Contract analysis

I. Executive Summary This memorandum analyzes the federal and Iowa state income tax implications of the proposed formation of PrairieSense Technologies LLC ("PrairieSense" or the "JV Entity"), a proposed Iowa limited liability company that would serve as a joint venture between Greenfield Agricultural Partners LLC ("Greenfield") and TerraVault BioSciences Inc. ("TerraVault"). This memorandum has been prepared at the

II. Background and Proposed Transaction Structure A. The Parties

1. Greenfield Agricultural Partners LLC Greenfield Agricultural Partners LLC is an Iowa limited liability company with its principal offices located at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309. Greenfield's Employer Identification Number is 47-3281904. Greenfield is a strategic private investment firm focused on the agricultural and chemicals sectors. It was founded in 2009 by Marcus J. Linden and

2. TerraVault BioSciences Inc. TerraVault BioSciences Inc. is a Delaware corporation qualified to do business in Illinois, with its principal offices located at 1720 Innovation Parkway, Champaign, Illinois 61820. TerraVault's Employer Identification Number is 82-6047231. TerraVault is a precision agriculture technology company co-founded in 2017 by Dr. Anand Mehta, who serves as Chief Executive Officer, and Dr. Lian

3. SoilPulse™ Technology TerraVault's principal technology asset relevant to this transaction is its proprietary SoilPulse™ real-time soil nutrient and moisture sensor array. The SoilPulse™ platform has been deployed in pilot programs covering approximately 45,000 acres of commercial row-crop farmland across Illinois, Indiana, and Iowa. The technology is protected by the following intellectual property rights: • U.S.

III. Entity Classification and Pass-Through Treatment A. Federal Tax Classification PrairieSense Technologies LLC, as a domestic limited liability company with two or more members, will be classified by default as a partnership for federal income tax purposes under Treasury Regulation § 301.7701-3(b)(1). Under the so-called "check-the-box" regulations (Treas. Reg. §§ 301.7701-1 through 301.7701-3), a domestic eligibl

IV. Tax Treatment of Capital Contributions A. Greenfield's Cash Contribution — $7,200,000 Under IRC § 721(a), no gain or loss is recognized by either a partnership or any of its partners upon the contribution of property (including cash) to the partnership in exchange for an interest in the partnership. Accordingly, no gain or loss will be recognized by Greenfield or by PrairieSense upon Greenfield's contribution of

1. Nonrecognition Under IRC § 721(a) The general rule of IRC § 721(a) provides that no gain or loss is recognized to a partnership or any of its partners upon the contribution of property to the partnership in exchange for an interest in the partnership. This nonrecognition rule applies broadly to contributions of property, including contributions of intangible property such as patents, copyrights, trademarks, trade

2. Characterization of the IP Contribution A critical threshold question in analyzing TerraVault's IP contribution is whether TerraVault is contributing an ownership interest in the SoilPulse™ intellectual property or merely granting a license to use the technology. This distinction has significant implications for the applicability of IRC § 721(a) and for the ongoing tax treatment of the contributed asset within the

3. Basis and Built-In Gain Issues Under IRC § 722, TerraVault's total outside basis in its PrairieSense membership interest will be the sum of the cash contributed ($2,400,000) and TerraVault's adjusted tax basis in the contributed IP license. Under IRC § 723, PrairieSense's inside basis in the contributed IP license will be TerraVault's adjusted tax basis in the license at the time of contribution (i.e., the carryov

4. Services vs. Property Concern As noted above, IRC § 721(a) applies only to contributions of property and does not extend to partnership interests received in exchange for services. If any portion of TerraVault's 40% membership interest in PrairieSense were deemed to be received in exchange for ongoing services — for example, the continued involvement of Dr. Lian Xu (CTO of TerraVault) in technology development for

V. Allocation of Income, Gain, Loss, and Deductions A. General Allocation Framework — IRC § 704(b) The JV Operating Agreement must contain allocation provisions that satisfy the requirements of IRC § 704(b) and the substantial economic effect ("SEE") safe harbor set forth in Treasury Regulation § 1.704-1(b). Under IRC § 704(b), a partner's distributive share of income, gain, loss, deduction, or credit is determined b

1. The IRC § 704(c) Requirement IRC § 704(c)(1)(A) provides that income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take into account the variation between the adjusted tax basis of the property and its fair market value at the time of contribution. This provision is designed to prevent the shifting of tax consequences of

2. Permissible Methods Under Treasury Regulation § 1.704-3 Treasury Regulation § 1.704-3 provides three permissible methods for making IRC § 704(c) allocations. The partnership must select one of these methods (or a combination of methods, applied consistently) and specify the selected method in the partnership agreement. If the partnership agreement is silent, the default is the traditional method, which is the leas

3. Recommendation: Adopt the Remedial Method We strongly recommend that the JV Operating Agreement adopt the remedial method under Treasury Regulation § 1.704-3(d) for the SoilPulse™ technology license contributed by TerraVault. The remedial method is the most effective means of protecting Greenfield from bearing tax costs attributable to the built-in gain in TerraVault's contributed IP. Under this method: (a) Greenf

1. Detailed capital account maintenance provisions compliant with Treasury Regulation § 1.704-1(b)(2)(iv), including rules for crediting contributions at fair market value, crediting and debiting allocations of book income and loss, and debiting distributions.

2. Explicit designation of the remedial method under IRC § 704(c) for TerraVault's IP contribution. The Operating Agreement should state with specificity that the remedial method under Treasury Regulation § 1.704-3(d) applies to the SoilPulse™ technology license contributed by TerraVault, and should describe the mechanics of the notional remedial allocations.

3. Qualified income offset provision as required by the alternate test for economic effect under Treasury Regulation § 1.704-1(b)(2)(ii)(d).

4. Minimum gain chargeback provision as required by Treasury Regulation § 1.704-2(f). This provision is particularly important if PrairieSense incurs nonrecourse debt, such as the proposed Heartland National Bank revolving credit facility discussed in Section VIII.

5. Mandatory tax distribution provisions. The Operating Agreement should require PrairieSense to make mandatory quarterly (or at least annual) distributions of cash to each member in an amount sufficient to cover the member's estimated tax liabilities arising from its allocable share of JV income. These "tax distribution" provisions should have priority over all other distributions (including preferred returns or pro

6. Distribution provisions tracking book/economic allocations. Cash distributions (other than tax distributions) should track the 60/40 book/economic allocation ratios, and should not diverge due to tax allocation adjustments under IRC § 704(c) or the remedial method. This ensures that the economic bargain between the parties is preserved notwithstanding the complexity of the tax allocation structure.

7. Anti-abuse provisions. The Operating Agreement should include provisions ensuring that TerraVault does not receive cumulative economic distributions in excess of its book capital account balance, thereby preventing an inadvertent wealth transfer from Greenfield to TerraVault through the distribution mechanism.

VI. Potential Built-In Gain Issues Under IRC § 704(c)(1)(B) and § 737 A. IRC § 704(c)(1)(B) — Distribution of Contributed Property IRC § 704(c)(1)(B) provides that if any contributed property is distributed to a partner other than the contributing partner within seven years of the contribution, the contributing partner is treated as recognizing gain or loss on the distribution equal to the amount of gain or loss that

VII. Iowa and Multi-State Tax Considerations A. Iowa Pass-Through Treatment As discussed in Section III.B above, Iowa follows federal partnership classification rules, and PrairieSense will not be subject to entity-level Iowa income tax. PrairieSense's items of Iowa-source income, gain, loss, deduction, and credit will pass through to the members, who will report their respective shares on their Iowa inco