Collateral Agency Agreement

Exhibit 10.4


EXECUTION COPY


COLLATERAL AGENCY AGREEMENT


among

HSBC BANK USA, NATIONAL ASSOCIATION, in its capacity as Collateral Agent and Securities Intermediary

SOCIc9Tc9 Gc9Nc9RALE,

in its capacity as Administrative Agent


SABINE PASS LNG, L.P.,

as Borrower

Dated as of February 25, 2005


TABLE OF CONTENTS

Page


ARTICLE I DEFINITIONS AND OTHER MATTERS 1

1.01 Definitions 1

1.02 Interpretation 3

1.03 Uniform Commercial Code 4

ARTICLE II THE COLLATERAL AGENT AND THE ESTABLISHMENT OF THE ACCOUNTS 4

2.01 Collateral Agent 4

2.02 The Collateral Accounts 6

2.03 Grant of Lien on Collateral Accounts 8

ARTICLE III PROVISIONS APPLICABLE TO COLLATERAL ACCOUNTS 8

3.01 Permitted Investments 8

3.02 Withdrawal and Transfer Procedure 9

3.03 Transfer of Amounts 12

3.04 Trigger Event 12

3.05 Distribution of Collateral Proceeds 13

3.06 Closing of Collateral Accounts 13

3.07 Disposition of Collateral Accounts upon Termination Date 14

ARTICLE IV THE COLLATERAL ACCOUNTS 14

4.01 Construction Account and Punchlist Retention Subaccount 14

4.02 Revenue Account 17

4.03 Operating Account 20

4.04 Debt Service Accrual Account 20

4.05 Debt Service Reserve Account 21

4.06 Income Tax Reserve Account 21

4.07 Distribution Account 22

4.08 Insurance Proceeds Account 22

ARTICLE V AGREEMENTS WITH AGENTS 27

5.01 Stamp and Other Similar Taxes 27

5.02 Filing Fees, Excise Taxes, Etc. 27

ARTICLE VI THE COLLATERAL AGENT 28

6.01 General 28

6.02 Reliance by the Collateral Agent 28

6.03 Court Orders 29

6.04 Resignation or Removal 29

6.05 Exculpatory Provisions 29

6.06 Fees; Expenses 30

6.07 Reports; Documents 31

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ARTICLE VII MISCELLANEOUS 31

7.01 No Waiver; Remedies Cumulative 31

7.02 Notices 31

7.03 Amendments 31

7.04 Benefit of Agreement; Successors and Assigns 31

7.05 Third-Party Beneficiaries 32

7.06 Counterparts 32

7.07 Effectiveness 32

7.08 Entire Agreement 32

7.09 Severability 32

7.10 Conflict with Other Agreements 32

7.11 Dealings With the Borrower 33

7.12 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial 33

7.13 Termination 33

7.14 Reinstatement 33

7.15 Attorney-In-Fact 34


ATTACHMENTS

SCHEDULE I - Account Names and Numbers

SCHEDULE II - Schedule of Fees

EXHIBIT A - Form of Withdrawal/Transfer Certificate

EXHIBIT B - Form of Distribution Certificate

EXHIBIT C - Form of Secured Party Addition Agreement

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AGREEMENT


COLLATERAL AGENCY AGREEMENT (the " Agreement" ), dated as of February 25, 2005 among SABINE PASS LNG, L.P. , a Delaware limited partnership (the " Borrower" ), HSBC BANK USA, NATIONAL ASSOCIATION, in its capacity as Collateral Agent (the " Collateral Agent" ) and Securities Intermediary (the " Securities Intermediary" ), and SOCIc9Tc9 Gc9Nc9RALE , in its capacity as Administrative Agent (the " Administrative Agent" ).

RECITALS

A. The Borrower has entered into that certain Credit Agreement, dated as of February 25, 2005 (as amended, modified and supplemented from time to time, the " Credit Agreement" ), among the Borrower, the financial institutions from time to time parties thereto (collectively, " Lenders" ), HSBC Bank USA, National Association, as Collateral Agent, and Socie9te9 Ge9ne9rale, as Administrative Agent, pursuant to which the Lenders have agreed to make certain Loans to the Borrower in the amounts specified and on the terms and subject to the conditions set forth therein.


B. It is a condition precedent to the effectiveness of the Credit Agreement that the parties hereto shall have executed and delivered this Agreement.


AGREEMENT


NOW , THEREFORE , in consideration of the foregoing and other good and valid consideration, the receipt and adequacy of which is hereby expressly acknowledged, the parties hereby agree as follows:

ARTICLE I

DEFINITIONS AND OTHER MATTERS 1.01 Definitions . Unless otherwise defined herein, terms defined in Section 1.01 of the Credit Agreement are used herein (including the introductory paragraph and recitals of this Agreement) as defined therein. In addition, for purposes of this Agreement, the following terms shall have the following meanings:

" Agents" means, collectively, the Administrative Agent and the Collateral Agent.

" Agreement" has the meaning assigned to such term in the introductory paragraph hereof.


" Capacity Reservation Fees" shall have the meaning assigned to such term in the Omnibus Agreements.


" Collateral Accounts" means the Collateral Accounts set out in Section 2.02 .

COLLATERAL AGENCY AGREEMENT

" Committed Available Amounts" means (a) cash actually deposited into the Insurance Proceeds Account or the Construction Account, respectively, by any Person or (b) irrevocable commitments to deposit cash into the Insurance Proceeds Account or the Construction Account, respectively, in the form of cash equity contributions to the Borrower by such a Person.


" Construction Account" has the meaning assigned to such term in Section 2.02(a)(i) .


" Construction Payment Subaccount" has the meaning assiged to such term in Section 2.02(a)(x) .

" Debt Service Accrual Account" has the meaning assigned to such term in Section 2.02(a)(v) .

" Debt Service Reserve Account" has the meaning assigned to such term in Section 2.02(a)(iv) .


" Depository Collateral" has the meaning assigned to such term in Section 2.03 .


" Distribution Account" has the meaning assigned to such term in Section 2.02(a)(vii) .

" Distribution Certificate" means a certificate substantially in the form of Exhibit B and delivered by the Borrower pursuant to Section 3.02(c)(ii) .


" Executed Withdrawal/Transfer Certificate" has the meaning assigned to such term in Section 3.02(b) .

" Income Tax Reserve Account" has the meaning assigned to such term in Section 2.02(a)(vi) .

" Insurance Proceeds Account" has the meaning assigned to such term in Section 2.02(a)(ix) .


" Monthly Transfer Date" means the 26 th day of each month or, if such day is not a Business Day, the next succeeding Business Day.


" Operating Account" has the meaning assigned to such term in Section 2.02(a)(iii) .


" Payment Instruction" means an irrevocable written instruction delivered by the Borrower to the Collateral Agent directing that either: (a) a wire transfer be made or (b) a check be issued by the Collateral Agent, in each case from amounts available in cash and standing to the credit of a Collateral Account, such Payment Instruction to specify the amount of funds to be transferred and the Person or account to which such funds are to be transferred, which information and instructions shall be consistent in all material respects with that set out in the Executed Withdrawal/Transfer Certificate which transferred such amounts into such Account.


" Permitted Distribution" has the meaning assigned to such term in Section 4.07(b) . - 2 - COLLATERAL AGENCY AGREEMENT

" Punchlist" has the meaning assigned to such term in the EPC Contract.

" Punchlist Retention Subaccount" has the meaning assigned to such term in Section 2.02(a)(ii) .


" Remedies Direction" means a written notice and instruction to the Collateral Agent from the Administrative Agent (acting on the direction of the Supermajority Lenders directing the Administrative Agent) to take the actions specified therein with respect to a Trigger Event which has occurred and is continuing.


" Required Accrual Amount" means an amount equal to the product of (1) one-sixth (1/6) of the Debt Service in respect of the Secured Obligations payable at the next succeeding Semi-Annual Date or Principal Payment Date (as applicable), multiplied by the number of months since the next preceding Semi-Annual Date or Principal Payment Date, as applicable.

" Restoration Plan" has the meaning set forth in Section 4.08(b)(iii) .

" Restoration Work" has the meaning set forth in Section 4.08(b)(iii) .


" Revenue Account" has the meaning assigned to such term in Section 2.02(a)(viii) .


" Secured Party Addition Agreement" means an agreement substantially in the form of Exhibit C .

" Termination Date" means the date on which the Secured Parties have received final and indefeasible payment in full of all Secured Obligations and all other amounts owing to the Secured Parties under the Financing Documents.


" Trigger Event" means any Event of Default under the Credit Agreement which is designated as a " Trigger Event" by the Administrative Agent in writing to the Borrower and the Collateral Agent.


" Trigger Event Date" has the meaning assigned to such term in Section 3.04(a) .


" Withdrawal Date" means any Monthly Transfer Date or any other date on which a withdrawal of transfer is to be made from a Collateral Account.


" Withdrawal/Transfer Certificate" means a certificate substantially in the form of Exhibit A and delivered by the Borrower pursuant to Section 3.02 .

1.02 Interpretation .

(a) Principles of Construction . The principles of construction and interpretation set forth in Sections 1.02 and 1.03 of the Credit Agreement shall apply to this Agreement as if set forth herein, mutatis mutandis .

- 3 - COLLATERAL AGENCY AGREEMENT (b) Withdrawals to Occur on a Business Day . In the event that any withdrawal, transfer or payment to or from any Collateral Account contemplated under this Agreement shall be required to be made on a day that is not a Business Day, such withdrawal, transfer or payment shall be made on the next succeeding Business Day.

1.03 Uniform Commercial Code . As used herein, the term " UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. All terms defined in the UCC shall have the respective meanings given to those terms in the UCC, except where the context otherwise requires.

ARTICLE II


THE COLLATERAL AGENT AND THE ESTABLISHMENT OF THE ACCOUNTS

2.01 Collateral Agent .

(a) Acceptance of Appointment of the Collateral Agent . The Collateral Agent is hereby appointed to act as Collateral Agent and it hereby agrees to act as Collateral Agent under the express terms of this Agreement. Each of the Administrative Agent and the Borrower hereby acknowledges that the Collateral Agent shall act solely as Collateral Agent under the express terms of this Agreement. The Collateral Agent is, and shall act as, the " Securities Intermediary" (within the meaning of Section 8-102(a)(14)(ii) of the UCC) with respect to the Collateral Accounts and pursuant to this Agreement. (b) Collateral Accounts Established . The Collateral Agent acknowledges, confirms and agrees that it has established the Collateral Accounts as set out in Section 2.02(a) , which shall be maintained in the name of the Borrower but under the exclusive " control" (within the meaning of Section 8-106(d) of the UCC) of the Collateral Agent at all times until the termination of this Agreement.

(c) Confirmation and Agreement . The Collateral Agent acknowledges, confirms and agrees that, as of the Closing Date and as of each date on which any Collateral Account is established pursuant to this Agreement:

(i) each Collateral Account is a " securities account" (within the meaning of Section 8-501 of the UCC) in respect of which the Collateral Agent is a securities intermediary and to the extent of any cash credited to such Collateral Account is a " deposit account" (within the meaning of Section 9-102 of the UCC);

(ii) the Collateral Agent is the " entitlement holder" (within the meaning of 8-102(a)(7) of the UCC) of all " security entitlements" (within the meaning of 8-102(a)(17) of the UCC) carried in or credited to the Collateral Accounts;

- 4 - COLLATERAL AGENCY AGREEMENT (iii) all property delivered to the Collateral Agent pursuant to this Agreement will be promptly credited to a Collateral Account; (iv) all " financial assets" (within the meaning of Section 8-102(a)(9) of the UCC) in registered form or payable to or to the order of and credited to any Collateral Account shall be registered in the name of, payable to or to the order of, or specially endorsed to, the Collateral Agent or in blank, or credited to another securities account maintained in the name of the Collateral Agent; (v) the Collateral Agent shall promptly comply with all written instructions (including instructions directing the disposition of funds or financial assets) and/or " entitlement orders" (within the meaning of Section 8-102(a)(8) of the UCC) originated by the Administrative Agent with respect to any Collateral Account; and

(vi) the Collateral Agent shall not change the name or account number of any Collateral Account without the prior written consent of the other Agents and the Borrower.

(d) Financial Assets Election . The Collateral Agent agrees that each item of property (whether cash, a security, an instrument or obligation, share, participation, interest or other property whatsoever) credited to any Collateral Account shall be treated as a financial asset under Article 8 of the UCC.

(e) Entitlement Orders; Control . The parties to this Agreement hereby agree that until the Collateral Agent' s obligations under this Agreement shall terminate in accordance with the terms hereof, the Collateral Agent shall have " control" (within the meaning of Section 8-106(d) of the UCC) of the Borrower' s security entitlements with respect to the financial assets credited to the Collateral Accounts.

(f) Degree of Care; Liens . The Collateral Agent shall exercise the same degree of care in administering the funds held in the Collateral Accounts and the investments purchased from such funds in accordance with the terms of this Agreement as the Collateral Agent exercises in the ordinary course of its day-to-day business in administering other funds and investments for its own account and as required by applicable law. The Collateral Agent shall perform its obligations hereunder in accordance with generally accepted banking industry standards. The Collateral Agent is not party to and shall not execute and deliver, or otherwise become bound by, any agreement under which the Collateral Agent agrees with any Person to comply with entitlement orders or instructions originated by such Person relating to any of the Collateral Accounts or the security entitlements that are the subject of this Agreement. The Collateral Agent shall not grant or suffer to exist any lien, pledge or security interest in any financial asset that is the subject of any security entitlement that is the subject of this Agreement and shall, if any such lien, pledge or security interest shall nevertheless be created, cause the prompt release or discharge of the same.

- 5 - COLLATERAL AGENCY AGREEMENT (g) Subordination of Lien; Waiver of Set-Off . The financial assets standing to the credit of the Collateral Accounts will not be subject to deduction, set-off, banker' s lien, or any other right in favor of any Person other than the Collateral Agent (except to the extent of returned items and chargebacks either for uncollected checks or other items of payment and transfers previously credited to one or more of the Collateral Accounts, and the Borrower hereby authorizes the Collateral Agent to debit the relevant Collateral Account(s) for such amounts).

(h) No Other Agreements . Neither the Collateral Agent nor the Borrower have entered or will enter into any agreement with respect to any Collateral Account or any security entitlements or any financial assets carried in or credited to any Collateral Account, other than this Agreement and the other Financing Documents.

(i) Notice of Adverse Claims . The Collateral Agent hereby represents that, except for the claims and interests of the Borrower in each of the Collateral Accounts, the Collateral Agent, as of the Closing Date, has no knowledge of, and has received no notice of any claim to, or interest in, any Collateral Account or in any security entitlement or financial asset carried therein or credited thereto. If any Person asserts any lien (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any Collateral Account or in any security entitlement or financial asset carried therein or credited thereto and if the Collateral Agent has notice of such assertion, the Collateral Agent will promptly notify the other Agents and the Borrower thereof.

(j) Rights and Powers of the Collateral Agent . The rights and powers granted to the Collateral Agent by the Secured Parties have been granted in order to perfect the lien of the Secured Parties in the Collateral Accounts and the security entitlements and financial assets carried therein or credited thereto.

2.02 The Collateral Accounts .

(a) Establishment of Collateral Accounts . As of the Closing Date, the Collateral Agent has established the following special, segregated and irrevocable collateral accounts at its offices located in New York City bearing the names and account numbers identified in Schedule I (such accounts, collectively, the " Collateral Accounts" ) (each such Collateral Account being a securities account) each of which shall be maintained at all times by the Collateral Agent until the termination of this Agreement in accordance with Section 7.13 (unless this Agreement otherwise expressly contemplates closure of such Collateral Account prior to the date of the termination of this Agreement):

(i) the Construction Account (the " Construction Account" );

- 6 - COLLATERAL AGENCY AGREEMENT (ii) the Punchlist Retention Subaccount (the " Punchlist Retention Subaccount" ), a sub-account of the Construction Account; (iii) the Operating Account (the " Operating Account" );

(iv) the Debt Service Reserve Account (the " Debt Service Reserve Account" );

(v) the Debt Service Accrual Account (the " Debt Service Accrual Account" );

(vi) the Income Tax Reserve Account (the " Income Tax Reserve Account" );

(vii) the Distribution Account (the " Distribution Account" );

(viii) the Revenue Account (the " Revenue Account" );

(ix) the Insurance Proceeds Account (the " Insurance Proceeds Account" ); and

(x) the Construction Payment Subaccount (the " Construction Payment Subaccount" ).

(b) Account Names and Numbers . The names and account numbers of the Collateral Accounts established hereunder on or prior to the Closing Date are set out on Schedule I . The Collateral Agent shall advise the Agent and the Borrower in writing of the account name and number of any Collateral Account established hereunder by the Collateral Agent and the Borrower, if any, after the Closing Date.

(c) No Other Accounts . The Borrower shall not open or maintain or cause to be opened or maintained with any bank or other financial institution any deposit, savings or other account other than the Collateral Accounts, the account held by the Borrower at JPMorgan Chase (f/k/a Bank One) with the account name of Sabine Pass LNG, LP and account number 653519421, provided that such account shall be closed by the Borrower and the remaining balance transferred to the Construction Account upon the clearance of all checks issued in respect of such account as of the Closing Date and any other accounts expressly permitted by the Financing Documents or otherwise established with the consent of the Collateral Agent.

(d) Collateral Accounts Constitute Collateral .

(i) Each Collateral Account and all amounts from time to time held in such Collateral Account shall be subject to the Lien of the Collateral Agent for the benefit of the Secured Parties.

- 7 - COLLATERAL AGENCY AGREEMENT (ii) Each Collateral Account and all amounts from time to time held in such Collateral Account shall be held in the custody of, and maintained by the Collateral Agent for the purposes and on the express terms set out in this Agreement. All such amounts shall constitute a part of the Depository Collateral and shall not constitute payment of any Secured Obligations or any other obligations of the Borrower until expressly applied thereto in accordance with the provisions of this Agreement or the Credit Agreement.

(e) Standing Instructions . The Borrower and the Administrative Agent hereby irrevocably instruct and authorize the Collateral Agent to deposit funds (promptly upon receipt thereof) into, and transfer and withdraw funds from, the Collateral Accounts in accordance with the terms of this Agreement and the other Financing Documents.

2.03 Grant of Lien on Collateral Accounts . As collateral security for the prompt and complete payment and performance when due of the Secured Obligations, the Borrower has, pursuant to the Security Agreement, assigned, granted and pledged to the Collateral Agent on behalf of and for the benefit of the Secured Parties, a security interest in (a) each Collateral Account and (b) all cash, investments, investment property, securities or other property at any time on deposit in or credited to any Collateral Account, including all income or gain earned thereon and any proceeds thereof (the " Depository Collateral" ).

ARTICLE III

PROVISIONS APPLICABLE TO COLLATERAL ACCOUNTS 3.01 Permitted Investments .

(a)

Permitted Investments . Pending the application of funds in accordance with Articles III and IV , funds held in any Collateral Account shall be invested and reinvested by the Collateral Agent upon written direction of the Borrower (which may be in the form of a standing instruction) only in Permitted Investments, and with respect to those amounts next anticipated to be transferred or withdrawn, having a scheduled maturity no later than such next anticipated cash withdrawal or transfer from such Collateral Account; provided , however , that: (i) upon the receipt by the Borrower of notice of a Trigger Event delivered by the Administrative Agent pursuant to Section 3.04 and unless otherwise directed therein, or (ii) in the event of any failure by the Borrower to so direct the Collateral Agent in writing on or prior to the day on which any funds are (A) received by the Collateral Agent or (B) transferred between Collateral Accounts in accordance with this Agreement as to the investment of such funds, such investments and reinvestments shall be made by the Collateral Agent in Permitted Investments of the type referred to in clause (f) of the definition of " Permitted Investments" . All funds in a Collateral Account that are invested pursuant to this Section 3.01(a) shall be deemed to be held in such Collateral

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Account for purposes of this Agreement and the other Financing Documents and shall constitute part of the Collateral. The Borrower shall bear all risk of loss of capital from investments in Permitted Investments.

(b) Liability of Collateral Agent .

(i) Other than with respect to Permitted Investments required to be invested by the Collateral Agent in accordance with the proviso in Section 3.01(a) , the Collateral Agent shall not have any duty to determine whether any investment or reinvestment of monies in any Collateral Account satisfies the criteria set out in the definition of " Permitted Investment" . (ii) The Collateral Agent shall not be liable for any loss resulting from any investment in any Permitted Investment or the sale, disposition, redemption or liquidation of such investment or by reason of the fact that the proceeds realized in respect of such sale, disposition, redemption or liquidation were less than that which might otherwise have been obtained. (c) Liquidation to Make Disbursements . If and when cash is required for the making of any transfer, disbursement or withdrawal in accordance with Articles III and IV , the Borrower shall cause Permitted Investments to be sold or otherwise liquidated into cash (without regard to maturity) as and to the extent necessary in order to make such transfers, disbursements or withdrawals required pursuant to Articles III and IV by giving written notice of such sale or liquidation to the Collateral Agent. In the event any such investments are redeemed prior to the maturity thereof, the Collateral Agent shall not be liable for any loss or penalties relating thereto.

(d) Income from Investments . The proceeds from the investment of monies in any Collateral Account in Permitted Investments shall be deposited by the Collateral Agent into the Revenue Account on or before the second Business Day following the month in which such interest, gain or other amount is earned and received; provided that for the avoidance of doubt, such proceeds shall consist of interest, gain and other amounts received in respect of an investment of principal and not the principal itself. Any interest, gain or other amount of income earned on Permitted Investments shall be for the account of the Borrower for income tax purposes.

3.02 Withdrawal and Transfer Procedure .

(a) Maintenance of Funds in Accounts; Withdrawals . Until withdrawn or transferred pursuant to and in accordance with this Agreement, any amounts deposited into a Collateral Account (other than income from investments transferred to the Revenue Account pursuant to Section 3.01(d) ) shall be held in such Collateral Account. All withdrawals and transfers from any Collateral Account shall be made in accordance with the provisions of Articles III and IV .

- 9 - COLLATERAL AGENCY AGREEMENT (b) Withdrawal/Transfer Certificate . Except as otherwise expressly provided herein, the Borrower shall not be entitled to request withdrawals or transfers of monies from any Collateral Account without having provided a Withdrawal/Transfer Certificate authorizing such withdrawal and/or transfer. Withdrawals or transfers from any Collateral Account (except as otherwise expressly provided herein) shall be made by the Collateral Agent following receipt of (and in accordance with) a Withdrawal/Transfer Certificate signed by the Borrower and countersigned by the Administrative Agent (an " Executed Withdrawal/Transfer Certificate" ). Each Withdrawal/Transfer Certificate shall request withdrawals and transfers to and from Collateral Accounts in the amounts, at the times and in the order of priority set out in Article IV . (c) Delivery to Agent and Form of Withdrawal/Transfer Certificate . On the Funding Date and no later than five Business Days prior to each Monthly Transfer Date, at least five Business Days prior to the Final Funding Date, the Borrower shall deliver for purposes of any withdrawal or transfer on the next succeeding Withdrawal Date (unless no withdrawal or transfer is anticipated in respect of such Withdrawal Date):

(i) to each Agent a Withdrawal/Transfer Certificate signed by an Authorized Officer of the Borrower specifying: (A) each Collateral Account from which a withdrawal or transfer is requested and, in the case of any transfer, the relevant Collateral Account(s) to which, and/or other Person(s) to whom, such transfer is to be made;

(B) the amount requested to be withdrawn or transferred from each such Collateral Account (and the calculation thereof, if required, in accordance with the relevant provisions of Article IV );

(C) the relevant Wit ...