C-CORP CONVERSION FAQS

Why is Hi-Crush pursuing a conversion from an MLP to a C-Corp?
Our intention to covert from a master limited partnership (“MLP”) to a C-Corporation (“C-Corp”) is driven by three main factors, including improvements in our cost of capital, liquidity through a broader base of potential investors, and tax alignment, all of which we believe provide immediate and long-term benefits to investors.
 
  • What do you mean by improved cost of capital?
  • Conversion to a C-Corp should result in a lower cost of capital for Hi-Crush. The MLP structure comes with the expectation of paying out a significant portion of cash flows to unitholders through quarterly distributions, and to the holders of incentive distribution rights (“IDRs”), driving a higher cost of capital. In addition, MLPs typically have funded growth externally through equity offerings and debt issuances. These expectations can result in reduced financial flexibility and limitations on our ability to grow. As part of our path towards conversion, we recently eliminated the IDRs previously owned by our sponsor. Under the C-Corp structure, we’d benefit from a more flexible set of capital return expectations, and the ability to fund growth through internally generated cash flow rather than reliance on external sources.
 
  • What do you mean by improved liquidity through a broader base of potential investors?
  • As a C-Corp, we expect to broaden our potential base of investors by making it easier to invest in our equity. Our current status as an MLP precludes certain investors from investing in our units, and may limit other pools of potential investors due to a more involved tax reporting process, including K-1’s. We expect that conversion to a C-Corp will improve the trading liquidity for our equity.
 
  • What do you mean by improved tax alignment?
  • Since third quarter of 2017, we have laid out our long-term strategy of pivoting our business to focus more heavily on logistics and the movement and management of sand. As part of this evolution in our business and its strategy, the conversion to a C-Corp makes sense from several standpoints, including governance and cost of capital. This is a tactical move to position the business for long-term strategic success.
Why is Hi-Crush undergoing the conversion process now?
Since third quarter of 2017, we have laid out our long-term strategy of pivoting our business to focus more heavily on logistics and the movement and management of sand. As part of this evolution in our business and its strategy, the conversion to a C-Corp makes sense from several standpoints, including governance and cost of capital. This is a tactical move to position the business for long-term strategic success.
What are the benefits of conversion for the Company?
Enables diversification and better aligns corporate structure with business model
  • Adapts to evolving nature of Hi-Crush’s business and aligns with growing focus on logistics and last mile services by eliminating qualifying income constraints
Enhances growth potential
  • Better supports pursuit of strategic and accretive acquisitions with a greater focus on complementary business operations; flexibility to fund organic growth
Streamlines corporate governance
  • Establishes greater assurance, stability and clarity for Board and Management when taking corporate actions
Improves access to capital markets and expansion of investor base with simpler, well-understood structure
  • Greater trading liquidity combined with a broader array of potential investors; could enable access to lower cost of capital to fund future growth
Superior environment for the future of Hi-Crush
  • C-Corp structure provides healthier and more supportive environment to achieve future growth and execute long-term business plans; allows for better valuation comparability to direct public peers
Improves ability to attract and retain directors
  • Larger pool of directors familiar with C-Corp structure; provides directors with greater predictability and responsiveness to corporate needs
What are the benefits of conversion for me?
Investment in a company with a structure better aligned to support and facilitate future growth and value creation
  • Adapts structure to evolving nature of Hi-Crush’s business and aligns with growing focus on logistics and last mile services by eliminating qualifying income constraints
Investors are not taxed on corporate income if no dividends are paid
  • MLP structure may result in taxable income to unitholders regardless of level of cash distributions paid
Enhanced corporate governance benefits stockholders
  • Provides valuable governance protections and enhanced stockholder rights; directors and officers subject to corporate fiduciary duties; reduces structural complexities; streamlines corporate governance
Reduces burdens of tax reporting
  • Greatly simplifies U.S. federal and state income tax reporting requirements for unitholders through elimination of K-1 reporting in multiple jurisdictions
No tax liability from conversion event expected
  • Conversion structure not expected to result in a taxable event for our unitholders
What is the expected timeline to complete a conversion to C-Corp?
We expect to complete the conversion process in the first half of 2019.
What major steps are remaining in completing the conversion process?
There are several key steps to be completed prior to conversion, including, but not limited to, the following:
  • Determine Optimal Conversion Structure –We are working with our tax advisors to complete the due diligence process and planning required to minimize any tax implications for unitholders.
    COMPLETED
     
  • Finalize Governance Structure – the current Board of Directors will act on the recommendations of management and our advisors to put the appropriate corporate governance structure and policies in place, including Board committee structures required by a C-CorporationC
    COMPLETED
     
  • Issue Proxy Statement – we are in the process of preparing the proxy statement required to be filed with the SEC prior to the unitholder vote on the C-Corp conversion. The proxy statement will outline many of the corporate governance provisions that may be important to our unitholders and future shareholders, as well as outline any potential tax considerations.
    COMPLETED
     
  • Unitholder Vote – once the proxy statement has been finalized, the unitholder vote will be scheduled. The unitholders of record will then vote on proposed conversion to C-Corporation. A majority of unitholders is required to approve the conversion.
    COMPLETED
When and where will the unitholder vote on conversion take place?
As stated in the final proxy statement, a special meeting of the holders of common units representing limited partner interests in Hi-Crush Partners LP will be held on April 11, 2019 at 9:00 a.m., local time, at 1330 Post Oak Blvd., Houston, Texas 77056.

During this meeting, a vote will be held on a proposal to approve conversion of Hi-Crush Partners LP from a Master Limited Partnership to a C-Corp.
Does conversion reflect a change in the company’s business?
No. Hi-Crush will remain an integrated, strategic provider of proppant and logistics solutions to the North American petroleum industry. In fact, our long-term strategy pivoting our business to focus more heavily on logistics and the movement and management of sand will be further supported by the conversion. We will continue to own and operate multiple frac sand mining facilities and in-basin terminals, and provide mine-to-wellsite logistics services that optimize proppant supply to customers in all major basins. Our PropStream® service, offering both container- and silo-based wellsite delivery and storage systems, will continue to provide the highest level of flexibility, safety and efficiency in managing the full scope and value of the proppant supply chain. Our Mine. Move. Manage. operating strategy remains unchanged.
How is the sponsor buyout completed in October 2018 different than a corporate conversion?
The transaction recently completed of the buyout of our sponsor did not itself result in conversion to a C-Corp. The buyout was the first and necessary step in the process of conversion. The transaction resulted in a simplification of our corporate structure, the elimination of IDRs and other certain rights and assets held at the sponsor level. In order to effect the conversion to a C-Corp, the process will involve several more steps, including a tax impact analysis, the preparation of a proxy statement, and a unitholder vote to approve the conversion and related matters, as discussed above.
What did the recent buyout transaction accomplish?
The recently announced buyout of our sponsor simplified our corporate structure and paved the way for a simpler process of conversion to a C-Corp in the near future. The transaction accomplished this by eliminating all IDRs and potential associated future payments, potential future earnout payments due from previous asset dropdowns and by placing control of the Partnership in the hands of the Partnership’s Board of Directors.
Will there be any changes to Hi-Crush management?
No. There are no expected changes to the Company’s leadership team resulting from the conversion process.
Will the conversion have any impact on Hi-Crush’s outstanding bonds or asset-backed revolving credit facility?
No. The debt structure put in place in July 2018 had flexibility allowing us to operate as an MLP or C-Corporation with no penalties or adjustments to costs upon conversion. The conversion of Hi-Crush will have no impact on the company’s outstanding borrowings, including its notes due 2026 or other borrowing facilities.
How will I know how the company is progressing through the process?
We expect to provide updates upon achievement of significant milestones in the conversion process. We also intend to update this FAQ periodically. We encourage interested parties to visit this page and to view our investor presentations for the latest updates.
Will the company name change?
Upon closing, the company will change its name from Hi-Crush Partners LP to Hi-Crush Inc.
Will any trading aspects change?
Upon closing, the company’s stock will continue to be listed and trade on the New York Stock Exchange (“NYSE”). We expect to trade under the ticker “HCR”.
Do I need to do anything with my investment to convert my investment?
No. Upon completion of the conversion process, all units in Hi-Crush will automatically convert to ownership / shares in Hi-Crush Inc. at a ratio of 1:1.
After conversion, will investors in Hi-Crush still receive a K-1?
No. Upon closing, tax reporting will be simplified. Investors in Hi-Crush will receive tax information on 1099 forms instead of K-1 forms, and will be subject to capital gains taxes.

We will provide Schedule K-1s to investors to report their tax information with respect to their ownership of the units for periods prior to the conversion, including the Partnership’s 2018 tax year and the Partnership’s 2019 short tax year ending on the date of the conversion. We delivered the Schedule K-1s for the 2018 tax year in March 2019. Schedule K-1s for the 2019 short tax year are expected to be delivered in March 2020.
Does the conversion change the impact of holding Hi-Crush in a retirement or other tax-efficient accounts?
Yes. Upon conversion, investors holding Hi-Crush shares in retirement or other tax-efficient accounts will no longer be exposed to potential unrelated business taxable income (UBTI). As a result, there will also be no restrictions or practical limitations on holding shares of Hi-Crush in individual retirement accounts (IRAs).
Will there be any tax impacts to me as a unitholder resulting from the conversion process?
The receipt of Common Stock in exchange for Units pursuant to the Conversion is intended to constitute a liquidating partnership distribution under Section 731 of the Code for U.S. holders for U.S. federal income tax purposes. In general, U.S. holders are not expected to recognize gains as a result of the liquidating partnership distribution except to the extent that the Partnership’s liabilities allocated to a Unitholder for U.S. federal income tax purposes exceed such Unitholder’s tax basis in its Units. Based on analysis performed, we do not believe that the Partnership liabilities allocated to any Unitholder should be in excess of such Unitholder’s tax basis in its Units.
Once converted, what will be the tax impacts to me as an investor?
The Corporation will be classified as a corporation for U.S. federal income tax purposes and will be subject to U.S. federal income tax on its taxable income. As such, other than as described below with respect to tax reporting for the 2018 tax year and the 2019 short tax year, Schedule K-1 tax reporting will no longer be required.

As a result of Hi-Crush no longer being structured as a pass-through entity, tax treatment on dividends or capital gains will be similar to that of traditional C-Corp investments. Once this change takes place, tax reporting for investors will be required on dividends when paid and reported to such holder on a Form 1099-DIV. A portion of cash distributed may be treated as a non-taxable return of capital either reducing your basis in the stock or resulting in capital gains treatment for the dividend.
Once converted, what will be the tax impacts to Hi-Crush?
Upon conversion, Hi-Crush will continue to be subject to state and local sales and use taxes and will have additional requirements to report and pay federal and state income taxes that were previously passed through to the unitholders.
How many shares will be outstanding following the conversion process?
As of February 19, 2019, we had 101,062,399 common units outstanding. The conversion of MLP units to C-Corp shares will be completed at a ratio of 1:1, resulting in 101,062,399 shares that would then be outstanding.
What are the corporate governance impacts from this conversion?
We expect corporate governance for investors in Hi-Crush to significantly improve. This includes voting rights related to the approval of members of our Board of Directors as well as other matters involving management of the company. We will also begin holding annual shareholder meetings and issue proxy statements as appropriate.
Will the Board of Directors remain the same during and after conversion?
The four members of our Board of Directors will remain after the conversion and Hi-Crush is in the process of recruiting knowledgeable and appropriate members to add to the Board. Shareholders in Hi-Crush will have the ability to vote on the appointment of current and any new Board members at the annual shareholders’ meetings.
I have other questions. Where can I get additional information?
For further information regarding the proposed conversion, please see our recently filed proxy statement by clicking here

For additional questions, please contact our investor relations team at ir@hicrush.com.