As filed with the Securities and Exchange Commission on November 13, 2014

Registration No. 333-

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Smart Sand Partners LP

(Exact name of registrant as specified in its charter)

Delaware

1400

47-1650695

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

24 Waterway Avenue, Suite 350

The Woodlands, Texas 77380

(281) 231-2660

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Charles E. Young

Chief Executive Officer

24 Waterway Avenue, Suite 350

The Woodlands, Texas 77380

(281) 231-2660

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Ryan J. Maierson

Latham & Watkins LLP

811 Main Street, Suite 3700

Houston, Texas 77002

(713) 546-5400

Alan Beck

E. Ramey Layne

Vinson & Elkins L.L.P.

1001 Fannin Street, Suite 2500

Houston, Texas 77002

(713) 758-2222

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨		Accelerated filer	¨

Non-accelerated filer	x	(Do not check if a smaller reporting company)	Smaller reporting company	¨

CALCULATION OF REGISTRATION FEE



Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price(1)(2)	Amount of Registration Fee
Common units representing limited partner interests	$100,000,000	$11,620

(1)	Includes common units issuable upon exercise of the underwriters’ option to purchase additional common units.

(2)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED , 2014

PROSPECTUS

LOGO

Smart Sand Partners LP

Common Units

Representing Limited Partner Interests

This is our initial public offering. We are offering common units.

Prior to this offering, there has been no public market for our common units. It is currently estimated that the initial public offering price will be between $ and $ per common unit. We intend to apply for the quotation of our common units on the NASDAQ Global Market under the symbol “SSLP.” We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act, or JOBS Act.

You should consider the risks we have described in “Risk Factors” beginning on page 25.

These risks include the following:

•

We may not have sufficient cash from operations following the establishment of cash reserves and payment of costs and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.

•

On a pro forma basis we would not have had sufficient distributable cash flow to pay the full minimum quarterly distribution on all units for the year ended December 31, 2013 or the twelve months ended September 30, 2014.

•

A substantial majority of our revenues are generated under contracts with five customers, and the loss of, material nonpayment or nonperformance by or significant reduction in purchases by any of them could adversely affect our business, results of operations, financial condition and ability to make cash distributions.

•

Inaccuracies in estimates of volumes and qualities of our sand reserves could result in lower than expected sales and higher than expected production costs.

•

Our long-term business and financial performance depends on the level of drilling and completion activity in the oil and natural gas industry.

•

All of our sales are generated at one facility, and that facility is served by only one rail line. Any adverse developments at that facility or on the rail line could have a material adverse effect on our business, financial condition, results of operations and ability to make cash distributions.

•

Unitholders have very limited voting rights and, even if they are dissatisfied, they will have limited ability to remove our general partner.

•

Our tax treatment depends on our status as a partnership for federal income tax purposes. If the Internal Revenue Service, or IRS, were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our distributable cash flow would be substantially reduced.

•

Our unitholders’ share of our taxable income will be taxable to them for federal income tax purposes even if they do not receive any cash distributions from us.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


	Per Common Unit	Total
Initial public offering price	$	$
Underwriting discounts and commissions(1)	$	$
Proceeds, before expenses, to Smart Sand Partners LP	$	$

(1)	Excludes a structuring fee equal to % of the gross proceeds of this offering payable to Goldman, Sachs & Co. Please read “Underwriting.”

To the extent that the underwriters sell more than common units, the underwriters have the option to purchase up to an additional common units from us at the public offering price, less the underwriting discounts.

The underwriters expect to deliver the common units on or about , 2014.


Goldman, Sachs & Co.		Credit Suisse

The date of this prospectus is , 2014.

LOGO

TABLE OF CONTENTS


	Page
SUMMARY		1

Smart Sand Partners LP		1
Overview		1
Industry Trends Impacting Our Business		3
Business Strategies		6
Competitive Strengths		7
Our Assets and Operations		9
Our Relationship with Our Sponsor		10
Risk Factors		12
Organizational Transactions		12
Organizational Structure		13
Management of Smart Sand Partners LP		14
Principal Executive Offices and Internet Address		15
Summary of Conflicts of Interest and Duties		15
Our Emerging Growth Company Status		16
The Offering		17
Summary Historical and Pro Forma Financial Data and Operating Data		23

RISK FACTORS		25

Risks Inherent in Our Business		25
Risks Related to Environmental, Mining and Other Regulation		38
Risks Inherent in an Investment in Us		41
Tax Risks		52

USE OF PROCEEDS		58

CAPITALIZATION		59

DILUTION		60

CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS		62

General		62
Our Minimum Quarterly Distribution		64
Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2013, and the Twelve Months Ended September 30, 2014		66
Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015		69

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS		75

Distributions of Available Cash		75
Operating Surplus and Capital Surplus		76
Capital Expenditures		78
Subordinated Units and Subordination Period		80
Distributions of Available Cash From Operating Surplus During the Subordination Period		81
Distributions of Available Cash From Operating Surplus After the Subordination Period		82
General Partner Interest and Incentive Distribution Rights		82
Percentage Allocations of Available Cash from Operating Surplus		83
General Partner’s Right to Reset Incentive Distribution Levels		83
Distributions from Capital Surplus		86
Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels		86
Distributions of Cash Upon Liquidation		87


	Page

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA		90

Non-GAAP Financial Measures		92

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		94

Basis of Presentation		94
Overview		94
Our Assets and Operations		95
Overall Trends and Outlook		95
How We Generate Revenue		97
Costs of Conducting Our Business		98
How We Evaluate Our Operations		99
Factors Impacting Comparability of Our Financial Results		100
Results of Operations		102
Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013		102
Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012		104
Liquidity and Capital Resources		106
Operating Activities		107
Investing Activities		108
Financing Activities		108
Off Balance Sheet Arrangements		109
Capital Requirements		109
Credit Facilities		109
Customer Concentration		111
Contractual Obligations		111
Quantitative and Qualitative Disclosure of Market Risks		112
Internal Controls and Procedures		113
Recent Accounting Pronouncements		114
New and Revised Financial Accounting Standards		115
Critical Accounting Policies and Estimates		115
Environmental Matters		117

PROPPANT INDUSTRY OVERVIEW		118

Types of Proppant		118
Frac Sand Extraction, Processing and Distribution		120
Demand Trends		121
Supply Trends		123
Pricing and Contract Considerations		124

BUSINESS		125

Overview		125
Business Strategies		127
Competitive Strengths		129
Our Assets and Operations		131
Transportation Logistics and Infrastructure		137
Permits		138
Our Customers and Contracts		138
Our Relationship with Our Sponsor		139
Competition		141
Seasonality		141


Insurance			142
Environmental and Occupational Health and Safety Regulations			142
Employees			146
Legal Proceedings			146

MANAGEMENT			147

Management of Smart Sand Partners LP			147
Director Independence			147
Committees of the Board of Directors			148
Directors and Executive Officers of Smart Sand GP LLC			149
Board Role in Risk Oversight			151
Compensation of Our Officers			152
Director Compensation			154
Equity Compensation Plans			155

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			158

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			160

Distributions and Payments to Our General Partner and Its Affiliates			160
Agreements Governing the Transactions			162
Our Relationship with Our Sponsor			165
Procedures for Review, Approval and Ratification of Related Person Transactions			165

CONFLICTS OF INTEREST AND DUTIES			167

Conflicts of Interest			167
Duties of the General Partner			174

DESCRIPTION OF THE COMMON UNITS			178

The Common Units			178
Transfer Agent and Registrar			178
Transfer of Common Units			178
Exchange Listing			179

OUR PARTNERSHIP AGREEMENT			180

Organization and Duration			180
Purpose			180
Capital Contributions			180
Voting Rights			181
Limited Liability			182
Issuance of Additional Partnership Interests			183
Amendment of Our Partnership Agreement			184
Merger, Consolidation, Conversion, Sale or Other Disposition of Assets			186
Termination and Dissolution			186
Liquidation and Distribution of Proceeds			187
Withdrawal or Removal of Our General Partner			187
Transfer of General Partner Interest			188
Transfer of Ownership Interests in Our General Partner			189
Transfer of Incentive Distribution Rights			189
Change of Management Provisions			189
Limited Call Right			189
Meetings; Voting			189
Status as Limited Partner			190
Indemnification			190
Reimbursement of Expenses			191

iii


Books and Reports			191
Right to Inspect Our Books and Records			192
Registration Rights			192
Applicable Law; Exclusive Forum			192

UNITS ELIGIBLE FOR FUTURE SALE			194

Rule 144			194
Our Partnership Agreement and Registration Rights			195
Lock-up Agreements			195
Registration Statement on Form S-8			195

MATERIAL FEDERAL INCOME TAX CONSEQUENCES			196

Partnership Status			197
Limited Partner Status			198
Tax Consequences of Unit Ownership			198
Tax Treatment of Operations			205
Disposition of Common Units			209
Uniformity of Units			211
Tax-Exempt Organizations and Other Investors			212
Administrative Matters			213
Recent Legislative Developments			216
State, Local, Foreign and Other Tax Considerations			216

INVESTMENT IN SMART SAND PARTNERS LP BY EMPLOYEE BENEFIT PLANS			217

UNDERWRITING			219

VALIDITY OF THE COMMON UNITS			224

EXPERTS			224

WHERE YOU CAN FIND ADDITIONAL INFORMATION			225

FORWARD-LOOKING STATEMENTS			226

INDEX TO FINANCIAL STATEMENTS			F-1

APPENDIX A: Form of First Amended and Restated Agreement of Limited Partnership			A-1

APPENDIX B: Glossary of Terms			B-1

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us or on behalf of us or to which we have referred you. We have not, and the underwriters have not, authorized any other person to provide you with information different from that contained in this prospectus and any free writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our common units. Our business, financial condition, results of operations and prospects may have changed since that date.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. Please read “Risk Factors” and “Forward-Looking Statements.”

Industry and Market Data

The data included in this prospectus regarding the industry in which we operate, including descriptions of trends in the market and our position and the position of our competitors within our industries, is based on a variety of sources, including independent publications, government publications, information obtained from customers, distributors, suppliers and trade and business organizations and publicly available information, as well as our good faith estimates, which have been derived from management’s knowledge and experience in the industry in which we operate. The industry data sourced from The Freedonia Group is from its Industry Study #3160, “Well Stimulation Materials,” published in June 2014. The industry data sourced from Spears & Associates is from its “Oilfield Market Report, 2005-2015,” published in October 2014. We believe that the third-party sources are reliable and that the third-party information included in this prospectus or in our estimates is accurate and complete.

SUMMARY

This summary provides a brief overview of information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common units. You should read the entire prospectus carefully, including the historical and pro forma financial statements and the notes to those financial statements included in this prospectus. Unless indicated otherwise, the information presented in this prospectus assumes an initial public offering price of $ per common unit (the midpoint of the price range set forth on the cover page of this prospectus) and that the underwriters do not exercise their option to purchase additional common units. You should read “Risk Factors” for more information about important risks that you should consider carefully before buying our common units.

Unless the context otherwise requires, references in this prospectus to “Smart Sand Partners LP,” “our partnership,” “we,” “our” and “us,” or like terms, when used in an historical context, refer to Smart Sand, Inc., our predecessor for accounting purposes, and its subsidiaries, and when used in the present tense or prospectively, refer to Smart Sand Partners LP and its subsidiaries. References to “our general partner” refer to Smart Sand GP LLC, our general partner. References to “our sponsor” refer to Smart Sand Holdings LLC and its subsidiaries (including Smart Sand, Inc.) other than us, our general partner and our subsidiaries. We have provided definitions for some of the terms we use to describe our business and industry and other terms used in this prospectus in the “Glossary of Terms” beginning on page B-1 of this prospectus.

Smart Sand Partners LP

Overview

We are a pure-play, low-cost producer of high-quality Northern White frac sand, which is a preferred proppant used to enhance hydrocarbon recovery rates in the hydraulic fracturing of oil and natural gas wells. We own and operate a sand mine and related processing facility on 1,168 contiguous acres near Oakdale, Wisconsin, at which we have approximately 217 million tons of proven recoverable sand reserves and 64 million tons of probable recoverable sand reserves as of June 30, 2014. Our integrated facility, with on-site rail infrastructure and wet and dry sand processing facilities, enables us to process and cost-effectively deliver approximately 2.2 million tons of frac sand per year. As of November 1, 2014, we had a minimum of approximately 2.1 million tons of our annual frac sand production (or approximately 96% of our current annual production capacity) contracted to oil and natural gas production and pressure pumping service companies under long-term, fixed-price take-or-pay contracts that are intended to mitigate our exposure to the potential price volatility of the spot market for frac sand and enhance the stability of our cash flows. We believe that the favorable geologic characteristics of our sand reserves, the strategic location and logistical advantages of our Oakdale facility and the industry experience of our senior management team have positioned us as a highly attractive source of frac sand to the oil and natural gas industry.

Over the past decade, exploration and production companies have increasingly focused on exploiting the vast hydrocarbon reserves contained in North America’s unconventional oil and natural gas reservoirs through advanced recovery techniques, such as horizontal drilling and hydraulic fracturing. In recent years, this focus has resulted in exploration and production companies drilling more and longer horizontal wells, completing more hydraulic fracturing stages per well and utilizing more proppant per stage in an attempt to maximize the volume of hydrocarbon recoveries per wellbore. As a result, based on data from The Freedonia Group, U.S. demand for raw frac sand has

increased rapidly, growing at an average annual rate of 42% from 2003 to 2013. The total U.S. raw frac sand market size was $1.5 billion in 2013 and is projected to increase 13.3% annually from 2013 to 2018, according to The Freedonia Group.

Northern White sand, which is found predominantly in Wisconsin and limited portions of the upper Midwest region of the United States, is highly valued by oil and natural gas producers as a preferred proppant due to its favorable physical characteristics, including its crush strength (ability to withstand high pressures), turbidity (low levels of contaminants) and roundness and sphericity (facilitates hydrocarbon flow, or conductivity), and its lower cost as compared to other proppants such as resin-coated sand and manufactured ceramics. We believe the significant recent increase in demand for frac sand has outpaced supply due to several industry-wide frac sand production and logistics constraints, including limited availability of API-specification sand reserves globally as well as the difficulty of obtaining the myriad of construction, environmental, mining and other permits required by local, state and federal regulators. We believe that the market for high-quality raw frac sand, like the Northern White sand we produce, will continue to grow based on the expected long-term development of North America’s unconventional oil and natural gas reservoirs.

Summary of Our Reserves, Oakdale Facility, Contracts and Right of First Offer to Acquire Additional Assets

As of November 1, 2014, we had long-term, fixed-price take-or-pay contracts to sell a minimum of approximately 2.1 million tons of frac sand annually (or approximately 96% of our current annual production capacity). Each of these contracts contains a minimum volume purchase requirement, is subject to certain price escalators and provides for delivery of frac sand FCA at our Oakdale facility. As of November 1, 2014, the product mix-weighted average price of sand sold from our Oakdale facility pursuant to these take-or-pay contracts was $54.48 per ton and the volume-weighted average remaining term was 2.72 years. Certain of these contracts contain provisions that allow our customers to extend the term of the contracts. The mesh size specifications in these contracts vary and include a mix of 20/40, 30/50, 40/70 and 100 mesh frac sand. We are in the process of expanding our Oakdale facility’s nameplate capacity to 3.3 million tons per year. We expect this expansion will be completed during the second quarter of 2015. We have entered into contract extensions that will increase our minimum contracted volumes to approximately 2.3 million tons per year, or approximately 70% of our anticipated annual nameplate capacity, upon completion of the expansion. Under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner.

Our Oakdale facility is optimized to exploit the reserve profile in place and produce high-quality frac sand. Unlike some of our competitors, our processing and rail loading facilities are located in close proximity at the mine site, which eliminates the need for us to truck sand on public roads between the mine and the production facility or between wet and dry processing facilities. Our on-site transportation assets include approximately seven miles of rail track in a double-loop configuration that is tied into a Class I rail line owned by Canadian Pacific, which enables us to simultaneously accommodate multiple unit trains and significantly increases our efficiency in meeting our customers’ frac sand transportation needs. We ship a substantial portion of our sand volumes (approximately 46.1% during the nine months ended September 30, 2014) in unit train shipments through rail cars that our customers own or lease and deliver to our facility. We believe that we are one of the few frac sand producers with a facility custom-designed for the specific purpose of delivering frac sand to all of the major U.S. oil and natural gas producing basins by an on-site rail facility that can simultaneously accommodate multiple unit trains. Our ability to handle multiple rail car sets allows for the seamless transition of locomotives from empty inbound trains to fully loaded outbound trains at our facility. We believe our customized on-site logistical configuration yields lower overall operating and transportation costs compared to manifest train or single-unit train facilities as a result of our higher rail car utilization, more efficient use of locomotive power and more predictable movement of product between mine and destination. Rail cars are currently in high demand in the industry, and unit train operations such as ours can double or triple the average number of loads that a rail car carries per year. We believe that the connectivity of our Oakdale facility to the Canadian Pacific rail network, combined with our ability to lease rail cars from our sponsor and our unit train logistics capabilities, will provide us enhanced flexibility to serve customers located in shale plays throughout North America.

In addition to the Oakdale facility that will be contributed to us, our sponsor owns approximately 852 acres in Jackson County, Wisconsin, that it will retain after the closing of this offering. Our sponsor expects to construct a 1.1 million ton per year processing facility and storage silos at this site, which we call the Hixton site, and expects the Hixton facility to be fully operational during the second half of 2015. As of June 20, 2014, John T. Boyd estimated that the Hixton site had approximately 100 million tons of proven recoverable sand reserves. Pursuant to the terms of the omnibus agreement that we and our sponsor will enter into at the closing of this offering, we will have a right of first offer to acquire our sponsor’s Hixton sand reserves, processing facility, basin dryers and related assets should our sponsor choose to sell those assets. Our right of first offer will also cover any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops in the future.

For the year ended December 31, 2013 and nine months ended September 30, 2014, we generated pro forma Adjusted EBITDA of approximately $16.4 million and $26.6 million, respectively, and pro forma net income of approximately $12.4 million and $23.1 million, respectively. For the definition of Adjusted EBITDA and reconciliations to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

Industry Trends Impacting Our Business

Unless otherwise indicated, the information set forth under “—Industry Trends Impacting Our Business,” including all statistical data and related forecasts, is derived from The Freedonia Group’s Industry Study #3160, “Well Stimulation Materials,” published in June 2014, and Spears & Associates’ “Oilfield Market Report, 2005-2015,” published in October 2014. While we are not aware of any misstatements regarding the proppant industry data presented herein, estimates involve risks and

uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

Demand Trends

The U.S. proppant market, including raw frac sand, ceramic and resin-coated proppant, was approximately 31 million tons in 2013. Industry estimates for 2013 indicate that the total sand market represented approximately 29 million tons, or 92.3% of the total proppant market by weight. Over the past five years, proppant demand by weight has increased by 26.4% annually, and the market is projected to continue growing by 9.4% per year through 2018, representing an increase of approximately four million tons in annual proppant demand over that time period. The total U.S. proppant market size in dollars was $5.0 billion in 2013 and is projected to grow 13.7% annually through 2018, according to The Freedonia Group. The following chart illustrates historical and forecasted proppant demand for certain years from 2013 to 2023.

LOGO

We believe that demand for proppant will be amplified by the following factors:

•

improved drilling rig productivity, resulting in more wells drilled per rig per year;

•

increases in the percentage of rigs that are drilling horizontal wells;

•

increases in the length of the typical horizontal wellbore;

•

increases in the number of fracture stages per foot in the typical completed horizontal wellbore;

•

increases in the volume of proppant used per fracturing stage;

•

renewed focus of exploration and production companies to maximize ultimate recovery in active reservoirs through downspacing; and

•

increasing secondary hydraulic fracturing of existing wells as early shale wells age.

Recent growth in demand for raw frac sand has outpaced growth in demand for other proppants, and industry analysts predict that this trend will continue. As well completion costs have increased as a proportion of total well costs, operators have increasingly looked for ways to improve per well economics by lowering costs without sacrificing production performance. To this end, the oil and natural gas industry is shifting away from the use of higher-cost proppants towards more cost-effective proppants, such as raw frac sand, according to Spears & Associates’ “Oilfield Market Report, 2005-2014,” published in 2013. Evolution of completion techniques and the substantial increase in activity in U.S. oil and liquids-rich resource plays has further accelerated the demand growth for raw frac sand.

In general, oil and liquids-rich wells use a higher proportion of coarser proppant while dry gas wells typically use finer grades of sand. With the majority of U.S. exploration and production spending focused on oil and liquids-rich plays, demand for coarser grades of sand has exceeded demand for finer grades and remains strong. However, due to innovations in completion techniques and a recent increase in natural gas drilling activity, demand for finer grade sands has also shown a considerable resurgence. According to PropTester, Inc., a notable driver impacting demand is increased proppant loadings, specifically, larger volumes of proppant placed per frac stage. PropTester, Inc. expects the trend of using larger volumes of finer mesh materials such as 100 mesh sand and 40/70 sand and ceramics, either on their own or in conjunction with coarser and more conductive proppant tail-ins, to continue.

Supply Trends

In recent years, customer demand for premium raw frac sand has outpaced supply. Several factors contribute to this persistent supply shortage:

•

the difficulty of finding frac sand reserves that meet API specifications and satisfy the demands of customers who increasingly favor premium sand varieties;

•

the difficulty of securing contiguous frac sand reserves large enough to justify the capital investment required to develop a processing facility;

•

the challenges of identifying reserves with the above characteristics that have rail access needed for low-cost transportation to major shale basins;

•

the hurdles to securing mining, production, water, air, refuse and other federal, state and local operating permits from the proper authorities;

•

local opposition to development of certain facilities, especially those that require the use of on-road transportation, including moratoria on raw frac sand facilities in multiple counties in Wisconsin and Minnesota that hold potential sand reserves; and

•

the long lead time required to design and construct sand processing facilities that can efficiently process large quantities of high quality frac sand.

the economic viability of a potential raw frac sand facility. Further constraining the supply and throughput of Northern White sand, not all of the large reserve mines have onsite excavation and processing capability. The availability of suitable railcars is also an important logistics factor that represents a potential supply constraint in the industry. Certain long-term contracts, including some contracts to which we are a party, stipulate that customers will provide railcars at the originating facility. This arrangement mitigates any financial or operational impact that may arise from fluctuations in railcar availability in the operating regions.

Business Strategies

Our principal business objective is to create sustainable, capital-efficient growth in available cash to maximize distributions to our unitholders. We expect to achieve this objective through the following business strategies:

•

Expanding our reserve base and processing capacity through organic growth. We seek to identify and evaluate economically attractive expansion and facility enhancement opportunities to increase our reserve base and processing capacity. We expect to pursue add-on acreage acquisitions near our Oakdale facility to expand our reserve base and increase our reserve life. In July 2014, we completed an expansion of our Oakdale facility that increased our annual processing capacity from approximately 1.1 million tons per year to approximately 2.2 million tons per year by adding incremental dry plant capacity and additional sand storage silos. We are in the process of expanding our Oakdale facility’s nameplate capacity to 3.3 million tons per year and expect this expansion will be completed during the second quarter of 2015.

•

Continuing to make productivity improvements and reducing our cost of production. Our operations have been strategically designed to provide low per-unit production costs. We will continue to analyze and pursue initiatives that will optimize our existing assets and further lower our total cost of production per ton. For example, we are planning to build a natural gas connection to our Oakdale facility and evaluating modifications to our infrastructure that would increase our capacity to utilize unit trains (in lieu of manifest train shipments). In addition, we seek to maximize our mining yields on an ongoing basis by targeting sales volumes that more closely match our reserve gradation in order to minimize mining and processing of superfluous tonnage.

•

Optimizing our logistics infrastructure and developing additional origination points. We intend to continue optimizing our logistics infrastructure and developing additional origination points in order to monetize our extensive reserves more rapidly and reduce the landed cost of our products at the basin for our customers. We expect to capitalize on our facility’s ability to simultaneously accommodate multiple unit trains to maximize our product shipment rates, increase rail car utilization and lower transportation costs. In addition, we intend to continue evaluating ways to reduce the landed cost of our products at the basin for our customers, such as potentially shipping unprocessed, wet frac sand to dry processing plants that are located in our target shale basins and developed by our sponsor or owned by third parties. We also intend to utilize our ability to lease rail cars from our sponsor to increase our customized service offerings and provide our customers with additional delivery and pricing alternatives for our products, including selling product on an “as-delivered” basis at our target shale basins.

•

Capitalizing on compelling industry fundamentals. We intend to continue to position ourselves as a pure play producer of high-quality raw frac sand, as we believe the frac sand market offers attractive long-term growth fundamentals. The growth of horizontal drilling in shale and other unconventional oil and natural gas plays has resulted in greater demand for frac sand for use as a proppant. This demand growth is underpinned by increased horizontal drilling, higher frac sand use per well and cost advantages over resin-coated sand and manufactured ceramics. We believe that a number of factors will contribute to the continued scarcity of high-quality frac sand over the next several years. In addition, we believe that our mix of coarse and fine sand positions us to capture opportunities created by recent frac sand usage trends of certain exploration and production companies that have begun utilizing fine mesh sand in their hydraulic fracturing operations.

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Maintaining financial flexibility and conservative leverage. We plan to pursue a disciplined financial policy and maintain a conservative capital structure. We expect to have no indebtedness at the closing of this offering and $ million of liquidity in the form of cash on hand and undrawn borrowing capacity under our new $ million revolving credit facility. We believe that our borrowing capacity and ability to access debt and equity capital markets after this offering will provide us with the financial flexibility necessary to achieve our organic expansion and acquisition strategy.

Competitive Strengths

We believe that we will be able to successfully execute our business strategies because of the following competitive strengths:

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Long-term contracted cash flow stability. As of November 1, 2014, we had a minimum of approximately 2.1 million tons of our annual frac sand production (or approximately 96% of our current annual production capacity) contracted to oil and natural gas production and pressure pumping service companies under long-term, fixed-price take-or-pay contracts. We believe that the take-or-pay volume and pricing provisions and the long-term nature of our contracts will provide us with a stable base of cash flows and limit the risks associated with price movements in the spot market for frac sand as well as the risks associated with changes in product demand during the contract period. As of November 1, 2014, our fixed-price take-or-pay contracts had a volume-weighted average remaining term of 2.72 years.

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Intrinsic logistics advantage. We believe that we are one of the few frac sand producers with a facility custom-designed for the specific purpose of delivering frac sand to all of the major U.S. oil and natural gas producing basins by an on-site rail facility that can simultaneously accommodate multiple unit trains. Our on-site transportation assets include approximately seven miles of rail track in a double-loop configuration that is tied into a rail line owned by Canadian Pacific. We believe our customized on-site logistical configuration typically yields lower operating and transportation costs compared to manifest train or single-unit train facilities as a result of our higher rail car utilization, more efficient use of locomotive power and more predictable movement of product between mine and destination.

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Low-cost operating structure. We believe that our operations are characterized by an overall low cost structure, which permits us to capture attractive margins. Our low cost structure is a result of a number of key attributes, including, among others, our (i) relatively low royalty rates, (ii) balance of coarse and fine mineral reserve deposits and corresponding contractual demand that minimizes yield loss and (iii) facility’s proximity to a Class I rail line and other sand logistics infrastructure, which helps reduce transportation costs, fuel costs and headcount needs.

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Significant organic growth potential. We believe that we have a significant pipeline of attractive sales opportunities at our Oakdale facility, which commenced commercial operations in July 2012 and was recently expanded in July 2014. As of November 1, 2014, we have contracted to sell a minimum of approximately 2.1 million tons of frac sand annually, which accounts for approximately 96% of our Oakdale facility’s current 2.2 million tons per year of nameplate capacity. We are in the process of expanding our Oakdale facility’s nameplate capacity to 3.3 million tons per year. We expect this expansion will be completed during the second quarter of 2015. We have entered into contract extensions that will increase our minimum contracted volumes to approximately 2.3 million tons per year, or approximately 70% of our anticipated annual nameplate capacity, upon completion of the expansion. We are seeking additional long-term contractual commitments from new customers for our anticipated excess capacity beginning in June 2015. If we generate excess production and market conditions are favorable, we also may elect to sell frac sand in spot market transactions. If we are successful in entering into new contracts or selling into the spot market at favorable prices, we may evaluate the addition of incremental dry and wet processing capacity at our Oakdale facility. In addition, under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner. If actual sales volumes are higher than expected, our profitability and cash flows will be positively impacted.

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Strong reputation with our customers. Our management and operating teams have developed longstanding relationships with our customers. Several leading oil and natural gas production companies and hydraulic fracturing service providers purchase frac sand from us, including Archer Pressure Pumping, EOG Resources, Nabors Completion & Production Services, US Well Services and a subsidiary of Weatherford International, or Weatherford.

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Focus on safety and environmental stewardship. We are committed to maintaining a culture that prioritizes safety, the environment and our relationship with the communities in which we operate. In August 2014, we were accepted as a “Tier 1” participant in Wisconsin’s voluntary “Green Tier” program, which encourages, recognizes and rewards companies for voluntarily exceeding environmental, health and safety legal requirements. We believe that our commitment to safety, the environment and the communities in which we operate is critical to the success of our business.

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Our Assets and Operations

Our Oakdale Facility

The following table provides key characteristics of our Oakdale sand reserves and frac sand production facility (as of June 30, 2014, unless otherwise stated):


Facility Characteristic		Description
Site geography		Situated on 1,168 contiguous acres, with on-site processing and rail loading facilities

Proven recoverable reserves		217 million tons

Probable recoverable reserves		64 million tons

Deposits		Sand reserves of up to 140 feet; coarse grade mesh sizes (20/40, 30/50 and 40/70 mesh) and fine mesh (100 mesh)

Reserve mix		Approximately 60% of 70 mesh and coarser substrate and approximately 40% of 100 mesh substrate

Excavation technique		Shallow overburden allowing for surface excavation

Annual processing capacity		2.2 million tons per year (as of September 30, 2014)

Logistics capabilities		On-site transportation infrastructure capable of simultaneously accommodating multiple unit trains and connected to the Canadian Pacific rail network (as of September 30, 2014)

Royalties		$0.50 per ton of 20/70 frac sand sold (as of September 30, 2014)

Our Customers and Contracts

respectively, of our revenues from frac sand delivered under long-term sales contracts, and we expect to continue selling a significant majority of our frac sand under long-term contracts. Occasionally, if we have excess production and market conditions are favorable, we may elect to sell frac sand in spot market transactions.

Our core customers are major oil and natural gas production and pressure pumping service companies. These customers have signed multi-year, fixed-price take-or-pay contracts, which mitigate our risk of their non-performance. As of November 1, 2014, the product mix-weighted average price of sand sold from our Oakdale facility pursuant to these take-or-pay contracts was $54.48 per ton and the volume-weighted average remaining term was 2.72 years. These contracts include provisions that require the customer to pay us an amount designed to compensate us, at least in part, for our lost margins for the applicable contract year in the event the customer does not take delivery of the minimum annual volume of frac sand specified in the contract. Our contracts provide for a true-up payment in the event the customer does not take delivery of the minimum annual volume of frac sand specified in the contract and has not purchased in the previous year an amount exceeding the minimum volume, resulting in a shortfall. The true-up payment is designed to compensate us, at least in part, for our margins for the applicable contract year and is calculated by multiplying the contract price (or, in some cases, a discounted contract price ) by the shortfall. Our contracts generally provide that, if we are unable to deliver the contracted minimum volume of frac sand, the customer has the right to purchase replacement frac sand from alternative sources, provided that our inability to supply is not the result of an excusable delay. In the event that the price of replacement frac sand exceeds the contract price and our inability to supply the contracted minimum volume is not the result of an excusable delay, we are responsible for the difference. At September 30, 2014 and December 31, 2013, we had significant levels of frac sand inventory on hand; therefore, the likelihood of any such penalties was considered remote.

Certain of our long-term, fixed-price take-or-pay contracts contain provisions that allow our customers to extend the term of the contracts. Each of our contracts contains a minimum volume purchase requirement, is subject to certain price escalators and provides for delivery of frac sand FCA at our Oakdale facility. The mesh size specifications in these contracts vary and include a mix of 20/40, 30/50, 40/70 and 100 mesh frac sand. Should market trends continue to develop as we expect, in the event that one or more of our current contract customers decides not to continue purchasing our frac sand following the expiration of its contract with us, we believe that we will be able to sell the volume of sand that they previously purchased to other customers through long-term contracts or sales on the spot market.

Our Relationship with Our Sponsor

Overview

Smart Sand Holdings LLC, our sponsor, is owned by members of our management team and a fund managed by Clearlake Capital Group, L.P., which, together with its affiliates and related persons, we refer to as Clearlake. The members of our senior management team bring significant experience to the market environment in which we operate. Their expertise covers a range of disciplines, including industry-specific operating and technical knowledge as well as experience managing high-growth businesses. Recognizing the increasing demand for proppants as a result of rapidly evolving hydraulic fracturing techniques, members of our management team chose to leverage their expertise and relationships to capitalize on this increasing demand by developing raw frac sand reserves and facilities. Our sponsor’s management team identified our existing Oakdale facility (as well as other facilities owned by the sponsor) and designed, permitted, commenced and recently expanded our Oakdale facility’s operations.

Clearlake is a leading private equity firm with significant investing expertise in energy and other related industries. Founded in 2006, Clearlake is focused on complex private equity and special situation transactions. With over $1.4 billion of regulatory assets under management, Clearlake (and its professionals) have a history of partnering with portfolio company management teams to transform and grow companies.

Our Sponsor’s Assets and Our Right of First Offer

In connection with this offering, our sponsor is contributing to us its sand reserves and related processing facility located in Oakdale, Wisconsin. In addition to the Oakdale facility, our sponsor owns approximately 852 acres in Jackson County, Wisconsin, located near the Village of Hixton, which our sponsor will retain after the closing of this offering. Our sponsor expects to construct a 1.1 million ton per year processing facility and storage silos at the Hixton site and expects the Hixton facility to be fully operational during the second half of 2015. As of June 20, 2014, John T. Boyd estimated that the Hixton site had approximately 100 million tons of proven recoverable sand reserves. Pursuant to the terms of the omnibus agreement that we will enter into at the closing of this offering, we will have a right of first offer with respect to our sponsor’s Hixton sand reserves, processing facility, basin dryers and related assets.

The Hixton site is located approximately 45 miles northwest of our Oakdale site and offers direct rail access to Canadian National’s rail network, which will provide the Hixton facility with the ability to ship sand to all major shale plays throughout the United States and Canada. Our sponsor expects to construct an on-site rail facility at the Hixton site, including approximately nine miles of rail track, that will be able to simultaneously accommodate multiple unit trains.

In addition, our right of first offer will cover any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops over a period of years from the date of the closing of this offering. Our sponsor will also have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner. Our sponsor is evaluating a number of additional development locations and regularly adds potential projects to its development backlog.

Our sponsor’s retained Hixton site, planned basin dryers and transload sites under evaluation represent a significant potential growth opportunity for us. Our sponsor continually evaluates acquisitions and may elect to acquire, construct or dispose of assets in the future, including in sales of assets to us. As the owner of our general partner, of our common units, all of our subordinated units and the indirect owner of all of our incentive distribution rights following the completion of this offering, our sponsor is well aligned and highly motivated to promote and support the successful execution of our business strategies, including utilizing our partnership as a growth vehicle for its sand mining operations. Although we expect to have the opportunity to make additional acquisitions directly from our sponsor in the future, including the Hixton site and processing facility as well as basin dryers and potential transload sites described above that are subject to our right of first offer, our sponsor is under no obligation to accept any offer we make, and may, following good faith negotiations with us, sell the assets subject to our right of first offer to third parties that may compete with us. Our sponsor may also elect to develop, retain and operate properties in competition with us or develop new assets that are not subject to our right of first offer.

While we believe our relationship with our sponsor is a significant positive attribute, it may also be a source of conflicts of interest. For example, our sponsor is not restricted in its ability to compete with us. We expect that our sponsor will develop additional frac sand sites, processing facilities, logistics assets, basin dryers and related assets in the future, which may compete with us. In addition, our sponsor may purchase unprocessed wet sand directly from us, which would reduce the amount of product we are able to sell to current and potential third-party customers. While we expect that our management team, which also manages our sponsor’s retained assets, and our sponsor will allocate new and replacement customer contracts between us and our sponsor in a manner that balances the interests of both parties, they are under no obligation to do so. Please read “Conflicts of Interest and Duties.”

Risk Factors

An investment in our common units involves risks associated with our business, our partnership structure and the tax characteristics of our common units. You should carefully consider the risks described under “Risk Factors” and the other information in this prospectus before investing in our common units.

Organizational Transactions

We were formed on August 12, 2014 as a Delaware limited partnership by our general partner and our sponsor to own and operate our Oakdale facility. In connection with this offering, our sponsor will contribute the Oakdale sand reserves, processing facility, rail infrastructure and related assets to us.

In addition, in connection with this offering, we will:

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issue all of our incentive distribution rights to our general partner;

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issue common units and subordinated units to our sponsor, representing an aggregate % limited partner interest in us, and distribute $ of the net proceeds from this offering to our sponsor, a portion of which is to reimburse our sponsor for certain capital expenditures incurred with respect to the assets contributed to us;

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issue common units to the public, representing a % limited partner interest in us, and apply the net proceeds as described in “Use of Proceeds”;

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enter into a new $ million revolving credit facility; and

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enter into an omnibus agreement with our sponsor, our general partner and certain of its affiliates.

Please read “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions.”

If the underwriters exercise their option to purchase additional common units, we will use the net proceeds from that exercise to redeem from our sponsor a number of common units equal to the number of common units issued upon such exercise of the option at a price per unit equal to the net proceeds per common unit in this offering before expenses but after deducting underwriting discounts and the structuring fee. Please read “Underwriting.”

Organizational Structure

After giving effect to the transactions described above, assuming the underwriters do not exercise their option to purchase additional common units, our partnership interests will be held as follows:


Public common units		%(1)
Common units held by our sponsor		%(1)
Subordinated units held by our sponsor		%(1)
General partner interest	—	%(2)
Incentive distribution rights	—	%(3)

Total	100.0	%

(1)

Assumes no exercise of the underwriters’ option to purchase additional common units. If the underwriters exercise their option to purchase additional common units in full, the public common units will represent a % limited partner interest in us, and the common units and subordinated units held by our sponsor will represent % and % limited partner interests, respectively, in us.

(2)	Our general partner owns a non-economic general partner interest in us. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner Interest and Incentive Distribution Rights.”

(3)

Incentive distribution rights represent a variable interest in distributions and thus are not expressed as a fixed percentage. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner Interest and Incentive Distribution Rights.” Distributions with respect to the incentive distribution rights will be classified as distributions with respect to equity interests. All of our incentive distribution rights will be issued to our general partner.

The following simplified diagram depicts our organizational structure after giving effect to the transactions described above.

LOGO

Management of Smart Sand Partners LP

We are managed and operated by the board of directors and executive officers of Smart Sand GP LLC, our general partner. As the direct owner of our general partner, our sponsor has the right to appoint the entire board of directors of our general partner, including our independent directors. Unlike shareholders in a publicly traded corporation, our unitholders will not be entitled to elect our general partner or the board of directors of our general partner. For more information about the directors and executive officers of our general partner, please read “Management—Directors and Executive Officers of Smart Sand GP LLC.”

In order to maintain operational flexibility, our operations will be conducted through, and our operating assets will be owned by, our operating subsidiaries. However, neither we nor our subsidiaries will have any employees. Our general partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations, whether through directly hiring employees or by obtaining the services of personnel employed by others. All of the personnel that will conduct our business immediately following the closing of this offering will be employed or contracted

by our general partner and its affiliates, including our sponsor, but we sometimes refer to these individuals in this prospectus as our employees because they provide services directly to us.

Following the closing of this offering, our general partner and its affiliates will not receive any management fee or other compensation in connection with our general partner’s management of our business but will be reimbursed for costs and expenses incurred on our behalf. Our partnership agreement requires us to reimburse our general partner and its affiliates for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner or its affiliates in connection with managing and operating our business and affairs. Under the omnibus agreement, we will reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement). Please read “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement.” For the twelve months ending December 31, 2015, we estimate that these expenses will be approximately $9.6 million, which includes, among other items, compensation expense for all employees required to manage and operate our business.

Principal Executive Offices and Internet Address

Our principal executive offices are located at 24 Waterway Avenue, Suite 350, The Woodlands, Texas 77380, and our telephone number is (281) 231-2660. Following the closing of this offering, our website will be located at www. .com. We expect to make our periodic reports and other information filed with or furnished to the Securities and Exchange Commission, or the SEC, available, free of charge, through our website, as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

Summary of Conflicts of Interest and Duties

Under our partnership agreement, our general partner has a contractual duty to manage us in a manner it believes is in the best interests of our partnership. However, because our general partner is a wholly owned subsidiary of our sponsor, the officers and directors of our general partner have a duty to manage the business of our general partner in a manner that is in the best interests of our sponsor. As a result of this relationship, conflicts of interest may arise in the future between us and our unitholders, on the one hand, and our general partner and its affiliates, including our sponsor, on the other hand. For example, our general partner will be entitled to make determinations that affect the amount of cash distributions we make to the holders of common units, which in turn has an effect on whether our general partner receives incentive distributions. In addition, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate expiration of the subordination period. Our general partner may also determine to manage our business in a way that directly benefits our sponsor’s business, rather than indirectly benefitting our sponsor solely through its ownership interests in us. We expect that any future decision by our general partner in this regard will be made on a case-by-case basis. Please read “Conflicts of Interest and Duties.”

Delaware law provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the duties (including fiduciary duties) otherwise owed by the general partner to limited partners and the partnership. As permitted by Delaware law, our partnership agreement contains various provisions replacing the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing the duties of the general partner and contractual methods of resolving conflicts of interest. The effect of these provisions is to restrict the remedies available to unitholders for actions that might otherwise constitute breaches of our general partner’s fiduciary duties. Our partnership agreement also provides that affiliates of our general partner, including our sponsor and its affiliates, are permitted to compete with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us, except with respect to the right of first offer contained in our omnibus agreement. By purchasing a common unit, the purchaser agrees to be bound by the terms of our partnership agreement and, pursuant to the terms of our partnership agreement, each holder of common units consents to various actions and potential conflicts of interest contemplated in our partnership agreement that might otherwise be considered a breach of fiduciary or other duties under Delaware law. Please read “Conflicts of Interest and Duties—Duties of the General Partner.”

Our Emerging Growth Company Status

As a company with less than $1.0 billion in revenue during its last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:

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the presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;

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deferral of the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;

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exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;

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exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; and

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reduced disclosure about executive compensation arrangements.

We may take advantage of these provisions until we are no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of this offering, (ii) the last day of the fiscal year in which we have more than $1.0 billion in annual revenue, (iii) the date on which we issue more than $1.0 billion of non-convertible debt over a three-year period and (iv) the date on which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We have elected to take advantage of all of the applicable JOBS Act provisions, except that we will elect to opt out of the exemption that allows emerging growth companies to extend the transition period for complying with new or revised financial accounting standards (this election is irrevocable).

Accordingly, the information that we provide you may be different than what you may receive from other public companies in which you hold equity interests.

The Offering

Common units offered to the public by us

common units, or common units if the underwriters exercise in full their option to purchase additional common units from us.

Units outstanding after this offering

common units and subordinated units, representing a % and % limited partner interest in us, respectively.

Use of proceeds

We expect to receive net proceeds of approximately $ million from the sale of common units offered by this prospectus, based on an assumed initial public offering price of $ per common unit (the mid-point of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts, the structuring fee and estimated offering expenses. We intend to use the net proceeds from this offering to:

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make a distribution of approximately $ million to our sponsor, a portion of which (i) is to reimburse our sponsor for certain capital expenditures incurred with respect to the assets contributed to us, (ii) will be used by our sponsor to redeem all of its outstanding shares of preferred stock and (iii) will be used by our sponsor to pay in full outstanding borrowings under the predecessor credit facility;

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fully fund approximately $27.4 million of expansion capital expenditures expected to be incurred through December 31, 2015;

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pay approximately $1.5 million of debt issuance costs related to our new revolving credit facility; and

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fund approximately $1.2 million in non-recurring costs related to our transition to a publicly traded partnership.

If the underwriters exercise in full their option to purchase additional common units, the additional net proceeds to us would be approximately $ million. The net proceeds from any exercise by the underwriters of their option to purchase additional common units will be used to redeem from our sponsor a number of common units equal to the number of common units issued upon such exercise of the option at a price per unit equal to the net proceeds per

common unit in this offering before expenses but after deducting underwriting discounts and the structuring fee.

Cash distributions

We intend to make a minimum quarterly distribution of $ per unit ($ per unit on an annualized basis) to the extent we have sufficient cash after establishment of cash reserves and payment of fees and expenses, including payments to our general partner. We refer to this cash as “available cash.” Our ability to pay the minimum quarterly distribution is subject to various restrictions and other factors described in more detail under the caption “Cash Distribution Policy and Restrictions on Distributions.”

For the quarter in which this offering closes, we will pay a prorated distribution on our units covering the period from the closing of this offering through , 2014, based on the actual length of that period.

In general, we will pay any cash distributions we make each quarter in the following manner:

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first, to the holders of common units, until each common unit has received a minimum quarterly distribution of $ plus any arrearages from prior quarters;

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second, to the holders of subordinated units, until each subordinated unit has received a minimum quarterly distribution of $ ; and

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third, to all unitholders, pro rata, until each unit has received a distribution of $ .

If cash distributions to our unitholders exceed $ per unit in any quarter, our general partner will receive increasing percentages, up to 50%, of the cash we distribute in excess of that amount. We refer to these distributions as “incentive distributions.” Incentive distribution rights represent the right to receive an increasing percentage (15.0%, 25.0% and 50.0%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest. In certain circumstances, our general partner, as the initial holder of our

incentive distribution rights, has the right to reset the target distribution levels described above to higher levels based on our cash distributions at the time of the exercise of this reset election. Our general partner’s right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee, at any time when there are no subordinated units outstanding, we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distributions for each of the four consecutive fiscal quarters immediately preceding such time and the amount of each such distribution did not exceed adjusted operating surplus for such quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

If we do not have sufficient available cash from operations, we may, but are under no obligation to, borrow funds to pay the minimum quarterly distribution to our unitholders.

The amount of distributable cash flow we generated during the year ended December 31, 2013 on a pro forma basis would have been sufficient to pay % of the aggregate minimum quarterly distribution on our common units and % of the aggregate minimum quarterly distribution on our subordinated units for that period. The amount of distributable cash flow we generated during the twelve months ended September 30, 2014 on a pro forma basis would have been sufficient to pay % of the aggregate minimum quarterly distribution on our common units and % of the aggregate minimum quarterly distribution on our subordinated units for that period. Please read “Cash Distribution Policy and Restrictions on Distributions—Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2013 and the Twelve Months Ended September 30, 2014.”

We believe, based on our financial forecast and related assumptions included in “Cash Distribution Policy and Restrictions on Distributions—Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015,” that we will have sufficient available cash to pay the

aggregate minimum quarterly distribution of $ million on all of our common units and subordinated units for the twelve months ending December 31, 2015. However, we do not have a legal obligation to pay distributions at our minimum quarterly distribution rate or at any other rate except as provided in our partnership agreement, and there is no guarantee that we will make quarterly cash distributions to our unitholders. Please read “Cash Distribution Policy and Restrictions on Distributions.”

Subordinated units

Our sponsor will initially own all of our subordinated units. The principal difference between our common units and subordinated units is that for any quarter during the subordination period, the subordinated units will not be entitled to receive any distribution from operating surplus until the common units have received the minimum quarterly distribution from operating surplus plus any arrearages in the payment of the minimum quarterly distribution from operating surplus from prior quarters. Subordinated units will not accrue arrearages.

Conversion of subordinated units

The subordination period will end on the first business day after the date that we have earned and paid at least (1) $ (the minimum quarterly distribution on an annualized basis) on each outstanding common unit and subordinated unit for each of three consecutive, non-overlapping four quarter periods ending on or after , 2017, or (2) $ (150.0% of the annualized minimum quarterly distribution) on each outstanding common unit and subordinated unit and the related distributions on the incentive distribution rights for any four-quarter period immediately preceding that date, in each case provided there are no arrearages on our common units at that time.

When the subordination period ends, each outstanding subordinated unit will convert into a common unit on a one-for-one basis, and all common units will no longer be entitled to arrearages. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.”

Issuance of additional units

Our partnership agreement authorizes us to issue an unlimited number of additional units without the approval of our unitholders. Please read “Units Eligible for Future Sale” and “Our Partnership Agreement—Issuance of Additional Partnership Interests.”

Limited voting rights

Our general partner will manage and operate us. Unlike the holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business. Our unitholders will have no right to elect our general partner or its directors on an annual or other continuing basis. Our general partner may not be removed unless such removal is both (1) for cause and (2) approved by a vote of the holders of at least 66²⁄₃% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. Upon consummation of this offering, our sponsor will own an aggregate of % of our units (or % of our units, if the underwriters exercise in full their option to purchase additional common units). This will give our sponsor the ability to prevent the removal of our general partner. Please read “Our Partnership Agreement—Voting Rights.”

Limited call right

If at any time our general partner and its affiliates own more than 80% of the outstanding common units, our general partner has the right, but not the obligation, to purchase all of the remaining common units at a price equal to the greater of (1) the average of the daily closing price of our common units over the 20 trading days preceding the date that is three business days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. Please read “Our Partnership Agreement—Limited Call Right.”

Estimated ratio of taxable income to distributions

We estimate that if you own the common units you purchase in this offering through the record date for distributions for the period ending , you will be allocated, on a cumulative basis, an amount of federal taxable income for that period that will be % or less of the cash distributed to you with respect to that period. For

example, if you receive an annual distribution of $ per unit, we estimate that your average allocable federal taxable income per year will be no more than approximately $ per unit. Thereafter, the ratio of allocable taxable income to cash distributions to you could substantially increase. Please read “Material Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Ratio of Taxable Income to Distributions” for the basis of this estimate.

Material federal income tax consequences

For a discussion of the material federal income tax consequences that may be relevant to prospective unitholders who are individual citizens or residents of the United States, please read “Material Federal Income Tax Consequences.”

Directed unit program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to % of the common units being offered by this prospectus for sale to employees, consultants, directors, director nominees and executive officers of our general partner, and certain key employees of our sponsor and select individuals who may be able to assist us in developing our business. We do not know if these persons will choose to purchase all or any portion of these reserved common units, but any purchases they do make will reduce the number of common units available to the general public. Please read “Underwriting—Directed Unit Program.”

Exchange listing

We intend to apply for the quotation of our common units on the NASDAQ Global Market (“NASDAQ”) under the symbol “SSLP.”

Summary Historical and Pro Forma Financial Data and Operating Data

The following table presents summary historical financial data of Smart Sand, Inc., our predecessor for accounting purposes and a wholly owned subsidiary of Smart Sand Holdings LLC, and summary pro forma financial data of Smart Sand Partners LP for the periods and as of the dates indicated. The following table should be read together with, and is qualified in its entirety by reference to, the historical and pro forma financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The summary historical financial data of our predecessor as of and for the years ended December 31, 2013 and 2012 are derived from the audited financial statements of our predecessor appearing elsewhere in this prospectus. The summary historical interim financial data of our predecessor as of September 30, 2014 and for the nine months ended September 30, 2014 and 2013 are derived from the unaudited interim financial statements of our predecessor appearing elsewhere in this prospectus.

The summary pro forma financial data presented in the following table for the year ended December 31, 2013 and as of and for the nine months ended September 30, 2014 are derived from the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed consolidated balance sheet assumes the offering and the related transactions occurred as of September 30, 2014, and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 assume the offering and the related transactions occurred as of January 1, 2013. These transactions include, and the unaudited pro forma condensed consolidated financial statements give effect to, the following:

•

our sponsor’s contribution to us of the Oakdale sand reserves, processing facility, rail infrastructure and related assets;

•

our sponsor’s retention of the Hixton land and related permits;

•

our sponsor’s retention of rail car leases and related rail car rental income;

•

our sponsor’s retention of the Series A Preferred Shares and predecessor credit facility;

•

our treatment as a partnership rather than a corporation for tax purposes, unlike our predecessor;

•

our entry into a new $ million revolving credit facility;

•

our entry into the omnibus agreement with our sponsor;

•

the consummation of this offering and our issuance of (i) common units to the public, (ii) all of the incentive distribution rights to our general partner and (iii) common units and subordinated units to our sponsor; and

•

the application of the net proceeds of this offering as described in “Use of Proceeds.”

The unaudited pro forma condensed consolidated financial statements do not give effect to (i) $1.2 million in non-recurring costs related to our transition to a publicly traded partnership and (ii) $1.8 million of incremental operating expenses expected to be incurred as a result of operating a publicly traded partnership.


	Predecessor Historical												Smart Sand Partners LP Pro Forma
	Year Ended December 31,						Nine Months Ended September 30,						Year Ended December 31, 2013			Nine Months Ended September 30, 2014
	2013			2012			2014			2013			Year Ended December 31, 2013			Nine Months Ended September 30, 2014
							(unaudited)			(unaudited)			(unaudited)			(unaudited)
	(in thousands)
Statement of Operations Data:
Revenues	$	26,656		$	6,925		$	45,867		$	19,301		$	26,640		$	45,082
Cost of goods sold		9,745			6,023			18,044			10,819			9,687			17,452

Gross profit		16,911			902			27,823			8,482			16,953			27,630

Operating expenses
Salaries, benefits and payroll taxes		1,928			1,616			2,996			1,410			-			-
Depreciation and amortization		110			296			99			82			110			99
Selling, general and administrative		1,705			1,539			4,143			1,223			3,440			3,948

Total operating expenses		3,743			3,451			7,238			2,715			3,550			4,047

Operating income (loss)		13,168			(2,549	)		20,585			5,767			13,403			23,583
Other (expenses) income:
Preferred stock interest expense		(9,674	)		(6,827	)		(4,934	)		(7,124	)		-			-
Other interest expense		(528	)		(331	)		(1,614	)		(442	)		(1,115	)		(826)
Other income		72			22			334			74			72			334

Total other (expense) income		(10,130	)		(7,136	)		(6,214	)		(7,492	)		(1,043	)		(492)
Loss on extinguishment of debt		-			-			1,230			-			-			-

Income (loss) before income tax expense		3,038			(9,685	)		13,141			(1,725	)		12,360			23,091
Income tax expense (benefit)		2,623			(11	)		6,062			(1,512	)		-			-

Net and comprehensive income (loss)	$	415		$	(9,674	)	$	7,079		$	(213	)	$	12,360		$	23,091

Balance Sheet Data (at period end):
Property, plant and equipment, net	$	50,143		$	51,695		$	72,687		$	50,736					$	62,389
Total assets		71,796			58,166			98,913			65,223						86,363
Total stockholders’ deficit / partners’ capital		(9,948	)		(10,403	)		(2,737	)		(8,455	)					78,212

Cash Flow Statement Data:
Net cash provided by (used in) operating activities	$	2,936		$	(1,184	)	$	16,853		$	3,222
Net cash used in investing activities		(1,042	)		(40,626	)		(21,223)			(1,044)
Net cash (used in) provided by financing activities		(994	)		34,259			3,695			(923)

Other Data:
Capital expenditures	$	1,646		$	41,114		$	23,033		$	(1,044)		$	1,614		$	16,355
Adjusted EBITDA(1)		16,252			(827	)		23,724			8,081			16,447			26,613
Production costs(1)		6,714			4,680			11,937			8,696			6,714			11,937

(1)

For our definitions of the non-GAAP financial measures of Adjusted EBITDA and production costs and reconciliations of Adjusted EBITDA and production costs to our most directly comparable financial measures calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

RISK FACTORS

Investing in our common units involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our common units. Limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. If any of the following risks were to occur, our business, financial condition, results of operations, cash flows and ability to make cash distributions could be materially adversely affected. In that case, we may not be able to pay the minimum quarterly distribution on our common units, the trading price of our common units could decline and you could lose all or part of your investment.

Risks Inherent in Our Business

We may not have sufficient cash each quarter to pay the full amount of our minimum quarterly distribution of $ per unit, or $ per unit per year, which will require us to have distributable cash flow of approximately $ million per quarter, or $ million per year, based on the number of common units and subordinated units that will be outstanding after the completion of this offering. The amount of cash we can distribute on our common units and subordinated units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on the following factors, some of which are beyond our control:

•

the amount of frac sand we are able to excavate and process, which could be adversely affected by, among other things, operating difficulties and unusual or unfavorable geologic conditions;

•

the volume of frac sand we are able to sell;

•

the price at which we are able to sell frac sand;

•

changes in the price and availability of propane, natural gas or electricity;

•

changes in prevailing economic conditions;

•

unanticipated ground, grade or water conditions;

•

inclement or hazardous weather conditions, including flooding, and the physical impacts of climate change;

•

environmental hazards;

•

industrial accidents;

•

changes in laws and regulations (or the interpretation thereof) related to the mining and hydraulic fracturing industries, silica dust exposure or the environment;

•

inability to acquire or maintain necessary permits or mining or water rights;

•

facility shutdowns in response to environmental regulatory actions;

•

inability to obtain necessary production equipment or replacement parts;

•

reduction in the amount of water available for processing;

•

technical difficulties or failures;

•

labor disputes and disputes with our excavation contractor;

•

late delivery of supplies;

•

difficulty collecting receivables;

•

inability of our customers to take delivery;

•

changes in the price and availability of transportation;

•

fires, explosions or other accidents; and

•

cave-ins, pit wall failures or rock falls.

In addition, the actual amount of cash we will have available for distribution will depend on other factors, some of which are beyond our control, including:

•

the level of capital expenditures we make;

•

the cost of acquisitions;

•

our debt service requirements and other liabilities;

•

fluctuations in our working capital needs;

•

our ability to borrow funds and access capital markets;

•

restrictions contained in debt agreements to which we are a party; and

•

the amount of cash reserves established by our general partner.

For a description of additional restrictions and factors that may affect our ability to pay cash distributions, please read “Cash Distribution Policy and Restrictions on Distributions.”

The amount of cash we need to pay the minimum quarterly distribution for four quarters on all of our units to be outstanding immediately after this offering is approximately $ million. The amount of pro forma distributable cash flow generated during the year ended December 31, 2013 and the twelve months ended September 30, 2014 would have been insufficient to allow us to pay the full minimum quarterly distribution on all of our common units during those periods. For a calculation of our ability to make distributions to unitholders based on our pro forma results for the year ended December 31, 2013 and the twelve months ended September 30, 2014, please read “Cash Distribution Policy and Restrictions on Distributions.”

The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.

The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from reserves and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.

The assumptions underlying our forecast of distributable cash flow included in “Cash Distribution Policy and Restrictions on Distributions” are inherently uncertain and subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause distributable cash flow to differ materially from those estimates.

The forecast of distributable cash flow set forth in “Cash Distribution Policy and Restrictions on Distributions” includes our forecast of our results of operations and distributable cash flow for the twelve months ending December 31, 2015. Our ability to pay the full minimum quarterly distribution during the forecast period is based on a number of assumptions that may not prove to be correct, which are discussed in “Cash Distribution Policy and Restrictions on Distributions.”

Our forecast of distributable cash flow has been prepared by management, and we have not received an opinion or report on it from any independent registered public accountants. The assumptions underlying our forecast of distributable cash flow are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause distributable cash flow to differ materially from that which is forecasted. If we do not achieve our forecasted results, we may not be able to pay the minimum quarterly distribution or any amount on our common units or subordinated units, in which event the market price of our common units may decline materially. Please read “Cash Distribution Policy and Restrictions on Distributions.”

As of November 1, 2014, we were contracted to sell raw frac sand produced from our Oakdale facility under five long-term sales contracts with a weighted average remaining life of approximately 2.72 years. Because we have a small number of customers contracted under long-term contracts, these contracts subject us to counterparty risk. The ability or willingness of each of our customers to perform its obligations under a contract with us will depend on a number of factors that are beyond our control and may include, among other things, the overall financial condition of the counterparty, the condition of the U.S. oil and natural gas production industry, continuing use of raw frac sand in hydraulic fracturing operations and general economic conditions. In addition, in depressed market conditions, our customers may no longer need the amount of frac sand for which they have contracted or may be able to obtain comparable products at a lower price. If our customers experience a significant downturn in their business or financial condition, they may attempt to renegotiate or declare force majeure under our contracts. If any of our major customers substantially reduces or altogether ceases purchasing our frac sand and we are not able to generate replacement sales of frac sand into the market, our business, financial condition, results of operations and ability to make quarterly distributions could be adversely affected for a short-term period until such time as we generate replacement sales in the market.

Inaccuracies in estimates of volumes and qualities of our sand reserves could result in lower than expected sales and higher than expected production costs.

John T. Boyd, our independent reserve engineers, prepared estimates of our reserves and the reserves at our sponsor’s Hixton site based on engineering, economic and geological data assembled and analyzed by our engineers and geologists. However, frac sand reserve estimates are by nature imprecise and depend to some extent on statistical inferences drawn from available data, which may prove unreliable. There are numerous uncertainties inherent in estimating quantities and qualities of reserves and non-reserve frac sand deposits and costs to mine recoverable reserves, including many

factors beyond our control. Estimates of economically recoverable frac sand reserves necessarily depend on a number of factors and assumptions, all of which may vary considerably from actual results, such as:

•

geological and mining conditions and/or effects from prior mining that may not be fully identified by available data or that may differ from experience;

•

assumptions concerning future prices of frac sand, operating costs, mining technology improvements, development costs and reclamation costs; and

•

assumptions concerning future effects of regulation, including the issuance of required permits and the assessment of taxes by governmental agencies.

Any inaccuracy in John T. Boyd’s estimates related to our frac sand reserves and non-reserve frac sand deposits could result in lower than expected sales and higher than expected costs. For example, John T. Boyd’s estimates of our proven recoverable and probable recoverable sand reserves assume that our revenue and cost structure will remain relatively constant over the life of our reserves. If these assumptions prove to be inaccurate, some or all of our reserves may not be economically mineable, which could have a material adverse effect on our results of operations and cash flows. In addition, we pay a fixed price per ton of sand excavated regardless of the quality of the frac sand, and our current customer contracts require us to deliver frac sand that meets certain API and ISO specifications. If John T. Boyd’s estimates of the quality of our reserves, including the volumes of the various specifications of those reserves, prove to be inaccurate, we may incur significantly higher excavation costs without corresponding increases in revenues, we may not be able to meet our contractual obligations, or our facilities may have a shorter than expected reserve life, which could have a material adverse effect on our results of operations and cash flows.

If we are unable to make acquisitions on economically acceptable terms, our future growth would be limited, and any acquisitions we make may reduce, rather than increase, our cash generated from operations on a per unit basis.

A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that result in an increase in our distributable cash flow per unit. If we are unable to make acquisitions from third parties, including from our sponsor and its affiliates, because we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, we are unable to obtain financing for these acquisitions on economically acceptable terms or we are outbid by competitors, our future growth and ability to increase distributions will be limited. Furthermore, even if we do consummate acquisitions that we believe will be accretive, they may in fact result in a decrease in our distributable cash flow per unit. Any acquisition involves potential risks, some of which are beyond our control, including, among other things:

•

mistaken assumptions about revenues and costs, including synergies;

•

inability to integrate successfully the businesses we acquire;

•

inability to hire, train or retain qualified personnel to manage and operate our business and newly acquired assets;

•

the assumption of unknown liabilities;

•

limitations on rights to indemnity from the seller;

•

mistaken assumptions about the overall costs of equity or debt;

•

the diversion of management’s attention from other business concerns;

•

unforeseen difficulties operating in new product areas or new geographic areas; and

•

customer or key employee losses at the acquired businesses.

If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources.

Our right of first offer to acquire certain of our sponsor’s existing assets is subject to risks and uncertainty, and ultimately we may not acquire any of those assets.

Our omnibus agreement will provide us with a right of first offer on our sponsor’s sand reserves, processing facility and any related assets that have been or will be constructed on its acreage in Jackson County, Wisconsin, as well as any additional land, sand reserves, processing facilities, basin dryers, transload sites, logistics assets and similar assets that our sponsor develops for a period of years after the closing of this offering. The consummation and timing of any future acquisitions of these assets will depend upon, among other things, our sponsor’s willingness to offer these assets for sale, our ability to negotiate acceptable customer contracts and other agreements with respect to the assets and our ability to obtain financing on acceptable terms. We can offer no assurance that we will be able to successfully consummate any future acquisitions pursuant to our right of first offer, and our sponsor is under no obligation to accept any offer that we may choose to make. For these or a variety of other reasons, we may decide not to exercise our right of first offer if and when any assets are offered for sale, and our decision will not be subject to unitholder approval. Please read “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement.”

Our long-term business and financial performance depends on the level of drilling and completion activity in the oil and natural gas industry.

Our primary exposure to market risk occurs at the time existing customer contracts expire and are subject to renegotiation, renewal or replacement. Our ability to renew existing customer contracts or enter into new customer contracts on favorable terms is dependent on the market for frac sand at such times. Demand for frac sand is materially dependent on the levels of activity in oil and natural gas exploration, development and production, and more specifically, the number of oil and natural gas wells completed in geological formations where sand-based proppants are used in hydraulic fracturing treatments and the amount of frac sand customarily used in the completion of such wells.

Oil and natural gas producers’ expectations for lower market prices for oil and natural gas, as well as the availability of capital for operating and capital expenditures, may cause them to curtail spending, thereby reducing hydraulic fracturing activity and the demand for frac sand. Industry conditions that impact the activity levels of oil and natural gas producers are influenced by numerous factors over which we have no control, including:

•

governmental regulations, including the policies of governments regarding the exploration for and production and development of their oil and natural gas reserves;

•

global weather conditions and natural disasters;

•

worldwide political, military and economic conditions;

•

the cost of producing and delivering oil and natural gas;

•

commodity prices; and

•

potential acceleration of development of alternative energy sources.

A prolonged reduction in oil and natural gas prices would generally depress the level of oil and natural gas exploration, development, production and well completion activity and result in a corresponding decline in the demand for the frac sand we produce. In addition, any future decreases in the rate at which oil and natural gas reserves are developed, whether due to increased governmental regulation, limitations on exploration and drilling activity or other factors, could have a material adverse effect on our business, even in a stronger oil and natural gas price environment. If there is a sustained decrease in the demand for frac sand, we may be unable to renew contracts for our products, be forced to renegotiate our existing contracts or be forced to reduce the prices at which we enter into new contracts, any of which would reduce the amount of cash we generate.

In addition, to the extent we make sales of our frac sand other than under long-term contracts, the price we receive for those sales will be impacted by short-term fluctuations in the market for frac sand, and any negative fluctuations in the spot market could have an adverse effect on our results of operations and cash flows.

All of our sales are currently derived from our Oakdale facility located in Oakdale, Wisconsin, which is served by a single Class I rail line owned by Canadian Pacific. Any adverse development at this facility or on the rail line due to catastrophic events or weather, or any other event that would cause us to curtail, suspend or terminate operations at our Oakdale facility, could result in us being unable to meet our contracted sand deliveries. Although we maintain insurance coverage to cover a portion of these types of risks, there are potential risks associated with our operations not covered by insurance. There also may be certain risks covered by insurance where the policy does not reimburse us for all of the costs related to a loss. Downtime or other delays or interruptions to our operations that are not covered by insurance could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions. In addition, under our long-term contracts, if we are unable to deliver contracted volumes and a customer arranges for delivery from a third party at a higher price, we may be required to pay that customer the difference between our contract price and the price of the third-party product.

We face distribution and logistical challenges in our business.

As oil and natural gas prices fluctuate, our customers may shift their focus to different resource plays, some of which may be located in geographic areas that do not have well-developed transportation and distribution infrastructure systems. Transportation and logistical operating expenses comprise a significant portion of the costs incurred by our customers to deliver frac sand to the wellhead. Therefore, serving our customers in these less-developed areas presents distribution and other operational challenges that may affect our sales and negatively impact our operating costs. Disruptions in transportation services, including shortages of rail cars, lack of developed infrastructure, weather-related problems, flooding, drought, accidents, mechanical difficulties, strikes, lockouts, bottlenecks or other events could affect our ability to timely and cost effectively deliver to our customers and could temporarily impair the ability of our customers to take delivery and, in certain circumstances, constitute a force majeure event under our customer contracts, permitting our customers to suspend taking delivery of and paying for our frac sand. Additionally, increases in the price of transportation costs, including freight charges, fuel surcharges, terminal switch fees and demurrage costs, could negatively impact operating costs if we are unable to pass those increased costs along to our customers. Failure to find long-term solutions to these logistical challenges could adversely affect our ability to respond quickly to the needs of our customers or result in additional increased costs, and thus could negatively impact our business, results of operations, financial condition and ability to make cash distributions.

We may be adversely affected by decreased demand for raw frac sand due to the development of either effective alternative proppants or new processes to replace hydraulic fracturing.

Raw frac sand is a proppant used in the completion and re-completion of oil and natural gas wells to stimulate and maintain oil and natural gas production through the process of hydraulic fracturing. Raw frac sand is the most commonly used proppant and is less expensive than other proppants, such as resin-coated sand and manufactured ceramics. A significant shift in demand from frac sand to other proppants, or the development of new processes to replace hydraulic fracturing altogether, could cause a decline in the demand for the frac sand we produce and result in a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

An increase in the supply of raw frac sand having similar characteristics as the raw frac sand we produce could make it more difficult for us to renew or replace our existing contracts on favorable terms, or at all.

We believe that the demand for raw frac sand has outpaced the supply of raw frac sand, which has been a contributing factor to steadily increasing prices for raw frac sand over the last decade. If significant new reserves of raw frac sand are discovered and developed, and those frac sands have similar characteristics to the raw frac sand we produce, we may be unable to renew or replace our existing contracts on favorable terms, or at all. Specifically, if high-quality frac sand becomes more readily available, our customers may not be willing to enter into long-term, fixed-priced take-or-pay contracts, may demand lower prices or both, which could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Federal, state, and local legislative and regulatory initiatives relating to hydraulic fracturing and the potential for related litigation could result in increased costs, additional operating restrictions or delays for our customers, which could cause a decline in the demand for our frac sand and negatively impact our business, results of operations, financial condition and ability to make cash distributions.

We supply frac sand to hydraulic fracturing operators in the oil and natural gas industry. Hydraulic fracturing is an important and increasingly common practice that is used to stimulate production of natural gas and/or oil from low permeability hydrocarbon bearing subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants, and chemicals under pressure into the formation to fracture the surrounding rock, increase permeability and stimulate production.

Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing activities. Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies. Some states have adopted, and other states are considering adopting, regulations that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. In addition, federal agencies have started to assert regulatory authority over the process and various studies have been conducted or are currently underway by the U.S. Environmental Protection Agency, or the EPA, and other federal agencies concerning the potential environmental impacts of hydraulic fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed by some members of Congress to provide for such regulation.

negatively impact demand for our frac sand. In addition, heightened political, regulatory, and public scrutiny of hydraulic fracturing practices could expose us or our customers to increased legal and regulatory proceedings, which could be time-consuming, costly, or result in substantial legal liability or significant reputational harm. We could be directly affected by adverse litigation involving us, or indirectly affected if the cost of compliance limits the ability of our customers to operate. Such costs and scrutiny could directly or indirectly, through reduced demand for our frac sand, have a material adverse effect on our business, financial condition and results of operations.

Our long-term sales contracts may preclude us from taking advantage of increasing prices for frac sand or mitigating the effect of increased operational costs during the term of those contracts.

The long-term sales contracts we have may negatively impact our results of operations. Our long-term contracts require our customers to pay a specified price for a specified volume of frac sand each month. As a result, in periods with increasing prices our sales will not keep pace with market prices.

Additionally, if our operational costs increase during the terms of our long-term sales contracts, we will not be able to pass some of those increased costs to our customers. If we are unable to otherwise mitigate these increased operational costs, our net income and available cash for distributions could decline.

We are exposed to the credit risk of our customers, and any material nonpayment or nonperformance by our customers could adversely affect our business, results of operations, financial condition and ability to make cash distributions.

We are subject to the risk of loss resulting from nonpayment or nonperformance by our customers. Our credit procedures and policies may not be adequate to fully eliminate customer credit risk. If we fail to adequately assess the creditworthiness of existing or future customers or unanticipated deterioration in their creditworthiness, any resulting increase in nonpayment or nonperformance by them and our inability to re-market or otherwise use the production could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured.

Our operations are exposed to potential natural disasters, including blizzards, tornadoes, storms, floods, other adverse weather conditions and earthquakes. If any of these events were to occur, we could incur substantial losses because of personal injury or loss of life, severe damage to and destruction of property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our operations.

We are not fully insured against all risks incident to our business, including the risk of our operations being interrupted due to severe weather and natural disasters. Furthermore, we may be unable to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased and could escalate further. In addition sub-limits have been imposed for certain risks. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we are not fully insured, it could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Because we have a limited operating history, you may not be able to evaluate our current business and future earnings prospects accurately.

We did not commence commercial operations until July 2012, when our Oakdale facility became operational. As a result, we have limited operating history upon which you can base an evaluation of our current business and our future earnings prospects. Because of our limited operating history and performance record, it is difficult to evaluate our business and results of operations to date and to assess our future prospects. Further, our historical financial statements present a period of limited operations and, therefore, do not provide a meaningful basis to evaluate our operations or our ability to achieve our business strategy. We may be less successful than a seasoned company in achieving a consistent operating level at our facility capable of generating cash flows from our operations sufficient to regularly pay a quarterly cash distribution or to pay any quarterly cash distribution to our unitholders. We may also be less successful in implementing our business strategy than a seasoned company with a longer operating history. Finally, we may be less equipped to identify and address operating risks and hazards in the conduct of our business than those companies whose major facilities have longer operating histories.

We face significant competition that may cause us to lose market share and reduce our ability to make distributions to our unitholders.

The frac sand industry is highly competitive. The frac sand market is characterized by a small number of large, national producers and a larger number of small, regional or local producers. Competition in this industry is based on price, consistency and quality of product, site location, distribution capability, customer service, reliability of supply, breadth of product offering and technical support.

Some of our competitors have greater financial and other resources than we do. In addition, our larger competitors may develop technology superior to ours or may have production facilities that offer lower-cost transportation to certain customer locations than we do. In recent years, there has been an increase in the number of small, regional producers servicing the frac sand market due to an increased demand for hydraulic fracturing services and to the growing number of unconventional resource formations being developed in the United States. Should the demand for hydraulic fracturing services decrease or the supply of frac sand available in the market increase, prices in the frac sand market could materially decrease. Furthermore, oil and natural gas exploration and production companies and other providers of hydraulic fracturing services have acquired and in the future may acquire their own frac sand reserves to fulfill their proppant requirements, and these other market participants may expand their existing frac sand production capacity, all of which would negatively impact demand for our frac sand products. In addition, increased competition in the frac sand industry could have an adverse impact on our ability to enter into long-term contracts or to enter into contracts on favorable terms.

Our production process consumes large amounts of propane and electricity. An increase in the price or a significant interruption in the supply of these or any other energy sources could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Energy costs, primarily propane and electricity, represented approximately 22.9% of our total cost of goods sold for the nine months ended September 30, 2014. Propane is currently the primary fuel source used for drying in our frac sand production process. We have contracted to build a natural gas connection to our Oakdale facility (expected to be in service by the end of the first half of 2015), which would allow us to use natural gas as a fuel source for our dry plant operations. As a result, our profitability will be impacted by the price and availability of propane and natural gas we purchase from

third parties. Because we have not contracted for the provision of propane or natural gas on a fixed-price basis, our costs and profitability will be impacted by fluctuations in prices for propane and natural gas. The price and supply of propane and natural gas are unpredictable and can fluctuate significantly based on international, political and economic circumstances, as well as other events outside our control, such as changes in supply and demand due to weather conditions, actions by OPEC and other oil and natural gas producers, regional production patterns and environmental concerns. In addition, potential climate change regulations or carbon or emissions taxes could result in higher production costs for energy, which may be passed on to us in whole or in part. The price of propane has been extremely volatile over the last five years, from a low of $1.00 per gallon in May 2009 to a high of $4.40 per gallon in March 2014, and this volatility may continue. Similarly, the price of natural gas has been extremely volatile over the last two years, from a high of $6.15 per million British Thermal Units (“BTUs”) in February 2014 to a low of $2.61 per million BTUs in August 2012, and this volatility may continue. In order to manage this risk, we may hedge propane and/or natural gas prices through the use of derivative financial instruments, such as forwards, swaps and futures. However, these measures carry risk (including nonperformance by counterparties) and do not in any event entirely eliminate the risk of decreased margins as a result of propane or natural gas price increases. A significant increase in the price of energy that is not recovered through an increase in the price of our products or covered through our hedging arrangements or an extended interruption in the supply of propane, natural gas or electricity to our production facilities could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Increases in the price of diesel fuel may adversely affect our business, results of operations, financial condition and ability to make cash distributions.

Diesel fuel costs generally fluctuate with increasing and decreasing world crude oil prices and, accordingly, are subject to political, economic and market factors that are outside of our control. Our operations are dependent on earthmoving equipment, locomotives and tractor trailers, and diesel fuel costs are a significant component of the operating expense of these vehicles. We contract with a third party to excavate raw frac sand, deliver the raw frac sand to our processing facility and move the sand from our wet plant to our dry plant, and pay a fixed price per ton of sand delivered to our wet plant, subject to a fuel surcharge based on the price of diesel fuel. Accordingly, increased diesel fuel costs could have an adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

We may be required to make substantial capital expenditures to maintain, develop and increase our asset base. The inability to obtain needed capital or financing on satisfactory terms, or at all, could have an adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Although we currently use a significant amount of our cash reserves and cash generated from our operations to fund the development of our asset base, we may depend on the availability of credit to fund future capital expenditures. Our ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering, the covenants contained in the revolving credit facility we expect to enter into in connection with this offering or other future debt agreements, adverse market conditions or other contingencies and uncertainties that are beyond our control. Our failure to obtain the funds necessary to maintain, develop and increase our asset base could adversely impact our business, results of operations, financial condition and ability to make cash distributions.

Even if we are able to obtain financing or access the capital markets, incurring additional debt may significantly increase our interest expense and financial leverage, and our level of indebtedness could restrict our ability to fund future development and acquisition activities. In addition, the issuance of additional equity interests may result in significant dilution to our existing unitholders.

Restrictions in our anticipated new revolving credit facility may limit our ability to capitalize on acquisition and other business opportunities and may restrict our ability to make distributions to our unitholders.

The operating and financial restrictions and covenants in our anticipated new revolving credit facility and any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities. For example, we expect that our revolving credit facility will restrict or limit our ability to:

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grant liens;

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incur additional indebtedness;

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engage in a merger, consolidation or dissolution;

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enter into transactions with affiliates;

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sell or otherwise dispose of assets, businesses and operations;

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materially alter the character of our business as conducted at the closing of this offering; and

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make acquisitions, investments and capital expenditures.

Furthermore, we expect that our revolving credit facility will contain certain operating and financial covenants. Our ability to comply with the covenants and restrictions contained in the revolving credit facility may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any of the restrictions, covenants, ratios or tests in our anticipated new revolving credit facility, a significant portion of our indebtedness may become immediately due and payable, our lenders’ commitment to make further loans to us may terminate, and we will be prohibited from making distributions to our unitholders. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. Any subsequent replacement of our revolving credit facility or any new indebtedness could have similar or greater restrictions. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities—Our New Revolving Credit Facility.”

A facility closure entails substantial costs, and if we close our facility sooner than anticipated, our results of operations may be adversely affected.

We base our assumptions regarding the life of our Oakdale facility on detailed studies that we perform from time to time, but our studies and assumptions may not prove to be accurate. If we close our Oakdale facility sooner than expected, sales will decline unless we are able to acquire and develop additional facilities, which may not be possible. The closure of our Oakdale facility would involve significant fixed closure costs, including accelerated employment legacy costs, severance-related obligations, reclamation and other environmental costs and the costs of terminating long-term obligations, including energy contracts and equipment leases. We accrue for the costs of reclaiming open pits, stockpiles, non-saleable sand, ponds, roads and other mining support areas over the estimated mining life of our property. If we were to reduce the estimated life of our Oakdale facility, the fixed facility closure costs would be applied to a shorter period of production, which would increase production costs per ton produced and could materially and adversely affect our business, results of operations and financial condition.

Applicable statutes and regulations require that mining property be reclaimed following a mine closure in accordance with specified standards and an approved reclamation plan. The plan addresses matters such as removal of facilities and equipment, regrading, prevention of erosion and other forms of water pollution, re-vegetation and post-mining land use. We may be required to post a surety bond

or other form of financial assurance equal to the cost of reclamation as set forth in the approved reclamation plan. The establishment of the final mine closure reclamation liability is based on permit requirements and requires various estimates and assumptions, principally associated with reclamation costs and production levels. If our accruals for expected reclamation and other costs associated with facility closures for which we will be responsible were later determined to be insufficient, our business, results of operations and financial condition may be adversely affected.

Our operations are dependent on our rights and ability to mine our properties and on our having renewed or received the required permits and approvals from governmental authorities and other third parties.

We hold numerous governmental, environmental, mining and other permits, water rights and approvals authorizing operations at our Oakdale facility. For our extraction and processing in Wisconsin, the permitting process is subject to federal, state and local authority. For example, on the federal level, a Mine Identification Request (MSHA Form 7000-51) must be filed and obtained before mining commences. If wetlands are implicated, a U.S. Army Corps of Engineers Wetland Permit is required. At the state level, a series of permits are required related to air quality, wetlands, water quality (waste water, storm water), grading permits, endangered species, archeological assessments and high capacity wells in addition to others depending upon site specific factors and operational detail. At the local level, zoning, building, storm water, erosion control, wellhead protection, road usage and access are all regulated and require permitting to some degree. A non-metallic mining reclamation permit is required. A decision by a governmental agency or other third party to deny or delay issuing a new or renewed permit or approval, or to revoke or substantially modify an existing permit or approval, could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Title to, and the area of, mineral properties and water rights may also be disputed. Mineral properties sometimes contain claims or transfer histories that examiners cannot verify. A successful claim that we do not have title to our property or lack appropriate water rights could cause us to lose any rights to explore, develop and extract minerals, without compensation for our prior expenditures relating to such property. Our business may suffer a material adverse effect in the event we have title deficiencies.

A shortage of skilled labor together with rising labor costs in the excavation industry may further increase operating costs, which could adversely affect our business, results of operations, financial condition and ability to make cash distributions.

Efficient sand excavation using modern techniques and equipment requires skilled laborers, preferably with several years of experience and proficiency in multiple tasks, including processing of mined minerals. Our mining operations are subcontracted to a third-party excavation contractor, but there is a shortage of skilled mining labor in Wisconsin. If the shortage of experienced labor continues or worsens, we may find it difficult to renew or replace that contract upon its expiration on acceptable terms, and we may be unable to hire or train the necessary number of skilled laborers to perform our own operations. In either event, there could be an adverse impact on our business, results of operations, financial condition and ability to make cash distributions.

Our business may suffer if we lose, or are unable to attract and retain, key personnel.

We depend to a large extent on the services of our senior management team and other key personnel. Members of our senior management and other key employees bring significant experience to the market environment in which we operate. Competition for management and key personnel is intense, and the pool of qualified candidates is limited. The loss of any of these individuals or the

failure to attract additional personnel, as needed, could have a material adverse effect on our operations and could lead to higher labor costs or the use of less-qualified personnel. In addition, if any of our executives or other key employees were to join a competitor or form a competing company, we could lose customers, suppliers, know-how and key personnel. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent on our ability to continue to attract, employ and retain highly skilled personnel.

Failure to maintain effective quality control systems at our mining, processing and production facilities could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

The performance and quality of our products are critical to the success of our business. These factors depend significantly on the effectiveness of our quality control systems, which, in turn, depends on a number of factors, including the design of our quality control systems, our quality-training program and our ability to ensure that our employees adhere to our quality control policies and guidelines. Any significant failure or deterioration of our quality control systems could have a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Seasonal and severe weather conditions could have a material adverse impact on our business, results of operations, financial condition and ability to make cash distributions.

Our business could be materially adversely affected by severe weather conditions. Severe weather conditions may affect our customers’ operations, thus reducing their need for our products, impact our operations by resulting in weather-related damage to our facilities and equipment and impact our customers’ ability to take delivery of our products at our plant site. Any weather-related interference with our operations could force us to delay or curtail services and potentially breach our contractual obligations to deliver minimum volumes or result in a loss of productivity and an increase in our operating costs.

In addition, winter weather conditions impact our operations by causing us to halt our excavation and wet plant related production activities during the winter months. During non-winter months, we excavate excess sand to build a stockpile that will feed the dry plant which continues to operate during the winter months. Unexpected winter conditions (such as winter arriving earlier than expected or lasting longer than expected) may result in us not having a sufficient sand stockpile to supply feedstock for our dry plant during winter months, which could result in us being unable to meet our contracted sand deliveries during such time and lead to a material adverse effect on our business, results of operations, financial condition and ability to make cash distributions.

Our cash flow fluctuates on a seasonal basis.

Our cash flow is affected by a variety of factors, including weather conditions and seasonal periods. Seasonal fluctuations in weather impact the production levels at our wet processing plant. While our sales and finished product production levels are contracted evenly throughout the year, our mining and wet sand processing activities are limited to non-winter months. As a consequence, we experience lower cash costs in the first and fourth quarter of each calendar year.

A terrorist attack or armed conflict could harm our business.

Terrorist activities, anti-terrorist efforts and other armed conflicts involving the United States could adversely affect the U.S. and global economies and could prevent us from meeting financial and other obligations. We could experience loss of business, delays or defaults in payments from payors or disruptions of fuel supplies and markets if pipelines, production facilities, processing plants or refineries are direct targets or indirect casualties of an act of terror or war. Such activities could reduce the

overall demand for oil and natural gas, which, in turn, could also reduce the demand for our frac sand. Terrorist activities and the threat of potential terrorist activities and any resulting economic downturn could adversely affect our results of operations, impair our ability to raise capital or otherwise adversely impact our ability to realize certain business strategies.

Risks Related to Environmental, Mining and Other Regulation

We and our customers are subject to extensive environmental and occupational health and safety regulations that impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.

We are subject to a variety of federal, state, and local regulatory environmental requirements affecting the mining and mineral processing industry, including among others, those relating to employee health and safety, environmental permitting and licensing, air and water emissions, water pollution, waste management, remediation of soil and groundwater contamination, land use, reclamation and restoration of properties, hazardous materials, and natural resources. Some environmental laws impose substantial penalties for noncompliance, and others, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), may impose strict, retroactive, and joint and several liability for the remediation of releases of hazardous substances. Liability under CERCLA, or similar state and local laws, may be imposed as a result of conduct that was lawful at the time it occurred or for the conduct of, or conditions caused by, prior operators or other third parties. Failure to properly handle, transport, store, or dispose of hazardous materials or otherwise conduct our operations in compliance with environmental laws could expose us to liability for governmental penalties, cleanup costs, and civil or criminal liability associated with releases of such materials into the environment, damages to property, or natural resources and other damages, as well as potentially impair our ability to conduct our operations. In addition, future environmental laws and regulations could restrict our ability to expand our facilities or extract our mineral deposits or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. Future events, including changes in any environmental requirements (or their interpretation or enforcement) and the costs associated with complying with such requirements, could have a material adverse effect on us.

Any failure by us to comply with applicable environmental laws and regulations may cause governmental authorities to take actions that could adversely impact our operations and financial condition, including:

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issuance of administrative, civil, or criminal penalties;

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denial, modification, or revocation of permits or other authorizations;

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imposition of injunctive obligations or other limitations on our operations, including cessation of operations; and

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requirements to perform site investigatory, remedial, or other corrective actions.

Any such regulations could require us to modify existing permits or obtain new permits, implement additional pollution control technology, curtail operations, increase significantly our operating costs, or impose additional operating restrictions among our customers that reduce demand for our services.

We may not be able to comply with any new laws and regulations that are adopted, and any new laws and regulations could have a material adverse effect on our operating results by requiring us to modify our operations or equipment or shut down our facility. Additionally, our customers may not be able to comply with any new laws and regulations, which could cause our customers to curtail or cease

operations. We cannot at this time reasonably estimate our costs of compliance or the timing of any costs associated with any new laws and regulations, or any material adverse effect that any new standards will have on our customers and, consequently, on our operations.

Silica-related legislation, health issues and litigation could have a material adverse effect on our business, reputation or results of operations.

We are subject to laws and regulations relating to human exposure to crystalline silica. Several federal and state regulatory authorities, including the U.S. Mining Safety and Health Administration (“MSHA”) may continue to propose changes in their regulations regarding workplace exposure to crystalline silica, such as permissible exposure limits and required controls and personal protective equipment. We may not be able to comply with any new laws and regulations that are adopted, and any new laws and regulations could have a material adverse effect on our operating results by requiring us to modify or cease our operations.

In addition, the inhalation of respirable crystalline silica is associated with the lung disease silicosis. There is recent evidence of an association between crystalline silica exposure or silicosis and lung cancer and a possible association with other diseases, including immune system disorders such as scleroderma. These health risks have been, and may continue to be, a significant issue confronting the frac sand industry. Concerns over silicosis and other potential adverse health effects, as well as concerns regarding potential liability from the use of frac sand, may have the effect of discouraging our customers’ use of our frac sand. The actual or perceived health risks of mining, processing and handling frac sand could materially and adversely affect frac sand producers, including us, through reduced use of frac sand, the threat of product liability or employee lawsuits, increased scrutiny by federal, state and local regulatory authorities of us and our customers or reduced financing sources available to the frac sand industry.

We are subject to the Federal Mine Safety and Health Act of 1977, which imposes stringent health and safety standards on numerous aspects of our operations.

Our operations are subject to the Federal Mine Safety and Health Act of 1977, as amended by the Mine Improvement and New Emergency Response Act of 2006, which imposes stringent health and safety standards on numerous aspects of mineral extraction and processing operations, including the training of personnel, operating procedures, operating equipment, and other matters. Our failure to comply with such standards, or changes in such standards or the interpretation or enforcement thereof, could have a material adverse effect on our business and financial condition or otherwise impose significant restrictions on our ability to conduct mineral extraction and processing operations.

We and our customers are subject to other extensive regulations, including licensing, plant and wildlife protection and reclamation regulation, that impose, and will continue to impose, significant costs and liabilities. In addition, future regulations, or more stringent enforcement of existing regulations, could increase those costs and liabilities, which could adversely affect our results of operations.

In addition to the regulatory matters described above, we and our customers are subject to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection, wetlands protection, reclamation and restoration activities at mining properties after mining is completed, the discharge of materials into the environment, and the effects that mining and hydraulic fracturing have on groundwater quality and availability. Our future success depends, among other things, on the quantity and quality of our frac sand deposits, our ability to extract these deposits profitably, and our customers being able to operate their businesses as they currently do.

In order to obtain permits and renewals of permits in the future, we may be required to prepare and present data to governmental authorities pertaining to the potential adverse impact that any proposed excavation or production activities, individually or in the aggregate, may have on the environment. Certain approval procedures may require preparation of archaeological surveys, endangered species studies, and other studies to assess the environmental impact of new sites or the expansion of existing sites. Compliance with these regulatory requirements is expensive and significantly lengthens the time needed to develop a site. Finally, obtaining or renewing required permits is sometimes delayed or prevented due to community opposition and other factors beyond our control. The denial of a permit essential to our operations or the imposition of conditions with which it is not practicable or feasible to comply could impair or prevent our ability to develop or expand a site. Significant opposition to a permit by neighboring property owners, members of the public, or other third parties, or delay in the environmental review and permitting process also could delay or impair our ability to develop or expand a site. New legal requirements, including those related to the protection of the environment, could be adopted that could materially adversely affect our mining operations (including our ability to extract or the pace of extraction of mineral deposits), our cost structure, or our customers’ ability to use our frac sand. Such current or future regulations could have a material adverse effect on our business and we may not be able to obtain or renew permits in the future.

Our inability to acquire, maintain or renew financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition and results of operations.

We are generally obligated to restore property in accordance with regulatory standards and our approved reclamation plan after it has been mined. We are required under federal, state, and local laws to maintain financial assurances, such as surety bonds, to secure such obligations. The inability to acquire, maintain or renew such assurances, as required by federal, state, and local laws, could subject us to fines and penalties as well as the revocation of our operating permits. Such inability could result from a variety of factors, including:

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the lack of availability, higher expense, or unreasonable terms of such financial assurances;

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the ability of current and future financial assurance counterparties to increase required collateral; and

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the exercise by financial assurance counterparties of any rights to refuse to renew the financial assurance instruments.

Our inability to acquire, maintain, or renew necessary financial assurances related to the reclamation and restoration of mining property could have a material adverse effect on our business, financial condition, and results of operations.

Climate change legislation and regulatory initiatives could result in increased compliance costs for us and our customers.

In recent years, the U.S. Congress has considered legislation to reduce emissions of greenhouse gases (“GHGs”), including methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of natural gas. It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future, although energy legislation and other regulatory initiatives are expected to be proposed that may be relevant to GHG emissions issues. In addition, a number of states have begun to address GHG emissions, primarily through the development of emission inventories or regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. Independent of Congress, the EPA is

beginning to adopt regulations controlling GHG emissions under its existing authority under the Clean Air Act (“CAA”). For example, in December 2009, the EPA published findings that emissions of GHGs present an endangerment to human health and the environment because such emissions contributed to warming of the earth’s atmosphere and other climatic changes. Based on these findings, the EPA has adopted regulations under existing provisions of the CAA that, among other things establish construction and operating permit reviews for GHG emissions from certain large stationary sources that are already potential major sources for conventional pollutants. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified production, processing, transmission and storage facilities in the United States on an annual basis. Although it is not currently possible to predict how any such proposed or future GHG legislation or regulation by Congress, the states or multi-state regions will impact our business, any legislation or regulation of GHG emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions to us or our exploration and production customers, and could reduce demand for our frac sand, which could have a significant adverse effect on our operations.

Risks Inherent in an Investment in Us

Our general partner and its affiliates, including our sponsor, have conflicts of interest with us and limited fiduciary duties to us and our unitholders, and they may favor their own interests to our detriment and that of our unitholders. Additionally, we have no control over the business decisions and operations of our sponsor, and our sponsor is under no obligation to adopt a business strategy that favors us.

Following this offering, our sponsor, Smart Sand Holdings LLC, will own and control our general partner and will appoint all of the directors of our general partner. Although our general partner has a duty to manage us in a manner that is in the best interests of our partnership and our unitholders, the directors and officers of our general partner also have a duty to manage our general partner in a manner that is in the best interests of our sponsor. Conflicts of interest may arise between our sponsor and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates, including our sponsor, over the interests of our common unitholders. These conflicts include, among others, the following situations:

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neither our partnership agreement nor any other agreement requires our sponsor to pursue a business strategy that favors us or utilizes our assets, which could involve decisions by our sponsor to invest in competitors, pursue and grow particular markets, or undertake acquisition opportunities for itself. Our sponsor’s directors and officers have a duty to make these decisions in the best interests of our sponsor;

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our general partner is allowed to take into account the interests of parties other than us, such as our sponsor, in resolving conflicts of interest;

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our sponsor may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests;

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our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties, limiting our general partner’s liabilities and restricting the remedies available to our unitholders for actions that, without such limitations, might constitute breaches of fiduciary duty under Delaware law;

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except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;

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our general partner will determine the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership interests and the creation, reduction or increase of cash reserves, each of which can affect the amount of cash that is distributed to our unitholders;

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our general partner will determine the amount and timing of many of our cash expenditures, whether a cash expenditure is classified as an expansion capital expenditure, which would not reduce operating surplus, or a maintenance capital expenditure, which would reduce our operating surplus, and whether to set aside cash for future maintenance capital expenditures on certain of our assets that will need extensive repairs during their useful lives. This determination can affect the amount of available cash from operating surplus that is distributed to our unitholders and to our general partner, the amount of adjusted operating surplus generated in any given period and the ability of the subordinated units to convert into common units;

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our general partner will determine which costs and expenses incurred by it are reimbursable by us;

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our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;

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our partnership agreement permits us to distribute up to $ million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or to our general partner in respect of the incentive distribution rights;

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our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

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our general partner intends to limit its liability regarding our contractual and other obligations;

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our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates at a price not less than the then-current market price if it and its affiliates own more than 80.0% of our common units;

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our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates;

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our general partner decides whether to retain separate counsel, accountants or others to perform services for us; and

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our general partner, or any transferee holding incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner, which we refer to as our conflicts committee, or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders. Please read “Conflicts of Interest and Duties.”

Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.

Our partnership agreement requires that we distribute all of our available cash to our unitholders. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. Therefore, to the extent we are unable to finance our growth externally, our cash distribution policy will significantly impair our ability to grow. In addition, because we will distribute all of our available cash, our growth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement, and we do not anticipate there being limitations in our indebtedness, on our ability to issue additional units, including units ranking senior to our common units as to distributions or in liquidation or that have special voting rights and other rights, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional units. The incurrence of additional commercial bank borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the amount of cash that we have available to distribute to our unitholders.

While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions, may be amended.

While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions, may be amended. During the subordination period, our partnership agreement may not be amended without the approval of our public common unitholders, except in a limited number of circumstances when our general partner can amend our partnership agreement without any unitholder approval. For a description of these limited circumstances, please read “Our Partnership Agreement—Amendment of Our Partnership Agreement—No Unitholder Approval.” However, after the subordination period has ended, our partnership agreement may be amended with the consent of our general partner and the approval of a majority of the outstanding common units, including common units owned by our general partner and its affiliates. At the completion of this offering, our sponsor will own an aggregate of approximately % of our outstanding common units and all of our subordinated units (assuming the underwriters do not exercise their option to purchase additional common units).

Our partnership agreement replaces our general partner’s fiduciary duties to holders of our common units with contractual standards governing its duties.

Delaware law provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to limited partners and the partnership. As permitted by Delaware law, our partnership agreement contains provisions that eliminate the fiduciary standards to which our general partner would otherwise be held by state fiduciary duty law and replaces those duties with several different contractual standards. For

example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, free of any duties to us and our unitholders. This provision entitles our general partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:

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how to allocate corporate opportunities among us and its affiliates;

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whether to exercise its limited call right;

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whether to seek approval of the resolution of a conflict of interest by the conflicts committee of the board of directors of our general partner;

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how to exercise its voting rights with respect to the units it owns;

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whether to elect to reset target distribution levels;

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whether to transfer the incentive distribution rights or any units it owns to a third party; and

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whether or not to consent to any merger, consolidation or conversion of the partnership or amendment to the partnership agreement.

By purchasing a common unit, a unitholder is treated as having consented to the provisions in our partnership agreement, including the provisions discussed above. Please read “Conflicts of Interest and Duties—Duties of the General Partner.”

Our general partner intends to limit its liability regarding our obligations.

Our general partner intends to limit its liability under contractual arrangements so that counterparties to such agreements have recourse only against our assets and not against our general partner or its assets or any affiliate of our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s duties, even if we could have obtained terms that are more favorable without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.

Our partnership agreement restricts the remedies available to holders of our common units and subordinated units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:

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whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, meaning that it subjectively believed that the determination or the decision to take or decline to take such action was in the best interests of our partnership, and will not be subject to any higher standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;

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our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in actual fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and

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our general partner will not be in breach of its obligations under our partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is approved in accordance with, or otherwise meets the standards set forth in, our partnership agreement.

In connection with a situation involving a transaction with an affiliate or a conflict of interest, our partnership agreement provides that any determination by our general partner must be made in good faith, and that our conflicts committee and the board of directors of our general partner are entitled to a presumption that they acted in good faith. In any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Duties.”

Cost and expense reimbursements, which will be determined by our general partner, and fees due to our general partner and its affiliates for services provided will be substantial and will reduce our distributable cash flow.

Our partnership agreement requires us to reimburse our general partner and its affiliates for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner or its affiliates in connection with managing and operating our business and affairs. Except to the extent specified under our omnibus agreement, our general partner determines the amount of these expenses. Under the omnibus agreement, we will reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement). Our general partner and its affiliates also may provide us other services for which we will be charged fees. Payments to our general partner and its affiliates will be substantial and will reduce the amount of cash we have available to distribute to unitholders. For the twelve months ending December 31, 2015, we estimate that these expenses will be approximately $9.6 million, which includes, among other items, compensation expense for all employees required to manage and operate our business. For a description of the cost reimbursements to our general partner and our sponsor, please read “Our Partnership Agreement—Reimbursement of Expenses” and “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement.”

Unitholders have very limited voting rights and, even if they are dissatisfied, they will have limited ability to remove our general partner.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. For example, unlike holders of stock in a public corporation, unitholders will not have “say-on-pay” advisory voting rights. Unitholders did not elect our general partner or the board of directors of our general partner and will have no right to elect our general partner or the board of directors of our general partner on an annual or other continuing basis. Through its direct ownership of our general partner, our sponsor has the right to appoint the entire board of directors of our general partner, including our independent directors. Furthermore, if the unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a

result of these limitations, the price at which our common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Our general partner may not be removed unless such removal is both (i) for cause and (ii) approved by a vote of the holders of at least 66²⁄₃% of the outstanding units, including any units owned by our general partner and its affiliates, voting together as a single class. “Cause” is narrowly defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner liable to us or any limited partner for actual fraud or willful misconduct in its capacity as our general partner. Upon the completion of this offering, our sponsor will own % of our total outstanding common units and subordinated units on an aggregate basis (or % of our total outstanding common units and subordinated units on an aggregate basis if the underwriters exercise in full their option to purchase additional common units). This will give our sponsor the ability to prevent the removal of our general partner.

Furthermore, unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20.0% or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.

Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of our sponsor to transfer its membership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices.

We may issue an unlimited number of additional partnership interests without unitholder approval, which would dilute your existing ownership interests.

At any time, we may issue an unlimited number of general partner interests or limited partner interests of any type without the approval of our unitholders and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such general partner interests or limited partner interests. Further, there are no limitations in our partnership agreement on our ability to issue equity securities that rank equal or senior to our common units as to distributions or in liquidation or that have special voting rights and other rights. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

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our existing unitholders’ proportionate ownership interest in us will decrease;

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the amount of cash we have available to distribute on each unit may decrease;

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because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

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the ratio of taxable income to distributions may increase;

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the relative voting strength of each previously outstanding unit may be diminished; and

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the market price of our common units may decline.

The issuance by us of additional general partner interests may have the following effects, among others, if such general partner interests are issued to a person who is not an affiliate of our sponsor:

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management of our business may no longer reside solely with our current general partner; and

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affiliates of the newly admitted general partner may compete with us, and neither that general partner nor such affiliates will have any obligation to present business opportunities to us.

Our sponsor may sell units in the public or private markets, and such sales could have an adverse impact on the trading price of the common units.

After the completion of this offering, assuming that the underwriters do not exercise their option to purchase additional common units, our sponsor will hold common units and subordinated units. All of the subordinated units will convert into common units at the end of the subordination period. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.” Additionally, we have agreed to provide our sponsor with certain registration rights under applicable securities laws. Please read “Units Eligible for Future Sale.” The sale of these units in the public or private markets could have an adverse impact on the price of the common units or on any trading market that may develop.

Our general partner’s discretion in establishing cash reserves may reduce the amount of cash we have available to distribute to unitholders.

Our partnership agreement requires our general partner to deduct from operating surplus the cash reserves that it determines are necessary to fund our future operating expenditures. In addition, the partnership agreement permits the general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash we have available to distribute to unitholders.

Affiliates of our general partner, including, but not limited to, our sponsor, may compete with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us.

Neither our partnership agreement nor our omnibus agreement will prohibit our sponsor or any other affiliates of our general partner from owning assets or engaging in businesses that compete directly or indirectly with us. Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our general partner or any of its affiliates, including our sponsor. Any such entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Moreover, except for the obligations set forth in the omnibus agreement, neither our sponsor nor any of its affiliates have a contractual obligation to offer us the opportunity to purchase additional assets from it, and we are unable to predict whether or when such an offer may be presented and acted upon. As a result, competition from our sponsor and other affiliates of our general partner could materially and adversely impact our results of operations and distributable cash flow.

Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80.0% of our then-outstanding common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. At the completion of this offering and assuming the underwriters do not exercise their option to purchase additional common units, our sponsor will own approximately % of our common units. At the end of the subordination period (which could occur as early as , 2015), assuming no additional issuances of common units by us (other than upon the conversion of the subordinated units) and the underwriters do not exercise their option to purchase additional common units, our sponsor will own approximately % of our outstanding common units. For additional information about our general partner’s call right, please read “Our Partnership Agreement—Limited Call Right.”

Unitholders may have to repay distributions that were wrongfully distributed to them.

Under certain circumstances, unitholders may have to repay amounts wrongfully distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

There is no existing market for our common units, and a trading market that will provide you with adequate liquidity may not develop. The price of our common units may fluctuate significantly, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for our common units. After this offering, there will be only publicly traded common units held by our public common unitholders ( common units if the underwriters exercise in full their option to purchase additional common units). Our sponsor will own common units and subordinated units, representing an aggregate % limited partner interest in us (or common units and subordinated units, representing an aggregate % limited partner interest in us, if the underwriters exercise in full their option to purchase additional common units). We do not know the extent to which investor interest will lead to the development of an active trading market or how liquid that market might be. You may not be able to resell your common units at or above the initial public offering price. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and limit the number of investors who are able to buy the common units.

The initial public offering price for the common units offered hereby will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of the market price of the common units that will prevail in the trading market. The market price of our common units may decline below the initial public offering price.

Our general partner, or any transferee holding incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of our conflicts committee or the holders of our common units. This could result in lower distributions to holders of our common units.

Our general partner has the right, at any time units are outstanding and it has received distributions on its incentive distribution rights at the highest level to which it is entitled (50.0%) for each of the prior four consecutive fiscal quarters and the amount of such distribution did not exceed the adjusted operating surplus for such quarter, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units equal to that number of common units that would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to our general partner on the incentive distribution rights in such two quarters. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that they would have otherwise received had we not issued new common units in connection with resetting the target distribution levels. Additionally, our general partner has the right to transfer all or any portion of our incentive distribution rights at any time, and such transferee shall have the same rights as the general partner relative to resetting target distributions if our general partner concurs that the tests for resetting target distributions have been fulfilled. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

Our accounting predecessor for financial reporting purposes has a material weakness in its internal control over financial reporting. If we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.

Prior to the completion of this offering, our predecessor has been a private entity with limited accounting personnel and other supervisory resources to adequately execute its accounting processes and address its internal control over financial reporting. In connection with our predecessor’s audit for the years ended December 31, 2013 and 2012, our predecessor’s independent registered public accounting firm identified and communicated a material weakness related to the failure to maintain a sufficient complement of qualified accounting personnel, which contributed to our predecessor’s inability to maintain appropriate segregation of duties within the organization and effective review and supervision over the financial reporting process. A “material weakness” is a deficiency, or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of our predecessor’s financial statements will not be prevented, or detected on a timely basis. This material weakness resulted in audit adjustments, including correction of prior period errors, to our predecessor’s financial statements, which were identified by our independent registered public accounting firm.

After the closing of this offering, our management team and financial reporting oversight personnel will be those of Smart Sand Holdings LLC, our sponsor, and thus we may continue to face the same material weakness described above.

We are in the early phases of evaluating the design and operation of our internal control over financial reporting and will not complete our review until after this offering is completed. We cannot predict the outcome of our review at this time. During the course of the review, we may identify additional control deficiencies, which could give rise to significant deficiencies and other material weaknesses, in addition to the material weakness described above. The material weakness described above could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim financial statements that would not be prevented or detected. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weakness described above or avoid potential future material weaknesses.

We are not currently required to comply with the SEC’s rules implementing Section 404 of the Sarbanes Oxley Act of 2002, and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a publicly traded partnership, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes Oxley Act of 2002, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. Though we will be required to disclose material changes made to our internal controls and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a publicly traded partnership, we will need to implement additional internal controls, reporting systems and procedures and hire additional accounting, finance and legal staff. Furthermore, while we generally must comply with Section 404 of the Sarbanes Oxley Act of 2002 for our fiscal year ending December 31, 2014, we are not required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our first annual report subsequent to our ceasing to be an “emerging growth company” within the meaning of Section 2(a)(19) of the Securities Act. Accordingly, we may not be required to have our independent registered public accounting firm attest to the effectiveness of our internal controls until our annual report for the fiscal year ending December 31, 2019. Once it is required to do so, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed, operated or reviewed.

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential unitholders could lose confidence in our financial reporting, which would harm our business and the trading price of our common units.

Effective internal controls are necessary for us to provide reliable financial reports, prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We cannot be certain that our efforts to develop and maintain our internal controls will be successful, that we will be able to maintain adequate controls over our financial processes and reporting in the future or that we will be able to comply with our obligations under Section 404 of the Sarbanes Oxley Act of 2002. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving our internal controls, could harm our operating results or cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common units.

We will incur increased costs as a result of being a publicly traded partnership.

We have no history operating as a publicly traded partnership. As a publicly traded partnership, we will incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002 and related rules subsequently implemented by the SEC and the NASDAQ have required changes in the corporate governance practices of publicly traded companies. We expect these rules and regulations to increase our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a publicly traded partnership, we are required to have at least three independent directors, create an audit committee and adopt policies regarding internal controls and disclosure controls and procedures, including the preparation of reports on internal controls over financial reporting. In addition, we will incur additional costs associated with our publicly traded partnership reporting requirements and our general partner will maintain director and officer liability insurance under a separate policy. We have included $1.8 million of estimated annual incremental operating expenses associated with being a publicly traded partnership, as well as $1.2 million in non-recurring costs related to our transition to a publicly traded partnership, in our financial forecast included elsewhere in this prospectus. It is possible that our actual incremental operating expenses of being a publicly traded partnership will be higher than we currently estimate. The amount of cash we have available for distribution to our unitholders will be reduced by the costs associated with being a publicly traded partnership.

The NASDAQ does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.

We intend to apply for the quotation of our common units on the NASDAQ. Because we will be a publicly traded limited partnership, the NASDAQ does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Additionally, any future issuance of additional partnership interests, including to affiliates, will not be subject to the NASDAQ’s shareholder approval rules that apply to a corporation. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of the NASDAQ corporate governance requirements. Please read “Management—Management of Smart Sand Partners LP.”

You will experience immediate and substantial dilution in net tangible book value of $ per common unit.

The assumed initial public offering price of $ per common unit (the midpoint of the price range set forth on the cover page of this prospectus) exceeds our pro forma net tangible book value of $ per unit. Based on the assumed initial public offering price of $ per common unit, you will incur immediate and substantial dilution in pro forma net tangible book value of $ per common unit. This dilution results primarily because the assets contributed by our predecessor are recorded in accordance with GAAP at their historical cost, and not their fair value. Please read “Dilution.”

The incentive distribution rights of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers its incentive distribution rights to a third party but retains its general partner interest, our general partner may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if it had retained ownership of its incentive distribution rights. For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood that our sponsor, which owns our general partner, will sell or contribute additional assets to us, as our sponsor would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.

Our partnership agreement will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our unitholders, which would limit our unitholders’ ability to choose the judicial forum for disputes with us or our general partner’s directors, officers or other employees.

Our partnership agreement will provide that the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction) shall be the exclusive forum for any claims, suits, actions or proceedings (i) arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among our partners, or obligations or liabilities of our partners to us, or the rights or powers of, or restrictions on, our partners or us), (ii) brought in a derivative manner on our behalf, (iii) asserting a claim of breach of a duty owed by any of our, or our general partner’s, directors, officers, or other employees, or owed by our general partner, to us or our partners, (iv) asserting a claim against us arising pursuant to any provision of the Delaware Act or (v) asserting a claim against us governed by the internal affairs doctrine. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other court) in connection with any such claims, suits, actions or proceedings. This provision may have the effect of discouraging lawsuits against us and our general partner’s directors and officers. Please read “Our Partnership Agreement—Applicable Law; Exclusive Forum.”

Your liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law, and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. You could be liable for any and all of our obligations as if you were a general partner if a court or government agency were to determine that:

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we were conducting business in a state but had not complied with that particular state’s partnership statute; or

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your right to act with other unitholders to remove or replace our general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute “control” of our business.

For a discussion of the implications of the limitations of liability on a unitholder, please read “Our Partnership Agreement—Limited Liability.”

Tax Risks

In addition to reading the following risk factors, please read “Material Federal Income Tax Consequences” for a more complete discussion of the expected material federal income tax consequences of owning and disposing of common units.

Our tax treatment depends on our status as a partnership for federal income tax purposes. If the IRS were to treat us as a corporation for federal income tax purposes, which would subject us to entity-level taxation, then our distributable cash flow would be substantially reduced.

The anticipated after-tax economic benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax purposes. We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes.

Despite the fact that we are a limited partnership under Delaware law, it is possible in certain circumstances for a partnership such as ours to be treated as a corporation for federal income tax purposes. A change in our business or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.

If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 35.0%, and would likely pay state and local income tax at varying rates. Distributions would generally be taxed again as corporate dividends (to the extent of our current and accumulated earnings and profits), and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as a corporation, our distributable cash flow would be substantially reduced. Therefore, if we were treated as a corporation for federal income tax purposes, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.

Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

If we were subjected to a material amount of additional entity-level taxation by individual states, counties or cities, it would reduce our distributable cash flow.

Changes in current state, county or city law may subject us to additional entity-level taxation by individual states, counties or cities. Because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any such taxes may substantially reduce our distributable cash flow. Our partnership agreement provides that, if a law is enacted or existing law is modified or interpreted in a manner that subjects us to entity-level taxation, the minimum quarterly distribution amount and the target distribution levels may be adjusted to reflect the impact of that law on us.

The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly applied on a retroactive basis.

The present federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial interpretation at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships. Any modification to the federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible to meet the exception for us to be treated as a partnership for federal income tax purposes. Please read “Material Federal Income Tax Consequences—Partnership Status.” We are unable to predict whether any such changes will ultimately be enacted. However, it is possible that a change in law could affect us, and any such changes could negatively impact the value of an investment in our common units.

Our unitholders’ share of our taxable income will be taxable to them for federal income tax purposes even if they do not receive any cash distributions from us.

Because a unitholder will be treated as a partner to whom we will allocate taxable income that could be different in amount than the cash we distribute, a unitholder’s allocable share of our taxable income will be taxable to it, which may require the payment of federal income taxes and, in some cases, state and local income taxes, on its share of our taxable income even if it receives no cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our distributable cash flow.

We have not requested a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes. The IRS may adopt positions that differ from the conclusions of our counsel expressed in this prospectus or from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of our counsel’s conclusions or the positions we take. A court may not agree with some or all of our counsel’s conclusions or the positions we take. Any contest with the IRS, and the outcome of any IRS contest, may have a materially adverse impact on the market for our common units and the price at which they trade. In addition, our costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner, because the costs will reduce our distributable cash flow.

Tax gain or loss on the disposition of our common units could be more or less than expected.

If our unitholders sell common units, they will recognize a gain or loss for federal income tax purposes equal to the difference between the amount realized and their tax basis in those common units. Because distributions in excess of a unitholder’s allocable share of our net taxable income decreases its tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the common units a unitholder sells will, in effect, become taxable income to the unitholder if it sells such common units at a price greater than its tax basis in those common units at the time of the sale, even if the price received is less than its original cost. Furthermore, a substantial portion of the amount realized on any sale of common units, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation and depletion recapture. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, a unitholder that sells common units may incur a tax liability in excess of the amount of cash received from the sale. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Recognition of Gain or Loss” for a further discussion of the foregoing.

Tax-exempt entities and non-U.S. persons face unique tax issues from owning our common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (known as IRAs), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file federal income tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a non-U.S. person, you should consult a tax advisor before investing in our common units.

We will treat each purchaser of common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will adopt depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. Latham & Watkins LLP is unable to opine as to the validity of such filing positions. It also could affect the timing of these tax benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns. Please read “Material Federal Income Tax Consequences—Tax Consequences of Unit Ownership—Section 754 Election” for a further discussion of the effect of the depreciation and amortization positions we will adopt.

We will prorate our items of income, gain, loss and deduction for federal income tax purposes between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.

The use of this proration method may not be permitted under existing Treasury Regulations, and, accordingly, our counsel is unable to opine as to the validity of this method. However, the U.S. Treasury Department has issued proposed regulations that provide a safe harbor pursuant to which publicly traded partnerships may use a similar monthly simplifying convention to allocate tax items among transferor and transferee unitholders. Nonetheless, the proposed regulations do not specifically authorize the use of the proration method we will adopt. If the IRS were to challenge this method or new Treasury regulations were issued, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders. Latham & Watkins LLP has not rendered an opinion with respect to whether our monthly convention for allocating taxable income and losses is permitted by existing Treasury Regulations. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Allocations Between Transferors and Transferees.”

A unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of those common units. If so, he would no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.

Because a unitholder whose common units are loaned to a “short seller” to effect a short sale of common units may be considered as having disposed of the loaned common units, he may no longer be treated for federal income tax purposes as a partner with respect to those common units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Latham & Watkins LLP has not rendered an opinion regarding the treatment of a unitholder where common units are loaned to a short seller to effect a short sale of common units; therefore, our unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their common units.

We will adopt certain valuation methodologies and monthly conventions for federal income tax purposes that may result in a shift of income, gain, loss and deduction between our general partner and our unitholders. The IRS may challenge this treatment, which could adversely affect the value of the common units.

When we issue additional units or engage in certain other transactions, we will determine the fair market value of our assets and allocate any unrealized gain or loss attributable to our assets to the capital accounts of our unitholders and our general partner in its capacity as holder of our incentive distribution rights. Our methodology may be viewed as understating the value of our assets. In that case, there may be a shift of income, gain, loss and deduction between certain unitholders and our general partner, which may be unfavorable to such unitholders. Moreover, under our valuation methods, subsequent purchasers of common units may have a greater portion of their Internal Revenue Code Section 743(b) adjustment allocated to our tangible assets and a lesser portion allocated to our intangible assets. The IRS may challenge our valuation methods, or our allocation of the Section 743(b) adjustment attributable to our tangible and intangible assets, and allocations of taxable income, gain, loss and deduction between our general partner, in its capacity as holder of our incentive distribution rights, and certain of our unitholders.

A successful IRS challenge to these methods or allocations could adversely affect the amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of taxable gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.

The sale or exchange of 50.0% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.

We will be considered to have technically terminated our partnership for federal income tax purposes if there is a sale or exchange of 50.0% or more of the total interests in our capital and profits within a twelve month period. For purposes of determining whether the 50.0% threshold has been met, multiple sales of the same interest will be counted only once. Our technical termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in us filing two tax returns (and our unitholders could receive two Schedules K-1 if relief was not available, as described below) for one fiscal year and could result in a deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a fiscal year ending December 31, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in his taxable income for the year of termination. Our termination currently would not affect our classification as a partnership for federal income tax purposes, but instead we would be treated as a new partnership for federal income tax purposes. If treated as a new partnership, we must make new tax elections, including a new election under Section 754 of the Internal Revenue Code, and could be subject to penalties if we are unable to determine that a termination occurred. The IRS has announced a publicly traded partnership technical termination relief program whereby, if a publicly traded partnership that technically terminated requests publicly traded partnership technical termination relief and such relief is granted by the IRS, among other things, the partnership will only have to provide one Schedule K-1 to unitholders for the year notwithstanding two partnership tax years. Please read “Material Federal Income Tax Consequences—Disposition of Common Units—Constructive Termination” for a discussion of the consequences of our termination for federal income tax purposes.

As a result of investing in our common units, you may become subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.

In addition to federal income taxes, our unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. We initially expect to own property or conduct business in many states, most of which impose an income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may control assets or conduct business in additional states that impose a personal income tax. It is your responsibility to file all federal, state and local tax returns. Our counsel has not rendered an opinion on the state or local tax consequences of an investment in our common units. Please consult your tax advisor.

USE OF PROCEEDS

We expect to receive net proceeds of approximately $ million from the sale of common units offered by this prospectus, based on an assumed initial public offering price of $ per common unit (the mid-point of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts, the structuring fee and estimated offering expenses. Our estimate assumes that the underwriters do not exercise their option to purchase additional common units. We intend to use the net proceeds from this offering to:

•

fully fund approximately $27.4 million of expansion capital expenditures expected to be incurred through December 31, 2015;

•

pay approximately $1.5 million of debt issuance costs related to our new revolving credit facility; and

•

fund approximately $1.2 million in non-recurring costs related to our transition to a publicly traded partnership.

As of September 30, 2014, there was approximately $54.4 million, net of a $1.1 million debt discount, in outstanding borrowings under the predecessor credit facility, which matures on March 28, 2019. The predecessor credit facility bears interest at a variable rate that was approximately 4.0% as of September 30, 2014. The borrowings to be repaid were incurred to fund capital expenditures related to the Oakdale facility and Hixton site. Our sponsor intends to terminate the predecessor credit facility in connection with the completion of this offering, and we will retain no cash flow commitments related to the predecessor credit facility after its termination. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facilities—Our Predecessor’s Credit Facility and Other Arrangements—Predecessor Revolving Credit Facility.”

A $1.00 increase (decrease) in the assumed initial public offering price of $ per common unit would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of common units offered by us, as set forth on the cover page of this prospectus, remains the same and assuming the underwriters do not exercise their option to purchase additional common units, and after deducting underwriting discounts and commissions, the structuring fee and estimated offering expenses. The actual initial public offering price is subject to market conditions and negotiations between us and the underwriters. To the extent there is a change in the net proceeds we receive from this offering, we will make a corresponding change to the size of the cash distribution to our sponsor.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2014:

•

on a historical basis for our predecessor; and

•

on a pro forma basis to reflect this offering and other transactions described under “Summary—Organizational Transactions” and the application of the net proceeds from this offering as described under “Use of Proceeds.”

This table is derived from, should be read together with and is qualified in its entirety by reference to the historical consolidated financial statements and the accompanying notes and the unaudited pro forma condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus. You should also read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”


	As of September 30, 2014
	Historical			Pro forma
	(in millions)
Cash and cash equivalents	$	1.4		$

Long-term debt:
Predecessor credit facility(1)	$	56.2		$	—
Our new revolving credit facility		—
Series A Preferred Shares		28.0			—
Capital lease obligations		2.1			2.1
Notes payable		0.2			0.2

Total long-term debt (including current maturities)		86.5

Stockholders’ equity / partners’ capital(2):
Net investment	$	(2.6	)	$	—
Held by public:
Common units		—
Held by our sponsor
Common units		—
Subordinated units		—

Total net investment/equity		(2.6	)

Total capitalization	$	83.9		$

(1)

As of September 30, 2014, there was approximately $55.5 million (including debt discount of $1.1 million) outstanding under the predecessor credit facility as well as $0.7 million of accrued interest included in accrued expenses in the consolidated balance sheet. In connection with the completion of this offering, (i) we will make a distribution of approximately $ million to our sponsor from the net proceeds of this offering, a portion of which will be used by our sponsor to pay in full outstanding borrowings under the predecessor credit facility and (ii) our sponsor will terminate the predecessor credit facility. Please read “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facilities—Our Predecessor’s Credit Facility and Other Arrangements—Predecessor Revolving Credit Facility.”

(2)	Assumes the underwriters do not exercise their option to purchase additional common units.

DILUTION

Dilution is the amount by which the offering price per common unit in this offering will exceed the pro forma net tangible book value per unit after the offering. On a pro forma basis as of September 30, 2014, after giving effect to the offering of common units and the application of the related net proceeds, and assuming the underwriters do not exercise their option to purchase additional common units, our net tangible book value was approximately $ million, or $ per unit. Purchasers of common units in this offering will experience substantial and immediate dilution in pro forma net tangible book value per common unit for financial accounting purposes, as illustrated in the following table.


Assumed initial public offering price per common unit(1)		$
Pro forma net tangible book value per unit before the offering(2)	$
Decrease in net tangible book value per unit attributable to purchasers in the offering

Less: Pro forma net tangible book value per unit after the offering(3)

Immediate dilution in pro forma net tangible book value per common unit to purchasers in the offering(4)(5)		$

(1)	The mid-point of the price range set forth on the cover page of this prospectus.

(2)	Determined by dividing the number of units ( common units and subordinated units) to be issued to our sponsor for its contribution of assets and liabilities to us into the pro forma net tangible book value of the contributed assets and liabilities.

(3)	Determined by dividing the number of units to be outstanding after this offering ( common units and subordinated units) into our pro forma net tangible book value, after giving effect to the application of the net proceeds from this offering.

(4)	If the initial public offering price were to increase or decrease by $1.00 per common unit, then immediate dilution in net tangible book value per common unit would equal $ and $ , respectively.

(5)

Assumes that the underwriters do not exercise their option to purchase additional common units. If the underwriters exercise in full their option to purchase additional common units and the net proceeds are used to redeem an equal number of common units as described under “Use of Proceeds,” the immediate dilution in net tangible book value per common unit to purchasers in this offering will be $ .

The following table sets forth the number of units that we will issue and the total consideration contributed to us by our sponsor in respect of its units and by the purchasers of common units in this offering upon consummation of the transactions contemplated by this prospectus.


	Units Acquired				Total Consideration
	Number	Percent			Amount	Percent
	(in thousands)
Our Sponsor(1)(2)(3)				%	$			%
Public common unitholders				%				%

Total			100.0	%	$		100.0	%

(1)	Upon the consummation of the transactions contemplated by this prospectus, common units and subordinated units will be owned by our sponsor.

(2)	Assumes that the underwriters do not exercise their option to purchase additional common units.

(3)

The assets contributed by our sponsor were recorded at historical cost in accordance with GAAP. Book value of the consideration provided by our sponsor as of September 30, 2014, after giving effect to the organizational transactions, the application of the net proceeds from this offering and the payment of $ million of offering expenses, was as follows:


		(in thousands)
Pro forma book value of net assets contributed		$
Less:
Distribution of net proceeds from this offering

Total consideration		$

CASH DISTRIBUTION POLICY AND RESTRICTIONS ON DISTRIBUTIONS

The following discussion of our cash distribution policy should be read in conjunction with the specific assumptions included in this section. In addition, “Forward-Looking Statements” and “Risk Factors” should be read for information regarding statements that do not relate strictly to historical or current facts and regarding certain risks inherent in our business.

For additional information regarding our historical and pro forma results of operations, please refer to our historical consolidated financial statements and the accompanying notes and the unaudited pro forma condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

General

Rationale for Our Cash Distribution Policy

Our partnership agreement requires that we distribute all of our available cash quarterly. This requirement forms the basis of our cash distribution policy and reflects a basic judgment that our unitholders will be better served by distributing our available cash rather than retaining it, because, among other reasons, we believe we will generally finance any expansion capital expenditures from external financing sources. Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner. However, other than the requirement in our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to make quarterly cash distributions in this or any other amount, and our general partner has considerable discretion to determine the amount of our available cash each quarter. In addition, our general partner may change our cash distribution policy at any time, subject to the requirement in our partnership agreement to distribute all of our available cash quarterly. Generally, our available cash is our (i) cash on hand at the end of a quarter after the payment of our expenses and the establishment of cash reserves and (ii) cash on hand resulting from working capital borrowings made after the end of the quarter. Because we are not subject to an entity-level federal income tax, we expect to have more cash to distribute than would be the case if we were subject to federal income tax. If we do not generate sufficient available cash from our operations, we may, but are under no obligation to, borrow funds to pay distributions to our partners.

Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy

Although our partnership agreement requires that we distribute all of our available cash quarterly, there is no guarantee that we will make quarterly cash distributions to our unitholders at our minimum quarterly distribution rate or at any other rate, and we have no legal obligation to do so. Our current cash distribution policy is subject to certain restrictions, as well as the considerable discretion of our general partner in determining the amount of our available cash each quarter. The following factors will affect our ability to make cash distributions, as well as the amount of any cash distributions we make:

•

Our ability to pay cash distributions will be subject to restrictions on cash distributions under our new revolving credit facility and other debt agreements we may enter into in the future. We expect that our new revolving credit facility will contain covenants requiring us and our subsidiaries to maintain certain financial ratios and contain certain restrictions on incurring indebtedness, making distributions, making investments and engaging in certain other partnership actions, including making cash distributions while a default or event of default has occurred and is continuing.

Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facilities—Our New Revolving Credit Facility” and “Risk Factors—Risks Inherent in Our Business— Restrictions in our anticipated new revolving credit facility may limit our ability to capitalize on acquisition and other business opportunities and may restrict our ability to make distributions to our unitholders.”

•

The amount of cash that we distribute and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement. For example, our general partner will have the authority to establish cash reserves for the prudent conduct of our business and for future cash distributions to our unitholders, and the establishment of or increase in those reserves could result in a reduction in cash distributions from levels we currently anticipate.

•

While our partnership agreement requires us to distribute all of our available cash, our partnership agreement, including the provisions requiring us to make cash distributions, may be amended. During the subordination period our partnership agreement may not be amended without the approval of our public common unitholders, except in a limited number of circumstances when our general partner can amend our partnership agreement without any unitholder approval. For a description of these limited circumstances, please read “Our Partnership Agreement—Amendment of Our Partnership Agreement—No Unitholder Approval.” However, after the subordination period has ended, our partnership agreement may be amended with the consent of our general partner and the approval of a majority of the outstanding common units, including common units owned by our general partner and its affiliates. At the closing of this offering, our sponsor will own our general partner and an aggregate of approximately % of our outstanding common units and all of our subordinated units (assuming no exercise of the underwriters’ option to purchase additional common units).

•

Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution if the distribution would cause our liabilities to exceed the fair value of our assets.

•

We may lack sufficient cash to pay distributions to our unitholders due to cash flow shortfalls attributable to a number of operational, commercial or other factors as well as increases in our operating and maintenance or general and administrative expenses, principal and interest payments on our debt, tax expenses, working capital requirements and anticipated cash needs. Our available cash is directly impacted by our cash expenses necessary to run our business and will be reduced dollar-for-dollar to the extent such uses of cash increase. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Distributions of Available Cash.”

•

Our ability to make cash distributions to our unitholders depends on the performance of our subsidiaries and their ability to distribute cash to us. The ability of our subsidiaries to make cash distributions to us may be restricted by, among other things, the provisions of future indebtedness, applicable state partnership and limited liability company laws and other laws and regulations.

•

If and to the extent our available cash materially declines from quarter to quarter, we may elect to reduce the amount of our quarterly distributions in order to service or repay our debt or fund expansion capital expenditures.

To the extent that our general partner determines not to distribute the full minimum quarterly distribution from operating surplus on our common units with respect to any quarter during the subordination period, the common units will accrue an arrearage equal to the difference between the minimum quarterly distribution and the amount of the distribution actually paid on the common units

with respect to that quarter. The aggregate amount of any such arrearages must be paid on the common units before any distributions of available cash from operating surplus may be made on the subordinated units and before any subordinated units may convert into common units. The subordinated units will not accrue any arrearages. Any shortfall in the payment of the minimum quarterly distribution on the common units with respect to any quarter during the subordination period may decrease the likelihood that our quarterly distribution rate would increase in subsequent quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.”

Our Ability to Grow is Dependent on Our Ability to Access External Expansion Capital

Our partnership agreement requires us to distribute all of our available cash to our unitholders on a quarterly basis. As a result, we expect that we will rely primarily upon our cash reserves and external financing sources, including borrowings under our current and future credit facilities and the issuance of debt and equity securities, to fund future acquisitions and other expansion capital expenditures. We do not have any commitment from our sponsor to provide any capital to us following this offering. To the extent we are unable to finance growth with external sources of capital, the requirement in our partnership agreement to distribute all of our available cash will significantly impair our ability to grow. In addition, because we will distribute all of our available cash, our growth may not be as fast as businesses that reinvest all of their available cash to expand ongoing operations. We expect that our new revolving credit facility will restrict our ability to incur additional debt, including through the issuance of debt securities. We anticipate that any future credit facilities and other debt agreements we may enter into in the future would restrict our ability to incur additional debt. Please read “Risk Factors—Risks Inherent in Our Business—Restrictions in our anticipated new revolving credit facility may limit our ability to capitalize on acquisition and other business opportunities and may restrict our ability to make distributions to our unitholders.” To the extent we issue additional units, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our cash distributions per unit. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to our common units, and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such additional units. If we incur additional debt (under our current and future credit facilities or otherwise) to finance our growth strategy, we will have increased interest expense, which in turn will reduce the available cash that we have to distribute to our unitholders. Please read “Risk Factors—Risks Inherent in Our Business—Restrictions in our anticipated new revolving credit facility may limit our ability to capitalize on acquisition and other business opportunities and may restrict our ability to make distributions to our unitholders.”

Our Minimum Quarterly Distribution

Upon the consummation of this offering, our partnership agreement will provide for a minimum quarterly distribution of $ per unit for each whole quarter, or $ per unit on an annualized basis. Our ability to make cash distributions at the minimum quarterly distribution rate will be subject to the factors described above under “—General—Limitations on Cash Distributions and Our Ability to Change Our Cash Distribution Policy.” Quarterly distributions, if any, will be made within 45 days after the end of each calendar quarter to holders of record on or about the first day of each such month in which such distributions are made. We will adjust the amount of our first distribution for the period from the closing of this offering through , 2014, based on the actual length of the period.

The amount of available cash needed to pay the minimum quarterly distribution on all of our common units and subordinated units to be outstanding immediately after this offering for one quarter and on an annualized basis (assuming no exercise and full exercise of the underwriters’ option to purchase additional common units) is summarized in the table below:

No Exercise of Option to Purchase
Additional Common Units

Full Exercise of Option to Purchase
Additional Common Units

Aggregate Minimum Quarterly
Distributions

(dollars in thousands)

Number of Units

One Quarter

Annualized
(Four
Quarters)

Number of Units

One Quarter

Annualized
(Four
Quarters)

Publicly held common units

Common units held by our sponsor

Subordinated units held by our sponsor

Total

Our general partner will initially hold all of the incentive distribution rights, which entitle the holder to increasing percentages, up to a maximum of 50.0%, of the cash we distribute in excess of $ per unit per quarter.

During the subordination period, before we make any quarterly distributions from operating surplus to our subordinated unitholders, our common unitholders are entitled to receive payment of the full minimum quarterly distribution from operating surplus for such quarter plus any arrearages in distributions from operating surplus of the minimum quarterly distribution from prior quarters. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.” We cannot guarantee, however, that we will pay distributions on our common units at our minimum quarterly distribution rate or at any other rate in any quarter.

Although holders of our common units may pursue judicial action to enforce provisions of our partnership agreement, including those related to requirements to make cash distributions as described above, our partnership agreement provides that any determination made by our general partner in its capacity as our general partner must be made in good faith and that any such determination will not be subject to any other standard imposed by the Delaware Act or any other law, rule or regulation or at equity. Our partnership agreement provides that, in order for a determination by our general partner to be made in “good faith,” our general partner must subjectively believe that the determination is in the best interests of our partnership. In making such determination, our general partner may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. Please read “Conflicts of Interest and Duties.”

The provision in our partnership agreement requiring us to distribute all of our available cash quarterly may not be modified without amending our partnership agreement; however, as described above, the actual amount of our cash distributions for any quarter is subject to fluctuations based on the amount of cash we generate from our business, the amount of reserves our general partner establishes in accordance with our partnership agreement and the amount of available cash from working capital borrowings.

Additionally, our general partner may reduce the minimum quarterly distribution and the target distribution levels if legislation is enacted or modified that results in our becoming taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes. In such an event, the minimum quarterly distribution and the target distribution levels may be reduced proportionately by the percentage decrease in our available cash resulting from the estimated tax liability we would incur in the quarter in which such legislation is effective. The minimum quarterly distribution will also be proportionately adjusted in the event of any distribution, combination or subdivision of common units in accordance with the partnership agreement, or in the event of a distribution of available cash from capital surplus. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels.” The minimum quarterly distribution is also subject to adjustment if the holder(s) of the incentive distribution rights (initially only our general partner) elect to reset the target distribution levels related to the incentive distribution rights. In connection with any such reset, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution amount per common unit for the two quarters immediately preceding the reset. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner’s Right to Reset Incentive Distribution Levels.”

In the sections that follow, we present in detail the basis for our belief that we will be able to fully fund our annualized minimum quarterly distribution of $ per unit for the twelve months ending December 31, 2015. In those sections, we present two tables, consisting of:

•

“Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2013 and the Twelve Months Ended September 30, 2014,” in which we present the amount of distributable cash flow we would have generated on a pro forma basis for the year ended December 31, 2013, and the twelve months ended September 30, 2014, derived from our unaudited pro forma condensed consolidated financial statements that are included in this prospectus, as adjusted to give pro forma effect to this offering and the related transactions; and

•

“Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015,” in which we provide our estimated forecast of our ability to generate sufficient distributable cash flow to support the payment of the minimum quarterly distribution on all units for the twelve months ending December 31, 2015.

Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2013, and the Twelve Months Ended September 30, 2014

If we had completed the transactions contemplated by this prospectus on January 1, 2013, our unaudited pro forma distributable cash flow generated for the year ended December 31, 2013 would have been approximately $12.3 million. This amount would have been sufficient to pay % of the aggregate minimum quarterly distribution on our common units during the period and % of the aggregate minimum quarterly distribution on our subordinated units during that period.

If we had completed the transactions contemplated by this prospectus on January 1, 2013, our unaudited pro forma distributable cash flow generated for the twelve months ended September 30, 2014, would have been approximately $16.0 million. This amount would have been sufficient to pay % of the aggregate minimum quarterly distribution on our common units during that period and % of the aggregate minimum quarterly distribution on our subordinated units during that period.

We expect that our new revolving credit facility will require maintenance of certain financial covenants, including a combined total leverage ratio (as defined in our new revolving credit facility) of not more than to 1.0 and an interest coverage ratio (as defined in our new revolving credit facility) of

not less than to 1.0. If we had completed the transactions contemplated by this prospectus on January 1, 2013, we believe we would have been in compliance with these financial covenants for the year ended December 31, 2013 and for the twelve months ended September 30, 2014. Therefore, we do not believe that entering into our new revolving credit facility would have negatively impacted our ability to pay minimum quarterly distribution on our common units during these periods.

Following completion of this offering, we estimate that we will incur $1.8 million of incremental operating expenses as a result of operating as a publicly traded partnership. These incremental operating expenses include items such as: expenses associated with annual and quarterly SEC reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance; expenses associated with listing on the NASDAQ; independent registered public accounting firm fees; legal fees; transfer agent and registrar fees; director and officer liability insurance expenses; and director compensation. Under the omnibus agreement, we will reimburse our sponsor for any of these incremental operating expenses incurred by our sponsor or its affiliates on our behalf. Please read “Certain Relationships and Related Party Transaction—Agreements Governing the Transactions—Omnibus Agreement.” In addition, we expect to incur approximately $1.2 million in non-recurring costs related to our transition to a publicly traded partnership. These incremental operating expenses and non-recurring costs are not reflected in the historical financial statements of our predecessor or our unaudited pro forma financial statements included elsewhere in the prospectus.

We based the pro forma adjustments upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present our results of operations had the transactions contemplated in this prospectus actually been completed as of the dates indicated. In addition, distributable cash flow is primarily a cash accounting concept, while our unaudited pro forma condensed consolidated financial statements have been prepared on an accrual basis. As a result, you should view the amount of pro forma distributable cash flow only as a general indication of the amount of distributable cash flow that we might have generated had we been formed in prior periods.

The following table illustrates, on a pro forma basis, for the year ended December 31, 2013 and the twelve months ended September 30, 2014, the amount of cash that would have been available for distribution to our unitholders, assuming that this offering and the other transactions contemplated in this prospectus had been consummated on January 1, 2013. The adjustments presented below give effect to this offering and the related transactions. Certain of the adjustments are explained in further detail in the footnotes.

Smart Sand Partners LP

Unaudited Pro Forma Distributable Cash Flow


	Year Ended December 31, 2013			Twelve Months Ended September 30, 2014
	(in thousands, except per unit data)
Statement of Operations Data:

Revenues	$	26,640		$	52,436
Cost of goods sold		9,687			16,213

Gross profit		16,953			36,223
Operating expenses
Depreciation and amortization		110			114
Selling, general and administrative		3,440			4,812

Total operating expenses		3,550			4,926

Operating income		13,403			31,297
Other (expenses) income:
Interest expense, net		(1,115	)		(1,088	)
Other income		72			316

Total other (expense) income		(1,043	)		(772	)

Net income		12,360			30,525
Adjustments to reconcile net income to Adjusted EBITDA:
Add:
Depreciation, depletion, amortization		2,967			3,177
Interest expense, net		1,115			1,088
Franchise tax(1)		3			106
Gain/loss on disposal of assets		2			56

Adjusted EBITDA(2)		16,447			34,952
Less:
Incremental operating expenses and non-recurring costs(3)		3,000			1,800
Cash interest expense(4)		750			750
Cash franchise taxes paid		3			106
Expansion capital expenditures(5)		1,614			16,346
Plus:
Proceeds retained from this offering to fully fund non-recurring costs related to our transition to a publicly traded partnership		1,235			-
Accretion of asset retirement obligations		-			12

Estimated distributable cash flow	$	12,315		$	15,962

Common units outstanding
Distributable cash flow per unit
Annual distributions to:
Public common unitholders
Sponsor:
Common units
Subordinated units
Total distributions to our sponsor
Total distributions to our unitholders at the annualized minimum distribution rate
Excess/(shortfall) of distributable cash flow over total annualized minimum quarterly distributions
Percent of aggregate annualized minimum quarterly distribution payable to common unitholders		%			%
Percent of aggregate annualized minimum quarterly distribution payable to subordinated unitholders		%			%

(1)	We include franchise tax expense as an Adjusted EBITDA add-back as we consider it similar to an income tax expense.

(2)	For more information, please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

(3)

Includes (i) $1.8 million of incremental operating expenses that we expect to incur as a result of operating as a publicly traded partnership for each of the pro forma year ended December 31, 2013 and twelve months ended September 30, 2014 and (ii) $1.2 million of non-recurring costs related to our transition to a publicly traded partnership for the pro forma year ended December 31, 2013.

(4)	Cash interest expense represents commitment fees on our new revolving credit facility.

(5)	Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating capacity or operating income over the long term.

Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015

We forecast that our estimated distributable cash flow for the twelve months ending December 31, 2015 will be approximately $70.9 million. This amount would exceed by $ million the amount needed to pay the total annualized minimum quarterly distribution of $ million on all of our common units and subordinated units for the twelve months ending December 31, 2015. Our forecast of estimated distributable cash flow for the twelve months ending December 31, 2015 assumes that the underwriters do not exercise their option to purchase additional common units. We expect that our new revolving credit facility will require maintenance of certain financial covenants, including a combined total leverage ratio (as defined in our new revolving credit facility) of not more than to 1.0 and an interest coverage ratio (as defined in our new revolving credit facility) of not less than to 1.0. We forecast that we will be in compliance with these financial covenants for the twelve months ending December 31, 2015. Therefore, we do not believe that these financial covenants will negatively impact our ability to pay minimum quarterly distribution on our common units during the forecast period.

We do not, as a matter of course, make public projections as to future operations, earnings or other results. However, management has prepared the forecast of estimated distributable cash flow and related assumptions and considerations set forth below to substantiate our belief that we will have sufficient distributable cash flow to allow us to pay the total annualized minimum quarterly distribution on all of our outstanding common units and subordinated units for the twelve months ending December 31, 2015. This forecast is a forward-looking statement and should be read together with the historical and pro forma condensed consolidated financial statements and the accompanying notes included elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The accompanying prospective financial information was not prepared with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our management, is substantially consistent with those guidelines and was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the assumptions on which we base our belief that we can generate the minimum estimated distributable cash flow necessary to pay the total annualized minimum quarterly distribution on all of our outstanding common units and subordinated units for the twelve months ending December 31, 2015. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this prospectus are cautioned not to place undue reliance on the prospective financial information.

The prospective financial information included in this prospectus has been prepared by, and is the responsibility of, our management. Neither our independent registered public accounting firm, nor any other independent accountants, have examined, compiled or performed any procedures with respect to the accompanying prospective financial information and, accordingly, neither our independent registered public accounting firm, nor any other independent accountants, express an opinion or any other form of assurance with respect thereto. The reports of our independent registered public accounting firm included in this prospectus relate to our historical financial information and those reports do not extend to the prospective financial information and should not be read to do so.

When considering our financial forecast, you should keep in mind the risk factors and other cautionary statements under “Risk Factors.” Any of the risks discussed in this prospectus, to the extent they are realized, could cause our actual results of operations to vary significantly from those that would enable us to generate the minimum estimated distributable cash flow necessary to pay the total annualized minimum quarterly distribution on all of our outstanding common units and subordinated units for the twelve months ending December 31, 2015. We are providing the forecast of estimated distributable cash flow and related assumptions set forth below to supplement the historical and pro forma condensed consolidated financial statements in support of our expectation that we will have sufficient distributable cash flow to allow us to pay the total annualized minimum quarterly distribution on all of our outstanding common units and subordinated units for the twelve months ending December 31, 2015. Please read below under “—Assumptions and Considerations” for further information as to the assumptions we have made for the financial forecast.

We do not undertake any obligation to release publicly the results of any future revisions we may make to the financial forecast or to update this financial forecast to reflect events or circumstances after the date of this prospectus. Therefore, the statement that we believe that we will have sufficient distributable cash flow to allow us to pay the total annualized minimum quarterly distribution on all of our outstanding common units and subordinated units for twelve months ending December 31, 2015, should not be regarded as a representation by us, the underwriters or any other person that we will make such distributions. Therefore, you are cautioned not to place undue reliance on this information.

Smart Sand Partners LP

Estimated Distributable Cash Flow


	Three months ending												Twelve months Ending December 31, 2015
	March 31, 2015			June 30, 2015			September 30, 2015			December 31, 2015			Twelve months Ending December 31, 2015
	(in millions)
Statement of Operations Data:(1)

Revenues	$	24.5		$	27.5		$	31.0		$	31.2		$	114.2
Cost of goods sold		9.6			8.3			8.8			10.4			37.0

Gross profit		14.9			19.2			22.3			20.8			77.1

Operating expenses
Depreciation and amortization		0.0			0.1			0.1			0.1			0.2
Selling, general and administrative(2)		3.1			2.0			2.2			2.3			9.6

Total operating expenses		3.1			2.1			2.3			2.3			9.8

Operating income		11.7			17.1			20.0			18.5			67.3
Interest expense, net		(0.3	)		(0.4	)		(0.3	)		(0.3	)		(1.3	)

Net income	$	11.4		$	16.8		$	19.6		$	18.2		$	66.0
Adjustments to reconcile net income to Adjusted EBITDA:
Add:
Depreciation, depletion, amortization		1.1			1.1			1.1			1.1			4.3
Interest expense, net		0.3			0.4			0.3			0.3			1.3
Cash franchise taxes paid		0.0			0.0			0.1			0.1			0.2

Adjusted EBITDA(3)		12.8			18.3			21.1			19.6			71.8
Less:
Cash interest expense(4)		0.2			0.2			0.2			0.2			0.9
Franchise taxes		0.0			0.0			0.1			0.1			0.2
Expansion capital expenditures(5)		16.5			10.0			0.5			0.4			27.4
Estimated maintenance capital expenditures(6)		0.2			0.3			0.3			0.3			1.1
Add:
Proceeds retained from this offering to fully fund expansion capital expenditures		16.5			10.0			0.5			0.4			27.4
Proceeds retained from this offering to fully fund non-recurring costs related to our transition to a publicly traded partnership		1.2			—			—			—			1.2

Estimated distributable cash flow	$	13.6		$	17.7		$	20.5		$	19.1		$	70.9

Implied cash distribution at the minimum quarterly distribution rate
Annualized minimum quarterly distribution per unit
Annual distributions to:
Public common unitholders
Sponsor:
Common units
Subordinated units
Total distributions to our sponsor
Total distributions to our unitholders
Excess of estimated distributable cash flow over total annualized minimum quarterly distribution

(1)	Totals may not sum due to rounding.

(2)	Includes $1.8 million of incremental operating expenses that we expect to incur as a result of operating as a publicly traded partnership and $1.2 million of non-recurring costs related to our transition to a publicly traded partnership.

(3)	For more information, please read “Selected Historical and Pro Forma Financial and Operating Data-Non-GAAP Financial Measures.”

(4)	Cash interest expense represents interest and commitment fees on our new revolving credit facility.

(5)	Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating capacity or operating income over the long term.

(6)	Maintenance capital expenditures are cash expenditures (including expenditures for the construction of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long term, our operating capacity or operating income.

Assumptions and Considerations

While the assumptions described in this prospectus are not all-inclusive, the assumptions listed below are those that we believe are significant to our forecasted results of operations, and any assumptions not discussed below were not deemed significant. We believe our actual results of operations will approximate those reflected in our forecast, but we can give no assurance that our forecasted results, including the anticipated commencement dates of our growth projects, will be achieved.

Based on a number of specific assumptions, we believe that, following completion of this offering, we will generate distributable cash flow in an amount sufficient to allow us to pay $ per unit on all of our outstanding units for the twelve months ending December 31, 2015. Our forecast of estimated distributable cash flow for the twelve months ending December 31, 2015 assumes that the underwriters do not exercise their option to purchase additional common units. We believe that our assumptions, which include the following, are reasonable:

Revenues. We estimate that our total revenues for the twelve months ending December 31, 2015 will be approximately $114.2 million compared to $26.7 million for the pro forma year ended December 31, 2013. This increase is primarily attributable to the anticipated sale of 2.4 million tons of frac sand during the twelve months ending December 31, 2015 as compared to 0.5 million tons sold during the pro forma year ended December 31, 2013. Of the 2.4 million tons forecasted to be sold during the twelve months ending December 31, 2015, approximately 97.5% of the total forecasted tons sold are expected to be sold pursuant to take-or-pay contracts. The remaining forecasted sales volumes are expected to be sold pursuant to purchases from our take-or-pay customers in excess of their contractual obligations or in spot market transactions. We have assumed prices for the frac sand sold pursuant to customer agreements based on the prices set forth in our existing agreements. We expect the average price for the 60,000 tons of frac sand from our Oakdale facility that we anticipate to be sold on the spot market during the twelve months ending December 31, 2015 will be consistent with our experience conducting spot market sales in 2014 and our expectations for 2015. Our forecast of revenues assumes that we make no sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement.

Cost of Goods Sold. Our cost of goods sold consists of labor expenses, utility and fuel costs, repairs and maintenance expenses, depreciation and depletion expenses and health, safety and environmental related costs, among others. We estimate that our cost of goods sold will be $37.0 million for the twelve months ending December 31, 2015, compared to $9.7 million for the pro forma year ended December 31, 2013. Of this amount, production costs are estimated to be $28.7 million for the twelve months ending December 31, 2015 compared to $6.9 million for the pro forma year ended December 31, 2013, or $11.85 and $13.76 per ton sold, respectively. A small portion of the cost

increase is expected to result from our assumption that non-contracted costs will rise in line with historical inflation averages. The majority of the increase is attributable to the increase in forecasted sales volume. For the twelve months ending December 31, 2015 and for the pro forma year ended December 31, 2013, $4.1 million and $2.9 million of depreciation, depletion and amortization expense is included in cost of goods sold, respectively. The expected increase is attributable to the completion of the expansion of our Oakdale facility in July 2014.

Operating Expenses. We estimate that our total operating expenses will be $9.8 million for the twelve months ending December 31, 2015, compared to total operating expenses of $3.7 million for the pro forma year ended December 31, 2013. This increase is primarily related to the increase in selling, general and administrative expenses due to the expansion of our operations during the forecast period, the $1.8 million of incremental operating expenses that we expect to incur annually as the result of being a publicly traded partnership and $1.2 million non-recurring costs related to our transition to a publicly traded partnership. Under the omnibus agreement, we will reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement). Please read “Certain Relationships and Related Party Transactions—Agreements Governing the Transactions—Omnibus Agreement.”

Interest Expense, net. We estimate that our net interest expense will be $1.3 million for the twelve months ending December 31, 2015, compared to net interest expense of $1.1 million for the pro forma year ended December 31, 2013. Net interest expense for the twelve months ending December 31, 2015 represents interest and commitment fees associated with our new revolving credit facility.

Capital Expenditures. We estimate that our expansion capital expenditures will be $27.4 million for the twelve months ending December 31, 2015, compared to $1.2 million for the pro forma year ended December 31, 2013. We expect to fund these expansion capital expenditures with a portion of the net proceeds from this offering. Please read “Use of Proceeds.” Expansion capital expenditures for the forecast period are anticipated to support incremental growth initiatives, including expanding our production capabilities to approximately 3.3 million tons per annum and increasing rail infrastructure by approximately one mile of track. The production expansion and logistics improvements are expected to be operational by the end of the third quarter of 2015. These projects are expected to increase our production capacity and improve our logistics capabilities onsite to further position us to capitalize upon growth opportunities that we anticipate will continue to develop with both current and potential new customers. After the completion of this offering, we expect to fund expansion capital expenditures with funds generated from our operations, borrowings under our new revolving credit facility and the issuance of additional equity and debt securities. For purposes of this forecast, we have assumed that we will fund all of the forecasted expansion capital expenditures with a portion of the net proceeds from this offering. We estimate that our maintenance capital expenditures will be $1.1 million for the twelve months ending December 31, 2015, compared to an immaterial amount of maintenance capital expenditures for the pro forma year ended December 31, 2013. Maintenance capital expenditures for the forecast period relate to the refurbishment and replacement of sand screens and other sand processing equipment to extend the life of our facility and processing equipment. We expect to fund these maintenance capital expenditures with cash generated by our operations.

Regulatory, Industry and Economic Factors. Our forecast of our results of operations for the twelve months ending December 31, 2015 is based on the following assumptions related to regulatory, industry and economic factors:

•

There will not be any new federal, state or local regulation of the portions of the energy industry in which we operate, or a new interpretation of existing regulation, that will be materially adverse to our business.

•

There will not be any major adverse change in our business, in the portions of the energy industry that we serve, or in general economic conditions, including in the levels of crude oil and natural gas production and demand in the geographic areas that we serve.

•

There will not be any material accidents, weather-related incidents, unscheduled downtime or similar unanticipated events with respect to our facilities or those of third parties on which we depend.

•

Although we may undertake projects where opportunities arise, for the purposes of this forecast no acquisitions or other significant expansion capital expenditures are reflected (other than as described above).

•

Market, industry, insurance and overall economic conditions will not change substantially during the twelve months ending December 31, 2015.

•

There will not be any material non-performance by our customers.

While we believe that our assumptions supporting our estimated distributable cash flow for the twelve months ending December 31, 2015 are reasonable in light of management’s current beliefs concerning future events, the assumptions are inherently uncertain and are subject to significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those we anticipate. Such forward-looking statements are based on assumptions and beliefs that our management believes to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results can be material, depending upon the circumstances. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and based on assumptions believed to have a reasonable basis. It cannot be assured, however, that the stated expectation or belief will occur or be achieved or accomplished. If our assumptions are not realized, the actual distributable cash flow that we generate could be substantially less than that currently expected and could, therefore, be insufficient to permit us to make the full forecasted quarterly distributions on all of our units for the twelve months ending December 31, 2015, in which event the market price of our common units may decline materially. Please read “Risk Factors” and “Forward-Looking Statements.”

PROVISIONS OF OUR PARTNERSHIP AGREEMENT RELATING TO CASH DISTRIBUTIONS

Set forth below is a summary of the significant provisions of our partnership agreement that relate to cash distributions.

Distributions of Available Cash

General

Our partnership agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending , 2014, we distribute all of our available cash to unitholders of record on the applicable record date. We will adjust the amount of our distribution for the period from the completion of this offering through , 2014, based on the actual length of the period.

Definition of Available Cash

Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of that quarter:

•

less, the amount of cash reserves established by our general partner to:

•

provide for the proper conduct of our business (including, but not limited to, reserves for our future capital expenditures, future acquisitions and anticipated future debt service requirements);

•

comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which we or any of our subsidiaries is a party or by which we or such subsidiary is bound or we or such subsidiary’s assets are subject; or

•

provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for distributions if the effect of the establishment of such reserves will prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter);

•

plus, if our general partner so determines, all or any portion of the cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made subsequent to the end of such quarter.

The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash from working capital borrowings made after the end of the quarter but on or before the date of determination of available cash for that quarter to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are generally borrowings that are made under a credit facility, commercial paper facility or similar financing arrangement, and in all cases are used solely for working capital purposes or to pay distributions to partners and with the intent of the borrower to repay such borrowings within twelve months with funds other than from additional working capital borrowings.

Intent to Distribute the Minimum Quarterly Distribution

Under our current cash distribution policy, we intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including reimbursements of costs and expenses to our general partner and its affiliates incurred on our behalf. However, there is no guarantee that we will

pay the minimum quarterly distribution on our units in any quarter. The amount of distributions paid under our cash distribution policy and the decision to make any distribution will be determined by our general partner, taking into consideration the terms of our partnership agreement. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facilities—Our New Revolving Credit Facility” for a discussion of the restrictions included in our new revolving credit facility that may restrict our ability to make distributions.

General Partner Interest and Incentive Distribution Rights

Our general partner will own a 0.0% non-economic partner interest in us.

Our general partner will hold incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50.0%, of the available cash we distribute from operating surplus (as defined below) in excess of $ per unit per quarter. The aggregate maximum distribution of 50.0% does not include any distributions that our general partner or its affiliates may receive on common units or subordinated units that they own. Please read “—General Partner Interest and Incentive Distribution Rights.”

Operating Surplus and Capital Surplus

General

All cash distributed to unitholders will be characterized as either being paid from “operating surplus” or “capital surplus.” We treat distributions of available cash from operating surplus differently than distributions of available cash from capital surplus.

Operating Surplus

We define operating surplus as:

•

$ million (as described below); plus

•

all of our cash receipts after the closing of this offering, excluding cash from interim capital transactions (as defined below) and the termination of hedge contracts, provided that cash receipts from the termination of a commodity hedge or interest rate hedge prior to its scheduled settlement or termination date shall be included in operating surplus in equal quarterly installments over the remaining scheduled life of such commodity hedge or interest rate hedge; plus

•

working capital borrowings made after the end of a quarter but on or before the date of determination of operating surplus for that quarter; plus

•

cash distributions (including incremental distributions on incentive distribution rights) paid in respect of equity issued, other than equity issued in this offering, to finance all or a portion of expansion capital expenditures in respect of the period from the date that we enter into a binding obligation to commence the construction, development, replacement, improvement or expansion of a capital asset and ending on the earlier to occur of the date the capital asset commences commercial service and the date that it is abandoned or disposed of; less

•

all of our operating expenditures (as defined below) after the closing of this offering; less

•

the amount of cash reserves established by our general partner to provide funds for future operating expenditures; less

•

all working capital borrowings not repaid within twelve months after having been incurred, or repaid within such twelve-month period with the proceeds of additional working capital borrowings.

As described above, operating surplus does not reflect actual cash on hand that is available for distribution to our unitholders and is not limited to cash generated by operations. For example, it includes a provision that will enable us, if we choose, to distribute as operating surplus up to $ million of cash we receive in the future from non-operating sources such as asset sales, issuances of securities and long-term borrowings that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity interests in operating surplus will be to increase operating surplus by the amount of any such cash distributions. As a result, we may also distribute as operating surplus up to the amount of any such cash that we receive from non-operating sources.

The proceeds of working capital borrowings increase operating surplus and repayments of working capital borrowings are generally operating expenditures (as described below) and thus reduce operating surplus when repayments are made. However, if working capital borrowings, which increase operating surplus, are not repaid during the twelve-month period following the borrowing, they will be deemed repaid at the end of such period, thus decreasing operating surplus at such time. When such working capital borrowings are in fact repaid, they will not be treated as a further reduction in operating surplus because operating surplus will have been previously reduced by the deemed repayment.

We define interim capital transactions as (i) borrowings other than working capital borrowings, (ii) sales of our equity and debt securities, (iii) sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of ordinary course retirement or replacement of assets and (iv) capital contributions received.

We define operating expenditures as all of our cash expenditures, including, but not limited to, taxes, reimbursements of expenses of our general partner and its affiliates, officer, director and employee compensation, debt service payments, payments made in the ordinary course of business under interest rate hedge contracts and commodity hedge contracts (provided that payments made in connection with the termination of any interest rate hedge contract or commodity hedge contract prior to its scheduled settlement or termination date will be included in operating expenditures in equal quarterly installments over the remaining scheduled life of such interest rate hedge contract or commodity hedge contract and amounts paid in connection with the initial purchase of an interest rate hedge contract or a commodity hedge contract will be amortized over the life of such interest rate hedge contract or commodity hedge contract), estimated maintenance capital expenditures (as discussed in further detail below), and repayment of working capital borrowings; provided, however, that operating expenditures will not include:

•

repayments of working capital borrowings where such borrowings have previously been deemed to have been repaid (as described above);

•

payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than working capital borrowings;

•

expansion capital expenditures;

•

actual maintenance capital expenditures;

•

payment of transaction expenses (including taxes) relating to interim capital transactions;

•

distributions to our partners;

•

repurchases of partnership interests (excluding repurchases we make to satisfy obligations under employee benefit plans); or

•

any other expenditures or payments using the proceeds from this offering that are described in “Use of Proceeds.”

Capital Surplus

Capital surplus is defined in our partnership agreement as any distribution of available cash in excess of our cumulative operating surplus. Accordingly, except as described above, capital surplus would generally be generated by:

•

borrowings other than working capital borrowings;

•

sales of our equity and debt securities;

•

sales or other dispositions of assets, other than inventory, accounts receivable and other assets sold in the ordinary course of business or as part of ordinary course retirement or replacement of assets; and

•

capital contributions received.

Characterization of Cash Distributions

All available cash distributed by us on any date from any source will be treated as distributed from operating surplus until the sum of all available cash distributed by us since the closing of this offering equals the operating surplus from the closing of this offering through the end of the quarter immediately preceding that distribution. As described above, operating surplus, as defined in our partnership agreement, includes certain components, including a $ million cash basket, that represent non-operating sources of cash. Any available cash distributed by us in excess of our cumulative operating surplus will be deemed to be capital surplus under our partnership agreement. Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering and as a return of capital. We do not anticipate that we will make any distributions from capital surplus.

Capital Expenditures

We distinguish between maintenance capital expenditures and expansion capital expenditures. Estimated maintenance capital expenditures reduce operating surplus, but expansion capital expenditures and actual maintenance capital expenditures do not. Maintenance capital expenditures are cash expenditures (including expenditures for the construction of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain, over the long-term, our operating capacity or operating income. Maintenance capital expenditures do not include normal repairs and maintenance, which are expensed as incurred. Examples of maintenance capital expenditures are expenditures to refurbish and replace sand screens and other sand processing equipment to extend the life of the assets and to address environmental laws and regulations. Expenditures associated with the replacement of sand reserves may also be maintenance capital expenditures, to the extent they are made to maintain our long-term operating capacity. These expenditures are capitalized and depreciated over their estimated useful life.

Because our maintenance capital expenditures can be irregular, the amount of our actual maintenance capital expenditures may differ substantially from period to period, which could cause similar fluctuations in the amounts of operating surplus and adjusted operating surplus if we were to subtract actual maintenance capital expenditures from operating surplus.

Our partnership agreement will require that each quarter we subtract from operating surplus an estimate of the average quarterly maintenance capital expenditures necessary to maintain our operating capacity over the long term, as opposed to subtracting the actual amount we spend on maintenance capital expenditures in that quarter. The amount of estimated maintenance capital

expenditures deducted from operating surplus for those periods will be subject to review and revision by our general partner at least once a year, provided that any change is approved by our conflicts committee. The estimate will be made at least annually and whenever an event occurs that is likely to result in a material adjustment to the amount of our maintenance capital expenditures, such as a major acquisition or the introduction of new governmental regulations that will impact our business. Our partnership agreement does not set a limit on the amount of maintenance capital expenditures that our general partner may estimate. For purposes of calculating operating surplus, any adjustment to this estimate will be prospective only. For a discussion of the amounts we have allocated toward estimated maintenance capital expenditures, please read “Cash Distribution Policy and Restrictions on Distributions.”

The use of estimated maintenance capital expenditures in calculating operating surplus will have the following effects:

•

the amount of actual maintenance capital expenditures in any quarter will not directly reduce operating surplus but will instead be factored into the estimate of the average quarterly maintenance capital expenditures. This may result in the subordinated units converting into common units when the use of actual maintenance capital expenditures would result in lower operating surplus during the subordination period and potentially result in the tests for conversion of the subordinated units not being satisfied;

•

it may increase our ability to distribute as operating surplus cash we receive from non-operating sources; and

•

it may be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions on the incentive distribution rights held by our sponsor.

We anticipate that our maintenance capital expenditures will total $1.1 million during the twelve months ending December 31, 2015. We expect to fund these maintenance capital expenditures with cash generated by our operations.

Expansion capital expenditures are cash expenditures incurred for acquisitions or capital improvements that we expect will increase our operating capacity or operating income over the long-term. Examples of expansion capital expenditures include the acquisition of equipment, or the construction, development or acquisition of additional processing facilities, transload facilities or storage capacity, to the extent such capital expenditures are expected to expand our long-term operating capacity or operating income. Expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of expansion capital expenditures in respect of the period from the date that we enter into a binding obligation to commence the construction, replacement, improvement or expansion of a capital asset and ending on the earlier to occur of the date that such capital improvement commences commercial service and the date that such capital improvement is abandoned or disposed of. Because expansion capital expenditures include interest payments (and related fees) on debt incurred to finance all or a portion of the construction of a capital asset in respect of a period that (i) begins when we enter into a binding obligation to commence construction of a capital improvement and (ii) ends on the earlier to occur of the date any such capital asset commences commercial service and the date that it is abandoned or disposed of, such interest payments also do not reduce operating surplus. Capital expenditures that are made in part for maintenance capital purposes and in part for expansion capital purposes will be allocated as maintenance capital expenditures or expansion capital expenditures by our general partner.

We estimate that our expansion capital expenditures will be $27.4 million for the twelve months ending December 31, 2015. We expect to fund these expansion capital expenditures with a portion of the net proceeds from this offering. Please read “Use of Proceeds.” Expansion capital expenditures for the forecast period are anticipated to support incremental growth initiatives, including expanding our

production capabilities to approximately 3.3 million tons per annum and increasing rail infrastructure by approximately one mile of track. The production expansion and logistics improvements are expected to be operational by the end of the second quarter of 2015. These projects are expected to increase our production capacity and improve our logistics capabilities onsite to further position us to capitalize upon growth opportunities that we anticipate will continue to develop with both current and potential new customers.

Subordinated Units and Subordination Period

General

Our partnership agreement provides that, during the subordination period (which we define below), the common units will have the right to receive distributions of available cash from operating surplus each quarter in an amount equal to $ per common unit, which amount is defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution on the common units from prior quarters, before any distributions of available cash from operating surplus may be made on the subordinated units. Subordinated units are deemed “subordinated” because for a period of time, referred to as the “subordination period,” the subordinated units will not be entitled to receive any distributions from operating surplus until the common units have received the minimum quarterly distribution from operating surplus plus any arrearages in the payment of the minimum quarterly distribution from operating surplus on the common units from prior quarters. Furthermore, no arrearages will accrue or be payable on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that, during the subordination period, there will be available cash to be distributed on the common units.

Determination of Subordination Period

Except as described below, the subordination period will begin on the closing date of this offering and will extend until the first business day following the distribution of available cash in respect of any quarter beginning after , 2017, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded $ (the annualized minimum quarterly distribution), for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;

•

the adjusted operating surplus (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of $ (the annualized minimum quarterly distribution) on all of the outstanding common units and subordinated units during those periods on a fully diluted basis; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Early Termination of the Subordination Period

Notwithstanding the foregoing, the subordination period will automatically terminate on the first business day following the distribution of available cash in respect of any quarter, beginning with the quarter ending , 2015, that each of the following tests are met:

•

distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded $ (150.0% of the annualized minimum quarterly distribution), plus the related distributions on the incentive distribution rights, for the four-quarter period immediately preceding that date;

•

the adjusted operating surplus (as defined below) generated during the four-quarter period immediately preceding that date equaled or exceeded the sum of (i) $ (150.0% of the annualized minimum quarterly distribution) on all of the outstanding common units and subordinated units during that period on a fully diluted basis and (ii) the corresponding distributions on the incentive distribution rights; and

•

there are no arrearages in payment of the minimum quarterly distribution on the common units.

Expiration of the Subordination Period

When the subordination period ends, each outstanding subordinated unit will convert into one common unit and will thereafter participate pro rata with the other common units in distributions of available cash.

Adjusted Operating Surplus

Adjusted operating surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net drawdowns of reserves of cash established in prior periods. Adjusted operating surplus for a period consists of:

•

operating surplus generated with respect to that period (excluding any amounts attributable to the item described in the first bullet under the caption “—Operating Surplus and Capital Surplus—Operating Surplus” above); less

•

any net increase in working capital borrowings with respect to that period; less

•

any expenditures that are not operating expenditures solely because of the provision described in the last bullet point describing operating expenditures above; less

•

any net decrease in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus

•

any net decrease in working capital borrowings with respect to that period; plus

•

any net decrease made in subsequent periods to cash reserves for operating expenditures initially established with respect to that period to the extent such decrease results in a reduction in adjusted operating surplus in subsequent periods; plus

•

any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

Distributions of Available Cash From Operating Surplus During the Subordination Period

We will make distributions of available cash from operating surplus for any quarter during the subordination period in the following manner:

•

first, to the common unitholders, pro rata, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;

•

second, to the common unitholders, pro rata, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;

•

third, to the subordinated unitholders, pro rata, until we distribute for each outstanding subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

The preceding discussion is based on the assumption that we do not issue additional classes of equity securities.

Distributions of Available Cash From Operating Surplus After the Subordination Period

We will make distributions of available cash from operating surplus for any quarter after the subordination period in the following manner:

•

first, to all unitholders, pro rata, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and

•

thereafter, in the manner described in “—General Partner Interest and Incentive Distribution Rights” below.

The preceding discussion is based on the assumption that we do not issue additional classes of equity securities.

General Partner Interest and Incentive Distribution Rights

Our partnership agreement provides that our general partner will own a 0.0% non-economic general partner interest in us, which does not entitle it to receive cash distributions. However, our general partner may in the future own common units or other equity interests in us and will be entitled to receive distributions on such interests.

Incentive distribution rights represent the right to receive an increasing percentage (15.0%, 25.0% and 50.0%) of quarterly distributions of available cash from operating surplus after the minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately from its general partner interest.

The following discussion assumes that our general partner continues to own the incentive distribution rights and that we do not issue any additional classes of equity securities.

If for any quarter:

•

we have distributed available cash from operating surplus to the common unitholders and subordinated unitholders in an amount equal to the minimum quarterly distribution; and

•

we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

then, we will distribute any additional available cash from operating surplus for that quarter among the unitholders and our general partner in the following manner:

•

first, to all unitholders, pro rata, until each unitholder receives a total of $ per unit for that quarter (the “first target distribution”);

•

second, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “second target distribution”);

•

third, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives a total of $ per unit for that quarter (the “third target distribution”); and

•

thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

Percentage Allocations of Available Cash from Operating Surplus

The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner, as the initial holder of our incentive distribution rights, based on the specified target distribution levels. The amounts set forth under “Marginal percentage interest in distributions” are the percentage interests of our unitholders and our general partner in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “Total quarterly distribution per unit target amount” until available cash we distribute reaches the next target distribution level, if any. The percentage interests shown for our unitholders and our general partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below assume that there are no arrearages on common units.


	Total Quarterly Distribution Per Unit Target Amount		Marginal Percentage Interest in Distributions
	Total Quarterly Distribution Per Unit Target Amount		Unitholders			Incentive Distribution Rights
Minimum Quarterly Distribution	up to $			100.0	%		0.0	%
First Target Distribution	above $	up to $		100.0	%		0.0	%
Second Target Distribution	above $	up to $		85.0	%		15.0	%
Third Target Distribution	above $	up to $		75.0	%		25.0	%
Thereafter	above $			50.0	%		50.0	%

General Partner’s Right to Reset Incentive Distribution Levels

Our general partner, as the initial holder of our incentive distribution rights, has the right under our partnership agreement, subject to certain conditions, to elect to relinquish the right to receive incentive distribution payments based on the initial target distribution levels and to reset, at higher levels, the minimum quarterly distribution amount and target distribution levels upon which the incentive distribution payments to our general partner would be set. If our general partner transfers all or a portion of the incentive distribution rights in the future, then the holder or holders of a majority of our incentive distribution rights will be entitled to exercise this right. The following discussion assumes that our general partner holds all of the incentive distribution rights at the time that a reset election is made. Our general partner’s right to reset the minimum quarterly distribution amount and the target distribution levels upon which the incentive distributions payable to our general partner are based may be exercised, without approval of our unitholders or the conflicts committee, at any time when there are no subordinated units outstanding, we have made cash distributions to the holders of the incentive distribution rights at the highest level of incentive distributions for each of the four consecutive fiscal quarters immediately preceding such time and the amount of each such distribution did not exceed adjusted operating surplus for such quarters. If our general partner and its affiliates are not the holders of a majority of the incentive distribution rights at the time an election is made to reset the minimum quarterly distribution amount and the target distribution levels, then the proposed reset will be subject to the prior written concurrence of the general partner that the conditions described above have been satisfied. The reset minimum quarterly distribution amount and target distribution levels will be higher than the minimum quarterly distribution amount and the target distribution levels prior to the reset such that our general partner will not receive any incentive distributions under the reset target distribution levels until cash distributions per unit following this event increase as described below. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would otherwise not be sufficiently accretive to cash distributions per common unit, taking into account the existing levels of incentive distribution payments being made to our general partner.

In connection with the resetting of the minimum quarterly distribution amount and the target distribution levels and the corresponding relinquishment by our general partner of incentive distribution payments based on the target distributions prior to the reset, our general partner will be entitled to receive a number of newly issued common units based on a predetermined formula described below that takes into account the “cash parity” value of the average cash distributions related to the incentive distribution rights received by our general partner for the two quarters immediately preceding the reset event as compared to the average cash distributions per common unit during that two-quarter period.

The number of common units that our general partner (or the then-holder of the incentive distribution rights, if other than our general partner) would be entitled to receive from us in connection with a resetting of the minimum quarterly distribution amount and the target distribution levels then in effect would be equal to the quotient determined by dividing (x) the average aggregate amount of cash distributions received by our general partner in respect of its incentive distribution rights during the two consecutive fiscal quarters ended immediately prior to the date of such reset election by (y) the average of the aggregate amount of cash distributed per common unit during each of these two quarters.

Following a reset election, the minimum quarterly distribution amount will be reset to an amount equal to the average cash distribution amount per common unit for the two fiscal quarters immediately preceding the reset election (which amount we refer to as the “reset minimum quarterly distribution”) and the target distribution levels will be reset to be correspondingly higher such that we would distribute all of our available cash from operating surplus for each quarter thereafter as follows:

•

first, to all unitholders, pro rata, until each unitholder receives an amount equal to 115.0% of the reset minimum quarterly distribution for that quarter;

•

second, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until each unitholder receives an amount per unit equal to 125.0% of the reset minimum quarterly distribution for the quarter;

•

third, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until each unitholder receives an amount per unit equal to 150.0% of the reset minimum quarterly distribution for the quarter; and

•

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our general partner at various cash distribution levels (i) pursuant to the cash distribution provisions of our partnership agreement in effect at the completion of this offering, as well as (ii) following a hypothetical reset of the minimum quarterly distribution and target distribution levels based on the assumption that the average quarterly cash distribution amount per common unit during the two fiscal quarters immediately preceding the reset election was $ .


	Quarterly Distribution Per Unit Prior to Reset		Marginal Percentage Interest in Distributions						Quarterly Distribution Per Unit Following Hypothetical Reset
	Quarterly Distribution Per Unit Prior to Reset		Unitholders			Incentive Distribution Rights
Minimum Quarterly Distribution	up to $			100.0	%		-		up to $
First Target Distribution	above $	up to $		100.0	%		-		above$		up to $	(1)
Second Target Distribution	above $	up to $		85.0	%		15.0	%	above$	(1)	up to $	(2)
Third Target Distribution	above $	up to $		75.0	%		25.0	%	above$	(2)	up to $	(3)
Thereafter	above $			50.0	%		50.0	%	above$	(3)

(1)	This amount is 115.0% of the hypothetical reset minimum quarterly distribution.

(2)	This amount is 125.0% of the hypothetical reset minimum quarterly distribution.

(3)	This amount is 150.0% of the hypothetical reset minimum quarterly distribution.

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and our general partner, including in respect of incentive distribution rights, based on an average of the amounts distributed for the two quarters immediately prior to the reset. The table assumes that immediately prior to the reset there would be common units outstanding and the average distribution to each common unit would be $ per quarter for the two consecutive non-overlapping quarters prior to the reset.

Quarterly
Distribution Per
Unit Prior to Reset

Cash
Distributions
to Public
Common
Unitholders
Prior to
Reset

Cash Distribution to Our
General Partner and Its
Affiliates Prior to Reset

Total
Distributions

Common
Units

Incentive
Distribution
Rights

Total

Minimum Quarterly Distribution

up to $

First Target Distribution

above $

up to $

Second Target Distribution

above $

up to $

Third Target Distribution

above $

up to $

Thereafter

above $

The following table illustrates the total amount of available cash from operating surplus that would be distributed to the unitholders and the general partner, including in respect of incentive distribution rights, with respect to the quarter after the reset occurs. The table reflects that, as a result of the reset, there would be additional common units outstanding and that the average distribution to each common unit would be $ . The number of common units issued as a result of the reset was calculated by dividing (x) the average of the amounts received by the general partner in respect of its incentive distribution rights for the two consecutive non-overlapping quarters prior to the reset as shown in the table above, or $ , by (y) the average of the cash distributions made on each common unit per quarter for the two consecutive non-overlapping quarters prior to the reset as shown in the table above, or $ .

Quarterly
Distribution Per
Unit After Reset

Cash
Distributions
to Public
Common
Unitholders
After Reset

Cash Distribution to Our General
Partner and Its Affiliates After
Reset

Total
distributions

Common
Units

Incentive
Distribution
Rights

Total

Minimum Quarterly Distribution

up to $

First Target Distribution

above $

up to $

Second Target Distribution

above $

up to $

Third Target Distribution

above $

up to $

Thereafter

above $

Our general partner will be entitled to cause the minimum quarterly distribution amount and the target distribution levels to be reset on more than one occasion, provided that it may not make a reset election except at a time when it has received incentive distributions for the immediately preceding four consecutive fiscal quarters based on the highest level of incentive distributions that it is entitled to receive under our partnership agreement.

Distributions from Capital Surplus

How Distributions from Capital Surplus Will Be Made

We will make distributions of available cash from capital surplus, if any, in the following manner:

•

first, to all unitholders, pro rata, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price in this offering;

•

second, to all common unitholders, pro rata, until we distribute for each common unit an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the outstanding common units; and

•

thereafter, as if they were from operating surplus.

The preceding discussion is based on the assumption that we do not issue additional classes of equity securities.

Effect of a Distribution from Capital Surplus

Our partnership agreement treats a distribution of capital surplus as the repayment of the initial unit price from this initial public offering, which is a return of capital. The initial public offering price less any distributions of capital surplus per unit is referred to as the “unrecovered initial unit price.” Each time a distribution of capital surplus is made, the minimum quarterly distribution and the target distribution levels will be reduced in the same proportion as the corresponding reduction in the unrecovered initial unit price. Because distributions of capital surplus will reduce the minimum quarterly distribution and target distribution levels after any of these distributions are made, the effects of distributions of capital surplus may make it easier for our general partner to receive incentive distributions and for the subordinated units to convert into common units. However, any distribution of capital surplus before the unrecovered initial unit price is reduced to zero cannot be applied to the payment of the minimum quarterly distribution or any arrearages.

Once we distribute capital surplus on a unit issued in this offering in an amount equal to the initial unit price, we will reduce the minimum quarterly distribution and the target distribution levels to zero. Then, after distributing an amount of capital surplus for each common unit equal to any unpaid arrearages of the minimum quarterly distributions on outstanding common units, we will then make all future distributions from operating surplus, with 50.0% being paid to the unitholders, pro rata and 50.0% to the holder of our incentive distribution rights.

Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels

In addition to adjusting the minimum quarterly distribution and target distribution levels to reflect a distribution of capital surplus, if we combine our units into fewer units or subdivide our units into a greater number of units, we will proportionately adjust:

•

the minimum quarterly distribution;

•

target distribution levels;

•

the unrecovered initial unit price; and

•

the arrearages per common unit in payment of the minimum quarterly distribution on the common units.

For example, if a two-for-one split of the common units should occur, the minimum quarterly distribution, the target distribution levels and the unrecovered initial unit price would each be reduced

to 50.0% of its initial level, and each subordinated unit would be split into two subordinated units. We will not make any adjustment by reason of the issuance of additional units for cash or property (including additional common units issued under any compensation or benefit plans).

In addition, if legislation is enacted or if the official interpretation of existing law is modified by a governmental authority, so that we become taxable as a corporation or otherwise subject to taxation as an entity for federal, state or local income tax purposes, our partnership agreement specifies that the minimum quarterly distribution and the target distribution levels for each quarter may be reduced by multiplying each distribution level by a fraction, the numerator of which is available cash for that quarter (reduced by the amount of the estimated tax liability for such quarter payable by reason of such legislation or interpretation) and the denominator of which is the sum of available cash for that quarter (reduced by the amount of the estimated tax liability for such quarter payable by reason of such legislation or interpretation) plus our general partner’s estimate of our aggregate liability for the quarter for such income taxes payable by reason of such legislation or interpretation. To the extent that the actual tax liability differs from the estimated tax liability for any quarter, the difference may be accounted for in subsequent quarters.

Distributions of Cash Upon Liquidation

General

If we dissolve in accordance with our partnership agreement, we will sell or otherwise dispose of our assets in a process called liquidation. We will first apply the proceeds of liquidation to the payment of our creditors. We will distribute any remaining proceeds to the unitholders and our general partner, in accordance with their capital account balances, as adjusted to reflect any gain or loss upon the sale or other disposition of our assets in liquidation.

The allocations of gain and loss upon liquidation are intended, to the extent possible, to entitle the holders of outstanding common units to a preference over the holders of outstanding subordinated units upon our liquidation, to the extent required to permit common unitholders to receive their unrecovered initial unit price plus the minimum quarterly distribution for the quarter during which liquidation occurs plus any unpaid arrearages in payment of the minimum quarterly distribution on the common units. However, there may not be sufficient gain upon our liquidation to enable the holders of common units to fully recover all of these amounts, even though there may be cash distributed to the holders of subordinated units. Any further net gain recognized upon liquidation will be allocated in a manner that takes into account the incentive distribution rights of our general partner.

Manner of Adjustments for Gain

The manner of the adjustment for gain is set forth in our partnership agreement. If our liquidation occurs before the end of the subordination period, we will allocate any gain to our partners in the following manner:

•

first, to the common unitholders, pro rata, until the capital account for each common unit is equal to the sum of:

(1) the unrecovered initial unit price;

(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and

(3) any unpaid arrearages in payment of the minimum quarterly distribution;

•

second, to the subordinated unitholders, pro rata, until the capital account for each subordinated unit is equal to the sum of:

(1) the unrecovered initial unit price; and

(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

•

third, to all unitholders, pro rata, until we allocate under this paragraph an amount per unit equal to:

(1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less

(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed to the unitholders, pro rata, for each quarter of our existence;

•

fourth, 85.0% to all unitholders, pro rata, and 15.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:

(1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less

(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85.0% to the unitholders, pro rata, and 15.0% to our general partner for each quarter of our existence;

•

fifth, 75.0% to all unitholders, pro rata, and 25.0% to our general partner, until we allocate under this paragraph an amount per unit equal to:

(1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less

(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75.0% to the unitholders, pro rata, and 25.0% to our general partner for each quarter of our existence; and

•

thereafter, 50.0% to all unitholders, pro rata, and 50.0% to our general partner.

The percentages set forth above are based on the assumption that our general partner has not transferred its incentive distribution rights and that we do not issue additional classes of equity securities.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that clause (3) of the second bullet point above and all of the fourth bullet point above will no longer be applicable.

Manner of Adjustments for Losses

If our liquidation occurs before the end of the subordination period, after making allocations of loss to the unitholders in a manner intended to offset in reverse order the allocations of gains that have previously been allocated, we will generally allocate any loss to our unitholders in the following manner:

•

first, to the holders of subordinated units in proportion to the positive balances in their capital accounts until the capital accounts of the subordinated unitholders have been reduced to zero; and

•

second, to the holders of common units in proportion to the positive balances in their capital accounts until the capital accounts of the common unitholders have been reduced to zero.

If the liquidation occurs after the end of the subordination period, the distinction between common units and subordinated units will disappear, so that all of the first bullet point above will no longer be applicable.

Adjustments to Capital Accounts

Our partnership agreement requires that we make adjustments to capital accounts upon the issuance of additional units. In this regard, our partnership agreement specifies that we allocate any unrealized and, for tax purposes, unrecognized gain resulting from the adjustments to the unitholders in the same manner as we allocate gain upon liquidation. In the event that we make positive adjustments to the capital accounts upon the issuance of additional units, our partnership agreement requires that we generally allocate any later negative adjustments to the capital accounts resulting from the issuance of additional units or upon our liquidation in a manner that results, to the extent possible, in the partners’ capital account balances equaling the amount that they would have been if no earlier positive adjustments to the capital accounts had been made. In contrast to the allocations of gain, and except as provided above, we generally will allocate any unrealized and unrecognized loss resulting from the adjustments to capital accounts upon the issuance of additional units to the unitholders based on their respective percentage ownership of us. In this manner, prior to the end of the subordination period, we generally will allocate any such loss equally with respect to our common units and subordinated units. If we make negative adjustments to the capital accounts as a result of such loss, future positive adjustments resulting from the issuance of additional units will be allocated in a manner designed to reverse the prior negative adjustments, and special allocations will be made upon liquidation in a manner that results, to the extent possible, in our unitholders’ capital account balances equaling the amounts they would have been if no earlier adjustments for loss had been made.

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA

The following table presents selected historical financial data of Smart Sand, Inc., our predecessor for accounting purposes and a wholly owned subsidiary of Smart Sand Holdings LLC, and selected pro forma financial data of Smart Sand Partners LP for the periods and as of the dates indicated. The following table should be read together with, and is qualified in its entirety by reference to, the historical and pro forma financial statements and the accompanying notes included elsewhere in this prospectus. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The selected historical financial data of our predecessor as of and for the years ended December 31, 2013 and 2012 are derived from the audited financial statements of our predecessor appearing elsewhere in this prospectus. The selected historical interim financial data of our predecessor as of September 30, 2014 and for the nine months ended September 30, 2014 and 2013 are derived from the unaudited interim financial statements of our predecessor appearing elsewhere in this prospectus.

The selected pro forma financial data presented in the following table for the year ended December 31, 2013 and as of and for the nine months ended September 30, 2014 are derived from the unaudited pro forma condensed consolidated financial statements included elsewhere in this prospectus. The unaudited pro forma condensed consolidated balance sheet assumes the offering and the related transactions occurred as of September 30, 2014, and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2013 and the nine months ended September 30, 2014 assume the offering and the related transactions occurred as of January 1, 2013. These transactions include, and the unaudited pro forma condensed consolidated financial statements give effect to, the following:

•

our sponsor’s contribution to us of the Oakdale sand reserves, processing facility, rail infrastructure and related assets;

•

our sponsor’s retention of the Hixton land and related permits;

•

our sponsor’s retention of rail car leases and related rail car rental income;

•

our sponsor’s retention of the Series A Preferred Shares and predecessor credit facility;

•

our treatment as a partnership rather than a corporation for tax purposes, unlike our predecessor;

•

our entry into a new $ million revolving credit facility;

•

our entry into the omnibus agreement with our sponsor;

•

the application of the net proceeds of this offering as described in “Use of Proceeds.”


	Predecessor Historical												Smart Sand Partners LP Pro Forma
	Year Ended December 31,						Nine Months Ended September 30,						Year Ended December 31, 2013			Nine Months Ended September 30, 2014
	2013			2012			2014			2013			Year Ended December 31, 2013			Nine Months Ended September 30, 2014
							(unaudited)			(unaudited)			(unaudited)			(unaudited)
	(in thousands)
Statement of Operations Data:

Revenues	$	26,656		$	6,925		$	45,867		$	19,301		$	26,640		$	45,082
Cost of goods sold		9,745			6,023			18,044			10,819			9,687			17,452

Gross profit		16,911			902			27,823			8,482			16,953			27,630

Operating expenses
Salaries, benefits and payroll taxes		1,928			1,616			2,996			1,410			-			-
Depreciation and amortization		110			296			99			82			110			99
Selling, general and administrative		1,705			1,539			4,143			1,223			3,440			3,948

Total operating expenses		3,743			3,451			7,238			2,715			3,550			4,047

Operating income (loss)		13,168			(2,549	)		20,585			5,767			13,403			23,583
Other (expenses) income:
Preferred stock interest expense		(9,674	)		(6,827	)		(4,934	)		(7,124	)		-			-
Other interest expense		(528	)		(331	)		(1,614	)		(442	)		(1,115	)		(826	)
Other income		72			22			334			74			72			334

Total other (expense) income		(10,130	)		(7,136	)		(6,214	)		(7,492	)		(1,043	)		(492	)
Loss on extinguishment of debt		-			-			1,230			-			-			-

Income (loss) before income tax expense		3,038			(9,685	)		13,141			(1,725	)		12,360			23,091
Income tax expense (benefit)		2,623			(11	)		6,062			(1,512	)		-			-

Net and comprehensive income (loss)	$	415		$	(9,674	)	$	7,079		$	(213	)	$	12,360		$	23,091

Balance Sheet Data (at period end):
Property, plant and equipment, net	$	50,143		$	51,695		$	72,687		$	50,736					$	62,389
Total assets		71,796			58,166			98,913			65,223						86,363
Total stockholders’ deficit / partners’ capital		(9,948	)		(10,403	)		(2,737	)		(8,455	)					78,212

Cash Flow Statement Data:
Net cash provided by (used in) operating activities	$	2,936		$	(1,184	)	$	16,853		$	3,222
Net cash used in investing activities		(1,042	)		(40,626	)		(21,223	)		(1,044	)
Net cash (used in) provided by financing activities		(994	)		34,259			3,695			(923	)

Other Data:
Capital expenditures	$	1,646		$	41,114		$	23,033		$	(1,044	)	$	1,614		$	16,355
Adjusted EBITDA(1)		16,252			(827	)		23,724			8,081			16,447			26,613
Production costs(1)		6,714			4,680			11,937			8,696			6,714			11,937

(1)	For our definitions of the non-GAAP financial measures of Adjusted EBITDA and production costs and reconciliations of Adjusted EBITDA and production costs to our most directly comparable financial measures calculated and presented in accordance with GAAP, please read “—Non-GAAP Financial Measures.”

Non-GAAP Financial Measures

Adjusted EBITDA

We define Adjusted EBITDA as our net income, plus (i) interest expense, (ii) depreciation, amortization, accretion and depletion expense, (iii) income tax expense, including franchise taxes, (iv) gain or loss on disposal of assets, (v) loss on extinguishment of debt, (vi) equity incentive compensation and (vii) non-cash charges and unusual or non-recurring charges. Adjusted EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and commercial banks, to assess:

•

the financial performance of our assets without regard to the impact of financing methods, capital structure or historical cost basis of our assets;

•

the viability of capital expenditure projects and the overall rates of return on alternative investment opportunities;

•

our ability to incur and service debt and fund capital expenditures;

•

the ability of our assets to generate cash sufficient to make debt payments and to make distributions; and

•

our operating performance as compared to those of other companies in our industry without regard to the impact of financing methods and capital structure.

We believe that our presentation of Adjusted EBITDA will provide useful information to investors in assessing our financial condition and results of operations. Net income is the GAAP measure most directly comparable to Adjusted EBITDA. Adjusted EBITDA should not be considered an alternative to net income presented in accordance with GAAP. Because Adjusted EBITDA may be defined differently by other companies in our industry, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for each of the periods indicated.


	Predecessor Historical										Smart Sand Partners LP Pro Forma
	Year Ended December 31,					Nine Months Ended September 30,					Year Ended December 31, 2013		Nine Months Ended September 30, 2014
	2013		2012			2014		2013			Year Ended December 31, 2013		Nine Months Ended September 30, 2014
	(in thousands)
Net income (loss)	$	415	$	(9,674	)	$	7,079	$	(213	)	$	12,360	$	23,091
Depreciation, depletion and amortization		2,967		1,639			2,534		2,204			2,967		2,534
Income tax expense (benefit)		2,623		(11	)		6,062		(1,512	)		-		-
Interest expense		10,202		7,158			6,548		7,566			1,115		825
Franchise taxes		3		41			106		3			3		106
Gain/loss on sale of assets		2		-			57		3			2		57
Restricted stock compensation		40		20			108		29			-		-
Loss on extinguishment of debt		-		-			1,230		-			-		-

Adjusted EBITDA	$	16,252	$	(827	)	$	23,724	$	8,081		$	16,447	$	26,613

Production Costs

We also use production costs, which we define as costs of goods sold, excluding depreciation, depletion, accretion of asset retirement obligations and freight charges to measure our financial performance. We believe production costs is a meaningful measure because it provides a measure of operating performance that is unaffected by historical cost basis. Cost of goods sold is the GAAP measure most directly comparable to production costs. Because production costs may be defined differently by other companies in our industry, our definition of production costs may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. The following table presents a reconciliation of production costs to cost of goods sold.


	Predecessor Historical												Smart Sand Partners LP Pro Forma
	Year Ended December 31,						Nine Months Ended September 30,						Year Ended December 31, 2013			Nine Months Ended September 30, 2014
	2013			2012			2014			2013			Year Ended December 31, 2013			Nine Months Ended September 30, 2014
	(in thousands)
Cost of goods sold	$	9,745		$	6,023		$	18,044		$	10,819		$	9,687		$	17,452
Depreciation, depletion, and accretion of asset retirement obligations		(2,857	)		(1,343	)		(2,435	)		(2,123	)		(2,857	)		(2,435	)
Freight charges		(174	)		—			(3,672	)		—			(116	)		(3,080	)

Production costs	$	6,714		$	4,680		$	11,937		$	8,696		$	6,714		$	11,937

Distributable Cash Flow

We define distributable cash flow as Adjusted EBITDA less cash paid for interest expense, franchise taxes and maintenance capital expenditures, including accrual for reserve replacement, plus accretion of asset retirement obligations. Distributable cash flow will not reflect changes in working capital balances. Distributable cash flow is used as a supplemental financial measure by management and by external users of our financial statements, such as investors, industry analysts, lenders and ratings agencies, to assess:

•

the ability of our assets to generate cash sufficient to support our indebtedness and make future cash distributions to our unitholders; and

•

the attractiveness of capital projects and acquisitions and the overall rates of return on alternative investment opportunities.

Distributable cash flow is not a financial measure presented in accordance with GAAP. The GAAP measure most directly comparable to distributable cash flow is net income. Distributable cash flow should not be considered an alternative to net income or any other measure of financial performance or liquidity presented in accordance with GAAP. Distributable cash flow has important limitations as an analytical tool because it excludes some but not all items that affect its most directly comparable GAAP financial measure. You should not consider distributable cash flow in isolation or as a substitute for analysis of our results as reported under GAAP. Because distributable cash flow may be defined differently by other companies in our industry, our definition of distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

For our presentation and reconciliation of distributable cash flow to its most directly comparable GAAP financial measure, please read “Cash Distribution Policy and Restrictions on Distributions—Unaudited Pro Forma Distributable Cash Flow for the Year Ended December 31, 2013, and the Twelve Months Ended September 30, 2014” and “Cash Distribution Policy and Restrictions on Distributions—Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015.”

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our predecessor’s audited financial statements and the related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Basis of Presentation

The following discussion of our historical performance and financial condition is derived from the historical financial statements of Smart Sand, Inc., which is our accounting predecessor for financial reporting purposes and a wholly owned subsidiary of Smart Sand Holdings LLC. Our sponsor is contributing some but not all of its assets and liabilities to us in connection with this offering. Accordingly, the historical financial results discussed below include capital expenditures and other costs related to assets that are not being contributed to us in connection with this offering. For additional information about the assets and liabilities reflected in our predecessor’s financial statements that will not be contributed to us in connection with this offering, please read our unaudited pro forma financial statements and the notes to those financial statements provided elsewhere in this prospectus.

In addition, our predecessor’s historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future because, in addition to the factors discussed above:

•

our Oakdale facility did not generate sales until we commenced operations in July 2012;

•

we completed an expansion of our Oakdale facility in July 2014, which significantly increased our production capacity and for which volumes are contracted;

•

our predecessor generated rail car income from rentals of its leased rail car fleet to our customers, and our sponsor will retain the related rail car leases after this offering;

•

we will incur general and administrative expenses as a publicly traded partnership that we have not previously incurred;

•

we will incur additional general and administrative expenses as a result of our recent expansion that occurred in July 2014; and

•

we will not be subject to corporate income tax, unlike our predecessor.

Unless otherwise indicated, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “Smart Sand Partners LP,” “we,” “our,” “us” or like terms when used in a historical context refer to the business and results of operations of Smart Sand, Inc., and when used in the present tense or prospectively, those terms refer to Smart Sand Partners LP and its subsidiaries following the formation transactions described in “Summary—Organizational Transactions.”

Overview

contiguous acres near Oakdale, Wisconsin, at which we have approximately 217 million tons of proven recoverable sand reserves and 64 million tons of probable recoverable sand reserves as of June 30, 2014. Our integrated facility, with on-site rail infrastructure and wet and dry sand processing facilities, enables us to process and cost-effectively deliver approximately 2.2 million tons of frac sand per year. As of November 1, 2014, we had a minimum of approximately 2.1 million tons of our annual frac sand production (or approximately 96% of our current annual production capacity) contracted to oil and natural gas production and pressure pumping service companies under long-term, fixed-price take-or-pay contracts.

Our Assets and Operations

Our sand reserves include a balanced concentration of coarse (20/40, 30/50 and 40/70 mesh) sands and fine (60/140 mesh, which we refer to in this prospectus as “100 mesh”) sand. Our reserves contain deposits of approximately 60% of 70 mesh and coarser substrate and approximately 40% of 100 mesh substrate. We believe that this mix of coarse and fine sand reserves, combined with contractual demand for our products across a range of mesh sizes, provides us with relatively higher mining yields and lower processing costs than sand mines with predominately coarse sand reserves. In addition, our approximate 217 million tons of proven recoverable reserves and 64 million tons of probable recoverable reserves as of June 30, 2014, implies a reserve life of approximately 128 years based on our current annual processing capacity of 2.2 million tons per year. This long reserve life, coupled with our balanced mix of coarse and fine sand reserves, enables us to better serve demand for different types of frac sand as compared to mines with disproportionate amounts of coarse or fine sand and mines with shorter reserve lives. We are in the process of expanding our Oakdale facility’s nameplate capacity to 3.3 million tons per year. We expect this expansion will be completed during the second quarter of 2015. We have entered into contract extensions that will increase our minimum contracted volumes to approximately 2.3 million tons per year, or approximately 70% of our anticipated annual nameplate capacity, upon completion of the expansion. Under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner.

Overall Trends and Outlook

Demand

projected to continue growing by 9.4% per year through 2018, representing an increase of approximately four million tons in annual proppant demand over that time period. The total U.S. proppant market size in dollars was $5.0 billion in 2013 and is projected to grow 13.7% annually through 2018, according to The Freedonia Group.

We believe that demand for proppant will be amplified by the following factors:

•

improved drilling rig productivity, resulting in more wells drilled per rig per year;

•

increases in the percentage of rigs that are drilling horizontal wells;

•

increases in the length of the typical horizontal wellbore;

•

increases in the number of fracture stages per foot in the typical completed horizontal wellbore;

•

increases in the volume of proppant used per fracturing stage;

•

renewed focus of exploration and production companies to maximize ultimate recovery in active reservoirs through downspacing; and

•

increasing secondary hydraulic fracturing of existing wells as early shale wells age.

Larger, coarser sand grains (such as 20/40 and 30/50 mesh) are typically used in hydraulic fracturing processes targeting oil and liquids-rich natural gas recovery, while smaller, finer grains (such as 40/70 and 100 mesh) are used typically in dry natural gas drilling applications. According to PropTester, Inc., a notable driver impacting demand is increased proppant loadings, specifically, larger volumes of proppant placed per frac stage. PropTester, Inc. expects the trend of using larger volumes of finer mesh materials such as 100 mesh sand and 40/70 sand and ceramics, either on their own or in conjunction with coarser and more conductive proppant tail-ins, to continue. In addition, we have recently experienced increased demand for finer mesh sand in the Eagle Ford Shale, which is a liquids-rich play.

According to The Freedonia Group, development of unconventional resources such as shale oil and natural gas has been the driving force behind growth in proppant demand over the past decade. While significant demand began with drilling in the Barnett Shale, more recent growth has been in liquids-rich plays such as the Bakken and Eagle Ford Shales. Demand in these and similar formations has been driven by high oil prices, which spurs drilling activity, and by the depth and challenging geology of these wells, which require larger amounts of proppant to complete as they involve more fracturing stages. However, if the recent drop in oil prices that began in June 2014 continues, it may slow drilling activity in liquids-rich plays and, therefore, adversely affect proppant demand. A recovery of natural gas prices should renew demand in proppant markets such as the Haynesville Shale, which produces mostly dry gas, as well as from further development of fields in the Marcellus and Utica plays.

Supply

In recent years, customer demand for premium raw frac sand has outpaced supply. Several factors contribute to this persistent supply shortage:

•

the difficulty of finding frac sand reserves that meet API specifications and satisfy the demands of customers who increasingly favor premium sand varieties;

•

the difficulty of securing contiguous frac sand reserves large enough to justify the capital investment required to develop a processing facility;

•

the challenges of identifying reserves with the above characteristics that have rail access needed for low-cost transportation to major shale basins;

•

the hurdles to securing mining, production, water, air, refuse and other federal, state and local operating permits from the proper authorities;

•

the long lead time required to design and construct sand processing facilities that can efficiently process large quantities of high quality frac sand.

Pricing

Raw frac sand has exhibited steady pricing increases over the past decade. According to according to The Freedonia Group, the average price of raw frac sand increased from approximately $40 per ton in 2003 to approximately $60 per ton in 2013. While there are numerous grades and sizes of proppant which sell at varying prices, the overall pricing trend tends to be consistent across the various sizes. In general, the cost of sand constitutes only a small percentage of overall well costs for exploration and production companies, so even a meaningful increase in sand prices is not likely to cause a significant reduction in the high volume of sand consumed by customers.

We generally expect the price of frac sand to positively correlate with the level of drilling activity for oil and natural gas. The willingness of exploration and production companies to engage in new drilling is determined by a number of factors, the most important of which are the prevailing and projected prices of oil and natural gas, the cost to drill and operate a well, the availability and cost of capital and environmental and government regulations. We generally expect the level of drilling to positively correlate with long-term trends in commodity prices. Similarly, oil and natural gas production levels nationally and regionally generally tend to positively correlate with drilling activity.

Sand is sold on a contract basis or through spot market pricing. Long-term, take-or-pay contracts reduce exposure to fluctuations in price and provide predictability of volumes and price over the contract term. By contrast, the spot market provides direct access to immediate prices, with accompanying exposure to price volatility and uncertainty. For sand producers operating under stable long-term contract structures, the spot market can offer an outlet to sell excess production at opportunistic times or during favorable market conditions. We have observed that spot prices have been favorable recently, as tracked by the Bureau of Labor Statistics monthly Frac Sand PPI. The Frac Sand PPI has continued to increase since December 2013, and is at its highest level since December 2012.

How We Generate Revenue

We generate revenue by excavating and processing frac sand, which we sell to our customers primarily as a function of the price per ton realized and the volumes sold, under long-term price agreements or at prevailing market rates. In some instances, revenues also include a charge for

transportation services provided to customers. Our transportation revenue fluctuates based on a number of factors, including the volume of product transported and the distance between the plant and our customers.

As of September 30, 2014, our facility had the capacity to produce 2.2 million tons of frac sand per year. As of November 1, 2014, we had five long-term, fixed-price take-or-pay contracts to sell a minimum of approximately 2.1 million tons of frac sand annually, which accounts for approximately 96% of our facility’s current annual production capacity. As of November 1, 2014, the product mix-weighted average price of sand sold from our Oakdale facility pursuant to these take-or-pay contracts was $54.48 per ton and the volume-weighted average remaining term was 2.72 years. Each contract defines, among other commitments, the minimum volume of product that the customer is required to purchase per contract year and the minimum tonnage per grade, the volume of product that we are required to provide, the price that we will charge and that our customers will pay for each ton of contracted product, and liquidated damages in the event either we or the customer fails to meet minimum requirements. Prices in our current contracts are generally fixed and subject to adjustment, upward or downward, only for certain changes in published producer cost indices, including the Consumer Price Index for All Urban Consumers and the Producer Price Index published by the U.S. Bureau of Labor Statistics, or market factors, including a natural gas surcharge and a propane surcharge which are applied if the Average Natural Gas Price or the Average Quarterly Mont Belvieu TX Propane Spot Price, respectively, as listed by the U.S. Energy Information Administration, are above the benchmark set in the contract for the preceding calendar quarter. As a result, our realized prices may not grow at rates consistent with broader industry pricing trends. Occasionally, if we have excess production and market conditions are favorable, we may elect to sell frac sand in spot market transactions.

With respect to the take-or-pay contracts, if the customer is not allowed to make up deficiencies, we recognize revenues to the extent of the minimum contracted quantity, assuming payment has been received or is reasonably assured. If deficiencies can be made up, receipts in excess of actual sales are recognized as deferred revenues until production is actually taken or the right to make up deficiencies expires. As of September 30, 2014 and December 31, 2013, no amounts related to minimum commitments under customer contracts were due or payable to us.

Due to sustained freezing temperatures in our area of operation during winter months, we halt the operation of our wet plant for up to four or five months. As a result, we excavate and wash sand in excess of current delivery requirements during the months when the wet plant is operational. This excess sand is placed in stockpiles that feed the dry plant and enables us to fill customer orders throughout the year without interruption.

Costs of Conducting Our Business

The principal direct costs involved in operating our business are excavation costs, labor and utilities.

We have a contract with an independent third party, Earth, Inc., to excavate raw frac sand and deliver the raw frac sand to our processing facility. We pay a fixed price of $2.01 per ton excavated and delivered without regard to the amount of sand excavated that meets API specifications. Accordingly, we incur excavation costs with respect to the excavation of sand and other materials from which we ultimately do not derive revenue. However, the ratio of rejected materials to total amounts excavated has been, and we believe will continue to be, in line with our expectations, given the extensive core sampling and other testing we undertook at the Oakdale facility. For more information regarding our reserves testing procedures, please read “Business—Our Assets and Operations—Our Reserves.”

On August 1, 2010, we entered into a consulting agreement related to the purchase of land with a third party, whereby he acted as an agent for us to obtain options to purchase certain identified real property in Wisconsin, as well as obtain permits and approvals necessary to open, construct and operate a sand mining and processing facility on such real property. In connection with this agreement, our mineral rights are subject to an aggregate non-participating royalty interest of $0.50 per ton sold of 70 mesh and coarser substrate.

We incurred excavation costs of $4.0 million and $2.5 million during the years ended December 31, 2013 and 2012, respectively. For the nine months ended September 30, 2014 and 2013, we incurred $4.1 million and $3.2 million of excavation costs, respectively.

Labor costs associated with employees at our processing facility represent the most significant cost of converting raw frac sand to finished product. We incurred labor costs of $3.2 million and $1.1 million for the years ended December 31, 2013 and 2012, respectively, and $3.4 million and $2.5 million for the nine months ended September 30, 2014 and 2013, respectively. We incur utility costs in connection with the operation of our processing facility, primarily electricity and propane, which are both susceptible to market fluctuations. We incurred utility costs of $2.5 million and $0.9 million for the year ended December 31, 2013 and 2012, respectively, and $4.1 million and $1.8 million for the nine months ended September 30, 2014 and 2013, respectively. Our facilities require periodic scheduled maintenance to ensure efficient operation and to minimize downtime, which historically has not resulted in significant costs to us.

Direct excavation costs, processing costs, overhead allocation, depreciation and depletion are capitalized as a component of inventory and are reflected in cost of goods sold when inventory is sold.

Revenue is generally recognized FCA, payment made at the origination point at our facility, and title passes as the product is loaded into rail cars hired by the customer. Certain spot-rate customers have shipping terms of FCA, payment made at the destination, for which we recognize revenue when the sand is received at the destination. As a result we generally do not incur shipping expenses, as the expense is passed through to the customer.

How We Evaluate Our Operations

Gross Profit and Production Costs

As of November 1, 2014, approximately 96% of our facility’s current annual production capacity was contracted under long-term, fixed-price take-or-pay contracts with a volume-weighted average remaining term of 2.72 years. Excavation costs are fixed based on tons excavated. Accordingly, gross profit will primarily be affected by our ability to control other direct and indirect costs associated with processing frac sand.

We also use production costs, which we define as costs of goods sold, excluding depreciation and depletion, to measure our financial performance. We believe production costs is a meaningful measure because it provides a measure of operating performance that is unaffected by historical cost basis. Please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

Adjusted EBITDA and Distributable Cash Flow

We view Adjusted EBITDA as an important indicator of performance. We define Adjusted EBITDA as our net income, plus (i) interest expense, (ii) depreciation, amortization, accretion and depletion expense, (iii) income tax expense, including franchise taxes, (iv) gain or loss on disposal of assets, (v) loss on extinguishment of debt (vi) equity incentive compensation and (vii) non-cash charges and

unusual or non-recurring charges. See “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.” Although we have not quantified distributable cash flow on a historical basis, after the closing of this offering we intend to use distributable cash flow to evaluate whether we are generating sufficient cash flow to support distributions to our unitholders. We define distributable cash flow as Adjusted EBITDA less cash paid for interest expense and maintenance capital expenditures, including accrual for reserve replacement, plus accretion of asset retirement obligations. Distributable cash flow will not reflect changes in working capital balances. Adjusted EBITDA is a supplemental measure utilized by our management and other users of our financial statements such as investors, commercial banks, research analysts and others, to assess the financial performance of our assets without regard to financing methods, capital structure or historical cost basis. Distributable cash flow is a supplemental measure used to measure the ability of our assets to generate cash sufficient to support our indebtedness and make cash distributions to our unitholders.

Note Regarding Non-GAAP Financial Measures

Production costs, Adjusted EBITDA and distributable cash flow are not financial measures presented in accordance with GAAP. We believe that the presentation of these non-GAAP financial measures will provide useful information to investors in assessing our financial condition and results of operations. Costs of goods sold is the GAAP measure most directly comparable to production costs, net income is the GAAP measure most directly comparable to Adjusted EBITDA and the GAAP measure most directly comparable to distributable cash flow is net income. Our non-GAAP financial measures should not be considered as alternatives to the most directly comparable GAAP financial measure. Each of these non-GAAP financial measures has important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measures. You should not consider production costs, Adjusted EBITDA or distributable cash flow in isolation or as substitutes for analysis of our results as reported under GAAP. Because production costs, Adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

Factors Impacting Comparability of Our Financial Results

Our historical results of operations and cash flows are not indicative of results of operations and cash flows to be expected in the future, principally for the following reasons:

•

Our Oakdale facility did not generate sales until we commenced operations in July 2012. Our first shipment of frac sand to a customer from our Oakdale facility occurred on July 31, 2012. Accordingly, our financial statements for the year ended December 31, 2012 reflect operations only from July 2012 through the end of the year.

•

We completed an expansion of our Oakdale facility in July 2014. In July 2014, we completed an expansion project to increase our processing capacity from 1.1 million tons per year to approximately 2.2 million tons per year. As of November 1, 2014, approximately 96% of our facility’s current annual production capacity was contracted under long-term, fixed-price take-or-pay contracts with a volume-weighted average remaining term of 2.72 years.

•

Our historical financial results include certain capital expenditures and other costs related to assets outside of our Oakdale facility, which are not being contributed to us by our sponsor in connection with this offering. For the year ended December 31, 2013 and the nine months ended September 30, 2014, we had capital expenditures that related to the

100

acquisition, development and construction of property, plant and equipment at sites other than our Oakdale facility, which are not being contributed to us in connection with this offering, of approximately $0.03 million and $5.0 million, respectively. Total property, plant and equipment of $3.8 million and $10.3 million as of December 31, 2013 and September 30, 2014, respectively, related to sites other than Oakdale are not being contributed in connection with this offering.

•

Our historical financial results include long-term debt and related expenses that are not being contributed to us by our sponsor in connection with this offering. Our sponsor has indebtedness outstanding under the predecessor credit facility, line of credit and a mandatorily redeemable preferred stock arrangement which will not be contributed to us by our sponsor upon the completion of this offering. For the year ended December 31, 2013 and the nine months ended September 30, 2014, our sponsor incurred interest expense related to the predecessor credit facility, line of credit and mandatorily redeemable preferred stock arrangement of $10.1 million and $6.5 million, respectively. We do not expect to have any indebtedness outstanding as of the closing of this offering. Please read “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page F-2.

•

We will incur additional operating expenses as a publicly traded partnership. We expect we will incur approximately $1.8 million annually in additional operating expenses as a publicly traded limited partnership that we have not previously incurred, including costs associated with compliance under the Exchange Act, annual and quarterly reports to unitholders, tax return and Schedule K-1 preparation and distribution, registrar and transfer agent fees, audit fees, incremental director and officer liability insurance costs and director and officer compensation. We additionally expect to incur $1.2 million in non-recurring costs related to our transition to a publicly traded partnership. These incremental expenses exclude the costs of this offering, as well as the costs associated with the initial implementation of our Sarbanes-Oxley Section 404 internal control reviews and testing.

•

We will no longer be taxed as a corporation for income tax purposes. For the year ended December 31, 2013 and the nine months ended September 30, 2014, our predecessor incurred income tax expense of $2.6 million and $6.1 million, respectively. Going forward, we will not be subject to such income tax expense.

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Results of Operations

The following table summarizes our revenue and expenses for the periods indicated.


	Nine Months Ended						Year Ended
	September 30, 2014			September 30, 2013			December 31, 2013			December 31, 2012
	(in thousands)
Revenues	$	45,867		$	19,301		$	26,656		$	6,925
Cost of goods sold		18,044			10,819			9,745			6,023

Gross profit		27,823			8,482			16,911			902
Operating expenses:
Salaries, benefits and payroll taxes		2,996			1,410			1,928			1,616
Depreciation and amortization		99			82			110			296
Selling, general and administrative		4,143			1,223			1,705			1,539

Total operating expenses		7,238			2,715			3,743			3,451

Income (loss) from operations		20,585			5,767			13,168			(2,549	)
Preferred stock interest expense		(4,934	)		(7,124	)		(9,674	)		(6,827	)
Other interest expense		(1,614	)		(442	)		(528	)		(331	)
Other income		334			74			72			22

Total other income (expense)		(6,214	)		(7,492	)		(10,130	)		(7,136	)
Loss on extinguishment of debt		1,230			-			-			-

Income (loss) before income tax expense		13,141			(1,725	)		3,038			(9,685	)
Income tax expense (benefit)		6,062			(1,512	)		2,623			(11	)

Net and comprehensive income (loss)	$	7,079		$	(213	)	$	415		$	(9,674	)

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Revenue

Revenue was $45.9 million for the nine months ended September 30, 2014, during which we sold approximately 845,000 tons of sand. Revenue for the nine months ended September 30, 2013 was $19.3 million, during which we sold approximately 372,000 tons of sand. Average revenue per ton sold increased by approximately $2 per ton for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.

The key factors contributing to the increase in revenues and average revenue per ton for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 were as follows:

•

Three additional long-term contracts were executed in 2014, one of which commenced in May 2014 and two of which commenced in August 2014. Revenue increased by approximately $18.1 million for the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 as a result of sales under these additional contracts.

•

Revenue increased by approximately $5.4 million due to an increase in spot market sales during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013.

•

Freight shipping revenue increased to $2.3 million for the nine months ended September 30, 2014. There was no shipping revenue for the nine months ended September 30, 2013.

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Cost of Goods Sold and Production Costs

Cost of goods sold were $18.0 million and $10.8 million, or $21.36 and $29.10 per ton sold, for the nine months ended September 30, 2014 and 2013, respectively. Of this amount, production costs comprised $11.9 million and $8.7 million, or $14.13 and $23.39 per ton sold, for the nine months ended September 30, 2014 and 2013, respectively. Please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.” Depreciation and depletion included in cost of goods sold account for $2.4 million and $2.1 million, respectively, for the nine months ended September 30, 2014 and 2013.

Gross Profit

Gross profit equals revenues less costs of goods sold. Gross profit was $27.8 million and $8.5 million for the nine months ended September 30, 2014 and 2013, respectively. Due to the nature of the fixed-price, take-or-pay contracts with our customers, gross profit is primarily affected by the cost to excavate and process sand. We have outsourced all excavation activities to an independent third party, Earth, Inc., with primarily fixed terms. Our excavation cost is fixed at $2.01 per ton excavated and delivered.

Operating Expenses

Operating expenses were $7.2 million and $2.7 million for the nine months ended September 30, 2014 and 2013, respectively. Operating expenses are comprised primarily of wages and benefits, travel and professional services fees. Salaries, benefits and payroll taxes increased with the addition of various corporate employee positions; salaries, benefits and payroll taxes for the nine months ended September 30, 2014 and 2013 were $3.0 million and $1.4 million, respectively. Selling, general and administrative expenses increased by $2.9 million from September 30, 2013 compared to September 30, 2014 as a result of increased professional costs due to our continued growth.

Preferred Stock and Other Interest Expense

Our predecessor incurred $6.5 million and $7.6 million of interest expense for the nine months ended September 30, 2014 and 2013, respectively. Interest expense incurred during 2014 is derived primarily from paid-in-kind interest on the mandatorily redeemable Preferred Shares, which accounted for $3.1 million of the expense, as well as the accretion of common stock issued in conjunction with the September 2011 Securities Purchase Agreement, the predecessor credit facility, the line of credit, and interest incurred on capital leases. Interest expense incurred during 2013 is primarily derived from paid-in-kind interest on the mandatorily redeemable Preferred Shares, which accounted for $6.7 million of the expense, as well as the accretion of common stock issued in conjunction with the September 2011 Securities Purchase Agreement, deferred financing fees, the line of credit, and interest incurred on capital leases. The paid-in-kind interest is added to the outstanding balance of the Preferred Shares.

Loss on Extinguishment of Debt

As a result of the $40 million repayment of the holder of the Preferred Shares in March 2014, we incurred a $1.2 million loss on extinguishment of debt related to the accelerated accretion of the original issuance costs.

Income Tax Expense (Benefit)

Income tax expense was $6.1 million for nine months ended September 30, 2014 compared to an income tax benefit of $1.5 million for the nine months ended September 30, 2013. For the nine months ended September 30, 2014, our predecessor’s statutory tax rate and effective tax rate were

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approximately 34% and 45%, respectively. The difference in these tax rates was primarily due to state income tax and non-deductible interest expense on the preferred shares. For the nine months ended September 30, 2013, our predecessor’s statutory tax rate and effective tax rate were approximately 34% and 88%, respectively. The difference in these tax rates was primarily due to state income tax, non-deductible interest expense on the preferred shares offset by a reduction in valuation allowance due to expected realization of tax benefits relating to a previously reserved net operating loss carryforward.

Net and Comprehensive Income and Adjusted EBITDA

Net income was $7.1 million for nine months ended September 30, 2014 compared to net loss of $0.2 million for the nine months ended September 30, 2013. Adjusted EBITDA was $23.7 million for the nine months ended September 30, 2014 compared to $8.1 million for the nine months ended September 30, 2013. The increases in net and comprehensive income and Adjusted EBITDA resulted from the increase in revenue and gross profit primarily due to an increase in the volumes of sand sold. For the definition of Adjusted EBITDA and reconciliations to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

We commenced construction of our Oakdale facility in November 2011. We completed construction of our Oakdale facility and began selling frac sand to our customers in July 2012. Our historical financial statements for the period from inception through June 30, 2012 reflect only start-up activities, reflected as operating expenses, as we had no operations during such period.

Revenue

Revenue was $26.7 million for the year ended December 31, 2013, during which we sold approximately 501,000 tons of sand. Revenue for the year ended December 31, 2012 was $6.9 million, during which we sold approximately 93,000 tons of sand. Average revenue per ton sold decreased by approximately $21 per ton for the year ended December 31, 2013 as compared to the year ended December 31, 2012.

The key factors contributing to the increase in revenues and decrease in average revenue per ton for the year ended December 31, 2013 as compared to the year ended December 31, 2012 were as follows:

•

Revenue increased by approximately $14 million for the year ended December 31, 2013 as compared to the year ended December 31, 2012 primarily due to a full year of sales under a long-term contract that commenced in August 2012.

•

Revenue increased by approximately $5.7 million due to an increase in spot market sales during the year ended December 31, 2013 as compared to the year ended December 31, 2012.

•

The decrease in average sales price per ton was primarily due to spot market sales occurring at lower prices than contractual sales.

Cost of Goods Sold and Production Costs

Cost of goods sold were $9.7 million and $6.0 million, or $19.47 and $64.52 per ton sold, for the years ended December 31, 2013 and 2012, respectively. Of this amount, production costs comprised

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$6.7 million and $4.7 million, or $13.41 and $50.14 per ton sold, for the years ended December 31, 2013 and 2012, respectively. Please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.” Depreciation and depletion included in cost of goods sold account for $2.9 million and $1.3 million, respectively, for the years ended December 31, 2013 and 2012.

Gross Profit

Gross profit equals revenues less costs of goods sold. Gross profit was $16.9 million and $0.9 million for the years ended December 31, 2013 and 2012, respectively. Due to the nature of the fixed price, take-or-pay contracts with our customers, gross profit is primarily affected by the cost to excavate and process sand. We have outsourced all excavation activities to an independent third party, Earth, Inc., with primarily fixed terms. Our excavation cost is fixed at $2.01 per ton excavated and delivered.

Operating Expenses

Operating expenses were $3.7 million and $3.5 million for the year ended December 31, 2013 and 2012, respectively. Salaries, benefits and payroll taxes increased with the addition of various corporate employee positions and bonuses; salaries, benefits and payroll taxes for the years ended December 31, 2013 and 2012 were $1.9 million and $1.6 million, respectively. Selling, general and administrative expenses increased by $0.2 million from December 31, 2012 compared to December 31, 2013 as a result of increased professional costs due to our continued growth.

Preferred Stock and Other Interest Expense

We incurred $10.2 million and $7.2 million of interest expense for the years ended December 31, 2013 and 2012, respectively. Interest expense in 2013 and 2012 is derived primarily from paid-in-kind interest on the mandatorily redeemable Preferred Shares, which accounted for $9.7 million and $6.8 million of the expense, respectively, as well as the accretion of common stock issued and transaction costs incurred in conjunction with the September 2011 Securities Purchase Agreement, deferred financing fees, the line of credit, and interest incurred on capital leases. The paid-in-kind interest is added to the outstanding balance of the Preferred Shares.

Income Tax Expense (Benefit)

Income tax expense was $2.6 million for the year ended December 31, 2013 compared to an immaterial income tax benefit for the year ended December 31, 2012.

Net and Comprehensive Income (Loss) and Adjusted EBITDA

The net income was $0.4 million for year ended December 31, 2013 compared to a net loss of $9.7 million for the year ended December 31, 2012. Adjusted EBITDA was $16.3 million for the year ended December 31, 2013 compared to $(0.8) million for the year ended December 31, 2012. The increases in net and comprehensive income (loss) and Adjusted EBITDA resulted from the increase in revenue and gross profit primarily due to a full year of operations during 2013. For the definition of Adjusted EBITDA and reconciliations to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Selected Historical and Pro Forma Financial and Operating Data—Non-GAAP Financial Measures.”

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Liquidity and Capital Resources

Overview

Our predecessor’s principal liquidity requirements for the year ended December 31, 2013 and the nine months ended September 30, 2014 were to fund capital expenditures for the construction and expansion of the related sand processing facility in Oakdale and to meet working capital needs. Our predecessor met its liquidity needs with a combination of funds generated through operations and a revolving credit facility.

We expect that our future principal uses of cash will be for working capital, capital expenditures, funding our debt service obligations and, following the completion of this offering, paying distributions to our unitholders. We intend to make a minimum quarterly distribution to the holders of our common units and subordinated units of $ per unit, or $ per unit on an annualized basis, to the extent we have sufficient available cash after the establishment of cash reserves and the payment of costs and expenses, including the payment of expenses to our general partner. However, other than the requirement in our partnership agreement to distribute all of our available cash each quarter, we have no legal obligation to make quarterly cash distributions in this or any other amount. We expect our principal sources of liquidity will be cash generated by our operations and borrowings under our new revolving credit agreement, and we believe that cash from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements.

Working Capital

Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. All current assets relating to the Hixton facility will be retained by our sponsor.

The following table presents the components of our working capital as of September 30, 2014 compared to September 30, 2013 and December 31, 2013 compared to December 31, 2012.


	September 30, 2014 (unaudited)		September 30, 2013 (unaudited)			December 31, 2013		December 31, 2012
	(in thousands)
Current assets
Cash	$	1,444	$	2,475		$	2,119	$	1,219
Accounts and unbilled receivables		8,190		2,689			4,211		1,656
Inventories		8,794		5,387			5,465		3,282
Prepaid expenses and other current assets		2,927		225			417		273
Deferred tax assets, current		225		-			4,864		-

Total current assets		21,580		10,776			17,076		6,430
Current liabilities
Line of credit		-		9,230			9,230		10,000
Accounts payable		2,858		326			270		2,035
Accrued liabilities		4,996		3,727			2,013		1,582
Deferred revenue		-		318			183		2,067
Income taxes payable		1,291		67			196		-
Current portion of capital lease obligations		385		395			366		112
Current portion of long-term debt		121		90			90		88

Total current liabilities		9,651		14,153			12,348		15,884

Working capital (deficit)	$	11,929	$	(3,377	)	$	4,728	$	(9,454	)

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September 30, 2014 Compared to September 30, 2013. Our working capital was $11.9 million at September 30, 2014 and $(3.3) million at September 30, 2013. As of September 30, 2013, we had a line of credit of $9.2 million; as of March 28, 2014, this line of credit was paid in full from the proceeds of the predecessor credit facility. Working capital included deferred revenue of $0.3 million at September 30, 2013 that was satisfied with the delivery of sand through October 2013. As such, no deferred revenue balance remained as of September 30, 2014.

Accounts and unbilled receivables increased by $5.5 million from September 30, 2013 to September 30, 2014 primarily due to an increase in sales of frac sand. Substantially all of the incremental frac sand volume was sold to customers who do not prepay for deliveries.

In December 2013, we signed a long-term contract with a customer to purchase sand that was previously not capitalized by us in inventory. The increase in current inventory of $3.4 million from September 30, 2013 to September 30, 2014 resulted primarily from us capitalizing the estimated sand necessary to fulfill minimum contract requirements over the life of the contract.

Accounts payable and accrued expenses included liabilities for plant expansion of $1.8 million of capital related items as of September 30, 2014, primarily related to the expansion construction of the Oakdale and Hixton facilities. There were no such material items as of September 30, 2013. Employee-related accruals represented $1.0 million and $0.2 million of accrued expenses as of September 30, 2014 and 2013, respectively. As of September 30, 2014, we recorded $0.7 million of accrued interest related to the predecessor credit facility entered into on March 28, 2014.

December 31, 2013 Compared to December 31, 2012. Our working capital was $4.7 million at December 31, 2013 and $(9.5) million at December 31, 2012. As of December 31, 2013, we had paid $0.8 million on our promissory note of $10.0 million. Working capital included deferred revenue of $2.1 million at December 31, 2012 that was satisfied with the delivery of sand through October 2013. Deferred revenue at December 31, 2013 represented revenue that was shipped FCA, payment made at the destination, and did not arrive at the destination until after year-end.

Accounts receivable increased by $2.6 million from December 31, 2012 to December 31, 2013 primarily due to an increase in sales of frac sand. Substantially all of the incremental frac sand volume was sold to customers who do not prepay for deliveries.

In December 2013, we signed a long-term contract with a customer to purchase sand that was previously not capitalized by us in inventory. We capitalized the estimated sand necessary to fulfill minimum contract requirements over the life of the contract. This resulted in the increase in current inventory of $2.2 million from December 31, 2012 to December 31, 2013.

Accounts payable and accrued expenses included site work costs of $0.3 million and $1.9 million as of December 31, 2013 and 2012. Additionally, retainage accruals relating to the original plant construction totaled $0.6 million and $1.2 million as of December 31, 2013 and December 31, 2012, respectively.

Operating Activities

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Net cash provided by operating activities was $16.9 million and $3.2 million for the nine months ended September 30, 2014 and September 30, 2013, respectively. Operating cash flows include net income of $7.1 million and net loss of $0.2 million in net earnings generated from the sale of frac sand to our customers in the nine months ended September 30, 2014 and September 30, 2013, respectively. The net earnings in each period were offset by production costs, general and administrative expenses and cash interest expense, adjusted for changes in working capital to the extent they are positive or negative.

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Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Net cash provided by operating activities was $2.9 million for the year ended December 31, 2013; net cash used in operating activities was $1.2 million for the year ended December 31, 2012. Operating cash flows include net income of $0.4 million and a net loss of $9.7 million in net earnings generated from the sale of frac sand to our customers in the year ended December 31, 2013 and December 31, 2012, respectively. The net earnings in each period were offset by production costs, general and administrative expenses and cash interest expense, adjusted for changes in working capital to the extent they are positive or negative.

Investing Activities

The following table presents the components of net cash used in investing activities.


	Nine Months Ended				Year Ended
	September 30, 2014 (unaudited)		September 30, 2013 (unaudited)		December 31, 2013		December 31, 2012
	(in thousands)
Oakdale:
Original Plant / Plant Expansion	$	12,367	$	—	$	10	$	37,091
Land		807		96		—		—
Other		3,076		924		1,042		437
Assets to be retained by our sponsor:
Hixton		4,973		24		39		3,098

Cash capital expenditures		21,223		1,044		1,091		40,626

Non-cash capital expenditures		1,810		—		555		488

Total capital expenditures	$	23,033	$	1,044	$	1,646	$	41,114

Financing Activities

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Net cash provided by financing activities was $3.7 million for the nine months ended September 30, 2014, which included net borrowings of $53.7 million under the predecessor credit facility, offset by a $40.0 million repayment of the holder of the Preferred Shares, $9.2 million pay down of line of credit, and $0.5 million of loan origination costs.

Net cash used in financing activities was $0.9 million for the nine months ended September 30, 2013, which comprised primarily of $0.8 million of repayments on our predecessor’s line of credit and payments on our existing equipment notes payable and capital leases.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

Net cash used in financing activities was $1.0 million for the year ended December 31, 2013, which included $0.8 million of repayments on our predecessor’s line of credit, $0.1 million of repayments on long term debt, and $0.1 million in payments on capital leases.

Net cash provided by financing activities was $34.3 million for the year ended December 31, 2012, which included additional proceeds from the funding of the $26.0 million second tranche of Preferred Shares, net of $1.6 million issuance costs, as well as the proceeds from the $10 million letter of credit obtained in July 2012.

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Off Balance Sheet Arrangements

At September 30, 2014 and December 31, 2013, we had an outstanding letters of credit in the amount of $2.0 million and $0.8 million, respectively.

Capital Requirements

The expansion of the Oakdale second drying facility was completed in July 2014. As of September 30, 2014 and December 31, 2013, we had commitments related to this project as well as future expansion projects of approximately $12.4 million and $2.4 million, respectively. We expect to incur approximately $7.8 million during the fourth quarter of 2014 and approximately $27.4 million during 2015 in expansion capital expenditures. Expansion capital expenditures for the forecast period are anticipated to support incremental growth initiatives, including expanding our production capabilities to approximately 3.3 million tons per annum and increasing rail infrastructure by approximately one mile of track. The production expansion and logistics improvements are expected to be operational by the end of the second quarter of 2015. These projects are expected to increase our production capacity and improve our logistics capabilities onsite to further position us to capitalize upon growth opportunities that we anticipate will continue to develop with both current and potential new customers. We expect to fund these expansion capital expenditures with a portion of the net proceeds from this offering. Please read “Use of Proceeds” and “Cash Distribution Policy and Restrictions on Distributions—Estimated Distributable Cash Flow for the Twelve Months Ending December 31, 2015—Assumptions and Considerations.”

Credit Facilities

Our New Revolving Credit Facility

Prior to or in connection with the completion of this offering, we intend to enter into a new $ million revolving credit facility. Our new revolving credit facility will be available to fund working capital and to finance acquisitions and other capital expenditures. Borrowings under our revolving credit facility are expected to bear interest at LIBOR plus an applicable spread. LIBOR and the applicable spread will be defined in the credit agreement that evidences our new revolving credit facility. We expect the unused portion of the revolving credit facility will be subject to a commitment fee.

We expect our revolving credit facility to contain covenants and conditions that, among other things, limit our ability to incur or guarantee additional debt, make cash distributions, incur certain liens or permit them to exist, make certain investments and acquisitions, enter into certain types of transactions with affiliates, merge or consolidate with another company, and transfer, sell or otherwise dispose of assets. We also expect to be subject to covenants that require us to maintain certain financial ratios.

Our Predecessor’s Credit Facility and Other Arrangements

Below is a description of our predecessor’s credit facility and other financing arrangements. We expect that upon completion of this offering we will have no ongoing liabilities or obligations under our predecessor’s financing arrangements and that the liens on our assets securing borrowings under these arrangements will be released. Please read “Summary—Organizational Transactions.”

Line of Credit. On July 2, 2012, our predecessor obtained a one-year $10 million line of credit from a bank. The line of credit had an interest rate of Prime plus 1%. In July 2012, borrowings on the line of credit amounted to $6 million. In August 2012, we borrowed the remaining $4 million under the line of credit. The line of credit is guaranteed by the majority holder of our common stock (and the sole

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holder of the Preferred Shares). In connection with the guarantee, the holder of the Preferred Shares was paid additional stock dividends of 0.32% per annum through the maturity date of the line of credit. In July 2013, the line of credit was extended through July 9, 2014 and bore an interest rate of Prime plus 0.35% (3.60% as of December 31, 2013). Once a portion of the line of credit has been repaid, it cannot be re-borrowed. There are no financial covenants associated with the agreement. On March 28, 2014, the outstanding balance of $9.3 million, which included accrued interest, was paid in full.

Interest expense under the line of credit was approximately $0.08 million and $0.3 million for the nine months ended September 30, 2014 and 2013, respectively, and $0.4 million and $0.2 million for the years ended December 31, 2013 and 2012, respectively.

There was no outstanding balance under the line of credit as of September 30, 2014. As of December 31, 2013 and 2012, the outstanding balance under the line of credit was $9.2 million and $10.0 million, respectively. At September 30, 2014 and December 31, 2013, we had an outstanding letter of credit in the amount of $2.0 million and $0.8 million, respectively.

Predecessor Revolving Credit Facility. On March 28, 2014, our predecessor entered into a $72.5 million revolving credit and security agreement with our wholly-owned subsidiary Fairview Cranberry Company, LLC as co-borrowers, and PNC Bank, National Association, as administrative agent and collateral agent. We refer to this facility as the predecessor credit facility. The predecessor credit facility matures on March 28, 2019.

Loans under the predecessor credit facility bear interest at our predecessor’s option at either:

•

a Base Rate (as defined in the predecessor credit facility), which will be the base commercial lending rate of PNC Bank, as publicly announced to be in effect from time to time, plus an applicable margin ranging from 2.50% to 3.00% based on our total leverage ratio; or

•

LIBOR plus an applicable margin ranging from 3.50% to 4.00% based on our total leverage ratio.

The predecessor credit facility contains various covenants and restrictive provisions and requires maintenance of financial covenants, including a fixed charge coverage ratio and a total leverage ratio (as defined in the predecessor credit facility). At September 30, 2014, our predecessor was in technical default under the Credit Agreement for forming and capitalizing two inactive subsidiaries. Our predecessor received a waiver for this event of default. At September 30, 2014, our predecessor was in compliance with the financial covenants and had undrawn availability under this credit facility totaling $12.4 million. At September 30, 2014, outstanding borrowings under the Credit Agreement bore interest at a weighted-average rate of approximately 4.0%. Our sponsor expects to fully repay any outstanding borrowings with a portion of the proceeds from this offering and terminate the predecessor credit facility in connection with the completion of this offering. Please read “Use of Proceeds.” We will retain no cash flow commitments related to the predecessor credit facility after its termination.

Mandatorily Redeemable Series A Preferred Stock. On September 13, 2011, our predecessor entered into a financing agreement with Clearlake. The agreement provides for the sale of Series A Preferred Stock, which we refer to as the Preferred Shares, to Clearlake in three tranches. For the years ended December 31, 2013 and 2012, we incurred $9.7 million and $7.6 million of interest expense related to the Preferred Shares, respectively. We did not capitalize any interest expense related to the Preferred Shares in 2013. In 2012, $0.8 million of the interest expense was capitalized into property, plant and equipment in the consolidated balance sheets.

The Preferred Shares are mandatorily redeemable on September 13, 2016. The redemption price is the original issuance price per share of all outstanding Preferred Shares plus any unpaid accrued

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dividends. We have an option to repay the Preferred Shares before September 13, 2016; if this option is exercised, we must repay at least $1 million. The Preferred Shares are not convertible into common stock or any other security we issued. As a result of the Preferred Shares’ mandatory redemption feature, we classified these securities as long-term liabilities in the accompanying consolidated balance sheets as of September 30, 2014 and 2013, and December 31, 2013 and 2012, respectively.

On March 28^,2014, as part of the entering into of our predecessor credit facility, approximately $40 million of Preferred Shares was redeemed.

At September 30, 2014, the liquidation value of the Preferred Shares was $29.6 million. Our predecessor expects to redeem all of the Preferred Shares in connection with this offering.

Customer Concentration

For the nine months ended September 30, 2014, sales to Weatherford, EOG Resources and US Well Services accounted for 36.6%, 29.7% and 10.3%, respectively, of total revenue. For the year ended December 31, 2013, sales to Weatherford and EOG Resources accounted for 77% and 19%, respectively, of total revenue. The terms of each contract provide for liquidated damages in the event that a customer does not purchase minimum monthly volumes of sand.

Contractual Obligations

The following table presents our contractual obligations and other commitments as of December 31, 2013.


	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Capital leases(1)	$	366	$	366	$	-	$	-	$	-
Notes payable(2)		122		90		32		-		-
Oakdale construction obligations(3)		2,400		2,400		-		-		-
Asset retirement obligations(4)		204		-		-		-		204
Preferred stock(5)		65,040		-		65,040		-		-
Equipment and office operating leases(6)		285		150		101		34		-
Line of credit(7)		9,230		9,230		-		-		-

	$	77,647	$	12,236	$	65,173	$	34	$	204

(1)	Through December 31, 2013, we entered into a lease arrangement to lease operational equipment. Future minimum lease payments amount to $366 which were paid through June 2014.

(2)	We have financed certain equipment and automobile purchases by entering into various debt agreements. Interest rates on these notes ranged from 0% to 8.39% and maturities range from 2014 through 2017.

(3)	As part of our Oakdale plant expansion, we were committed to capital expenditures of approximately $2,400.

(4)	The asset retirement obligation represents the fair value of post closure reclamation and site restoration commitments for the Oakdale property and processing facility.

(5)

In September of 2011 we entered into a Securities Purchase Agreement which provided for three investment tranches of Preferred Shares. As of December 31, 2013, two of the tranches have been funded, resulting in the issuance of 48,000 preference shares with a par value of $1,000 per share which are mandatorily redeemable on September 13, 2016. These Preferred Shares have been valued at their issuance value plus accrued dividends. As of September 30, 2014, the value was $29.6 million.

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(6)

We have entered into long-term operating leases for certain operations equipment, rail equipment and office space. Certain long-term rail car operating leases have been executed; however payment does not begin until the cars arrive. Cars are estimated to arrive between July and September 2014, and May through June 2015. Monthly lease expense per car on these 331 cars ranges from $475 to $584. Due to the uncertain nature of delivery, these rail car leases have not been included in the schedule.

(7)	In March 2014, we paid off the line of credit in full.

Quantitative and Qualitative Disclosure of Market Risks

Market risk is the risk of loss arising from adverse changes in market rates and prices. Historically, our predecessor’s risks have been predominantly related to potential changes in the fair value of its long-term debt due to fluctuations in applicable market interest rates. Going forward our market risk exposure generally will be limited to those risks that arise in the normal course of business, as we do not engage in speculative, non-operating transactions, nor do we utilize financial instruments or derivative instruments for trading purposes.

Commodity Price Risk

The market for frac sand is indirectly exposed to fluctuations in the prices of crude oil and natural gas to the extent such fluctuations impact drilling and completion activity levels and thus impact the activity levels of our customers in the pressure pumping and exploration and production industries. However, because we generate the substantial majority of our revenues under long-term, take-or-pay contracts, we believe we have only limited exposure to short-term fluctuations in the prices of crude oil and natural gas. We do not currently intend to hedge our indirect exposure to commodity price risk.

Interest Rate Risk

As of September 30, 2014, our predecessor had $54.4 million, net of a $1.1 million debt discount, in variable rate long-term debt outstanding under the predecessor credit facility, which bears interest at our option at either:

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LIBOR plus an applicable margin ranging from 3.50% to 4.00% based on our total leverage ratio.

The fair value of our long-term debt at September 30, 2014 was approximately $55.5 million, as the debt was obtained in March 2014, and is therefore considered to reflect the application of current interest rates offered for debt with similar remaining terms and maturities. As an indication of this debt’s sensitivity to changes in interest rates, based upon an immediate 50 basis point increase in the applicable interest rates at September 30, 2014, the fair value of our predecessor’s variable rate long-term debt would have decreased by approximately $0.08 million. Conversely, a 50 basis point decrease in that rate would increase the fair value of this indebtedness by $0.2 million.

We do not expect to have any liabilities or obligations under the predecessor credit facility following the completion of this offering. We expect to have no indebtedness outstanding as of the closing of this offering.

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Credit Risk

Substantially all of our revenue for the year ended December 31, 2013 was generated through long-term, take-or-pay contracts with two customers. Since December 31, 2013, we have signed long-term, take-or-pay contracts with three additional customers. Our customers are oil and natural gas producers and pressure pumping service providers. This concentration of counterparties operating in a single industry may increase our overall exposure to credit risk, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. If a customer defaults or if any of our contracts expires in accordance with its terms, and we are unable to renew or replace these contracts, our gross profit and cash flows, and our ability to make cash distributions to our unitholders may be adversely affected.

Internal Controls and Procedures

Prior to the completion of this offering, our predecessor has been a private company with limited accounting personnel to adequately execute our accounting processes and limited other supervisory resources with which to address our internal control over financial reporting. As such, we have not maintained an effective control environment in that the design and execution of our controls has not consistently resulted in effective review and supervision by individuals with financial reporting oversight roles. In connection with our predecessor’s audit for the years ended December 31, 2013 and 2012, our predecessor’s independent registered public accounting firm identified and communicated a material weakness related to the failure to maintain a sufficient complement of qualified accounting personnel, which contributed to our predecessor’s inability to maintain appropriate segregation of duties within the organization and effective review and supervision over the financial reporting process. A “material weakness” is a deficiency, or combination of deficiencies, in internal controls such that there is a reasonable possibility that a material misstatement of our predecessor’s financial statements will not be prevented, or detected in a timely basis. This material weakness resulted in audit adjustments, including correction of prior period errors, to our financial statements which were identified by our independent registered public accounting firm.

At the closing of this offering, our management team and financial reporting oversight personnel will be the same as those of our predecessor and thus, we may face the same material weakness described above.

Since August 2014, we have added several experienced accounting personnel, both full-time employees and contractors, including our Chief Financial Officer, in response to our identification of gaps in our skills base and expertise of the staff required to meet the financial reporting requirements of a public company. However, our evaluation of internal control over financial reporting is not complete and we expect remediation to continue.

While we have begun the process of evaluating our internal control over financial reporting, we are in the early phases of our review and will not complete our review until after this offering is completed. We cannot predict the outcome of our review at this time. During the course of the review, we may identify additional control deficiencies, which represent significant deficiencies and other material weaknesses, in addition to the material weakness previously identified, that require remediation by us. Our remediation efforts may not enable us to remedy or avoid material weaknesses or significant deficiencies in the future.

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Sarbanes-Oxley Act of 2002, which will require our management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. We will not be required to make our first assessment of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC. To comply with the requirements of being a public company, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional accounting, finance and legal staff.

Further, our independent registered public accounting firm is not yet required to formally attest to the effectiveness of our internal controls over financial reporting, and will not be required to do so for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act. Please read “Summary—Our Emerging Growth Company Status.”

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, (“ASU 2014-09”), “Revenue from Contracts with Customers”. The objective of ASU 2014-19 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The new guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2016 for public companies. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt ASU 2014-09. We are currently evaluating the new guidance and have not determined the impact this standard may have on its consolidated financial statements nor decided upon the method of adoption.

In July 2013, the FASB amended Accounting Standards Codification (“ASC Topic 740”), “Income Taxes.” The amendment provides guidance on the consolidated financial statement presentation of an unrecognized tax benefit, as either a reduction of a deferred tax asset or as a liability, when a net operating loss carry-forward, a similar tax loss or a tax credit carry-forward exists. The amendment is effective for interim and annual periods beginning after December 15, 2013 and may be applied on a retrospective basis. Early adoption is permitted. We adopted this guidance effective January 1, 2014, and it did not affect our consolidated financial position, result of operations or cash flows.

In February 2013, the FASB issued amended guidance on the recognition, measurement, and disclosure of certain obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. Such arrangements may include debt, other contractual obligations, and settled litigation and judicial rulings. The amended guidance is to be applied retrospectively to all prior periods presented. This guidance is effective for us beginning January 1, 2014. The adoption of this amended guidance did not materially affect our financial position, result of operations or cash flows.

In December 2011 and January 2013, the FASB issued amended guidance on disclosures pertaining to certain assets and liabilities that are either offset in an entity’s financial statements or

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those that are subject to a master netting agreement or similar arrangement. The scope of these disclosures is limited to derivatives, repurchase agreements and securities lending transactions. We adopted this guidance effective January 1, 2013, and, as it only impacts disclosures, it did not affect our financial position, result of operations or cash flows.

New and Revised Financial Accounting Standards

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our election to “opt-out” of the extended transition period is irrevocable.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally acceptable in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported revenues and expenses during the reporting periods. We evaluate these estimates and assumptions on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Our actual results may materially differ from these estimates.

Listed below are the accounting policies we believe are critical to our financial statements due to the degree of uncertainty regarding the estimates or assumptions involved, and that we believe are critical to the understanding of our operations.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price charged is fixed or determinable, collectability is reasonably assured, and the risk of loss is transferred to the customer. This generally means that sales are FCA, payment made at the origination point at our facility, and title passes as the product is loaded into rail cars hired by the customer. Certain spot-rate customers have shipping terms of FCA, payment made at the destination, for which we recognize this revenue when the sand is received at the destination.

We derive our revenue by mining and processing sand that our customers purchase for various uses. Our revenues are primarily a function of the price per ton realized and the volumes sold. In some instances, our revenues also include a charge for transportation services we provide to our customers. Our transportation revenue fluctuates based on a number of factors, including the volume of product we transport and the distance between our plant and our customers.

We sell a limited amount of product under short-term price agreements or at prevailing market rates. The majority of our revenues are realized through take-or-pay supply agreements with five

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customers. Initial terms of these contracts expire from 2016 through 2018; certain contracts include extension periods, as defined in the respective contracts. These agreements define, among other commitments, the volume of product that our customers must purchase, the volume of product that we must provide and the price that we will charge and that our customers will pay for each ton of contracted product. Prices under these agreements are generally fixed and subject to adjustment, upward or downward, only for certain changes in published producer cost indices, including the Consumer Price Index for All Urban Consumers and the Producer Price Index published by the U.S. Bureau of Labor Statistics, or market factors, including a natural gas surcharge and a propane surcharge which are applied if the Average Natural Gas Price or the Average Quarterly Mont Belvieu TX Propane Spot Price, respectively, as listed by the U.S. Energy Information Administration, are above the benchmark set in the contract for the preceding calendar quarter. As a result, our realized prices may not grow at rates consistent with broader industry pricing. For example, during periods of rapid price growth, our realized prices may grow more slowly than those of competitors, and during periods of price decline, our realized prices may outperform industry averages. With respect to the take-or-pay arrangements, if the customer is not allowed to make up deficiencies, we recognize revenues to the extent of the minimum contracted quantity, assuming payment has been received or is reasonably assured. If deficiencies can be made up, receipts in excess of actual sales are recognized as deferred revenues until production is actually taken or the right to make up deficiencies expires.

Asset Retirement Obligation

We estimate the future cost of dismantling, restoring and reclaiming operating excavation sites and related facilities in accordance with federal, state and local regulatory requirements and recognize reclamation obligations when extraction occurs and record them as liabilities at estimated fair value. In addition, a corresponding increase in the carrying amount of the related asset is recorded and depreciated over such asset’s useful life or the estimated number of years of extraction. The reclamation liability is accreted to expense over the estimated productive life of the related asset and is subject to adjustments to reflect changes in value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs. If the asset retirement obligation is settled for more or less than the carrying amount of the liability, a loss or gain will be recognized, respectively.

Inventory Valuation

Sand inventory is stated at the lower of cost or market using the average cost method. Costs applied to inventory include direct excavation costs, processing costs, overhead allocation, depreciation and depletion. Stockpile tonnages are calculated by measuring the number of tons added and removed from the stockpile. Tonnages are verified periodically by an independent surveyor. Costs are calculated on a per ton basis and are applied to the stockpiles based on the number of tons in the stockpile.

Spare parts inventory includes critical spare parts. We account for spare parts on a first in first out basis, and value the inventory at the lower of cost or market.

Depletion

We amortize the cost to acquire land and mineral rights using a units-of-production method, based on the total estimated reserves and tonnage extracted each period.

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Impairment of Long-Lived Assets

We periodically evaluate whether current events or circumstances indicate that the carrying value of our assets may not be recoverable. If circumstances indicate that the carrying value may not be recoverable, we estimate future undiscounted net cash (without interest charges) estimated future sales prices (considering historical and current prices, price trends and related factors) and operating costs and anticipated capital expenditures. We record a reduction in the carrying value of our long lived assets if the undiscounted cash flows are less than the carrying value of the assets.

Our estimates of prices, recoverable proven reserves and operating and capital costs are subject to certain risks and uncertainties which may affect the recoverability of our long lived assets. Although we have made our best estimate of these factors based on current conditions, it is reasonably possible that changes could occur, which could adversely affect our estimate of the net cash flows expected to be generated from our operating property. No impairment charges were recorded during the years ended December 31, 2013 and 2012 or the nine-month period ended September 30, 2014.

Income Taxes

Under the balance sheet approach to provide for income taxes, we recognize deferred tax assets and liabilities for the expected future tax consequences of net operating loss carryforwards and temporary differences between the carrying amounts and the tax bases of assets and liabilities. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. If we determine it is more likely than not that we will not be able to realize the benefits of the deductible temporary differences, we record a valuation against the net deferred tax asset.

Environmental Matters

We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, air and water emissions, environmental contamination and reclamation and the protection of the environment and natural resources. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

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PROPPANT INDUSTRY OVERVIEW

Unless otherwise indicated, the information set forth in this “Proppant Industry Overview,” including all statistical data and related forecasts, is derived from The Freedonia Group’s Industry Study #3160, “Well Stimulation Materials,” published in June 2014, and Spears & Associates’ “Oilfield Market Report, 2005-2015,” published in October 2014. While we are not aware of any misstatements regarding the proppant industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

Overview

The oil and natural gas proppant industry is comprised of businesses involved in the mining or manufacturing of the propping agents used in the drilling and completion of oil and natural gas wells. Hydraulic fracturing is the most widely used method for stimulating increased production from wells. The process consists of pumping fluids, mixed with granular proppants, into the geologic formation at pressures sufficient to create fractures in the hydrocarbon-bearing rock. Proppant-filled fractures create conductive channels through which the hydrocarbons can flow more freely from the formation into the wellbore and then to the surface.

Types of Proppant

There are three primary types of proppant that are commonly utilized in the hydraulic fracturing process: raw frac sand, which is the product we produce, resin-coated sand and manufactured ceramic beads. The following chart illustrates the composition of the U.S. market for proppant by type.

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Raw Frac Sand

Of the three primary types of proppant, raw frac sand is the most widely used due to its broad applicability in oil and natural gas wells and its cost advantage relative to other proppants. Raw frac sand has been employed in nearly all major U.S. oil and natural gas producing basins, including the Barnett, Eagle Ford, Fayetteville, Granite Wash, Haynesville, Marcellus, Niobara, Permian, Utica, Williston and Woodford basins.

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Raw frac sand is generally mined from the surface or underground, and in some cases crushed, and then cleaned and sorted into consistent mesh sizes. The API has a range of guidelines it uses to evaluate frac sand grades and mesh sizes. In order to meet API specifications, frac sand must meet certain thresholds related to particle size, shape (sphericity and roundness), crush resistance, turbidity (fines and impurities) and acid solubility. Oil and gas producers generally require that frac sand used in their drilling and completion processes meet API specifications.

Raw frac sand can be further delineated into two main naturally occurring types: white sand and brown sand. Northern White, which is the specific type of white sand that we produce, is considered to be of higher quality than brown sand due to the monocrystalline grain structure of Northern White. Brown sand (also called Brady or Hickory sand) has historically been considered the lower quality raw frac sand, due to its polycrystalline structure and inferior angularity, strength and purity characteristics. Northern White frac sand, due to its exceptional quality, commands premium prices relative to other types of sand. Northern White has historically experienced the greatest market demand relative to supply, due both to its superior physical characteristics and the fact that it is a limited resource that exists predominately in Wisconsin and other limited parts of the upper Midwest region of the United States. However, even within Northern White sand, the quality of Northern White can vary significantly across deposits. In 2013, the average price for raw frac sand was $60 per ton with premier Northern White commanding the highest premium, according to Freedonia Group. From 2003-2013, the price of raw frac sand increased at an average rate of 4% per year.

Resin-Coated Frac Sand

Resin-coated frac sand consists of raw frac sand that is coated with a resin that increases the sand’s crush strength and prevents crushed sand from dispersing throughout the fracture. The strength and shape of the end product are largely determined by the quality of the underlying raw frac sand. Pressured (or tempered) resin-coated sand primarily enhances crush strength, thermal stability and chemical resistance, allowing the sand to perform under harsh downhole conditions. Curable (or bonding) resin-coated frac sand uses a resin that is designed to bond together under closure stress and high temperatures, preventing proppant flowback. In general, resin-coated frac sand is better suited for higher pressure, higher temperature drilling operations commonly associated with deep wells and natural gas wells. In 2013, the average price for resin-coated frac sand was $500 per ton, according to Freedonia Group. From 2003-2013, the price of resin-coated sand increased at an average rate of 5% per year.

Ceramics

Ceramic proppant is a manufactured product of comparatively consistent size and spherical shape that typically offers the highest crush strength relative to other types of proppants. As a result, ceramic proppant use is most applicable in the highest pressure and temperature drilling environments. Ceramic proppant derives its product strength from the molecular structure of its underlying raw material and is designed to withstand extreme heat, depth and pressure environments. The deepest, highest temperature and highest pressure wells typically require heavy weight ceramics with high alumina/bauxite content and coarser mesh sizes. The lower crush resistant ceramic proppants are lighter weight and derived from kaolin clay, with densities closer to raw frac sand. In 2013, the average price for ceramic proppants was $660 per ton, with bauxite-based, heavy grade ceramics commanding the highest prices, according to Freedonia Group. From 2003-2013, the price of ceramics increased at an average rate of 3% per year.

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Comparison of Key Proppant Characteristics

The following table sets forth what we believe to be the key comparative characteristics of our frac sand and the three primary types of proppant.


	Smart Sand Oakdale	Raw Frac Sand	Resin-coated	Ceramics
Product and Characteristics	• Natural resource Northern White sand • Considered highest quality raw frac sand • Monocrystalline in nature, exhibiting crush strength, turbidity and roundness and sphericity in excess of API specifications	• Natural resource • Primary types include white and brown • Quality of sand varies widely depending on source	• Raw frac sand substrate with resin coating • Coating increases crush strength • Bond together to prevent proppant flowback	• Manufactured product • Typically highest crush strength

Crush Strength	6,000 to 12,000 psi	up to 12,000 psi	up to 15,000 psi	up to 18,000 psi

Average price of raw frac sand (2013)⁽¹⁾	$53.26	$60.00	N/A	N/A

(1)

All of our sales volumes have historically, and are currently, sold FCA our Oakdale facility. Generally, logistics costs can comprise 70-80% of the delivered cost of Northern White frac sand, depending on the basin into which the product is delivered. Some of our competitors’ sales volumes are sold FCA basin. As a result, average selling prices of frac sand may not be comparable between us and our competitors.

Source: API; Stim-Lab, Inc.; partnership provided information; The Freedonia Group

Proppant Mesh Sizes

Mesh size is used to describe the size of the proppant and is determined by sieving the proppant through screens with uniform openings corresponding to the desired size of the proppant. Each type of proppant comes in various sizes, categorized as mesh sizes, and the various mesh sizes are used in different applications in the oil and natural gas industry. The mesh number system is a measure of the number of equally sized openings there are per linear inch of screen (composed of a grid pattern of crisscrossed wires) through which the proppant is sieved. For example, a 30 mesh screen has 30 equally sized openings per linear inch. Therefore, as the mesh size increases, the granule size decreases. A mesh size of 30/50 refers to sand that passes through a 30 mesh screen but is retained on a 50 mesh screen. As defined by John T. Boyd, 100 mesh sand refers to sand that passes through a 70 mesh screen but is retained on a 140 mesh screen.

Frac Sand Extraction, Processing and Distribution

Raw frac sand is a naturally occurring mineral that is mined and processed. While the specific extraction method utilized depends primarily on the geologic setting, most raw frac sand is mined using conventional open-pit bench extraction methods. The composition, depth and chemical purity of the sand also dictate the processing method and equipment utilized. After extraction, the raw frac sand is washed with water to remove fine impurities such as clay and organic particles. The final steps in the production process involve the drying and sorting of the raw frac sand according to mesh size required to meet API specifications.

After this processing stage, most frac sand is shipped in bulk from the processing facility to customers by rail, barge or truck. For high volumes of raw frac sand, transportation costs often represent a significant portion of the customer’s overall cost, which highlights the importance of efficient bulk shipping. Due to the midcontinent location of Northern White frac sand mines, rail is the predominant method of long distance sand shipment from the region. For this reason, direct access to

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Class 1 rail lines (such as Canadian Pacific and Union Pacific) is an important differentiator in the industry. The presence of an onsite rail yard capable of storing multiple trains, like the rail facility at our Oakdale plant, provides optimal efficiency. Rail shipment can occur via manifest trains or unit trains. Manifest trains, also called mixed-freight trains, are considered less efficient because these trains switch cars at various intermediate junctions in transit and routinely encounter delays. By contrast, unit trains, like those employed by our Oakdale facility, tend to travel from origin to destination without stopping at intermediate destinations or multiple switching yards. The capability to ship via unit train, and simultaneously manage multiple unit trains at the production facility, facilitates reliable and cost effective delivery of high volumes of sand.

Demand Trends

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Demand growth for frac sand and other proppants is primarily driven by advancements in oil and natural gas drilling and well completion technology and techniques, such as horizontal drilling and hydraulic fracturing. These advancements have made the extraction of oil and natural gas increasingly cost-effective in formations that historically would have been uneconomic to develop. Proppant is an essential component in the exploitation of unconventional oil and gas reservoirs, and the demand for proppant has increased as more of these reservoirs have been developed. Over the past ten years, U.S. rig count has increased at a 5.5% compound annual growth rate. In addition to an increase in rig count, the percentage of active drilling rigs used to drill horizontal wells, which require greater volumes of proppant than vertical wells, has increased from 29% in 2008 to 63% in 2013. Moreover, the increase of pad drilling has led to a more efficient use of rigs, allowing more wells to be drilled per rig. As a result of these factors, well count, and hence proppant demand, has grown at a greater rate than overall rig count. Consistent growth in aggregate rig count has recently been driven by strong activity in oil-weighted basins. However, with the recent stabilization of natural gas prices and the relatively lower costs of production in certain gas-weighted basins, the natural gas rig count has stabilized and a

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continued increase is expected in the future. The chart below shows historical rig count activity in the United States. As indicated above, over the past ten years, U.S. rig count has increased at a 5.5% compound annual growth rate, while the demand for proppant by volumes has grown at a rate of 36.0% annually.

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We believe that demand for proppant will be amplified by the following factors:

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improved drilling rig productivity, resulting in more wells drilled per rig per year;

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increases in the percentage of rigs that are drilling horizontal wells;

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increases in the length of the typical horizontal wellbore;

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increases in the number of fracture stages per foot in the typical completed horizontal wellbore;

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increases in the volume of proppant used per fracturing stage;

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renewed focus of exploration and production companies to maximize ultimate recovery in active reservoirs through downspacing; and

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increasing secondary hydraulic fracturing of existing wells as early shale wells age.

The following table illustrates the historical and projected growth in U.S. wells drilled and the steadily increasing intensity of proppant use in those wells.

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Wells in unconventional reservoirs are characterized by high initial production rates followed by a steep decline in production rates during the first several years of the well’s life. Producers must continuously drill new wells to offset production declines and maintain overall production levels. Additionally, operators are beginning to perform secondary hydraulic fracturing of existing wells in order to maintain overall production levels. We believe these efforts to offset steep production declines in unconventional oil and gas reservoirs will be a strong driver of future proppant demand growth.

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Supply Trends

In recent years, customer demand for premium raw frac sand has outpaced supply. Several factors contribute to this persistent supply shortage:

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the difficulty of finding frac sand reserves that meet API specifications and satisfy the demands of customers who increasingly favor premium sand varieties;

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the difficulty of securing contiguous frac sand reserves large enough to justify the capital investment required to develop a processing facility;

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the challenges of identifying reserves with the above characteristics that have rail access needed for low-cost transportation to major shale basins;

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the hurdles to securing mining, production, water, air, refuse and other federal, state and local operating permits from the proper authorities;

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the long lead time required to design and construct sand processing facilities that can efficiently process large quantities of high quality frac sand.

Supplies of premium quality Northern White sands are limited to select areas, predominantly in western Wisconsin and selected areas of Minnesota and Illinois. The ability to obtain large contiguous reserves in these areas is a key constraint and can be an important supply consideration when assessing the economic viability of a potential raw frac sand facility. Further constraining the supply and throughput of Northern White sand, not all of the large reserve mines have onsite excavation and processing capability. The availability of suitable railcars is also an important logistics factor that represents a potential supply constraint in the industry. Certain long-term contracts, including some contracts to which we are a party, stipulate that customers will provide railcars at the originating facility. This arrangement mitigates any financial or operational impact that may arise from fluctuations in railcar availability in the operating regions.

In part due to the community opposition and factors referenced above, new permitting has recently become more challenging in Wisconsin. Several counties in the state have instituted moratoria on the permitting of new frac sand mining sites. While these moratoria have the potential to hinder the permitting of new facilities and slow increases in supply of frac sand, our Oakdale facility is fully permitted and complies with all current regulatory requirements.

Pricing and Contract Considerations

Raw frac sand has exhibited steady pricing increases over the past decade. According to The Freedonia Group, the average price of raw frac sand increased from approximately $40 per ton in 2003 to approximately $60 per ton in 2013. While there are numerous grades and sizes of proppant which sell at varying prices, the overall pricing trend tends to be consistent across the various sizes. In general, the cost of sand constitutes only a small percentage of overall well costs for exploration and production companies, so even a meaningful increase in sand prices is not likely to cause a significant reduction in the high volume of sand consumed by customers.

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BUSINESS

Overview

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coupled with our balanced mix of coarse and fine sand reserves, enables us to better serve demand for different types of frac sand as compared to mines with disproportionate amounts of coarse or fine sand and mines with shorter reserve lives.

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our sponsor’s Hixton sand reserves, processing facility, basin dryers and related assets should our sponsor choose to sell those assets. Our right of first offer will also cover any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops in the future.

Business Strategies

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Focusing on stable, long-term, take-or-pay contracts with key customers. We seek to secure a high percentage of our cash flows under long-term, fixed price contracts containing take-or-pay provisions with oil and natural gas production and pressure pumping service companies. We believe this contracting strategy significantly mitigates our exposure to the potential price volatility of the spot market for frac sand in the short-term, allows us to take advantage of any increase in frac sand prices as we extend or enter into new contracts over the medium-term and provides us with long-term cash flow stability. Our contracting strategy also helps us pursue our long-term logistics and asset optimization strategy by providing more predictability of volumes and product shipments. As current contracts expire or as we add new processing capacity, we intend to pursue similar long-term contracts with our current customers as well as with other leading oil and natural gas production companies and pressure pumping service providers. We intend to utilize substantially all of our processing capacity to fulfill these contracts. If we have excess production and market conditions are favorable, we may elect to sell frac sand in spot market transactions. As of November 1, 2014, our long-term contracts had a volume-weighted average remaining term of 2.72 years.

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Pursuing accretive acquisitions from our sponsor and third parties. We expect to pursue accretive acquisitions of frac sand facilities, transload facilities and other logistics assets from our sponsor and third parties. Pursuant to the terms of the omnibus agreement that we will enter into at the closing of this offering, we will have a right of first offer with respect to our sponsor’s Hixton sand reserves, processing facility, basin dryers and related assets. In addition, our right of first offer will cover any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops in the future. As we evaluate acquisition opportunities, we intend to remain focused on operations that complement our reserves of high-quality frac sand and that provide or would accommodate the development and construction of rail or other advantaged logistics capabilities. We believe these factors are critical to our business model and are important characteristics for any potential acquisitions.

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2.2 million tons per year by adding incremental dry plant capacity and additional sand storage silos. We will continue to analyze and pursue other organic expansion opportunities that will similarly allow us to cost-effectively optimize our existing assets and meet customer demand for our high-quality frac sand. We are in the process of expanding our Oakdale facility’s nameplate capacity to 3.3 million tons per year and expect this expansion will be completed during the second quarter of 2015.

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Continuing to make productivity improvements and reducing our cost of production. Our operations have been strategically designed to provide low per-unit production costs. We will continue to analyze and pursue initiatives that will optimize our existing assets and further lower our total cost of production per ton. For example, we are planning to build a natural gas connection to our Oakdale facility and evaluating modifications to our infrastructure that would increase our capacity to utilize unit trains (in lieu of manifest train shipments). The natural gas connection (expected to be in service by the end of March 2015) will allow us to use natural gas as a fuel source for our dry plant operations which will lessen our reliance on propane as our primary fuel source for our dry plant operations and should reduce our per-unit production cost. In addition, we seek to maximize our mining yields on an ongoing basis by targeting sales volumes that more closely match our reserve gradation in order to minimize mining and processing of superfluous tonnage.

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Optimizing our logistics infrastructure and developing additional origination points. We intend to continue optimizing our logistics infrastructure and developing additional origination points in order to monetize our extensive reserves more rapidly and reduce the landed cost of our products at the basin for our customers. We expect to capitalize on our facility’s ability to simultaneously accommodate multiple unit trains to maximize our product shipment rates, increase rail car utilization and lower transportation costs. In addition, we intend to continue evaluating ways to reduce the landed cost of our products at the basin for our customers, such as potentially shipping unprocessed, wet frac sand to dry processing plants that are located in our target shale basins and developed by our sponsor or owned by third parties. We also intend to utilize our ability to lease rail cars from our sponsor to increase our customized service offerings and provide our customers with additional delivery and pricing alternatives for our products, including selling product on an “as-delivered” basis at our target shale basins.

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the difficulty in finding suitable sand reserves for use as frac sand, which are largely limited to select areas of the United States and which our customers demand meet the technical specifications of the API and ISO,

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the complexity of obtaining and developing sites with advantaged logistics (such as proximity to a Class I rail line),

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the challenges associated with locating contiguous reserves of frac sand large enough to justify the capital investment required to develop a mine and processing plant, and

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the difficulty and long lead times associated with securing necessary local, state and federal permits required for frac sand mining and production operations.

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In addition, we believe that our mix of coarse and fine sand positions us to capture opportunities created by recent frac sand usage trends of certain exploration and production companies that have begun utilizing fine mesh sand in their hydraulic fracturing operations. From 2013 to 2018, the demand and price of raw frac sand are expected to grow annually by 9% and 4%, respectively, according to The Freedonia Group.

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Competitive Strengths

We believe that we will be able to successfully execute our business strategies because of the following competitive strengths:

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Long-lived, strategically located, high-quality reserve base. Our Oakdale facility contains approximately 217 million tons of proven recoverable reserves and 64 million tons of probable recoverable reserves as of June 30, 2014, based on a reserve report prepared by John T. Boyd. We have an implied reserve life of approximately 128 years based on our current annual processing capacity of 2.2 million tons per year. Independent third-party testing indicates that our frac sand reserves demonstrate characteristics in excess of API and ISO specifications and, as a result, our raw frac sand is particularly well suited for and is experiencing significant demand from customers for use in the hydraulic fracturing of unconventional oil and natural gas wells. We believe our balanced mix of coarse and fine sand reserves, combined with contractual demand for our products across a range of mesh sizes, provides us with higher mining yields and lower processing costs than sand mines with predominately coarse sand reserves. In addition, we have recently observed a trend of increasing demand for fine mesh frac sand products related to continued innovation in hydraulic fracturing activities focused on the recovery of oil and liquids-rich gas as well as dry gas deposits in the United States. In addition, our long reserve life enables us to better serve demand for both coarse and fine frac sand relative to mines with disproportionate amounts of coarse or fine sand reserves and mines with relatively short reserve lives across different types of market environments.

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Canadian Pacific. Our ability to handle multiple rail car sets allows for the seamless transition of locomotives from empty inbound trains to fully loaded outbound trains at our facility. We believe our customized on-site logistical configuration typically yields lower operating and transportation costs compared to manifest train or single-unit train facilities as a result of our higher rail car utilization, more efficient use of locomotive power and more predictable movement of product between mine and destination. We intend to integrate similar logistics capabilities into other origination and destination facilities that we own in the future.

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our ownership of all of our reserves, resulting in mineral royalty rates that were less than 0.5% of our total revenues for the nine months ended September 30, 2014;

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our balance of coarse and fine mineral reserve deposits and corresponding contractual demand that minimizes yield loss;

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our wet and dry processing plants are located on the same property as our reserve deposits, which eliminates the need for trucking outside of our property and thereby reduces operating costs;

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our management’s expertise in designing, building, maintaining and operating advanced frac sand processing, storage and loading facilities;

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a large proportion of our costs are variable depending on product volumes so that we only incur these costs when we produce finished frac sand;

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our production facility’s proximity to a Class I rail line and other sand logistics infrastructure, which helps reduce transportation costs, fuel costs and headcount needs; and

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enclosed dry plant operations that minimize weather-related effects on dry processing during the winter months, which increases dry plant utilization.

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Strong reputation with our customers. Our management and operating teams have developed longstanding relationships with our customers. Several leading oil and natural gas production companies and hydraulic fracturing service providers purchase frac sand from us, including Archer Pressure Pumping, EOG Resources, Nabors Completion & Production Services, US Well Services and Weatherford. Based on our track record of dependability, timely delivery and high-quality products that consistently meet customer specifications, we believe that we are well positioned to secure similar arrangements in the future, particularly focused on our producer customers. We believe that we are one of the few major frac sand providers positioned to sell our product directly to oil and natural gas production companies.

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Focus on safety and environmental stewardship. We are committed to maintaining a culture that prioritizes safety, the environment and our relationship with the communities in which we operate. In August 2014, we were accepted as a “Tier 1” participant in Wisconsin’s voluntary “Green Tier” program, which encourages, recognizes and rewards companies for voluntarily exceeding environmental, health and safety legal requirements. We have similarly received recognition for our safety program, which is thoroughly documented from plant design through safety training sessions. We believe that our commitment to safety, the environment and the communities in which we operate is critical to the success of our business.

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Experienced management team. The members of our senior management team bring significant experience to the market environment in which we operate. Their expertise covers a range of disciplines, including industry-specific operating and technical knowledge as well as experience managing high-growth businesses. Our management team identified our existing Oakdale facility (as well other facilities owned by our sponsor) and designed, permitted, commenced and recently expanded our Oakdale facility’s operations. We believe that we have assembled a flexible, creative and responsive team with a mentality that is particularly well suited to the rapidly evolving unconventional oil and natural gas drilling landscape, which is the principal driver of our growth.

Our Assets and Operations

Overview

The following table provides key characteristics of our Oakdale sand reserves and frac sand production facility (as of June 30, 2014, unless otherwise stated):


Facility Characteristic		Description
Site geography		Situated on 1,168 contiguous acres, with on-site processing and rail loading facilities

Proven recoverable reserves		217 million tons

Probable recoverable reserves		64 million tons

Deposits		Sand reserves of up to 140 feet; coarse grade mesh sizes (20/40, 30/50 and 40/70 mesh) and fine mesh (100 mesh)

Reserve mix		Approximately 60% of 70 mesh and coarser substrate and approximately 40% of 100 mesh substrate

Excavation technique		Shallow overburden allowing for surface excavation

Annual processing capacity		2.2 million tons per year (as of September 30, 2014)

Logistics capabilities		On-site transportation infrastructure capable of simultaneously accommodating multiple unit trains and connected to the Canadian Pacific rail network (as of September 30, 2014)

Royalties		$0.50 per ton of 20/70 frac sand sold (as of September 30, 2014)

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Our Reserves

We believe that our strategically located Oakdale site provides us with a large and high-quality mineral reserves base. Mineral resources and reserves are typically classified by confidence (reliability) levels based on the level of exploration, consistency and assurance of geologic knowledge of the deposit. This classification system considers different levels of geoscientific knowledge and varying degrees of technical and economic evaluation. Mineral reserves are derived from in situ resources through application of modifying factors, such as mining, analytical, economic, marketing, legal, environmental, social and governmental factors, relative to mining methods, processing techniques, economics and markets. In estimating our reserves, John T. Boyd does not classify a resource as a reserve unless that resource can be demonstrated to have reasonable certainty to be recovered economically in accordance with the modifying factors listed above. “Reserves” are defined by SEC Industry Guide 7 as that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Industry Guide 7 divides reserves between “proven (measured) reserves” and “probable (indicated) reserves” which are defined as follows:

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Proven (measured) reserves. Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.

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Probable (indicated) reserves. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

In estimating our reserves, John T. Boyd categorizes our reserves as proven recoverable or probable recoverable in accordance with these SEC definitions. According to such definitions, John T. Boyd estimates that we had a total of approximately 217 million tons of proven recoverable sand reserves and approximately 64 million tons of probable recoverable sand reserves as of June 30, 2014. The quantity and nature of the sand reserves at our Oakdale site are estimated by third-party geologists and mining engineers, and we internally track the depletion rate on an interim basis. In addition, John T. Boyd has prepared estimates of our reserves at our Oakdale facility as of June 30, 2014. Before acquiring new reserves, we perform surveying, drill core analysis and other tests to confirm the quantity and quality of the acquired reserves. John T. Boyd’s estimates of our reserves include a 2.24-acre parcel of land on the western boundary of our Oakdale property (for which we have a binding offer to purchase) and a 1.29-acre parcel of land on the eastern boundary of our Oakdale property (for which we have no current intention of purchasing), in each case, that we do not own (collectively, the “boundary property”). In addition, John T. Boyd’s estimates of our reserves exclude reserves, if any, associated with a 18.74-acre parcel of land that we purchased subsequent to John T. Boyd’s reserve report (the “additional property”). The aggregate 3.53 acres of boundary property included in John T. Boyd’s estimates of our reserves is less than approximately 0.3% of the total 1,168 acres of land that we own in fee. The aggregate 18.74 acres of additional property excluded in John T. Boyd’s estimates of our reserves comprises approximately 1.6% of the total 1,168 acres of land that we own in fee. We believe that excluding the reserves associated with the 3.53 acres of boundary property and including the reserves, if any, associated with the 18.74 acres of additional property would have an inconsequential effect on our reserves as estimated by John T. Boyd and included in its reserve report as of June 30, 2014. As a result, neither we nor John T. Boyd has quantified the amount of reserves associated with either the boundary property or the additional property. We have presented the amounts of our proven reserves and probable reserves as estimated by John T. Boyd, which

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include reserves associated with the boundary property and exclude reserves, if any, associated with the additional property, because we believe those amounts to be accurate in all material respects.

Our sand reserves are located on 1,168 contiguous acres in Monroe County, Wisconsin. We own our Monroe County acreage in fee and acquired surface and mineral rights on all of such acreage from multiple landowners in separate transactions. Our mineral rights are subject to an aggregate non-participating royalty interest of $0.50 per ton sold of coarser than 70 mesh, which is significantly lower than many of our competitors.

To opine as to the economic viability of our reserves, John T. Boyd reviewed our financial cost and revenue per ton data at the time of the reserve determination. Based on their review of our cost structure and their extensive experience with similar operations, John T. Boyd concluded that it is reasonable to assume that we will operate under a similar cost structure over the remaining life of our reserves. John T. Boyd further assumed that if our revenue per ton, which was approximately $52.00 on a weighted average basis at the time of the reserve determination, remained relatively constant over the life of the reserves, our current operating margins are sufficient to expect continued profitability throughout the life of our reserves.

The cutoff grade used by John T. Boyd in estimating our reserves considers sand that falls between 20 and 140 mesh sizes as proven recoverable or probable recoverable reserves, meaning that sands within this range are included in John T. Boyd’s estimate of our proven recoverable and probable recoverable reserves. In addition, John T. Boyd’s estimate of our reserves adjusts for mining losses of 10% and processing losses through the wet plant and dry plant of 8%, for a total yield of 83% of the in-place sand resource. Our processing losses are primarily due to the plus 20 mesh and minus 140 mesh sand being removed at the wet processing plant and also includes losses in the wet processing plant through normal attrition, losses in the dry plant (including moisture) through normal attrition and all other material discarded as waste (including clay and other contaminants).

During wet plant processing operations, the wet plant process water leaving the wet plant is pumped into a settling basin for the ultra-fine sand to settle. The settling basin allows the wet plant process water to flow back to the fresh water pump pond via a canal system to its original starting point. The fresh water pump pond, wet plant, settling basin and canal system complete an enclosed circuit for continuous wet plant process water.

Wet plant process tailings are temporarily piled and/or stored. Tailings are systematically used throughout the mining operation for various purposes such as reclamation, roads and soil stabilization. Dry plant process material discharged during the drying process is temporarily piled and/or stored for various purposes such as reclamation and soil stabilization, and it is commonly recycled through the wet plant process.

Our Oakdale reserves are a mineral resource deposited over millions of years. Approximately 500 million years ago, quartz rich Cambrian sands were deposited in the upper Midwest region of the United States. During the Quaternary era, glaciation and erosion caused by the melting of glaciers removed millions of years of bedrock, to expose the Cambrian sandstone deposit, near the surface. Our Oakdale deposit is located in an ancient marine setting, which is the reason our deposit is well sorted and rounded. The high quartz content of the Cambrian sands and the monocrystalline structure of our Oakdale deposit is responsible for the extremely high crush strength relative to other types of sand. The deposit found in our open-pit Oakdale mine is a Cambrian quartz sandstone deposit that produces high-quality Northern White frac sand with a silica (SiO₂) content of 99%.

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Although crush strength is one of a number of characteristics that define the quality of raw frac sand, it is a key characteristic for our customers and other purchasers of frac sand in determining whether the product will be suitable for its desired application. For example, raw frac sand with exceptionally high crush strength is suitable for use in high pressure downhole conditions that would otherwise require the use of more expensive resin-coated or ceramic proppants.

The sand deposit at our formation does not require crushing or extensive processing to eliminate clays or other contaminants, enabling us to cost-effectively produce high-quality frac sand meeting API specifications. In addition, the sand deposit is present to a depth of approximately 140 feet, with a shallow overburden of less than 10 feet, on average, over the entire property. The shallow depth of the sand deposits allows us to conduct surface mining rather than underground mining, which lowers our production costs and decreases safety risks as compared to underground mining. All of our surface mining is currently conducted utilizing excavators and trucks to deliver feedstock to the wet plant. We have considered utilizing other mining methods, such as a dredge operation, and may continue evaluating other mining methods from time to time in the future. At the present time, however, we have no intention of utilizing other mining methods in the near term.

Our Oakdale Production Facility

We began construction of our Oakdale production facility in November 2011 and commenced operations in July 2012. Prior to our commencement of operations, we performed surveying, drill core analysis and other tests to confirm the quantity and quality of the reeves. The process was performed with the assistance of John T. Boyd. We do not anticipate performing any future exploration work on our current Oakdale acreage. Before acquiring new acreage in the future, including material additional acreage adjacent to our Oakdale site, we will perform similar procedures.

Our Oakdale wet plant facility is comprised of a steel structure and relies primarily on industrial grade aggregate processing equipment to process up to 3.2 million tons per year of wet sand. Our Oakdale dry plant sits inside two insulated metal buildings designed to minimize weather-related effects during winter months. Each building contains one 200 ton per hour propane-or natural gas-fired fluid bed dryer as well as four to six high-capacity mineral separators. Each dryer is capable of producing over 1.1 million tons per year of dry Northern White frac sand in varying gradations, including 20/40, 30/50, 40/70 and 100 mesh. For the year ended December 31, 2013, we sold approximately 501,000 tons of frac sand at an average price of $53.26 per ton and produced approximately 499,000 tons of frac sand. All of our sales volumes have historically, and are currently, sold FCA our Oakdale facility. Generally, logistics costs can comprise 70-80% of the delivered cost of Northern White frac sand, depending on the basin into which the product is delivered. Some of our competitors’ sales volumes are sold FCA basin. As a result, average selling prices of frac sand may not be comparable between us and our competitors.

The surface excavation operations at our Oakdale site are conducted by an independent third-party excavation contractor, Earth, Inc. The mining technique at our Oakdale site is open-pit excavation of our silica deposits. The excavation process involves clearing and grubbing vegetation and trees overlying the proposed mining area. The initial shallow overburden is removed and utilized to construct perimeter berms around the pit and property boundary. No underground mines are operated at our Oakdale site. In situations where the sand-bearing geological formation is tightly cemented, it may be necessary to utilize blasting to make the sand easier to excavate.

A track excavator and articulated trucks are utilized for excavating the sand at several different elevation levels of the active pit. The pit is dry mined, and the water elevation is maintained below working level through a dewatering and pumping process. The mined material is loaded and hauled

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from different areas of the pit and different elevations within the pit to the primary loading facility at our mine’s on-site wet processing facility. We pay our independent third-party excavation contractor, Earth, Inc., a fixed fee of $2.01 per ton of sand excavated.

Once processed and dried, sand from our Oakdale facility is stored in one of six on-site silos with a combined storage capacity of 15,000 tons. In addition to the 15,000 tons of silo capacity, we own approximately seven miles of on-site rail track (in a double-loop configuration) that is tied into the Canadian Pacific rail network and that is used to stage and store empty or recently loaded customer rail cars. Our strategic location adjacent to a Canadian Pacific mainline provides our customers with the ability to transport Northern White frac sand from our Oakdale facility to all major unconventional oil and natural gas basins currently producing in the United States. For additional information regarding our transportation logistics and infrastructure, please read “—Transportation Logistics and Infrastructure.”

Our Oakdale facility undergoes regular maintenance to minimize unscheduled downtime and to ensure that the quality of our frac sand meets applicable API and ISO standards and our customers’ specifications. In addition, we make capital investments in our facility as required to support customer demand and our internal performance goals. Because raw sand cannot be wet-processed during extremely cold temperatures, our wet plant typically operates only seven to eight months out of the year. Except for planned and unplanned downtime, our dry plant operates year-round.

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The following pictures indicate the location, access and layout of the currently developed portion our Oakdale facility.

LOGO

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LOGO

As of December 31, 2013, excavating activities, consisting of mining and overburden removal, had taken place on approximately 90 acres of the 1,168 acres of our Oakdale site.

Transportation Logistics and Infrastructure

All of our product is shipped by rail from our approximate seven-mile on-site rail spur, in a double-loop configuration, that connects our Oakdale facility to a Canadian Pacific mainline. The length of this rail spur and the capacity of the associated product storage silos allow us to accommodate a large number of rail cars. This configuration also enables us to accommodate multiple unit trains simultaneously, which significantly increase our efficiency in meeting our customers’ frac sand transportation needs. Unit trains, typically 80 rail cars in length or longer, are dedicated trains chartered for a single delivery destination. Generally, unit trains receive priority scheduling and do not switch cars at various intermediate junctions, which results in a more cost-effective and efficient method of shipping than the standard method of rail shipment. While many of our competitors may be able to handle a single unit train, we believe that our Oakdale facility is one of the few frac sand facilities in the industry that is able to simultaneously accommodate multiple unit trains in its rail yard. The ability to handle multiple rail car sets is particularly important in order to allow for the seamless transition of the locomotive from empty inbound trains to fully loaded outbound trains at the originating mine. For example, in a “hook-and-haul” operation, inbound locomotive power arriving at the mine unhooks from an empty train and hooks up to a fully loaded unit car train waiting at the rail yard with a turnaround time of as little as two hours. We believe that this type of operation typically yields lower operating and transportation costs compared to manifest train traffic movements as a result of higher rail car utilization, more efficient use of locomotive power and more predictable movement of product between mine and destination. We believe that this is a key differentiator as currently rail cars are in high demand in the industry and hook-and-haul operations can increase the average number of turns per year of a rail car from seven to nine turns per year for manifest train shipments to over 20 turns per year while reducing demand variability for locomotive services. We believe that we are one of the few frac sand producers with a facility custom-designed for the specific purpose of delivering frac sand to all of the major U.S. oil and natural gas producing basins by an on-site rail facility that can simultaneously accommodate multiple unit trains, a capability that requires sufficient acreage, loading facilities and rail spurs.

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The logistics capabilities of frac sand producers are important to customers, who focus on both the reliability and flexibility of product delivery. Because our customers generally find it impractical to store frac sand in large quantities near their job sites, they seek to arrange for product to be delivered where and as needed, which requires predictable and efficient loading and shipping of product. The integrated nature of our logistics operations and our approximate seven-mile on-site rail spur enable us to handle rail cars for multiple customers simultaneously, which minimizes the time required to successfully load shipments, even at times of peak activity, eliminates the need to truck sand on public roads between the mine and the production facility or between wet and dry processing facilities, minimizes transloading at our Oakdale site, lowers product movement costs and minimizes the reduction in sand quality due to handling. At the same time, we believe our ability to ship using unit trains differentiates us from most other frac sand producers that ship using manifest, or mixed freight, trains, which may make multiple stops to switch cars before delivering cargoes, or transport their products by truck or barge. Together, these advantages provide our customers with a reliable and efficient delivery method from our facility to each of the major U.S. oil and natural gas producing basins, and allow us to take advantage of the increasing demand for such a delivery method.

Permits

We operate in a highly regulated environment overseen by many government regulatory and enforcement bodies. To conduct our mining operations, we are required to obtain permits and approvals from local, state and federal governmental agencies. These governmental authorizations address environmental, land use and safety issues. We have obtained the more than 30 federal, state and local permits required for operations at the Oakdale facility. Our current and planned areas for excavation of our Oakdale property over the next approximate 20 years are permitted for extraction of our proven reserves. Outlying areas at the edge of our Oakdale property’s boundaries or probable reserves that lie in areas delineated as wetlands will require additional local, state or federal permits prior to mining and reclaiming those areas.

While resources invested in securing permits are considerable, this cost has not had a material adverse effect on our results of operations or financial condition. We cannot assure that existing environmental laws and regulations will not be reinterpreted or revised or that new environmental laws and regulations will not be adopted or become applicable to us. Revised or additional environmental requirements that result in increased compliance costs or additional operating restrictions could have a material adverse effect on our business.

Our Customers and Contracts

As of November 1, 2014, we had a minimum of approximately 2.1 million tons of our frac sand production (or approximately 96% of our current annual production capacity) contracted to oil and natural gas production and pressure pumping service companies under long-term, fixed-price take-or-pay contracts that are intended to mitigate our exposure to the potential price volatility of the spot market for frac sand and enhance the stability of our cash flows. For the year ended December 31, 2013 and the nine months ended September 30, 2014, we generated approximately 58.7% and 79.7%, respectively, of our revenues from frac sand delivered under long-term sales contracts, and we expect to continue selling a significant majority of our frac sand under long-term contracts. Occasionally, if we have excess production and market conditions are favorable, we may elect to sell frac sand in spot market transactions. Under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner.

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Our core customers are major oil and natural gas production and pressure pumping service companies. These customers have signed multi-year, fixed-price take-or-pay contracts, which mitigate our risk of their non-performance. As of November 1, 2014, the product mix-weighted average price of sand sold from our Oakdale facility pursuant to these take-or-pay contracts was $54.48 per ton and the volume-weighted average remaining term was 2.72 years. These contracts include provisions that require the customer to pay us an amount designed to compensate us, at least in part, for our lost margins for the applicable contract year in the event the customer does not take delivery of the minimum annual volume of frac sand specified in the contract. Our contracts provide for a true-up payment in the event the customer does not take delivery of the minimum annual volume of frac sand specified in the contract and has not purchased in the previous year an amount exceeding the minimum volume, resulting in a shortfall. The true-up payment is designed to compensate us, at least in part, for our margins for the applicable contract year and is calculated by multiplying the contract price (or, in some cases, a discounted contract price ) by the shortfall. Any sales of the shortfall volumes to other customers on the spot market would provide us with additional margin on these volumes. For the year ended December 31, 2013, Weatherford and EOG Resources accounted for 75% and 20%, respectively, of our total revenues. For the nine months ended September 30, 2014, Weatherford, EOG Resources and US Well Services accounted for 36.6%, 29.7% and 10.3%, respectively, of our total revenues, and the remainder of our revenues represented sales to nine customers.

Our contracts generally provide that, if we are unable to deliver the contracted minimum volume of frac sand, the customer has the right to purchase replacement frac sand from alternative sources, provided that our inability to supply is not the result of an excusable delay. In the event that the price of replacement frac sand exceeds the contract price and our inability to supply the contracted minimum volume is not the result of an excusable delay, we are responsible for the difference. At September 30, 2014 and December 31, 2013, we had significant levels of frac sand inventory on hand; therefore, the likelihood of any such penalties was considered remote.

Our Relationship with Our Sponsor

Overview

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facilities. Our sponsor’s management team identified our existing Oakdale facility (as well as other facilities owned by the sponsor) and designed, permitted, commenced and recently expanded our Oakdale facility’s operations.

Our Sponsor’s Assets and Our Right of First Offer

Our sponsor acquired the initial properties and ran a drilling program at the Hixton site during November 2011 through February 2012. The Hixton site is located approximately 45 miles northwest of our Oakdale site and offers direct rail access to Canadian National’s rail network, which will provide the Hixton facility with the ability to ship sand to all major shale plays throughout the United States and Canada. Our sponsor expects to construct an on-site rail facility at the Hixton site, including approximately nine miles of rail track, that will be able to simultaneously accommodate multiple unit trains.

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Competition

The frac sand industry is highly competitive. Please read “Risk Factors—Risks Inherent in Our Business—We face significant competition that may cause us to lose market share and reduce our ability to make distributions to our unitholders.” There are numerous large and small producers in all sand producing regions of the United States with whom we compete. Our main competitors include Badger Mining Corporation, Emerge Energy Services LP, Fairmount Santrol, Hi-Crush Partners LP, Preferred Proppants LLC, Unimin Corporation and U.S. Silica Holdings, Inc. According to The Freedonia Group, the top six suppliers of raw frac sand (Unimin Corporation, Preferred Sands LLC, U.S. Silica Holdings, Inc., Emerge Energy Serves LP, Fairmount Santrol and FTS International, Inc.) accounted for 72.2% of the North American raw frac sand market share in 2012. Although some of our competitors have greater financial and other resources than we do, we believe that we are competitively well positioned due to our transportation infrastructure and high-quality, balanced reserve profile. The most important factors on which we compete are product quality, performance, sand characteristics, transportation capabilities, reliability of supply and price. Demand for frac sand and the prices that we will be able to obtain for our products, to the extent not subject to a fixed price contract, are closely linked to proppant consumption patterns for the completion of oil and natural gas wells in North America. These consumption patterns are influenced by numerous factors, including the price for hydrocarbons, the drilling rig count and hydraulic fracturing activity, including the number of stages completed and the amount of proppant used per stage. Further, these consumption patterns are also influenced by the location, quality, price and availability of raw frac sand and other types of proppants such as resin-coated sand and ceramic proppant.

Seasonality

Our business is affected to some extent by seasonal fluctuations in weather that impact the production levels at our wet processing plant. While our dry plant is able to process finished product volumes evenly throughout the year, our third-party excavation and our wet sand processing activities are limited to non-winter months. As a consequence, we experience lower cash operating costs in the first and fourth quarter of each calendar year. We may also sell frac sand for use in oil and gas producing basins where severe weather conditions may curtail drilling activities and, as a result, our sales volumes to those areas may be reduced during such severe weather periods. For a discussion of the impact of weather on our operations, please read “Risk Factors—Seasonal and severe weather conditions could have a material adverse impact on our business, results of operations, financial condition and ability to make cash distributions” and Risk Factors—Our cash flow fluctuates on a seasonal basis.”

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Insurance

We believe that our insurance coverage is customary for the industry in which we operate and adequate for our business. As is customary in the frac sand industry, we review our safety equipment and procedures and carry insurance against most, but not all, risks of our business. Losses and liabilities not covered by insurance would increase our costs. To address the hazards inherent in our business, we maintain insurance coverage that includes physical damage coverage, third-party general liability insurance, employer’s liability, business interruption, environmental and pollution and other coverage, although coverage for environmental and pollution-related losses is subject to significant limitations.

Environmental and Occupational Health and Safety Regulations

We are subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of worker health, safety and the environment. Compliance with these laws and regulations may expose us to significant costs and liabilities and cause us to incur significant capital expenditures in our operations. Any failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, imposition of remedial obligations, and the issuance of injunctions delaying or prohibiting operations. Private parties may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. In addition, the clear trend in environmental regulation is to place more restrictions on activities that may affect the environment, and thus, any changes in, or more stringent enforcement of, these laws and regulations that result in more stringent and costly pollution control equipment, waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our operations and financial position.

We do not believe that compliance by us and our customers with federal, state or local environmental laws and regulations will have a material adverse effect on our business, financial position or results of operations or cash flows. We cannot assure you, however, that future events, such as changes in existing laws or enforcement policies, the promulgation of new laws or regulations or the development or discovery of new facts or conditions adverse to our operations will not cause us to incur significant costs. The following is a discussion of material environmental and worker health and safety laws that relate to our operations or those of our customers that could have a material adverse effect on our business.

Air Emissions

Our operations are subject to the CAA and related state and local laws, which restrict the emission of air pollutants and impose permitting, monitoring and reporting requirements on various sources. These regulatory programs may require us to install emissions abatement equipment, modify operational practices, and obtain permits for existing or new operations. Obtaining air emissions permits has the potential to delay the development or continued performance of our operations. Over the next several years, we may be required to incur certain capital expenditures for air pollution control equipment or to address other air emissions-related issues such as, by way of example, the capture of increased amounts of fine sands matter emitted from produced sands in specific workplace settings. Changing and increasingly stricter requirements, future non-compliance, or failure to maintain necessary permits or other authorizations could require us to incur substantial costs or suspend or terminate our operations.

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Climate change

In recent years, the U.S. Congress has considered legislation to reduce emissions of GHGs. It presently appears unlikely that comprehensive climate legislation will be passed by either house of Congress in the near future, although energy legislation and other regulatory initiatives are expected to be proposed that may be relevant to GHG emissions issues. In addition, a number of states have begun to address GHG emissions, primarily through the development of emission inventories or regional GHG cap and trade programs. Depending on the particular program, we could be required to control GHG emissions or to purchase and surrender allowances for GHG emissions resulting from our operations. Independent of Congress, the EPA is beginning to adopt regulations controlling GHG emissions under its existing authority under the CAA. For example, in December 2009, the EPA published findings that emissions of GHGs present an endangerment to human health and the environment because such emissions contributed to warming of the Earth’s atmosphere and other climatic changes. Based on these findings, the EPA has adopted regulations under existing provisions of the CAA that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources that are already potential major sources for conventional pollutants. In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified production, processing, transmission and storage facilities in the United States on an annual basis. Although it is not currently possible to predict how any such proposed or future GHG legislation or regulation by Congress, the states or multi-state regions will impact our business, any legislation or regulation of GHG emissions that may be imposed in areas in which we conduct business could result in increased compliance costs or additional operating restrictions to us or our exploration and production customers, and could reduce demand for our frac sand, which could have a significant adverse effect on our operations. Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. If any such effects were to occur in areas where we operate, they could have in adverse effect on our assets and operations.

Water Discharges

The Clean Water Act (“CWA”), and analogous state laws impose restrictions and strict controls with respect to the discharge of pollutants, including spills and leaks of oil and other substances, into state waters or waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or an analogous state agency. Spill prevention control and countermeasure requirements require containment to mitigate or prevent contamination of navigable waters in the event of an oil overflow, rupture or leak, and the development and maintenance of Spill Prevention Control and Countermeasure, or SPCC, plans at our facilities. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by the Army Corps of Engineers pursuant to an appropriately issued permit. In addition, the CWA and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties as well as other enforcement mechanisms for non-compliance with discharge permits or other requirements of the CWA and analogous state laws and regulations.

Hydraulic Fracturing

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hydraulic fracturing process involves the injection of water, proppants, and chemicals under pressure into the formation to fracture the surrounding rock, increase permeability and stimulate production. Although we do not directly engage in hydraulic fracturing activities, our customers purchase our frac sand for use in their hydraulic fracturing activities. Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies. Some states have adopted, and other states are considering adopting, regulations that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. In addition, federal agencies have started to assert regulatory authority over the process and various studies have been conducted or are currently underway by the EPA, and other federal agencies concerning the potential environmental impacts of hydraulic fracturing activities. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process, and legislation has been proposed by some members of Congress to provide for such regulation.

The adoption of new laws or regulations at the federal, state, local, or foreign levels imposing reporting obligations on, or otherwise limiting or delaying, the hydraulic fracturing process could make it more difficult to complete natural gas wells, increase our customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for our frac sand. In addition, heightened political, regulatory, and public scrutiny of hydraulic fracturing practices could expose us or our customers to increased legal and regulatory proceedings, which could be time-consuming, costly, or result in substantial legal liability or significant reputational harm. We could be directly affected by adverse litigation involving us, or indirectly affected if the cost of compliance limits the ability of our customers to operate. Such costs and scrutiny could directly or indirectly, through reduced demand for our frac sand, have a material adverse effect on our business, financial condition and results of operations.

Non-Hazardous and Hazardous Wastes

The Resource Conservation and Recovery Act (“RCRA”) and comparable state laws control the management and disposal of hazardous and non-hazardous waste. These laws and regulations govern the generation, storage, treatment, transfer and disposal of wastes that we generate. In the course of our operations, we generate waste that are regulated as non-hazardous wastes and hazardous wastes, obligating us to comply with applicable standards relating to the management and disposal of such wastes.

Site Remediation

The CERCLA and comparable state laws impose strict, joint and several liability without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment. These persons include the owner and operator of a disposal site where a hazardous substance release occurred and any company that transported, disposed of, or arranged for the transport or disposal of hazardous substances released at the site. Under CERCLA, such persons may be liable for the costs of remediating the hazardous substances that have been released into the environment, for damages to natural resources, and for the costs of certain health studies. In addition, where contamination may be present, it is not uncommon for the neighboring landowners and other third parties to file claims for personal injury, property damage and recovery of response costs. We have not received notification that we may be potentially responsible for cleanup costs under CERCLA at any site.

Endangered Species

The Endangered Species Act (“ESA”) restricts activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the Migratory Bird

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Treaty Act. As a result of a settlement approved by the U.S. District Court for the District of Columbia on September 9, 2011, the U.S. Fish and Wildlife Service is required to consider listing numerous species as endangered or threatened under the Endangered Species Act before the completion of the agency’s 2017 fiscal year. Current ESA listings and the designation of previously unprotected species as threatened or endangered in areas where we or our customers operate could cause us or our customers to incur increased costs arising from species protection measures and could result in delays or limitations in our or our customers’ performance of operations, which could adversely affect or reduce demand for our frac sand.

Mining and Workplace Safety

Our sand mining operations are subject to mining safety regulation. MSHA is the primary regulatory organization governing frac sand mining and processing. Accordingly, MSHA regulates quarries, surface mines, underground mines and the industrial mineral processing facilities associated with and located at quarries and mines. The mission of MSHA is to administer the provisions of the Federal Mine Safety and Health Act of 1977 and to enforce compliance with mandatory miner safety and health standards. As part of MSHA’s oversight, representatives perform at least two unannounced inspections annually for each above-ground facility. To date, these inspections have not resulted in any citations for material violations of MSHA standards.

We also are subject to the requirements of the United States Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA Hazard Communication Standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and the public. OSHA regulates the customers and users of frac sand and provides detailed regulations requiring employers to protect employees from overexposure to silica through the enforcement of permissible exposure limits and the OSHA Hazard Communication Standard.

State and Local Regulation

We are also subject to a variety of state and local environmental review and permitting requirements. Some states, including Wisconsin where our current projects are located, have state laws similar to NEPA; thus our development of a new site or the expansion of an existing site may be subject to comprehensive state environmental reviews even if it is not subject to NEPA. In some cases, the state environmental review may be more stringent than the federal review. Our operations may require state-law based permits in addition to federal permits, requiring state agencies to consider a range of issues, many the same as federal agencies, including, among other things, a project’s impact on wildlife and their habitats, historic and archaeological sites, aesthetics, agricultural operations, and scenic areas. Wisconsin has specific permitting and review processes for commercial silica mining operations, and state agencies may impose different or additional monitoring or mitigation requirements than federal agencies. The development of new sites and our existing operations also are subject to a variety of local environmental and regulatory requirements, including land use, zoning, building, and transportation requirements.

As demand for frac sand in the oil and natural gas industry has driven a significant increase in current and expected future production of frac sand, some local communities have expressed concern regarding silica sand mining operations. These concerns have generally included exposure to ambient silica sand dust, truck traffic, water usage and blasting. In response, certain state and local communities have developed or are in the process of developing regulations or zoning restrictions

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intended to minimize dust from becoming airborne, control the flow of truck traffic, significantly curtail the amount of practicable area for mining activities, provide compensation to local residents for potential impacts of mining activities and, in some cases, ban issuance of new permits for mining activities. To date, we have not experienced any material impact to our existing mining operations or planned capacity expansions as a result of these types of concerns.

In August 2014, we were accepted as a “Tier 1” participant in Wisconsin’s voluntary “Green Tier” program, which encourages, recognizes and rewards companies for voluntarily exceeding environmental, health and safety legal requirements. Successful Tier 1 participants are required to demonstrate a strong record of environmental compliance, develop and implement an environmental management system meeting certain criteria, conduct and submit annual performance reviews to the Wisconsin Department of Natural Resources, promptly correct any findings of non-compliance discovered during these annual performance reviews, and make certain commitments regarding future environmental program improvements.

Employees

We will be managed and operated by the officers and directors of Smart Sand GP LLC, our general partner. Immediately following the closing of this offering, we expect to employ approximately 113 people through our general partner. None of our employees are subject to collective bargaining agreements. We consider our employee relations to be good.

Legal Proceedings

From time to time we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently a party to any legal proceedings that we believe would have a material adverse effect on our financial position, results of operations or cash flows and are not aware of any material legal proceedings contemplated by governmental authorities.

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MANAGEMENT

Management of Smart Sand Partners LP

We are managed by the directors and executive officers of our general partner. Our general partner is not elected by our unitholders and will not be subject to re-election by our unitholders in the future. Our sponsor owns all of the membership interests in our general partner. Our general partner has a board of directors, and our unitholders are not entitled to elect the directors or directly or indirectly to participate in our management or operations. Our general partner will be liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, we intend to incur indebtedness that is nonrecourse to our general partner.

At the completion of this offering, we expect that our general partner will have seven directors, including two director nominees who will become members of our board of directors prior to or in connection with the listing of our common units on the NASDAQ. In accordance with the NASDAQ’s phase-in rules, we will have at least three independent directors within one year following the effective date of the registration statement of which this prospectus forms a part. We expect that our board will determine that each of and , our director nominees who will become members of our board of directors prior to or in connection with the listing of our common units on the NASDAQ, is independent under the independence standards of the NASDAQ.

In evaluating director candidates, our sponsor will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skill and expertise that are likely to enhance the ability of our board of directors to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of the board of directors of our general partner to fulfill their duties.

Neither we nor our subsidiaries have any employees. Our general partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations. All of the employees that conduct our business are employed by our general partner or its affiliates, but we sometimes refer to these individuals in this prospectus as our employees. All of the executive officers and many of the directors of our general partner also currently serve as executive officers and/or directors of our sponsor. We expect that the executive officers of our general partner will devote approximately 70% of their time to our operations.

Director Independence

Although most companies listed on the NASDAQ are required to have a majority of independent directors serving on the board of directors of the listed company, the NASDAQ does not require a publicly traded limited partnership like us to have a majority of independent directors on the board of directors of our general partner or to establish a compensation or a nominating and corporate governance committee. We are, however, required to have an audit committee of at least three members, and all of its members are required to meet the independence and experience standards established by the NASDAQ and the Exchange Act, subject to certain transitional relief during the one-year period following the effective date of the registration statement of which this prospectus forms a part. In accordance with the NASDAQ’s corporate governance standards, we must have at least one independent member on our audit committee who satisfies the independence and experience requirements by the date our common units are listed on the NASDAQ, at least a majority of independent members within 90 days of the effective date of the registration statement of which this prospectus forms a part and a fully independent audit committee within one year of such effective date.

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Committees of the Board of Directors

The board of directors of our general partner will have an audit committee, and may have such other committees (including a conflicts committee) as the board of directors shall determine from time to time.

Audit Committee

Our general partner will have an audit committee comprised of at least three directors who meet the independence and experience standards established by the NASDAQ and the Exchange Act, subject to certain transitional relief during the one-year period following the effective date of the registration statement of which this prospectus forms a part. Our audit committee will assist the board of directors in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and corporate policies and controls. Our audit committee will have the sole authority to retain and terminate our independent registered public accounting firm, approve all auditing services and related fees and the terms thereof, and pre-approve any non-audit services to be rendered by our independent registered public accounting firm. Our audit committee will also be responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm will be given unrestricted access to our audit committee. We expect that and will serve as the initial members of the audit committee. We expect that each of and will satisfy the definition of audit committee financial expert for purposes of the SEC’s rules. Our sponsor will appoint a third member to the audit committee within one year following the effective date of the registration statement of which this prospectus forms a part.

Conflicts Committee

The board of directors of our general partner has the ability to establish a conflicts committee under our partnership agreement. If established, at least two members of the board of directors of our general partner will serve on our conflicts committee to review specific matters that may involve conflicts of interest in accordance with the terms of our partnership agreement. The board of directors of our general partner will determine whether to refer a matter to the conflicts committee on a case-by-case basis. Under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner. The members of our conflicts committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates (including our sponsor), and must meet the independence and experience standards established by the NASDAQ and the Exchange Act to serve on an audit committee of a board of directors. In addition, the members of our conflicts committee may not own any interest in our general partner or any interest in us or our subsidiaries other than common units or awards under our long-term incentive plan. If our general partner seeks approval from the conflicts committee, then it will be presumed that, in making its decision, the conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Please read “Conflicts of Interest and Duties.”

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Directors and Executive Officers of Smart Sand GP LLC

Directors are elected by our sponsor and hold office until their successors have been elected or qualified or until their earlier death, resignation, removal or disqualification. Executive officers are appointed by, and serve at the discretion of, the board of directors. The following table shows information for the directors, director nominees and executive officers of our general partner as of September 30, 2014.


Name	Age		Position with Smart Sand GP LLC
Charles E. Young		46	Chief Executive Officer and Director
Lee E. Beckelman		49	Chief Financial Officer
John Robert Behling		43	Executive Vice President—Legal and Regulatory
Robert Kiszka		47	Executive Vice President of Operations
William John Young		40	Vice President of Sales and Logistics
Susan Neumann		35	Controller and Secretary
José E. Feliciano		41	Co-Chairman of the Board
Colin Leonard		32	Director
Timothy Pawlenty		53	Director
Andrew Speaker		51	Co-Chairman of the Board
			Director Nominee

Charles E. Young

Charles E. Young was named Chief Executive Officer of our general partner and appointed to the board of directors of our general partner in August 2014. Mr. Young has also served as a director of Smart Sand, Inc. since September, 2011. Mr. Young founded Smart Sand, LLC and served as its President from November 2009 to August 2011. Mr. Young was named President and Secretary of Smart Sand, Inc. and held that position from September 2011 to July 2014. Mr. Young was named Chief Executive Officer of Smart Sand, Inc. in July 2014. Mr. Young has over 20 years of executive and entrepreneurial experience in the high-technology, telecommunications and renewable energy industries. He previously served as the President and Founder of Premier Building Systems, a construction, solar, geothermal and energy audit company in Pennsylvania and New Jersey from 2006 to 2011. Mr. Young received a B.A. in Political Science from Miami University. Mr. Young is the brother of William John Young. We believe that Mr. Young’s industry experience and deep knowledge of our business makes him well-suited to serve as Chief Executive Officer and Director.

Lee E. Beckelman

Lee E. Beckelman was named Chief Financial Officer of our general partner in August 2014. Mr. Beckelman previously served from December 2009 to February 2014 as Executive Vice President and Chief Financial Officer of Hilcorp Energy Company, an exploration and production company. From February 2008 to October 2009, he served as the Executive Vice President and Chief Financial Officer of Price Gregory Services, Incorporated, a crude oil and natural gas pipeline construction firm until its sale to Quanta Services. Prior thereto, Mr. Beckelman served in various roles from 2002 to 2007 at Hanover Compressor Company, an international oil field service company, until its merger with Universal Compression to form Exterran Holdings. Mr. Beckelman received his BBA in Finance with High Honors from the University of Texas at Austin.

John Robert Behling

John Robert Behling was named Executive Vice President—Legal and Regulatory of our general partner in August 2014. He has also served as Executive Vice President of Regulatory Affairs and General Counsel of Smart Sand, Inc. since August 2014. From 2000 to August 2014, Mr. Behling was a partner at Weld, Riley, Prenn & Ricci, S.C. (“Weld Riley”) and served as counsel to Smart Sand Inc.,

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with regard to permitting and regulatory matters for the Oakdale and Hixton facilities. At Weld Riley, Mr. Behling served as the firm’s Vice-President and was a member of the Management Committee. During his time at Weld Riley, Mr. Behling represented multiple oil and gas companies and mining and industrial companies and was recognized four consecutive years by Law and Politics as a rising star in administrative law. Mr. Behling also serves on the University of Wisconsin Board of Regents. Mr. Behling received a B.S. in Political Science and Economics from the University of Wisconsin. He also attended Georgetown University as an Economics Major and received his law degree from the University of Wisconsin Law School.

Robert Kiszka

Robert Kiszka was named Executive Vice President of Operations of our general partner in August 2014. Mr. Kiszka has served as the Vice President of Operations of Smart Sand, Inc. since September 2011. Mr. Kiszka has over 20 years of construction, real estate, renewable energy and mining experience. Prior to joining Smart Sand, Mr. Kiszka was President of A-1 Bracket Group Inc. from 2005 to 2011 and a member of Premier Building Systems LLC from 2010 to 2011. Mr. Kiszka attended Pedagogical University in Krakow, Poland and Rutgers University.

William John Young

William John Young was named Vice President of Sales and Logistics of our general partner in August 2014. Mr. Young has also served as Vice President of Sales for Smart Sand, Inc. since May 2014 and was Director of Sales for Smart Sand, Inc. from November 2011 to April 2014. Prior to joining Smart Sand, Inc., Mr. Young was Director of Sales for Comcast Corporation from 2002 to 2011. Mr. Young brings over 20 years of experience in the mining, commercial telecommunications, and broadband industries. Mr. Young received a BSc in Biology from Dalhousie University. Mr. Young is the brother of Charles E. Young.

Susan Neumann

Susan Neumann was named Controller and Secretary of our general partner in August 2014. Ms. Neumann has served as the Controller and Secretary of Smart Sand, Inc. since July 2014 and March 2014, respectively. Prior to joining Smart Sand, Inc. in April 2013, Ms. Neumann was an assurance senior manager at BDO USA, LLP (“BDO”). At BDO, she served in various roles in the assurance group from September 2000 to March 2013. Ms. Neumann received an MBA with a Global Perspective from Arcadia University in March 2008, and a B.A. in Accounting from Beaver College (currently Arcadia University) in May 2000.

José E. Feliciano

José E. Feliciano was appointed co-Chairman of the board of directors of our general partner in August 2014. Mr. Feliciano has served as a Partner of Clearlake Capital Group, L.P. (and predecessor) since he co-founded the firm in December 2006. Mr. Feliciano also serves as co-Chairman of the board of directors of Smart Sand, Inc., a position he has held since June 2014. He was the sole Chairman of the board from September 2011 to June 2014. Prior to founding Clearlake, Mr. Feliciano was a Partner of Tennenbaum Capital Partners, LLC, a private investment firm focused on turnarounds and special situation investment opportunities, where he served in various capacities from April 2001 to December 2006. Prior to Tennenbaum, Mr. Feliciano worked for almost two years at govWorks, Inc. in various capacities and for three years as an investment banker at Goldman, Sachs & Co. Mr. Feliciano holds a B.S.E. in Mechanical and Aerospace Engineering from Princeton University and an MBA from the Graduate School of Business at Stanford University. We believe Mr. Feliciano’s experience in, and knowledge of, the energy industry, business leadership skills and experience as a director of numerous privately-held companies make him well-qualified to serve on the board of directors of our general partner.

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Colin M. Leonard

Colin M. Leonard was appointed as a member of the board of directors of our general partner in August 2014. Mr. Leonard has also served as a director of Smart Sand, Inc. since September 2011. Since 2007, Mr. Leonard has served as an investment professional of Clearlake Capital Group, L.P., where he is currently a Vice President. Prior to joining Clearlake, he was an investment professional at HBK Investments L.P., a global investment management firm. Mr. Leonard has over 10 years of finance and private equity investment experience and is, or has been, a director of numerous privately-held companies. Mr. Leonard received a B.S. in Economics from the University of Pennsylvania. We believe that Mr. Leonard’s business leadership skills and knowledge of our business make him well-qualified to serve on the board of directors of our general partner.

Timothy Pawlenty

Timothy Pawlenty was appointed as a member of the board of directors of our general partner in August 2014. Mr. Pawlenty has also served as a director of Smart Sand, Inc. since June 2012. Since November 2012, Mr. Pawlenty has served as President and Chief Executive Officer of Financial Services Roundtable, a leading advocacy organization for America’s financial services industry. From January 2011 to November 2012, Mr. Pawlenty served as an independent consultant. Mr. Pawlenty previously served as Governor of the State of Minnesota for two terms from 2003 to 2011. During his tenure as Governor, Mr. Pawlenty was responsible for overseeing a $60 billion biennial budget and 30,000 employees, and worked closely with state agencies including those dealing with natural resource and transportation issues. Mr. Pawlenty has served as a director of Digital River, Inc., a company that provides global e-commerce solutions, since December 2011. Mr. Pawlenty also serves as a member of Digital River’s Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Mr. Pawlenty also serves as a director of several privately-held companies. Mr. Pawlenty received a degree in Political Science from University of Minnesota. He also received his law degree from the University of Minnesota. We believe that Mr. Pawlenty’s knowledge of our business and legal, regulatory and business oversight make him well-qualified to serve on the board of directors of our general partner.

Andrew Speaker

Andrew Speaker was appointed co-Chairman of the board of directors of our general partner in August 2014. Mr. Speaker has also served as co-Chairman of the board of directors of Smart Sand, Inc. since June 2014. Mr. Speaker served as the Chief Executive Officer of Smart Sand, Inc. from April 2011 to June 2014. Prior to joining Smart Sand, Inc., Mr. Speaker was the President and Chief Executive Officer of Mercer Insurance Group, Inc. and its subsidiaries since 2000. At Mercer, Mr. Speaker held various offices including Chief Financial Officer and Chief Operating Officer. Mr. Speaker received a BS in Accounting from LaSalle University. We believe that Mr. Speaker’s industry experience and deep knowledge of our business makes him well-suited to serve on the board of directors of our general partner.

Board Role in Risk Oversight

Our corporate governance guidelines will provide that the board of directors of our general partner is responsible for reviewing the process for assessing the major risks facing us and the options for their mitigation. This responsibility will be largely satisfied by our audit committee, which is responsible for reviewing and discussing with management and our independent registered public accounting firm our major risk exposures and the policies management has implemented to monitor such exposures, including our financial risk exposures and risk management policies.

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Compensation of Our Officers

We do not directly employ any of the persons responsible for managing our business. Our general partner, under the direction of its board of directors is responsible for managing our operations. Neither we nor our general partner employ any of the individuals who serve as executive officers of our general partner, all of which individuals are employed by our sponsor. However, we sometimes refer to the employees and officers of our general partner as our employees and officers in this prospectus. For prior periods, we refer to the employees and officers of our sponsor as our employees and officers. The compensation payable to the officers of our general partner is paid by our general partner and an allocable portion of such payments are reimbursed by us. For more information, please read “Certain Relationships and Related Party Transaction—Agreements Governing the Transactions—Omnibus Agreement.” All of the executive officers and many of the directors of our general partner also currently serve as executive officers and/or directors of our sponsor. We expect that the executive officers of our general partner will devote approximately 70% of their time to our operations.

This executive compensation disclosure provides an overview of the executive compensation program for the named executive officers identified below. For the year ended December 31, 2013, our sponsor’s named executive officers, or the NEOs, were:

•

Andrew Speaker, Co-Chairman and former Chief Executive Officer;

•

Charles E. Young, Current Chief Executive Officer and, during 2013, our President and Secretary; and

•

Robert Kiszka, Current Executive Vice President of Operations and, during 2013, our Vice President of Operations.

Summary Compensation Table For 2013

The following table sets forth certain information with respect to the compensation paid to our NEOs for the year ended December 31, 2013. The amounts shown below include all compensation paid to these individuals by our sponsor for services in 2013, which included services to our sponsor that were not directly related to our assets.


Name and Principal Position	Year		Salary ($)		Bonus ($)(4)		All Other Compensation ($)			Total ($)
Andrew Speaker		2013		400,000		—		17,290	(5)		417,290
Co-Chairman of the Board; Former Chief Executive Officer(1)
Charles E. Young		2013		400,000		75,000		20,006	(6)		495,006
Chief Executive Officer(2)
Robert Kiszka		2013		300,000		50,000		12,250	(7)		362,250
Executive Vice President, Operations(3)

(1)	Mr. Speaker served as our Chief Executive Officer for the year ended December 31, 2013 and became Co-Chairman effective July 1, 2014.

(2)	Mr. Young served as our President and Secretary for the year ended December 31, 2013 and became Chief Executive Officer effective July 1, 2014.

(3)	Mr. Kiszka became Executive Vice President, Operations effective May 15, 2014.

(4)

Amounts shown represent cash incentive awards earned under our sponsor’s annual bonus program for 2013, which are determined annually on a discretionary basis by the board of directors of our sponsor after taking into account the achievement of individual and company performance objectives, without regard to any predetermined targets.

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(5)	Amount shown represents costs associated with providing Mr. Speaker use of a company-owned automobile ($4,468), employer contributions made under our 401(k) Plan ($6,692) and reimbursement of club membership dues ($6,130).

(6)	Amount shown represents costs associated with providing Mr. Young use of a company-owned automobile ($5,684), employer contributions made under our 401(k) Plan ($8,192) and reimbursement of club membership dues ($6,130).

(7)	Amount shown represents costs associated with providing Mr. Kiszka use of a company-owned automobile ($5,251) and employer contributions made under our 401(k) Plan ($6,999).

Narrative Disclosure to Summary Compensation Table

Our general partner provides compensation to its executives, including our NEOs, in the form of base salaries, annual cash incentive awards and participation in various employee benefit plans and arrangements, including participation in a qualified 401(k) retirement plan and health and welfare benefits on the same basis as offered to other full-time employees, in addition to the perquisites identified in the Summary Compensation Table above. Base salaries are intended to recognize performance of job responsibilities and have historically been set at levels deemed necessary to attract and retain individuals with superior talent. Annual cash incentive awards have historically been determined by the board of directors of our sponsor on a discretionary basis. In making individual bonus decisions, the board of directors of our sponsor does not rely on predetermined financial performance targets or metrics. Instead, determinations regarding annual cash incentive awards are based on a subjective assessment of individual and company performance. For 2013, individual bonus amounts were determined on a discretionary basis taking into account the strengthening operating performance of our Oakdale facility and the fact that annual bonuses had not been awarded to the executives in previous years.

Executive Officer Transition and New Employment Agreements

Effective July 1, 2014, Mr. Speaker transitioned from Chief Executive Officer to Co-Chairman of our sponsor’s board of directors. In connection with his new role, Mr. Speaker’s base salary was reduced to $200,000 and he will be entitled to receive a one-time bonus in an amount of $300,000 (payable in the form of cash or equity interests in us or our sponsor) upon the successful completion of certain strategic transactions involving our sponsor, including upon the consummation of this offering.

In connection with the promotion of Mr. Young to Chief Executive Officer effective July 1, 2014 and of Mr. Kiszka to Executive Vice President of Operations effective May 15, 2014, Messrs. Young and Kiszka received base salary increases of $100,000 and $75,000, respectively, and entered into amended employment agreements with our sponsor. For 2014, Mr. Young’s base salary is $500,000 and he is eligible to receive a cash incentive award under our annual cash bonus program of up to 100% of his base salary. Mr. Kiszka’s 2014 base salary is $375,000 and he is eligible to receive a cash incentive award under our annual cash incentive bonus program of up to 50% of his base salary. Mr. Young and Mr. Kiszka also each received a one-time signing bonus from our sponsor upon entering into their amended employment agreements in amounts equal to $100,000 and $25,000, respectively, and Mr. Kiszka will receive an additional one-time special bonus of $50,000 upon the achievement of an 80% operational capacity threshold involving the dryers at our Oakdale facility.

Mr. Young’s amended employment agreement is for a term of three years, and Mr. Kiszka’s amended employment agreement is for a term of two years. The agreements provide for an annual base salary in amounts as described above, an annual bonus and participation in the benefit plans maintained by our general partner from time to time. If the employment of Messrs. Young or Kiszka terminates due to death or disability, then he or his estate, as applicable, will be entitled to receive an amount equal to 6 months of base salary, payable in monthly installments until the earlier to occur of (i) 6 months or (ii) February of the calendar year immediately following the year of death or termination

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due to disability, with the remaining amount payable in a lump sum. If the employment of Messrs. Young or Kiszka is terminated by our general partner without cause or he resigns for good reason, then he will be entitled to receive an amount equal to 12 months of base salary, or, if greater the base salary that would be paid for the remainder of the employment agreement term, payable in monthly installments until the earlier to occur of (i) 12 months or (ii) February of the calendar year immediately following the year of termination, with the remaining amount payable in a lump sum. Receipt of payments upon termination due to disability, by the general partner without cause or due to resignation for good reason is conditioned upon Messrs. Young and Kiszka signing a release of claims in favor of our general partner. In addition, Messrs. Young and Kiszka are subject to a twelve (12) month non-competition and non-solicitation period following termination of employment for any reason.

For purposes of the employment agreements, “cause” is generally defined as (i) repeated failure by the executive to perform his duties, (ii) executive’s conviction or entry of a plea of nolo contendere for fraud, misappropriation or embezzlement, or any felony or crime of moral turpitude, (iii) willful material violation of a policy which is directly and materially injurious to the company or (iv) executive’s material breach of the employment agreement; in the case of items (i), (iii) or (iv), subject to notice and a 30 day cure period. “Good reason” is generally defined as (i) material diminution by the company of executive’s authority, duties and responsibilities, which change would cause executive’s position to become one of less responsibility, importance and scope or (ii) material reduction by the company of base salary, unless such reduction is a result of a reduction of salaries to all employees and is no greater than the average of the salary reductions imposed on other employees; in each case, subject to notice and a 30 day cure period.

Outstanding Equity Awards at December 31, 2013

None of our NEOs received awards or grants of equity or equity-based compensation during 2013, and none of our NEOs hold any outstanding equity or equity-based awards in us. In anticipation of our initial public offering, our general partner intends to adopt a new long-term equity incentive plan under which our general partner expects to make periodic grants of equity and equity-based awards to our NEOs and other key employees and other service providers. The long-term equity incentive plan is discussed in more detail under “2014 Long-Term Incentive Plan” below. In addition, our NEOs are eligible to participate in our sponsor’s equity incentive programs, pursuant to which it grants periodic discretionary awards of stock options and restricted stock to eligible employees. However, none of our NEOs held any outstanding unvested equity awards in our sponsor as of December 31, 2013.

Director Compensation

In connection with this offering, our general partner intends to adopt a director compensation policy pursuant to which directors who are not officers, employees or paid consultants or advisors of us, our general partner or our sponsor or its affiliates may receive a combination of cash and equity-based awards under our 2014 Long-Term Incentive Plan, which is described in more detail below, as compensation for their services on our general partner’s board of directors. Such directors will also receive reimbursement for out-of-pocket expenses associated with attending board or committee meetings and director and officer liability insurance coverage. Officers, employees or paid consultants or advisors of us or our general partner or our sponsor or its affiliates who also serve as directors will not receive additional compensation for their service as directors. All directors will be indemnified by us for actions associated with being a director to the fullest extent permitted under Delaware law.

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Equity Compensation Plans

2014 Long-Term Incentive Plan

Our general partner intends to adopt the Smart Sand Partners LP 2014 Long-Term Incentive Plan, or the LTIP, for officers, directors and employees of our general partner or its affiliates, and any consultants, affiliates of our general partner or other individuals who perform services for us. Our general partner may issue executive officers and other service providers long-term equity-based awards under the plan. These awards will be intended to compensate the recipients based on the performance of our common units and the recipient’s continued service during the vesting period, as well as to align recipients’ long-term interests with those of our unitholders. The plan will be administered by our general partner’s board of directors or any committee thereof that may be established for such purpose or to which the board or such committee may delegate such authority, subject to applicable law. All determinations with respect to awards to be made under our LTIP will be made by the plan administrator and we will be responsible for the cost of awards granted under our LTIP. The following description reflects the terms that are currently expected to be included in the LTIP.

General. The LTIP will provide for the grant, from time to time at the discretion of the plan administrator or any delegate thereof, subject to applicable law, of unit awards, restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights, profits interest units and other unit-based awards. The purpose of awards under the LTIP is to provide additional incentive compensation to employees and any other individuals providing services to us, and to align the economic interests of such employees and individuals with the interests of our unitholders. The plan administrator may grant awards under the LTIP to reward the achievement of individual or partnership performance goals; however, no specific performance goals that might be utilized for this purpose have yet been determined. In addition, the plan administrator may grant awards under the LTIP without regard to performance factors or conditions. The LTIP will limit the number of units that may be delivered pursuant to vested awards to common units, subject to proportionate adjustment in the event of unit splits and similar events. Common units subject to awards that are cancelled, forfeited, withheld to satisfy exercise prices or tax withholding obligations, or otherwise terminated without delivery of the common units will be available for delivery pursuant to other awards.

Restricted Units and Phantom Units. A restricted unit is a common unit that is subject to forfeiture. Upon vesting, the forfeiture restrictions lapse and the recipient holds a common unit that is not subject to forfeiture. A phantom unit is a notional unit that entitles the grantee to receive a common unit upon the vesting of the phantom unit or on a deferred basis upon specified future dates or events or, in the discretion of the plan administrator, cash equal to the fair market value of a common unit. The plan administrator of the LTIP may make grants of restricted and phantom units under the LTIP that contain such terms, consistent with the LTIP, as the plan administrator may determine are appropriate, including the period over which restricted or phantom units will vest. The plan administrator may, in its discretion, base vesting on the grantee’s completion of a period of service, upon the achievement of specified financial objectives or other criteria, upon a change of control (as defined in the LTIP), or as otherwise described in an award agreement.

Distributions made by us with respect to awards of restricted units may be subject to the same vesting requirements as the restricted units.

Distribution Equivalent Rights. The plan administrator, in its discretion, may also grant distribution equivalent rights, either as standalone awards or in tandem with other awards. Distribution equivalent rights are rights to receive an amount in cash, restricted units, or phantom units equal to all or a portion of the cash distributions made on units during the period an award remains outstanding.

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Unit Options and Unit Appreciation Rights. The LTIP may also permit the grant of options and appreciation rights covering common units. Unit options represent the right to purchase a number of common units at a specified exercise price. Unit appreciation rights represent the right to receive the appreciation in the value of a number of common units over a specified exercise price, either in cash or in common units. Unit options and unit appreciation rights may be granted to such eligible individuals and with such terms as the plan administrator may determine, consistent with the LTIP; however, a unit option or unit appreciation right must have an exercise price equal to at least the fair market value of a common unit on the date of grant.

Unit Awards. Awards covering common units may be granted under the LTIP with such terms and conditions, including restrictions on transferability, as the administrator of the LTIP may establish.

Profits Interest Units. Awards granted to grantees who are partners, granted to grantees in anticipation of the grantee becoming a partner, or granted as otherwise determined by the administrator, may consist of profits interest units. The administrator will determine the applicable vesting dates, conditions to vesting and restrictions on transferability and any other restrictions for profits interest awards.

Other Unit-Based Awards. The LTIP may also permit the grant of “other unit-based awards,” which are awards that, in whole or in part, are valued or based on or related to the value of a common unit. The vesting of an other unit-based award may be based on a participant’s continued service, the achievement of performance criteria, or other measures. On vesting or on a deferred basis upon specified future dates or events, an other unit-based award may be paid in cash and/or in units (including restricted units), or any combination thereof as the plan administrator may determine.

Source of Common Units. Common units to be delivered with respect to awards may be newly issued units, common units acquired by us or our general partner in the open market, common units already owned by us or our general partner, common units acquired by our general partner directly from us or any other person, or any combination of the foregoing.

Anti-Dilution Adjustments and Change in Control. If an “equity restructuring” event occurs that could result in an additional compensation expense under applicable accounting standards if adjustments to awards under the LTIP with respect to such event were discretionary, the plan administrator will equitably adjust the number and type of units covered by each outstanding award and the terms and conditions of such award to equitably reflect the restructuring event and will adjust the number and type of units with respect to which future awards may be granted under the LTIP. With respect to other similar events, including, for example, a combination or exchange of units, a merger or consolidation or an extraordinary distribution of our assets to unitholders, that would not result in an accounting charge if adjustment to awards were discretionary, the plan administrator shall have discretion to adjust awards in the manner it deems appropriate and to make equitable adjustments, if any, with respect to the number of units available under the LTIP and the kind of units or other securities available for grant under the LTIP. Furthermore, upon any such event, including a change in control of us or our general partner, or a change in any law or regulation affecting the LTIP or outstanding awards or any relevant change in accounting principles, the plan administrator will generally have discretion to (i) accelerate the time of exercisability or vesting or payment of an award, (ii) require awards to be surrendered in exchange for a cash payment or substitute other rights or property for the award, (iii) provide for the award to be assumed by a successor or one of its affiliates, with appropriate adjustments thereto, (iv) cancel unvested awards without payment, or (v) make other adjustments to awards as the administrator deems appropriate to reflect the applicable transaction or event.

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Termination of Service. The consequences of the termination of a grantee’s employment, membership on our general partner’s board of directors or other service arrangement will generally be determined by the plan administrator under the terms of the relevant award agreement.

Amendment or Termination of Long-Term Incentive Plan. The plan administrator, at its discretion, may terminate the LTIP at any time with respect to the common units for which a grant has not previously been made. The plan administrator also has the right to alter or amend the LTIP or any part of it from time to time or to amend any outstanding award made under the LTIP, provided that no change in any outstanding award may be made that would materially impair the vested rights of the participant without the consent of the affected participant or result in taxation to the participant under Section 409A of the Code.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of units of Smart Sand Partners LP that will be issued upon the consummation of this offering and the related transactions and held by beneficial owners of 5.0% or more of our units, by each director, director nominee and named executive officer of our general partner and by all directors, director nominees and executive officers of our general partner as a group, assuming the underwriters do not exercise their option to purchase additional common units. The percentage of units beneficially owned is based on a total of common units and subordinated units outstanding immediately following this offering.

The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. In computing the number of common units beneficially owned by a person and the percentage ownership of that person, common units subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of the date of this prospectus, if any, are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all units shown as beneficially owned by them, subject to community property laws where applicable.

The following table does not include any common units that directors, director nominees and named executive officers of our general partner may purchase in this offering through the directed unit program described under “Underwriting.”


Name of Beneficial Owner(1)	Common Units To Be Beneficially Owned	Percentage of Common Units To Be Beneficially Owned	Subordinated Units To Be Beneficially Owned		Percentage of Subordinated Units To Be Beneficially Owned			Percentage of Total Common Units and Subordinated Units To Be Beneficially Owned
Smart Sand Holdings LLC(2)						100	%

Directors/Named Executive Officers
Charles E. Young				-		-
Robert Kiszka				-		-
José E. Feliciano				-		-
Colin Leonard				-		-
Timothy J. Pawlenty				-		-
Andrew Speaker				-		-

Director Nominees
				-		-
				-		-
All Directors, Director Nominees and Executive Officers as a group ( persons)				-		-

*	Less than 1%.

(1)	Unless otherwise indicated, the address for all beneficial owners in this table is c/o Smart Sand GP LLC, 24 Waterway Avenue, Suite 350, The Woodlands, Texas 77380.

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(2)

Smart Sand, Inc., a wholly owned subsidiary of Smart Sand Holdings LLC, will own common units and subordinated units at the completion of this offering. Smart Sand Holdings LLC’s board of directors, which acts by majority approval, comprises Messrs. Charles E. Young, José E. Feliciano, Colin Leonard, Timothy Pawlenty and Andrew Speaker. Clearlake Capital Partners II (Master), L.P., a Delaware limited partnership (“CCPII”), is a fund affiliated with Clearlake and owns % of the voting interests in, and has the right to appoint directors of, Smart Sand Holdings LLC. CCPII is managed by Clearlake Capital Management II, L.P., a Delaware limited partnership (“CCMII”). CCMII’s general partner is Clearlake and Clearlake’s general partner is CCG Operations, L.L.C., a Delaware limited liability company (“CCG Ops”). CCPII’s general partner is Clearlake Capital Partners II GP, L.P., a Delaware limited partnership (“CCPII GP”). CCPII GP’s general partner is Clearlake Capital Partners, L.L.C., a Delaware limited liability company (“CCP”). CCP’s managing member is CCG Ops. Behdad Eghbali, Steve Chang and José Feliciano are managers of CCG Ops and may be deemed to control the Clearlake entities. Each of Messrs. Eghbali, Chang and Feliciano, together with CCPII, CCMII, CCG Ops, CCPII GP and CCP, are collectively referred to herein as the “Clearlake Entities.” In addition, one of our directors, Colin Leonard, serves as Vice President of Clearlake.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

After the completion of this offering, our sponsor will own common units and subordinated units, representing a % limited partner interest in us. If the underwriters exercise in full their option to purchase additional common units, our sponsor will own common units and subordinated units, representing a % limited partner interest in us. In addition, our general partner will own a 0.0% non-economic general partner interest in us and all of our incentive distribution rights.

Distributions and Payments to Our General Partner and Its Affiliates

The following table summarizes the distributions and payments to be made by us to our general partner and its affiliates in connection with the formation, ongoing operation and liquidation of us. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arm’s-length negotiations.

Formation Stage

The consideration received by our general partner and its affiliates in connection with our formation

•

0.0% non-economic general partner interest; and

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100.0% limited partner interest.

Offering Stage

The consideration received by our general partner and its affiliates in connection with this offering for the contribution of the assets and liabilities to us

•

common units;

•

subordinated units;

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a continuation of our general partner’s 0.0% non-economic general partner interest;

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the incentive distribution rights;

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a cash distribution of approximately $ million from the net proceeds of this offering; and

•

if the underwriters exercise their option to purchase additional common units, we will use the net proceeds from that exercise to redeem from our sponsor a number of common units equal to the number of common units issued upon such exercise of the option at a price per unit equal to the net proceeds per common unit in this offering before expenses but after deducting underwriting discounts and the structuring fee.

Post-IPO Operational Stage

Distributions of available cash to our general partner and its affiliates

We will generally make cash distributions to our unitholders pro rata, including our sponsor, as holder of an aggregate of common units and subordinated units. In addition, if

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distributions exceed the minimum quarterly distribution and target distribution levels, the incentive distribution rights held by our general partner will entitle our general partner to increasing percentages of the distributions, up to 50% of the distributions above the highest target distribution level.

Assuming we have sufficient available cash to support the payment of the full minimum quarterly distribution on all of our outstanding units for four quarters, our general partner and its affiliates would receive an annual distribution of approximately $ million on their common units and subordinated units (or $ million if the underwriters exercise in full their option to purchase additional common units).

Payments to our general partner and its affiliates

Withdrawal or removal of our general partner

If our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. Please read “Our Partnership Agreement—Withdrawal or Removal of Our General Partner.”

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Liquidation Stage

Liquidation

Upon our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions according to their respective capital account balances.

Agreements Governing the Transactions

We and other parties will enter into the various agreements that will effect the transactions contemplated by this offering, including the vesting of assets in, and the assumption of liabilities by, us and our subsidiaries, and the application of the proceeds from this offering. While not the result of arm’s-length negotiations, we believe the terms of all of our initial agreements with our sponsor and its affiliates will be, and specifically intend the rates to be, generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. All of the transaction expenses incurred in connection with these transactions, including the expenses associated with transferring assets into our subsidiaries, will be paid for with the proceeds from this offering.

Omnibus Agreement

In connection with the closing of this offering, we will enter into an omnibus agreement with our general partner and our sponsor that will address the following matters:

•

our obligation to reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement);

•

our right of first offer with respect to (i) our sponsor’s Hixton sand reserves, processing facility, basin dryers and related assets and (ii) any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops over a period of years from the date of the closing of this offering;

•

our sponsor’s right, but not obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties;

•

our right, but not obligation, to rent rail cars from our sponsor, initially at a price of $750 per rail car per month, to the extent such rail cars are not leased by our sponsor to third parties;

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a license to use the “Smart Sand” name and trademark; and

•

an indemnity from our sponsor for liabilities associated with the use, ownership or operation of our assets, including environmental liabilities, to the extent relating to the period of time prior to the closing of this offering; and our obligation to indemnify our sponsor for events and conditions associated with the use, ownership or operation of our assets that occur after the closing of this offering, including environmental liabilities.

So long as our sponsor controls our general partner, the omnibus agreement will remain in full force and effect. If our sponsor ceases to control our general partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms.

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Reimbursement of Expenses. We will reimburse our sponsor and its affiliates for the provision of certain general and administrative services for our benefit, including: (i) executive services of employees of our sponsor and its affiliates who devote time to our business and affairs; (ii) the cost of employee benefits relating to employees of our sponsor and its affiliates who devote time to our business and affairs, including 401(k), pension, bonuses and health insurance benefits; (iii) financial and administrative services (including treasury and accounting); (iv) information technology services; (v) legal services; (vi) corporate health, safety and environmental services; (vii) human resources; (viii) business development services; (ix) investor relations services; (x) tax matters and (xi) insurance administration.

Under the omnibus agreement, we will also reimburse our sponsor for all other direct and allocated costs and expenses incurred by our sponsor and its affiliates on our behalf, such as expenses associated with annual and quarterly SEC reporting; tax return and Schedule K-1 preparation and distribution expenses; Sarbanes-Oxley compliance; expenses associated with listing on the NASDAQ; independent registered public accounting firm fees; legal fees; transfer agent and registrar fees; director and officer liability insurance expenses; and director compensation. This reimbursement will be in addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement.

Right of First Offer. Under the omnibus agreement, until years following the closing of this offering, if our sponsor decides to sell, transfer or otherwise dispose of all or part of its (i) Hixton sand reserves, processing facility, basin dryers and related assets or (ii) any additional land, sand reserves, processing facilities, transload sites, logistics assets and similar assets that our sponsor develops, our sponsor will provide us with the opportunity to make the first offer to acquire such assets.

The consummation and timing of any acquisition by us of the assets covered by our right of first offer will depend upon, among other things, our sponsor’s decision to sell any of the assets covered by the right of first offer and our ability to reach an agreement with our sponsor on price and other terms. Accordingly, we can provide no assurance whether, when or on what terms we will be able to successfully consummate any future acquisitions pursuant to our right of first offer, and our sponsor is under no obligation to accept any offer that we may choose to make. Please read “Risk Factors—Risks Related to Our Business—Our right of first offer to acquire certain of our sponsor’s existing assets is subject to risks and uncertainty, and ultimately we may not acquire any of those assets.”

Sales of Unprocessed, Wet Frac Sand. Under the omnibus agreement, our sponsor will have the right, but not the obligation, to purchase unprocessed, wet frac sand from us to the extent such sand is not contracted by us for sale to third parties. The terms and conditions of any sales of unprocessed, wet frac sand to our sponsor under the omnibus agreement will be subject to the approval of the conflicts committee of the board of directors of our general partner.

Rail Car Usage. Under the omnibus agreement, we will have the right, but not the obligation, to rent rail cars from our sponsor, initially at a price of $750 per rail car per month, to the extent such rail cars are not leased by our sponsor to third parties. The rental rate that our sponsor charges us for rail cars will be reviewed quarterly by the parties and will increase or decrease by the mutual agreement of the parties to reflect then-current market rental rates for rail cars.

Name and Trademark. Under the omnibus agreement, our sponsor will grant us a license to use the “Smart Sand” name and trademark. We will agree to use commercially reasonable efforts to cooperate with our sponsor and its affiliates in the defense and conservation of the names and trademarks that our sponsor will grant us permission to use under the omnibus agreement, and we will agree to use such names and trademarks in accordance with such quality standards established by

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our sponsor and communicated to us from time to time. We will also agree to use best efforts to act and operate in a manner consistent with good business ethics, and in a manner that will not reflect poorly on the goodwill and reputation of our sponsor and us.

Indemnification. Under the omnibus agreement, our sponsor will indemnify us for all liabilities that are associated with the use, ownership or operation of our assets and due to occurrences before the closing of this offering, including environmental liabilities. Indemnification for any liabilities will be limited to liabilities identified prior to the third anniversary of the closing of this offering and will be subject to a deductible of $0.5 million per claim before we are entitled to indemnification. For purposes of calculating the deductible, a “claim” will include all liabilities that arise from a discrete act or event. Our sponsor’s obligation to indemnify us for environmental liabilities under the omnibus agreement will be subject to a $7.5 million cap. There is no limit on the amount for which our sponsor will indemnify us for other liabilities under the omnibus agreement once we meet the deductible, if applicable. Our sponsor will also indemnify us for failure to obtain certain consents, licenses and permits necessary to conduct our business, including the cost of curing any such condition, in each case that are identified prior to the third anniversary of the closing of this offering, and will be subject to an aggregate deductible of $0.5 million before we are entitled to indemnification.

Our sponsor will also indemnify us for liabilities relating to:

•

the consummation of the transactions contemplated by our contribution agreement or the assets contributed to us that arise out of the ownership or operation of the assets prior to the closing of this offering;

•

events and conditions associated with any assets retained by our sponsor;

•

litigation matters attributable to the ownership or operation of the contributed assets prior to the closing of this offering;

•

the failure to have any consent, license, permit or approval necessary for us to own or operate the contributed assets in substantially the same manner as owned or operated by our sponsor prior to this offering; and

•

all tax liabilities attributable to the assets contributed to us arising prior to the closing of this offering or otherwise related to our sponsor’s contribution of those assets to us in connection with this offering.

We have agreed to indemnify our sponsor for liabilities associated with the use, ownership or operation of our assets, including environmental liabilities, related to the use, ownership or operation of our assets and due to occurrences on or after the closing of this offering. Our obligation to indemnify our sponsor for any liabilities will be subject to a deductible of $0.5 million per claim before our sponsor is entitled to indemnification. For purposes of calculating the deductible, a “claim” will include all liabilities that arise from a discrete act or event. Our obligation to indemnify our sponsor for environmental liabilities under the omnibus agreement will be subject to a $7.5 million cap. There is no limit on the amount for which we will indemnify our sponsor for other liabilities under the omnibus agreement once our sponsor meets the deductible, if applicable.

Neither party will be obligated to indemnify the other for any claims referred to above to the extent such party recovers any such amounts under available insurance coverage, from contractual rights or other recoveries against any third party.

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Contribution Agreement

In connection with the closing of this offering, we will enter into a contribution agreement with our sponsor that will effect the transactions described under “Summary—The Organizational Transactions,” including the transfer of the Oakdale facility to us and the use of the net proceeds from this offering.

Our Relationship with Our General Partner

We are managed by the directors and executive officers of our general partner. Our general partner will be liable, as general partner, for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically nonrecourse to it. Whenever possible, we intend to incur indebtedness that is nonrecourse to our general partner.

Under our partnership agreement, our general partner is not required to fund our cash flow deficits or otherwise contribute to our capital. We have no agreement or other commitment from our general partner or any of its affiliates to, and we do not expect our general partner or any of its affiliates will, fund our cash flow deficits, increase or maintain our general partner’s capital in us or provide other direct or indirect financial assistance to us.

We will reimburse our general partner and its affiliates, including our sponsor, for costs and expenses incurred on our behalf. Our partnership agreement requires us to reimburse our general partner and its affiliates for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner or its affiliates in connection with managing and operating our business and affairs. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith, and it will charge on a fully allocated cost basis for services provided to us. The expenses for which we are required to reimburse our general partner are not subject to any caps or other limits under our partnership agreement. Under the omnibus agreement, we will reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement). Please read “—Agreements Governing the Transactions—Omnibus Agreement.”

Procedures for Review, Approval and Ratification of Related Person Transactions

The board of directors of our general partner will adopt a related party transactions policy in connection with the completion of this offering that will provide that the board of directors of our general partner or its authorized committee will review on at least a quarterly basis all related person transactions that are required to be disclosed under SEC rules and, when appropriate, initially authorize or ratify all such transactions. In the event that the board of directors of our general partner or its authorized committee considers ratification of a related person transaction and determines not to so ratify, the code of business conduct and ethics will provide that our management will make all reasonable efforts to cancel or annul the transaction.

The related party transactions policy will provide that, in determining whether or not to recommend the initial approval or ratification of a related person transaction, the board of directors of our general partner or its authorized committee should consider all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) whether there is an appropriate

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business justification for the transaction; (ii) the benefits that accrue to us as a result of the transaction; (iii) the terms available to unrelated third parties entering into similar transactions; (iv) the impact of the transaction on a director’s independence (in the event the related person is a director, an immediate family member of a director or an entity in which a director or an immediate family member of a director is a partner, shareholder, member or executive officer); (v) the availability of other sources for comparable products or services; (vi) whether it is a single transaction or a series of ongoing, related transactions; and (vii) whether entering into the transaction would be consistent with the code of business conduct and ethics.

The related party transactions policy described above will be adopted in connection with the completion of this offering and, as a result, the transactions described above were not reviewed under such policy.

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CONFLICTS OF INTEREST AND DUTIES

Conflicts of Interest

Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its affiliates, including our sponsor, on the one hand, and us and our unaffiliated limited partners, on the other hand. The directors and executive officers of our general partner have duties to manage our general partner in a manner that is in the best interests of its owners. At the same time, our general partner has a duty to manage us in a manner that it believes is in the best interests of our partnership.

Whenever a conflict of interest arises between our general partner or its affiliates, on the one hand, and us or any other partner, on the other hand, our general partner will resolve that conflict. Our general partner may seek the approval of such resolution from the conflicts committee of the board of directors of our general partner, which we call special approval, or from our unitholders, but our general partner is not required to do so. There is no requirement under our partnership agreement that our general partner seek special approval or unitholder approval for the resolution of any conflict of interest and, under our partnership agreement, our general partner may decide to seek such approval or resolve a conflict of interest in any other way permitted by our partnership agreement, as described below, in its sole discretion. The board of directors of our general partner will decide whether to refer a matter to the conflicts committee or to our unitholders on a case-by-case basis. In determining whether to refer a matter to the conflicts committee or to our unitholders for approval, the board of directors of our general partner will consider a variety of factors, including the nature of the conflict of interest, the size of the transaction and dollar amount involved, the identity of the parties involved and any other factors the board of directors deems relevant in determining whether it will seek special approval or unitholder approval. Whenever our general partner makes a determination to seek special approval, to seek unitholder approval or to adopt a resolution or course of action that has not received special approval or unitholder approval, then our general partner will be entitled, to the fullest extent permitted by law, to make such determination or to take or decline to take such action free of any duty or obligation whatsoever to our partnership or any limited partner, and our general partner will not, to the fullest extent permitted by law, be required to act in good faith or pursuant to any other standard or duty imposed by our partnership agreement or under the Delaware Act or any other law, rule or regulation or at equity, and our general partner in making such determination or taking or declining to take such action will be permitted to do so in its sole and absolute discretion. For a more detailed discussion of the duties applicable to our general partner, please read “—Duties of the General Partner.”

Whenever a potential conflict of interest exists or arises, any resolution or course of action by our general partner or its affiliates in respect of such conflict of interest will be permitted and deemed approved by all partners, and will not constitute a breach of our partnership agreement or of any duty stated or implied by law or equity, if the resolution or course of action in respect of such conflict of interest is:

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approved by special approval, which our partnership agreement defines as approval by a majority of the members of the conflicts committee; or

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approved by unitholder approval, meaning the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates.

If our general partner seeks special approval from the conflicts committee, then it will be presumed that, in making its decision, the conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. If our general

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partner does not seek special approval or unitholder approval, then our general partner, the board of directors of our general partner or any committee of the board of directors of our general partner (including the conflicts committee), as applicable, will make such determination or take or decline to take any action in good faith, and none of our general partner, the board of directors of our general partner or any committee of the board of directors of our general partner (including the conflicts committee), as applicable, will be subject to any fiduciary duty or other duty or obligation, or any other, different or higher standard under our partnership agreement or under the Delaware Act or any other law, rule or regulation or at equity. Under our partnership agreement, it will be presumed that, in making its decision, our general partner, the board of directors of our general partner or any committee of the board of directors of our general partner (including the conflicts committee), as applicable, acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. Unless the resolution of a conflict of interest is specifically provided for in our partnership agreement, our general partner or the conflicts committee of our general partner’s board of directors may consider any factors it determines in good faith to consider when resolving a conflict. In order for a determination or the taking or declining to take an action to be in “good faith” for purposes of our partnership agreement, the person or persons making such determination or taking or declining to take such action must subjectively believe that the determination or other action is in the best interests of the partnership. In taking such action, such person may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. If that person has the required subjective belief, then the decision or action will be conclusively deemed to be in good faith for all purposes under our partnership agreement.

It is possible, but we believe it is unlikely, that our general partner would approve a matter that the conflicts committee has previously declined to approve or declined to recommend that the full board of directors approve. If the conflicts committee does not approve or does not recommend that the full board of directors approve a matter that has been presented to it, then, unless the board of directors of our general partner has delegated exclusive authority to the conflicts committee, the board of directors of our general partner may subsequently approve the matter. In such a case, although the matter will not have received “special approval” under our partnership agreement, the board of directors of our general partner could still determine to resolve the conflict of interest solely under the good faith standard. In making any such determination, the board of directors of our general partner may take into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us. Please read “Management—Committees of the Board of Directors—Conflicts Committee” for information about the conflicts committee of our general partner’s board of directors.

Conflicts of interest could arise in the situations described below, among others.

Affiliates of our general partner, including our sponsor and its affiliates, may compete with us, and neither our general partner nor its affiliates have any obligation to present business opportunities to us except with respect to rights of first offer contained in our omnibus agreement.

Our partnership agreement provides that our general partner will be restricted from engaging in any business activities other than acting as our general partner (or as general partner or managing member of another entity of which we are a partner or member) or those activities incidental to its ownership of interests in us. However, affiliates of our general partner, including our sponsor and its affiliates, are not prohibited from engaging in other businesses or activities, including those that might compete with us. Neither our partnership agreement nor our omnibus agreement will prohibit our sponsor or any other affiliates of our general partner from owning assets or engaging in businesses that compete directly or indirectly with us.

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Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our general partner or any of its affiliates, including our sponsor and executive officers and directors of our general partner and its affiliates. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Therefore, our sponsor and its affiliates may compete with us for acquisition opportunities and may own an interest in entities that compete with us.

Our general partner is allowed to take into account the interests of parties other than us, such as our sponsor, in resolving conflicts of interest.

Our partnership agreement contains provisions that reduce and modify the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner, free of any duty or obligation to us and our unitholders. When acting in its individual capacity, our general partner is entitled to consider only the interests and factors that it desires, and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us or any limited partner. Examples of decisions that our general partner may make in its individual capacity include:

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how to allocate business opportunities among us and affiliates of our general partner;

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whether to exercise its limited call right;

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how to exercise its voting rights with respect to any units it owns;

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whether to exercise its registration rights;

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whether to sell or otherwise dispose of units or other partnership interests that it owns;

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whether to elect to reset target distribution levels;

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whether to consent to any merger, consolidation or conversion of the partnership or amendment to our partnership agreement; and

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whether to refer or not to refer any potential conflict of interest to the conflicts committee for special approval or to seek or not to seek unitholder approval.

Our partnership agreement replaces the fiduciary duties that would otherwise be owed by our general partner with contractual standards governing its duties and limits our general partner’s liabilities and the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty under applicable Delaware law.

In addition to the provisions described above, our partnership agreement contains provisions that restrict the remedies available to our limited partners for actions that might constitute breaches of fiduciary duty under applicable Delaware law. For example, our partnership agreement:

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permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. When acting in its individual capacity, our general partner is entitled to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us or any limited partner;

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provides that the general partner will have no liability to us or our limited partners for decisions made in its capacity as a general partner so long as such decisions are made in good faith reliance on the provisions of our partnership agreement;

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generally provides that in a situation involving a transaction with an affiliate or other conflict of interest, any determination by our general partner must be made in good faith; if an affiliate transaction or the resolution of another conflict of interest does not receive special approval or unitholder approval, then our general partner will make such determination or take or decline to take any action in good faith, and neither our general partner nor the board of directors of our general partner will be subject to any fiduciary duty or other duty or obligation, or any other, different or higher standard under our partnership agreement or under the Delaware Act or any other law, rule or regulation or at equity; under our partnership agreement, it will be presumed that in making its decision our general partner (including the board of directors of our general partner) acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us challenging such decision, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption; and

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provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers or directors, as the cases may be, acted in bad faith or engaged in actual fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful.

By purchasing a common unit, a common unitholder will be deemed to have agreed to become bound by the provisions in our partnership agreement, including the provisions discussed above.

Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

Under our partnership agreement, our general partner has full power and authority to do all things, other than those items that require unitholder approval, on such terms as it determines to be necessary or appropriate to conduct our business including, but not limited to, the following:

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the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into our securities, and the incurring of any other obligations;

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the purchase, sale or other acquisition or disposition of our securities, or the issuance of additional options, rights, warrants and appreciation rights relating to our securities;

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the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of our assets (though subject to any prior approval required under our partnership agreement);

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the negotiation, execution and performance of any contracts, conveyances or other instruments;

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the distribution of our cash;

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the selection and dismissal of employees (including officers) and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;

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the maintenance of insurance for our benefit and the benefit of our partners;

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the formation of, or acquisition of an interest in, the contribution of property to, and the making of loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity;

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the control of any matters affecting our rights and obligations, including the bringing and defending of actions at law or in equity, otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense, the settlement of claims and litigation;

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the indemnification of any person against liabilities and contingencies to the extent permitted by law;

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the making of tax, regulatory and other filings, or the rendering of periodic or other reports to governmental or other agencies having jurisdiction over our business or assets; and

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the entering into of agreements with any of its affiliates to render services to us or to itself in the discharge of its duties as our general partner.

Our partnership agreement provides that our general partner must act in good faith when making decisions on our behalf in its capacity as our general partner, and our partnership agreement further provides that in order for a determination to be made in good faith, our general partner must subjectively believe that the determination is in the best interests of our partnership. In making such determination, our general partner may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. When our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act free of any duty or obligation to us or our limited partners. Please read “Our Partnership Agreement—Voting Rights” for information regarding matters that require unitholder approval.

Actions taken by our general partner may affect the amount of distributable cash flow to unitholders or accelerate the right to convert subordinated units.

The amount of cash that is available for distribution to unitholders is affected by decisions of our general partner regarding matters such as the amount and timing of:

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asset purchases and sales, entry into joint ventures and completion of growth projects;

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cash expenditures;

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borrowings and repayments of indebtedness;

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the issuance of additional partnership interests; and

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the creation, reduction or increase of cash reserves in any quarter.

Our general partner determines the amount and timing of any capital expenditures and whether a capital expenditure is classified as a maintenance capital expenditure, which reduces operating surplus, or an expansion capital expenditure, which does not reduce operating surplus. This determination can affect the amount of cash that is distributed to our unitholders, the amount of adjusted operating surplus generated in any given period and the ability of the subordinated units to convert into common units.

In addition, our general partner may use an amount, initially equal to $ million, which would not otherwise constitute available cash from operating surplus, in order to permit the payment of cash distributions on its incentive distribution rights. All of these actions may affect the amount of cash distributed to our unitholders and our general partner and may facilitate the conversion of subordinated units into common units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.”

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In addition, borrowings by us and our affiliates do not constitute a breach of any duty owed by our general partner to our unitholders, including borrowings that have the purpose or effect of:

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enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or

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accelerating the expiration of the subordination period.

For example, in the event we have not generated sufficient cash from our operations to pay the minimum quarterly distribution on our common units and our subordinated units, our partnership agreement permits us to borrow working capital funds, which would enable us to make this distribution on all outstanding units. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—Subordinated Units and Subordination Period.”

Our partnership agreement provides that we and our subsidiaries may borrow funds from our general partner and its affiliates. Our general partner and its affiliates may not borrow funds from us or our subsidiaries.

We will reimburse our general partner and its affiliates for costs and expenses incurred on our behalf.

We will reimburse our general partner and its affiliates, including our sponsor, for costs and expenses incurred on our behalf. Our partnership agreement requires us to reimburse our general partner and its affiliates for all direct and indirect expenses it incurs or payments it makes on our behalf and all other expenses allocable to us or otherwise incurred by our general partner or its affiliates in connection with managing and operating our business and affairs. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith, and it will charge on a fully allocated cost basis for services provided to us. The expenses for which we are required to reimburse our general partner are not subject to any caps or other limits under our partnership agreement. Under the omnibus agreement, we will reimburse our sponsor for all direct or allocated costs and expenses incurred by our sponsor or its affiliates in providing general and administrative services to us (which reimbursement is addition to our reimbursement of our general partner and its affiliates for expenses incurred on our behalf for managing and operating our business and affairs as required by our partnership agreement). Please read “Certain Relationships and Related Party Transaction—Agreements Governing the Transactions—Omnibus Agreement.”

Contracts between us, on the one hand, and our general partner and its affiliates, on the other hand, will not be the result of arm’s-length negotiations.

Our partnership agreement allows our general partner to determine, in good faith, any amounts to pay itself or its affiliates for any services rendered to us. Our general partner may also enter into additional contractual arrangements with any of its affiliates on our behalf. Our general partner will determine, in good faith, the terms of any arrangements or transactions entered into after the completion of this offering. While neither our partnership agreement nor any of the other agreements, contracts and arrangements between us and our general partner and its affiliates are or will be the result of arm’s-length negotiations, we believe the terms of all of our initial agreements with our general partner and its affiliates will be, and specifically intend the fees to be, generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. Similarly, agreements, contracts or arrangements between us and our general partner and its affiliates that are entered into following the completion of this offering will not be required to be negotiated on an arm’s-length basis, although, in some circumstances, our general partner may determine that the conflicts committee may make a determination on our behalf with respect to such arrangements.

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Our general partner and its affiliates will have no obligation to permit us to use any facilities or assets of our general partner and its affiliates, except as may be provided in contracts entered into specifically for such use. There is no obligation of our general partner and its affiliates to enter into any contracts of this kind.

Our general partner intends to limit its liability regarding our contractual and other obligations.

Our general partner intends to limit its liability under contractual arrangements and other obligations so that counterparties to such agreements have recourse only against our assets and not against our general partner or its assets or any affiliate of our general partner or its assets. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained terms that are more favorable without the limitation on liability.

Common units are subject to our general partner’s limited call right.

Our general partner may exercise its right to call and purchase common units, as provided in our partnership agreement, or may assign this right to one of its affiliates or to us. Our general partner may use its own discretion, free of any duty or liability to us or our unitholders, in determining whether to exercise this right. As a result, a common unitholder may have to sell its common units at an undesirable time or at a price that is less than the market price on the date of purchase. Please read “Our Partnership Agreement—Limited Call Right.”

Common unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

Any agreements between us, on the one hand, and our general partner and its affiliates, on the other hand, will not grant to the unitholders, separate and apart from us, the right to enforce the obligations of our general partner and its affiliates in our favor.

Our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

The attorneys, independent registered public accounting firm and others who perform services for us have been retained by our general partner. Attorneys, independent accountants and others who perform services for us are selected by our general partner or our conflicts committee and may perform services for our general partner and its affiliates. We may retain separate counsel for ourselves or the holders of common units in the event of a conflict of interest between our general partner and its affiliates, on the one hand, and us or the holders of common units, on the other hand, depending on the nature of the conflict. We do not intend to do so in most cases.

Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights without the approval of our conflicts committee or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

Our general partner has the right, at any time when there are no subordinated units outstanding and it has received incentive distributions at the highest level to which it is entitled (50.0%) for each of the prior four consecutive calendar quarters and the amount of each such distribution did not exceed the adjusted operating surplus for such quarter, to reset the initial target distribution levels at higher levels based on our cash distributions at the time of the exercise of the reset election. Furthermore, our

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general partner has the right to transfer all or any portion of the incentive distribution rights at any time, and such transferee shall have the same rights as our general partner relative to resetting target distributions if our general partner concurs that the tests for resetting target distributions have been fulfilled. Following a reset election by our general partner, the minimum quarterly distribution will be reset to an amount equal to the average cash distribution per unit for the two calendar quarters immediately preceding the reset election (such amount is referred to as the “reset minimum quarterly distribution”), and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.

We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion; however, it is possible that our general partner could exercise this reset election at a time when we are experiencing declines in our aggregate cash distributions or at a time when our general partner expects that we will experience declines in our aggregate cash distributions in the foreseeable future. In such situations, our general partner may be experiencing, or may expect to experience, declines in the cash distributions it receives related to its incentive distribution rights and may therefore desire to be issued common units, which are entitled to specified priorities with respect to our distributions and which therefore may be more advantageous for the general partner to own in lieu of the right to receive incentive distribution payments based on target distribution levels that are less certain to be achieved in the then current business environment. As a result, a reset election may cause our common unitholders to experience dilution in the amount of cash distributions that they would have otherwise received had we not issued common units to our general partner in connection with resetting the target distribution levels related to our general partner’s incentive distribution rights. Please read “Provisions of Our Partnership Agreement Relating to Cash Distributions—General Partner Interest and Incentive Distribution Rights.”

Duties of the General Partner

The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to limited partners and the partnership, provided that partnership agreements may not eliminate the implied contractual covenant of good faith and fair dealing. This implied covenant is a judicial doctrine utilized by Delaware courts in connection with interpreting ambiguities in partnership agreements and other contracts and does not form the basis of any separate or independent fiduciary duty in addition to the express contractual duties set forth in our partnership agreement. Under the implied contractual covenant of good faith and fair dealing, a court will enforce the reasonable expectations of the partners where the language in our partnership agreement does not provide for a clear course of action.

As permitted by the Delaware Act, our partnership agreement contains various provisions replacing the fiduciary duties that might otherwise be owed by our general partner with contractual standards governing the duties of our general partner and contractual methods of resolving conflicts of interest. We have adopted these provisions to allow our general partner or its affiliates to engage in transactions with us that might otherwise be prohibited by state-law fiduciary standards and to take into account the interests of other parties in addition to our interests when resolving conflicts of interest. We believe this is appropriate and necessary because the board of directors of our general partner has duties to manage our general partner in a manner that is in the best interests of its owners in addition to the best interests of our partnership. Without these provisions, our general partner’s ability to make decisions involving conflicts of interest would be restricted. These provisions enable our general partner to take into consideration the interests of all parties involved in the proposed action. These provisions also strengthen the ability of our general partner to attract and retain experienced and capable directors. These provisions disadvantage the common unitholders because they restrict the

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rights and remedies that would otherwise be available to such unitholders for actions that, without those limitations, might constitute breaches of fiduciary duty, as described below, and permit our general partner to take into account the interests of third parties in addition to our interests when resolving conflicts of interest. The following is a summary of the fiduciary duties imposed on general partners of a limited partnership by the Delaware Act in the absence of partnership agreement provisions to the contrary, the contractual duties of our general partner contained in our partnership agreement that replace the fiduciary duties that would otherwise be imposed by Delaware laws on our general partner and the rights and remedies of our unitholders with respect to these contractual duties:

State law fiduciary duty standards

Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present unless such transactions were entirely fair to the partnership.

Partnership agreement modified standards

Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties or applicable law. For example, our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in good faith, meaning that it subjectively believed that the decision was in the best interests of our partnership, and our general partner will not be subject to any higher standard under our partnership agreement or applicable law. If our general partner has the required subjective belief, then the decision or action will be conclusively deemed to be in good faith for all purposes under our partnership agreement. In taking such action, our general partner may take into account the totality of the circumstances or the totality of the relationships between the parties involved, including other relationships or transactions that may be particularly favorable or advantageous to us. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act free of any duty or obligation

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to us or our limited partners. These contractual standards replace the obligations to which our general partner would otherwise be held. If our general partner seeks special approval from the conflicts committee, then it will be presumed that, in making its decision, the conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. If our general partner does not seek special approval from our conflicts committee or unitholder approval, then our general partner will make such determination or take or decline to take any action in good faith, and neither our general partner nor the board of directors of our general partner will be subject to any fiduciary duty or other duty or obligation, or any other, different or higher standard under our partnership agreement or under the Delaware Act or any other law, rule or regulation or at equity. Under our partnership agreement, it will be presumed that, in making its decision, our general partner (including the board of directors of our general partner) acted in good faith, and in any proceeding brought by or on behalf of any limited partner or us challenging such approval, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.

In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that our general partner or its officers and directors acted in bad faith or engaged in actual fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful.

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Rights and remedies of unitholders

The Delaware Act generally provides that a limited partner may institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties, if any, or of the partnership agreement.

By purchasing our common units, each common unitholder automatically agrees to be bound by the provisions in our partnership agreement, including the provisions discussed above. This is in accordance with the policy of the Delaware Act favoring the principle of freedom of contract and the enforceability of partnership agreements. The failure of a limited partner to sign a partnership agreement does not render the partnership agreement unenforceable against that person.

Under our partnership agreement, we must indemnify our general partner and its officers, directors and managers, to the fullest extent permitted by law, against liabilities, costs and expenses incurred by our general partner or these other persons. We must provide this indemnification unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that these persons acted in bad faith or engaged in actual fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful. We also must provide this indemnification for criminal proceedings when our general partner or these other persons acted with no knowledge that their conduct was unlawful. Thus, our general partner could be indemnified for its negligent acts if it met the requirements set forth above. To the extent that these provisions purport to include indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, in the opinion of the SEC, such indemnification is contrary to public policy and therefore unenforceable. Please read “Our Partnership Agreement—Indemnification.”

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DESCRIPTION OF THE COMMON UNITS

The Common Units

The common units represent limited partner interests in us. The holders of common units, along with the holders of subordinated units, are entitled to participate in partnership distributions and are entitled to exercise the rights and privileges provided to limited partners under our partnership agreement. For a description of the relative rights and preferences of holders of common units and subordinated units in and to partnership distributions, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions.” For a description of the rights and privileges of limited partners under our partnership agreement, including voting rights, please read “Our Partnership Agreement.”

Transfer Agent and Registrar

Duties

American Stock Transfer & Trust Company, LLC will serve as the transfer agent and registrar for our common units. We will pay all fees charged by the transfer agent for transfers of common units, except for the following that must be paid by our unitholders:

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surety bond premiums to replace lost or stolen certificates, or to cover taxes and other governmental charges in connection therewith;

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special charges for services requested by a holder of a common unit; and

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other similar fees or charges.

Unless our general partner determines otherwise in respect of some or all of any classes of our partnership interests, our partnership interests will be evidenced by book-entry notation on our partnership register and not by physical certificates.

There will be no charge to our unitholders for disbursements of our cash distributions. We will indemnify the transfer agent, its agents and each of their respective stockholders, directors, officers and employees against all claims and losses that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence or intentional misconduct of the indemnified person or entity.

Resignation or Removal

The transfer agent may resign, by notice to us, or be removed by us. The resignation or removal of the transfer agent will become effective upon our appointment of a successor transfer agent and registrar and its acceptance of the appointment. If a successor has not been appointed or has not accepted its appointment within 30 days after notice of the resignation or removal, our general partner may act as the transfer agent and registrar until a successor is appointed.

Transfer of Common Units

By transfer of common units in accordance with our partnership agreement, each transferee of common units shall be admitted as a limited partner with respect to the common units transferred when such transfer and admission are reflected in our books and records. Each transferee:

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represents that the transferee has the capacity, power and authority to become bound by our partnership agreement;

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automatically agrees to be bound by the terms and conditions of, and is deemed to have executed, our partnership agreement; and

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gives the consents, waivers and approvals contained in our partnership agreement, such as the approval of all transactions and agreements entered into in connection with our formation and this offering.

A transferee will become a substituted limited partner of our partnership for the transferred common units automatically upon the recording of the transfer on our books and records. Our general partner will cause any transfers to be recorded on our books and records from time to time as necessary to accurately reflect the transfers but no less frequently than quarterly.

We may, at our discretion, treat the nominee holder of a common unit as the absolute owner. In that case, the beneficial holder’s rights are limited solely to those that it has against the nominee holder as a result of any agreement between the beneficial owner and the nominee holder.

Common units are securities and are transferable according to the laws governing the transfer of securities. In addition to other rights acquired upon transfer, the transferor gives the transferee the right to become a substituted limited partner in our partnership for the transferred common units.

Until a common unit has been transferred on our books, we and the transfer agent may treat the record holder of the common unit as the absolute owner for all purposes, except as otherwise required by law or securities exchange regulations.

Exchange Listing

We intend to apply for the quotation of our common units on the NASDAQ under the symbol “SSLP.”

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OUR PARTNERSHIP AGREEMENT

The following is a summary of the material provisions of our partnership agreement. The form of our partnership agreement is included in this prospectus as Appendix A. We will provide prospective investors with a copy of our partnership agreement upon request at no charge.

We summarize the following provisions of our partnership agreement elsewhere in this prospectus:

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with regard to distributions of available cash, please read “Provisions of Our Partnership Agreement Relating to Cash Distributions”;

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with regard to the duties of our general partner, please read “Conflicts of Interest and Duties”;

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with regard to the authority of our general partner to manage our business and activities, please read “Management—Management of Smart Sand Partners LP”;

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with regard to the transfer of common units, please read “Description of the Common Units—Transfer of Common Units”; and

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with regard to allocations of taxable income and taxable loss, please read “Material Federal Income Tax Consequences.”

Organization and Duration

Our partnership was organized on August 12, 2014 and will have a perpetual existence unless terminated pursuant to the terms of our partnership agreement.

Purpose

Under our partnership agreement, the purpose and nature of the business to be conducted by us shall be to engage directly or indirectly in any business activity that is approved by our general partner, in its sole discretion, and that lawfully may be conducted by a limited partnership organized pursuant to the Delaware Act; provided, however, that our general partner shall not cause us to engage, directly or indirectly, in any business activity that our general partner determines would be reasonably likely to cause us to be treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes.

Although our general partner has the ability to cause us and our subsidiaries to engage in activities other than those related to the business of mining and producing frac sand, our general partner currently has no plans to do so and may decline to do so free of any duty or obligation whatsoever to us or our limited partners, including any duty to act in the best interests of us or our limited partners. In general, our general partner is authorized to perform all acts it determines to be necessary or appropriate to carry out our purposes and to conduct our business.

Capital Contributions

Unitholders are not obligated to make additional capital contributions, except as described below under “—Limited Liability.”

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Voting Rights

The following is a summary of the unitholder vote required for the matters specified below. Matters that require the approval of a “unit majority” require:

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during the subordination period, the approval of a majority of the outstanding common units, excluding those common units held by our general partner and its affiliates, and a majority of the outstanding subordinated units, voting as separate classes; and

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after the subordination period, the approval of a majority of the outstanding common units.

At the completion of this offering, our sponsor will have the ability to ensure passage of, as well as the ability to ensure the defeat of, any amendment that requir

Smart Sand Partners LP S-1