Document:

exv10w4

 

Exhibit 10.4

TAX SHARING AGREEMENT

BY AND AMONG

PIONEER NATURAL RESOURCES COMPANY

AND

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

                          , 2007

 

 

TAX SHARING AGREEMENT

BY AND AMONG

PIONEER NATURAL RESOURCES COMPANY AND

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

     Tax Sharing Agreement (the “Agreement”), dated this ___day of                     , 2007, by and among
PIONEER NATURAL RESOURCES COMPANY (“Pioneer”), a Delaware corporation, and PIONEER SOUTHWEST ENERGY
PARTNERS L.P. (the “Partnership”), a Delaware limited partnership.

RECITALS

     WHEREAS, Pioneer is the common parent of an affiliated group of corporations within the
meaning of Section 1504(a) of the Code (as defined below), which currently files a consolidated
federal income tax return;

     WHEREAS, the Partnership Group (as defined below) includes various entities that may be
required to join with Pioneer in the filing of a consolidated, combined or unitary state tax
return;

     WHEREAS, the Parties wish to set forth the general principles under which they will allocate
and share various Taxes (as defined below) and related liabilities;

     WHEREAS, Pioneer, on behalf of itself and its present and future subsidiaries other than the
Partnership Group (“Pioneer Group”), and the Partnership, on behalf of itself and its present and
future subsidiaries (the “Partnership Group”), are entering into this Agreement to provide for the
allocation among the Pioneer Group and the Partnership Group of all responsibilities, liabilities
and benefits relating to any Tax for which a Combined Return (as defined herein) is filed for a
taxable period including or beginning on or after the Effective Date (as defined herein) and to
provide for certain other matters;

     NOW, THEREFORE, in consideration of the mutual agreements, provisions, and covenants contained
in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.01 Definitions. The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and the plural forms of the terms defined):

     “Accounting Referee” is defined in Section 6.11 herein.

     “Code” means the Internal Revenue Code of 1986, as amended, or any successor thereto,
as in effect for the taxable period in question.

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     “Combined Group” means a group of corporations or other entities that files a Combined
Return.

     “Combined Return” means any Tax Return (other than a Tax Return for Federal income
taxes) filed on a consolidated, combined (including nexus combination, worldwide combination,
domestic combination, line of business combination or any other form of combination), or unitary
basis that includes activities of any member of the Pioneer Group and any member of the Partnership
Group.

     “Effective Date” means 7:00 a.m. on ___1st, 2007.

     “Final Determination” means the final resolution of any Tax (or other matter) for a
taxable period, including related interest or penalties, that, under applicable law, is not subject
to further appeal, review or modification through proceedings or otherwise, including (i) by the
expiration of a statute of limitations or a period for the filing of claims for refunds, amending
Tax Returns, appealing from adverse determinations, or recovering any refund (including by offset),
(ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which
has become final and unappealable, (iii) by a closing agreement, an accepted offer in compromise,
or a comparable agreement under laws of the particular Tax Authority, (iv) by execution of a form
under the laws of a Tax Authority that is comparable to an Internal Revenue Service Form 870 or
870-AD (excluding, however, with respect to a particular Tax Item for a particular taxable period
any such form that reserves (whether by its terms or by operation of law) the right of the taxpayer
to file a claim for refund and/or the right of the Tax Authority to assert a further deficiency
with respect to such Tax Item for such period), or (v) by any allowance of a refund or credit, but
only after the expiration of all periods during which such refund may be adjusted.

     “Notice” is defined in Section 6.01 herein.

     “Partnership Group” is defined in the Recitals to this Agreement.

     “Partnership Group Combined Tax Liability” means, with respect to any Tax, the
Partnership Group’s liability for such Tax owed with respect to a Combined Return for a taxable
period, as determined under Section 3.02 of this Agreement.

     “Partnership Group Deposit” is defined in Section 3.04 herein.

     “Partnership Group Members” means those entities included in the Partnership Group.

     “Partnership Group Pro Forma Combined Return” means a pro forma Combined Return or
other schedule prepared pursuant to Section 3.02 of this Agreement.

     “Party” means each of Pioneer and the Partnership, and solely for purposes of this
definition, “Pioneer” includes the Pioneer Group and the “Partnership” includes the Partnership
Group. Each of Pioneer and the Partnership shall cause the Pioneer Group and the Partnership
Group, respectively, to comply with this Agreement.

     “Pioneer Group” is defined in the Recitals to this Agreement.

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     “Tax” means any of the Taxes.

     “Tax Attribute” means a Tax Item of a member of the Partnership Group reflected on a
Combined Return that is comparable to one or more of the following attributes with respect to a
Federal income tax consolidated tax return: a net operating loss, a net capital loss, an unused
investment credit, an unused foreign tax credit, an excess charitable contribution, a U.S. federal
minimum tax credit or a U.S. federal general business credit (but not tax basis or earnings and
profits).

     “Tax Authority” means a domestic governmental authority (other than the United States)
or any subdivision, agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or imposition of any Tax
(excluding the U.S. Internal Revenue Service).

     “Tax Controversy” means any audit, examination, dispute, suit, action, litigation or
other judicial or administrative proceeding initiated by Pioneer or the Partnership or any Tax
Authority.

     “Tax Item” means any item of income, gain, loss, deduction or credit, or other item
reflected on a Tax Return or any Tax Attribute.

     “Tax Return” means any return, report, certificate, form or similar statement or
document (including any related or supporting information or schedule attached thereto and any
information return, amended Tax Return, claim for refund or declaration of estimated tax) required
to be supplied to, or filed with, a Tax Authority in connection with the determination, assessment
or collection of any Tax or the administration of any laws, regulations or administrative
requirements relating to any Tax.

     “Taxes” means all forms of taxation, whenever created or imposed, and whether imposed
by a domestic, local, municipal, governmental, state, federation or other body, but excluding taxes
imposed by the United States, and without limiting the generality of the foregoing, shall include
net income, alternative or add-on minimum, gross income, sales, use, ad valorem, gross receipts,
value added, franchise, profits, license, transfer, recording, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profit, custom duty, or other
tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any
related interest, penalties, or other additions to tax, or additional amounts imposed by any such
Tax Authority.

     Any term used but not capitalized herein that is defined in the Code or in the Treasury
Regulations thereunder shall, to the extent required by the context of the provision at issue, have
the meaning assigned to it in the Code or such regulation.

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ARTICLE II

PREPARATION AND FILING OF TAX RETURNS 

     Section 2.01 Manner of Filing.

     (a) For periods that include the Effective Date and periods after the Effective Date, Pioneer
shall have the sole and exclusive responsibility for the preparation and filing of, and shall
prepare and file, all Combined Returns or cause to be prepared and filed all Combined Returns.
Pioneer shall be authorized to take any and all action necessary or incidental to the preparation
and filing of a Combined Return, including, without limitation, (i) making elections and adopting
accounting methods, (ii) filing all extensions of time, including extensions of time for payment of
tax, (iii) filing claims for refund or credit, or (iv) giving waivers or bonds.

     (b) For periods that include the Effective Date and periods after the Effective Date, the
Partnership Group shall have the sole and exclusive responsibility for the preparation and filing
of, and shall prepare and file or cause to be prepared and filed, all Tax Returns of the
Partnership Group Members that are not Combined Returns.

     (c) Pioneer shall have sole discretion to include, or cause to be included, in a Combined
Return for any Tax any member of the Partnership Group for which inclusion in such Combined Return
is elective; provided, however, that the Partnership Group Combined Tax Liability for any period
shall not exceed the aggregate of (x) each such elective Partnership Group Member’s liability for
such Tax for such period, computed as if such Partnership Group Member were not included in such
Combined Return and (y) the Partnership Group Combined Tax Liability calculated for the Partnership
Group Members for which inclusion is not elective. Pioneer shall provide pro forma Tax Returns
pursuant to Section 3.05 of this Agreement to support the calculation of the amount of any decrease
in the Partnership Group Combined Tax Liability pursuant to this Section 2.01(c).

     Section 2.02 Franchise Tax Taxable Period. References to “taxable period” for any
franchise or other doing business Tax shall mean the taxable period during which the income,
operations, assets or capital comprising the base of such Tax is measured, regardless of whether
the right to do business for another taxable period is obtained by the payment of such franchise
Tax.

ARTICLE III

ALLOCATION OF TAXES

     Section 3.01 Liability of the Partnership Group for Combined Taxes. For each Tax for
each taxable period that includes or begins on or after the Effective Date and for which a Combined
Return is filed, the Partnership Group Members included in such Combined Return shall be liable to
Pioneer for an amount equal to the Partnership Group Combined Tax Liability in respect of such Tax.

     Section 3.02 Partnership Group Combined Tax Liability. With respect to each Tax for
each taxable period that includes or begins on or after the Effective Date and for which a

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member of the Partnership Group is included in a Combined Return, the Partnership Group
Combined Tax Liability for such Tax for such taxable period shall be the Tax for such taxable
period as determined on a Partnership Group Pro Forma Combined Return prepared:

     (a) by including only the Tax Items of the members of the Partnership Group that are included
in the Combined Return and computing the liability of the Partnership Group Members for such Tax as
if such Partnership Group Members were included in a separate consolidated or unitary group;

     (b) except as provided in Section 3.02(e) hereof, using all elections, accounting methods and
conventions used on the Combined Return for such period;

     (c) applying the Tax rate in effect for the Combined Return of the Combined Group for such
taxable period;

     (d) assuming that the Partnership Group elects not to carry back any net operating losses; and

     (e) assuming that the Partnership Group’s utilization of any Tax Attribute carryforward or
carryback is limited to the Tax Attributes of the Partnership Group that would be available if the
Partnership Group Combined Tax Liability for each taxable period ending after January 1, 2007 were
determined in accordance with this Section 3.02.

     Section 3.03 Preparation and Delivery of Pro Forma Tax Returns. Not later than 90
days following the date on which a Combined Return is filed with the appropriate Tax Authority,
Pioneer shall prepare and deliver to the Partnership the related Partnership Group Pro Forma
Combined Return calculating the Partnership Group Combined Tax Liability attributable to the period
covered by such filed Combined Return.

     Section 3.04 Payment of Tax. Pioneer shall timely pay (or shall cause to be timely
paid) any Tax reflected on a Combined Return and hold harmless the Partnership for all liability
for such Tax. In the event Pioneer is required to make an estimated payment or deposit of any Tax
of any Combined Group which includes any member of the Partnership Group, Pioneer shall calculate
the portion, if any, of such estimated payment or deposit attributable to the Partnership Group
using a methodology similar to that described in Section 3.02 (the “Partnership Group Deposit”) and
shall present such calculation to the Partnership. Within 5 days thereafter, the Partnership shall
pay the Partnership Group Deposit to Pioneer. Within 30 days after delivery by Pioneer of a
Partnership Group Pro Forma Combined Return to the Partnership calculating the Partnership Group
Combined Tax Liability with respect to a Combined Return, the Partnership shall pay to Pioneer such
Partnership Group Combined Tax Liability less the amount of any Partnership Group Deposit relating
to the same Combined Return.

     Section 3.05 Subsequent Changes in Treatment of Tax Items. With respect to any
Combined Return for any taxable period beginning on or after the Effective Date, in the event of a
change in the treatment of any Tax Item of any member of a Combined Group as a result of a Final
Determination, within 30 days following such Final Determination (i) Pioneer shall calculate the
change, if any, to the Partnership Group Combined Tax Liability resulting from such change, (ii)
Pioneer shall pay any decrease in the Partnership Group Combined Tax

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Liability to the Partnership, and (iii) the Partnership shall pay any increase in the
Partnership Group Combined Tax Liability to Pioneer.

ARTICLE IV

CONTROL OF TAX PROCEEDINGS; COOPERATION AND EXCHANGE OF INFORMATION

     Section 4.01 Control of Proceedings. Except as provided in this Article IV, Pioneer
shall have full responsibility and discretion in handling, settling or contesting any Tax
Controversy involving a Tax Return for which it has filing responsibility under this Agreement as
well as all Tax Returns for all taxable periods ending before the Effective Date. The Partnership
shall have full responsibility and discretion in handling, settling or contesting any Tax
Controversy involving a Tax Return for which it has filing responsibility under this Agreement.
Except as otherwise provided in this Article IV, any costs incurred in handling, settling or
contesting any Tax Controversy shall be borne by the Party having full responsibility and
discretion thereof.

     Section 4.02 Cooperation and Exchange of Information.

     (a) Each Party shall cooperate fully at such time and to the extent reasonably requested by
any other Party in connection with the preparation and filing of any Tax Return or claim for
refund, or the conduct of any audit, dispute, proceeding, suit or action concerning any issues or
other matters considered in this Agreement. Such cooperation shall include, without limitation,
the following: (i) the retention and provision on demand of Tax Returns, books, records (including
those concerning ownership and Tax basis of property which a Party may possess), documentation or
other information relating to the Tax Returns, including accompanying schedules, related
workpapers, and documents relating to rulings or other determinations by Taxing Authorities, until
the expiration of the applicable statute of limitations (giving effect to any extension, waiver or
mitigation thereof); (ii) the provision of additional information, including an explanation of
material provided under clause (i) of this Section 4.02(a), to the extent such information is
necessary or reasonably helpful in connection with the foregoing; (iii) the execution of any
document that may be necessary or reasonably helpful in connection with the filing of a Tax Return
by Pioneer, the Partnership or of their respective subsidiaries, or in connection with any audit,
dispute, proceeding, suit or action; and (iv) such Party’s commercially reasonable efforts to
obtain any documentation from a governmental authority or a third party that may be necessary or
reasonably helpful in connection with any of the foregoing.

     (b) Each Party shall make its employees and facilities available on a reasonable and mutually
convenient basis in connection with any of the foregoing matters.

     (c) If any Party fails to provide any information requested pursuant to Section 4.02 hereof
within a reasonable period, as determined in good faith by the Party requesting the information,
then the requesting Party shall have the right to engage a public accounting firm to gather such
information, provided that 30 days’ prior written notice is given to the unresponsive Party. If
the unresponsive Party fails to provide the requested information within 30 days of

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receipt of such notice, then such unresponsive Party shall permit the requesting Party’s
public accounting firm full access to all appropriate records or other information as reasonably
necessary to comply with this Section 4.02 and shall reimburse the requesting Party or pay directly
all costs connected with the requesting Party’s engagement of the public accounting firm.

ARTICLE V

WARRANTIES AND REPRESENTATIONS; PAYMENT OBLIGATIONS

     Section 5.01 Warranties and Representations Relating to Actions of Pioneer and the
Partnership. Each of Pioneer and the Partnership warrants and represents to the other that:

     (a) in the case of Pioneer, it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite power to carry out the
transactions contemplated by this Agreement;

     (b) in the case of the Partnership, it is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware and has all requisite power
to carry out the transactions contemplated by this Agreement;

     (c) it has duly and validly taken all action necessary to authorize the execution, delivery
and performance of this Agreement and the consummation of the transactions contemplated hereby;

     (d) this Agreement has been duly executed and delivered by it and constitutes its legal, valid
and binding obligation enforceable in accordance with its terms subject, as to the enforcement of
remedies, to (i) applicable bankruptcy, reorganization, insolvency, moratorium or other similar
laws affecting the enforcement of creditors’ rights generally from time to time in effect and (ii)
to general principles of equity, whether enforcement is sought in a proceeding at law or in equity;
and

     (e) the execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, or the compliance with any of the provisions of this Agreement will not (i)
conflict with or result in a breach of any provision of its certificate of incorporation, by-laws,
certificate of limited partnership, limited partnership agreement or general partnership agreement,
(ii) breach, violate or result in a default under any of the terms of any agreement or other
instrument or obligation to which it is a party or by which it or any of its properties or assets
may be bound, or (iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to it or affecting any of its properties or assets.

     Section 5.02 Calculation of Payment Obligations. Except as otherwise provided under
this Agreement, to the extent that the payor Party has a payment obligation to the payee Party
pursuant to this Agreement, the payee Party shall provide the payor Party with its calculation of
the amount of such obligation. The documentation of such calculation shall provide sufficient
detail to permit the payor Party to reasonably understand the calculation. All payment obligations
shall be made to the payee Party or to the appropriate Tax Authority as specified by the payee
Party within 30 days after delivery by the payee Party to the payor Party of written

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notice of a payment obligation. Any disputes with respect to payment obligations shall be
resolved in accordance with Section 6.11 below.

     Section 5.03 Prompt Performance. All actions required to be taken by any Party under
this Agreement shall be performed within the time prescribed for performance in this Agreement, or
if no period is prescribed, such actions shall be performed promptly.

     Section 5.04 Interest. Payments pursuant to this Agreement that are not made within
the period prescribed therefor in this Agreement shall bear interest (compounded daily) from and
including the date immediately following the last date of such period through and including the
date of payment at a rate equal to the Federal short-term rate or rates established pursuant to
Section 6621 of the Code for the period during which such payment is due but unpaid.

     Section 5.05 Tax Records. The Parties to this Agreement hereby agree to retain and
provide on proper demand by any Tax Authority (subject to any applicable privileges) the books,
records, documentation and other information relating to any Tax Return until the later of (a) the
expiration of the applicable statute of limitations (giving effect to any extension, waiver or
mitigation thereof), (b) the date specified in an applicable records retention agreement entered
into with a Tax Authority, (c) a Final Determination made with respect to such Tax Return and (d)
the final resolution of any claim made under this Agreement for which such information is relevant.

     Section 5.06 Continuing Covenants. Each Party agrees (1) not to take any action
reasonably expected to result in a new or changed Tax Item that is detrimental to any other Party
and (2) to take any action reasonably requested by any other Party that would reasonably be
expected to result in a new or changed Tax Item that produces a benefit or avoids a detriment to
such other Party; provided that such action does not result in any additional cost not fully
compensated for by the requesting Party. The Parties hereby acknowledge that the preceding
sentence is not intended to limit, and therefore shall not apply to, the rights of the Parties with
respect to matters otherwise covered by this Agreement.

ARTICLE VI

MISCELLANEOUS PROVISIONS

     Section 6.01 Notice. Any notice, demand, claim, or other communication required or
permitted to be given under this Agreement (a “Notice”) shall be in writing and may be personally
served provided a receipt is obtained therefor, or may be sent by certified mail return receipt
requested postage prepaid, to the Parties at the following addresses (or at such other address as
one Party may specify by notice to any other Party):

	 	 	 
	Pioneer at:
	 	Pioneer Natural Resources Company
	 
	 	5205 N. O’Connor Blvd., Suite 200
	 
	 	Irving, Texas 75039
	 
	 	Phone:  (972) 444-9001
	 
	 	Fax:  (972) 969-3587
	 
	 	Attention:  General Counsel

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	Partnership at:
	 	Pioneer Southwest Energy Partners L.P.
	 
	 	c/o Pioneer Natural Resources GP LLC
	 
	 	5205 North O’Connor Blvd., Suite 200
	 
	 	Irving, Texas  75039-3746
	 
	 	Phone:  (972) 444-9001
	 
	 	Facsimile:  (972) 969-3552
	 
	 	Attention: Secretary

     A Notice which is delivered personally shall be deemed given as of the date specified on the
written receipt therefor. A Notice mailed as provided herein shall be deemed given on the third
business day following the date so mailed. Notification of a change of address may be given by any
Party to another in the manner provided in this Section 6.01 for providing a Notice.

     Section 6.02 Required Payments. Unless otherwise provided in this Agreement, any
payment of Tax required shall be due within 30 days of a Final Determination of the amount of such
Tax.

     Section 6.03 Injunctions. The Parties acknowledge that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in accordance with its
specific terms or were otherwise breached. The Parties hereto shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court having jurisdiction, such remedy being in
addition to any other remedy to which they may be entitled at law or in equity.

     Section 6.04 Further Assurances. Subject to the provisions hereof, the Parties hereto
shall make, execute, acknowledge and deliver such other instruments and documents, and take all
such other actions, as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of the Parties shall, in connection with entering into this Agreement, perform its
obligations hereunder and take any and all actions relating hereto, comply with all applicable
laws, regulations, orders, and decrees, obtain all required consents and approvals and make all
required filings with any governmental agency, other regulatory or administrative agency,
commission or similar authority and promptly provide the other Parties with all such information as
such Parties may reasonably request in order to be able to comply with the provisions of this
sentence.

     Section 6.05 Parties in Interest. Except as herein otherwise specifically provided,
nothing in this Agreement expressed or implied is intended to confer any right or benefit upon any
person, firm or corporation other than the Parties and their respective successors and permitted
assigns.

     Section 6.06 Setoff. Except as provided by Section 2.01(c) of this Agreement, all
payments to be made under this Agreement shall be made without setoff, counterclaim or withholding,
all of which are expressly waived.

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     Section 6.07 Change of Law. If, due to any change in applicable law or regulations or
the interpretation thereof by any court of law or other governing body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this Agreement or any
transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall
use their best efforts to find and employ an alternative means to achieve the same or substantially
the same result as that contemplated by such provision.

     Section 6.08 Termination and Survival. Notwithstanding anything in this Agreement to
the contrary, this Agreement shall remain in effect and its provisions shall survive for the full
period of all applicable statutes of limitation (giving effect to any extension, waiver or
mitigation thereof) or until otherwise agreed to in writing by Pioneer and the Partnership, or
their successors.

     Section 6.09 Amendments; No Waivers.

     (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment
or waiver is in writing and signed, in the case of an amendment, by Pioneer and the Partnership, or
in the case of a waiver, by the Party against whom the waiver is to be effective.

     (b) No failure or delay by any Party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or privilege.

     Section 6.10 Governing Law and Interpretation. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware.

     Section 6.11 Resolution of Certain Disputes. Any disagreement between the Parties
with respect to any matter that is the subject of this Agreement, including, without limitation,
any disagreement with respect to any calculation or other determinations by Pioneer hereunder,
which is not resolved by mutual agreement of the Parties, shall be resolved by a nationally
recognized independent accounting firm chosen by and mutually acceptable to the Parties hereto (an
“Accounting Referee”). Such Accounting Referee shall be chosen by the Parties within fifteen (15)
business days from the date on which one Party serves written notice on another Party requesting
the appointment of an Accounting Referee, provided that such notice specifically describes the
calculations to be considered and resolved by the Accounting Referee. In the event the Parties
cannot agree on the selection of an Accounting Referee, then the Accounting Referee shall be any
office or branch of the public accounting firm of PricewaterhouseCoopers. The Accounting Referee
shall resolve any such disagreements as specified in the notice within 30 days of appointment;
provided, however, that no Party shall be required to deliver any document or take any other action
pursuant to this Section 6.11 if it determines that such action would result in the waiver of any
legal privilege or any detriment to its business. Any resolution of an issue submitted to the
Accounting Referee shall be final and binding on the Parties hereto without further recourse. The
Parties shall share the costs and fees of the Accounting Referee equally.

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     Section 6.12 Confidentiality. Except to the extent required to protect a Party’s
interests in a Tax Controversy, each Party shall hold and shall cause its consultants and advisors
to hold in strict confidence, unless compelled to disclose by judicial or administrative process
or, in the opinion of its counsel, by other requirements of law, all information (other than any
such information relating solely to the business or affairs of such Party) concerning another Party
or its representatives pursuant to this Agreement (except to the extent that such information can
be shown to have been (i) previously known by the Party to which it was furnished, (ii) in the
public domain through no fault of such Party, or (iii) later lawfully acquired from other sources
by the Party to which it was furnished), and each Party shall not release or disclose such
information to any other person, except its auditors, attorneys, financial advisors, bankers and
other consultants and advisors who shall be advised of the provisions of this Agreement. Each
Party shall be deemed to have satisfied its obligation to hold confidential information concerning
or supplied by another Party if it exercises the same care as it takes to preserve confidentiality
for its own similar information.

     Section 6.13 Costs, Expenses and Attorneys’ Fees. Except as expressly set forth in
this Agreement, each Party shall bear its own costs and expenses incurred pursuant to this
Agreement. In the event a Party to this Agreement brings an action or proceeding for the breach or
enforcement of this Agreement, the prevailing party in such action, proceeding, or appeal, whether
or not such action, proceeding or appeal proceeds to final judgment, shall be entitled to recover
as an element of its costs, and not as damages, such reasonable attorneys’ fees as may be awarded
in the action, proceeding or appeal in addition to whatever other relief the prevailing party may
be entitled. For purposes of this Section 6.13, the “prevailing party” shall be the Party who is
entitled to recover its costs; a Party not entitled to recover its costs shall not recover
attorneys’ fees. No sum for attorneys’ fees shall be counted in calculating the amount of the
judgment for purposes of determining whether a Party is entitled to recover its costs or attorneys’
fees.

     Section 6.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

     Section 6.15 Severability. The Parties hereby agree that, if any provision of this
Agreement should be adjudicated to be invalid or unenforceable, such provision shall be deemed
deleted herefrom with respect, and only with respect, to the operation of such provision in the
particular jurisdiction in which such adjudication was made, and only to the extent of the
invalidity, and any such invalidity or unenforceability in a particular jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. All other remaining
provisions of this Agreement shall remain in full force and effect for the particular jurisdiction
and all other jurisdictions.

     Section 6.16 Entire Agreement.

     (a) This Agreement contains the entire agreement between the Parties with respect to the
subject matter hereof and supersedes all other agreements, whether or not written, in respect of
any Tax between the Pioneer Group and the Partnership Group.

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     (b) In the event of any conflict or inconsistency between the provisions of this Agreement and
the provisions of any other agreement between the Pioneer Group and the Partnership Group the
provisions of this Agreement shall take precedence and to such extent shall be deemed to supersede
such conflicting provisions under the other agreement.

     Section 6.17 Assignment. This Agreement is being entered into by Pioneer and the
Partnership on behalf of themselves and each member of the Pioneer Group and the Partnership Group.
This Agreement shall constitute a direct obligation of each such member and shall be deemed to
have been readopted and affirmed on behalf of any entity that becomes a member of the Pioneer Group
or the Partnership Group in the future. Each of Pioneer and the Partnership hereby guarantee the
performance of all actions, agreements and obligations provided for under this Agreement of each
member of the Pioneer Group and the Partnership Group, respectively. Each of Pioneer and the
Partnership shall, upon the written request of the other, cause any of their respective group
members to formally execute this Agreement. This Agreement shall be binding upon, and shall inure
to the benefit of, the successors, assigns and persons controlling any of the entities bound hereby
for so long as such successors, assigns or controlling persons are members of the Pioneer Group or
the Partnership Group or their successors and assigns.

     Section 6.18 Fair Meaning. This Agreement shall be construed in accordance with its
fair meaning and shall not be construed strictly against the drafter.

     Section 6.19 Titles and Headings. Titles and headings to sections herein are inserted
for the convenience of reference only and are not intended to be a part or to affect the meaning or
interpretation of this Agreement.

     Section 6.20 Construction. In this Agreement, unless the context otherwise requires
the terms “herein,” “hereof,” and “hereunder” refer to this Agreement.

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     IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Agreement as of the
day and year first above written.

	 	 	 	 	 	 	 
	 	 	PIONEER NATURAL RESOURCES COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	PIONEER SOUTHWEST ENERGY PARTNERS L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Pioneer Natural Resources GP LLC, its

general partner	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Richard P. Dealy	 	 
	 

	 	 	 	Executive Vice President, Chief Financial
Officer, Treasurer and Director
	 	 

-13-exv10w5

 

Exhibit 10.5

[FORM]

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

2007 LONG TERM INCENTIVE PLAN

RESTRICTED UNIT AGREEMENT

FOR

NONEMPLOYEE DIRECTORS

(INITIAL AWARD)

     This Restricted Unit Agreement (this “Agreement”) is made and entered into by and between
PIONEER NATURAL RESOURCES GP LLC, a Delaware limited liability company (the “Company”), and
                     (the “Director”). This Agreement is entered into as of the ___day of
                    , 200___(the “Date of Grant”). Capitalized terms used in this Agreement but not
otherwise defined herein shall have the meanings ascribed to such terms in the Plan (as defined
below), unless the context requires otherwise.

WITNESSETH:

     WHEREAS, the Company has adopted the PIONEER SOUTHWEST ENERGY PARTNERS L.P. 2007 LONG TERM
INCENTIVE PLAN (the “Plan”) to attract, retain and motivate employees, directors and consultants;
and

     WHEREAS, the Board of Directors of the Company (the “Board”) has authorized the grant to its
directors of restricted units of PIONEER SOUTHWEST ENERGY PARTNERS L.P. (the “Partnership”) as part
of the directors’ compensation for service as members of the Board.

     NOW, THEREFORE, in consideration of the Director’s agreement to serve as a member of the
Board, the Director and the Company agree as follows:

     SECTION 1. Grant.

     The Company hereby grants to the Director as of the Date of Grant an award of                      Units,
subject to the terms and conditions set forth in this Agreement, including, without limitation,
those restrictions described in Section 2 (the “Restricted Units”).

     SECTION 2. Restricted Units.

     The Restricted Units are restricted in that they may be forfeited to the Company and in that
they may not, except as otherwise provided in Section 5, be transferred or otherwise disposed of by
the Director until such restrictions are removed or expire as described in Section 4 of this
Agreement. The Company shall issue in the Director’s name the Restricted Units and retain the
Restricted Units until the restrictions on such Restricted Units expire or until the Restricted
Units are forfeited as described in Section 4 of this Agreement. The Director agrees that the
Company will hold the Restricted Units pursuant to the terms of this Agreement until such time as
the Restricted Units are either delivered to the Director or forfeited pursuant to this Agreement.

 

 

     SECTION 3. Rights of Director; Unit Distribution Rights.

     Effective as of the Date of Grant, the Director shall be treated for all purposes as a unit
holder with respect to all of the Restricted Units granted to him pursuant to Section 1 (except
that the Director shall not be treated as the owner of the Units for federal income tax purposes
until the Restricted Units vest (unless the Director makes an election under section 83(b) of the
Code, in which case the Director shall be treated as the owner of the Units for all purposes on the
Date of Grant)) and shall, except as provided herein, have all of the rights and obligations of a
unit holder with respect to all such Restricted Units, including any right to vote with respect to
such Restricted Units and to receive any UDRs thereon if, as, and when declared and paid by the
Partnership. Notwithstanding the preceding provisions of this Section 3, the Restricted Units
shall be subject to the restrictions described herein, including, without limitation, those
described in Section 2.

     SECTION 4. Forfeiture and Expiration of Restrictions.

     (a) Vesting Schedule. Subject to the terms and conditions of this Agreement, the restrictions
described in Section 2 shall lapse and the Restricted Units shall be fully vested and
nonforfeitable (“Vested Units”) in accordance with the following schedule, provided the Director
has remained a member of the Board, without interruption, from the Date of Grant through the
applicable vesting date:

	 	 	 
	 	 	Cumulative Percentage of
	Vesting Date	 	Restricted Units Vested
	First Anniversary of Date of Grant
	 	33.33 %
	Second Anniversary of Date of Grant
	 	66.66 %
	Third Anniversary of Date of Grant
	 	100.0 %

To the extent that application of the cumulative vesting percentage set forth above for an
applicable vesting date would result in the Director becoming vested in a fractional number of
Restricted Units, the number of Restricted Units vested shall be rounded down to the nearest whole
Restricted Unit.

     (b) Termination of Board Membership.

     (i) Death or Disability. Notwithstanding any provision of the Plan or this Agreement
to the contrary, upon termination of the Director’s membership on the Board due to death or
disability (as such term is defined in section 409A of the Code and the regulations
promulgated thereunder), all of the Restricted Units shall become immediately vested and
nonforfeitable.

     (ii) Other Termination. If the Director’s membership on the Board terminates for any
reason (other than death or disability), including but not limited to by reason of

2

 

Director’s retirement, resignation or removal from the Board, then that portion, if
any, of the Restricted Units for which restrictions have not lapsed as of the date of such
termination shall become null and void; provided, however, that the portion, if any, of the
Restricted Units for which restrictions have expired as of the date of such termination
shall survive the termination.

     (c) Change in Control. In the event of a Change in Control before lapse of all restrictions
pursuant to Section 4(a) above, all restrictions described in Section 2 shall lapse and all
Restricted Units granted pursuant to this Agreement shall become immediately vested and
nonforfeitable and the Company shall deliver the Vested Units (or the amount of cash, other
property or securities, if any, equal to the amount that would have been attained by the Director
if he were a unit holder as of the date of the occurrence of such event) to the Director as soon as
practicable thereafter.

     SECTION 5. Limitations on Transfer.

     The Director agrees that he shall not dispose of (meaning, without limitation, sell, transfer,
pledge, exchange, hypothecate or otherwise dispose of) any Restricted Units hereby acquired prior
to the applicable vesting date. Any attempted disposition of the Restricted Units in violation of
the preceding sentence shall be null and void. Notwithstanding the foregoing, part or all of the
Restricted Units or rights under this Agreement may be transferred to a spouse pursuant to a
domestic relations order issued by a court of competent jurisdiction; provided, however, that such
Restricted Units shall continue to be held pursuant to Section 2 of this Agreement, and the
transferee under the domestic relations order shall agree that the Restricted Units so transferred
shall continue to be subject to the terms of this Agreement, including forfeiture in accordance
with Sections 4(a) and (b) of this Agreement.

     SECTION 6. Nontransferability of Agreement.

     This Agreement and all rights under this Agreement shall not be transferable by the Director
other than by will or pursuant to applicable laws of descent and distribution. Any rights and
privileges of the Director in connection herewith shall not be transferred, assigned, pledged or
hypothecated by the Director or by any other person or persons, in any way, whether by operation of
law, or otherwise, and shall not be subject to execution, attachment, garnishment or similar
process. In the event of any such occurrence, the Restricted Units shall automatically be
forfeited. Notwithstanding the foregoing, all or some of the Restricted Units or rights under this
Agreement may be transferred to a spouse pursuant to a domestic relations order issued by a court
of competent jurisdiction, subject to the limitations on such transfer described in Section 5.

     SECTION 7. Adjustment of Restricted Units.

     The number of Restricted Units granted to the Director pursuant to this Agreement shall be
adjusted to reflect distributions of the Partnership paid in units, unit splits or other changes in
the capital structure of the Partnership, all in accordance with the Plan. All provisions of this
Agreement shall be applicable to such new or additional or different units or securities
distributed or issued pursuant to the Plan to the same extent that such provisions are applicable
to the units with respect to which they were distributed or issued.

3

 

     SECTION 8. Delivery of Vested Units.

     Promptly following the expiration of the restrictions on the Restricted Units as contemplated
in Section 4 of this Agreement, and subject to Section 9, the Company shall cause to be issued and
delivered to the Director or the Director’s designee the number of Restricted Units as to which
restrictions have lapsed, free of any restrictive legend relating to the lapsed restrictions, and
shall pay to the Director any previously unpaid UDRs distributed with respect to the Restricted
Units. Neither the value of the Restricted Units nor the UDRs shall bear any interest owing to the
passage of time.

     SECTION 9. Securities Act.

     The Company shall have the right, but not the obligation, to cause the Restricted Units to be
registered under the appropriate rules and regulations of the Securities and Exchange Commission.
The Company shall not be required to deliver any Units hereunder if, in the opinion of counsel for
the Company, such delivery would violate the Securities Act of 1933 or any other applicable federal
or state securities laws or regulations.

     SECTION 10. Copy of Plan.

     By the execution of this Agreement, the Director acknowledges receipt of a copy of the Plan.
If any provision of this Agreement is held to be illegal, invalid or unenforceable under any
applicable law, then such provision will be deemed to be modified to the minimum extent necessary
to render it legal, valid and enforceable; and if such provision cannot be so modified, then this
Agreement will be construed as if not containing the provision held to be invalid, and the rights
and obligations of the parties will be construed and enforced accordingly.

     SECTION 11. Notices.

     Whenever any notice is required or permitted hereunder, such notice must be in writing and
personally delivered or sent by mail. Any such notice required or permitted to be delivered
hereunder shall be deemed to be delivered on the date on which it is personally delivered or,
whether actually received or not, on the third business day (on which banking institutions in the
State of Texas are open) after it is deposited in the United States mail, certified or registered,
postage prepaid, addressed to the person who is to receive it at the address which such person has
theretofore specified by written notice delivered in accordance herewith. The Company or the
Director may change at any time and from time to time by written notice to the other, the address
which it or he previously specified for receiving notices. The Company and the Director agree that
any notices shall be given to the Company or to the Director at the following addresses:

	 	 	 	 	 
	 

	 	Company:
	 	Pioneer Natural Resources GP LLC
	 

	 	 	 	Attn: General Counsel
	 

	 	 	 	5205 N. O’Connor Blvd., Suite 200
	 

	 	 	 	Irving, Texas 75039
	 

	 	 	 	Phone: (972) 444-9011
	 

	 	 	 	Fax: (972) 969-3587
	 
	 	 	 	 
	 

	 	Director:
	 	At Director’s current address as shown in the
Company’s records.

4

 

     SECTION 12. General Provisions.

     (a) Administration. This Agreement shall at all times be subject to the terms and conditions
of the Plan. The Committee shall have sole and complete discretion with respect to all matters
reserved to it by the Plan and decisions of the majority of the Committee with respect thereto and
with respect to this Agreement shall be final and binding upon the Director and the Company. In
the event of any conflict between the terms and conditions of this Agreement and the Plan, the
provisions of the Plan shall control.

     (b) Continuation as Director. This Agreement shall not be construed to confer upon the
Director any right to continue to serve as a member of the Board.

     (c) Governing Law. This Agreement shall be interpreted and administered under the laws of the
State of Delaware, without giving effect to any conflict of laws provisions.

     (d) Amendments. This Agreement may be amended only by a written agreement executed by the
Company and the Director, except that the Committee may unilaterally waive any conditions or rights
under, amend any terms of, or alter this Agreement provided no such change (other than pursuant to
Section 7(b) of the Plan) materially reduces the rights or benefits of the Director with respect to
the Restricted Units without his consent.

     (e) Binding Effect. This Agreement shall be binding upon and inure to the benefit of any
successor or successors of the Company and upon any person lawfully claiming under the Director.

     (f) Entire Agreement. This Agreement constitutes the entire agreement of the parties with
regard to this subject matter hereof, and contains all the covenants, promises, representations,
warranties and agreements between the parties with respect to the Restricted Units granted hereby.
Without limiting the scope of the preceding sentence, all prior understandings and agreements, if
any, among the parties hereto relating to the subject matter hereof are hereby null and void and of
no further force and effect.

     (g) No Liability for Good Faith Determinations. The Partnership, the Company, Pioneer Natural
Resources Company (“Pioneer”), and Pioneer Natural Resources USA, Inc. (“Pioneer USA”), and the
members of the Committee, the Board and the Pioneer Board shall not be liable for any act, omission
or determination taken or made in good faith with respect to this Agreement or the Restricted Units
granted hereunder.

     (h) No Guarantee of Interests. The Board, the Partnership, Pioneer, Pioneer USA and the
Company do not guarantee the Units from loss or depreciation.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

5

 

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officer
thereunto duly authorized, and the Director has set his hand as to the date and year first above
written.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	PIONEER NATURAL RESOURCES GP LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Director	 	 	 	 

6

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