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Filed pursuant to Rule 424(b)(3)
Registration No. 333-223671

 

 

LOGO

NUSTAR GP HOLDINGS, LLC UNITHOLDERS

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear NuStar GP Holdings, LLC Unitholders:

On February 7, 2018, NuStar GP Holdings, LLC, a Delaware limited liability company (“NSH”), entered into an Agreement and Plan of Merger, dated as of February 7, 2018 (the “merger agreement”), by and among NuStar Energy L.P., a Delaware limited partnership (the “Partnership”), Riverwalk Logistics, L.P., a Delaware limited partnership and the general partner of the Partnership (the “General Partner”), NuStar GP, LLC, a Delaware limited liability company and the general partner of the General Partner (“NuStar GP”), Marshall Merger Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership (“Merger Sub”), NSH and Riverwalk Holdings, LLC, a Delaware limited liability company and a wholly owned subsidiary of NSH. Pursuant to the merger agreement, Merger Sub will merge with and into NSH (the “merger”), with NSH being the surviving entity (the “surviving entity”), such that, following the merger, the Partnership will be the sole member of the surviving entity, the surviving entity will be the sole member of NuStar GP and each outstanding unit representing a limited liability company interest in NSH (“NSH unit”) will be converted into the right to receive 0.55 of a common unit representing limited partner interests in the Partnership (“common units”).

Pursuant to the merger agreement and at the effective time of the merger, the Sixth Amended and Restated Agreement of Limited Partnership of the Partnership will be amended and restated (the “amended and restated partnership agreement”), to, among other things: (1) cancel the incentive distribution rights in the Partnership currently held by the General Partner; (2) convert the 2.0% general partner interest in the Partnership into a non-economic, management interest; and (3) provide the holders of common units (the “common unitholders”) with voting rights in the election of directors to the Board of Directors of NuStar GP (the “Partnership Board”). The merger agreement is attached as Annex A to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference. The form of the amended and restated partnership agreement is attached as Annex B to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference.

At the effective time of the merger, each NSH unit will be converted into the right to receive 0.55 of a common unit. All NSH units, when converted in the merger, will no longer be outstanding and will automatically be cancelled and cease to exist. No fractional common units will be issued in the merger; instead, each holder of NSH units (the “NSH unitholders”) who would otherwise be entitled to receive fractional common units will be entitled to receive a cash payment in lieu of such fractional common unit in an amount equal to the product of (1) the average of the volume weighted average price of the common units on the New York Stock Exchange (“NYSE”) on each of the five consecutive trading days ending on the trading day that is two trading days prior to the closing date of the merger and (2) the fraction of a common unit that such NSH unitholder would otherwise have been entitled to receive. As of February 8, 2018, there were 93,182,018 common units outstanding and 42,953,132 NSH units outstanding. Assuming the number of NSH units outstanding on February 8, 2018 remains unchanged, the Partnership expects to issue, in the aggregate, 23,624,222 common units in the merger. Furthermore, the Partnership will cancel the 10,214,626 common units owned by subsidiaries of NSH and those common units will also cease to exist. The exchange ratio is fixed and will not be adjusted to reflect common unit price changes prior to the closing of the merger.

Common unitholders will continue to own their existing common units. Holders of preferred units representing limited partner interests in the Partnership will continue to own their respective preferred units. Assuming the number of NSH units outstanding on February 8, 2018 and the number of common units outstanding on February 8, 2018 remain unchanged and the cancellation of the 10,214,626 common units owned by subsidiaries of NSH, following the merger, approximately 78% of the common units will be owned by current common unitholders and approximately 22% by former NSH unitholders. NSH units currently trade on the NYSE under the symbol “NSH,” and common units currently trade on the NYSE under the symbol “NS.” We urge you to obtain current market quotations of NSH units and common units.


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YOUR VOTE IS VERY IMPORTANT. We cannot complete the merger and the transactions contemplated thereby unless, among other things, the merger agreement and the transactions contemplated thereby receive the affirmative vote of the NSH unitholders holding at least a majority of the outstanding NSH units. NSH has scheduled a special meeting of its unitholders (“NSH special meeting”) to vote on the merger agreement and the transactions contemplated thereby, including the merger, on July 20, 2018 at 10:30 a.m., local time, at its principal executive offices located at 19003 IH-10 West, San Antonio, Texas 78257. Voting instructions are set forth inside this proxy statement/prospectus.

The members of the Conflicts Committee (the “NSH Conflicts Committee”) of the board of directors of NSH (the “NSH Board”), comprised of independent directors and to which the NSH Board delegated authority to negotiate the terms and conditions of the merger and any definitive documentation related to the merger and the transactions contemplated thereby, subject to final approval by the NSH Board, have unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair and reasonable to, and in the best interests of NSH and the NSH unaffiliated unitholders. “NSH unaffiliated unitholders” means NSH unitholders other than William E. Greehey and any others controlling, controlled by or under common control with NSH. Accordingly, the NSH Conflicts Committee approved the merger agreement and the transactions contemplated thereby and recommended that the NSH Board approve the merger agreement and the transactions contemplated thereby, including the merger. Based on the NSH Conflicts Committee’s recommendation and approval and all of the information made available to the NSH Board and upon other relevant factors, the NSH Board unanimously (with Mr. Greehey and I having recused ourselves) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair and reasonable to, and in the best interests of NSH and the NSH unaffiliated unitholders and approved and declared the advisability of the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the NSH Board recommends that the NSH unaffiliated unitholders vote in favor of the merger proposal.

This proxy statement/prospectus provides you with detailed information about the NSH special meeting, the proposed merger and related matters. NSH encourages you to read the entire document carefully, including the annexes and the documents incorporated by reference. In particular, please read “ Risk Factors ” beginning on page 21 of this proxy statement/prospectus for a discussion of risks relevant to the merger and the Partnership’s business following the merger.

 

Bradley C. Barron

President and Chief Executive Officer

NuStar GP Holdings, LLC

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this proxy statement/prospectus or has determined if this document is truthful or complete. Any representation to the contrary is a criminal offense.

All information in this document concerning the Partnership has been furnished by the Partnership. All information in this document concerning NSH has been furnished by NSH. The Partnership has represented to NSH, and NSH has represented to the Partnership, that the information furnished by and concerning it is true and correct in all material respects.

This proxy statement/prospectus is dated June 22, 2018 and is being first distributed to NSH unitholders on or about June 27, 2018.

 


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San Antonio, Texas

June 22, 2018

NOTICE OF SPECIAL MEETING OF

NUSTAR GP HOLDINGS, LLC UNITHOLDERS

To the Unitholders of NuStar GP Holdings, LLC:

A special meeting of unitholders (“NSH special meeting”) of NuStar GP Holdings, LLC (“NSH”) will be held on July 20, 2018 at 10:30 a.m., local time, at its principal executive offices located at 19003 IH-10 West, San Antonio, Texas 78257, for the following purposes:

 

    to consider and vote upon the approval of the Agreement and Plan of Merger, dated as of February 7, 2018, by and among NuStar Energy L.P., a Delaware limited partnership (the “Partnership”), Riverwalk Logistics, L.P., a Delaware limited partnership and the general partner of the Partnership (the “General Partner”), NuStar GP, LLC, a Delaware limited liability company and the general partner of the General Partner, Marshall Merger Sub LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership (“Merger Sub”), NSH and Riverwalk Holdings, LLC, a Delaware limited liability company and a wholly owned subsidiary of NSH, as it may be amended from time to time (the “merger agreement”) and the transactions contemplated by the merger agreement, including the merger of Merger Sub with and into NSH (the “merger”); and

 

    to transact other business as may properly be presented at the NSH special meeting or any adjournments or postponements of the meeting.

A copy of the merger agreement is attached as Annex A to this proxy statement/prospectus.

The record date for the NSH special meeting is June 22, 2018. Only NSH unitholders of record as of the close of business on June 22, 2018 are entitled to notice of, and to vote at, the NSH special meeting. A list of unitholders entitled to vote at the meeting will be available for inspection by any NSH unitholder at NSH’s offices in San Antonio, Texas for any purpose germane to the meeting during ordinary business hours for a period of 10 days before the meeting and at the meeting.

Pursuant to the NSH limited liability company agreement, approval of the merger agreement and the transactions contemplated thereby, including the merger, requires the affirmative vote of the NSH unitholders holding at least a majority of the outstanding NSH units. Failures to vote and abstentions will have the same effect as a vote against the merger proposal for purposes of the unitholder vote required under the NSH limited liability company agreement.

The members of the Conflicts Committee (the “NSH Conflicts Committee”) of the board of directors of NSH (the “NSH Board”), comprised of independent directors and to which the NSH Board delegated authority to negotiate the terms and conditions of the merger and any definitive documentation related to the merger and the transactions contemplated thereby, subject to final approval by the NSH Board, have unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair and reasonable to, and in the best interests of NSH and the NSH unaffiliated unitholders. “NSH unaffiliated unitholders” means NSH unitholders other than William E. Greehey and any others controlling, controlled by or under common control with NSH. Accordingly, the NSH Conflicts Committee approved the merger agreement and the transactions contemplated thereby and recommended that the NSH Board approve the merger agreement and the transactions contemplated thereby, including the merger. Based on the NSH Conflicts Committee’s recommendation and approval and all of the information made available to the NSH Board and upon other relevant factors, the NSH Board unanimously (with Mr. Greehey and Bradley C. Barron, President and Chief Executive Officer, recusing themselves) determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair and reasonable to, and in the best interests of NSH and the NSH unaffiliated unitholders and approved and declared the advisability of the merger agreement and the transactions contemplated thereby, including the merger. Accordingly, the NSH Board recommends that the NSH unaffiliated unitholders vote in favor of the merger proposal.


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Whether or not you plan to attend the NSH special meeting, please submit your proxy with voting instructions as soon as possible. If you hold NSH units in your name as a unitholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed self-addressed stamped envelope, use the toll-free telephone number shown on the proxy card or use the internet website shown on the proxy card. If you hold your NSH units through a broker or other nominee, please use the voting instructions you have received from your broker or other nominee. Submitting your proxy will not prevent you from attending the NSH special meeting and voting in person. Please note, however, that if you hold your NSH units through a broker or other nominee and you wish to vote in person at the NSH special meeting, you must obtain from your broker or other nominee a proxy issued in your name. You may revoke a proxy at any time before voting is closed at the NSH special meeting by: (1) submitting a written revocation to the Corporate Secretary of NSH at the address indicated on the cover page of this proxy statement/prospectus, if such proxy is received by the Corporate Secretary by 11:59 p.m. Eastern Time on July 19, 2018; (2) submitting your valid, signed and later-dated proxy by mail that is received by 11:59 p.m. Eastern Time on July 19, 2018; (3) submitting your valid proxy by telephone or over the internet by 11:59 p.m. Eastern Time on July 19, 2018; or (4) voting in person at the NSH special meeting by presenting a valid photo identification and a proxy. However, if the NSH special meeting is adjourned to solicit additional proxies, the time by which a proxy may be revoked may be extended. If instructions to the contrary are not given, NSH units will be voted as indicated on the proxy.

We urge you to carefully consider the information contained in the attached proxy statement/prospectus.

By order of the Board of Directors of NuStar GP Holdings, LLC

 

Amy L. Perry

Senior Vice President, General Counsel and

Corporate Secretary

NuStar GP Holdings, LLC


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PROXY STATEMENT/PROSPECTUS

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IMPORTANT NOTE ABOUT THIS PROXY STATEMENT/PROSPECTUS

     v  

DEFINITIONS

     vi  

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE NSH SPECIAL MEETING

     viii  

SUMMARY

     1  

The Parties to the Merger

     1  

Structure of the Merger

     2  

Transactions Related to the Merger

     2  

Directors and Executive Officers of NuStar GP

     3  

The NSH Special Meeting

     3  

Recommendation to NSH Unaffiliated Unitholders

     3  

NSH’s Reasons for the Merger

     4  

Opinion of NSH Conflicts Committee’s Financial Advisor

     5  

Interests of Certain Persons in the Merger

     6  

The Merger Agreement

     7  

Material U.S. Federal Income Tax Consequences of the Merger

     10  

Other Information Related to the Merger

     12  

Summary of Risk Factors

     12  

Organizational Chart

     14  

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION OF THE PARTNERSHIP AND NSH

     16  

Summary Historical and Pro Forma Financial and Operating Information of the Partnership

     17  

Summary Historical Financial Information of NSH

     17  

COMPARATIVE PER UNIT INFORMATION

     18  

MARKET PRICES AND DISTRIBUTION INFORMATION

     19  

RISK FACTORS

     21  

Risks Related to the Merger and Related Matters

     21  

Tax Risks Related to the Merger

     25  

THE NSH SPECIAL MEETING

     27  

Submission and Voting Procedures

     28  

THE MERGER

     30  

Background of the Merger

     30  

Recommendation of the NSH Conflicts Committee and the NSH Board and Reasons for the Merger

     39  

The Partnership’s Reasons for the Merger

     43  

Unaudited Financial Projections of the Partnership and NSH

     44  

Opinion of the NSH Conflicts Committee’s Financial Advisor

     48  

No Appraisal Rights

     61  

Antitrust and Regulatory Matters

     61  

Listing of the Common Units; Delisting and Deregistration of NSH Units

     61  


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Transactions Related to the Merger

     61  

Pending Litigation

     62  

THE MERGER AGREEMENT

     63  

Structure of the Merger and Related Transactions

     63  

When the Merger Becomes Effective

     63  

Effect of Merger on Outstanding NSH Units and Other Interests

     63  

Exchange of Certificates; Fractional Units

     64  

Actions Pending the Merger

     66  

Representations and Warranties

     69  

Covenants

     70  

Conditions to the Merger

     75  

Termination

     76  

Termination Fees and Expenses

     77  

Waiver and Amendment

     77  

Governing Law

     78  

AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF THE PARTNERSHIP

     79  

Organization and Duration

     79  

Purpose

     79  

Power of Attorney

     79  

Capital Contributions

     79  

Limited Liability

     80  

Voting Rights

     81  

Issuance of Additional Securities

     81  

Amendment to the Amended and Restated Partnership Agreement

     82  

Merger, Sale or Other Disposition of Assets

     84  

Withdrawal or Removal of the General Partner

     84  

Transfer of the General Partner Interest

     85  

Change of Management Provisions

     86  

Termination and Dissolution

     86  

Liquidation and Distribution of Proceeds

     86  

Meetings; Voting

     86  

The Board of Directors

     87  

Limited Call Right

     88  

Transfer of Common Units and Status as a Limited Partner or Assignee

     89  

Non-Citizen Assignees; Redemption

     89  

Indemnification

     90  

Books and Reports

     90  

Right to Inspect the Partnership’s Books and Records

     90  

 

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SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION OF THE PARTNERSHIP AND NSH

     92  

Selected Historical and Pro Forma Financial Information of the Partnership

     93  

Selected Historical Consolidated Financial Information of NSH

     93  

THE PARTIES TO THE MERGER

     94  

NSH’s Business

     94  

The Partnership’s Business

     94  

Merger Sub’s Business

     96  

INTERESTS OF CERTAIN PERSONS IN THE MERGER

     97  

Interests of Directors and Executive Officers in the Merger

     97  

Ownership Interests of Directors and Executive Officers

     98  

Treatment of NSH Restricted Units

     98  

Indemnification; Directors’ and Officers’ Insurance

     99  

Director and Executive Officer Interlocks

     100  

Support Agreement

     100  

DIRECTORS AND EXECUTIVE OFFICERS OF NUSTAR GP AND NSH

     101  

COMPARISON OF THE RIGHTS OF PARTNERSHIP AND NSH UNITHOLDERS

     104  

PARTNERSHIP CASH DISTRIBUTION POLICY

     113  

General

     113  

Distributions upon Liquidation

     113  

Incentive Distribution Rights

     113  

DESCRIPTION OF COMMON UNITS

     114  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     115  

Tax Opinions Required As a Condition to Closing

     115  

Tax Consequences of the Merger—General

     116  

Tax Consequences of the Merger to U.S. Holders

     117  

Effect of the Merger on the Anticipated Ratio of Taxable Income to Cash Distributions for NSH Unitholders

     119  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF COMMON UNIT OWNERSHIP

     120  

Partnership Status

     121  

Limited Partner Status

     122  

Tax Consequences of Common Unit Ownership

     122  

Tax Treatment of Operations

     129  

Disposition of Common Units

     130  

Uniformity of Common Units

     132  

Tax-Exempt Organizations and Other Investors

     132  

Administrative Matters

     133  

Recent Legislative Developments

     137  

State, Local and Other Tax Considerations

     138  

 

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UNITHOLDER PROPOSALS

     139  

LEGAL MATTERS

     139  

EXPERTS

     139  

WHERE YOU CAN FIND MORE INFORMATION

     140  

The Partnership’s Filings (Commission File No. 001-16417)

     140  

NSH’s Filings (Commission File No. 001-32940)

     140  

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     142  

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

     F-1  

ANNEX A — Agreement and Plan of Merger, dated as of February 7, 2018

  

ANNEX B — Form of Amended and Restated Agreement of Limited Partnership of NuStar Energy L.P.

  

ANNEX C — Form of Second Amended and Restated Limited Liability Company Agreement of NuStar GP, LLC

  

ANNEX D — Support Agreement, dated as of February  7, 2018

  

ANNEX E — Opinion of NSH Conflicts Committee’s Financial Advisor

  

 

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IMPORTANT NOTE ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the U.S. Securities and Exchange Commission, which is referred to as the “SEC” or the “Commission,” constitutes a proxy statement of NSH under Section 14(a) of the Securities Exchange Act of 1934, as amended, which is referred to as the “Exchange Act,” with respect to the solicitation of proxies for the special meeting of NSH unitholders (“NSH special meeting”) to, among other things, vote on the approval of the merger agreement and the merger. This proxy statement/prospectus is also a prospectus of the Partnership under Section 5 of the Securities Act of 1933, as amended, which is referred to as the “Securities Act,” for common units that will be issued to NSH unitholders in the merger pursuant to the merger agreement.

As permitted under the rules of the SEC, this proxy statement/prospectus incorporates by reference important business and financial information about the Partnership and NSH from other documents filed with the SEC. Please read “Where You Can Find More Information” beginning on page 140. You can obtain any of the documents incorporated by reference into this document from the Partnership or NSH, as the case may be, or from the SEC’s website at http://www.sec.gov. This information is also available to you without charge upon your request in writing or by telephone from the Partnership or NSH at the following addresses and telephone numbers:

 

NuStar Energy L.P.

19003 IH-10 West

Attention: Investor Relations

San Antonio, Texas 78257

Telephone: (210) 918-3507

  

NuStar GP Holdings, LLC

19003 IH-10 West

Attention: Investor Relations

San Antonio, Texas 78257

Telephone: (210) 918-3507

Please note that copies of the documents provided to you will not include exhibits, unless the exhibits are specifically incorporated by reference into the documents or this proxy statement/prospectus.

You may obtain certain of these documents at the Partnership’s website, www.nustarenergy.com , by selecting “Investors” and then selecting “SEC Filings,” and at NSH’s website, www.nustargpholdings.com , by selecting “Investors” and then selecting “SEC Filings.” Information contained on NSH’s and the Partnership’s websites is expressly not incorporated by reference into this proxy statement/prospectus.

In order to receive timely delivery of the documents in advance of the NSH special meeting, your request should be received no later than July 13, 2018.

The Partnership and NSH have not authorized anyone to give any information or make any representation about the merger, the Partnership and/or NSH that is different from, or in addition to, that contained in this proxy statement/prospectus or in any of the materials that have been incorporated by reference into this proxy statement/prospectus. Therefore, if anyone disseminates this type of information, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this proxy statement/prospectus or the solicitation of proxies is unlawful, or you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this proxy statement/prospectus does not extend to you. The information contained in this proxy statement/prospectus speaks only as of the date of this proxy statement/prospectus, or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies. All information in this document concerning the Partnership has been furnished by the Partnership. All information in this document concerning NSH has been furnished by NSH. The Partnership has represented to NSH, and NSH has represented to the Partnership, that the information furnished by and concerning it is true and correct in all material respects.

 

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DEFINITIONS

The following terms have the meanings set forth below for purposes of this proxy statement/prospectus, unless the context otherwise indicates:

 

    “amended and restated partnership agreement” means the amended and restated agreement of limited partnership of the Partnership, in the form attached hereto as Annex A , to be entered into in connection with and at the effective time of the merger, as such form may be revised to make the changes that are necessary or advisable in connection with the authorization or issuance of additional equity securities of the Partnership;

 

    “acquisition proposal” means any proposal or offer from or by any person other than the Partnership, the General Partner, NuStar GP, Riverwalk Holdings or Merger Sub relating to (1) any direct or indirect acquisition of (A) more than 20% of the assets of NSH and its subsidiaries, taken as a whole, (B) more than 20% of the voting power or the outstanding equity securities of NSH or (C) a business or businesses that constitute more than 20% of the cash flow, net revenues, net income or assets of NSH and its subsidiaries, taken as a whole; (2) any tender offer or exchange offer, as defined pursuant to the Exchange Act, that, if consummated, would result in any person beneficially owning more than 20% of the voting power or the outstanding equity securities of NSH; or (3) any direct or indirect merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving NSH or its subsidiaries, other than the merger;

 

    “common unitholders” means holders of common units;

 

    “common units” means common units representing limited partner interests in the Partnership;

 

    “DCF” means distributable cash flow;

 

    “Delaware Act” means the Delaware Revised Uniform Limited Partnership Act;

 

    “EBITDA” means earnings before interest, taxes, depreciation and amortization;

 

    “effective time” means the date and time that the certificate of merger with respect to the merger is filed with the Secretary of State of the State of Delaware, or such later date and time as may be set forth in such certificate of merger;

 

    “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder;

 

    “General Partner” means Riverwalk Logistics, L.P., the general partner of the Partnership;

 

    “merger” means the merger of Merger Sub with and into NSH, with NSH being the surviving entity as contemplated by the merger agreement;

 

    “merger agreement” means the Agreement and Plan of Merger, dated as of February 7, 2018, by and among the Partnership, the General Partner, NuStar GP, Merger Sub, NSH and Riverwalk Holdings, as it may be amended from time to time;

 

    “merger proposal” means the proposal for approval of the merger agreement and the transactions contemplated thereby, including the merger;

 

    “Merger Sub” means Marshall Merger Sub LLC;

 

    “Mr. Greehey” means William E. Greehey;

 

    “new common units” means the common units issued in connection with the conversion of each NSH unit into the right to receive 0.55 of a common unit as consideration for the merger;

 

    “NSH” means NuStar GP Holdings, LLC;

 

    “NSH Board” means the Board of Directors of NSH;

 

    “NSH Conflicts Committee” means the Conflicts Committee of the NSH Board;

 

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    “NSH limited liability company agreement” means the second amended and restated limited liability company agreement of NSH, as amended;

 

    “NSH unaffiliated unitholders” means NSH unitholders other than Mr. Greehey, WLG Holdings and any others controlling, controlled by or under common control with NSH;

 

    “NSH unit” means each outstanding unit representing a limited liability company interest in NSH;

 

    “NSH unitholders” means holders of NSH units;

 

    “NuStar GP” means NuStar GP, LLC, the general partner of the General Partner;

 

    “NYSE” means the New York Stock Exchange;

 

    “Partnership” means NuStar Energy L.P.;

 

    “Partnership acquisition proposal” means any proposal or offer from or by any person other than NSH and its subsidiaries relating to (1) any direct or indirect acquisition of (A) more than 50% of the assets of the Partnership and its subsidiaries, taken as a whole, (B) more than 50% of the outstanding equity securities of the Partnership or (C) a business or businesses that constitute more than 50% of the cash flow, net revenues, net income or assets of the Partnership and its subsidiaries, taken as a whole; (2) any tender offer or exchange offer, as defined pursuant to the Exchange Act, that, if consummated, would result in any person beneficially owning more than 50% of the outstanding equity securities of the Partnership; or (3) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Partnership other than the merger; provided, however, that for the avoidance of doubt, an acquisition proposal involving the direct or indirect transfer or acquisition of NSH’s interest in NuStar GP, the incentive distribution rights of the Partnership, Riverwalk Holdings and/or the common units held by subsidiaries of NSH shall not constitute a Partnership acquisition proposal;

 

    “partnership agreement” means either the Sixth Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of November 30, 2017, or the amended and restated partnership agreement, or both, as the context requires;

 

    “Partnership Board” means the Board of Directors of NuStar GP;

 

    “Partnership Conflicts Committee” means the Nominating/Governance & Conflicts Committee of NuStar GP;

 

    “Riverwalk Holdings” means Riverwalk Holdings, LLC, a wholly owned subsidiary of NSH;

 

    “SEC” or the “Commission” means the U.S. Securities and Exchange Commission;

 

    “Securities Act” means the Securities Act of 1933, as amended;

 

    “subsidiary” shall have the meaning ascribed to such term in Rule 1-02 of Regulation S-X under the Securities Act, except, in the case of NSH, neither the Partnership nor any of its subsidiaries shall be deemed to be a subsidiary of NSH;

 

    “support agreement” means the support agreement, dated as of February 7, 2018, by and among the Partnership, Merger Sub, WLG Holdings, Mr. Greehey and NSH;

 

    “supporting unitholders” means, collectively, Mr. Greehey and WLG Holdings;

 

    “surviving entity” means NSH following the merger; and

 

    “WLG Holdings” means WLG Holdings, LLC, a Texas limited liability company.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE NSH SPECIAL MEETING

Important Information and Risks. The following are brief answers to some questions that you may have regarding the proposed merger and the proposals being considered at the NSH special meeting. You should read and consider carefully the remainder of this proxy statement/prospectus, including the Risk Factors beginning on page 21 and the attached Annexes, because the information in this section does not provide all of the information that might be important to you. Additional important information and descriptions of risk factors are also contained in the documents incorporated by reference in this proxy statement/prospectus. Please read “Where You Can Find More Information” beginning on page 140.

 

Q: Why am I receiving these materials?

 

A: The Partnership and NSH have agreed to combine by merging Merger Sub with and into NSH, with NSH surviving. The merger cannot be completed without the approval of the holders of a majority of the outstanding NSH units. The NSH special meeting is being held to obtain this approval. Approval of the merger by the common unitholders is not required. Therefore, the common unitholders are not being asked to approve the merger.

 

Q: Who is soliciting my proxy?

 

A: The NSH Board is sending you this proxy statement/prospectus in connection with its solicitation of proxies for use at the NSH special meeting. Certain directors, officers and employees of NSH and its affiliates and Morrow Sodali LLC (a proxy solicitor) may also solicit proxies on NSH’s behalf by mail, telephone, fax or other electronic means, or in person.

 

Q: What are the proposed transactions?

 

A: The Partnership and NSH have agreed to combine by merging Merger Sub with and into NSH, with NSH surviving, under the terms of the merger agreement. As a result of the merger and the other transactions contemplated by the merger agreement, the Partnership will be the sole member of NSH and NSH will be the sole member of NuStar GP. Additionally, the 10,214,626 common units owned currently by subsidiaries of NSH will be cancelled and cease to exist. The merger agreement provides that each outstanding NSH unit at the effective time of the merger will be converted into the right to receive 0.55 of a common unit.

In addition, pursuant to the merger agreement and the amended and restated partnership agreement, (1) the incentive distribution rights in the Partnership held by the General Partner will be cancelled, (2) the 2.0% general partner interest in the Partnership held by the General Partner will be converted into a non-economic, management interest in the Partnership, and (3) the common unitholders will be provided with voting rights in the election of directors to the Partnership Board. The merger will become effective on the date and at the time that the certificate of merger is filed with the Secretary of State of the State of Delaware, or such later date and time as may be set forth in the certificate of merger.

 

Q: Why are the Partnership and NSH proposing the merger?

 

A: The Partnership and NSH believe that the merger will benefit both the common unitholders and the NSH unitholders by combining the Partnership and NSH into a single simplified partnership structure that is better positioned to compete in the marketplace.

Please read “The Merger—Recommendation of the NSH Conflicts Committee and the NSH Board and Reasons for the Merger” and “The Merger—The Partnership’s Reasons for the Merger.”

 

Q: What is the recommendation of the NSH Board?

 

A: The NSH Board recommends that you vote FOR the merger agreement and the transactions contemplated thereby, including the merger.

 

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On February 7, 2018, the NSH Conflicts Committee unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair and reasonable to, and in the best interests of NSH and the NSH unaffiliated unitholders, approved the merger agreement and the transactions contemplated thereby, including the merger, and recommended that the merger agreement and the transactions contemplated thereby, including the merger, be approved by the NSH Board.

Based on the NSH Conflicts Committee’s recommendation and approval and all of the information made available to the NSH Board and upon such other matters as were deemed relevant by the NSH Board, the NSH Board, with Mr. Greehey and Mr. Bradley C. Barron (“Mr. Barron”) having recused themselves, approved the merger agreement and the transactions contemplated thereby, including the merger, and recommended that the NSH unaffiliated unitholders approve the merger proposal.

 

Q: What will happen to NSH as a result of the merger?

 

A: As a result of the merger, Merger Sub will merge with and into NSH, the separate existence of Merger Sub will cease, and NSH will survive and continue to exist, such that, following the merger, the Partnership will be the sole member of NSH and NSH will be the sole member of NuStar GP.

 

Q: What will NSH unitholders receive in the merger?

 

A: If the merger is completed, NSH unitholders will be entitled to receive 0.55 of a common unit in exchange for each NSH unit that the NSH unitholder owns. This exchange ratio is fixed and will not be adjusted, regardless of any change in price of either the common units or NSH units prior to completion of the merger. If the exchange ratio would result in an NSH unitholder being entitled to receive a fraction of a common unit, that unitholder will receive cash from the Partnership in lieu of such fractional interest. For additional information regarding exchange procedures, please read “The Merger Agreement—Exchange of Certificates; Fractional Units.”

 

Q: Where will my NSH units and/or common units trade after the merger?

 

A: Common units will continue to trade on the NYSE under the symbol “NS.” NSH units will no longer be publicly traded.

 

Q: What will common unitholders receive in the merger?

 

A: Common unitholders will simply retain the common units that they currently own. They will not receive any additional units in the merger.

 

Q: What happens to my future distributions?

 

A: Once the merger is completed and NSH units are converted into common units, when distributions to common unitholders are approved and declared by the General Partner and paid by the Partnership, former NSH unitholders are expected to receive distributions paid with respect to the common units they receive in the merger in accordance with the amended and restated partnership agreement.

Assuming that the merger closes during the second quarter of 2018 and after the record date for the distributions with respect to the quarter ended March 31, 2018, NSH unitholders are expected to receive distributions on their NSH units for the quarter ended March 31, 2018, and then, thereafter, are expected to receive distributions paid with respect to the common units they receive in the merger. NSH unitholders who do not also own common units will not receive distributions from both NSH and the Partnership for the same quarter. For additional information, please read “Risk Factors—Risks Related to the Merger and Related Matters—The right of NSH unitholders to distributions will be changed following the merger” and “Market Prices and Distribution Information.”

Current common unitholders will continue to receive distributions on their common units in accordance with the partnership agreement. Distributions are made in accordance with the partnership agreement and at

 

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the discretion of the General Partner. For a description of the distribution provisions of the partnership agreement, please read “Partnership Cash Distribution Policy.”

 

Q: When do you expect the merger to be completed?

 

A: A number of conditions must be satisfied before the Partnership and NSH can complete the merger, including approval of the merger agreement, the merger and the other transactions contemplated thereby by NSH unitholders holding a majority of the outstanding NSH units. Although the Partnership and NSH cannot predict with certainty when all of the conditions to the merger will be satisfied, the Partnership and NSH expect to complete the merger as soon as practicable following the NSH special meeting (assuming the merger proposal is approved by the NSH unitholders). For additional information, please read “The Merger Agreement—Conditions to the Merger.”

 

Q: After completion of the merger, will I be able to vote to elect directors to the Partnership Board?

 

A: Yes, at the effective time of the merger, the amended and restated partnership agreement will be adopted, in the form attached to this proxy statement/prospectus as Annex B , and the First Amended and Restated Limited Liability Company Agreement of NuStar GP, effective as of March 21, 2007, as amended, will be amended and restated in the form attached to this proxy statement/prospectus as Annex C , both of which will provide for the election of directors to the Partnership Board by the common unitholders.

 

Q: What are the expected U.S. federal income tax consequences of the merger to NSH unitholders?

 

A: It is anticipated that, in general, no gain or loss should be recognized, for U.S. federal income tax purposes, by NSH unitholders that are U.S. holders (as defined under “Material U.S. Federal Income Tax Consequences of the Merger”) with respect to the exchange of NSH units for common units pursuant to the merger, other than (1) gain or loss, if any, resulting from any: (A) decrease in an NSH unitholder’s share of partnership liabilities pursuant to Section 752 of the Internal Revenue Code of 1986, as amended (the “Code”); (B) amounts paid to NSH, the Partnership or any of their respective subsidiaries pursuant to certain provisions of the merger agreement; (C) actual or deemed distributions to NSH or NSH unitholders of cash or other property (other than common units); (D) receipt of cash in lieu of fractional common units in the merger; or (E) actual or deemed assumption by the Partnership of any liabilities of NSH or any of its subsidiaries; or (2) to the extent any NSH unitholder’s adjusted tax basis in its NSH units is less than its share of NSH’s adjusted tax basis in the common units deemed distributed by NSH.

Please read “Risk Factors—Tax Risks Related to the Merger” and “Material U.S. Federal Income Tax Consequences of the Merger—Tax Consequences of the Merger to U.S. Holders.”

 

Q: What are the expected U.S. federal income tax consequences for an NSH unitholder of the ownership of common units after the merger is completed?

 

A: Each NSH unitholder who becomes a common unitholder as a result of the merger will be required to report on its U.S. federal income tax return such unitholder’s distributive share of the Partnership’s income, gains, losses, deductions and credits. In addition to U.S. federal income taxes, such a holder will be subject to other taxes, including state and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which the Partnership conducts business or owns property or in which the unitholder is a resident. Please read “Material U.S. Federal Income Tax Consequences of Common Unit Ownership.”

 

Q: If I am a holder of NSH units represented by a unit certificate, should I send in my certificates representing NSH units now?

 

A:

No. After the merger is completed, NSH unitholders who hold their NSH units in certificated form will receive written instructions for exchanging their certificates representing NSH units. Please do not send in

 

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  your certificates representing NSH units with your proxy card. If you own NSH units in “street name,” the merger consideration should be credited by your broker to your account soon after the closing of the merger.

 

Q: What constitutes a quorum?

 

A: The holders of a majority of outstanding NSH units represented in person or by proxy at the NSH special meeting will constitute a quorum and will permit NSH to conduct the proposed business at the NSH special meeting. Your NSH units will be counted as present at the NSH special meeting if you:

 

    are present in person at the meeting; or

 

    have submitted a proxy over the internet, by phone or by mail.

Proxies received but marked as abstentions will be counted as NSH units that are represented by proxy at the NSH special meeting for purposes of determining the presence of a quorum and will have the same effect as a vote against the merger proposal. In addition, if you hold your NSH units in “street name” through a broker or other nominee, your broker or other nominee cannot vote your NSH units in the absence of specific instructions from you on how to vote your NSH units. Because your broker or other nominee cannot vote at the NSH special meeting without your voting instructions, failure to provide those instructions will result in your NSH units not being counted as present at the NSH special meeting.

 

Q: What is the vote required of NSH unitholders to approve the merger agreement and the merger?

 

A: Under NSH’s limited liability company agreement, the affirmative vote of the holders of at least a majority of outstanding NSH units is required to approve the merger proposal. Failures to vote and abstentions will have the same effect as a vote against the merger proposal for purposes of the unitholder vote required under the NSH limited liability company agreement. Pursuant to a support agreement, the supporting unitholders, owning 21.4% of the outstanding NSH units, have agreed to vote their NSH units in favor of the proposal to approve the merger agreement and the transactions contemplated thereby, including the merger.

 

Q: Are NSH unitholders entitled to appraisal rights?

 

A: No. NSH unitholders do not have appraisal rights under applicable law or contractual appraisal rights under the NSH limited liability company agreement or the merger agreement.

 

Q: How do I vote my NSH units if I hold my NSH units in my own name?

 

A: You may submit your proxy over the internet, by phone or by mail. If you submit your proxy by telephone or over the internet or by returning a signed proxy card by mail, your NSH units will be voted as you indicate. If you sign your proxy card without indicating your vote, your NSH units will be voted in accordance with the recommendations of the NSH Board. If you attend the NSH special meeting and plan to vote in person, NSH will provide you with a ballot at the meeting. If your NSH units are registered directly in your name, you are considered the unitholder of record and you have the right to vote the NSH units in person at the meeting. If your NSH units are held in the name of your broker or other nominee, you are considered the beneficial owner of the NSH units held in street name. As a beneficial owner, if you wish to vote at the meeting, you will need to present valid photo identification and a legal proxy from the unitholder of record ( e.g. , your broker) authorizing you to vote the NSH units. For more information, please read “The NSH Special Meeting—Submission and Voting Procedures—Submission and Voting by NSH Unitholders” beginning on page 28.

 

Q: If my NSH units are held in “street name” by my broker or other nominee, will my broker or other nominee vote my NSH units for me?

 

A:

No. Your broker cannot vote your NSH units held in “street name” for or against the merger proposal unless you instruct the broker or other nominee how you wish to vote. To instruct your broker or other nominee

 

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  how to vote your NSH units, you should follow the directions that your broker or other nominee provides to you. Please note that you may not vote your NSH units held in “street name” by returning a proxy card by mail or by voting in person at the NSH special meeting unless you provide a “legal proxy,” which you must obtain from your broker or other nominee. If you do not instruct your broker or other nominee how to vote your NSH units, your broker or other nominee may not vote your NSH units, which will have the same effect as a vote against the merger proposal for purposes of the vote required under the NSH limited liability company agreement. You should, therefore, provide your broker or other nominee with instructions as to how to vote your NSH units.

 

Q: What if I do not vote?

 

A: If you do not submit your proxy or if you abstain from voting, it will have the same effect as a vote against the merger proposal for purposes of the vote required under the NSH limited liability company agreement. If you sign and return your proxy card, or submit your proxy by telephone or the internet, but do not indicate how you want to vote, your proxy will be counted as a vote in favor of the merger proposal.

 

Q: Who can attend and vote at the NSH special meeting?

 

A: All NSH unitholders of record as of the close of business on June 22, 2018, the record date for the NSH special meeting, are entitled to receive notice of and vote at the NSH special meeting.

 

Q: When and where is the NSH special meeting?

 

A: The NSH special meeting will be held on July 20, 2018, at 10:30 a.m., local time, at NSH’s principal executive offices located at 19003 IH-10 West, San Antonio, Texas 78257.

 

Q: If I am planning on attending the NSH special meeting in person, should I still submit my proxy?

 

A: Yes. Whether or not you plan to attend the NSH special meeting, you should submit your proxy. Your NSH units will not be voted if you do not submit your proxy over the internet, by phone or by mail or if you do not vote in person at the NSH special meeting to be held on July 20, 2018. This would have the same effect as a vote against the merger proposal for purposes of the vote required under the NSH limited liability company agreement.

 

Q: Can I change my vote after I have voted by proxy?

 

A: You may revoke a proxy at any time before voting is closed at the NSH special meeting by:

 

    submitting a written revocation to the Corporate Secretary of NSH at the address indicated on the cover page of this proxy statement/prospectus that is received by the Corporate Secretary by 11:59 p.m. Eastern Time on July 19, 2018;

 

    submitting your valid, signed and later-dated proxy by mail that is received by 11:59 p.m. Eastern Time on July 19, 2018;

 

    submitting your valid proxy by telephone or over the internet by 11:59 p.m. Eastern Time on July 19, 2018; or

 

    voting in person at the NSH special meeting by presenting a valid photo identification and a legal proxy.

However, if the NSH special meeting is adjourned to solicit additional proxies, the time by which a proxy may be revoked may be extended. If instructions to the contrary are not given, NSH units will be voted as indicated on the proxy and your presence without voting at the meeting will not automatically revoke your proxy.

 

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Q: What should I do if I receive more than one set of voting materials for the NSH special meeting?

 

A: You may receive more than one set of voting materials for the NSH special meeting and the materials may include multiple proxy cards or voting instruction cards. For example, you will receive a separate voting instruction card for each brokerage account in which you hold NSH units. If you are a holder of record of NSH units registered in more than one name, you will receive more than one proxy card. Please complete and submit each proxy card and voting instruction card that you receive according to the instructions on it.

 

Q: Whom do I call if I have further questions about voting, the meeting or the merger?

 

A: NSH unitholders may call NSH’s Investor Relations department at (210) 918-3507 for additional copies, without charge, of this proxy statement/prospectus or for questions about the merger, including the procedures for voting NSH units. Certain directors, officers and employees of NSH and its affiliates and Morrow Sodali LLC (a proxy solicitor) may also solicit proxies on NSH’s behalf by mail, telephone, fax or other electronic means, or in person.

Morrow Sodali LLC

470 West Avenue, 3rd Floor

Stamford, Connecticut 06902

Unitholders call toll-free: (800) 662-5200

Banks and Brokerage Firms, please call (203) 658-9400

Email: NSH.info@Morrowsodali.com

 

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SUMMARY

This summary highlights some of the information in this proxy statement/prospectus. It may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the terms of the merger, you should read carefully this document, the documents incorporated by reference and the Annexes to this document, including the full text of the merger agreement and the form of the amended and restated partnership agreement included as Annex A and Annex B , respectively. Please also read “Where You Can Find More Information.”

The Parties to the Merger (page 94)

NuStar Energy L.P.

The Partnership, a Delaware limited partnership, was formed in 1999. The common units are traded on the NYSE under the symbol “NS.” The Partnership is engaged in the transportation of petroleum products and anhydrous ammonia and the terminalling, storage and marketing of petroleum products.

The Partnership’s principal executive offices are located at 19003 IH-10 West, San Antonio, Texas 78257, and its phone number is (210) 918-2000.

NuStar GP Holdings, LLC

NSH, a Delaware limited liability company, was formed in 2000. NSH units are listed on the NYSE under the ticker symbol “NSH.” NSH has no operations or sources of income or cash flows other than its ownership interests in the Partnership.

NSH’s principal executive offices are located at 19003 IH-10 West, San Antonio, Texas 78257, and its phone number is (210) 918-2000.

Marshall Merger Sub LLC

Merger Sub, a Delaware limited liability company and a wholly owned subsidiary of the Partnership, was formed solely for the purpose of facilitating the merger. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Merger Sub will merge with and into NSH, with Merger Sub ceasing to exist.

Merger Sub’s principal executive offices are located at c/o NuStar Energy L.P., 19003 IH-10 West, San Antonio, Texas 78257, and its phone number is (210) 918-2000.

Relationship of the Partnership and NSH

NSH and the Partnership are closely related. NSH’s subsidiaries own (1) 10,214,626 common units, constituting approximately 11% of the common units outstanding, (2) the 2.0% general partner interest in the Partnership, and (3) 100% of the incentive distributions rights issued by the Partnership, which entitle NSH to receive increasing percentages of the cash distributed by the Partnership, up to a maximum percentage of 23%.



 

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The following table summarizes the cash NSH received for the years ended December 31, 2015, 2016 and 2017 as a result of its indirect ownership of partnership interests in the Partnership (in thousands):

 

     Year Ended December 31,  
     2015      2016      2017  

Common units

   $ 45,073      $ 44,699      $ 44,740  

General partner interest (2.0%)

     7,844        7,877        9,252  

Incentive distribution rights

     43,220        43,407        45,669  

Moreover, all executive officers of NSH are executive officers of NuStar GP and two directors of NSH are also directors of NuStar GP. For information about the common executive officers and directors of NuStar GP and NSH and the resulting interests of NSH directors and officers in the merger, please read “Interests of Certain Persons in the Merger.”

Structure of the Merger (page 63)

Pursuant to the merger agreement, at the effective time, Merger Sub will merge with and into NSH, and each outstanding NSH unit will be converted into the right to receive 0.55 of a common unit. This merger consideration represented a premium of approximately 1.7% based on the closing prices of the common units and of NSH units on February 7, 2018, the last trading day before the public announcement of the proposed merger.

If the exchange ratio would result in an NSH unitholder being entitled to receive a fraction of a common unit, that unitholder will receive cash from the Partnership in lieu of such fractional interest in an amount equal to such fractional interest multiplied by the average of the volume weighted average price of the common units on each of the five consecutive trading days ending on the trading day that is two trading days prior to the day the merger closes.

Once the merger is completed and NSH units are converted into the right to receive common units (and cash in lieu of fractional units, if applicable), when distributions on common units are declared by the General Partner and paid by the Partnership, former NSH unitholders will receive distributions on their common units in accordance with the partnership agreement. For a description of the distribution provisions of the partnership agreement, please read “Partnership Cash Distribution Policy.”

Transactions Related to the Merger (page 61)

Amended and Restated Agreement of Limited Partnership of the Partnership

At the effective time, the Partnership’s existing partnership agreement will be amended and restated. Under the amended and restated partnership agreement, the incentive distribution rights in the Partnership held by the General Partner will be cancelled, the 2.0% general partner interest in the Partnership held by the General Partner will be converted into a non-economic, management interest and the common unitholders will be provided with voting rights for the election of directors to the Partnership Board.

Support Agreement

In connection with the merger agreement, the Partnership entered into the support agreement pursuant to which the supporting unitholders (including Mr. Greehey), owners of an aggregate 9,178,320 NSH units, agreed to vote their NSH units (1) in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger, and any other action required or desirable in furtherance thereof submitted for the vote or written consent of NSH unitholders, (2) against any acquisition proposal and (3) against any action, agreement or transaction that would reasonably be expected to impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect the merger or the other transactions contemplated by the merger agreement.



 

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The support agreement will terminate automatically upon the earliest to occur of (1) the effective time; (2) the termination of the merger agreement in accordance with its terms, other than as a result of a breach by a supporting unitholder of the terms of the support agreement; or (3) the written agreement of each supporting unitholder and the Partnership to terminate the support agreement.

The foregoing description of the support agreement is qualified in its entirety by reference to the full text of the support agreement, a copy of which is attached as Annex D to this proxy statement/prospectus and is incorporated into this proxy statement/prospectus by reference.

Second Amended and Restated Limited Liability Company Agreement of NuStar GP

At the effective time, the limited liability company agreement of NuStar GP will be amended and restated. Under the second amended and restated limited liability company agreement of NuStar GP (“NuStar GP amended and restated company agreement”), the Partnership Board will be elected in accordance with the amended and restated partnership agreement.

Directors and Executive Officers of NuStar GP (page 101)

NuStar GP, by virtue of being the general partner of the General Partner, will continue to manage the Partnership after the merger. The NuStar GP management team will continue in their current roles and will manage NuStar GP following the merger. After the effective time, the Partnership Board will consist of nine members, six of whom will be the current members of the Partnership Board and three of whom will be the three current members of the NSH Conflicts Committee.

The NSH Special Meeting (page 27)

Where and when: The NSH special meeting will take place at NSH’s principal executive offices located at 19003 IH-10 West, San Antonio, Texas 78257 on July 20, 2018 at 10:30 a.m., local time.

What you are being asked to vote on: At the NSH special meeting, NSH unitholders will vote on the approval of the merger agreement and the transactions contemplated thereby, including the merger. NSH unitholders also may be asked to consider other matters as may properly come before the meeting. At this time, NSH knows of no other matters that will be presented for the consideration of its unitholders at the meeting.

Who may vote: You may vote at the NSH special meeting if you owned NSH units at the close of business on the record date, June 22, 2018. On that date, there were 42,953,132 NSH units outstanding. You may cast one vote for each outstanding NSH unit that you owned on the record date.

What vote is needed: The affirmative vote of the holders of a majority of outstanding NSH units is required to approve the merger agreement and the transactions contemplated thereby, including the merger.

The directors and executive officers of NSH beneficially own and are entitled to vote, in the aggregate, 9,360,098 million NSH units, representing approximately 21.8% of the outstanding NSH units as of the close of business on the record date. The directors and executive officers of NSH have informed NSH that they currently intend to vote all such NSH units “ FOR ” the adoption of the merger proposal.

Recommendation to NSH Unaffiliated Unitholders (page 39)

The NSH Board delegated authority to the NSH Conflicts Committee to negotiate the terms and conditions of the merger, subject to final approval by the NSH Board. The NSH Conflicts Committee unanimously



 

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determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby were advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders. Accordingly, the NSH Conflicts Committee recommended that the NSH Board approve the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. Based on the NSH Conflicts Committee’s determination and recommendation and all of the information made available to the NSH Board and upon other relevant factors, the NSH Board (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves) unanimously approved and declared the advisability of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. The NSH Board also recommended that the NSH unaffiliated unitholders vote “FOR” the merger proposal.

The NSH Conflicts Committee engaged independent legal counsel and a financial advisor to assist it in its negotiations with the Partnership Conflicts Committee. NSH unitholders are urged to carefully review the background and reasons for the merger described under “The Merger” and the risks associated with the merger described under “Risk Factors.”

NSH’s Reasons for the Merger (page 39)

The NSH Conflicts Committee considered many factors in determining the merger agreement and the transactions contemplated thereby to be advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders and recommending the approval of the merger agreement and the consummation of the transactions contemplated thereby to the NSH Board. The NSH Conflicts Committee considered the following factors, among others described in greater detail under “The Merger—Recommendation of the NSH Conflicts Committee and the NSH Board and Reasons for the Merger,” as being generally positive or favorable to the approval and adoption of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby:

 

    the NSH unitholders will receive common units representing limited partner interests in the Partnership and will participate in the long-term expected benefits of the operations of the combined entity, through the Partnership, including with respect to the following:

 

    any future common unit price appreciation and/or distribution increases;

 

    after the merger, the Partnership will no longer have any incentive distribution rights, and, as a result, the Partnership’s long-term cost of capital will be reduced;

 

    the enhancement of the Partnership’s cash accretion through its ability to compete for new acquisitions and finance organic growth projects as a result of its reduced long-term cost of capital; and

 

    allowing the Partnership to maintain its competitive position when pursuing growth opportunities by increasing access to the equity markets, while simultaneously decreasing the need to access the equity markets;

 

    the common units have substantially more liquidity than NSH units because of the common units’ larger average daily trading volume, and the Partnership is a significantly larger entity with a broader investor base and a larger public float, along with less volatility in the trading market for the common units;

 

    the NSH unitholders are receiving as consideration units in a public, non-controlled, widely held entity and, accordingly, will have an ongoing opportunity to receive a control premium in the future;

 

 

    NSH unitholders, as common unitholders after the effective time, will be entitled to participate in the election of all of the directors of the Partnership Board;


 

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    the financial analysis reviewed and discussed with the NSH Conflicts Committee by representatives of Robert W. Baird & Co. Incorporated (“Baird”), as well as the oral opinion of Baird rendered to the NSH Conflicts Committee on February 7, 2018 (which was subsequently confirmed in writing by delivery of Baird’s written opinion dated the same date) to the effect that, as of the date of such opinion and based upon and subject to the various assumptions, qualifications and limitations set forth in its written opinion, the merger consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders; and

 

    the favorable benefits of a streamlined organizational structure, capital structure and governance structure, including enhanced transparency for investors, greater tax simplicity, simplified future credit relationships and clearer responsibilities and duties of the Partnership to various stakeholders.

The NSH Conflicts Committee considered the following factors, among others described in greater detail under “The Merger—Recommendation of the NSH Conflicts Committee and the NSH Board and Reasons for the Merger,” that weighed against approval and adoption of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby:

 

    the possibility that NSH unitholders could be foregoing appreciation principally associated with the incentive distribution rights, which might be realized either in the form of increased distributions or appreciation in unit value if the business of the Partnership performs materially better than anticipated and the Partnership were to then increase its distribution to levels substantially higher than anticipated;

 

    the risk that the merger may not be completed in a timely manner or that the merger might not be consummated as a result of a failure to satisfy the conditions contained in the merger agreement, including the failure to receive NSH unitholder approval;

 

    the potential adverse effects on NSH’s financial condition if the merger is not completed following public announcement of the execution of the merger agreement;

 

    the number of common units to be received by the NSH unitholders is fixed and the common unit price could decline relative to the NSH unit price prior to closing, which would reduce the premium available to NSH unitholders, and any such decrease in value will not be limited by any “collar” arrangement;

 

    the limitations on NSH soliciting other offers and considering unsolicited offers from third parties not affiliated with the Partnership;

 

    the risk that potential benefits sought in the merger might not be fully realized; and

 

    the elimination of certain control rights that NSH currently possesses with respect to the Partnership.

Overall, the NSH Conflicts Committee believed that the advantages of the merger outweighed the negative factors it considered.

Opinion of NSH Conflicts Committee’s Financial Advisor (page 48)

The NSH Conflicts Committee retained Baird as its financial advisor in connection with the merger and with respect to the provision of an opinion to the NSH Conflicts Committee as to the fairness, from a financial point of view, to the NSH unaffiliated unitholders of the number of common units issuable for each NSH unit (the “Consideration”) to be received by such unitholders in the merger. At the meeting of the NSH Conflicts Committee held on February 7, 2018, Baird rendered its oral opinion to the NSH Conflicts Committee, subsequently confirmed by delivery of a written opinion dated February 7, 2018, to the effect that, as of such date and based upon and subject to the various assumptions, qualifications and limitations set forth in Baird’s opinion, the Consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders.



 

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The full text of the written opinion of Baird is attached hereto as Annex E and is incorporated by reference in its entirety into this proxy statement/prospectus. The opinion sets forth, among other things, the assumptions made, specified work performed, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Baird in rendering its opinion. You are encouraged to read Baird’s opinion carefully and in its entirety.

Baird’s opinion was prepared at the request, and provided for the information, of the members of the NSH Conflicts Committee (solely in their capacity as such), in connection with their evaluation of the merger and addresses only the fairness, from a financial point of view, to the NSH unaffiliated unitholders of the Consideration to be received by such unitholders. Baird was not asked to express, and in its opinion does not express, any opinion with respect to any of the other financial or non-financial terms, conditions, determinations or actions with respect to the merger. Baird’s opinion also does not address the relative merits or risks of: (1) the merger, the merger agreement or any other agreements or other matters provided for, or contemplated by, the merger, the merger agreement, or any tax strategy implemented or contemplated pursuant to the merger; (2) any other transactions that may be or might have been available as an alternative to the merger; or (3) the merger compared to any other potential alternative transactions or business strategies considered by NSH, the Partnership, the NSH Conflicts Committee or the NSH Board, and, accordingly, Baird has relied upon its discussions with the management of NSH and the Partnership with respect to the availability and consequences of any alternatives to the merger. Baird was not engaged or asked to provide, and has not provided, any advice concerning the advisability of entering into the merger. Baird’s opinion does not constitute a recommendation to the NSH Conflicts Committee, the NSH Board or any other person as to how any such person should act with respect to the merger. The summary of the Baird opinion set forth herein is qualified in its entirety by reference to the full text of the opinion included as Annex E .

Interests of Certain Persons in the Merger (page 97)

NSH’s directors and executive officers have interests in the merger that may be different from, or be in addition to, your interests as an NSH unitholder, including:

 

    All of the executive officers and directors of NSH currently own NSH units and will be receiving common units in exchange for those NSH units as a result of the merger. NSH units held by directors and executive officers will be converted into the right to receive common units at a ratio of 0.55 of a common unit per NSH unit, which is the same as the ratio applicable to all other NSH unitholders. In addition, certain of NSH’s directors and all of NSH’s executive officers currently own common units.

 

    All of the directors and executive officers of NSH will receive continued indemnification for their actions as directors and executive officers.

 

    Each of the outstanding NSH restricted units held by NSH’s directors and executive officers pursuant to NSH’s long-term incentive plan will be converted into 0.55 of a restricted common unit under the Partnership’s long-term incentive plan and will continue to be subject to the terms and conditions of the NSH long-term incentive plan.

 

    The executive officers who prepared projections with respect to the Partnership’s and NSH’s future financial and operating performance on a stand-alone basis and on a combined basis (1) are officers of each of NSH and NuStar GP, (2) hold the same positions at each entity, and (3) own both NSH units and common units.

 

    Each of the directors and executive officers of NSH entered into a Change of Control Waiver Agreement with respect to certain awards, grants or benefits such that the merger would not be deemed to cause a change of control, as such term is defined in the applicable plan or agreement and the directors and executive officers would not receive the payments or benefits to which they otherwise may have been entitled.


 

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NuStar GP, by virtue of being the general partner of the General Partner, will continue to manage the Partnership after the merger. The NuStar GP management team will continue in their current roles and will manage NuStar GP following the merger. After the effective time, the Partnership Board will consist of nine members, six of whom will be the existing members of the Partnership Board and three of whom will be the three existing members of the NSH Conflicts Committee.

Please see “Interests of Certain Persons in the Merger” beginning on page 97.

The Merger Agreement (page 63)

The merger agreement is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this document. You are encouraged to read the merger agreement because it is the legal document that governs the merger.

What Needs to be Done to Complete the Merger

The respective obligations of the parties to complete the merger are subject to the satisfaction or waiver, on or prior to the closing of the merger, of the following conditions:

 

    the approval of the merger agreement and the transactions contemplated thereby, including the merger, by the affirmative vote of holders of a majority of the outstanding NSH units;

 

    the effectiveness of, and absence of an initiated or threatened stop order with respect to, the registration statement on Form S-4 filed by the Partnership in respect of the common units to be issued in the merger, of which this proxy statement/prospectus forms a part;

 

    the absence of any order, decree or injunction of any court or agency or law that enjoins, prohibits or makes illegal any of the transactions contemplated by the merger agreement, and the absence of any action, proceeding or investigation by any regulatory authority regarding the merger or any of the transactions contemplated by the merger agreement; and

 

    the receipt by the Partnership of an opinion from Sidley Austin LLP, counsel to the Partnership (“Sidley Austin”), or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH, as to certain tax matters relating to the Partnership’s qualifying income and partnership status.

The obligations of NSH to complete the merger are further subject to the satisfaction or waiver, on or prior to the closing of the merger, of each of the following conditions:

 

    the representations and warranties of the Partnership must, both on the date of the merger agreement and at the closing of the merger, be true and correct except to the extent that the failure to be true and correct would not cause a material adverse effect on the Partnership and its subsidiaries, taken as a whole;

 

    the performance, in all material respects, by the Partnership of its obligations under the merger agreement on or prior to the closing date;

 

    the receipt by NSH of a certificate signed by the Chief Executive Officer of NuStar GP to the effect that the conditions set forth in the two bullet points above have been satisfied;

 

    the receipt by NSH of an opinion from Wachtell, Lipton, Rosen & Katz, legal counsel to the NSH Conflicts Committee (“Wachtell Lipton”), or another nationally recognized tax counsel reasonably acceptable to NSH, as to certain tax matters relating to the U.S. federal income tax consequences of the merger;


 

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    the approval, upon official notice of issuance, of the listing on the NYSE of the new common units to be issued in the merger; and

 

    there shall not have occurred a material adverse effect with respect to the Partnership between the date of the merger agreement and the closing date.

The obligations of the Partnership and Merger Sub to complete the merger are further subject to the satisfaction or waiver, on or prior to the closing of the merger, of each of the following conditions:

 

    the representations and warranties of NSH must, both on the date of the merger agreement and at the closing of the merger, be true and correct except to the extent that the failure to be true and correct would not cause a material adverse effect on NSH;

 

    the performance, in all material respects, by NSH of its obligations under the merger agreement on or prior to the closing date;

 

    the receipt by the Partnership of a certificate signed by the Chief Executive Officer of NSH to the effect that the conditions set forth in the two bullet points above have been satisfied;

 

    the receipt by the Partnership of an opinion from Sidley Austin, or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH, as to certain tax matters relating to the U.S. federal income tax consequences of the merger;

 

    the NuStar GP amended and restated company agreement shall have been executed and made effective; and

 

    there shall not have occurred a material adverse effect with respect to NSH between the date of the merger agreement and the closing date.

For a more complete summary of the conditions that must be satisfied or waived prior to completion of the merger, please see “The Merger Agreement—Conditions to the Merger” beginning on page 75.

No Solicitation

The merger agreement provides that none of NSH and its subsidiaries shall, and NSH shall cause its subsidiaries and shall use its commercially reasonable best efforts to cause its subsidiaries’ representatives not to, directly or indirectly:

 

    knowingly initiate, solicit, or encourage or facilitate any inquiries, proposals or offers with respect to, or the submission of any acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights; or

 

    knowingly engage, participate in, encourage or facilitate any discussions or negotiations regarding, or knowingly furnish or make available or cause to be furnished or made available to any person any non-public information or data relating to NSH, the Partnership or its subsidiaries in connection with any acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights.

Notwithstanding the foregoing, if NSH receives a bona fide written acquisition proposal and (1) the NSH Board, after consultation with its outside legal counsel and financial advisors, determines in good faith: (A) that such acquisition proposal constitutes or is reasonably likely to result in a superior proposal, and (B) that failure to take such action would be inconsistent with its fiduciary duties under applicable law, as modified by the NSH limited liability company agreement, and (2) prior to furnishing any non-public information to such third party, NSH: (i) required such third party to execute a confidentiality agreement, (ii) furnished a copy of such



 

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confidentiality agreement to the Partnership and (iii) notified the Partnership of the identity of such third party, NSH may, prior to obtaining NSH unitholder approval of the merger agreement:

 

    furnish any information to, including information pertaining to the Partnership and its subsidiaries; and

 

    enter into or participate in discussions or negotiations with any Person that makes an unsolicited bona fide written acquisition proposal that did not result from an intentional and material breach of the merger agreement.

For a more complete summary of the no solicitation provisions of the merger agreement, please see “The Merger Agreement—Covenants—Acquisition Proposals; Change in Recommendation” beginning on page 70.

Change in Recommendation

Subject to certain exceptions described in the section entitled “The Merger Agreement—Covenants— Acquisition Proposals; Change in Recommendation” beginning on page 70, and without prejudice to NSH’s right to terminate the merger agreement in order to accept a superior proposal, the NSH Board may not:

 

    withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify in a manner adverse to the Partnership, its recommendation to the NSH unitholders;

 

    approve or recommend, or publicly propose to approve or recommend, any acquisition proposal;

 

    fail to include the NSH recommendation in the proxy statement;

 

    if any acquisition proposal has been made public, fail to issue a press release recommending against such acquisition proposal and reaffirming NSH’s recommendation, if requested by the Partnership;

 

    resolve, publicly propose or agree to do any of the foregoing; or

 

    except for a confidentiality agreement, approve, adopt or recommend, or publicly propose to approve, adopt or recommend, or allow NSH or any of its subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement, or other similar contract or any tender or exchange offer providing for, with respect to, or in connection with, any acquisition proposal.

However, at any time before the NSH unitholder approval of the merger agreement is obtained, the NSH Board may terminate the merger agreement in order to accept a superior proposal or make an NSH change in recommendation (x) following receipt of an acquisition proposal that did not result from an intentional and material breach of the merger agreement and that the NSH Board has concluded in good faith, after consultation with its outside legal counsel and financial advisors, constitutes a superior proposal or (y) solely in response to an intervening event, and in each case referred to in clauses (x) and (y) above, the NSH Board has concluded in good faith, after consultation with its outside legal counsel and financial advisors, that failure to make a change in its recommendation would be inconsistent with its fiduciary duties under applicable law, as modified by the NSH limited liability company agreement.

The NSH Board will not be entitled to change its recommendation until after three business days following the Partnership’s, the Partnership Board’s and the Partnership Conflicts Committee’s receipt of written notice from NSH advising that the NSH Board intends to take such action and the reasons for doing so, including all information required under the merger agreement. After providing such notice and prior to effecting such change in recommendation:

 

    NSH must, if requested by the Partnership, be available to meet and engage in good faith negotiations, during such three business day period, with the Partnership and its representatives to modify the merger agreement; and


 

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    in determining whether to make a change in recommendation, the NSH Board must take into account any agreed-on modifications to the merger agreement.

Termination of the Merger Agreement

The merger agreement may be terminated at any time prior to the effective time in any of the following ways:

 

    by mutual written consent of the Partnership and NSH;

 

    by either the Partnership or NSH upon written notice to the other if:

 

    the merger is not completed on or before August 8, 2018, unless the failure of the closing to occur by this date is primarily due to the failure of the party seeking to terminate the merger agreement to fulfill any material obligation under the merger agreement or a material breach of the merger agreement by such party;

 

    any regulatory authority has issued a final and nonappealable statute, rule, order, decree or regulation or taken any other action that permanently restrains, enjoins, makes illegal or prohibits the consummation of the merger or any of the merger transactions; provided, that the terminating party is not in breach of its obligation to use its reasonable efforts to complete the merger promptly;

 

    NSH fails to obtain the NSH unitholder approval at the NSH special meeting, subject to certain limitations;

 

    there has been a breach of or any inaccuracy in any of the representations or warranties of any of the other parties set forth in the merger agreement under certain circumstances; or

 

    there has been a breach of any of the covenants or agreements of any of the other parties set forth in the merger agreement under certain circumstances;

 

    by the Partnership if NSH has materially and intentionally breached certain non-solicitation covenants or the NSH Board has changed its recommendation to the NSH unitholders in accordance with the merger agreement; or

 

    by NSH in order to accept a superior proposal if NSH has not intentionally and materially breached certain non-solicitation covenants, NSH has paid a termination fee in accordance with the merger agreement and substantially concurrently therewith, and in any event within the same day of such termination, NSH enters into a definitive agreement in connection with such superior proposal.

Material U.S. Federal Income Tax Consequences of the Merger (page 115)

Tax matters associated with the merger are complicated. The U.S. federal income tax consequences of the merger to an NSH unitholder will depend, in part, on such unitholder’s particular circumstances. The tax discussions in this proxy statement/prospectus are limited to the U.S. federal income tax consequences generally applicable to U.S. holders that hold their NSH units as capital assets and acquired their NSH units in exchange for cash, and these discussions have only limited application to other unitholders, including those subject to special rules under the U.S. federal income tax laws. NSH unitholders are urged to consult their tax advisors for a full understanding of the U.S. federal, state, local and foreign tax consequences of the merger that will be applicable to them.

For U.S. federal income tax purposes, the merger is intended to qualify as a “merger” of NSH and the Partnership within the meaning of Treasury regulations promulgated under Section 708 of the Code, with the Partnership treated as the continuing partnership and NSH as the terminated partnership for U.S. federal income tax purposes following the merger.



 

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It is a condition to NSH’s obligation to complete the merger that it receive a written opinion from Wachtell Lipton (or another nationally recognized tax counsel reasonably acceptable to NSH) to the effect that no gain or loss should be recognized, for U.S. federal income tax purposes, by NSH unitholders that are “United States persons” for U.S. federal income tax purposes with respect to the exchange of NSH units for common units pursuant to the merger, other than gain or loss, if any, resulting from any (1) decrease in an NSH unitholder’s share of partnership liabilities pursuant to Section 752 of the Code, (2) amounts paid to NSH, the Partnership or any of their respective subsidiaries pursuant to certain provisions of the merger agreement, (3) actual or deemed distributions to NSH or NSH unitholders of cash or other property (other than common units), (4) receipt of cash in lieu of fractional common units in the merger, or (5) actual or deemed assumption by the Partnership of any liabilities of NSH or any of its subsidiaries. The opinion may be subject to customary limitations and exceptions, including that it will not apply to any NSH unitholder whose tax basis in its NSH units is less than its share of NSH’s tax basis (including basis resulting from Section 743 adjustments) in common units deemed distributed by NSH.

It is a condition to the Partnership’s obligation to effect the merger that it receive a written opinion from Sidley Austin (or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH) to the effect that no gain or loss should be recognized by existing unaffiliated common unitholders as a result of the merger, other than gain, if any, resulting from any (1) decrease in partnership liabilities pursuant to Section 752 of the Code, or (2) amounts paid to or on behalf of the Partnership by any other person pursuant to certain provisions of the merger agreement. In addition, it is a condition to each party’s obligation to complete the merger that the Partnership receive a written opinion from Sidley Austin (or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH) to the effect that (1) at least 90% of the current gross income of the Partnership constitutes qualifying income within the meaning of Section 7704(d) of the Code and the Partnership is treated as a partnership for U.S. federal income tax purposes pursuant to Section 7704(c) of the Code, and (2) the adoption of the amended and restated partnership agreement, the merger, and the transactions contemplated by the merger agreement will not cause the Partnership to be treated as an association taxable as a corporation for U.S. federal income tax purposes.

Accordingly, U.S. holders of NSH units generally are not expected to recognize gain or loss, for U.S. federal income tax purposes, with respect to the exchange of NSH units for common units pursuant to the merger, other than (1) gain or loss, if any, resulting from any (A) decrease in an NSH unitholder’s share of partnership liabilities pursuant to Section 752 of the Code, (B) amounts paid to NSH, the Partnership or any of their respective subsidiaries pursuant to certain provisions of the merger agreement, (C) actual or deemed distributions to NSH or NSH unitholders of cash or other property (other than common units), (D) receipt of cash in lieu of fractional common units in the merger, or (E) actual or deemed assumption by the Partnership of any liabilities of NSH or any of its subsidiaries, or (2) to the extent any NSH unitholder’s adjusted tax basis in its NSH units is less than its share of NSH’s adjusted tax basis in the common units deemed distributed by NSH.

These opinions will be based on representations made by NSH, the Partnership and others and on customary factual assumptions, as well as certain covenants and undertakings. Opinions of counsel are subject to certain limitations and are not binding on the Internal Revenue Service or any court. NSH and the Partnership have not sought and do not intend to seek any rulings from the IRS regarding any matters relating to the merger.

NSH unitholders should read the section entitled “Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax consequences of the merger. Tax matters can be complicated, and the tax consequences to a particular holder will depend on such holder’s facts and circumstances. NSH unitholders should consult their own tax advisors to determine the specific tax consequences to them of the merger.



 

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Other Information Related to the Merger

No Appraisal Rights (page 61)

NSH unitholders do not have appraisal rights under applicable law or contractual appraisal rights under the NSH limited liability company agreement or the merger agreement. For additional information, please see “The Merger No Appraisal Rights” beginning on page 61.

Antitrust and Regulatory Matters (page 61)

The merger is subject to both state and federal antitrust laws. Under the rules applicable to non-corporate entities, no filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). However, the Partnership or NSH may receive requests for information concerning the proposed merger and related transactions from the Federal Trade Commission, or FTC, the Antitrust Division of the Department of Justice, or DOJ, or individual states.

Listing of Common Units to be Issued in the Merger (page 61)

The Partnership expects to obtain approval to list on the NYSE the common units to be issued pursuant to the merger agreement, which approval is a condition to the merger.

Comparison of the Rights of Partnership and NSH Unitholders (page 104)

NSH unitholders will own common units following the completion of the merger, and their rights associated with common units will be governed by, in addition to Delaware law, the amended and restated partnership agreement, which differs in a number of respects from NSH’s limited liability company agreement. Please read “Comparison of the Rights of Partnership and NSH Unitholders” beginning on page 104.

Summary of Risk Factors (page 21)

You should consider carefully all the risk factors together with all of the other information included in this proxy statement/prospectus before deciding how to vote. The risks related to the merger and the related transactions, the Partnership’s business, the common units and risks resulting from the Partnership’s organizational structure are described under the caption “Risk Factors” beginning on page 21 of this proxy statement/prospectus. Some of these risks include, but are not limited to, those described below:

 

    NSH’s limited liability company agreement reduces the fiduciary duties of the NSH Board to NSH unitholders and restricts the remedies available to NSH unitholders for actions taken by NSH that might otherwise constitute breaches of fiduciary duty.

 

    The directors and executive officers of NSH have interests relating to the merger that differ in certain respects from the interests of the NSH unaffiliated unitholders.

 

    The exchange ratio is fixed and the market value of the merger consideration to NSH unitholders on a per NSH unit basis will be equal to 0.55 times the market price of a common unit at the closing of the merger, which market value will decrease if the market value of the common units decreases.

 

    The right of NSH unitholders to distributions will be changed following the merger.

 

    The transactions contemplated by the merger agreement may not be completed even if the requisite NSH unitholder approval is obtained, in which case NSH unitholders will retain their NSH units and the partnership agreement will not be amended and restated.

 

   

Prior to the closing of the merger and while the merger agreement is in effect, NSH’s opportunities to enter into different business combination transactions with other parties on more favorable terms is



 

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limited, and both the Partnership and NSH are limited in their ability to pursue other attractive business opportunities.

 

    Financial projections by the Partnership and NSH may not prove accurate.

 

    The merger agreement may be terminated on August 8, 2018 if the merger has not been completed, and the failure to complete the merger for any reason could have a negative impact on the price of NSH units and common units.

 

    The number of outstanding common units will increase as a result of the merger, which could make it more difficult for the Partnership to maintain or increase the level of quarterly distributions on the common units.

 

    Failure to complete the merger or delays in completing the merger could have a negative impact on the common unit price and NSH unit price.

 

    The costs of the merger could adversely affect the Partnership’s and NSH’s operations and the amount of cash available for distribution to the common unitholders and NSH unitholders.

 

    If the merger agreement is terminated, NSH may be obligated to pay the Partnership a termination fee or costs incurred related to the merger. These fees or costs could require NSH to seek loans or use NSH’s available cash that would have otherwise been available for distributions to NSH unitholders.

 

    No ruling has been requested from the IRS with respect to the U.S. federal income tax consequences of the merger.

 

    The intended U.S. federal income tax consequences of the merger are dependent upon each of the Partnership and NSH being treated as a partnership for U.S. federal income tax purposes.

 

    NSH unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the merger.


 

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Organizational Chart

Before the Merger

The following diagram depicts the simplified organizational structure of the Partnership and NSH prior to the consummation of the merger and the other transactions contemplated by the merger agreement.

 

LOGO



 

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After the Merger

The following diagram depicts the simplified organizational structure of the Partnership and NSH immediately after giving effect to the merger and the other transactions contemplated by the merger agreement.

 

LOGO



 

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION OF THE PARTNERSHIP AND NSH

The following tables set forth, for the periods and at the dates indicated, summary historical financial and operating information for the Partnership and NSH and summary unaudited pro forma financial information for the Partnership after giving effect to the proposed merger of Merger Sub with and into NSH. The summary historical financial data as of and for each of the years ended December 31, 2015, 2016 and 2017 are derived from and should be read in conjunction with the audited financial statements and accompanying footnotes of the Partnership and NSH, respectively. The Partnership’s and NSH’s consolidated balance sheets as of December 31, 2016 and 2017, and the related statements of consolidated income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2015, 2016 and 2017 are incorporated by reference into this proxy statement/prospectus from the Partnership’s and NSH’s respective annual reports on Form 10-K for the year ended December 31, 2017.

The summary unaudited pro forma condensed combined consolidated financial statements of the Partnership show the pro forma effect of the proposed merger of Merger Sub with and into NSH. For a complete discussion of the pro forma adjustments underlying the amounts in the table on the following page, please read “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page F-2 of this document.

The unaudited pro forma condensed combined consolidated financial statements have been prepared to assist in the analysis of financial effects of the proposed merger between Merger Sub and NSH. The unaudited pro forma condensed combined consolidated statements of income for the year ended December 31, 2017 assume the merger-related transactions occurred on January 1, 2017. The unaudited pro forma condensed combined consolidated balance sheet shows the financial effects of the merger-related transactions as if they had occurred on December 31, 2017. The unaudited pro forma condensed combined consolidated financial statements are based upon assumptions that the Partnership believes are reasonable under the circumstances, and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future consolidated results of the combined entity.

For information regarding the effect of the merger on pro forma distributions to NSH unitholders, please read “Comparative Per Unit Information.”



 

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Summary Historical and Pro Forma Financial and Operating Information of the Partnership

 

     Historical      Pro Forma  
     Year Ended December 31,      Year Ended
December 31,
2017
 
     2015      2016      2017 (a)     
     (Thousands of Dollars, Except Per Unit Data)         

Statement of Income Data:

           

Revenues (b)

   $ 2,084,040      $ 1,756,682      $ 1,814,019      $ 1,814,019  

Operating income

   $ 390,704      $ 359,109      $ 336,278      $ 333,980  

Income from continuing operations (c)

   $ 305,946      $ 150,003      $ 147,964      $ 144,079  

Income (loss) from continuing operations per common unit (c)

   $ 3.29      $ 1.27      $ 0.64      $ 0.98  

Cash distributions per unit applicable to common limited partners (d)

   $ 4.38      $ 4.38      $ 4.38      $ 4.38  

Balance Sheet Data:

           

Property, plant and equipment, net

   $ 3,683,571      $ 3,722,283      $ 4,300,933      $ 4,300,933  

Total assets

   $ 5,125,525      $ 5,030,545      $ 6,535,233      $ 6,535,900  

Long-term debt, less current portion

   $ 3,055,612      $ 3,014,364      $ 3,263,069      $ 3,315,569  

Total partners’ equity

   $ 1,609,844      $ 1,611,617      $ 2,480,089      $ 2,427,655  

 

(a) The significant increases in balance sheet data are primarily due to the Partnership’s acquisition of Navigator Energy Services, LLC for approximately $1.5 billion in May 2017.
(b) Declines in revenues from 2015 through 2017 are mainly from a reduction in marketing activity and lower commodity prices. The Partnership ceased marketing crude oil in the second quarter of 2017 and exited its heavy fuels trading operations in the third quarter of 2017.
(c) Includes the impact of a $56.3 million non-cash gain associated with the Partnership’s acquisition of the remaining 50% interest in ST Linden Terminal, LLC in 2015 and a $58.7 million non-cash impairment charge on the term loan to Axeon Specialty Products, LLC in 2016.
(d) Represents distributions applicable to the period in which the distributions were earned.

Summary Historical Financial Information of NSH

 

     Historical  
     Year Ended December 31,  
             2015                      2016                      2017          
     (Thousands of Dollars, Except Per Unit Data)  

Statement of Comprehensive Income Data:

        

Equity in earnings of NuStar Energy L.P.

   $ 79,673      $ 56,096      $ 51,556  

Net income

   $ 72,208      $ 55,068      $ 86,775  

Basic and diluted net income per unit

   $ 1.68      $ 1.28      $ 2.01  

Cash distributions per unit (a)

   $ 2.18      $ 2.18      $ 2.18  

Other Financial Data:

        

Distributions received from NuStar Energy L.P.

   $ 96,030      $ 95,905      $ 99,310  

Balance Sheet Data:

        

Total assets

   $ 360,490      $ 274,630      $ 283,842  

Total short-term debt

   $ 26,000      $ 30,000      $ 42,500  

Members’ equity

   $ 287,070      $ 243,788      $ 240,536  

 

(a) Represents distributions applicable to the period in which the distributions were earned.


 

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COMPARATIVE PER UNIT INFORMATION

The following table sets forth (1) historical per unit information of the Partnership, (2) the unaudited pro forma combined per unit information of the Partnership after giving pro forma effect to the proposed merger and the transactions contemplated thereby, including the Partnership’s issuance of 0.55 of a common unit for each outstanding NSH unit, and (3) the historical and equivalent pro forma per unit information for NSH.

You should read this information in conjunction with (1) the summary historical financial information included elsewhere in this proxy statement/prospectus, (2) the historical consolidated financial statements of NSH and the Partnership and related notes that are incorporated by reference in this proxy statement/prospectus and (3) the “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” and related notes included elsewhere in this proxy statement/prospectus. The unaudited pro forma combined per unit information does not purport to represent what the actual results of operations of NSH and the Partnership would have been had the entities been combined or to project NSH’s and the Partnership’s results of operations that may be achieved once the proposed merger is completed.

 

     Year Ended December 31, 2017  
     Partnership      NSH  
     Historical      Partnership
Pro Forma (1)
     Historical      Equivalent
Pro Forma (2)
 

Basic and Diluted Net Income

   $ 0.64      $ 0.98      $ 2.01      $ 0.54  

Cash Distributions Declared Per Unit (3)

   $ 4.38      $ 4.38      $ 2.18      $ 2.41  

Book Value

   $ 19.00      $ 16.47      $ 5.85      $ 9.06  

 

(1) The Partnership’s pro forma information includes the effect of the merger on the basis described in the notes to the “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” included elsewhere in this proxy statement/prospectus.
(2) NSH’s equivalent pro forma earnings, book value and cash distribution amounts have been calculated by multiplying the Partnership’s related Partnership pro forma per unit amounts by the 0.55 exchange ratio.
(3) Represents cash distributions per common unit declared and paid with respect to the period.


 

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MARKET PRICES AND DISTRIBUTION INFORMATION

The common units are traded on the NYSE under the ticker symbol “NS,” and NSH units are traded on the NYSE under the ticker symbol “NSH.” The following table sets forth, for the periods indicated, the range of high and low sales prices per unit for common units and NSH units, on the NYSE composite tape, as well as information concerning quarterly cash distributions declared and paid on such common units and NSH units. The sales prices are as reported in published financial sources.

 

    Common Units     NSH Units  
  High     Low     Distributions (1)     High     Low     Distributions (1)  

2016

           

First Quarter

  $ 42.87     $ 25.65     $ 1.095     $ 23.18     $ 12.86     $ 0.545  

Second Quarter

  $ 53.47     $ 37.90     $ 1.095     $ 27.07     $ 19.82     $ 0.545  

Third Quarter

  $ 50.72     $ 43.91     $ 1.095     $ 26.45     $ 22.40     $ 0.545  

Fourth Quarter

  $ 50.87     $ 43.41     $ 1.095     $ 29.30     $ 22.30     $ 0.545  

2017

           

First Quarter

  $ 55.64     $ 49.09     $ 1.095     $ 31.50     $ 26.65     $ 0.545  

Second Quarter

  $ 52.68     $ 42.40     $ 1.095     $ 28.60     $ 22.20     $ 0.545  

Third Quarter

  $ 47.99     $ 37.30     $ 1.095     $ 25.25     $ 20.04     $ 0.545  

Fourth Quarter

  $ 41.00     $ 26.21     $ 1.095     $ 21.90     $ 13.50     $ 0.545  

2018

           

First Quarter

  $ 35.91     $ 19.22     $ 0.60     $ 18.90     $ 10.40     $ 0.33  

Second Quarter (through June 21, 2018)

  $ 26.31     $ 19.57       —   (2)    $ 14.35     $ 11.10       —   (2) 

 

(1) Represents cash distributions per common unit or NSH unit declared with respect to the quarter presented and paid in the following quarter.
(2) Cash distributions with respect to the second quarter of 2018 have not been declared or paid.

As of June 22, 2018, the Partnership had 93,183,445 outstanding common units held by 445 holders of record. The partnership agreement requires the Partnership to distribute all of its “available cash,” as defined in its partnership agreement, within 45 days after the end of each quarter. The payment of quarterly cash distributions by the Partnership in the future, therefore, will depend on the amount of “available cash” at the end of each quarter.

As of June 22, 2018, the record date for the NSH special meeting, 42,953,132 NSH units were outstanding and were held by 12 holders of record. NSH’s limited liability company agreement requires it to distribute all of its “available cash,” as defined in its limited liability company agreement, within 50 days after the end of each quarter. If the merger is not completed, the payment of quarterly cash distributions by NSH in the future will depend on the amount of “available cash” at the end of each quarter.



 

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The following table shows the closing prices of common units and NSH units on February 7, 2018, the last full trading day before the Partnership and NSH announced the proposed merger, and June 21, 2018, the last practicable trading day prior to the distribution of this proxy statement/prospectus. The table also shows the equivalent market value per NSH unit on such date. The equivalent market value for NSH units has been determined by multiplying the closing price of the common units on such date by the exchange ratio.

 

Date

   Common
Units
     NSH
Units
     Equivalent
Market Value
per NSH unit
 

February 7, 2018

   $ 31.25      $ 16.90      $ 17.1875  

June 21, 2018

   $ 24.55      $ 13.55      $ 13.5025  

The above table shows only historical comparisons. These comparisons may not provide meaningful information to NSH unitholders in determining whether to approve the merger agreement. NSH unitholders are encouraged to obtain current market quotations for the common units and NSH units and to review carefully the other information contained in this proxy statement/prospectus or incorporated by reference in this proxy statement/prospectus. See the section entitled “Where You Can Find More Information” beginning on page 140.



 

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RISK FACTORS

You should consider carefully the following risk factors, together with all of the other information included in, or incorporated by reference into, this proxy statement/prospectus before deciding how to vote. In particular, please read Part I, Item 1A, “Risk Factors,” in the Annual Reports on Form 10-K for the year ended December 31, 2017 for each of the Partnership and NSH, in each case incorporated by reference herein. This document also contains forward-looking statements that involve risks and uncertainties. Please read “Information Regarding Forward-Looking Statements,” on page 142.

Risks Related to the Merger and Related Matters

NSH’s limited liability company agreement reduces the fiduciary duties of the NSH Board to NSH unitholders and restricts the remedies available to NSH unitholders for actions taken by NSH that might otherwise constitute breaches of fiduciary duty.

In light of potential conflicts of interest in connection with the merger between the Partnership, NuStar GP and its controlling affiliates, including NSH, on the one hand, and the NSH unaffiliated unitholders, on the other hand, the NSH Board referred the merger and related matters to the NSH Conflicts Committee to obtain approval of a majority of its members acting in good faith, which is referred to as “Special Approval” in NSH’s limited liability company agreement. Under the NSH limited liability company agreement:

 

    any conflict of interest and any resolution thereof is permitted and deemed approved by all parties and will not constitute a breach of the NSH limited liability company agreement if approved by “Special Approval;” and

 

    the NSH Board or any committee thereof, including the NSH Conflicts Committee will not be liable for monetary damages to NSH or its unitholders for losses sustained or liabilities incurred as a result of any act or omission of the NSH Conflicts Committee unless there has been a final, non-appealable judgment entered by a court of competent jurisdiction determining that the NSH Conflicts Committee acted in bad faith, engaged in fraud, willful misconduct, or in the case of a criminal matter, acted with knowledge that the conduct was unlawful.

The directors and executive officers of NSH have interests relating to the merger that differ in certain respects from the interests of the NSH unaffiliated unitholders.

In considering the recommendations of the NSH Conflicts Committee and the NSH Board to approve the merger agreement and the transactions contemplated thereby, including the merger, you should consider that the directors and executive officers of NSH may have interests that differ from, or are in addition to, interests of NSH unitholders generally, including:

 

    All of the executive officers and directors of NSH currently own NSH units and will be receiving common units in exchange for those NSH units as a result of the merger. NSH units held by directors and executive officers will be converted into the right to receive common units at a ratio of 0.55 of a common unit per NSH unit, which is the same as the ratio applicable to all other NSH unitholders. In addition, certain of NSH’s directors and all of NSH’s executive officers currently own common units.

 

    All of the directors and executive officers of NSH will receive continued indemnification for their actions as directors and executive officers.

 

    Each of the outstanding NSH restricted units held by NSH’s directors and executive officers pursuant to NSH’s long-term incentive plan will be converted into 0.55 of a restricted common unit under the Partnership’s long-term incentive plan and will continue to be subject to the terms and conditions of the NSH long-term incentive plan.

 

   

The executive officers who prepared projections with respect to the Partnership’s and NSH’s future financial and operating performance on a stand-alone basis and on a combined basis (1) are officers of

 

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each of NSH and NuStar GP, (2) hold the same positions at each entity, and (3) own both NSH units and common units.

 

    Mr. Greehey and Mr. Barron serve as members of both the NSH Board and the Partnership Board.

 

    After the effective time, the Partnership Board is expected to consist of nine members, six of whom will be the current members of the Partnership Board and three of whom will be the three current members of the NSH Conflicts Committee.

 

    Each of the directors and executive officers of NSH entered into a Change of Control Waiver Agreement with respect to certain awards, grants or benefits such that the merger would not be deemed to cause a change of control, as such term is defined in the applicable plan or agreement and the directors and executive officers would not receive the payments or benefits to which they otherwise may have been entitled.

The exchange ratio is fixed and the market value of the merger consideration to NSH unitholders on a per NSH unit basis will be equal to 0.55 times the market price of a common unit at the closing of the merger, which market value will decrease if the market value of the common units decreases.

The market value of the consideration that NSH unitholders will receive in the merger on a per NSH unit basis will depend on the trading price of the common units at the closing of the merger. The 0.55x exchange ratio that determines the number of common units that NSH unitholders will receive in the merger is fixed. This means that there is no “price protection” mechanism contained in the merger agreement that would adjust the number of common units that NSH unitholders will receive based on any decreases in the trading price of common units. If the common unit price at the closing of the merger is less than the common unit price on the date that the merger agreement was signed, then the market value of the consideration received by NSH unitholders will be less than the market value reflected by trading prices at the time the merger agreement was signed.

Common unit price changes may result from a variety of factors, including general market and economic conditions, changes in the Partnership’s business, operations and prospects, and regulatory considerations. Many of these factors are beyond the Partnership’s and NSH’s control. For historical and current market prices of common units and NSH units, please read the “Market Prices and Distribution Information” section of this proxy statement/prospectus.

The right of NSH unitholders to distributions will be changed following the merger.

Under the existing partnership agreement, NSH unitholders are entitled, as the indirect owners of the Partnership’s general partner, to receive approximately 2.0% of all distributions made by the Partnership with respect to common units and increasing percentages, up to a maximum of 23%, of the amount of incremental cash distributed by the Partnership in respect of the common units as certain target distribution levels are reached in excess of $0.60 per common unit in any quarter.

After the merger, assuming the number of units outstanding as of February 8, 2018 remains unchanged, the former NSH unitholders, as a group, will be entitled to receive approximately 22% of all distributions made by the Partnership in respect of common units. As a result of this change, the distributions received by the former NSH unitholders could be significantly different.

The transactions contemplated by the merger agreement may not be completed even if the requisite NSH unitholder approval is obtained, in which case NSH unitholders will retain their NSH units and the partnership agreement will not be amended and restated.

The merger is subject to the satisfaction or waiver of certain conditions, some of which are out of the control of NSH and the Partnership, including approval of the merger agreement by NSH unitholders. The merger

 

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agreement contains other conditions that, if not satisfied or waived, would result in the merger not occurring, regardless of whether or not the NSH unitholders have approved the merger-related proposals presented to them. Satisfaction of some of these other conditions to the merger is not entirely in the control of NSH or the Partnership. In addition, NSH and the Partnership can agree not to consummate the merger even if all unitholder approvals have been received. The closing conditions to the merger may not be satisfied, and NSH and the Partnership may choose not to, or may be unable to, waive an unsatisfied condition, which may cause the merger not to occur.

The merger agreement contains provisions granting both the Partnership and NSH the right to terminate the merger agreement for certain reasons, including, among others: (1) by mutual consent of the Partnership and NSH; (2) by either party if the merger has not been consummated on or before August 8, 2018; (3) if certain changes in rules or regulations prohibit the consummation of the merger; (4) if NSH fails to obtain NSH unitholder approval; or (5) if a breach of, or an inaccuracy in, the representations, warranties, covenants or agreements is not cured within thirty days and such breach or inaccuracy, together with all other breaches, would entitle the party not to consummate the transaction pursuant to the closing conditions. Furthermore, the Partnership may terminate the merger agreement in the event that, prior to NSH unitholder approval, NSH has intentionally and materially breached the non-solicitation covenants in the merger agreement or the NSH Board changes its recommendation pursuant to the terms of the merger agreement, and NSH may terminate the merger agreement in order to accept a superior proposal so long as NSH: (1) has not intentionally and materially breached certain provisions of the merger agreement and (2) has paid the Partnership a termination fee.

Prior to the closing of the merger and while the merger agreement is in effect, NSH’s opportunities to enter into business combination transactions with other parties on more favorable terms are limited, and both the Partnership and NSH are limited in their ability to pursue other attractive business opportunities.

Prior to the close of the merger and while the merger agreement is in effect, NSH is prohibited from knowingly initiating, soliciting, encouraging or facilitating any inquiries, proposals or offers with respect to, or the submission of, any proposal that constitutes a proposal to acquire NSH, the 2.0% ownership interest of the General Partner or the incentive distribution rights or knowingly engaging or participating in or encouraging or facilitating any discussions or negotiations regarding, or knowingly furnishing or making available or causing to be furnished or made available to any person any non-public information or data in connection with any acquisition proposal for the 2.0% ownership interest of the General Partner in the Partnership, or the incentive distribution rights, subject to limited exceptions. As a result of these provisions in the merger agreement, NSH may lose opportunities to enter into more favorable transactions.

Moreover, the merger agreement provides for the payment by NSH of up to $13.7 million in termination fees under specified circumstances, which may discourage other parties from proposing alternative transactions that could be more favorable to the NSH unitholders. For a detailed discussion of the termination fee, please read “The Merger Agreement—Termination Fee and Expenses” beginning on page 77.

Both the Partnership and NSH have also agreed to refrain from taking certain actions with respect to their businesses and financial affairs pending completion of the merger or termination of the merger agreement. These restrictions and the non-solicitation provisions (described in more detail below in “The Merger Agreement”) could be in effect for an extended period of time if completion of the merger is delayed and the parties agree to extend the August 8, 2018 outside termination date.

In addition to the economic costs associated with pursuing a merger, each of NuStar GP and NSH’s management is devoting substantial time and other resources to the proposed transaction and related matters, which could limit the Partnership’s and NSH’s ability to pursue other attractive business opportunities, including potential acquisitions, dispositions, joint ventures, stand-alone projects and other transactions. If either the Partnership or NSH is unable to pursue such other attractive business opportunities, then its growth prospects and the long-term strategic position of its business and the combined business could be adversely affected.

 

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Financial projections by the Partnership and NSH may not prove accurate.

In performing its financial analyses and rendering its opinion regarding the fairness from a financial point of view of the exchange ratio, the financial advisor to the NSH Conflicts Committee reviewed and relied on, among other things, internal financial analyses and projections with respect to EBITDA and DCF for NSH and the Partnership prepared by management. These financial projections include assumptions regarding future operating cash flows, expenditures, growth and DCF of the Partnership and NSH. These financial projections were not provided with a view to public disclosure, are subject to significant economic, competitive, industry and other uncertainties and may not be achieved in full, at all or within projected timeframes. The failure of the Partnership’s business to achieve projected results, including projected cash flows or DCF, could have a material adverse effect on the common unit price, financial position and ability to maintain or increase its distributions following the merger.

The merger agreement may be terminated on August 8, 2018 if the merger has not been completed, and the failure to complete the merger for any reason could have a negative impact on the price of NSH units and common units.

The merger agreement can be terminated by either the Partnership or NSH if the merger has not been consummated on or before August 8, 2018. The failure to complete the merger for this or any other reason could have a negative impact on the price of NSH units and/or common units.

The number of outstanding common units will increase as a result of the merger, which could make it more difficult for the Partnership to maintain or increase the level of quarterly distributions on the common units.

As of February 8, 2018, there were 93,182,018 common units outstanding and 42,953,132 NSH units outstanding. Pursuant to the merger agreement, assuming the number of NSH units outstanding on February 8, 2018 remains unchanged, the Partnership would issue, and NSH unitholders would receive, 23,624,222 common units and the 10,214,626 NSH units owned by subsidiaries of NSH will be cancelled. Accordingly, based on those assumptions, as a result of the merger, the number of outstanding common units would be 106,591,614. On April 26, 2018, the Partnership announced that the Partnership Board reset its quarterly distribution per common unit to $0.60 ($2.40 on an annualized basis), starting with the first-quarter distribution, which was paid on May 14, 2018. Although the decrease in the level of quarterly distributions and the elimination of the incentive distribution rights may initially allow for an increase in the cash available for distribution on common units in the future, these measures alone may not be sufficient to meet the overall increase in cash required to maintain or increase the level of quarterly distributions with respect to the common units.

Failure to complete the merger or delays in completing the merger could have a negative impact on the common unit price and NSH unit price.

If the merger is not completed for any reason, the Partnership and NSH may be subject to a number of material risks, including the following:

 

    the Partnership will not realize the benefits expected from the merger, including a potentially enhanced financial and competitive position;

 

    the price of common units or NSH units may decline to the extent that the current market price of these securities reflects a market assumption that the merger will be completed; and

 

    some costs relating to the merger, such as certain investment banking fees and legal and accounting fees, must be paid even if the merger is not completed.

 

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The costs of the merger could adversely affect the Partnership’s and NSH’s operations and cash flows available for distribution to the common unitholders and NSH unitholders.

The total costs of the merger, which could be substantial, primarily consist of investment banking, legal counsel and accounting fees, financial printing and other related costs. These costs could adversely affect the Partnership’s and NSH’s operations and cash flows available for distribution to the common unitholders and NSH unitholders.

If the merger agreement is terminated, NSH may be obligated to pay the Partnership a termination fee or costs incurred related to the merger. These fees or costs could require NSH to seek loans or use NSH’s available cash that would have otherwise been available for distributions to NSH unitholders.

Upon termination of the merger agreement, and depending upon the circumstances leading to that termination, NSH may be required to pay the Partnership a termination fee of $13.7 million, and NSH or the Partnership may be obligated to reimburse the other for up to $6.0 million in merger related expenses. For a detailed discussion of the various circumstances leading to a payment of the termination fee and the reimbursement of expenses, please read “The Merger Agreement—Termination Fee and Expenses” beginning on page 77.

If the merger agreement is terminated, the termination fee and/or expense reimbursements required by NSH under the merger agreement may require NSH to seek loans, borrow amounts under its revolving credit facility or use cash received from its distributions from the Partnership to pay these costs. In either case, the payment of the termination fee and/or the reimbursement of merger related expenses would reduce the cash NSH has available to make its quarterly distributions to NSH unitholders.

Tax Risks Related to the Merger

In addition to reading the following risk factors, you are urged to read “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 115 and “Material U.S. Federal Income Tax Consequences of Common Unit Ownership” beginning on page 120 for a more complete discussion of the expected material U.S. federal income tax consequences of the merger and owning and disposing of common units received in the merger. Please also read Part 1, Item 1A, “Risk Factors—Tax Risks to our Unitholders” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 for a discussion of tax risks relating to owning common units.

No ruling has been requested from the IRS with respect to the U.S. federal income tax consequences of the merger.

No ruling has been or will be requested from the IRS with respect to the U.S. federal income tax consequences of the merger. Instead, the Partnership and NSH are relying on the opinions of their respective counsel as to the U.S. federal income tax consequences of the merger, and counsel’s conclusions may not be sustained if challenged by the IRS. Please read “Material U.S. Federal Income Tax Consequences of the Merger.”

The intended U.S. federal income tax consequences of the merger are dependent upon each of the Partnership and NSH being treated as a partnership for U.S. federal income tax purposes.

The intended U.S. federal income tax treatment of the merger as a partnership merger is dependent upon each of the Partnership and NSH being treated as a partnership for U.S. federal income tax purposes. If either the Partnership or NSH were treated as a corporation for U.S. federal income tax purposes, the consequences of the merger would be materially different and the merger would likely be a fully taxable transaction to NSH unitholders.

 

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NSH unitholders could recognize taxable income or gain for U.S. federal income tax purposes as a result of the merger.

For U.S. federal income tax purposes, the merger is intended to qualify as a “merger” of the Partnership and NSH within the meaning of Treasury regulations promulgated under Section 708 of the Code. Assuming the merger is treated as such for U.S. federal income tax purposes, the Partnership is expected to be treated as the continuing partnership and NSH will be deemed to contribute all of its assets (subject to liabilities) to the Partnership in exchange for common units, followed by a liquidation of NSH in which common units are distributed to NSH unitholders.

As a result of the merger, NSH unitholders who receive common units will become limited partners of the Partnership and will be allocated a share of the Partnership’s nonrecourse liabilities. Each such NSH unitholder will be treated as receiving a deemed cash distribution equal to the excess, if any, of such NSH unitholder’s share of nonrecourse liabilities of NSH immediately before the merger over such NSH unitholder’s share of nonrecourse liabilities of the Partnership immediately following the merger. If the amount of any deemed cash distribution received by such NSH unitholder exceeds the NSH unitholder’s basis in his units, such NSH unitholder will recognize gain in an amount equal to such excess. While there can be no assurance, the Partnership and NSH expect that NSH unitholders generally will not recognize gain in this manner. The amount and effect of any gain that may be recognized by NSH unitholders will depend on such unitholder’s particular situation, including the ability of the affected NSH unitholder to utilize any suspended passive losses. For additional information please read “Material U.S. Federal Income Tax Consequences of the Merger.”

To the extent an NSH unitholder receives cash in lieu of fractional common units in the merger, such unitholder is deemed to have consented, pursuant to the merger agreement, to treat the receipt of cash in lieu of fractional common units as a sale of a portion of such holder’s NSH units to the Partnership and, accordingly, will recognize gain or loss equal to the difference between the amount of cash received and the NSH unitholder’s adjusted tax basis allocated to such portion of NSH units sold.

In addition, the assumption of NSH’s liabilities by the Partnership pursuant to the merger could trigger gain to NSH if it were treated as part of a “disguised sale” of assets to the Partnership, and any such gain would be allocated to the NSH unitholders pursuant to NSH’s limited liability company agreement.

Although it is not anticipated, circumstances may exist under which an NSH unitholder’s share of NSH’s basis (including basis resulting from Section 743 adjustments) in the distributed common units exceeds the NSH unitholder’s basis in its NSH units, in which case the merger may result in recognition of gain by such NSH unitholder equal to that excess under Section 731(c) of the Code. See “Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of these and other tax matters.

 

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THE NSH SPECIAL MEETING

The NSH Board is using this proxy statement/prospectus to solicit proxies from the holders of NSH units for use at the NSH special meeting. In addition, this proxy statement/prospectus constitutes a prospectus for the offering of the common units to be received by NSH unitholders pursuant to the merger. NSH is first distributing this proxy statement/prospectus and accompanying proxy to NSH unitholders on or about June 27, 2018.

Time, Place and Date. The NSH special meeting will be held on July 20, 2018 at 10:30 a.m., local time at NSH’s principal executive offices located at 19003 IH-10 West, San Antonio, Texas 78257.

Purpose of the NSH Special Meeting . The purposes of the NSH special meeting are:

 

    to consider and vote on the approval of the merger agreement and the transactions contemplated thereby, including the merger; and

 

    to transact other business as may properly be presented at the NSH special meeting or any adjournments or postponements thereof.

At the present time, NSH knows of no other matters that will be presented for consideration at the meeting.

The NSH Conflicts Committee unanimously determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby are advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders. Accordingly, the NSH Conflicts Committee recommended that the NSH Board approve the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. Based on the NSH Conflicts Committee’s determination and recommendation and all of the information made available to the NSH Board and upon other relevant factors, the NSH Board (with Mr. Greehey and Mr. Barron recusing themselves) unanimously approved and declared the advisability of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. The NSH Board recommends that the NSH unaffiliated unitholders vote “ FOR ” the merger proposal.

Quorum Requirement . The holders of a majority of outstanding NSH units represented in person or by proxy at the NSH special meeting will constitute a quorum for the transaction of business at the NSH special meeting. NSH units will be counted as present at the NSH special meeting if the holder (1) is present in person at the meeting or (2) has submitted a proxy over the internet, by phone or by mail. Proxies received but marked as abstentions will be counted as NSH units that are represented by proxy at the NSH special meeting for purposes of determining the presence of a quorum and will have the same effect as a vote against the merger proposal. In addition, NSH units held in “street name” through a broker or other nominee cannot be voted by such broker or other nominee in the absence of specific instructions from the NSH unitholder on how to vote such units. Because a broker or other nominee cannot vote at the NSH special meeting without voting instructions from the NSH unitholder, failure of an NSH unitholder to provide instructions to its broker or other nominee on how to vote will result in such NSH units not being counted as present at the NSH special meeting.

Record Date. The record date for determining NSH unitholders entitled to vote at the NSH special meeting is the close of business on June 22, 2018.

NSH Units Entitled to Vote.  NSH unitholders may vote at the NSH special meeting if they owned NSH units at the close of business on the record date. NSH unitholders may cast one vote for each NSH unit owned on the record date.

Votes Required. Under NSH’s limited liability company agreement, the affirmative vote of the holders of at least a majority of outstanding NSH units is required to approve the merger agreement and the transactions contemplated thereby, including the merger. Failures to vote and abstentions will have the same effect as a vote against the approval of the merger agreement and the transactions contemplated thereby, including the merger, for purposes of the unitholder vote required under the NSH limited liability company agreement.

 

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Pursuant to a support agreement, the supporting unitholders, owning 21.4% of the outstanding NSH units, have agreed to vote their NSH units in favor of the proposal to approve the merger agreement and the transactions contemplated thereby, including the merger.

NSH Units Outstanding. As of the record date, there were 42,953,132 NSH units outstanding.

Submission and Voting Procedures

Submission and Voting by NSH Unitholders . NSH unitholders may submit a proxy or vote in person using any of the following methods:

 

    call the toll-free phone number listed on your proxy card and follow the recorded instructions;

 

    go to the internet website listed on your proxy card and follow the instructions provided;

 

    complete, sign and mail your proxy card in the postage-paid envelope; or

 

    attend the meeting and vote in person.

If you have timely and properly submitted your proxy, clearly indicated your vote and have not revoked your proxy, your NSH units will be voted as indicated. If you have timely and properly submitted your proxy but have not clearly indicated your vote, your NSH units will be voted FOR approval of the merger agreement and the transactions contemplated thereby, including the merger.

If any other matters are properly presented for consideration at the meeting or any adjournment or postponement thereof, the persons named in your proxy will have the discretion to vote on these matters. NSH’s limited liability company agreement provides that any meeting of NSH unitholders may be adjourned from time to time by the chairman of the meeting to another place or time, without regard to the presence of a quorum.

Revocation . You may revoke a proxy at any time before voting is closed at the NSH special meeting by:

 

    submitting a written revocation to the Corporate Secretary of NSH at the address indicated on the cover page of this proxy statement/prospectus, if such proxy is received by the Corporate Secretary by 11:59 p.m. Eastern Time on July 19, 2018;

 

    submitting your valid, signed and later-dated proxy by mail that is received by 11:59 p.m. Eastern Time on July 19, 2018;

 

    submitting your valid proxy by telephone or over the internet by 11:59 p.m. Eastern Time on July 19, 2018; or

 

    voting in person at the NSH special meeting by presenting a valid photo identification and a legal proxy.

However, if the NSH special meeting is adjourned to solicit additional proxies, the time by which a proxy may be revoked may be extended. If instructions to the contrary are not given, NSH units will be voted as indicated on the proxy and your presence without voting at the meeting will not automatically revoke your proxy.

Validity . The inspectors of election will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance of proxies. Their determination will be final and binding. The NSH Board has the right to waive any irregularities or conditions as to the manner of voting. NSH may accept your proxy by any form of communication permitted by Delaware law so long as NSH is reasonably assured that the communication is authorized by you.

Solicitation of Proxies . The accompanying proxy is being solicited on behalf of the NSH Board. If the merger is consummated, the expenses of preparing, printing and distributing the proxy and materials used in the solicitation will be borne equally by NSH and the Partnership.

 

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Morrow Sodali LLC (“Morrow”) has been retained by NSH to aid in the solicitation of proxies for an initial fee of $8,500 plus an additional fee for each NSH unitholder contacted and the reimbursement of out-of-pocket expenses. In addition to distributing this proxy statement/prospectus, proxies may also be solicited from NSH unitholders by personal interview, telephone, fax or other electronic means by directors, officers and employees of NSH and its affiliates who provide services to NSH, who will not receive additional compensation for performing that service. Arrangements also will be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of proxy materials to the beneficial owners of NSH units held by those persons, and NSH will reimburse them for any reasonable expenses that they incur.

NSH Units Held in Street Name . If you hold NSH units in the name of a broker or other nominee, you should follow the instructions provided by your broker or nominee when voting your NSH units or when granting or revoking a proxy.

Absent specific instructions from you, your broker or other nominee is not empowered to vote your NSH units with respect to the approval of the merger agreement and the transactions contemplated thereby, including the merger.

Failures to vote and abstentions will have the same effect as a vote against approval of the merger proposal for purposes of the NSH unitholder vote required under the NSH limited liability company agreement.

 

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THE MERGER

Background of the Merger

On October 19, 2017, at a joint meeting of the Partnership Board and NSH Board, management briefed the boards on the condition of capital markets for master limited partnerships and reviewed alternative strategies for consideration to better position the Partnership and NSH for long-term growth. These alternatives included: (1) the disposition of non-core assets to either (A) repay senior debt, (B) repay junior subordinated notes or (C) buy back common units; (2) simplifying the Partnership’s structure; (3) resetting the Partnership’s distributions; and (4) converting the Partnership and NSH to entities taxable as corporations. Management noted that although some of these alternatives offered significant benefits, no single option would fully address the needs of the Partnership and NSH. The meeting concluded with the boards asking management to return with its recommendation for a path forward.

On December 4, 2017, at a joint meeting of the Partnership Board and NSH Board, management presented its analysis of the strategic alternatives provided to the boards at the October 19, 2017 meeting. At the end of its presentation, management recommended that the Partnership reset the level of Partnership distributions and the Partnership and NSH simplify their structure.

Management, in recommending that the Partnership reset the level of Partnership distributions and that the Partnership and NSH simplify their structure as opposed to pursuing other strategic alternatives, considered that the other alternatives, on their own or in a combination, were not expected to provide the same level of long-term benefits that are expected to be provided through the recommended transaction, which include improvement to the Partnership’s distribution coverage and debt metrics, reduction in the Partnership’s need to access the capital markets over the long term and creation of a path for distribution growth by the Partnership following the reset, while also providing NSH unitholders with the potential to participate in any future common unit price appreciation and/or distribution increases.

At the conclusion of management’s presentation, the Partnership Board and the NSH Board convened separately to further discuss management’s recommendation. The Partnership Board continued to meet with management and also met with Evercore Group L.L.C. (“Evercore”). The Partnership Board requested that management further analyze the level to which management would recommend that the Partnership distributions be reset. The NSH Board determined that the NSH Conflicts Committee, composed of William B. Burnett, James F. Clingman, Jr. and Jelynne LeBlanc-Burley, should begin interviewing potential advisors to aid the NSH Conflicts Committee in its process of reviewing and negotiating a potential transaction with the Partnership.

On December 6, 2017, the NSH Conflicts Committee met telephonically with representatives of a potential financial advisor to assess the financial advisor’s ability and qualifications to provide financial advice to the NSH Conflicts Committee relating to a possible strategic transaction with the Partnership.

On December 7, 2017, the Partnership Board convened, in person, at a meeting, with members of management and Evercore also present. During this meeting, the Partnership Board was provided with alternative scenarios with respect to the level of a potential Partnership distribution reset. Following these discussions, the Partnership Board concluded that a distribution reset to $0.60 per common unit per quarter and the simplification transaction should be proposed to NSH, with the terms of any such transaction to be subject to approval by the Partnership Conflicts Committee.

On December 11, 2017, Mr. Barron called William Burnett, the Chairman of the NSH Conflicts Committee, to convey the Partnership’s proposal to acquire NSH in a unit-for-unit exchange reflecting prevailing market prices (which implied an exchange ratio of 0.4897 of a common unit for each NSH unit based on the closing prices of common units and NSH units on December 11, 2017) and followed this telephone call with a written proposal letter to the same effect. The written proposal also included a presentation regarding, among other things, the proposed organizational structure of the Partnership and its affiliates following the proposed

 

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transaction, financial forecasts of the Partnership (see “—Unaudited Financial Projections of the Partnership and NSH”), projected leverage ratios of the Partnership under different scenarios, and updates relating to the operations of the Partnership (the “Partnership Initial Proposal”). Mr. Burnett informed Mr. Barron that he would share the Partnership Initial Proposal with the NSH Conflicts Committee, and Mr. Burnett subsequently shared it with the NSH Conflicts Committee.

On December 12, 2017, the NSH Conflicts Committee met with representatives of management of the Partnership to discuss the Partnership’s rationale for the Partnership Initial Proposal. After the members of management were excused from the meeting, the NSH Conflicts Committee continued their meeting and discussed the Partnership Initial Proposal on a preliminary basis. The NSH Conflicts Committee agreed to continue its consideration of the Partnership Initial Proposal after finalizing its choice of financial and legal advisors.

On December 13, 2017, the NSH Conflicts Committee met telephonically with representatives of Baird to assess Baird’s ability and qualifications to provide financial advice to the NSH Conflicts Committee relating to the Partnership Initial Proposal.

On December 14, 2017, at a telephonic meeting of the NSH Conflicts Committee, after discussing and considering Baird’s capabilities and experience in connection with similar transactions, the NSH Conflicts Committee determined to engage Baird to act as the NSH Conflicts Committee’s financial advisor with respect to the proposed acquisition of NSH by the Partnership.

On December 19, 2017, representatives of Wachtell Lipton and Baird met with representatives of management of the Partnership and NSH to discuss preliminary due diligence matters. Management of the Partnership and NSH reviewed a presentation previously given to both the Partnership Board and the NSH Board relating to the strategic outlook of the Partnership and NSH. Management of the Partnership and NSH then reviewed the current business outlook of the Partnership and financial projections with respect to the Partnership and NSH, respectively.

On December 21, 2017, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, to discuss, among other things, its process for evaluating the Partnership Initial Proposal and the due diligence conducted to date, including an overview of the December 19, 2017 initial due diligence meeting with representatives of the Partnership. The NSH Conflicts Committee also discussed a potential transaction timeline, an overview of the Partnership Initial Proposal and the pro forma impact of a distribution reset by the Partnership. At the meeting, representatives of Wachtell Lipton also reviewed legal matters with the NSH Conflicts Committee, including the duties of the members of the NSH Conflicts Committee in connection with a process of this nature.

Between December 22, 2017 and January 8, 2018, Baird gathered and reviewed information concerning the Partnership Initial Proposal, which included numerous discussions with representatives of management of the Partnership and NSH, as well as Evercore.

On January 8, 2018, the NSH Conflicts Committee held a telephonic meeting, with representatives of Baird and Wachtell Lipton in attendance, to review Baird’s financial analysis, including discounted cash flow analysis, discounted distribution analysis, selected public company comparable analysis and selected precedent transactions analysis, to date regarding the Partnership Initial Proposal. The NSH Conflicts Committee also discussed with the representatives of Baird and Wachtell Lipton the process of a potential negotiation with the Partnership and began discussing a potential response to the Partnership Initial Proposal. The NSH Conflicts Committee determined to hold a follow-up meeting the next day.

On January 9, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, to discuss a potential response to the Partnership Initial Proposal. After discussing

 

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with Baird its updated financial analyses regarding the Partnership Initial Proposal (which implied an exchange ratio of 0.509 of a common unit for each NSH unit based on the closing prices of common units and NSH units on January 5, 2018), the NSH Conflicts Committee determined that the Partnership Initial Proposal was inadequate and should be rejected, and discussed potential parameters of a counterproposal. The NSH Conflicts Committee determined to hold a meeting the following day to discuss the potential terms of a counterproposal in more detail.

On January 10, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance. After discussing the financial analysis underlying a potential counterproposal with representatives of Baird, the NSH Conflicts Committee determined that, while the Partnership Initial Proposal was inadequate, a transaction with the Partnership, on appropriate terms, could be beneficial to the NSH unaffiliated unitholders. The Committee determined to make a counterproposal reflecting a proposed transaction in which each NSH unit would be exchanged for 0.5984 of a common unit (the “NSH Initial Counterproposal”), which implied a premium of 17.5% based on the closing prices of common units and NSH units on January 5, 2018, the date utilized by Baird in its preliminary financial analysis, and implied a premium of 21.5% based on the closing prices of common units and NSH units on January 10, 2018. The NSH Conflicts Committee determined to hold a meeting the following morning to review and discuss a proposed final form of written NSH Initial Counterproposal that was being prepared by Wachtell Lipton.

On January 11, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance. After additional discussion, the NSH Conflicts Committee unanimously approved the NSH Initial Counterproposal, and authorized and instructed Baird to contact Evercore to present the financial analysis and justifications supporting the NSH Initial Counterproposal. Later on January 11, 2018, Mr. Burnett sent a letter to Mr. Barron setting forth the NSH Initial Counterproposal.

On January 12, 2018, representatives of Baird had a call with representatives of Evercore to present the financial analysis supporting the NSH Initial Counterproposal.

Also on January 12, 2018, the NSH Board took action by written consent to finalize the mandate and authorizations of the NSH Conflicts Committee. The NSH Board authorized the NSH Conflicts Committee to (1) review and evaluate on behalf of NSH the terms and conditions of the proposed transaction outlined in the December 11, 2017 letter from the Partnership, (2) negotiate the terms and conditions of the proposed transaction, (3) approve, or determine not to approve, the proposed transaction, any such approval of the proposed transaction to constitute “Special Approval” pursuant to Section 7.9(a) of the NSH limited liability company agreement, (4) recommend to the NSH Board that the proposed transaction be approved or not approved, or determine not to make any recommendation regarding the proposed transaction to the NSH Board and (5) determine whether the proposed transaction is advisable and fair to, and in the best interests of, NSH and its unitholders. The NSH Conflicts Committee was also authorized to retain independent professional advisors, and the NSH Board approved the payment of meeting fees to each member of the NSH Conflicts Committee of $1,500 per meeting attended in-person and $500 per meeting attended telephonically. The NSH Board also resolved that the powers, rights and duties of the NSH Conflicts Committee were deemed to have become effective as of December 6, 2017 and the NSH Board ratified all actions taken by the NSH Conflicts Committee prior to January 12, 2018.

On January 19, 2018, the Partnership Conflicts Committee met telephonically, with representatives of Evercore, the financial advisor engaged by the Partnership Conflicts Committee, and Richards, Layton & Finger, P.A., legal counsel to the Partnership Conflicts Committee (“Richards Layton”), in attendance, to consider the NSH Initial Counterproposal. The Partnership Conflicts Committee reviewed Evercore’s financial analyses regarding the NSH Initial Counterproposal and discussed, among other things, the strategic rationale for a transaction from the Partnership’s perspective, and timing and pro forma impacts of a distribution reset by the Partnership. The Partnership Conflicts Committee also reviewed with representatives of Richards Layton the proposed terms of the initial drafts of the merger agreement, the amended and restated partnership agreement and

 

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the support agreement. Following discussion, the Partnership Conflicts Committee unanimously determined to make a counterproposal pursuant to which each NSH unit would be exchanged for a common unit at no premium, which implied an exchange ratio of 0.5230 of a common unit for each NSH unit based on the closing prices of common units and NSH units on January 18, 2018 (“Partnership First Revised Proposal”). The Partnership Conflicts Committee directed Evercore to present the Partnership First Revised Proposal to Baird.

Later on January 19, 2018, following the Partnership Conflicts Committee meeting, Evercore presented the Partnership First Revised Proposal to Baird. Evercore noted that the 0.5230 exchange ratio implied by this offer as of the close on January 18, 2018 would have represented an approximately 6.8% premium if applied to the closing price of NSH units on the date of the Partnership Initial Proposal.

On January 23, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, to consider the Partnership First Revised Proposal. Representatives of Baird reviewed certain financial analyses regarding the Partnership First Revised Proposal with the NSH Conflicts Committee. Representatives of Wachtell Lipton reviewed legal matters, including the duties of the members of NSH Conflicts Committee pursuant to contract and law under the circumstances. The NSH Conflicts Committee discussed Baird’s financial analysis, including discounted cash flow analysis, discounted distribution analysis, selected public company comparable analysis and selected precedent transactions analysis. The NSH Conflicts Committee discussed, among other things, the financial assumptions underlying Baird’s analysis and the financial assumptions being utilized by each of Baird and Evercore, and the strategic rationale for a transaction from NSH’s perspective. Following this discussion, the NSH Conflicts Committee unanimously determined to make a counterproposal pursuant to which the Partnership would acquire NSH in a transaction in which each NSH unit was exchanged for 0.56 of a common unit, which implied a premium of 7.6% based on the closing prices of common units and NSH units on January 19, 2018, the last close within Baird’s updated financial analysis presented to the NSH Conflicts Committee, and implied a premium of 6.2% based on the closing prices of common units and NSH units on January 23, 2018 (“NSH Second Counterproposal”). The NSH Conflicts Committee directed Baird to present the NSH Second Counterproposal to Evercore.

Later on January 23, 2018, Baird presented the NSH Second Counterproposal to Evercore and explained to Evercore the financial rationale and analyses underlying such proposal. Also on January 23, 2018, representatives of Richards Layton sent a draft merger agreement to representatives of Wachtell Lipton.

On January 25, 2018, the Partnership Conflicts Committee met telephonically, with representatives of Evercore and Richards Layton in attendance, to consider the NSH Second Counterproposal. Representatives of Evercore reviewed certain financial analyses regarding the NSH Second Counterproposal with the Partnership Conflicts Committee. Representatives of Richards Layton then reviewed with the Partnership Conflicts Committee certain legal and diligence matters. Following discussion, the Partnership Conflicts Committee unanimously determined to propose a fixed exchange ratio consisting of the lower of (1) 0.55 of a common unit for each NSH unit, which was equivalent to a 2.9% premium based on the closing prices of common units and NSH units on January 24, 2018 and (2) an exchange ratio that represents a 5% premium to the price of NSH units at the time of signing of the definitive merger agreement (the “Partnership Second Revised Proposal”). The Partnership Conflicts Committee directed Evercore to present the Partnership Second Revised Proposal to Baird.

On January 25, 2018, following the Partnership Conflicts Committee meeting, Evercore presented the Partnership Second Revised Proposal to Baird.

On January 29, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, to consider the Partnership Second Revised Proposal. The NSH Conflicts Committee reviewed Baird’s financial analysis, including discounted cash flow analysis, discounted distribution analysis, selected public company comparable analysis and selected precedent transactions analysis. The NSH Conflicts Committee discussed, among other things, a potential counterproposal. The NSH Conflicts Committee determined to authorize Baird to communicate to Evercore that an exchange ratio of 0.55 of a common unit for

 

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each NSH unit was likely acceptable as long as such exchange ratio at signing did not imply a negative premium (in light of the execution risk the NSH Conflicts Committee believed could be created by a negative premium to NSH’s ability to consummate the transaction given the required NSH unitholder vote), subject to negotiation of satisfactory definitive documents. Wachtell Lipton also reviewed with the NSH Conflicts Committee issues related to the draft merger agreement sent by Richards Layton on January 23, 2018. The NSH Conflicts Committee directed Wachtell Lipton to begin negotiations with Richards Layton and Sidley Austin relating to the merger agreement. Later on January 29, 2018, Baird contacted Evercore to update them as directed by the NSH Conflicts Committee.

Commencing on January 30, 2018, the conflicts committees and their respective legal counsel and financial advisors began the process of exchanging and reviewing drafts of various transaction documents, including, among other things, the merger agreement, the support agreement, the amended and restated partnership agreement and the NuStar GP amended and restated company agreement. Representatives of Wachtell Lipton, Richards Layton and Sidley Austin had a number of calls to discuss various open issues relating to the transaction documents, including, among other things, (1) deal protection parameters, including, among other things, the circumstances under which NSH could engage with alternative transaction proposals, the match right period of the Partnership and the circumstances under which the respective boards or conflicts committees could terminate the agreement or change their recommendations as to the merger, (2) the nature of the tax and legal opinions that would be included as closing conditions to the merger, (3) the circumstances under which NSH would be required to pay a termination fee or expense reimbursement to the Partnership and (4) representations and warranties and interim operating covenants of the parties.

On January 30, 2018, the Partnership Conflicts Committee met telephonically, with representatives of Evercore and Richards Layton in attendance. Representatives of Richards Layton reviewed with the Partnership Conflicts Committee certain legal matters, including key terms of the draft amended and restated partnership agreement. Representatives of Evercore summarized its conversations with Baird since the Partnership Conflicts Committee’s meeting on January 25, 2018. The Partnership Conflicts Committee discussed the recent trading performance of common units and NSH units and the current implied exchange ratio of the Partnership Second Revised Proposal. Following discussion, the Partnership Conflicts Committee decided not to take any action at that time with respect to the proposed exchange ratio and directed Evercore to inform Baird of its decision.

Later on January 30, 2018, following the Partnership Conflicts Committee meeting, Evercore informed Baird of the Partnership Conflicts Committee’s decision not to take any action at that time with respect to the proposed exchange ratio.

On February 2, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance. Representatives of Baird reviewed with the NSH Conflicts Committee updated financial analyses regarding the transaction based on the most recent market data, including, among other things, the implied premium of a 0.55 exchange ratio based on the closing prices of common units and NSH units on February 2, 2018 and at different Partnership and NSH unit prices. Representatives of Wachtell Lipton reviewed legal matters with the NSH Conflicts Committee, including the status of negotiations with respect to the amended and restated partnership agreement and the support agreement. The advisors also discussed with the NSH Conflicts Committee the anticipated process and timeline for reaching proposed final forms of definitive transaction agreements. The NSH Conflicts Committee directed Baird and Wachtell Lipton to proceed with negotiations.

On February 5, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, and discussed with the advisors the most recently updated financial analyses of Baird and status of negotiations with respect to the transaction documents. The NSH Conflicts Committee directed Baird and Wachtell Lipton to proceed with negotiations.

On February 6, 2018, Baird met with members of the Partnership and NSH management to conduct a final due diligence call. At the meeting, management confirmed its financial forecasts and projections (with respect to

 

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EBITDA and DCF) and affirmed that there had been no material changes in the operations or performance of the Partnership or NSH or other material events or contingencies, other than as previously disclosed.

Later on February 6, 2018, the NSH Conflicts Committee met telephonically, with representatives of Baird and Wachtell Lipton in attendance, and discussed with the advisors the most recently updated financial analyses of Baird and status of negotiations with respect to the transaction documents. The NSH Conflicts Committee directed Baird and Wachtell Lipton to proceed with negotiations.

On February 7, 2018, the Compensation Committee of the NSH Board, with representatives of Wachtell Lipton and Baird in attendance by telephone, met to discuss amendments to the NSH long-term incentive plan that were required to ensure that the proposed transaction would not trigger change in control provisions, consistent with the parties’ intentions. After reviewing the proposed amendments and receiving advice from Wachtell Lipton, the NSH Compensation Committee unanimously approved the amendments to the NSH long-term incentive plan.

Immediately after the meeting of the NSH Compensation Committee, the NSH Conflicts Committee, with representatives of Wachtell Lipton and Baird in attendance by telephone, met to review and consider the proposed transaction between NSH and the Partnership. Baird presented in detail its financial analysis of the proposed transaction at an exchange ratio of 0.55 of a common unit for each NSH unit, and, at the conclusion of its presentation, delivered to the NSH Conflicts Committee its oral opinion (which was subsequently confirmed in writing by delivery of Baird’s written opinion, dated February 7, 2018) that, as of the date of such opinion and based upon and subject to the various assumptions, qualifications and limitations set forth in the written opinion, the merger consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders. Wachtell Lipton then reviewed the terms of the merger agreement and related transaction documents, and discussed other legal matters, including the duties of the members of NSH Conflicts Committee pursuant to contract and law under the circumstances. After considering the benefits and potential risks of the transaction and after considering other relevant factors, including Baird’s fairness opinion, the NSH Conflicts Committee unanimously (1) determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby are advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders, (2) approved the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby, (3) recommended to the NSH Board the approval of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby and (4) resolved that the foregoing approvals constituted “Special Approval” of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby under and pursuant to the NSH limited liability company agreement.

Immediately following the meeting of the NSH Conflicts Committee on February 7, 2018, the NSH Board, (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves due to their affiliation with the Partnership), with representatives of Wachtell Lipton and Baird in attendance by telephone, met to review and consider the proposed transaction between NSH and the Partnership. After considering the benefits and potential risks of the transaction and other relevant factors, including the recommendation of the NSH Conflicts Committee, the NSH Board unanimously (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves): (1) determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby are advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders, (2) approved the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby, (3) resolved that the approval and recommendation of the NSH Conflicts Committee constitutes “Special Approval” of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby for all purposes under the NSH limited liability company agreement, (4) directed that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby be submitted to the NSH unitholders for their consideration and approval and (5) recommended to the NSH unaffiliated unitholders that they vote in favor of the approval and adoption of the merger, the merger agreement and the transactions contemplated thereby.

 

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On February 7, 2018, the Compensation Committee of the Partnership Board met telephonically, with representatives of Evercore and Richards Layton in attendance, to discuss: (1) amendments to the Partnership long-term incentive plan that were required to ensure that the merger would not trigger change of control provisions, consistent with the parties’ intentions and (2) the assumption by the Partnership of the NSH long-term incentive plan at the closing of the merger. Following discussion, the Partnership Compensation Committee unanimously approved the amendments to the Partnership long-term incentive plan and the Partnership’s assumption of the NSH long-term incentive plan at the closing of the merger.

Immediately after the meeting of the Partnership Compensation Committee, the Partnership Conflicts Committee met telephonically, with representatives of Evercore and Richards Layton in attendance, to review and consider the proposed transaction between the Partnership and NSH. Amy L. Perry, Senior Vice President, General Counsel and Corporate Secretary of NuStar GP, and Thomas R. Shoaf, Executive Vice President and Chief Financial Officer of NuStar GP, and representatives of Sidley Austin joined a portion of the meeting. After discussion and consideration of the benefits and potential risks of the transaction and other relevant factors among the members of the Partnership Conflicts Committee and its legal counsel and financial advisor, the Partnership Conflicts Committee: (1) approved the proposed transaction, including the merger agreement, the amended and restated partnership agreement, the support agreement and the NuStar GP amended and restated company agreement, and the transactions contemplated thereby, including the merger and the issuance of the merger consideration, upon the terms and conditions set forth therein and (2) recommended to the Partnership Board that the Partnership Board approve the proposed transaction, including the merger agreement, the amended and restated partnership agreement, the support agreement and the NuStar GP amended and restated company agreement, and the transactions contemplated thereby, including the merger and the issuance of the merger consideration, upon the terms and conditions set forth therein.

Immediately following the meeting of the Partnership Conflicts Committee on February 7, 2018, the Partnership Board met telephonically, with all members in attendance (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves), along with Ms. Perry, Mr. Shoaf, representatives of Sidley Austin, Richards Layton and Evercore in attendance, to review and consider the proposed transaction between the Partnership and NSH. After discussion and consideration of the benefits and potential risks of the transaction and other relevant factors, including the recommendation of the Partnership Conflicts Committee, the Partnership Board unanimously (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves) approved the proposed transaction, including the merger agreement, the amended and restated partnership agreement, the support agreement and the NuStar GP amended and restated company agreement, and the transactions contemplated thereby, including the merger and the issuance of the merger consideration, upon the terms and conditions set forth therein.

Following the February 7, 2018 meetings of the NSH Conflicts Committee, the NSH Board, the Partnership Conflicts Committee and the Partnership Board, the parties executed and delivered the definitive merger agreement. The parties to the support agreement also executed and delivered the support agreement.

On February 8, 2018, the Partnership and NSH issued a joint press release announcing the merger agreement and the proposed merger.

Subsequent Events

On March 2, 2018, Mr. Barron received a telephone call from Mr. Kelcy Warren, the Chairman and Chief Executive Officer of Energy Transfer Equity, L.P. (“ETE”), notifying him that ETE was sending a letter to the NSH Board proposing to acquire NSH in a consensual transaction. Mr. Barron informed representatives of Wachtell Lipton and the members of the NSH Conflicts Committee of this call.

On March 5, 2018, the NSH Board received a letter from ETE, dated March 2, 2018 (the “ETE Letter”), proposing to acquire NSH for $14.70 per NSH unit in cash, which also mentioned the possibility of a transaction

 

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in equity or a combination of cash and equity and stated that, in connection with any transaction that might be agreed between ETE and NSH, ETE would expect that Mr. Greehey would withdraw his support for the merger with the Partnership and instead support ETE’s proposal. Later on March 5, 2018, the NSH Conflicts Committee met telephonically, with representatives of Wachtell Lipton in attendance, to review the ETE Letter. Wachtell Lipton reviewed the NSH Conflicts Committee’s fiduciary duties and the provisions of the merger agreement applicable to the NSH Conflict Committee’s consideration of the ETE Letter. The NSH Conflicts Committee discussed the ETE Letter and the process for reviewing and evaluating the ETE Letter. The NSH Conflicts Committee directed Wachtell Lipton to request that NSH management present updated information to the committee. Pursuant to the terms of the merger agreement, the NSH Conflicts Committee provided notice to the Partnership Conflicts Committee of the ETE Letter.

On March 7, 2018, the NSH Conflicts Committee received a letter from Mr. Greehey stating that as an NSH unitholder he continued to support the transaction with the Partnership, and he would not enter into a support agreement or vote his NSH units in favor of the transaction proposed in the ETE Letter.

On March 7, 2018, the NSH Conflicts Committee, with representatives of Wachtell Lipton and Baird in attendance by telephone, met to discuss and review the ETE Letter. At the request of the NSH Conflicts Committee, members of NSH management were also in attendance at the start of the meeting. At the request of the NSH Conflicts Committee, members of NSH management presented an update on the Partnership’s operations and its views of the combined NSH and Partnership entity. Members of NSH management reviewed the strategic benefits of the transaction with the Partnership, the progress made by management relating to its strategic plan and provided an update relating to the financial and operational performance of NSH and the Partnership. The members of management were then excused from the meeting, and the NSH Conflicts Committee discussed the presentation by management and the ETE Letter, as well as the letter received from Mr. Greehey. Representatives of Wachtell Lipton and Baird responded to questions from members of the NSH Conflicts Committee. The NSH Conflicts Committee determined to meet again the next day, and to have Baird present updated financial analyses of the proposed merger with the Partnership to assist the NSH Conflicts Committee in considering its response to the ETE Letter.

On March 8, 2018, the NSH Board formally executed an authorization of the NSH Conflicts Committee, which also ratified prior actions, with respect to reviewing and evaluating the ETE Letter and related matters.

Also on March 8, 2018, the NSH Conflicts Committee met telephonically, with representatives of Wachtell Lipton and Baird in attendance. Baird presented a pro forma financial analysis of the transaction with the Partnership, which included discounted cash flow analysis and discounted distribution analysis, using current market data and then responded to questions from members of the NSH Conflicts Committee regarding that analysis. Such analysis was not prepared in connection with, but was generally similar to, the give/gets analysis presented to the NSH Conflicts Committee on February 7, 2018 (see “—Opinion of the NSH Conflicts Committee’s Financial Advisor”) other than utilizing current market data. Please see “—Opinion of the NSH Conflicts Committee’s Financial Advisor—Subsequent Events” for a summary of the material findings of such pro forma financial analysis. After the representatives of Baird left the meeting, the NSH Conflicts Committee discussed the ETE Letter in detail. Wachtell Lipton reviewed legal matters with the NSH Conflicts Committee, including the duties of the committee in considering how to respond to the ETE Letter.

After discussion, the members of the NSH Conflicts Committee unanimously determined that the merger transaction with the Partnership is in the best interests of NSH and the NSH unitholders; that the long-term strategic and other benefits of the merger with the Partnership are the best path forward for NSH and the NSH unitholders at this time; and that NSH would accordingly remain committed to the transaction with the Partnership and send a letter to that effect to ETE. In making these determinations, the NSH Conflicts Committee took into account, among other things, their assessment of the future operating and financial prospects of NSH based on their familiarity with NSH and the industry in which it operates, and the financial analysis of the merger transaction with the Partnership prepared by Baird (including discounted cash flow and discounted distribution

 

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analyses of the proposed merger). The NSH Conflicts Committee also took into account the fact that Mr. Greehey, as the largest NSH unitholder owning directly or indirectly 21.4% of the NSH units outstanding, had expressed unwillingness to support or vote for ETE’s proposed transaction, creating substantial risk as to whether such a transaction would receive the necessary NSH unitholder approval.

On March 12, 2018, the NSH Conflicts Committee sent a letter to ETE rejecting ETE’s acquisition proposal and noting its continued support of the merger with the Partnership.

Between March 14 and March 20, 2018, the NSH Conflicts Committee held several additional meetings, with representatives of Wachtell Lipton in attendance, to discuss next steps in the transaction process.

On April 12, 2018, the NSH Conflicts Committee received a letter from ETE, dated April 12, 2018 (the “Second ETE Letter”), reiterating ETE’s non-binding proposal to acquire NSH for $14.70 per NSH unit in cash, or as an alternative, ETE common units or a combination of cash and ETE common units. The letter also stated that ETE was prepared to pursue a transaction without Mr. Greehey’s support. Pursuant to the terms of the merger agreement, the NSH Conflicts Committee provided notice to the Partnership Conflicts Committee of the Second ETE Letter.

On April 17, 2018, the NSH Conflicts Committee met telephonically, with representatives of Wachtell Lipton and Baird in attendance, to discuss the Second ETE Letter. The NSH Conflicts Committee discussed the Second ETE Letter and the process for reviewing the Second ETE Letter. Wachtell Lipton reviewed the NSH Conflicts Committee’s fiduciary duties and the provisions of the merger agreement applicable to the NSH Conflict Committee’s consideration of the Second ETE Letter. To assist in its further review of the Second ETE Letter, the NSH Conflicts Committee determined to request that NSH management present updated information to the committee regarding NSH’s and the Partnership’s businesses.

On April 20, 2018, the NSH Conflicts Committee met telephonically, with representatives of Wachtell Lipton and Baird in attendance, to discuss and review the Second ETE Letter. At the request of the NSH Conflicts Committee, members of NSH management presented an update relating to the financial and operational performance of NSH and the Partnership. The members of management were then excused from the meeting, and the NSH Conflicts Committee discussed the presentation by management and the Second ETE Letter. Representatives of Wachtell Lipton reviewed legal matters, including an overview of recently filed litigation relating to the proposed merger with the Partnership. The NSH Conflicts Committee determined to meet again the following week, and to have Baird present an updated pro forma financial analysis of the proposed merger with the Partnership to assist the NSH Conflicts Committee in considering its response to the Second ETE Letter.

On April 26, 2018, the NSH Conflicts Committee met telephonically, with representatives of Wachtell Lipton and Baird in attendance, to discuss and review the Second ETE Letter. Wachtell Lipton reviewed the NSH Conflicts Committee’s fiduciary duties and the provisions of the merger agreement applicable to the NSH Conflict Committee’s consideration of the Second ETE Letter. Baird presented a pro forma financial analysis of the proposed merger with the Partnership, which included a discounted cash flow analysis, discounted distribution analysis and selected public company comparables analysis, using current market data and management’s updated projections as provided on April 19, 2018 (see “—Unaudited Financial Projections of the Partnership and NSH—Management Projections”). Such updated analysis was not prepared in connection with, but was generally similar to, the give/gets analysis presented to the NSH Conflicts Committee on February 7, 2018, (see “—Opinion of the NSH Conflicts Committee’s Financial Advisor”) other than utilizing current market data, the updated projections and selected public company comparables analysis. Please see “—Opinion of the NSH Conflicts Committee’s Financial Advisor—Subsequent Events” for a summary of the material findings of such pro forma financial analysis. Baird also presented certain publicly available information concerning ETE, including its governance and organizational structure, public comparables, asset overview, directors and management, historic equity price performance and mergers and acquisitions activity, market and financial metrics, information concerning publicly disclosed unitholder ownership, and research analyst price targets.

 

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After discussion, the members of the NSH Conflicts Committee unanimously determined that the long-term strategic and other benefits of the simplification merger transaction with the Partnership are the best path forward for NSH and its unitholders; that the NSH Conflicts Committee remained committed to the merger with the Partnership; and that ETE’s proposal is not in the best interests of NSH and the NSH unitholders. In making these determinations, the NSH Conflicts Committee took into account, among other things, their assessment of the future operating and financial prospects of NSH based on their familiarity with NSH and the industry in which it operates, and the updated pro forma financial analysis of the proposed merger with the Partnership prepared by Baird (including discounted cash flow, discounted distribution analyses, and selected public company comparables analysis of the proposed merger).

On May 1, 2018, the NSH Conflicts Committee sent ETE a letter communicating its determinations regarding the proposed merger with the Partnership and the proposal set forth in the Second ETE Letter.

Recommendation of the NSH Conflicts Committee and the NSH Board and Reasons for the Merger

On February 7, 2018, the NSH Conflicts Committee unanimously determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby were advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders. Accordingly, the NSH Conflicts Committee recommended that the NSH Board approve the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. Based on the NSH Conflicts Committee’s determination and recommendation and all of the information made available to the NSH Board and upon other relevant factors, on February 7, 2018, the NSH Board (other than Messrs. Greehey and Barron, who were not in attendance and recused themselves) unanimously approved and declared the advisability of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby. The NSH Board also recommended that the NSH unaffiliated unitholders vote in favor of the merger proposal.

The NSH Conflicts Committee considered many factors in determining the merger agreement and the transactions contemplated thereby to be advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders and recommending the approval of the merger agreement and the consummation of the transactions contemplated thereby to the NSH Board.

In reaching its conclusions, the NSH Conflicts Committee consulted with its legal counsel and financial advisor and considered a number of factors, including, without limitation, the factors summarized below.

The NSH Conflicts Committee considered the following factors as being generally positive or favorable to the approval and adoption of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby:

 

    the NSH unitholders will receive common units representing limited partner interests in the Partnership and will participate in the long-term expected benefits of the operations of the combined entity, through the Partnership, including with respect to the following:

 

    any future common unit price appreciation and/or distribution increases;

 

    after the merger, the Partnership will no longer have any incentive distribution rights, and, as a result, the Partnership’s long-term cost of capital will be reduced;

 

    the enhancement of the Partnership’s cash accretion through its ability to compete for new acquisitions and finance organic growth projects as a result of its reduced long-term cost of capital; and

 

    allowing the Partnership to maintain its competitive position when pursuing growth opportunities by increasing access to the equity markets, while simultaneously decreasing the need to access the equity markets;

 

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    the common units have substantially more liquidity than NSH units because of the common units’ larger average daily trading volume, and the Partnership is a significantly larger entity with a broader investor base and a larger public float, along with less volatility in the trading market for the common units;

 

    the NSH unitholders are receiving as consideration units in a public, non-controlled, widely held entity and, accordingly, will have an ongoing opportunity to receive a control premium in the future;

 

    reducing general and administrative costs by approximately $1 million per year, primarily from eliminating public company expenses associated with NSH;

 

    NSH unitholders, as common unitholders after the effective time, will be entitled to participate in the election of all of the directors of the Partnership Board;

 

    the favorable benefits of a streamlined organizational structure, capital structure and governance structure, including enhanced transparency for investors, greater tax simplicity, simplified future credit relationships and clearer responsibilities and duties of the Partnership to various stakeholders;

 

    the NSH Conflicts Committee’s belief that consummating the merger contemporaneously with the Partnership’s quarterly distribution reset is more attractive for NSH and its unitholders than resetting the Partnership’s quarterly distribution in advance of or without engaging in the merger;

 

    the value to NSH unitholders associated with preservation of NSH’s culture and the benefits to NSH and its unitholders of maintaining its outstanding relationships with employees, the community and other constituents;

 

    the merger will eliminate potential conflicts of interest that may arise as a result of a person being an officer of NSH and NuStar GP and as a result of a person being a member of the board of directors of both NSH and NuStar GP;

 

    the number of common units to be received by the NSH unitholders is fixed, and any increase or decrease in the price of common units relative to the price of the NSH units will not impact the exchange ratio or the number of common units received;

 

    the financial analysis reviewed and discussed with the NSH Conflicts Committee by representatives of Baird, as well as the oral opinion of Baird rendered to the NSH Conflicts Committee on February 7, 2018 (which was subsequently confirmed in writing by delivery of Baird’s written opinion dated the same date) to the effect that, as of the date of such opinion and based upon and subject to the various assumptions, qualifications and limitations set forth in its written opinion, the merger consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders;

 

    the probability that the Partnership and NSH will be able to consummate the merger and NSH’s ability to obtain the necessary unitholder approvals, including with respect to the following:

 

    no filing is required under the HSR Act and the rules promulgated thereunder by the FTC; and

 

    pursuant to the terms of the support agreement, the supporting unitholders, owning 21.4% of the outstanding NSH units, agreed to vote their NSH units in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby;

 

    the terms of the merger agreement permit, under certain conditions: (1) the NSH Board to change its recommendation, (2) NSH to enter into discussions with another party in response to an unsolicited bona fide written offer and (3) NSH to terminate the merger agreement, including to accept a superior proposal;

 

    the expectation that NSH unitholders, generally, should not recognize any gain or loss, for U.S. federal income tax purposes, with respect to the exchange of NSH units for common units pursuant to the merger; and

 

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    the review by the NSH Conflicts Committee with its legal and financial advisors of the financial and other terms of the merger agreement and related documents, including the conditions to their respective obligations and the termination provisions.

The NSH Conflicts Committee considered the following factors that weighed against approval and adoption of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby:

 

    the possibility that NSH unitholders could be foregoing appreciation principally associated with the incentive distribution rights, which might be realized either in the form of increased distributions or appreciation in unit value if the business of the Partnership performs materially better than anticipated and the Partnership were to then increase its distribution to levels substantially higher than anticipated;

 

    the risk that the merger may not be completed in a timely manner or that the merger might not be consummated as a result of a failure to satisfy the conditions contained in the merger agreement, including the failure to receive NSH unitholder approval;

 

    the potential adverse effects on NSH’s financial condition if the merger is not completed following public announcement of the execution of the merger agreement;

 

    the number of common units to be received by the NSH unitholders is fixed and the common unit price could decline relative to the NSH unit price prior to closing, which would reduce the premium available to NSH unitholders, and any such decrease in value will not be limited by any “collar” arrangement;

 

    the limitations on NSH soliciting other offers and considering unsolicited offers from third parties not affiliated with the Partnership;

 

    the risk that potential benefits sought in the merger might not be fully realized;

 

    the elimination of certain control rights that NSH currently possesses with respect to the Partnership;

 

    the bases on which the NSH Conflicts Committee made its determination and recommendation to the NSH Board, including assumptions associated with the cost of capital and other management projections, are uncertain;

 

    the diversion of management and employee attention, at potentially significant cost and the potential disruption to the business of NSH and the Partnership;

 

    NSH may be required in certain circumstances to pay to the Partnership a termination fee of $13.7 million upon termination of the merger agreement;

 

    the possibility, under certain circumstances, that NSH could be required to reimburse the Partnership for expenses incurred by the Partnership in connection with the merger; and

 

    the possibility that certain members of management of NSH may have interests that are different from those of NSH unitholders.

The NSH Conflicts Committee also reviewed a number of procedural factors relating to the merger, including, without limitation, the following:

 

    the NSH Conflicts Committee was delegated the power and authority to negotiate a potential merger, and make a recommendation to the NSH Board with respect to a merger;

 

    Messrs. Greehey and Barron, who serve on both the Partnership Board and the NSH Board, recused themselves from participating in all discussions, deliberations and voting on the merger;

 

    the NSH Conflicts Committee consists of directors who are not affiliated with the Partnership or NuStar GP and who are not executive officers of NuStar GP;

 

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    the NSH Conflicts Committee retained independent legal and financial advisors with knowledge and experience with respect to public company merger and acquisition transactions, the Partnership’s industry generally, and the Partnership and NSH particularly, as well as substantial experience advising publicly traded limited partnerships and other companies with respect to transactions similar to the proposed transaction;

 

    the terms and conditions of the proposed merger were determined through arm’s-length negotiations between the Partnership Conflicts Committee and the NSH Conflicts Committee and their respective representatives and advisors;

 

    pursuant to the terms of the support agreement, the supporting unitholders, owning 21.4% of the outstanding NSH units, agreed to vote their NSH units in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby. The NSH Conflicts Committee also considered that such support agreement might discourage other parties that may otherwise have an interest in an acquisition of NSH or another business combination involving NSH from making a competing proposal, however the support agreement will terminate automatically upon the termination of the merger agreement in accordance with its terms, including if NSH terminates the merger agreement to accept a superior proposal;

 

    the financial analyses reviewed and discussed with the NSH Conflicts Committee by representatives of Baird; and

 

    the NSH Conflicts Committee received the oral opinion of Baird on February 7, 2018 (which was subsequently confirmed in writing by delivery of Baird’s written opinion dated the same date) to the effect that, as of the date of such opinion and based upon and subject to the various assumptions, qualifications and limitations set forth in its written opinion, the merger consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders.

The foregoing discussion of the information and factors considered by the NSH Conflicts Committee is not intended to be exhaustive, but includes the principal factors considered by the NSH Conflicts Committee. In view of the complexity and wide variety of factors considered in connection with its evaluation of the merger, the NSH Conflicts Committee did not find it practicable to, and did not, quantify or otherwise assign specific weights to the factors considered in reaching its determination and recommendation. Rather, the NSH Conflicts Committee made its recommendations based on the totality of the information presented to it and the investigations conducted by it. In addition, each of the members of the NSH Conflicts Committee may have given differing weights to different factors.

The NSH Conflicts Committee reached its unanimous decision to recommend approval and adoption of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby in light of various factors described above and other factors that each member of the NSH Conflicts Committee believed were appropriate. Overall, the NSH Conflicts Committee believed that the advantages of the merger outweighed the negative factors it considered.

For the reasons set forth above and after further evaluation of the terms of the merger agreement, the NSH Conflicts Committee unanimously: (1) determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby are advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders, (2) approved the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby, (3) recommended to the NSH Board the approval of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby and (4) resolved that the foregoing approvals constituted “Special Approval” of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby under and pursuant to the NSH limited liability company agreement.

Based in part on the NSH Conflicts Committee’s determination, “Special Approval” and recommendation, and after evaluation of the terms of the merger agreement, the NSH Board unanimously (other than Messrs.

 

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Greehey and Barron, who were not in attendance and recused themselves) (1) determined that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby are advisable, fair and reasonable to, and in the best interest of, NSH and the NSH unaffiliated unitholders, (2) approved the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby, (3) resolved that the approval and recommendation of the NSH Conflicts Committee constitutes “Special Approval” of the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby for all purposes under the NSH limited liability company agreement, (4) directed that the merger, the merger agreement, the associated transaction documents and the transactions contemplated thereby be submitted to the NSH unitholders for their consideration and approval, (5) recommended to the NSH unaffiliated unitholders that they vote “FOR” the approval and adoption of the merger, the merger agreement and the transactions contemplated thereby.

In considering the recommendation of the NSH Board with respect to the merger, the merger agreement and the transactions contemplated thereby, you should be aware that the executive officers and directors of NSH have interests in the proposed transaction that are different from, or in addition to, the interests of NSH unitholders generally. The NSH Conflicts Committee and the NSH Board were aware of these interests when recommending approval and adoption of the merger, the merger agreement and the transactions contemplated thereby. Please read “Interests of Certain Persons in the Merger.”

It should be noted that portions of this explanation of the reasoning of the NSH Conflicts Committee and the NSH Board and certain information presented in this section is forward-looking in nature and, therefore, should be read along with the factors discussed under the heading “Information Regarding Forward-Looking Statements.”

The Partnership’s Reasons for the Merger

The reasons that the Partnership Conflicts Committee and the Partnership Board, upon receipt of a recommendation from the Partnership Conflicts Committee, have decided to approve and cause the Partnership to execute the merger agreement include, among other reasons, the following:

 

    the Partnership will no longer have any issued and outstanding incentive distribution rights as a result of the merger, which among other things, is expected to: (1) reduce the Partnership’s cost of capital and (2) enhance the Partnership’s cash accretion from investments in organic growth projects and acquisitions;

 

    in connection with the merger, the Partnership plans to reset its quarterly distribution to: (1) improve its distribution coverage, (2) improve its debt metrics, (3) reduce its need to access the capital markets in the long term and (4) create a path for distribution growth;

 

    the belief that consummating the merger contemporaneously with the Partnership’s quarterly distribution reset is more attractive for the Partnership and its unitholders than any other strategic option, including resetting the Partnership’s quarterly distribution in advance of or without engaging in the merger;

 

    the merger is expected to improve the Partnership’s access to equity markets;

 

    consummating the merger is expected to benefit the Partnership by attracting a broader investor base to a single, larger entity;

 

    the merger will allow the Partnership to maintain financial flexibility, as the unit-for-unit exchange finances 100% of the merger consideration with common units;

 

    as a result of the merger, the common unitholders will be entitled to elect the directors who manage the business and affairs of the Partnership;

 

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    the merger will simplify the Partnership’s corporate structure, which will eliminate potential conflicts of interest between the Partnership and the General Partner (and its affiliates), reduce structural complexity and enhance transparency for debt and equity investors; and

 

    the merger generally is not expected to be taxable to the Partnership or its unitholders.

The foregoing discussion of the information and factors that the Partnership Board and the Partnership Conflicts Committee considered is not intended to be exhaustive, but is meant to include the material factors supporting the merger that the Partnership Board and the Partnership Conflicts Committee considered. In view of the complexity and wide variety of factors that the Partnership Board and the Partnership Conflicts Committee considered, it did not find it practical to, and did not attempt to, quantify, rank or otherwise assign relative or specific weights or values to any of the factors considered. Rather, the Partnership Board and the Partnership Conflicts Committee made their determinations based on the totality of the information presented to them and the investigations conducted by them.

It should be noted that portions of this explanation of the reasoning of the Partnership Board and the Partnership Conflicts Committee and certain information presented in this section are forward-looking in nature and, therefore, should be read along with the factors discussed under the heading “Information Regarding Forward-Looking Statements.”

Unaudited Financial Projections of the Partnership and NSH

In connection with the proposed merger, management of the Partnership prepared projections for the Partnership on a stand-alone basis, rather than pro forma for the merger, with respect to 2018, 2019 and 2020, and management of NSH prepared projections for NSH on a stand-alone basis (relying on the Partnership’s projections with respect to the Partnership) with respect to 2018. These projections were based on projections used for regular internal planning purposes. The non-public projections with respect to EBITDA and DCF were provided to Baird for use and consideration in its financial analyses and in preparation of its opinion to the NSH Conflicts Committee. The projections were presented to members of the NSH Conflicts Committee. There have been no material changes in the Partnership’s operations or performance or in any of the projections or assumptions upon which they are based since the delivery of the opinion of Baird on February 7, 2018, and no such material changes are currently anticipated to occur before the NSH special meeting.

A summary of these projections is included below to give NSH unitholders access to certain non-public unaudited projections that were made available to Baird, the NSH Conflicts Committee and the NSH Board in connection with the proposed merger.

The Partnership and NSH caution you that uncertainties are inherent in projections of any kind. None of the Partnership, NSH or any of their affiliates, advisors, officers, directors or representatives has made or makes any representation or can give any assurance to any NSH unitholder or any other person regarding the ultimate performance of the Partnership or NSH compared to the summarized information set forth below or that any projected results will be achieved.

The summary projections set forth below summarize the most recent projections provided to Baird (with respect to EBITDA and DCF), the NSH Conflicts Committee and the NSH Board prior to the execution of the merger agreement. The inclusion of the following summary projections in this proxy statement/prospectus should not be regarded as an indication that the Partnership, NSH or their representatives considered or consider the projections to be a reliable or accurate prediction of future performance or events, and the summary projections set forth below should not be relied upon as such.

The accompanying projections were not prepared with a view toward public disclosure or toward compliance with U.S. generally accepted accounting principles (“GAAP”), the published guidelines of the SEC,

 

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or the guidelines established by the American Institute of Certified Public Accountants, but, in the view of the management of the Partnership, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and present, to the best of the Partnership management’s knowledge and belief, the expected course of action and the expected future financial performance of the Partnership.

Neither KPMG LLP nor any other independent registered public accounting firm has compiled, examined or performed any procedures with respect to the projections, nor has it expressed any opinion or any other form of assurance on such information or its achievability, and assumes no responsibility for, and disclaims any association with, the projections. The KPMG LLP reports incorporated by reference into this proxy statement/prospectus relate to historical financial information of the Partnership and NSH. Such reports do not extend to the projections included below and should not be read to do so. The respective boards of directors and the Audit Committees of NuStar GP and NSH did not prepare, and do not give any assurance regarding, the summarized information.

In developing the projections, the management of the Partnership made numerous material assumptions with respect to the Partnership and NSH for the period 2018 to 2020, including:

 

    growth capital expenditures of approximately $373 million, $300 million and $300 million for 2018, 2019 and 2020, respectively, along with the amounts and timing of related costs and potential economic returns;

 

    outstanding debt during applicable periods ranging from $3.40 billion to $3.46 billion for 2018, $3.57 billion to $3.67 billion for 2019 and $3.71 billion to $3.85 billion for 2020, and the availability and cost of capital;

 

    the cash flow, measured as Adjusted EBITDA, from existing assets and business activities ranging from $624 million to $679 million, $725 million to $765 million and $796 million to $836 million for the years 2018, 2019 and 2020, respectively, including assumptions related to shipments on the Partnership’s crude oil and refined petroleum products pipeline systems, annual tariff rate adjustments for these pipeline systems which are impacted by the annual U.S. Producer Price Index and/or market forces, throughput volumes in the Partnership’s terminals, and revenues related to its storage facilities;

 

    the potential for default by a significant customer with contracted storage capacity and the potential to replace revenues attributable to such customer;

 

    no sustained decline in crude oil prices below a range of $40-60 per barrel that would have a material adverse impact on the broader refined petroleum products market and prices or on the Partnership’s commodity related activities; and

 

    other general business, market and financial assumptions.

Additional assumptions were made with respect to the size, availability, timing and anticipated results of, and cash flows from, growth capital expenditures. All of these assumptions involve variables making them difficult to predict, and most are beyond the control of the Partnership and NSH. Although management of the Partnership and NSH believe that there was a reasonable basis for their projections and underlying assumptions, any assumptions for near-term projected cases remain uncertain, and the risk of inaccuracy increases with the length of the forecasted period.

Management Projections

Management, utilizing assumptions it believed to be reasonable and materially consistent with its expectations relating to the financial and operating performance of the Partnership for the years ending December 31, 2018, 2019 and 2020, provided to Baird the following forecasts relating to the Partnership’s Total Adjusted EBITDA and DCF on a stand-alone basis. Baird utilized these forecasts to assume and sensitize certain distributions for purposes of its analysis, as described in more detail below under “—Sensitivity Analyses Prepared by Baird for the Partnership and NSH.”

 

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The summarized projected financial information set forth below assume two cases. The first case, called Case A in the table below, is the lower case, which assumes the Partnership’s existing business, as well as organic growth projects expected to be completed in 2018. For 2019 and 2020, the projections include $300 million of additional capital expenditures, which are assumed to generate incremental EBITDA based on an 8.0x multiple in the year subsequent to the expenditure. The projections include additional debt and equity financing to fund the expected capital expenditures and to refinance expected debt maturities. The weighted average financing rate for the aggregate additional debt and equity, including any preferred equity, is assumed to be 7.4%. However, EBITDA for all three years is assumed to be lower, primarily as a result of lower revenues at the Partnership’s St. Eustatius terminal. Case A assumes that the Partnership must replace its anchor tenant at St. Eustatius with other customers over the course of 2018, resulting in periods during 2018 in which the anchor tenant’s storage at St. Eustatius is not generating revenue. All of the anchor tenant’s storage at St. Eustatius is assumed to be leased to other customers by the end of 2018, but at lower rates, thereby causing 2019 and 2020 EBITDA to be lower than Case B.

The second case, called Case B in the table below, is the higher case, which includes all of the same assumptions as Case A, except that, in addition, it assumes the Partnership does not have to replace its anchor tenant at the Partnership’s St. Eustatius terminal. Rather, EBITDA for all three years is assumed to be higher than Case A due to increased volume at the Partnership’s St. Eustatius terminal and consistent revenues being generated by the anchor tenant’s storage needs.

 

Case A

                    
     2018E      2019E      2020E  

Total Adjusted EBITDA(1)

   $ 624      $ 725      $ 796  

DCF

   $ 288      $ 346      $ 420  

 

Case B

                    

Total Adjusted EBITDA(1)

   $ 679      $ 765      $ 836  

DCF

   $ 344      $ 389      $ 462  

 

(1) Excludes a one-time receipt of insurance proceeds of approximately $87.5 million in the first quarter of 2018 relating to damage at the Partnership’s St. Eustatius terminal, which are to be spent on repairs.

Similarly, management, utilizing assumptions it believed to be reasonable and materially consistent with its expectations relating to the financial and operating performance of NSH for the year ending December 31, 2017, provided Baird a DCF forecast for NSH on a stand-alone basis of $92.4 million for 2018.

On April 19, 2018, management provided Baird updated projections relating to the Partnership for 2018, primarily reflecting the actual revenues received during the first quarter with respect to the anchor tenant at the Partnership’s St. Eustatius terminal. The updated forecast for 2018 provides Total Adjusted EBITDA, excluding the approximately $80 million of gain resulting from insurance proceeds, of approximately $639 million and DCF of approximately $306 million. Subsequently, on April 26, 2018, management publicly disclosed further updated projections for 2018 providing for Total Adjusted EBITDA, excluding approximately $80 million of gain resulting from insurance proceeds, ranging from $620 million to $670 million and DCF ranging from $291 million to $321 million. Management does not believe this update to be quantitatively material and has not updated projections for 2019 and 2020.

Adjusted EBITDA and DCF are not financial measures prepared in accordance with GAAP and should not be considered substitutes for net income (loss) or cash flow data prepared in accordance with GAAP.

Sensitivity Analyses Prepared by Baird for the Partnership and NSH

For purposes of its analysis, Baird used the projected financial information for both Cases A and B (summarized above) and prepared a sensitivity analysis on both cases to develop a range of financial forecasts.

 

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The sensitivity analyses prepared by Baird, presented in the tables below, assume the Partnership reduces its quarterly distribution from $1.095 to $0.60 beginning the first quarter of 2018, in accordance with guidance provided by management. In 2019 and 2020, per unit distributions are increased to amounts that result in either a 1.3x, 1.2x or 1.1x coverage ratio. In all cases, the Partnership is assumed to benefit from interest savings from the reduced distributions.

The projected results for NSH derive from the Partnership’s assumed results. DCF for NSH depends upon the assumed amount of distributions paid by the Partnership, which affects the amount of distributions paid to NSH for the common units its subsidiaries own, the 2% general partner interest, and the incentive distribution rights. NSH is assumed to pay out 100% of its DCF.

 

NuStar Energy L.P. (NS)

 
     2018E(1)       2019E        2020E   

Case A— Total Adjusted EBITDA

   $ 624      $ 725      $ 796  

At 1.3x Coverage in 2019E-2020E:

        

DCF

   $ 298      $ 359      $ 448  

Distribution Per Unit(2)

     2.52        2.82        3.35  

At 1.2x Coverage in 2019E-2020E:

        

DCF

   $ 298      $ 358      $ 446  

Distribution Per Unit(2)

     2.57        3.01        3.57  

At 1.1x Coverage in 2019E-2020E:

        

DCF

   $ 298      $ 358      $ 445  

Distribution Per Unit(2)

     2.63        3.22        3.82  

Case B— Total Adjusted EBITDA

   $ 679      $ 765      $ 836  

At 1.3x Coverage in 2019E-2020E:

        

DCF

   $ 354      $ 401      $ 487  

Distribution Per Unit(2)

     2.60        3.08        3.59  

At 1.2x Coverage in 2019E-2020E:

        

DCF

   $ 354      $ 400      $ 485  

Distribution Per Unit(2)

     2.66        3.29        3.83  

At 1.1x Coverage in 2019E-2020E:

        

DCF

   $ 354      $ 399      $ 483  

Distribution Per Unit(2)

     2.72        3.53        4.10  

 

(1) 2018(E) Total Adjusted EBITDA excludes the expected gain from insurance proceeds the Partnership received in 2018.
(2) Baird assumed a distribution increase at the Partnership after the applicable target DCF coverage rate was met within each coverage scenario.

 

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NuStar GP Holdings, LLC (NSH)

 
     2018E      2019E      2020E  

Case A

        

At 1.3x Coverage at NS in 2019E-2020E:

        

DCF

   $ 27      $ 35      $ 58  

Distribution Per Unit

     0.62        0.81        1.35  

At 1.2x Coverage at NS in 2019E-2020E:

        

DCF

   $ 29      $ 42      $ 67  

Distribution Per Unit

     0.66        0.98        1.56  

At 1.1x Coverage at NS in 2019E-2020E:

        

DCF

   $ 31      $ 50      $ 78  

Distribution Per Unit

     0.71        1.17        1.81  

Case B

        

At 1.3x Coverage at NS in 2019E-2020E:

        

DCF

   $ 30      $ 45      $ 68  

Distribution Per Unit

     0.70        1.05        1.58  

At 1.2x Coverage at NS in 2019E-2020E:

        

DCF

   $ 32      $ 53      $ 78  

Distribution Per Unit

     0.74        1.23        1.81  

At 1.1x Coverage at NS in 2019E-2020E:

        

DCF

   $ 34      $ 62      $ 89  

Distribution Per Unit

     0.80        1.45        2.08  

The projections are forward-looking statements and are subject to risks and uncertainties. Accordingly, the assumptions made in preparing the projections may not prove to be reflective of actual results, and actual results may be materially different than those contained in the projections. None of KPMG LLP, Baird, Evercore or any of their respective representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the projected financial information, and neither the Partnership nor NSH has made any representations to common unitholders or NSH unitholders regarding such information. The inclusion of the projections in this proxy statement/prospectus should not be regarded as an indication that the Partnership Conflicts Committee, the NSH Conflicts Committee or their respective financial advisors considered the projections predictive of actual/future events or that the projections should be relied on for that purpose. In light of the uncertainties inherent in any projected data, common unitholders and NSH unitholders are cautioned not to rely on the foregoing projections.

NEITHER THE PARTNERSHIP NOR NSH INTENDS TO UPDATE OR OTHERWISE REVISE THE ABOVE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH PROJECTIONS ARE NO LONGER APPROPRIATE.

Opinion of the NSH Conflicts Committee’s Financial Advisor

The NSH Conflicts Committee retained Baird as its financial advisor in connection with the merger and with respect to the provision of an opinion to the NSH Conflicts Committee as to the fairness, from a financial point of view, to the NSH unaffiliated unitholders of the Consideration to be received by such unitholders in the merger. At the meeting of the NSH Conflicts Committee held on February 7, 2018, Baird rendered its oral opinion to the NSH Conflicts Committee, subsequently confirmed by delivery of a written opinion dated February 7, 2018, to the effect that, as of such date and based upon and subject to the various assumptions, qualifications and limitations set forth in Baird’s opinion, the Consideration to be received by the NSH unaffiliated unitholders was fair, from a financial point of view, to such unitholders.

 

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The full text of the written opinion of Baird is attached hereto as Annex E and is incorporated by reference in its entirety into this proxy statement/prospectus. The opinion sets forth, among other things, the assumptions made, specified work performed, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Baird in rendering its opinion. You are encouraged to read Baird’s opinion carefully and in its entirety.

Baird’s opinion was prepared at the request, and provided for the information, of the members of the NSH Conflicts Committee (solely in their capacity as such), in connection with their evaluation of the merger and addresses only the fairness, from a financial point of view, to the NSH unaffiliated unitholders of the Consideration to be received by such unitholders. Baird was not asked to express, and in its opinion does not express, any opinion with respect to any of the other financial or non-financial terms, conditions, determinations or actions with respect to the merger. Baird’s opinion also does not address the relative merits or risks of: (1) the merger, the merger agreement or any other agreements or other matters provided for, or contemplated by, the merger, the merger agreement, or any tax strategy implemented or contemplated pursuant to the merger; (2) any other transactions that may be or might have been available as an alternative to the merger; or (3) the merger compared to any other potential alternative transactions or business strategies considered by NSH, the Partnership, the NSH Conflicts Committee or the NSH Board and, accordingly, Baird has relied upon its discussions with the management of NSH and the Partnership with respect to the availability and consequences of any alternatives to the merger. Baird was not engaged or requested to provide, and has not provided, any advice concerning the advisability of entering into the merger. Baird’s opinion does not constitute a recommendation to the NSH Conflicts Committee, the NSH Board or any other person as to how any such person should act with respect to the merger. The summary of the Baird opinion set forth herein is qualified in its entirety by reference to the full text of the opinion included as Annex E .

In conducting its investigation and analyses and in arriving at its opinion, Baird reviewed such information and took into account such financial and economic factors, investment banking procedures and considerations as it deemed relevant under the circumstances. In that connection, and subject to the various assumptions, qualifications and limitations set forth herein, Baird, among other things:

 

    reviewed certain internal information, furnished to Baird, primarily financial in nature, including the three-year financial forecasts concerning the business and operations of the Partnership, which such financial forecasts for EBITDA and DCF were certified by management of NSH for purposes of Baird’s analysis and have relied on guidance of the management of NSH and the Partnership, specifically management’s expectation of targeting an approximately 1.2x DCF coverage ratio at the Partnership, to calculate cash distributions per common unit and NSH unit (collectively such information, the “Forecasts”);

 

    in estimating cash distributions for NSH and the Partnership for purposes of its analyses, sensitized around a range of DCF coverage ratios at the Partnership and assumed a distribution increase after the applicable target DCF coverage rate was met within each coverage scenario;

 

    met with management of NSH and the Partnership in person and by telephone on several occasions for review and updates regarding NSH, the Partnership and certain of their respective assets;

 

    held discussions with members of management of NSH and the Partnership concerning their views on general market trends, historical and current financial condition and operating results, as well as the future prospects of NSH and the Partnership and the anticipated benefits of the proposed merger;

 

    reviewed certain publicly available information including, but not limited to, NSH’s and the Partnership’s recent filings with the SEC;

 

    in conjunction with the NSH Conflicts Committee and its legal counsel, reviewed the initial proposal letter and associated supporting materials provided by the Partnership dated December 11, 2017;

 

   

in conjunction with the NSH Conflicts Committee and its legal counsel, reviewed the principal financial terms of the merger agreement dated February 7, 2018, the amended and restated partnership

 

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agreement in the form attached to the merger agreement as Annex A , and the NuStar GP amended and restated company agreement in the form attached to the merger agreement as Annex B , as such terms relate to Baird’s analysis;

 

    reviewed the proposed financial terms of the merger and the reported financial terms of certain other transactions Baird deemed relevant;

 

    reviewed the historical market prices, trading activity and market trading multiples of NSH units and common units, as well as those of certain other publicly-traded partnerships and companies Baird deemed relevant;

 

    considered the present values of the forecasted cash flows attributable to NSH and the Partnership as contained in the Forecasts;

 

    considered the present values of the forecasted stand-alone distributions to the holders of the common units and NSH units as contained in the Forecasts; and

 

    considered various other information, financial studies, analyses and investigations and financial, economic and market criteria Baird deemed relevant for the preparation of its opinion.

In arriving at its opinion, Baird assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial and other information that was publicly available or provided to Baird by or on behalf of NSH and the Partnership, including the Forecasts. Baird did not independently verify any information supplied to it by or on behalf of NSH and the Partnership. Baird was not engaged to independently verify, did not assume any responsibility to verify, assumed no liability for, and expressed no opinion on, any such information, and Baird assumed and relied upon, without independent verification, that neither NSH nor the Partnership was aware of any information that might be material to Baird’s opinion that had not been provided to Baird. Baird assumed and relied upon, without any independent verification, that: (1) all assets and liabilities (contingent or otherwise, known or unknown) of NSH and the Partnership were set forth in the respective publicly-filed financial statements, and there was no information or facts that would make any of the information reviewed by Baird incomplete or misleading; (2) the financial statements of NSH and the Partnership provided to Baird presented fairly the results of operations, cash flows and financial condition of NSH and the Partnership, respectively, for the periods, and as of the dates, indicated and were prepared in conformity with GAAP, consistently applied; (3) the Forecasts were reasonably prepared on bases reflecting the best available estimates and good faith judgments of management of NSH and the Partnership as to the future performance of NSH and the Partnership, and Baird relied, without independent verification, upon such Forecasts in the preparation of its opinion, although Baird expressed no opinion with respect to the Forecasts or any judgments, estimates, assumptions or basis on which they were based, and Baird assumed, without independent verification, that the Forecasts and the proposed 45.2% reduction in the Partnership’s cash distribution of which Baird had been apprised by the Partnership would be realized in the amounts and on the time schedule contemplated in the Forecasts; (4) the merger would be consummated in accordance with the terms and conditions of the merger agreement, which was consistent in all material respects with the draft Baird was provided, without any amendment thereto and without waiver by any party of any of the conditions to their respective obligations thereunder; (5) the representations and warranties contained in the merger agreement were true and correct, subject to the qualifications stated therein and/or as disclosed in the Disclosure Schedules (as defined in the merger agreement) and that each party would perform all of the covenants and agreements required to be performed by it under the merger agreement in all material respects; (6) NSH and the Partnership would realize the cash flows in the amounts and on the time schedule contemplated in the Forecasts; (7) the merger would not materially impact the tax characteristics of the Partnership; and (8) all corporate, partnership, governmental, regulatory, third party or other consents and approvals (contractual or otherwise) required to consummate the merger had been, or would be, obtained without the need for any changes to the Consideration or other financial terms of the merger or that would otherwise materially affect NSH, the Partnership, the merger or Baird’s analysis. Due to the summary nature of the Forecasts provided to Baird by management of NSH and the Partnership, Baird has made and relied upon, without independent verification, certain assumptions based on

 

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guidance from management of NSH and the Partnership in order to sensitize and calculate forecasted cash distributions for both the Partnership and NSH for purposes of its analysis.

Baird does not provide accounting, tax or legal advice and therefore has not expressed an opinion on such matters as they related to the merger. In conducting its review, Baird has not undertaken or obtained an independent evaluation or appraisal of any of the assets or liabilities (contingent or otherwise, known or unknown) or solvency of NSH or the Partnership nor has Baird made a physical inspection of all of the properties or facilities of NSH or the Partnership. Baird expressed no opinion with respect to the terms, or impact on the Partnership, its financial condition, results of operation or cash flows, or on the price or trading range of common units, of any financing obtained, or to be obtained, by the Partnership in connection with or following the merger. In each case, Baird has made the assumptions and taken the actions or inactions described herein with the knowledge and consent of the NSH Conflicts Committee.

Baird’s opinion necessarily is based upon economic, monetary, market and other conditions as they existed and could be evaluated on the date of the opinion and upon certain assumptions Baird made with respect thereto, and Baird’s opinion does not predict or take into account any changes which may occur, or information which may become available, after that date. Furthermore, Baird expressed no opinion as to the price or trading range at which any of NSH’s or the Partnership’s securities (including NSH units or common units) would trade following the date of the opinion or as to the effect of the merger on such price or trading range, or any earnings or ownership dilutive impact that may result from future issuances of securities by NSH or the Partnership. Such price and trading range may be affected by a number of factors, including but not limited to (1) the planned 45.2% reduction in the Partnership’s per unit cash distribution, dispositions of NSH units or common units by unitholders within a short period of time after, or other market effects resulting from, the announcement and/or effective date of the merger; (2) changes in prevailing interest rates and other factors which generally influence the price of securities; (3) adverse changes in the current capital markets; (4) the occurrence of adverse changes in the financial condition, business, assets, results of operations or prospects of NSH or the Partnership or in its related industry; (5) other transactions or strategic initiatives that NSH or the Partnership may enter into prior to, concurrent with, or subsequent to the merger; (6) changes in commodity prices; (7) any necessary actions by, or restrictions of, federal, state or other governmental agencies or regulatory authorities; and (8) timely completion of the merger on terms and conditions that are acceptable to all parties at interest.

Baird’s opinion was only one of many factors considered by the NSH Conflicts Committee in its evaluation of the merger and should not be viewed as determinative of the views of the members of the NSH Conflicts Committee with respect to the merger or the Consideration. The following is a brief summary of the material analyses performed by Baird in connection with the rendering of its opinion dated February 7, 2018. The following summary, however, does not purport to be a complete description of the analyses performed by Baird. The order of the analyses described and the results of these analyses do not represent the relative importance or weight given to these analyses by Baird. Baird, based on its experience and professional judgment, made qualitative conclusions as to the relevance and significance of each analysis and factor considered by it. Therefore, its analysis must be considered as a whole. Considering any portion of the various analyses and factors reviewed, without bearing in mind all analyses, could create a misleading or incomplete view of the process underlying Baird’s opinion. Except as otherwise noted, the following quantitative information, to the extent based on market data, is based on market data that existed on or before February 7, 2018, and is not necessarily indicative of subsequent or current market conditions.

Discounted Cash Flow Analysis

Baird performed a discounted cash flow analysis by utilizing the Forecasts to calculate the present value of the projected future unlevered free cash flows and terminal value of NSH and the Partnership. Baird calculated ranges of implied equity values per NSH unit and common unit, respectively, based on the Forecasts.

In arriving at the estimated equity value range per NSH unit, Baird utilized the Forecasts to calculate projected unlevered free cash flows for calendar years 2018 through 2020, respectively, as set forth in the Forecasts, under

 

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each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership and terminal values as of December 31, 2020 based on a range of terminal cash flow multiples in the terminal year of 13.5x to 15.5x, which midpoint represents a blended multiple based on a multiple of distributions from common units and a multiple based on general partner and incentive distribution rights cash flow. In deriving unlevered free cash flows of NSH, Baird added back interest expense to DCF and, as such, derived the following unlevered free cash flows: $29-$33 million across 1.3x to 1.1x DCF coverage at the Partnership for calendar year 2018; $37-$52 million across 1.3x to 1.1x DCF coverage at the Partnership for calendar year 2019; and $60-$80 million across 1.3x to 1.1x DCF coverage at the Partnership for calendar year 2020. The unlevered free cash flows and the terminal value were discounted to present value using a range of discount rates of 13.0% to 15.0%, with a midpoint based on NSH’s weighted average cost of capital (“WACC”), as estimated by Baird based on the capital asset pricing model (“CAPM”) and weighted average cost of debt with reference to applicable borrowing rates.

In arriving at the estimated equity value range per common unit, Baird utilized the Forecasts to calculate projected unlevered free cash flows for calendar years 2018 through 2020, respectively, under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership and terminal values as of December 31, 2020 based on a range of terminal EBITDA multiples of 11.5x to 12.5x. In deriving unlevered free cash flows of the Partnership, Baird added back interest expense and preferred unit distributions to DCF, and then deducted growth capital expenditures. As such, Baird derived unlevered free cash flows at the Partnership of $204 million, $354 million and $450 million for calendar years 2018 through 2020, respectively, under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership. The unlevered free cash flows and the terminal value were discounted to present value using a range of discount rates of 10.5% to 12.5%, with a midpoint based on the Partnership’s WACC, as estimated by Baird based on CAPM, weighted average cost of preferred equity with reference to applicable coupon rates and weighted average cost of debt with reference to applicable borrowing rates.

After adjusting for estimated year-end 2017 net debt, preferred equity and units outstanding, the implied value per NSH unit and common unit ranges and the implied exchange ratio reference ranges were indicated to be as follows:

 

     Implied Equity
Value per NSH
unit
     Implied Equity
Value per
common unit
     Implied Exchange
Ratio Reference
Range
 

DCF Coverage at the Partnership

 

     

1.3x DCF Coverage

   $ 13.88 - $16.56      $ 32.18 - $42.66        0.33x - 0.51x  

1.2x DCF Coverage

   $ 16.11 - $19.19      $ 31.25 - $41.67        0.39x - 0.61x  

1.1x DCF Coverage

   $ 18.73 - $22.29      $ 30.15 - $40.52        0.46x - 0.74x  

Discounted Distribution Analysis

Baird performed a discounted distribution analysis by calculating the present value of the estimated standalone distributions and terminal equity value of NSH and the Partnership. Baird calculated ranges of implied equity values per NSH unit and common unit, respectively, based on the Forecasts.

In arriving at the estimated equity value range per NSH unit, Baird utilized the estimated standalone distributions of NSH for calendar years 2018 through 2020, respectively, under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership and terminal values as of December 31, 2020 based on a range of terminal exit yields in the terminal year of 6.0% to 8.0%. The terminal exit yields were determined by Baird using a regression analysis using current trading yield and long-term estimated distribution growth per Wall Street consensus estimates for selected general partner master limited partnerships (“MLPs”). The estimated standalone distributions and terminal equity value were discounted to present value using a range of discount rates of 13.5% to 15.5%, with a midpoint based on NSH’s equity cost of capital, as estimated by Baird based on CAPM.

In arriving at the estimated equity value range per common unit, Baird utilized the estimated standalone distributions of the Partnership for calendar years 2018 through 2020, respectively, under each of 1.3x, 1.2x and

 

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1.1x DCF coverage ratios at the Partnership and terminal value as of December 31, 2020 based on a range of terminal exit yields in the terminal year of 8.0% to 10.0%. The terminal exit yields were determined by Baird using a regression analysis using current trading yield and long-term estimated distribution growth per Wall Street consensus estimates for selected midstream MLPs. The estimated standalone distributions and terminal equity value were discounted to present value using a range of discount rates of 14.5% to 16.5%, with a midpoint based on the Partnership’s equity cost of capital, as estimated by Baird using CAPM.

The implied value per NSH unit and common unit ranges and the implied exchange ratio references ranges were indicated to be as follows:

 

     Implied Equity
Value per NSH
unit
     Implied Equity
Value per common
unit
     Implied Exchange
Ratio Reference
Range
 

DCF Coverage at the Partnership

        

1.3x DCF Coverage

   $ 13.29 - $17.82      $ 28.45 - $35.39          0.38x - 0.63x  

1.2x DCF Coverage

   $ 15.36 - $20.59      $ 30.20 - $37.59          0.41x - 0.68x  

1.1x DCF Coverage

   $ 17.78 - $23.85      $ 32.26 - $40.17          0.44x - 0.74x  

Selected Public Comparables Analysis

In order to assess how the public market values equity units of similar publicly-traded companies and partnerships, Baird reviewed and compared specific financial data related to NSH and the Partnership, respectively, to publicly available information for selected MLPs with publicly-traded equity securities. The selected publicly-traded MLPs were chosen because they were deemed by Baird in its professional judgment to have similar business and industry characteristics as NSH and the Partnership, respectively. None of the selected publicly-traded MLPs is identical or directly comparable to NSH or the Partnership. No specific numeric or other similar criteria were used to select the MLPs, and all criteria were evaluated in their entirety without application of definitive qualifications or limitations to individual criteria.

The publicly traded MLPs that Baird deemed to have similar characteristics to those of NSH for the purposes of its analysis were the following (the “NSH Public Comparables”):

 

•  Antero Midstream GP LP

 

  

•  EQT GP Holdings LP

 

•  Energy Transfer Equity LP

 

  

•  Tallgrass Energy GP LP

 

•  EnLink Midstream LLC

  

•  Western Gas Equity Partners LP

For each of the NSH Public Comparables, Baird calculated and compared:

 

    2018 estimated DCF divided by current equity market value, referred to herein as “2018E DCF Yield”;

 

    2019 estimated DCF divided by current equity market value, referred to herein as “2019E DCF Yield”; and

 

    the implied equity value of the combined general partner interest and incentive distribution rights owned by the public general partner (but excluding any common or subordinated or similar units of the underlying MLP) (the “Combined GP Interest”) to cash flow from the underlying MLP attributable to the Combined GP Interest (the “Combined GP Interest Cash Flow”).

 

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The financial data for the NSH Public Comparables were based on publicly available filings and financial projections provided by equity research analysts. Baird calculated all metrics based on closing unit prices as of February 6, 2018 for each respective MLP. NSH’s projected financial metrics for 2018 and 2019 were based on the Forecasts. Excluding the lowest and highest financial metrics, results of the analysis for NSH were as follows:

 

       Low      Median      High  

2018E DCF Yield

       4.4      6.6      7.5

2019E DCF Yield

       5.5      7.0      8.4

Combined GP Interest as a Multiple of Combined GP Interest Cash Flow

       20.5x        25.1x        32.2x  

Baird applied the range of 2018E DCF Yield and 2019E DCF Yield to estimated 2018 and 2019 DCF for NSH in accordance with the Forecasts and averaged the results for 2018E and 2019E to calculate a range of implied equity value per NSH unit using DCF yield. Baird then applied the range of multiples of Combined GP Interest to Combined GP Interest Cash Flow to the present value, as of December 31, 2018 and discounted using NSH’s midpoint WACC, of estimated 2019 general partner and incentive distribution right cash flow in accordance with the Forecasts. After adjusting for the market value of common units owned by subsidiaries of NSH as of February 6, 2018 and estimated year-end 2017 net debt and NSH units outstanding, Baird calculated a range of implied equity value per NSH unit using the Combined GP Interest as a multiple of Combined GP Interest Cash Flow. Finally, Baird averaged the respective ranges under each methodology to derive an implied value per NSH unit range at each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership.

The publicly-traded MLPs that Baird deemed to have similar characteristics to those of the Partnership for the purposes of its analysis were the following (the “Partnership Public Comparables”):

 

•  Andeavor Logistics LP

 

  

•  Holly Energy Partners, L.P.

 

•  Buckeye Partners, L.P.

 

  

•  Magellan Midstream Partners, L.P.

 

•  Genesis Energy, L.P.

  

For each of the Partnership Public Comparables, Baird calculated and compared:

 

    Multiple of current enterprise value (“EV”) to 2018 estimated EBITDA, net of estimated general partner and incentive distribution right distributions; referred to herein as EV/2018E EBITDA;

 

    Multiple of current EV to 2019 estimated EBITDA, net of estimated general partner and incentive distribution right distributions; referred to herein as EV/2019E EBITDA;

 

    2018 estimated DCF divided by current equity market value, referred to herein as “2018E DCF Yield”; and

 

    2019 estimated DCF divided by current equity market value, referred to herein as “2019E DCF Yield”.

The financial data for the Partnership Public Comparables were based on publicly available filings and financial projections provided by Wall Street equity research. Baird calculated all metrics based on closing unit prices as of February 6, 2018 for each respective MLP. The Partnership’s projected financial metrics for 2018 and 2019 were based on the Forecasts. Excluding the lowest and highest financial metrics, results of the analysis for the Partnership were as follows:

 

     Low     Median     High  

EV/2018E EBITDA

     11.5x       12.4x       13.1x  

EV/2019E EBITDA

     11.0x       11.4x       12.5x  

2018E DCF Yield

     8.7     9.2     9.6

2019E DCF Yield

     9.1     10.2     10.2

 

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Baird applied the range of EV to 2018E and 2019E EBITDA to projected 2018 and 2019 EBITDA for the Partnership, net of estimated general partner and incentive distribution right cash flow, in accordance with the Forecasts and averaged the results for 2018 and 2019. After adjusting for estimated year-end 2017 net debt, preferred equity and units outstanding, Baird derived an implied equity value per common unit range using EV/EBITDA. Baird then applied the range of 2018E DCF Yield and 2019E DCF Yield to projected 2018 and 2019 DCF for the Partnership in accordance with the Forecasts and averaged the results for 2018 and 2019 to calculate a range of implied equity value per common unit using DCF yield. Finally, Baird averaged the respective ranges under each methodology to derive an implied value per common unit range at each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership.

The implied value per NSH unit and common unit ranges and the implied exchange ratio references ranges were indicated to be as follows:

 

    Implied Equity
Value per NSH
unit
    Implied Equity
Value per common
unit
    Implied Exchange
Ratio Reference
Range
 

DCF Coverage at the Partnership

     

1.3x DCF Coverage

  $ 10.42 - $14.58       $ 34.86 - $42.22         0.25x - 0.42x  

1.2x DCF Coverage

  $ 12.13 - $17.26       $ 34.48 - $41.79         0.29x - 0.50x  

1.1x DCF Coverage

  $ 14.14 - $20.40       $ 34.03 - $41.28         0.34x - 0.60x  

Selected Precedent Transactions Analysis

Baird reviewed selected publicly available information for transactions involving: (1) general partner buyouts and simplifications; or (2) transportation and storage assets that Baird deemed in its professional judgment to have similar business and industry characteristics as NSH and the Partnership, respectively. None of the selected transactions or selected companies or partnerships that were involved in the selected transactions was directly comparable to NSH, the Partnership or the merger. An analysis of the results, therefore, requires complex considerations and judgments regarding the financial and operating characteristics of NSH and the Partnership and the companies or partnerships involved in the selected precedent transactions, as well as other factors that could affect their transaction values.

The selected general partner buyout and simplification transactions that Baird deemed to have similar characteristics to NSH for the purposes of its analysis were the following:

 

Announcement

Date

  

Buyer

  

Seller/Target

01/22/18

   Spectra Energy Partners, LP    Enbridge Inc.

10/19/17

   Holly Energy Partners, L.P.    HollyFrontier Corporation

08/14/17

   Andeavor Logistics LP    Andeavor

07/28/17

   Alliance Resource Partners, L.P.    Alliance Holdings GP, L.P.

01/09/17

   Williams Partners L.P.    The Williams Companies, Inc.

07/11/16

   Plains All American Pipeline, L.P.    Plains AAP, L.P.

12/28/10

   Genesis Energy, L.P.    Genesis Energy, LLC

09/21/10

   Penn Virginia Resources Partners LP    Penn Virginia GP Holdings, L.P.

09/20/10

   Natural Resource Partners L.P.    NRP (GP) LP

09/07/10

   Enterprise Products Partners L.P.    Enterprise GP Holdings L.P.

08/09/10

   Inergy, L.P.    Inergy Holdings, L.P.

06/11/10

   Buckeye Partners, L.P.    Buckeye GP Holdings L.P.

03/03/09

   Magellan Midstream Partners, L.P.    Magellan Midstream Holdings, L.P.

Multiples for the selected transactions were based on publicly available information. For each transaction, Baird utilized the multiple of implied equity value of the Combined GP Interest to Combined GP Interest Cash

 

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Flow and, excluding the lowest and highest multiples, derived low, median and high multiples of 11.9x, 17.2x and 28.9x, respectively. Baird then applied the range of multiples of Combined GP Interest to Combined GP Interest Cash Flow to the present value, as of December 31, 2018 and discounted using NSH’s midpoint WACC, of estimated 2019 general partner and incentive distribution right cash flow in accordance with the Forecasts. After adjusting for the market value of common units owned by subsidiaries of NSH as of February 6, 2018 and estimated year-end 2017 net debt and units outstanding, Baird calculated a range of implied equity value per NSH unit using the Combined GP Interest Cash Flow as a multiple of Combined GP Interest Cash Flow under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership.

The selected midstream transportation and storage transactions that Baird deemed to have similar characteristics to the Partnership for the purposes of its analysis were the following:

 

Announcement

Date

  

Buyer

  

Seller/Target

08/10/17

  

Holly Energy Partners, L.P.

  

Plains All American Pipeline, L.P.

11/03/15

  

Targa Resources Corp.

  

Targa Resources Partners LP

07/13/15

  

MPLX LP

  

MarkWest Energy Partners, L.P.

05/06/15

  

Crestwood Equity Partners LP

  

Crestwood Midstream Partners LP

01/26/15

  

Energy Transfer Partners, L.P.

  

Regency Energy Partners LP

01/21/15

  

Kinder Morgan Inc.

  

Hiland Partners, L.P.

Multiples for the selected transactions were based on publicly available information. For each transaction, Baird utilized the multiple of EV to forward EBITDA and, excluding the lowest and highest multiples, derived low, median and high multiples of 10.9x, 11.7x and 12.1x, respectively. Baird then applied this range of multiples to projected 2018 EBITDA for the Partnership, net of estimated general partner and incentive distribution right cash flow, in accordance with the Forecasts. After adjusting for estimated year-end 2017 net debt, preferred equity and units outstanding, Baird derived an implied equity value per common unit range under each of 1.3x, 1.2x, and 1.1x DCF coverage ratios at the Partnership.

The implied value per NSH unit and common unit ranges and the implied exchange ratio references ranges were indicated to be as follows:

 

     Implied Equity
Value per NSH
unit
     Implied Equity
Value per
common unit
     Implied Exchange
Ratio Reference
Range
 

DCF Coverage at the Partnership

        

1.3x DCF Coverage

   $ 9.74 - $13.84      $ 26.82 - $35.05        0.28x - 0.52x  

1.2x DCF Coverage

   $ 11.00 - $16.88      $ 26.67 - $34.88        0.32x - 0.63x  

1.1x DCF Coverage

   $ 12.47 - $20.46      $ 26.49 - $34.69        0.36x - 0.77x  

 

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Supplemental Analyses

Baird observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was referenced for informational purposes, including, among other information, the following:

Case B Valuation Analysis

Using the three-year Case B financial forecast (with respect to EBITDA and DCF) as prepared by and furnished to Baird by management of NSH and the Partnership, Baird calculated the following implied exchange ratio reference ranges under each of the same methodologies and approaches as described in the foregoing summary:

 

     Discounted
Cash Flow
Analysis
     Discounted
Distribution
Analysis
     Selected Public
Comparables
Analysis
     Selected Precedent
Transactions
Analysis
 

DCF Coverage at the Partnership

           

1.3x DCF Coverage

     0.35x - 0.54x        0.41x - 0.69x        0.27x - 0.46x        0.28x - 0.55x  

1.2x DCF Coverage

     0.41x - 0.64x        0.44x - 0.74x        0.31x - 0.54x        0.31x - 0.66x  

1.1x DCF Coverage

     0.49x - 0.76x        0.48x - 0.80x        0.36x - 0.64x        0.35x - 0.78x  

Relative Contribution Analysis

Baird performed a relative contribution analysis of NSH and the Partnership to derive an implied exchange ratio from the respective cash distributions attributable to NSH units and common units for calendar years 2018 through 2020 based on the Forecasts. Baird sensitized the DCF coverage ratio at the Partnership from 1.3x to 1.1x to determine the implied impact to cash distributions for NSH and the Partnership and calculated terminal values as of December 31, 2020 using NSH’s and the Partnership’s derived terminal yields. Cash flows from distributions and terminal values were discounted to present value using a range of discount rates from 10% to 20%. Following this analysis, Baird determined an implied exchange ratio range of 0.48x to 0.56x based on relative cash flow contributions.

Premiums Paid Analysis

Baird reviewed the premiums offered or paid in (1) six transactions involving the acquisition of a public general partner by its MLP since 2009 relative to the target unit prices on one trading day, 10 trading days and 30 trading days prior to announcement, which indicated a median offer premium of 12.5% to 18.2% per common unit and (2) 21 MLP affiliated transactions since 2009 relative to the target unit prices on one trading day, 10 trading days and 30 trading days prior to announcement, which indicated a median offer premium of 9.3% to 10.7% per common unit.

The six transactions involving the acquisition of a public general partner by its MLP since 2009 reviewed by Baird were the following:

 

Announcement

Date

  

Buyer

  

Target

07/11/16

  

Plains All American Pipeline, L.P.

  

Plains AAP, L.P.

09/21/10

  

Penn Virginia Resources Partners LP

  

Penn Virginia GP Holdings, L.P.

09/07/10

  

Enterprise Products Partners L.P.

  

Enterprise GP Holdings L.P.

08/09/10

  

Inergy, L.P.

  

Inergy Holdings, L.P.

06/11/10

  

Buckeye Partners, L.P.

  

Buckeye GP Holdings L.P.

03/03/09

  

Magellan Midstream Partners, L.P.

  

Magellan Midstream Holdings, L.P.

Baird utilized the summary range of premiums from the transactions involving the acquisition of a public general partner by its MLP to derive an implied exchange ratio. After excluding the lowest and highest values,

 

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Baird applied the low, median and high premium for each of one trading day, 10 trading days and 30 trading days prior to announcement to the NSH closing unit price as of one trading day, 10 trading days and 30 trading days, respectively, prior to the announcement of the merger. Using the median implied unit price under each of the low, median and high ranges, Baird calculated the implied value per NSH unit range of $17.91 to $21.39. Finally, Baird compared the implied value per NSH unit range to the NSH closing unit price as of February 6, 2018 to derive an implied exchange ratio range of 0.54x to 0.65x.

The 21 MLP affiliate transactions since 2009 reviewed by Baird were the following:

 

Announcement

Date

  

Buyer

  

Target

05/18/17   

Energy Transfer Partners, L.P.

  

PennTex Midstream Partners, LP

04/03/17   

World Point Terminals Inc.

  

World Point Terminals, LP

03/02/17   

VTTI B.V.

  

VTTI Energy Partners LP

02/01/17   

ONEOK, Inc.

  

ONEOK Partners, L.P.

01/27/17   

Enbridge Inc.

  

Midcoast Energy Partners, L.P.

11/21/16   

Sunoco Logistics Partners L.P.

  

Energy Transfer Partners, L.P.

09/26/16   

Columbia Pipeline Group, Inc.

  

Columbia Pipeline Partners LP

05/31/16   

SemGroup Corporation

  

Rose Rock Midstream, L.P.

11/03/15   

Targa Resources Corp.

  

Targa Resources Partners LP

05/06/15   

Crestwood Equity Partners LP

  

Crestwood Midstream Partners LP

01/26/15   

Energy Transfer Partners, L.P.

  

Regency Energy Partners LP

10/01/14   

Enterprise Products Partners L.P.

  

Oiltanking Partners, L.P.

08/10/14   

Kinder Morgan, Inc.

  

El Paso Pipeline Partners, L.P.

08/10/14   

Kinder Morgan, Inc.

  

Kinder Morgan Energy Partners, L.P.

06/15/14   

Access Midstream Partners, L.P.

  

Williams Partners L.P.

08/27/13   

Plains All American Pipeline, L.P.

  

PAA Natural Gas Storage, L.P.

02/23/11   

Enterprise Products Partners L.P.

  

Duncan Energy Partners LP

01/19/10   

Williams Partners L.P.

  

Williams Pipeline Partners L.P.

06/29/09   

Enterprise Products Partners L.P.

  

TEPPCO Partners LP

04/27/09   

Atlas America, Inc.

  

Atlas Energy Resources, LLC

01/15/09   

Harold Hamm

  

Hiland Partners, L.P.

Baird utilized the summary range of premiums from the MLP affiliate transactions to derive an implied exchange ratio. After excluding the lowest and highest values, Baird applied the low, median and high premium for each of one trading day, 10 trading days and 30 trading days prior to announcement to the NSH closing unit price as of one trading day, 10 trading days and 30 trading days, respectively, prior to the announcement of the merger. Using the median implied unit price under each of the low, median and high ranges, Baird calculated the implied value per NSH unit range of $17.07 to $23.54. Finally, Baird compared the implied value per NSH unit range to the NSH closing unit price as of February 6, 2018 to derive an implied exchange ratio range of 0.52x to 0.71x.

Give/Gets Analysis—Discounted Cash Flow and Discounted Distribution Analyses

Baird utilized the Partnership’s projected unlevered free cash flows for calendar years 2018 through 2020, respectively, as set forth in the Forecasts, under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership and terminal values as of December 31, 2020 based on a range of terminal EBITDA multiples of 11.5x to 12.5x. The unlevered free cash flows and terminal value were discounted to present value using a range of discount rates of 10.0% to 12.0%, with a midpoint based on the Partnership’s estimated WACC on a pro forma basis assuming completion of the merger. After adjusting for estimated pro forma year-end 2017 net debt, preferred equity and pro forma units outstanding, Baird derived an implied equity value per common unit range pro forma for the merger using the discounted cash flow analysis.

Baird also utilized estimated pro forma distributions of the Partnership for calendar years 2018 through 2020, respectively, under each of 1.3x, 1.2x and 1.1x DCF coverage ratios at the Partnership and terminal values

 

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as of December 31, 2020 based on the midpoint of the Partnership and NSH derived terminal yields. The estimated pro forma distributions and terminal equity value were discounted to present value using a range of discount rates of 14.0% to 16.0%, with a midpoint based on the Partnership’s estimated cost of equity on a pro forma basis assuming completion of the merger. After adjusting for estimated pro forma year-end 2017 net debt, preferred equity and pro forma units outstanding, Baird derived an implied equity value per common unit range pro forma for the merger using the discounted distribution analysis.

Baird then averaged the respective ranges under each methodology and adjusted the resulting Partnership per unit value range by the exchange ratio provided for in the merger of 0.55x to derive an implied pro forma equity value per NSH unit range.

To consider the implied value of the proposed merger to an NSH unitholder that would own an NSH unit prior to completion of the contemplated merger, Baird compared the foregoing range of implied pro forma equity values per NSH unit to the implied status quo equity values per NSH unit, as calculated using the average of the respective status quo ranges under the discounted cash flow and distribution analyses, at each of 1.3x, 1.2x and 1.1x DCF coverage ratios as the Partnership. Baird also considered the implied value of the proposed merger to an NSH unitholder that would own an NSH unit prior to completion of the contemplated merger by comparing the foregoing range of implied pro forma equity values per NSH unit to the closing NSH unit price as of February 6, 2018. The ranges of implied premium/(discount) for both approaches are summarized below.

 

     1.3x DCF
Coverage

at the
Partnership
     1.2x DCF
Coverage

at the
Partnership
     1.1x DCF
Coverage
at the
Partnership
 

Implied Pro Forma NSH unit Equity Value

   $ 16.66 - $21.53      $ 17.28 - $22.34      $ 18.01 - $23.28  

Implied Status Quo NSH unit Equity Value

   $ 13.59 - $17.19      $ 15.73 - $19.89      $ 18.25 - $23.07  

Implied Premium/(Discount)

     22.6% - 25.3%        9.8% - 12.3%        (1.3%) - 0.9%  

Implied Pro Forma NSH unit Equity Value

   $ 16.66 - $21.53      $ 17.28 - $22.34      $ 18.01 - $23.28  

NSH unit Price as of February 6, 2018

     $17.10        $17.10        $17.10  

Implied Premium/(Discount)

     (2.6%) - 25.9%        1.1% - 30.6%        5.3% - 36.1%  

Subsequent Events

The table below summarizes the material findings of the pro forma financial analysis performed by Baird and presented to the NSH Conflicts Committee on March 8, 2018. Baird presented a pro forma financial analysis of the transaction with the Partnership, which included discounted cash flow analysis and discounted distribution analysis, using then-current market data. Such analysis utilized the terminal value of the Partnership as of December 31, 2020 and took into consideration the higher market volatility of common units as compared to the February 7, 2018 financial analysis. At the request of the NSH Conflicts Committee, Baird utilized solely the discounted cash flow analysis and discounted distribution analysis for the pro forma financial analysis. Baird then multiplied the respective ranges under each methodology by the merger exchange ratio of 0.55x and then calculated the median of the respective ranges to derive an implied pro forma equity value per NSH unit range.

 

     1.3x DCF
Coverage

at the
Partnership
     1.2x DCF
Coverage

at the
Partnership
     1.1x DCF
Coverage
at the
Partnership
 

Implied Pro Forma NSH unit Equity Value as of March 8, 2018 Financial Analysis

   $ 15.14 - $18.92      $ 15.68 - $19.56      $ 16.32 - $20.31  

The table below summarizes the material findings of the pro forma financial analysis performed by Baird and presented to the NSH Conflicts Committee on April 26, 2018. Baird presented a pro forma financial analysis of the proposed merger with the Partnership, which included a discounted cash flow analysis, discounted

 

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distribution analysis and selected public company comparables analysis, using then-current market data and management’s updated projections as provided on April 19, 2018 (see “—Unaudited Financial Projections of the Partnership and NSH—Management Projections”). Such analysis utilized the terminal value of the Partnership as of December 31, 2020. Market volatility in April had decreased from levels in March and was comparable to the market volatility as of the February 7, 2018 financial analysis. Baird included the selected public company comparables analysis as an additional methodology to provide additional context to the NSH Conflicts Committee, then multiplied the respective ranges under each methodology by the merger exchange ratio of 0.55x and then calculated the median of the respective ranges to derive an implied pro forma equity value per NSH unit range.

 

     1.3x DCF
Coverage

at the
Partnership
     1.2x DCF
Coverage

at the
Partnership
     1.1x DCF
Coverage
at the
Partnership
 

Implied Pro Forma NSH unit Equity Value as of April 26, 2018 Financial Analysis

   $ 15.02 - $21.20      $ 15.01 - $21.19      $ 15.50 - $21.18  

General

The foregoing summary of material financial analyses performed by Baird does not purport to be a complete description of the analyses or data presented by Baird to the NSH Conflicts Committee. In connection with the review of the merger by the NSH Conflicts Committee, Baird performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Baird’s opinion. In arriving at its opinion, Baird considered the results of all analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Baird made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all analyses and did not assign any particular weighting to any individual analysis. In addition, the range of valuations resulting from any particular analysis described above should not be taken to be Baird’s view of the value of NSH or the Partnership. No company or partnership used in the above analyses is directly comparable to NSH or the Partnership, and no precedent transaction used is directly comparable to the merger. Further, Baird’s analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies or partnerships, or transactions used, including judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of NSH or the Partnership.

Baird prepared these analyses for the purpose of providing an opinion to the NSH Conflicts Committee as to the fairness, from a financial point of view and as of the date of such opinion, to the NSH unaffiliated unitholders, of the Consideration to be received by such unitholders. These analyses do not purport to be appraisals or necessarily to reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Baird’s analyses are inherently subject to substantial uncertainty, and Baird assumes no responsibility if future results are materially different from those forecasted in such estimates. The Consideration was determined through arm’s length negotiations and was approved by the NSH Conflicts Committee and by the NSH Board. Baird did not recommend any specific consideration to the NSH Conflicts Committee or indicate that any given consideration constituted the only appropriate consideration.

The NSH Conflicts Committee agreed to cause NSH to pay to Baird a $250,000 engagement fee and, upon the delivery of Baird’s opinion to the NSH Conflicts Committee, an opinion fee of $500,000. NSH is also obligated to pay Baird a fee of $250,000 contingent upon closing of the merger. NSH has also agreed to reimburse Baird for reasonable out-of-pocket expenses incurred in connection with its engagement and has

 

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agreed to indemnify and hold Baird and its affiliates and their respective directors, officers, partners, employees, agents and controlling persons, harmless from and against any losses, claims, damages and liabilities relating to, arising out of or in connection with Baird’s opinion, the merger, Baird’s engagement and actions taken or omitted in connection therewith.

Baird is a full-service securities firm. As such, in the ordinary course of its business, Baird may from time to time provide investment banking, advisory, brokerage and other services to clients that may be competitors or suppliers to, or customers or security holders of NSH, the Partnership or other parties to the merger or their respective affiliates, or that may otherwise participate or be involved in the same or a similar business or industries as NSH, the Partnership or other parties to the merger or their respective affiliates or may from time to time hold or trade the securities of NSH or the Partnership (including NSH units, common units or preferred units) for its own account or the accounts of its customers and, accordingly, may at any time hold long or short positions or effect transactions in such securities. Baird currently serves and may continue to serve as a market maker in the publicly-traded securities of NSH and the Partnership. Baird may also prepare equity analyst research reports from time to time regarding NSH or the Partnership.

Over the two years immediately prior to the date of the opinion, Baird provided investment banking services to the NSH Conflicts Committee for which Baird received fees totaling $250,000. More specifically, in April 2017, Baird served as financial advisor to the NSH Conflicts Committee with respect to the waiver of its incentive distribution rights in conjunction with the Partnership’s acquisition of Navigator Energy Services, LLC. No material relationship between Baird and the Partnership, NSH or any other party to the merger is mutually understood to be contemplated in which any compensation is intended to be received. Baird’s opinion was approved by its internal fairness committee, none of the members of which was involved in providing financial advisory services on Baird’s behalf to the NSH Conflicts Committee in connection with the merger.

No Appraisal Rights

NSH unitholders do not have appraisal rights under NSH’s limited liability company agreement, the merger agreement or applicable Delaware law.

Antitrust and Regulatory Matters

Due to rules applicable to non-corporate entities, no filing is required under the HSR Act and the rules promulgated thereunder by the FTC. However, at any time before or after completion of the merger, the DOJ, the FTC, or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets of the Partnership or NSH. Private parties also may seek to take legal action under the antitrust laws under certain circumstances. A challenge to the merger on antitrust grounds may be made and, if such a challenge is made, it is possible that the Partnership and NSH will not prevail.

Listing of the Common Units; Delisting and Deregistration of NSH Units

The Partnership expects to obtain approval to list on the NYSE the common units to be issued pursuant to the merger agreement, which approval is a condition to closing the merger. If the merger is completed, NSH units will be cancelled, will cease to be listed on the NYSE and will be deregistered under the Exchange Act.

Transactions Related to the Merger

Amended and Restated Agreement of Limited Partnership of the Partnership

At the effective time, the Partnership’s existing partnership agreement will be amended and restated. Under the amended and restated partnership agreement, the incentive distribution rights in the Partnership held by the

 

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General Partner will be cancelled, the 2.0% general partner interest in the Partnership held by the General Partner will be converted into a non-economic, management interest, and the common unitholders will be provided with voting rights in the election of directors to the Partnership Board.

Support Agreement

In connection with the merger agreement, the Partnership entered into the support agreement pursuant to which the supporting unitholders (including Mr. Greehey), owners of an aggregate 9,178,320 NSH units, agreed to vote their NSH units (1) in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger, and any other action required or desirable in furtherance thereof submitted for the vote or written consent of NSH unitholders, (2) against any acquisition proposal and (3) against any action, agreement or transaction that would reasonably be expected to impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect the merger or the other transactions contemplated by the merger agreement.

The support agreement will terminate automatically upon the earliest to occur of (1) the effective time; (2) the termination of the merger agreement in accordance with its terms, other than as a result of a breach by a supporting unitholder of the terms of the support agreement; or (3) the written agreement of each supporting unitholder and the Partnership to terminate the support agreement.

NuStar GP Amended and Restated Company Agreement

At the effective time, the limited liability company agreement of NuStar GP will be amended and restated. Under the NuStar GP amended and restated company agreement, the Partnership Board will be elected in accordance with the amended and restated partnership agreement.

Pending Litigation

Two putative class action lawsuits have been filed in the United States District Court for the District of Delaware (“District of Delaware”) on behalf of the public unitholders of NSH in connection with the proposed transactions: (i)  Thomas M. Bessette v. NuStar GP Holdings, LLC, et al. , Case No. 1:18-cv-00576-GMS, filed on April 17, 2018 (the “ Bessette action”); and (ii) Anthony Franchi v. NuStar GP Holdings, LLC, et al. , Case No. 1:18-cv-00592-GMS, filed on April 19, 2018 (the “ Franchi action”). A third lawsuit, captioned Jack Kornreich v. NuStar GP Holdings, LLC, et al. , Case No. 1:18-cv-00622-GMS, filed in the District of Delaware court on April 25, 2018, has been brought individually on behalf of a purported NSH unitholder.

NSH and the members of the NSH Board are named as defendants in each of the three lawsuits. In the Franchi action, the Partnership, the General Partner, NuStar GP and Merger Sub are also named as defendants. The complaints in all three lawsuits generally allege that the defendants violated Sections 14(a) and 20(a) of the Exchange Act by failing to disclose material information in the Partnership’s preliminary registration statement filed with the SEC on Form S-4 on March 15, 2018. The complaints seek, among other things, injunctive relief prohibiting the consummation of the merger and unspecified damages and attorneys’ fees.

The defendants believe the allegations in all three lawsuits lack merit, and they intend to vigorously defend against these lawsuits.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms of the merger agreement and the related transactions. The provisions of the merger agreement are extensive and not easily summarized. This summary is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A and is incorporated into this proxy statement/prospectus by reference. You should read the merger agreement because it, and not this proxy statement/prospectus, is the legal document that governs the terms of the merger.

The merger agreement contains representations and warranties by each of the parties to the merger agreement. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the merger agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached merger agreement. Accordingly, you should keep in mind that the representations and warranties are modified in important part by the underlying disclosure schedules. The disclosure schedules contain information that has been included in NSH’s and the Partnership’s prior public disclosures, as well as additional information, some of which is non-public. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement, and this information may or may not be fully reflected in the companies’ public disclosures.

For the purposes of this summary of the merger agreement, any reference to subsidiaries of NSH does not include the Partnership or its subsidiaries.

Structure of the Merger and Related Transactions

At the effective time, Merger Sub will merge with and into NSH, with NSH surviving as a wholly owned subsidiary of the Partnership, such that following the merger the Partnership will be the sole member of NSH and NSH will be the sole member of NuStar GP.

As a result of the merger and in accordance with the execution of the amended and restated partnership agreement of the Partnership, the form of which is attached as Annex B to this proxy statement/prospectus, (1) each outstanding unit of NSH will be converted into the right to receive 0.55 of a common unit, (2) the incentive distribution rights in the Partnership will be cancelled and (3) the current 2.0% general partner interest in the Partnership will be converted to a non-economic, management interest in the Partnership. The 10,214,626 common units owned by subsidiaries of NSH will be cancelled by the Partnership at the effective time.

When the Merger Becomes Effective

The closing of the merger will take place on either (1) the third business day after the closing conditions in the merger agreement have been satisfied or waived in accordance with the terms of the merger agreement or (2) such other date to which the parties may agree in writing. Please read “—Conditions to the Merger” beginning on page 75 for a more complete description of the conditions that must be satisfied or waived prior to closing. The date on which the closing occurs is referred to as the “closing date.”

The merger will become effective at the effective time, which will occur upon the filing a certificate of merger with the Secretary of State of the State of Delaware or at such later date and time as may be set forth in the certificate of merger.

Effect of Merger on Outstanding NSH Units and Other Interests

At the effective time, by virtue of the merger and without any further action on the part of any NSH unitholder, the following will occur:

 

    the common units owned by subsidiaries of NSH issued and outstanding immediately prior to the effective time will be cancelled and cease to exist;

 

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    each NSH unit issued and outstanding immediately prior to the effective time will be converted into the right to receive 0.55 of a common unit; and

 

    the limited liability company interests in Merger Sub issued and outstanding immediately prior to the effective time will be converted into one NSH unit, such that the Partnership is the sole owner of NSH units.

All NSH units issued and outstanding immediately prior to the effective time, when converted in connection with receiving the merger consideration, will cease to be outstanding and will automatically be cancelled and cease to exist. At the effective time, each holder of a certificate representing NSH units and each holder of non-certificated NSH units represented by book-entry will cease to have any rights as a unitholder of NSH, except the right to receive (1) 0.55 of a common unit for each outstanding NSH unit and to be admitted as an additional limited partner of the Partnership, (2) any cash to be paid in lieu of any fractional new common unit and (3) any distributions in respect of new common units by the Partnership, in each case, to be issued or paid by the Partnership in accordance with the merger agreement.

To the extent applicable, NSH unitholders as of the effective time will have continued rights to any distribution with respect to such NSH units with a record date occurring prior to the effective time that may have been declared or made by NSH with respect to such NSH units in accordance with the terms of the merger agreement and that remains unpaid as of the effective time. After the effective time, the unit transfer books of NSH will be closed immediately, and there will be no further registration of transfers on the unit transfer books of NSH with respect to NSH units.

For a description of the common units, please read “Description of Common Units,” and for a description of the comparative rights of the common unitholders and NSH unitholders, please read “Comparison of the Rights of Partnership and NSH Unitholders.”

Exchange of Certificates; Fractional Units

Exchange Agent

In connection with the merger, the Partnership has appointed Computershare to act as “exchange agent” for the issuance of common units and for cash payments for fractional common units. The Partnership will deposit or will cause to be deposited with the exchange agent for the benefit of NSH unitholders, for exchange through the exchange agent, new common units and cash as required by the merger agreement. The Partnership has agreed to make available to the exchange agent, from time to time as needed, cash sufficient to pay any unpaid distributions in respect of NSH units, to pay any distributions in respect of new common units and to make payments in lieu of any fractional new common units pursuant to the merger agreement. Any cash and new common units deposited with the exchange agent are referred to as the “exchange fund.” The exchange agent will deliver the merger consideration contemplated to be paid for NSH units pursuant to the merger agreement out of the exchange fund.

Exchange of NSH Units

Promptly after the effective time of the merger, the exchange agent will mail to each applicable holder of an NSH unit a letter of transmittal and instructions explaining how to surrender NSH units to the exchange agent. This letter will contain instructions on how to surrender certificates or book-entry NSH units formerly representing NSH units in exchange for the merger consideration the holder is entitled to receive under the merger agreement.

NSH unit certificates should NOT be returned with the enclosed proxy card. Book-entry NSH unitholders and NSH unitholders who deliver a properly completed and signed letter of transmittal and any other documents

 

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required by the instructions to the transmittal letter, together with their NSH unit certificates, will be entitled to receive:

 

    new common units representing, in the aggregate, the whole number of new common units that the holder has the right to receive pursuant to the terms of the merger agreement and as described above under “—Effect of Merger on Outstanding NSH Units and Other Interests;” and

 

    a check in an amount equal to the aggregate amount of cash that the holder has the right to receive pursuant to the merger agreement, including cash payable in lieu of any fractional new common units and distributions pursuant to the terms of the merger agreement. No interest will be paid or accrued on any merger consideration, any cash payment in lieu of fractional new common units, or on any unpaid distributions payable to holders of certificated or book-entry NSH units.

In the event of a transfer of ownership of NSH units that is not registered in the transfer records of NSH, the merger consideration payable in respect of those NSH units may be paid to a transferee, if the certificate representing those NSH units or evidence of ownership of the book-entry NSH units is presented to the exchange agent, and in the case of both certificated and book-entry NSH units, accompanied by all documents required to evidence and complete the transfer. The person requesting the exchange will pay to the exchange agent in advance any transfer or other taxes required by reason of the delivery of the merger consideration in any name other than that of the record holder of those NSH units, or will establish to the satisfaction of the exchange agent that any transfer or other taxes have been paid or are not payable. Until the required documentation has been delivered and certificated NSH units, if any, have been surrendered, as contemplated by the merger agreement, each certificated NSH unit or book-entry NSH unit will be deemed at any time after the effective time to represent only the right to receive, upon the delivery and surrender of NSH units, the merger consideration payable in respect of NSH units and any cash or distributions to which the holder is entitled pursuant to the terms of the merger agreement.

Upon the issuance of new common units to the NSH unitholders in accordance with the merger agreement and the compliance by such holders with the requirements of Section 10.4 of the amended and restated partnership agreement, which requirements may be satisfied by each holder of new common units by the execution and delivery by such holder of a completed and executed letter of transmittal, NuStar GP, on behalf of the General Partner, will be deemed to have automatically consented to the admission of such holders as limited partners of the Partnership and will reflect such admission on the books and records of the Partnership.

Distributions with Respect to Unexchanged NSH Units

Until NSH unitholders have delivered the required documentation and surrendered their NSH units to the exchange agent, those holders will not receive distributions on the common units into which those NSH units have been converted with a record date after the effective time. Subject to applicable law, when holders surrender their NSH units, they will receive, without interest, (1) the amount of any cash payable in lieu of fractional new common units to which such holder is entitled to and the amount of distributions with a record date after the effective time that had already been paid and payable with respect to such new common units and (2) at the appropriate payment date, the amount of distributions with a record date after the effective time but prior to such delivery and surrender and a payment date subsequent to such compliance payable with respect to such new common units.

Fractional Common Units

No fractional common units will be issued upon the surrender of NSH units. Instead, each NSH unitholder who would otherwise be entitled to a fraction of a new common unit will be paid in cash (without interest) an amount equal to the product of (1) the average of the volume weighted average price of the common units on the NYSE on each of the five consecutive trading days ending on the trading day that is two trading days prior to the closing date and (2) the fraction of a new common unit that the holder would otherwise be entitled to receive pursuant to the merger agreement.

 

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Termination of Exchange Fund

Any portion of the merger consideration, or distributions payable in accordance with the merger agreement, made available to the exchange agent that remains unclaimed by NSH unitholders after 180 days following the effective time will be returned to the Partnership upon demand. Thereafter, an NSH unitholder must look only to the Partnership for their new common units, cash in lieu of fractional units and unpaid distributions, in each case without interest.

No Liability

The Partnership, the General Partner, NuStar GP and NSH will not be liable to any NSH unitholder for any common units (or distributions with respect thereto) or cash from the exchange fund delivered to a public official pursuant to any abandoned property, escheat or similar law.

Lost Certificates

If any certificate formerly representing an NSH unit has been lost, stolen or destroyed, the exchange agent will issue the merger consideration properly payable under the merger agreement upon receipt of an affidavit as to that loss, theft or destruction, and, if required by the Partnership, the posting of a bond, in a reasonable amount as indemnity.

Withholding

The Partnership, NSH, the surviving entity and the exchange agent will be entitled to deduct and withhold from amounts otherwise payable pursuant to the merger agreement to any person such amounts as they are required to deduct and withhold under any provision of federal, state, local, or foreign tax law, provided that reasonable notice must be provided to the applicable person prior to withholding any amounts. Withheld amounts will be treated for all purposes of the merger agreement as having been paid to the person in respect of whom such deduction and withholding was made.

Anti-dilution Provisions

In the event of any subdivisions, reclassifications, recapitalizations, splits, combinations or distributions in the form of equity interests with respect to NSH units or common units (in each case, as permitted pursuant to the merger agreement), the number of new common units to be issued in the merger and the common unit price will be correspondingly adjusted.

NSH’s Long-Term Incentive Plan

At the effective time, each NSH restricted unit granted under NSH’s long-term incentive plan outstanding immediately prior to the effective time will automatically be converted, on the same terms and conditions as were applicable to such awards immediately prior to the effective time, into a restricted common unit. The number of restricted common units subject to such converted award is determined by multiplying the number of NSH restricted units subject to the award immediately prior to the effective time by 0.55, rounded down to the nearest whole number of restricted common units.

At the effective time, the Partnership will assume all of the obligations of NSH under the NSH long-term incentive plan, each outstanding NSH restricted unit and any agreements that evidence the grants of NSH restricted units.

Actions Pending the Merger

The Partnership has agreed that, without the prior written consent of the NSH Conflicts Committee, and NSH, NuStar GP, the General Partner and Riverwalk Holdings have agreed that, without the prior written

 

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consent of the Partnership Conflicts Committee, which consents, in either case, will not be unreasonably withheld, delayed or conditioned, they will not, and will cause their respective subsidiaries not to, during the period from the date of the merger agreement until the effective time or the date, if any, on which the merger agreement is terminated, except as expressly contemplated or permitted by the merger agreement:

 

    conduct its business and the business of its subsidiaries other than in the ordinary and usual course;

 

    fail to use commercially reasonable efforts to preserve intact its business organizations, goodwill and assets and maintain its rights, franchises and existing relations with customers, suppliers, employees or business associates;

 

    take any action that would have a material adverse effect with respect to the Partnership or NSH, as the case may be;

 

    in the case of NSH and its subsidiaries, other than with respect to grants of equity or other rights made in the ordinary and usual course pursuant to the NSH long-term incentive plan, (1) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional equity, any appreciation rights or any rights or enter into any agreement to do such things or (2) permit any additional equity interests to become subject to new grants of employee unit options, unit appreciation rights or similar equity-based employee rights;

 

    in the case of the Partnership and its subsidiaries, other than with respect to grants of equity or other rights made in the ordinary and usual course pursuant to the Partnership long-term incentive plan and those transactions described in the applicable section of the Partnership disclosure schedule, take any action described in (1) and (2) of the preceding bullet point (other than the authorization of the issuance of the merger consideration);

 

    subject to certain exceptions, make, declare or pay any distributions on any of its equity securities (except regular quarterly cash distributions in the ordinary course consistent with past practice by NSH or the Partnership); provided, however that the foregoing does not restrict, among other things, the Partnership from lowering its regular quarterly cash distributions to an amount no lower than $0.60 per common unit without the prior written consent of the NSH Conflicts Committee unless a lower cash distribution is necessary for compliance with the Partnership’s organizational documents or applicable law;

 

    split, combine or reclassify any of its equity interests or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its equity interests;

 

    repurchase, redeem or otherwise acquire, or permit any of its subsidiaries to purchase, redeem or otherwise acquire any equity interests, except as required by the terms of its securities outstanding on the date of the merger agreement or as contemplated by any existing compensation and benefit plan;

 

    in the case of NSH and its subsidiaries, except to the extent described in the applicable section of the NSH disclosure schedule, (1) sell, lease, dispose of or discontinue all or any portion of its assets, business or properties, which is material to it and its subsidiaries taken as a whole, or acquire, by merger or otherwise, or lease any assets or all or any portion of the business or property of any other entity, which, in either case, is material to it and its subsidiaries taken as a whole, or would be likely to have a material adverse effect with respect to NSH or (2) transfer any portion of the common units it owns, the limited liability company interest in NuStar GP, limited partner interest or general partner interest in the General Partner, limited liability company interests in Riverwalk Holdings, the 2.0% general partner interest or the incentive distribution rights;

 

   

in the case of the Partnership, except to the extent described in the applicable section of the Partnership disclosure schedule, (1) merge, consolidate or enter into any other business combination transaction with any person or make any acquisition or disposition, which is material to it and such subsidiaries taken as a whole or (2) initiate, solicit, encourage or knowingly facilitate any inquiries, proposals or offers with respect to, or the submission of, any Partnership acquisition proposal (as defined in the

 

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merger agreement and described under “—Covenants—Acquisition Proposals; Change in Recommendation” below) or approve, endorse or recommend, or enter into a definitive agreement with respect to a Partnership acquisition proposal;

 

    in the case of NSH, NuStar GP, the General Partner and Riverwalk Holdings, amend the NSH limited liability company agreement, the NuStar GP limited liability company agreement, the General Partner’s partnership agreement, the Riverwalk Holdings limited liability company agreement or the partnership agreement, other than in accordance with the merger agreement;

 

    implement or adopt any material change in its accounting principles, practices or methods, other than as may be required by law or GAAP;

 

    fail to use commercially reasonable best efforts to maintain with financially responsible insurance companies, insurance in such amounts and against such risks and losses as has been customarily maintained by it in the past;

 

    make (except in the ordinary course of business consistent with past practice), change or revoke any material elections relating to taxes, including elections with respect to any joint venture, partnership, limited liability company or other entity with respect to which it otherwise has the authority to make such election;

 

    settle or compromise any material claim, assessment, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes (other than (1) in the case of NSH, to the extent described in the applicable section of the NSH disclosure schedule and (2) in the case of the Partnership, to the extent described in the applicable section of the Partnership disclosure schedule);

 

    change in any material respect any of its methods of reporting income or deductions for U.S. federal income tax purposes from those employed in the preparation of its U.S. federal income tax return for the most recent taxable year for which a return has been filed, except as may be required by applicable law or the partnership agreement;

 

    take any action or fail to take any action which action or failure to act could be reasonably expected to (1) cause it or any of its subsidiaries (other than (A) in the case of NSH, the subsidiaries listed in the applicable section of the NSH disclosure schedule and (B) in the case of the Partnership, the subsidiaries listed in the applicable section of the Partnership disclosure schedule) to be treated, for U.S. federal income tax purposes, as other than a partnership or “disregarded entity” or (2) prevent or impede the exchange of NSH units for common units pursuant to the merger from qualifying as an exchange that is generally tax-free for U.S. federal income tax purposes;

 

    in the case of NSH and its subsidiaries, except to the extent described in the applicable section of the NSH disclosure schedule, (1) incur any indebtedness for borrowed money or guarantee any such indebtedness of others, (2) enter into any material lease (whether operating or capital), (3) create any lien on its property or the property of its subsidiaries (including the common units owned by subsidiaries of NSH) in connection with any pre-existing indebtedness, new indebtedness or lease, or (4) make or commit to make any capital expenditures or (5) enter into any contract or contracts pursuant to which NSH or any of its subsidiaries has or reasonably could be expected to have payment obligations in excess of $5.0 million in the aggregate;

 

    in the case of the Partnership and its subsidiaries, take any action described in clauses (1), (2), (3) or (4) of the preceding bullet point that would have a material adverse effect with respect to the Partnership;

 

    dissolve or liquidate or authorize, recommend, propose or announce an intention to adopt a plan of complete or partial dissolution or liquidation, except to the extent described in the applicable section of the Partnership disclosure schedules;

 

   

except as permitted by the merger agreement, knowingly take any action that is intended to or is reasonably likely to result in (1) any of its representations and warranties in the merger agreement

 

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being or becoming untrue in any material respect at the closing date, (2) any of the conditions to closing not being satisfied, (3) any material delay or prevention or impairment of the ability of the parties, or any of them, to consummate the merger or (4) a material violation of any provision of the merger agreement except, in each case, as may be required by applicable law;

 

    enter into any material contract or modify, amend, terminate or assign, or waive or assign any rights under, any material contract, in each case, which would or would reasonably be expected to prevent or materially delay the consummation of the merger or other transactions contemplated by the merger agreement; or

 

    agree or commit to do any of the prohibited actions described above.

Representations and Warranties

The merger agreement contains representations and warranties of the parties to the merger agreement, many of which provide that the representations and warranties do not extend to matters where the failure of the representation and warranty to be accurate would not result in a material adverse effect on the party making the representation and warranty. These representations and warranties concern, among other things:

 

    existence, good standing, qualification and authority to conduct business;

 

    capitalization;

 

    existence, ownership, good standing and qualification of subsidiaries;

 

    power and authorization to enter into and carry out the obligations of the merger agreement and enforceability of the merger agreement;

 

    no defaults on contracts;

 

    absence of any conflict with or violation of organizational documents, third party agreements or law or regulation as a result of entering into and carrying out the obligations of the merger agreement;

 

    financial information and filings and reports with the SEC;

 

    fees payable to brokers;

 

    tax matters;

 

    regulatory approvals required to complete the merger;

 

    required board and committee consents and approvals;

 

    operations of Merger Sub; and

 

    fairness opinions.

For purposes of the merger agreement, “material adverse effect,” when used with respect to NSH or the Partnership, means any change, effect, event or occurrence that, individually or in the aggregate has had or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise) or results of operations of such party and its subsidiaries, taken as a whole.

A material adverse effect does not include any of the following or the impact thereof (so long as, in the case of the first through third bullet points immediately below, the impact on NSH or the Partnership is not disproportionately adverse as compared to others in the industry):

 

    changes, effects, events or occurrences generally affecting the United States or global economy, the financial, credit, debt, securities or other capital markets or political, legislative or regulatory conditions or changes in the industries in which such party operates (including changes, effects, events or occurrences generally affecting the prices of commodities);

 

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    changes in any laws or regulations applicable to such party or applicable accounting regulations or principles or the interpretation thereof;

 

    acts of war or terrorism (or the escalation of the foregoing) or natural disasters or other acts of God;

 

    any change in the market price or trading volume of the securities of such party;

 

    any failure of a party to meet any internal or external projections, forecasts or estimates of revenues, earnings or other financial or operating metrics for any period;

 

    any legal proceedings commenced by or involving any current or former holder of equity interests in NSH (on their own or on behalf of NSH) arising out of or related to the merger agreement or the transactions contemplated by the merger agreement;

 

    the execution, announcement or pendency of the merger agreement or the consummation of the transactions contemplated by the merger agreement or a reduction in the quarterly distribution of the Partnership or NSH; and

 

    with regard to NSH, any material adverse effect on the Partnership or any of its subsidiaries.

Covenants

NSH and the Partnership made the covenants described below:

Efforts

Each of NSH and the Partnership has agreed to use its reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper, desirable or advisable under applicable laws to consummate the merger, including obtaining any third-party approval, having any injunction or restraining order or other order adversely affecting the consummation of the merger lifted or rescinded, defending any litigation seeking to enjoin, prevent or delay the consummation of the merger or seeking material damages, and cooperating fully with the other party and furnishing to the other party copies of all correspondence, filings and communications with regulatory authorities. In complying with the above, neither NSH or the Partnership or their respective subsidiaries is required to take measures that would have a material adverse effect on it and its subsidiaries when taken as a whole.

NSH Unitholder Approval

NSH has agreed to call, hold and convene the NSH special meeting. The purpose of the NSH special meeting will be to consider and vote upon the approval of the merger agreement and the transactions contemplated thereby, including the merger. Subject to the provision of the merger agreement permitting a change in recommendation, the NSH Board will recommend approval of the merger agreement and the transactions contemplated thereby, including the merger, to the NSH unaffiliated unitholders, and NSH will take all reasonable lawful action to solicit such approval by the NSH unaffiliated unitholders.

Registration Statement

Each of the Partnership and NSH agreed to cooperate in the preparation of the registration statement on Form S-4, which includes this proxy statement/prospectus filed by the Partnership with the SEC in connection with the merger (and other proxy solicitation materials of NSH).

Press Releases

Prior to any NSH change in recommendation, if any, except for any investor presentation or material prepared by management in the ordinary course of announcing and discussing the merger agreement and the

 

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transactions contemplated thereby in a manner materially consistent with the substance of the press release and other communications materials issued in connection with the announcement of such transactions, each of NSH and the Partnership will not, without the prior approval of the NSH Board in the case of NSH and the Partnership Board in the case of the Partnership, issue any press release or written statement for general circulation relating to the transactions contemplated by the merger agreement, except as otherwise required by applicable law or the rules of the NYSE, in which case it will consult with the other before issuing any such press release or written statement.

Access; Information

Upon reasonable notice and subject to applicable laws relating to the exchange of information, each party and its subsidiaries will afford the other parties and their officers, employees, counsel, accountants and other authorized representatives, access during normal business hours throughout the period prior to the effective time, to all of its properties, books, contracts, commitments and records, and to its officers, accountants, counsel or other representatives. Neither NSH nor the Partnership nor any of their respective subsidiaries will be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege or contravene any law, fiduciary duty or binding agreement entered into prior to the date of the merger agreement.

Acquisition Proposals; Change in Recommendation

The merger agreement provides that neither NSH nor its subsidiaries will, and NSH will use its commercially reasonable efforts to cause its and its subsidiaries’ representatives not to, directly or indirectly:

 

    knowingly initiate, solicit, or encourage or facilitate any inquiries, proposals or offers with respect to, or the submission of any acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights; or

 

    knowingly engage, participate in, encourage or facilitate any discussions or negotiations regarding, or knowingly furnish or make available or cause to be furnished or made available to any person any non-public information or data in connection with any acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights.

Existing Discussions or Negotiations . In the merger agreement, NSH has agreed to and to cause its subsidiaries to immediately cease and terminate any activities, discussions and negotiations with any person conducted prior to the date of the merger agreement with respect to any acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights. NSH will promptly request that each person that has entered into a confidentiality agreement in connection with its consideration of making an acquisition proposal or a proposal or offer relating to the acquisition of all or a portion of the 2.0% general partner interest or the incentive distribution rights within the last twelve months return or destroy all confidential information.

At any time prior to obtaining NSH unitholder approval, if NSH receives a bona fide written acquisition proposal and (1) the NSH Board has determined in good faith, after consultation with outside legal counsel and financial advisors that (A) an unsolicited bona fide written acquisition proposal either constitutes a superior proposal or could be reasonably likely to result in a superior proposal, and (B) failure to take such action would be inconsistent with its fiduciary duties under applicable law, as modified by the NSH limited liability company agreement and (2) prior to furnishing non-public information to such person, NSH receives from such person an executed confidentiality agreement, then NSH may:

 

    provide access to any non-public information regarding NSH to the person who made such an acquisition proposal as long as NSH furnishes a copy of such confidentiality agreement to the Partnership and notifies the Partnership of the identity of the person who made such an acquisition proposal; and

 

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    enter into or participate in any discussions or negotiations with any such person regarding such acquisition proposal.

As defined in the merger agreement, “superior proposal” means any bona fide written acquisition proposal (except that references to 20% within the definition of “acquisition proposal” will be replaced by “50%”) made by a third party on terms that the NSH Board determines, in its good faith judgment and after consulting with its financial advisors and outside legal counsel, and taking into account the financial, legal, regulatory and other aspects of the acquisition proposal (including, without limitation, any conditions to and the expected timing of consummation and any risks of non-consummation and whether such acquisition proposal is reasonably capable of being completed) and the merger agreement, to be more favorable to NSH unitholders, from a financial point of view than the merger (taking into account any revised proposal by the Partnership to modify the terms of the merger agreement), provided that, to the extent any acquisition proposal includes a Partnership acquisition proposal, it shall not be a superior proposal without the consent of the Partnership Conflicts Committee.

Change in Recommendation . Subject to certain exceptions summarized below, the NSH Board may not:

 

    withdraw, modify or qualify, or propose publicly to withdraw, modify or qualify in a manner adverse to the Partnership, its recommendation to the NSH unitholders;

 

    approve or recommend, or publicly propose to approve or recommend, any acquisition proposal;

 

    fail to include the NSH recommendation in the proxy statement;

 

    if any acquisition proposal has been made public, fail to issue a press release recommending against such acquisition proposal and reaffirming NSH’s recommendation, if requested by the Partnership in writing, within the earlier of (1) ten business days of such written request, and (2) two business days before the NSH unitholder meeting;

 

    resolve, publicly propose or agree to do any of the foregoing; or

 

    except for a confidentiality agreement, approve, adopt or recommend, or publicly propose to approve, adopt or recommend, or allow NSH or any of its subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement, or other similar contract or any tender or exchange offer providing for, with respect to, or in connection with, any acquisition proposal.

However, at any time before the NSH unitholder approval is obtained, the NSH Board may terminate the merger agreement in order to accept a superior proposal or make a change in its recommendation (x) following receipt of an acquisition proposal that did not result from an intentional and material breach of the merger agreement and that the NSH Board has concluded in good faith, after consultation with its outside legal counsel and financial advisors, constitutes a superior proposal or (y) solely in response to an intervening event, and in each case referred to in clauses (x) and (y) above, if the NSH Board has concluded in good faith, after consultation with its outside legal counsel and financial advisors, that failure to make a change in its recommendation would be inconsistent with its fiduciary duties under applicable law, as modified by NSH limited liability company agreement.

The NSH Board will not be entitled to change its recommendation until after three business days following the Partnership’s, the Partnership Board’s and the Partnership Conflicts Committee’s receipt of written notice from NSH advising that the NSH Board intends to take such action and the reasons for doing so, including, if applicable, the terms and conditions of any superior proposal that is the basis of the proposed action and the identity of the person making the proposal and contemporaneously providing a copy of all relevant proposed transaction documents for such superior proposal (it being understood and agreed that any amendment to the terms of any such superior proposal shall require a new notice of proposed recommendation change and an

 

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additional three business day period). After providing such notice and prior to effecting such change in recommendation:

 

    NSH must, to the extent requested by the Partnership be available to meet and engage in good faith negotiations, during such three business day period, with the Partnership and its representatives to modify the merger agreement; and

 

    in determining whether to make a change in recommendation, the NSH Board must take into account any agreed modifications to the merger agreement.

NSH must also as promptly as practicable (and in any event within 48 hours after receipt) advise the Partnership orally and in writing of any acquisition proposal and the material terms and conditions of any such acquisition proposal (including any changes thereto) and identify the person making any such acquisition proposal. NSH must keep the Partnership informed on a reasonably current basis of material developments to the status and details (including any material amendments to the terms thereof) with respect to any such acquisition proposal.

Takeover Laws

Neither NSH nor the Partnership will take any action that would cause the transactions contemplated by the merger agreement to be subject to requirements imposed by any takeover laws.

No Rights Triggered

Each of NSH and the Partnership will take all steps necessary to ensure that the entering into of the merger agreement and the consummation of the transactions contemplated thereby will not result in the grant of any rights relating to equity securities of such party to any person, in the case of NSH, under the NSH limited liability company agreement, and, in the case of the Partnership, under the partnership agreement, or under any material agreement to which it or any of its subsidiaries is a party.

New Common Units Listed

The Partnership will use its reasonable best efforts to list, on the NYSE, prior to the closing of the merger, the new common units to be issued as merger consideration.

Third-Party Approvals

NSH and the Partnership and their respective subsidiaries will cooperate and use their reasonable best efforts to prepare all documentation, to effect all filings, to obtain and comply with all permits, consents, approvals and authorizations of all third parties and all regulatory approvals necessary to consummate the merger and to cause the amended and restated partnership agreement and the NuStar GP amended and restated company agreement to be effective as expeditiously as practicable.

Indemnification; Directors’ and Officers’ Insurance

The Partnership and the surviving entity, jointly and severally, will indemnify and hold harmless each person who is a director or officer of NSH or any of its subsidiaries or who is serving as a fiduciary under any employee benefit plan, both as of the date of the merger agreement and through the effective date of the merger, to the fullest extent permitted by law in connection with any claim arising out of or pertaining to the person’s service as a director or officer of NSH or its subsidiaries or as a fiduciary under any employee benefit plan and any losses, claims, liabilities, cost indemnification expenses, judgments, fines, penalties and amounts paid in settlement resulting therefrom. Both will also pay, prior to final disposition of a claim, any expenses incurred in defending such claim or serving as a witness relating to any claim within 10 days after any request for advancement.

 

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For a period of six years from the effective time, the NSH limited liability company agreement will contain provisions no less favorable with respect to indemnification, advancement of expenses and limitations on liability of directors and officers than are set forth currently in the NSH limited liability company agreement, which provisions will not be amended, repealed or otherwise modified for a period of six years from the effective time in any manner that would affect adversely the rights under the amended and restated partnership agreement of individuals who, at or prior to the effective time, were indemnified parties, unless such modification is required by law and then only to the minimum extent required by law.

The Partnership will, or will cause the surviving entity to, maintain, for at least of six years from the effective time, the current policies of directors’ and officers’ liability insurance maintained by NSH and its subsidiaries, except that the surviving entity may substitute policies of at least the same coverage amounts containing terms and conditions which are not less advantageous to the directors and officers of NSH than the existing policies; provided, that the Partnership is not required to pay annual premiums in excess of 300% of the last annual premium paid by NSH prior to the date of the merger agreement. Such obligation of the Partnership will be deemed to have been satisfied if prepaid “tail” policies have been obtained by the surviving entity with terms not less advantageous and carriers of the same or better ratings as the current policies.

The Partnership and NSH also agreed that all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time now existing in favor of existing indemnified parties, as provided in the NSH limited liability company agreement or organizational documents of its subsidiaries and the indemnification agreements of NSH or any of its subsidiaries, will be assumed by the surviving entity, the Partnership and NuStar GP in the merger, without further action, at the effective time and will survive the merger and will continue in full force and effect in accordance with their terms.

Notification of Certain Matters

Each of NSH and the Partnership will give prompt notice to the other of any fact, event or circumstance known to it that (1) is reasonably likely, individually or taken together with all other facts, events and circumstances known to it, to result in any material adverse effect with respect to it or (2) would cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained in the merger agreement or a change in such party’s condition (financial or otherwise) or business or any litigation or governmental complaints, investigations or hearings such that one or more of the conditions described in “—Conditions to the Merger,” as applicable, would not reasonably be expected to be satisfied.

Rule 16b-3

Each party will take any steps that are reasonably requested by any other party to the merger agreement to cause dispositions of NSH equity securities (including derivative securities) pursuant to the transactions contemplated by the merger agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to NSH to be exempt under Rule 16d-3 promulgated under the Exchange Act.

Amended and Restated Partnership Agreement

The General Partner will execute and make effective at the effective time the amended and restated partnership agreement.

NuStar GP Amended and Restated Company Agreement

NSH will execute and make effective at the effective time the NuStar GP amended and restated company agreement.

 

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Partnership Board Membership

NSH will designate the three members of the NSH Conflicts Committee to serve as members of the Partnership Board following the effective time. The six members of the Partnership Board immediately prior to the effective time will continue to serve as members of the Partnership Board following the effective time. NSH will take all action necessary to cause each director designated to be appointed to the Partnership Board effective as of the effective time.

Conditions to the Merger

Conditions of Each Party

The respective obligations of the parties to complete the merger are subject to the satisfaction or waiver, on or prior to the closing of the merger, of the following conditions:

 

    the approval of the merger agreement and the transactions contemplated thereby, including the merger, by the affirmative vote of holders of a majority of the outstanding NSH units;

 

    the effectiveness of, and absence of an initiated or threatened stop order with respect to, the registration statement on Form S-4 filed by the Partnership in respect of the common units to be issued in the merger, of which this proxy statement/prospectus forms a part;

 

    the absence of any order, decree or injunction of any court or agency or law that enjoins, prohibits or makes illegal any of the transactions contemplated by the merger agreement, and the absence of any action, proceeding or investigation by any regulatory authority regarding the merger or any of the transactions contemplated by the merger agreement; and

 

    the receipt by the Partnership of an opinion from Sidley Austin, or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH, as to certain tax matters relating to the Partnership’s qualifying income and partnership status.

Additional Conditions to the Obligations of NSH

The obligations of NSH to complete the merger are further subject to the satisfaction or waiver, on or prior to the closing of the merger, of each of the following conditions:

 

    the representations and warranties of the Partnership must, both on the date of the merger agreement and at the closing of the merger, be true and correct except to the extent that the failure to be true and correct would not cause a material adverse effect on the Partnership and its subsidiaries, taken as a whole;

 

    the performance, in all material respects, by the Partnership of its obligations under the merger agreement on or prior to the closing date;

 

    the receipt by NSH of a certificate signed by the Chief Executive Officer of NuStar GP to the effect that the conditions set forth in the two preceding bullet points have been satisfied;

 

    the receipt by NSH of an opinion from Wachtell Lipton, or another nationally recognized tax counsel reasonably acceptable to NSH, as to certain tax matters relating to the U.S. federal income tax consequences of the merger;

 

    the approval, upon official notice of issuance, of the listing on the NYSE of the new common units to be issued in the merger; and

 

    there shall not have occurred a material adverse effect with respect to the Partnership between the date of the merger agreement and the closing date.

 

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Additional Conditions to the Obligations of the Partnership

The obligations of the Partnership and Merger Sub to complete the merger are further subject to the satisfaction or waiver, on or prior to the closing of the merger, of each of the following conditions:

 

    the representations and warranties of NSH must, both on the date of the merger agreement and at the closing of the merger, be true and correct except to the extent that the failure to be true and correct would not cause a material adverse effect on NSH;

 

    the performance, in all material respects, by NSH of its obligations under the merger agreement on or prior to the closing date;

 

    the receipt by the Partnership of a certificate signed by the Chief Executive Officer of NSH to the effect that the conditions set forth in the two bullet points above have been satisfied;

 

    the receipt by the Partnership of an opinion from Sidley Austin, or another nationally recognized tax counsel reasonably acceptable to the Partnership and NSH, as to certain tax matters relating to the U.S. federal income tax consequences of the merger;

 

    the NuStar GP amended and restated company agreement shall have been executed and made effective; and

 

    there shall not have occurred a material adverse effect with respect to NSH between the date of the merger agreement and the closing date.

Termination

The merger agreement may be terminated at any time prior to the effective time in any of the following ways:

 

    by mutual written consent of NSH and the Partnership;

 

    by either NSH or the Partnership upon written notice to the other if:

 

    the merger is not completed on or before August 8, 2018, unless the failure of the closing to occur by this date is primarily due to the failure of the party seeking to terminate the merger agreement to fulfill any material obligation under the merger agreement or a material breach of the merger agreement by such party;

 

    any regulatory authority has issued a final and nonappealable statute, rule, order, decree or regulation or taken any other action that permanently restrains, enjoins or prohibits the consummation of the merger, the issuance of common units to the NSH unitholders and the adoption of the amended and restated partnership agreement, or makes the merger or any of the foregoing listed transactions illegal, provided that the terminating party is not in breach of its obligation to use commercially reasonable best efforts to complete the merger promptly;

 

    NSH fails to obtain the NSH unitholder approval at the NSH special meeting, but this right to terminate is not available to NSH if the failure to obtain the NSH unitholder approval was caused by a material breach by NSH of the merger agreement;

 

    there has been a breach of or any inaccuracy in any of the representations or warranties set forth in the merger agreement on the part of NSH (in the case of the Partnership and Merger Sub) or the Partnership or Merger Sub (in the case of NSH), which breach has not been cured within 30 days after receiving notice from the terminating party, or which breach, by its nature, cannot be cured prior to the termination date. However, the terminating party itself must not be in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement. In order for termination to take place, the breaches must be of such nature that they would entitle the party receiving such a representation not to carry out the merger agreement because certain closing conditions are not met; or

 

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    there has been a breach of any of the covenants or agreements set forth in the merger agreement on the part of NSH (in the case of the Partnership and Merger Sub) or the Partnership or Merger Sub (in the case of NSH), which breach has not been cured within 30 days after receiving notice from the terminating party, or which breach, by its nature, cannot be cured prior to the termination date. However, the terminating party itself must not be in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement. In order for termination to take place, the breaches must be of such nature that they would entitle the party receiving such a representation not to carry out the merger agreement because certain closing conditions are not met;

 

    by the Partnership prior to the NSH unitholder approval having been obtained, upon written notice to NSH, if NSH has intentionally and materially breached the no solicitation provisions of the merger agreement or the NSH Board has changed its recommendation to the NSH unitholders, provided, however, the Partnership shall not be entitled to exercise its right to terminate the merger agreement pursuant to this provision unless the Partnership has delivered such written notice to NSH within ten days of its receipt of notice from NSH that an NSH change in recommendation has occurred; or

 

    by NSH prior to obtaining the NSH unitholder approval, upon written notice to the Partnership, in order to accept a superior proposal, if NSH has not intentionally and materially breached certain non-solicitation covenants, NSH has paid the NSH termination fee (as defined below) and substantially concurrently therewith, and in any event within the same day of such termination, NSH enters into a definitive agreement in connection with such superior proposal.

Termination Fees and Expenses

NSH will be obligated to pay a fee to the Partnership equal to $13.7 million in cash, reduced by certain amounts paid (the “NSH termination fee”) if:

 

    the merger agreement is terminated by the Partnership because NSH changes its recommendation or terminated by NSH in order to accept a superior proposal; or

 

    after an acquisition proposal for 50% or more of the assets of, the equity interests in or the businesses of NSH has been publicly made by a person to the NSH unitholders by any person and in any event such proposal is not subsequently irrevocably withdrawn prior to the termination of the merger agreement, thereafter, the merger agreement is terminated by (1) either the Partnership or NSH because the merger was not consummated by August 8, 2018 or NSH failed to obtain the requisite unitholder approvals or (2) by the Partnership because of a material breach of any of NSH’s representations and warranties or agreements or covenants and, in each case, within 12 months after the merger agreement is terminated, NSH or any of its subsidiaries enters into any definitive agreement with such person or any of its affiliates or consummates an acquisition proposal with such person or any of its affiliates.

NSH or the Partnership will be obligated to pay expenses upon the termination of the merger agreement in the following circumstances:

 

    NSH will be obligated to pay the Partnership’s expenses, not to exceed $6.0 million, if the merger agreement is terminated by the Partnership because of a breach of any of NSH’s representations, warranties, agreements or covenants, as described in “—Termination”; or

 

    The Partnership will be obligated to pay NSH’s expenses, not to exceed $6.0 million, if the merger agreement is terminated by NSH because of a breach of the Partnership’s representations, warranties, agreements or covenants, as described in “—Termination.”

Waiver and Amendment

Prior to the closing, any provision of the merger agreement may be waived in writing by the party benefited by the provision and approved by the Partnership Conflicts Committee, in the case of the Partnership, and by the

 

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NSH Conflicts Committee, in the case of NSH, and executed in the same manner as the merger agreement. Any provision of the merger agreement may be amended or modified prior to the closing, whether before or after the NSH unitholder approval, by an agreement in writing among the parties approved by the Partnership Conflicts Committee and the NSH Conflicts Committee and executed in the same manner as the merger agreement. After the NSH unitholder approval, no amendment will be made that requires further NSH unitholder approval without such approval.

Governing Law

The merger agreement is governed by and interpreted under Delaware law.

 

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AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF THE PARTNERSHIP

The following is a summary of the material provisions of the amended and restated partnership agreement. This summary is qualified in its entirety by reference to the form of the amended and restated partnership agreement attached hereto as Annex B and incorporated into this proxy statement/prospectus by reference.

At the effective time of the merger, the Partnership’s existing partnership agreement will be amended and restated in substantially the form of the amended and restated partnership agreement. The material differences between the partnership agreement and the amended and restated partnership agreement include: (1) the incentive distribution rights held by the General Partner will be cancelled; (2) the 2.0% general partner interest in the Partnership held by the General Partner will be converted into a non-economic, management interest in the Partnership; and (3) provisions for the election of directors to the Partnership Board by the common unitholders will be added.

The following provisions of the amended and restated partnership agreement are summarized elsewhere in this proxy statement/prospectus:

 

    with regard to distributions of “Available Cash,” please read the description under “Partnership Cash Distribution Policy” on page 113; and

 

    with regard to allocations of taxable income and taxable loss, please read “Material U.S. Federal Income Tax Consequences of Common Unit Ownership” beginning on page 120.

Organization and Duration

The Partnership was organized in December 1999 and will continue in existence until dissolved in accordance with the amended and restated partnership agreement.

Purpose

The purpose of the Partnership is (1) to serve as a partner of NuStar Logistics, L.P. (“NuStar Logistics”), one of the Partnership’s primary operating subsidiaries, and its other subsidiaries established for conducting the business of the Partnership (collectively, the “Operating Partnership”), (2) to engage in any business activities that may be engaged in by the Operating Partnership or that are approved by the General Partner, provided that the General Partner must reasonably determine that such activity generates or enhances the operations of any activity that generates “qualifying income,” as this term is defined in Section 7704 of the Code, (3) to serve as a member of NSH and to exercise all the rights and powers held by the Partnership as a member of NSH as the member of NuStar GP and (4) to do anything necessary or appropriate to the foregoing, including the making of capital contributions or loans to the Partnership’s subsidiaries. The General Partner has no obligation or duty to the Partnership, its limited partners or assignees of partnership interests to propose or approve, and in its discretion may decline to propose or approve, the conduct by the Partnership of any business.

Power of Attorney

Each limited partner, and each person who acquires a limited partner interest and executes and delivers a transfer application, grants to the General Partner and, if appointed, a liquidator, a power of attorney to, among other things, execute and file documents required for the qualification, continuance or dissolution of the Partnership. The power of attorney also grants the General Partner and the liquidator the authority to amend the amended and restated partnership agreement and to make consents and waivers under the partnership agreement.

Capital Contributions

The common unitholders are not obligated to make additional capital contributions, except as described below under “—Limited Liability.”

 

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Limited Liability

Assuming that a limited partner does not participate in the control of the Partnership’s business within the meaning of the Delaware Act and that it otherwise acts in conformity with the provisions of the amended and restated partnership agreement, the limited partner’s liability under the Delaware Act will be limited, subject to possible exceptions, to the amount of capital the limited partner is obligated to contribute to the Partnership for such partner’s common units plus the partner’s share of any undistributed profits and assets and any funds wrongfully distributed to it, as described below. If it were determined, however, that the right, or exercise of the right, by the limited partners as a group:

 

    to remove or replace the General Partner;

 

    to approve certain amendments to the amended and restated partnership agreement; or

 

    to take any other action under the amended and restated partnership agreement

constituted “participation in the control” of the Partnership’s business for the purposes of the Delaware Act, then the limited partners could be held personally liable for the Partnership’s obligations under the laws of Delaware, to the same extent as the General Partner. This liability would extend to persons who transact business with the Partnership who reasonably believe that a limited partner is a general partner based on the limited partner’s conduct.

Neither the amended and restated partnership agreement nor the Delaware Act specifically provides for legal recourse against the General Partner if a limited partner were to lose limited liability through any fault of the General Partner. While this does not mean that a limited partner could not seek legal recourse, the Partnership knows of no precedent for this type of a claim in Delaware case law.

Under the Delaware Act, a limited partnership may not make a distribution to a partner if, after the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the limited partnership, would exceed the fair value of the assets of the limited partnership. For the purpose of determining the fair value of the assets of a limited partnership, the Delaware Act provides that the fair value of property subject to liability for which recourse of creditors is limited will be included in the assets of the limited partnership only to the extent that the fair value of that property exceeds the nonrecourse liability. The Delaware Act provides that a limited partner who receives a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Act will be liable to the limited partnership for the amount of the distribution for three years from the date of distribution. Under the Delaware Act, an assignee who becomes a substituted limited partner of a limited partnership is liable for the obligations of its assignor to make contributions to the limited partnership, excluding any obligations of the assignor with respect to wrongful distributions, as described above, except the assignee is not obligated for liabilities unknown to it at the time it became a limited partner and that could not be ascertained from the limited partnership agreement.

The Partnership’s operating subsidiaries conduct business or own assets in the United States, Canada, Mexico, the Netherlands, including St. Eustatius in the Caribbean, and the United Kingdom. Maintenance of the Partnership’s limited liability as a limited partner or member, respectively, of the Partnership’s operating subsidiaries may require compliance with legal requirements in the jurisdictions in which the operating subsidiary conducts business. Limitations on the liability of limited partners or members for the obligations of a limited partnership or limited liability company have not been clearly established in many jurisdictions. If it were determined that the Partnership was, by virtue of the Partnership’s limited partner interest or limited liability company interest in its subsidiaries or otherwise, conducting business in any state without compliance with the applicable limited partnership or limited liability company statute, or that the right or exercise of the right by the limited partners as a group to remove or replace the General Partner, to approve certain amendments to the amended and restated partnership agreement, or to take other action under the amended and restated partnership agreement constituted “participation in the control” of the Partnership’s business for purposes of the statutes of

 

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any relevant jurisdiction, then the limited partners could be held personally liable for the Partnership’s obligations under the law of that jurisdiction to the same extent as the General Partner under the circumstances. The Partnership will operate in a manner that the General Partner considers reasonable and necessary or appropriate to preserve the limited liability of the limited partners.

Voting Rights

The following matters require the common unitholder vote specified below.

 

Election of directors to the Partnership Board

  

Plurality of the votes cast by the limited partners holding outstanding common units, voting together as a single class, at a meeting of the limited partners. Please read “—Meetings; Voting” on page 86.

 

Amendment of the amended and restated partnership agreement

  

Certain amendments may be made by the General Partner without the approval of common unitholders. Certain other amendments require the approval of the holders of a majority of outstanding common units. Certain other amendments require the approval of the holders of a super-majority of outstanding common units, and certain amendments that would have a material adverse effect on a class of Partnership interests require the approval of a majority of the Partnership interests to be affected by such amendment. Please read “—Amendment to the Amended and Restated Partnership Agreement” beginning on page 82.

 

Merger or the sale of all or substantially all of the Partnership’s assets

  

The holders of a majority of the outstanding common units. Please read “—Merger, Sale or Other Disposition of Assets” on page 84.

 

Dissolution of the Partnership

  

The holders of a majority of the outstanding common units. Please read “—Termination and Dissolution” beginning on page 86.

 

Removal/Replacement of the General Partner

   The holders of a majority of the outstanding common units. Please read “—Withdrawal or Removal of the General Partner” on page 84.

Issuance of Additional Securities

The amended and restated partnership agreement authorizes the Partnership, subject to any approvals required by the holders of the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Series A Preferred Units”), the 7.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Series B Preferred Units”) or the 9.00% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (“Series C Preferred Units”), to issue an unlimited number of additional partnership securities for the consideration and on the terms and conditions established by the General Partner in its sole discretion without the approval of any limited partners.

 

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It is possible that the Partnership will fund acquisitions through the issuance of additional common units or other partnership securities. Holders of any additional common units the Partnership issues will be entitled to share equally with the then-existing common unitholders in the Partnership’s distributions of available cash. In addition, the issuance of additional partnership interests may dilute the value of the interests of the then-existing common unitholders in the Partnership net assets.

Except for restrictions arising from the need for approval of the holders of Series A Preferred Units, Series B Preferred Units or Series C Preferred Units, there are no restrictions under the amended and restated partnership agreement on the ability of the General Partner to issue partnership securities, including partnership securities junior or senior to the common units.

In accordance with the Delaware Act and the provisions of the amended and restated partnership agreement, the Partnership may also issue additional partnership securities that, in the sole discretion of the General Partner, may have special voting rights to which common units are not entitled.

No person will have any preemptive, preferential or other similar right with respect to the issuance of any partnership securities.

Amendment to the Amended and Restated Partnership Agreement

General

Amendments to the amended and restated partnership agreement may be proposed only by or with the consent of the General Partner, which consent may be given or withheld in its sole discretion. In order to adopt a proposed amendment, other than the amendments discussed below, the General Partner is required to seek written approval of the holders of the number of common units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment. Except as described below, an amendment must be approved by a majority of the outstanding common units (a “unit majority”).

Prohibited Amendments

No amendment may be made that would:

 

    amend, alter, change, repeal or rescind, in any respect, a provision of the amended and restated partnership agreement that establishes a percentage of outstanding units required to take any action, that would have the effect of reducing such voting percentage, unless such amendment is approved by the written consent or the affirmative vote of holders of outstanding units whose aggregate outstanding units constitute not less than the voting requirement sought to be reduced;

 

    enlarge the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected;

 

    enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by the Partnership to the General Partner or any of its affiliates without the consent of the General Partner, which may be given or withheld in its sole discretion;

 

    change the term of the Partnership;

 

    provide that the Partnership is not dissolved upon an election to dissolve the Partnership by the General Partner that is approved by the holders of a majority of the outstanding common units;

 

    give any person the right to dissolve the Partnership, other than the General Partner’s right to dissolve the Partnership with the approval of the holders of a majority of the outstanding common units; or

 

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    have a material adverse effect on the rights or preferences of any class of Partnership interests in relation to other classes of Partnership interests, unless approved by the holders of not less than a majority of the outstanding Partnership interests of the class affected.

The provision of the amended and restated partnership agreement prohibiting amendments to the amended and restated partnership agreement having the effects described in the seven bullets above can be amended, subject to certain exceptions, only upon the approval of the holders of at least 90% of the outstanding common units. In addition, no amendment may be made to the amended and restated partnership agreement that would have a material adverse effect on the powers, preferences, duties or special rights of the Series A Preferred Units, Series B Preferred Units or Series C Preferred Units without first obtaining the affirmative vote or consent of the holders of 66-2/3% of the respective outstanding class of preferred units.

No Unitholder Approval

The General Partner may generally make amendments to the amended and restated partnership agreement without the approval of any limited partner or assignee to reflect:

 

    a change in the Partnership’s name, the location of the principal place of business of the Partnership, the registered agent or the registered office;

 

    the admission, substitution, withdrawal or removal of partners in accordance with the amended and restated partnership agreement;

 

    a change that, in the sole discretion of the General Partner, is necessary or advisable to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or to ensure that neither the Partnership nor the Operating Partnership will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

 

    an amendment that is necessary, in the opinion of counsel to the Partnership, to prevent the Partnership, the General Partner, or its directors, officers, agents or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not such are substantially similar to plan asset regulations currently applied or proposed;

 

    subject to the limitations on the issuance of additional partnership securities described above, an amendment that in the discretion of the General Partner is necessary or advisable for the authorization of additional partnership securities;

 

    any amendment expressly permitted in the amended and restated partnership agreement to be made by the General Partner acting alone;

 

    an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of the amended and restated partnership agreement;

 

    an amendment that, in the discretion of the General Partner, is necessary or advisable for the formation by the Partnership of, or its investment in, any corporation, partnership or other entity, as otherwise permitted by the amended and restated partnership agreement;

 

    a change in the fiscal year or taxable year of the Partnership and any related changes; and

 

    any other amendments substantially similar to the foregoing.

In addition, the General Partner may make amendments to the amended and restated partnership agreement without the approval of any limited partner or assignee if those amendments, in the discretion of the General Partner:

 

    do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;

 

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    are necessary or advisable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;

 

    are necessary or advisable to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading, compliance with any of which the General Partner deems to be in the interests of the Partnership and the limited partners;

 

    are necessary or advisable for any action taken by the General Partner relating to splits or combinations of common units under the provisions of the amended and restated partnership agreement; or

 

    are required to effect the intent of the provisions of the amended and restated partnership agreement or that are otherwise contemplated by the amended and restated partnership agreement.

Opinion of Counsel and Unitholder Approval

Except for amendments described above under “—No Unitholder Approval” or in connection with a merger, no other amendments to the amended and restated partnership agreement will become effective without the approval of holders of at least 90% of the common units unless the Partnership obtains an opinion of counsel to the effect that the amendment will not affect the limited liability under applicable law of any limited partner of the Partnership.

Merger, Sale or Other Disposition of Assets

Subject to certain exceptions, a merger or consolidation of the Partnership requires the prior approval of the General Partner. The General Partner must also approve the merger agreement, which must include certain information as set forth in the amended and restated partnership agreement. Once approved by the General Partner, the merger agreement must be submitted to a vote of the limited partners, and the merger agreement will be approved upon receipt of the affirmative vote or consent of the holders of a unit majority (unless the affirmative vote of the holders of a greater percentage is required under the merger agreement or the Delaware Act).

Except in connection with a dissolution and liquidation of the Partnership or a duly approved merger, the General Partner may not (1) sell, exchange or otherwise dispose of all or substantially all of the Partnership’s assets in a single transaction or a series of related transactions or (2) approve on behalf of the Partnership the sale, exchange or other disposition of all or substantially all of the assets of the Partnership without the approval of the holders of a unit majority. However, the General Partner may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the assets of the Partnership without the approval of the unitholders. In addition, the General Partner may sell any or all of the assets of the Partnership in a forced sale pursuant to the foreclosure of, or other realization upon, any such encumbrance without the approval of the unitholders.

Withdrawal or Removal of the General Partner

The General Partner may withdraw as General Partner without first obtaining approval of any unitholder by giving 90 days’ written notice, and that withdrawal will not constitute a violation of the amended and restated partnership agreement. In addition, the amended and restated partnership agreement permits the General Partner to sell or otherwise transfer all of its General Partner interest in the Partnership without the approval of the unitholders. Please read “—Transfer of the General Partner Interest.”

Upon the withdrawal of the General Partner under any circumstances, other than as a result of a transfer of all or part of its General Partner interest in the Partnership, the common unitholders representing a majority may select a successor to the withdrawing general partner. If a successor is not elected, or is elected but an opinion of

 

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counsel regarding limited liability and tax matters cannot be obtained, the Partnership will be dissolved, wound up and liquidated, unless within 180 days after that withdrawal, the holders of a unit majority of the outstanding common units agree in writing to continue the Partnership’s business and to appoint a successor general partner. Please read “—Termination and Dissolution.”

If the General Partner withdraws under circumstances where such withdrawal does not violate the amended and restated partnership agreement, and a successor general partner is elected under the terms of the amended and restated partnership agreement, the departing general partner will have the option to require the successor general partner to purchase its general partner interests for cash. If the General Partner withdraws under circumstances where such withdrawal does violate the amended and restated partnership agreement, and a successor general partner is elected, the successor general partner will have the option to purchase the general partner interests of the departing general partner. If such general partner interests are not purchased by the successor general partner, they will be converted into common units.

The General Partner may not be removed unless that removal is approved by the vote of the holders of a majority of the outstanding common units (excluding common units held by the General Partner and its affiliates), and the Partnership receives an opinion of counsel regarding limited liability and tax matters. Any removal of the General Partner is also subject to the approval of a successor general partner by the vote of the holders of a majority of the outstanding common units.

If the General Partner is removed under circumstances where cause does not exist and a successor general partner is elected under the amended and restated partnership agreement, the departing general partner will have the option to require the successor general partner to purchase its general partner interests for cash. If the General Partner is removed under circumstances where cause does exist, and a successor general partner is elected, the successor general partner will have the option to purchase the general partner interests of the departing general partner. If the general partner interests are not purchased by the successor general partner, they will be converted into common units.

“Cause” is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the General Partner liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as the general partner.

Withdrawal or removal of the General Partner also constitutes withdrawal or removal of the general partner of the Operating Partnership.

In addition, the Partnership will be required to reimburse the departing general partner for all amounts due the departing general partner, including, without limitation, all employee-related liabilities, including severance liabilities, incurred for the termination of any employees employed by the departing general partner for the benefit of the Partnership.

Transfer of the General Partner Interest

The General Partner may transfer all or any part of its general partner interests in the Partnership without unitholder approval.

No transfer by the General Partner of all or any part of its general partner interest is permitted unless (1) the transferee agrees to assume the rights and duties of the General Partner and be bound the amended and restated partnership agreement, (2) the Partnership receives an opinion of counsel regarding limited liability and tax matters and (3) such transferee agrees to purchase all of the partnership interests of the general partner as the general partner of the Operating Partnership and any of the Partnership’s or the Operating Partnership’s subsidiaries.

 

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Change of Management Provisions

The amended and restated partnership agreement contains specific provisions that are intended to discourage a person or group from attempting to remove the General Partner or otherwise change management, including the following:

 

    any common units held by a person that owns 20% or more of any class of limited partner interests then outstanding, other than the General Partner and its affiliates, cannot be voted on any matter; and

 

    limiting the ability of unitholders to call meetings or to acquire information about the Partnership’s operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

Termination and Dissolution

The Partnership will continue in existence as a limited partnership until terminated in accordance with the amended and restated partnership agreement. The Partnership will dissolve upon:

 

    the election of the General Partner to dissolve the Partnership, if approved by the common unitholders representing a unit majority (as defined in the partnership agreement);

 

    the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Delaware Act;

 

    the sale of all or substantially all of the assets and properties of the Partnership, the Operating Partnership and their subsidiaries; or

 

    the withdrawal or removal of the General Partner or any other event that results in its ceasing to be the General Partner other than by reason of a transfer of its general partner interest in accordance with the amended and restated partnership agreement or withdrawal or removal following approval and admission of a successor.

Upon a dissolution of the Partnership under the last clause above, the holders of a unit majority may also elect, within specific time limitations, to reconstitute the Partnership and continue its business on the same terms and conditions set forth in the amended and restated partnership agreement by forming a new limited partnership on terms identical to those set forth in the amended and restated partnership agreement and having as the general partner a person approved by a unit majority, subject to receipt by the Partnership of an opinion of counsel to the effect that:

 

    the action would not result in the loss of limited liability of any limited partner; and

 

    neither the Partnership, the reconstituted limited partnership, nor any operating subsidiary would be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes upon the exercise of that right to continue.

Liquidation and Distribution of Proceeds

Upon the Partnership’s dissolution, unless it is reconstituted and continued as a new limited partnership, the liquidator authorized to wind up the Partnership’s affairs will, acting with all the powers of the general partner that the liquidator deems necessary or desirable in its judgment, liquidate the Partnership’s assets and apply the proceeds of the liquidation as provided in “Partnership Cash Distribution Policy.” The liquidator may defer liquidation or distribution of the Partnership’s assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to the partners.

Meetings; Voting

An annual meeting of the limited partners for the election of directors to the Partnership Board, and other matters that the General Partner submits to a vote of the limited partners, will be held in April of each year

 

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beginning in 2019 or on such other date as determined by the General Partner. Special meetings of the limited partners may be called by the General Partner or by limited partners owning 20% or more of the outstanding limited partner interests of the class or classes for which a meeting is proposed.

For the purpose of determining the limited partners entitled to notice of or to vote at any meeting or to give approvals without a meeting, the General Partner may set a record date, which date for purposes of notice of a meeting shall not be less than 10 days nor more than 60 days before the date of the meeting.

Each record holder of limited partner interests has a vote according to his percentage interest in the Partnership. Limited partner interests held for a person’s account by another person (such as a broker, dealer or bank), in whose name such limited partner interests are registered, will be voted by such other person in favor of, and at the direction of, the beneficial owner unless the arrangement between such persons provides otherwise. Representation in person or by proxy of a majority of the outstanding limited partner interests of the class or classes for which a meeting has been called will constitute a quorum at such meeting (unless a particular action by the limited partners requires approval by a greater percentage of limited partner interests, in which case the quorum shall be such greater percentage).

At any meeting at which a quorum is present, the act of the limited partners holding a majority of the outstanding limited partner interests entitled to vote at the meeting will be deemed to be the act of all the limited partners, unless a greater or different percentage is required under the amended and restated partnership agreement, in which case the act of the limited partners holding such greater or different percentage of the outstanding limited partner interests will be required. At a meeting for the election of directors, directors are elected by a plurality of votes cast by the limited partners holding outstanding common units voting together as a single class.

If authorized by the General Partner, any action that is required or permitted to be taken at a meeting of the limited partners may be taken either at a meeting of the limited partners or without a meeting if consents in writing describing the action so taken are signed by the holders of the number of limited partner interests necessary to authorize or take that action at a meeting.

The Board of Directors

The number of directors on the Partnership Board will be nine unless otherwise determined from time to time by a majority of the directors then in office. Any decrease in the number of directors by the Partnership Board may not have the effect of shortening the term of any incumbent director.

Under the amended and restated partnership agreement, the Partnership Board may adopt a resolution to group the directors with respect to their terms, which is referred to herein as the “triggering resolution,” by dividing the directors into three groups, with each group to be as nearly equal in number as possible. Prior to the adoption of the triggering resolution, each director will hold office until the next annual meeting of limited partners. After the adoption of the triggering resolution the directors designated to Group I will serve for an initial term that expires at the first annual meeting of limited partners following the adoption of the triggering resolution, the directors designated to Group II will serve an initial term that expires at the second annual meeting of limited partners following the adoption of the triggering resolution, and the directors designated to Group III will serve an initial term that expires at the third annual meeting of limited partners following the adoption of the triggering resolution. At each annual meeting of limited partners beginning with the first annual meeting following the adoption of the triggering resolution, successors to the directors whose terms expire at that annual meeting will be elected for a three-year term.

After the adoption of the triggering resolution, a director may only be removed for cause. Before and after the adoption of the triggering resolution, a director may only be removed at a meeting of limited partners upon the affirmative vote of the limited partners holding a unit majority and only if, at the same meeting, the limited

 

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partners holding a unit majority nominate a replacement director and elect the replacement director to the Partnership Board. Before and after the adoption of the triggering resolution, vacancies on the Partnership Board (other than vacancies caused by the removal of a director by the limited partners) may be filled by a majority of the remaining directors then in office.

Nominations of persons for election as directors to the Partnership Board may be made at an annual meeting of the limited partners only pursuant to the General Partner’s notice of meeting (1) by or at the direction of a majority of the directors of the Partnership Board or (2) by a limited partner, or a group of limited partners, that holds or beneficially owns, and has continuously held or beneficially owned without interruption for the prior two years, 5% of the outstanding common units and such limited partner, or each limited partner in such group, (A) was a limited partner at the time the notice provided for in the amended and restated partnership agreement is delivered to the General Partner and (B) complies with the notice procedures set forth in the amended and restated partnership agreement.

For any nominations brought before an annual meeting by a limited partner, the limited partner must give timely notice thereof in writing to the General Partner. The notice must contain certain information as described in the amended and restated partnership agreement. To be timely, a limited partner’s notice must be delivered to the General Partner not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year’s annual meeting. For purposes of the 2019 annual meeting, the first anniversary of the preceding year’s annual meeting shall be deemed to be April 30, 2019. The public announcement of an adjournment or postponement of an annual meeting will not commence a new time period (or extend any time period) for the giving of a limited partner’s notice as described above.

In the event that the number of directors is increased effective after the time period for which nominations would otherwise be due and there is no public announcement by the Partnership or the General Partner naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a limited partner’s notice will also be considered timely, but only with respect to nominees for the additional directorships, if it is delivered to the General Partner not later than the close of business on the 10th day following the day on which such public announcement is first made by the Partnership or the General Partner.

Nominations for directors may be made at a special meeting of limited partners at which directors are to be elected in accordance with the provisions of the amended and restated partnership agreement.

Only persons who are nominated in accordance with the procedures set forth in the amended and restated partnership agreement will be eligible to be elected at an annual or special meeting of limited partners to serve as directors. Unless otherwise required by law, if each nominating limited partner does not appear at the annual or special meeting of limited partners to present a nomination, the nomination will be disregarded.

In addition to the provisions described above and in the amended and restated partnership agreement, a limited partner must also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder. Any references in the amended and restated partnership agreement to the Exchange Act or the rules promulgated thereunder are not intended to, and do not, limit any requirements applicable to nominations pursuant to the amended and restated partnership agreement, and compliance with the amended and restated partnership agreement is the exclusive means for a limited partner to make nominations.

Limited Call Right

If at any time the General Partner and its affiliates own 80% or more of the issued and outstanding limited partner interests of any class, the General Partner will have the right (which right it may assign and transfer to the Partnership or any affiliate of the General Partner) to purchase all, but not less than all, of the outstanding limited partner interests of that class that are held by non-affiliated persons. The record date for determining ownership

 

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of the limited partner interests to be purchased by the General Partner will be selected by the General Partner, and the General Partner must mail notice of its election to purchase the interests to the holders of such interests at least 10 but not more than 60 days prior to the purchase date. The purchase price in the event of a purchase under these provisions would be the greater of (1) the current market price (as defined in the amended and restated partnership agreement) of the limited partner interests of the class as of the date three days prior to the date the General Partner mails notice of its election to purchase the limited partner interests and (2) the highest cash price paid by the General Partner or any of its affiliates for any limited partner interest of the class purchased within the 90 days preceding the date the General Partner mails notice of its election to purchase the limited partner interests.

Transfer of Common Units and Status as a Limited Partner or Assignee

No transfer of limited partner interests represented by certificates will be recognized by the Partnership unless certificates representing those limited partner interests are surrendered and such certificates are accompanied by a duly executed transfer application. Each transferee of limited partner interests must execute a transfer application whereby the transferee, among other things, requests admission as a substituted limited partner, makes certain representations, executes and agrees to comply with and be bound by the amended and restated partnership agreement, and gives the consents and approvals and makes the waivers contained in the amended and restated partnership agreement. Transferees may hold common units in nominee accounts.

Once a transferee has executed and delivered a transfer application in accordance with the amended and restated partnership agreement, the transferee becomes an assignee. An assignee becomes a limited partner upon the consent of the General Partner and the recordation of the name of the assignee on the Partnership’s books and records. Such consent may be withheld in the sole discretion of the General Partner. An assignee, pending its admission as a substituted limited partner, is entitled to an interest in the Partnership equivalent to that of a limited partner with respect to the right to share in allocations and distributions, including liquidating distributions, of the Partnership. The General Partner will vote and exercise, at the written direction of the assignee, other powers attributable to limited partner interests owned by an assignee who has not become a substituted limited partner.

Transferees who do not execute and deliver transfer applications will be treated neither as assignees nor as record holders of limited partner interests and will not receive distributions, federal income tax allocations or reports furnished to record holders of limited partner interests. The only right such transferees will have is the right to admission as a substituted limited partner upon execution of a transfer application, subject to the approval of the General Partner. A nominee or broker who has executed a transfer application with respect to limited partner interests held in street name or nominee accounts will receive distributions and reports pertaining to such limited partner interests.

Non-Citizen Assignees; Redemption

If the Partnership, the Operating Partnership or any of their subsidiaries is or becomes subject to federal, state or local laws or regulations that, in the reasonable determination of the General Partner, create a substantial risk of cancellation or forfeiture of any property that the Partnership, the Operating Partnership or any of their subsidiaries has an interest in because of the nationality, citizenship or other related status of any limited partner or assignee, the Partnership may redeem the limited partner interests held by the limited partner or assignee at their current market price. In order to avoid any cancellation or forfeiture, the General Partner may require each limited partner or assignee to furnish information about his nationality, citizenship or related status. If a limited partner or assignee fails to furnish information about this nationality, citizenship or other related status within 30 days after a request for the information or the General Partner determines after receipt of the information that the limited partner or assignee is not an eligible citizen, the limited partner or assignee may be treated as a non-citizen assignee. In addition to other limitations on the rights of an assignee who is not a substituted limited partner, a non-citizen assignee does not have the right to direct the voting of his limited partner interests and may not receive distributions in kind upon the Partnership’s liquidation.

 

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Indemnification

Under the amended and restated partnership agreement, in most circumstances, the Partnership will indemnify the following persons, to the fullest extent permitted by law, from and against all losses, claims, damages or similar events as long as such persons acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the Partnership, and, with respect to any criminal proceeding, had no reasonable cause to believe their conduct was unlawful:

 

    the General Partner;

 

    any departing general partner;

 

    any person who is or was an affiliate of the General Partner or any departing general partner;

 

    any person who is or was a member, partner, officer, director, employee, agent or trustee of the Partnership, the Operating Partnership or any of their subsidiaries, the General Partner or any departing general partner or any affiliate of the Partnership, the Operating Partnership, their subsidiaries, the General Partner or any departing general partner; or

 

    any person who is or was serving at the request of the General Partner or any departing general partner or any affiliate of the General Partner or any departing general partner as an officer, director, employee, member, partner, agent, fiduciary or trustee of another person.

Any indemnification under these provisions will only be out of the Partnership’s assets. The General Partner will not be personally liable for any of the Partnership’s indemnification obligations, or have any obligation to contribute or loan funds or assets to the Partnership to enable it to effectuate indemnification. The Partnership is authorized to purchase insurance against liabilities asserted against and expenses incurred by persons for the Partnership’s activities, regardless of whether the Partnership would have the power to indemnify the person against liabilities under the amended and restated partnership agreement.

Books and Reports

The General Partner is required to keep appropriate books of the Partnership’s business at the Partnership’s principal offices. The books will be maintained for both tax and financial reporting purposes on an accrual basis. For tax and financial reporting purposes, the Partnership’s fiscal year is the calendar year.

The Partnership will furnish or make available to record holders of limited partner interests, within 120 days after the close of each fiscal year, an annual report containing audited financial statements and a report on those financial statements by its registered public accounting firm. Except for its fourth quarter, the Partnership will also furnish or make available summary financial information within 90 days after the close of each quarter.

The Partnership will furnish each record holder of a common unit with information reasonably required for tax reporting purposes within 90 days after the close of each calendar year.

Right to Inspect the Partnership’s Books and Records

The amended and restated partnership agreement provides that a limited partner can, for a purpose reasonably related to such limited partner’s interest as a limited partner, upon reasonable written demand and at its own expense, have furnished to it:

 

    information regarding the status of the business and financial condition of the Partnership;

 

    a copy of the Partnership’s tax returns;

 

    a current list of the name and last known address of each partner;

 

    copies of the partnership agreement, the certificate of limited partnership of the Partnership, related amendments and powers of attorney under which they have been executed;

 

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    information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner; and

 

    any other information regarding the Partnership’s affairs as is just and reasonable.

The General Partner may, and intends to, keep confidential from the limited partners trade secrets or other information the disclosure of which the General Partner believes in good faith is not in the Partnership’s, the Operating Partnership’s and their subsidiaries’ best interests, could damage the Partnership, the Operating Partnership and their subsidiaries or which the Partnership, the Operating Partnership and their subsidiaries are required by law or by agreements with third parties to keep confidential.

 

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SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION OF THE PARTNERSHIP AND NSH

The following tables set forth, for the periods and at the dates indicated, selected historical financial and operating information for the Partnership and NSH and selected unaudited pro forma financial information for the Partnership after giving effect to the proposed merger with NSH. The selected historical financial data as of and for each of the years ended December 31, 2013, 2014, 2015, 2016 and 2017 are derived from and should be read in conjunction with the audited financial statements and accompanying footnotes of the Partnership and NSH, respectively. The Partnership’s and NSH’s consolidated balance sheets as of December 31, 2016 and 2017, and the related statements of consolidated income, comprehensive income, cash flows and equity for each of the three years in the period ended December 31, 2015, 2016 and 2017 are incorporated by reference into this proxy statement/prospectus from the Partnership’s and NSH’s respective annual reports on Form 10-K for the year ended December 31, 2017.

The selected unaudited pro forma condensed combined consolidated financial statements of the Partnership show the pro forma effect of the Partnership’s proposed merger with NSH. For a complete discussion of the pro forma adjustments underlying the amounts in the table on the following page, please read “Unaudited Pro Forma Condensed Combined Consolidated Financial Statements” beginning on page F-2 of this document.

The unaudited pro forma condensed combined consolidated financial statements have been prepared to assist in the analysis of financial effects of the proposed merger between the Partnership and NSH. The unaudited pro forma condensed combined consolidated statements of income for the year ended December 31, 2017 assume the merger-related transactions occurred on January 1, 2017. The unaudited pro forma condensed combined consolidated balance sheet shows the financial effects of the merger-related transactions as if they had occurred on December 31, 2017. The unaudited pro forma condensed combined consolidated financial statements are based upon assumptions that the Partnership believes are reasonable under the circumstances, and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future consolidated results of the combined entity.

For information regarding the effect of the merger on pro forma distributions to NSH unitholders, please read “Comparative Per Unit Information.”

 

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Selected Historical and Pro Forma Financial Information of the Partnership

 

    Historical     Pro Forma  
    Year Ended December 31,     Year Ended
December 31,
2017
 
    2013 (a)     2014     2015     2016     2017 (b)    
    (Thousands of Dollars, Except Per Unit Data)        

Statement of Income Data:

           

Revenues (c)

  $ 3,463,732     $ 3,075,118     $ 2,084,040     $ 1,756,682     $ 1,814,019     $ 1,814,019  

Operating (loss) income

  $ (19,121   $ 346,901     $ 390,704     $ 359,109     $ 336,278     $ 333,980  

(Loss) income from continuing operations (d)

  $ (185,509   $ 214,169     $ 305,946     $ 150,003     $ 147,964     $ 144,079  

(Loss) income from continuing operations per common unit (d)

  $ (2.89   $ 2.14     $ 3.29     $ 1.27     $ 0.64     $ 0.98  

Cash distributions per unit applicable to common limited partners (e)

  $ 4.38     $ 4.38     $ 4.38     $ 4.38     $ 4.38     $ 4.38  

Balance Sheet Data:

           

Property, plant and equipment, net

  $ 3,310,653     $ 3,460,732     $ 3,683,571     $ 3,722,283     $ 4,300,933     $ 4,300,933  

Total assets

  $ 5,032,186     $ 4,918,796     $ 5,125,525     $ 5,030,545     $ 6,535,233     $ 6,535,900  

Long-term debt, less current portion

  $ 2,655,553     $ 2,749,452     $ 3,055,612     $ 3,014,364     $ 3,263,069     $ 3,315,569  

Total partners’ equity

  $ 1,903,794     $ 1,716,210     $ 1,609,844     $ 1,611,617     $ 2,480,089     $ 2,427,655  

 

(a) The losses for the year ended December 31, 2013 are mainly due to goodwill impairment charges.
(b) The significant increases in balance sheet data are primarily due to the Partnership’s acquisition of Navigator Energy Services, LLC for approximately $1.5 billion in May 2017.
(c) Declines in revenues from 2013 through 2017 are mainly from a reduction in marketing activity and lower commodity prices. The Partnership ceased marketing crude oil in the second quarter of 2017 and exited its heavy fuels trading operations in the third quarter of 2017.
(d) Includes the impact of a $56.3 million non-cash gain associated with the Partnership’s acquisition of the remaining 50% interest in ST Linden Terminal, LLC in 2015 and a $58.7 million non-cash impairment charge on the term loan to Axeon Specialty Products, LLC in 2016.
(e) Represents distributions applicable to the period in which the distributions were earned.

Selected Historical Consolidated Financial Information of NSH

 

    Historical  
    Year Ended December 31,  
    2013     2014     2015     2016     2017  
    (Thousands of Dollars, Except Per Unit Data)  

Statement of Comprehensive Income Data:

         

Equity in (loss) earnings of NuStar Energy L.P.

  $ (6,741   $ 65,380     $ 79,673     $ 56,096     $ 51,556  

Net (loss) income

  $ (11,034   $ 61,427     $ 72,208     $ 55,068     $ 86,775  

Basic and diluted net (loss) income per unit

  $ (0.26   $ 1.44     $ 1.68     $ 1.28     $ 2.01  

Cash distributions per unit (a)

  $ 2.18     $ 2.18     $ 2.18     $ 2.18     $ 2.18  

Other Financial Data:

         

Distributions received from NuStar Energy L.P.

  $ 96,134     $ 96,012     $ 96,030     $ 95,905     $ 99,310  

Balance Sheet Data:

         

Total assets

  $ 412,382     $ 385,150     $ 360,490     $ 274,630     $ 283,842  

Total short-term debt

  $ 26,000     $ 26,000     $ 26,000     $ 30,000     $ 42,500  

Members’ equity

  $ 349,986     $ 310,836     $ 287,070     $ 243,788     $ 240,536  

 

(a) Represents distributions applicable to the period in which the distributions were earned.

 

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THE PARTIES TO THE MERGER

NSH’s Business

This section summarizes information from NSH’s Annual Report on Form 10-K for the year ended December 31, 2017 and the other filings incorporated into this proxy statement/prospectus by reference. For a more detailed discussion of NSH’s business, please read the “Business, Risk Factors and Properties” section contained in NSH’s 2017 Annual Report on Form 10-K and the other filings incorporated into this document by reference.

General

NSH, a Delaware limited liability company, was formed in 2000. NSH units are traded on the NYSE under the ticker symbol “NSH.” NSH and the Partnership are closely related. NSH’s only cash generating assets are its ownership interests in the Partnership. NSH has an approximate 13% indirect ownership interest in the Partnership, consisting of the following:

 

    the 2.0% general partner interest;

 

    100% of the incentive distribution rights issued by the Partnership, which entitle NSH to receive increasing percentages of the cash distributed by the Partnership up to a maximum percentage of 23%; and

 

    10,214,626 common units of the Partnership.

NSH strives to increase unitholder value by actively supporting the Partnership in executing its business strategy, which includes continued growth through expansion projects and strategic acquisitions. NSH may facilitate the Partnership’s growth through the use of its capital resources, which could involve capital contributions, loans or other forms of financial support.

The following table summarizes the cash NSH received for the years ended December 31, 2015, 2016 and 2017 as a result of its indirect ownership of partnership interests in the Partnership (in thousands):

 

     Year Ended December 31,  
     2015      2016      2017  

Common units

   $ 45,073      $ 44,699      $ 44,740  

General partner interest (2.0%)

     7,844        7,877        9,252  

Incentive distribution rights

     43,220        43,407        45,669  

NSH’s principal executive offices are located at 19003 IH-10 West, San Antonio, Texas 78257. NSH’s telephone number is (210) 918-2000 and NSH’s website is www.nustargpholdings.com . Information on NSH’s website is not part of this proxy statement/prospectus.

The Partnership’s Business

This section summarizes information from the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017 and the other filings incorporated into this proxy statement/prospectus by reference. For a more detailed discussion of the Partnership’s business, please read the “Business, Risk Factors and Properties” section contained in its 2017 Annual Report on Form 10-K and the other filings incorporated into this proxy statement/prospectus by reference.

General

The Partnership, a Delaware limited partnership, was formed in 1999. The common units are traded on the NYSE under the symbol “NS.” The operations of the Partnership are managed by NuStar GP, the general partner

 

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of the General Partner. NuStar GP is a wholly owned subsidiary of NSH. The Partnership is engaged in the transportation of petroleum products and anhydrous ammonia, and the terminalling, storage and marketing of petroleum products. The Partnership divides its operations into three reportable business segments: pipeline, storage and fuels marketing.

The Partnership’s principal executive offices are located at 19003 IH-10 West, San Antonio, Texas 78257. The Partnership’s telephone number is (210) 918-2000 and the Partnership’s website is www.nustarenergy.com . Information on the Partnership’s website is not part of this proxy statement/prospectus.

The Partnership’s Business Segments

The Partnership has three reportable business segments: pipelines, storage and fuels marketing. The Partnership conducts its operations through its wholly owned subsidiaries.

Pipeline Segment . The Partnership’s pipeline operations consist of the transportation of refined petroleum products, crude oil and anhydrous ammonia. As of December 31, 2017, the Partnership owned and operated:

 

    refined product pipelines with an aggregate length of 3,130 miles and crude oil pipelines with an aggregate length of 1,930 miles in Texas, Oklahoma, Kansas, Colorado and New Mexico;

 

    a 1,920-mile refined product pipeline originating in southern Kansas and terminating at Jamestown, North Dakota, with a western extension to North Platte, Nebraska and an eastern extension into Iowa;

 

    a 450-mile refined product pipeline originating at Andeavor’s Mandan, North Dakota refinery and terminating in Minneapolis, Minnesota; and

 

    a 2,000-mile anhydrous ammonia pipeline originating in the Louisiana delta area that travels north through the Midwestern United States forking east and west to terminate in Nebraska and Indiana (the “Ammonia Pipeline”).

The Partnership charges tariffs on a per barrel basis for transporting refined products, crude oil and other feedstocks in its refined product and crude oil pipelines and on a per ton basis for transporting anhydrous ammonia in the Ammonia Pipeline.

Storage Segment . The Partnership’s storage segment consists of facilities that provide storage, handling and other services for petroleum products, crude oil, specialty chemicals and other liquids. As of December 31, 2017, the Partnership owned and operated:

 

    40 terminal and storage facilities in the United States and one terminal in Nuevo Laredo, Mexico, with total storage capacity of 53.3 million barrels;

 

    a terminal on the island of St. Eustatius with tank capacity of 14.3 million barrels and a transshipment facility;

 

    a terminal located in Point Tupper, Canada with tank capacity of 7.8 million barrels and a transshipment facility; and

 

    six terminals located in the United Kingdom and one terminal located in Amsterdam, the Netherlands, with total storage capacity of approximately 9.5 million barrels.

Revenues for the storage segment include fees for tank storage agreements, where a customer agrees to pay for a certain amount of storage in a tank over a period of time (storage terminal revenues), and throughput agreements, where a customer pays a fee per barrel for volumes moving through the Partnership’s terminals (throughput terminal revenues). The Partnership’s terminals also provide blending, additive injections, handling and filtering services for which it charges additional fees. The Partnership previously charged a fee for each barrel of crude oil and certain other feedstocks that it delivered to Valero Energy Corporation’s Benicia, Corpus

 

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Christi West and Texas City refineries from the Partnership’s crude oil refinery storage tanks. Effective January 1, 2017, the Partnership leases these refinery storage tanks in exchange for a fixed fee. Certain of the Partnership’s facilities charge fees to provide marine services such as pilotage, tug assistance, line handling, launch service, emergency response services and other ship services.

Fuels Marketing Segment . Prior to the third quarter of 2017, the Partnership’s fuels marketing operations involved the purchase of crude oil, fuel oil, bunker fuel, fuel oil blending components and other refined products for resale. The Partnership ceased marketing crude oil in the second quarter of 2017 and exited its heavy fuels trading operations in the third quarter of 2017. These actions are in the line with the Partnership’s goal of reducing its exposure to commodity margins, and instead focusing on its core, fee-based pipeline and storage segments. The only remaining operations in the Partnership’s fuels marketing segment are its bunkering operations at its St. Eustatius and Texas City terminals, as well as certain of its blending operations.

Merger Sub’s Business

Merger Sub, a Delaware limited liability company and a wholly owned subsidiary of the Partnership, was formed solely for the purpose of facilitating the merger. Merger Sub has not carried on any activities or operations to date, except for those activities incidental to its formation and undertaken in connection with the transactions contemplated by the merger agreement. By operation of the merger, Merger Sub will merge with and into NSH, with Merger Sub ceasing to exist.

Merger Sub’s principal executive offices are located at c/o NuStar Energy L.P., 19003 IH-10 West, San Antonio, Texas 78257, and its phone number is (210) 918-2000.

 

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INTERESTS OF CERTAIN PERSONS IN THE MERGER

Interests of Directors and Executive Officers in the Merger

In considering the recommendations of the NSH Conflicts Committee and the NSH Board with respect to the merger, NSH unitholders should be aware that the executive officers and directors of NSH have interests in the transaction that differ from, or are in addition to, the interests of NSH unitholders generally. These interests may present the executive officers and directors with actual or potential conflicts of interest. These interests include the following:

 

    NSH Units and Common Units . All of the executive officers and directors of NSH currently own NSH units and will be receiving common units in exchange for those NSH units as a result of the merger. NSH units held by directors and executive officers will be converted into the right to receive common units at a ratio of 0.55 of a common unit per NSH unit, which is the same as the ratio applicable to all other NSH unitholders. Like all other NSH unitholders, if the directors and executive officers are entitled to receive fractional common units pursuant to the merger, they will be entitled to receive a cash payment in an amount equal to the product of (1) the average of the volume weighted average price of the common units on each of the five consecutive trading days ending on the trading day that is two trading days prior to the day the merger closes and (2) the fraction of a common unit which such director or executive officer would otherwise be entitled to receive. In addition, certain of NSH’s directors and all of NSH’s executive officers currently own common units.

 

    NSH Restricted Units . Each outstanding NSH restricted unit held by NSH’s directors and executive officers pursuant to NSH’s long-term incentive plan will be converted into 0.55 of a restricted common unit and will continue to be subject to the terms and conditions of the NSH long-term incentive plan.

 

    Change of Control Waivers. Each of the directors and executive officers of NSH entered in to a Change of Control Waiver Agreement with respect to certain awards, grants or benefits such that the merger proposal would not be deemed to cause a change of control, as such term is defined in the applicable plan or agreement and the directors and executive officers would not receive the payments or benefits to which they otherwise may have been entitled.

 

    Indemnification and Insurance . The merger agreement provides for indemnification by the Partnership and NSH, as the surviving entity, of each person who was, as of the date of the merger agreement, or is at any time from the date of the merger agreement through the effective date, an officer or director of NSH or any of its subsidiaries or acting as a fiduciary under or with respect to any employee benefit plan of NSH and for the maintenance of directors’ and officers’ liability insurance covering directors and executive officers of NSH for a period of six years following the merger. The Partnership and NSH, as the surviving entity, also agreed that all rights to indemnification now existing in favor of indemnified parties as provided in the NSH limited liability company agreement and the indemnification agreements of NSH or any of its subsidiaries will be assumed by the Partnership in the merger, without further action, at the effective time and will survive the merger and will continue in full force and effect in accordance with their terms.

 

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