Cheniere Energy (LNG)

Accounting and Tax Implications

Our 2008 – 2010 Incentive Plan was designed to provide awards that were performance-based compensation that is fully deductible for federal income tax purposes. However, because the 2008 performance goals were not achieved, the cash bonuses awarded for 2008 did not qualify as performance-based awards under Section 162(m) of the Internal Revenue Code. We will not be able to recognize tax benefits that may otherwise be available to the Company related to the awards made to our executive officers that are subject to the Section 162(m) limitations. In addition, as a result of the forfeiture and cancellation by the officers of their 2005 – 2006 retention stock options and phantom stock grants, in 2008 the Company incurred the remaining compensation expense pursuant to FAS 123(R) related to such awards.

Accounting and Tax Implications

The shares of phantom stock issued to the Executive Officers as part of the 2007 Incentive Plan and 2008 – 2010 Incentive Plan were granted under the 2003 Plan and are designed to be performance-based to meet the requirements of Section 162(m) of the Internal Revenue Code and to be fully deductible for federal income tax purposes. We began expensing equity awards in 2006 in accordance with FAS 123(R). In general, the accounting rules did not impact the types of equity awards granted to plan participants.

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Accounting and Tax Implications

Our annual incentive plan is designed to grant stock awards that are performance-based compensation expense that is fully deductible for federal income tax purposes. However, as previously discussed, the 2006 annual executive incentive awards did not qualify as performance-based incentives and, therefore, are subject to deduction limitations under Section 162(m) of the Code. When the awards vest or are otherwise includible in the taxable compensation of the affected executives, we may not be able to recognize current or future tax benefits that may otherwise be available to the Company related to such awards. We began expensing equity awards in 2006 in accordance with FAS 123(R). In general, the accounting rules did not impact the types of equity awards granted to plan participants.