through the surrender of Shares which the Participant
already owns (provided, however, that to the extent Shares described in this
clause (ii) are used to satisfy more than the minimum statutory withholding
obligation, as described below, then, except as otherwise provided by the
Committee, payments made with Shares in accordance with this clause (ii) shall
be limited to Shares held by the Participant for not less than six months prior
to the payment date); or (iii) through the surrender of Shares to which the
Participant is otherwise entitled under the Plan; provided, however, that such
Shares under this clause (iii) may be used to satisfy not more than the
Company’s minimum statutory withholding obligation (based on minimum statutory
withholding rates for Federal and state tax purposes, including payroll taxes,
that are applicable to such supplemental taxable income).

 

5.5.  Grant and Use of Awards.  In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the
Plan, and more than one Award may be granted to a Participant.  Awards may be granted as alternatives to or
replacement of awards granted or outstanding under the Plan, or any other plan
or arrangement of the Company or a Subsidiary (including a plan or arrangement
of a business or entity, all or a portion of which is acquired by the Company
or a Subsidiary).  Subject to the overall
limitation on the number of Shares that may be delivered under the Plan, the
Committee may use available Shares as the form of payment for compensation,
grants or rights earned or due under any other compensation plans or
arrangements of the Company or a Subsidiary, including the plans and
arrangements of the Company or a Subsidiary assumed in business
combinations.  Notwithstanding the
provisions of subsection 2.2, Options and SARs granted under the Plan in
replacement for awards under plans and arrangements of the Company or a
Subsidiary assumed in business combinations may provide for Exercise Prices
that are less than the Fair Market Value of the Shares at the time of the
replacement grants, if the Committee determines that such Exercise Price is appropriate
to preserve the economic benefit of the award.

 

5.6.  Dividends and Dividend
Equivalents.  An Award (including
without limitation an Option or SAR Award) may provide the Participant with the
right to receive dividend or dividend equivalent payments with respect to
Shares subject to the Award (both before and after the Shares subject to the
Award is earned, vested, or acquired), which payments may be either made
currently or credited to an account for the Participant, and may be settled in
cash or Shares as determined by the Committee. 
Any such settlements, and any such crediting of dividends or dividend
equivalents or reinvestment in Shares, will be subject to the Company’s
Bye-laws as well as applicable law and further may be subject to such conditions,
restrictions and contingencies as the Committee shall establish, including the
reinvestment of such credited amounts in Share equivalents.

 

7

 

5.7.  Settlement of Awards.  The obligation to make payments and
distributions with respect to Awards may be satisfied through cash payments,
the delivery of Shares, the granting of replacement Awards, or combination
thereof as the Committee shall determine. 
Satisfaction of any such obligations under an Award, which is sometimes
referred to as “settlement” of the Award, may be subject to such conditions,
restrictions and contingencies as the Committee shall determine.  The Committee may permit or require the
deferral of any Award payment, subject to such rules and procedures as it may
establish, which may include provisions for the payment or crediting of
interest or dividend equivalents, and may include converting such credits into
deferred Share equivalents.  Each Subsidiary
shall be liable for payment of cash due under the Plan with respect to any
Participant to the extent that such benefits are attributable to the services
rendered for that Subsidiary by the Participant.  Any disputes relating to liability of a Subsidiary for cash
payments shall be resolved by the Committee.

 

5.8.  Transferability.  Except as otherwise provided by the
Committee, Awards under the Plan are not transferable except as designated by
the Participant by will or by the laws of descent and distribution.

 

5.9.  Form and Time of
Elections.  Unless otherwise
specified herein, each election required or permitted to be made by any
Participant or other person entitled to benefits under the Plan, and any
permitted modification, or revocation thereof, shall be in writing filed with
the Committee at such times, in such form, and subject to such restrictions and
limitations, not inconsistent with the terms of the Plan, as the Committee
shall require.

 

5.10.  Agreement With Company.  An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. 
The terms and conditions of any Award to any Participant shall be
reflected in such form of written (including electronic) document as is
determined by the Committee.  A copy of
such document shall be provided to the Participant, and the Committee may, but
need not require that the Participant sign a copy of such document.  Such document is referred to in the Plan as
an “Award Agreement” regardless of whether any Participant signature is
required.

 

5.11.  Action by Company or
Subsidiary.  Any action required or
permitted to be taken by the Company or any Subsidiary shall be by resolution
of its board of directors, or by action of one or more members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable
rules of any stock exchange) by a duly authorized officer of such company.

 

5.12.  Gender and Number.  Where the context admits, words in any
gender shall include any other gender, words in the singular shall include the
plural and the plural shall include the singular.

 

5.13.  Limitation of Implied
Rights.

 

(a)                                  Neither a Participant
nor any other person shall, by reason of participation in the Plan, acquire any
right in or title to any assets, funds or property of the Company or any
Subsidiary whatsoever, including, without limitation, any specific funds,
assets, or other

 

8

 

property which the Company or any Subsidiary, in its sole discretion,
may set aside in anticipation of a liability under the Plan.  A Participant shall have only a contractual
right to the Shares or amounts, if any, payable under the Plan, unsecured by
any assets of the Company or any Subsidiary, and nothing contained in the Plan
shall constitute a guarantee that the assets of the Company or any Subsidiary
shall be sufficient to pay any benefits to any person.

 

(b)                                 The Plan does not
constitute a contract of employment, and selection as a Participant will not
give any participating employee or other individual the right to be retained in
the employ of the Company or any Subsidiary or the right to continue to provide
services to the Company or any Subsidiary, nor any right or claim to any
benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan.  Except as
otherwise provided in the Plan, no Award under the Plan shall confer upon the
holder thereof any rights as a shareholder of the Company prior to the date on
which the individual fulfills all conditions for receipt of such rights and is
registered in the Company’s Register of Shareholders.

 

(c)                                  All Stock and shares
issued under any Award or otherwise are to be held subject to the provisions of
the Company’s Bye-laws and each Participant is deemed to agree to be bound by
the terms of the Company’s Bye-laws as they stand at the time of issue of any
Shares under the Plan.

 

5.14.  Evidence.  Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.

 

SECTION 6

CHANGE IN CONTROL

 

Subject to the provisions of paragraph 5.2(f) (relating to the
adjustment of shares), the occurrence of a Change in Control shall have the
effect, if any, with respect to any Award as set forth in the Award Agreement
or, to the extent not prohibited by the Plan or the Award Agreement, as
provided by the Committee.

 

SECTION 7

COMMITTEE

 

7.1.  Administration.  The authority to control and manage the
operation and administration of the Plan shall be vested in a committee (the
“Committee”) in accordance with this Section 7.  The Committee shall be selected by the Board, and shall consist
solely of two or more members of the Board. 
As a committee of the Board, the Committee is subject to the overview of
the Board.  If the Committee does not
exist, or for any other reason determined by the Board, and to the extent not
prohibited by applicable law or the applicable rules of any stock exchange, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.

 

7.2.  Powers of Committee.  The Committee’s administration of the Plan
shall be subject to the following:

 

9

 

(a)                                  Subject to the
provisions of the Plan, the Committee will have the authority and discretion to
select from among the Eligible Individuals those persons who shall receive
Awards, to determine the time or times of receipt, to determine the types of
Awards and the number of Shares covered by the Awards, to establish the terms,
conditions, performance criteria, restrictions, and other provisions of such
Awards, and (subject to the restrictions imposed by Section 8) to cancel
or suspend Awards.

 

(b)                                 To the extent that the
Committee determines that the restrictions imposed by the Plan preclude the
achievement of the material purposes of the Awards in jurisdictions outside the
United States and Bermuda, the Committee will have the authority and discretion
to modify those restrictions as the Committee determines to be necessary or
appropriate to conform to applicable requirements or practices of jurisdictions
outside of the United States and Bermuda.

 

(c)                                  The Committee will
have the authority and discretion to interpret the Plan, to establish, amend,
and rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of any Award Agreement made pursuant to the Plan, and to make
all other determinations that may be necessary or advisable for the
administration of the Plan.

 

(d)                                 Any interpretation of
the Plan by the Committee and any decision made by it under the Plan is final
and binding on all persons.

 

(e)                                  In controlling and
managing the operation and administration of the Plan, the Committee shall take
action in a manner that conforms to applicable corporate law.

 

7.3.  Delegation by Committee.  Except to the extent prohibited by
applicable law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities
and powers to any person or persons selected by it.  Any such allocation or delegation may be revoked by the Committee
at any time.

 

7.4.  Information to be
Furnished to Committee.  The Company
and Subsidiaries shall furnish the Committee with such data and information as
it determines may be required for it to discharge its duties.  The records of the Company and Subsidiaries
as to an employee’s or Participant’s employment (or other provision of
services), termination of employment (or cessation of the provision of
services), leave of absence, reemployment and compensation shall be conclusive
on all persons unless determined to be incorrect.  Participants and other persons entitled to benefits under the
Plan must furnish the Committee such evidence, data or information as the
Committee considers desirable to carry out the terms of the Plan.

 

SECTION 8

AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate the Plan, and may amend
any Award Agreement, provided that no amendment or termination may, in the
absence of written consent to the change by the affected Participant (or, if
the Participant is not then living, the affected beneficiary), adversely affect
the rights of any Participant or beneficiary under any Award granted under the
Plan prior to the date such amendment is adopted by the Board; and further

 

10

 

provided that adjustments pursuant to paragraph 5.2(f) shall not be
subject to the foregoing limitations of this Section 8; and further
provided that the provisions of subsection 2.6 (relating to Option
repricing) cannot be amended unless the amendment is approved by the Company’s
shareholders.

 

SECTION 9

DEFINED TERMS

 

In addition to the other definitions contained herein, the following
definitions shall apply:

 

(a)                                  Award.  The term “Award” means any award or benefit
granted under the Plan, including, without limitation, the grant of Options,
SARs, and Full Value Awards.

 

(b)                                 Board.  The term “Board” means the Board of Directors
of the Company.

 

(c)                                  Change in Control.  The term “Change in Control” means the
occurrence of the events described in any of paragraphs (i), (ii), (iii) or
(iv) below:

 

(i)                                     Acquisition of
Securities.  The acquisition
(disregarding any Excluded Acquisitions) by any Person of ownership of any
Voting Securities if, immediately after such acquisition, such Person has
ownership of more than twenty-five percent (25%) of either the Outstanding
Company Common Shares, or the combined voting power of the Outstanding Company
Voting Securities.  In no event shall a
Change in Control occur by reason of ownership of Shares, Voting Securities,
Outstanding Company Common Shares, or Outstanding Company Voting Securities by
ACE Limited and/or any successor or Affiliate of ACE Limited.

 

(ii)                                  Change in Board.  Individuals who constitute the Incumbent
Board cease for any reason to represent greater than 50% of the voting power of
members of the Board.

 

(iii)                               Corporate
Transaction.  Consummation of (A) a
Corporate Transaction or (B) the sale or other disposition of more than fifty
percent (50%) of the operating assets of the Company (determined on a
consolidated basis), but not including an Internal Reorganization.

 

(iv)                              Liquidation.  Approval by the shareholders of the Company
of a plan of complete liquidation or dissolution of the Company.

 

(v)                                 Definitions.  The terms used in the definition of “Change
in Control” shall have the following meanings:

 

(A)                              An “Affiliate” of a
person or other entity shall mean a person or other entity that directly or
indirectly controls, is controlled by, or is under common control with the
person or other entity specified.

 

11

 

(B)                                The term “Company Plan”
means an employee benefit plan (or related trust) sponsored or maintained by
the Company or any Affiliate of the Company.

 

(C)                                The term “Corporate
Transaction” means any reorganization, merger, amalgamation, consolidation, or
other business combination involving the Company.

 

(D)                               The following shall constitute
“Excluded Acquisitions” of Shares or Voting Securities (whichever is
applicable):

 

(I)                                    Any acquisition of
Shares or Voting Securities (whichever is applicable) by a Company Plan.

 

(II)                                Any acquisition of
Shares or Voting Securities (whichever is applicable) by an underwriter
temporarily holding securities pursuant to an offering of such securities.

 

(III)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) by any Person pursuant to an
Internal Reorganization.

 

(IV)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) directly from the Company
(excluding any acquisition resulting from the exercise of an exercise,
conversion or exchange privilege unless the security being so exercised,
converted or exchanged was acquired directly from the Company).

 

(V)                                Any acquisition of
Shares or Voting Securities (whichever is applicable) by the Company.

 

(VI)                            Any acquisition of Shares
or Voting Securities (whichever is applicable) by ACE Limited and/or any
successor or Affiliate of ACE Limited or any employee benefit plan (or related
trust) maintained by any such entity.

 

(E)                                 The members of the
“Incumbent Board” shall mean the members of the Board of Directors as of the
Effective Date and shall also mean any individual becoming a director after
that date whose election, or nomination for election by the Company
shareholders, was approved by a vote of a least a majority of the directors
then comprising the Incumbent Board; provided, however, that
there shall be excluded for this purpose any such individual whose initial
assumption of office occurs as a result of an actual or publicly threatened
election contest (as such terms are used in Rule 14a-11 promulgated under the
Securities Exchange Act of 1934) or other actual or publicly threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board.

 

12

 

(F)                                 The term “Internal
Reorganization” means a sale-leaseback or other arrangement resulting in the continued
utilization of the assets being sold or otherwise transferred (or the operating
products of such assets) by the Company. 
The term “Internal Reorganization” also means a Corporate Transaction to
which all of paragraphs (I), (II), and (III) below are applicable:

 

(I)                                    All or
substantially all of the individuals and entities who have ownership,
respectively, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction have
ownership of more than fifty percent (50%) of, respectively, the then
outstanding shares of common equity securities and the combined voting power of
the then outstanding Voting Securities entitled to vote generally in the
election of directors, as the case may be, of the ultimate parent entity
resulting from such Corporate Transaction (including, without limitation, an
entity which, as a result of such transaction, has ownership of the Company or
all or substantially all of the assets of the Company either directly or
through one or more subsidiaries) in substantially the same relative
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities, as the case may be.

 

(II)                                No Person (other than
the Company, any Company Plan or related trust, the corporation resulting from
such Corporate Transaction, and any Person having ownership, immediately prior
to such Corporate Transaction, directly or indirectly, of more than twenty-five
percent (25%) of the Outstanding Company Common Shares or the Outstanding
Company Voting Securities, as the case may be) will have ownership of more than
twenty-five percent (25%) of, respectively, the then outstanding common shares
of the ultimate parent entity resulting from such Corporate Transaction or the
combined voting power of the then outstanding Voting Securities of such entity.

 

(III)                            Individuals who were
members of the Incumbent Board immediately prior to the Corporate Transaction
will constitute at least a majority of the members of the board of directors of
the ultimate parent entity resulting from such Corporate Transaction.

 

(G)                                The term “Outstanding
Company Common Shares” as of any date means the then outstanding common shares,
of whatever subclass or series, of the Company.

 

13

 

(H)                               The term “Outstanding
Company Voting Securities” as of any date means the then outstanding Voting
Securities (which shall be counted based on the number of votes that may be
cast per share).

 

(I)                                    The term
“ownership” means beneficial ownership within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934.

 

(J)                                   The term “Person”
means an individual, entity or group as that term is used in
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934.

 

(K)                               The term “Voting
Securities” as of any date means any of the outstanding securities of the
Company entitled to vote generally in the election of the Company’s Board of
Directors.

 

(d)                                 Code.  The term “Code” means the United States
Internal Revenue Code of 1986, as amended. 
A reference to any provision of the Code shall include reference to any
successor provision of the Code.

 

(e)                                  Dollars.  As used in the Plan, the term “dollars” or
numbers preceded by the symbol “$” means amounts in United States dollars.

 

(f)                                    Eligible
Individual.  For purposes of the
Plan, the term “Eligible Individual” means any employee of the Company or a
Subsidiary, and any consultant, director, or other person providing services to
the Company or a Subsidiary; provided, however, that to the extent required by
the Code, an ISO may only be granted to an employee of the Company or a
subsidiary corporation of the Company (as that term is used in section 424(f)
of the Code).  An Award may be granted
to an employee or other individual providing services, in connection with
hiring, retention or otherwise, prior to the date the employee or service
provider first performs services for the Company or the Subsidiaries, provided
that such Awards shall not become vested prior to the date the employee or
service provider first performs such services.

 

(g)                                 Fair Market Value.  Except as otherwise provided by the
Committee, the “Fair Market Value” of a Share as of any date shall be the
closing market composite price for such Share as reported for the New York
Stock Exchange - Composite Transactions on that date or, if the Shares are not
traded on that date, on the next preceding date on which the Shares were
traded.

 

(h)                                 Performance
Measures.  The “Performance
Measures” shall be based on any one or more of the following Company,
Subsidiary, operating unit or division performance measures: gross premiums
written; net premiums written; net premiums earned; net investment income;
losses and loss expenses; underwriting and administrative expenses; operating
expenses; cash flow(s); operating income; profits, earnings before interest and
taxes; net income; stock price; dividends; strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets,
business expansion goals, and goals relating to acquisitions or divestitures;
or any combination thereof.  Each goal
may be expressed on an absolute and/or relative basis, may be based on or
otherwise employ

 

14

 

comparisons based on internal targets, the past performance of the
Company and/or the past or current performance of other companies, and in the
case of earnings-based measures, may use or employ comparisons relating to
capital, shareholders’ equity and/or shares outstanding, investments or to
assets or net assets.

 

(i)                                     Shares.  The term “Shares” means common shares of the
Company.

 

(j)                                     Subsidiaries.  For purposes of the Plan, the term “Subsidiary”
means any corporation, partnership, joint venture or other entity during any
period in which at least a fifty percent voting or profits interest is owned,
directly or indirectly, by the Company (or by any entity that is a successor to
the Company), and any other business venture designated by the Committee in
which the Company (or any entity that is a successor to the Company) has a
significant interest, as determined in the discretion of the Committee.

 

(k)                                  Stock.  The term “Stock” is sometimes used to refer
to common shares of the Company.

 

15

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