OPERATING AGREEMENT
OF
PRAIRIESENSE TECHNOLOGIES LLC
An Iowa Limited Liability Company
Calderwood & Harkness LLP 800 Walnut Street, Suite 2400 Des Moines, Iowa 50309
Drafter: Derek Okonkwo, Lead Associate, Mergers & Acquisitions
Whitfield, Carey & Stokes LLP 233 S. Wacker Drive, Suite 5600 Chicago, Illinois 60606
Attention: Jonathan Everett Carey and Priya Nandakumar
Calderwood & Harkness LLP Matter No.: 2022-M&A-00437
CONFIDENTIAL
This document is a preliminary draft circulated for discussion purposes only. No party shall be bound by any provision hereof unless and until a definitive agreement is executed and delivered by all parties. This draft is protected by the attorney-client privilege and the work product doctrine and is subject to Federal Rule of Evidence 408 and its state-law equivalents. Inadvertent disclosure of this document shall not constitute a waiver of any applicable privilege or protection.
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OPERATING AGREEMENT
OF
PRAIRIESENSE TECHNOLOGIES LLC
An Iowa Limited Liability Company
This Operating Agreement (this "Agreement") of PrairieSense Technologies LLC, an Iowa limited liability company (the "Company"), is entered into as of ___, 2022 (the "Effective Date"), by and among:
GREENFIELD AGRICULTURAL PARTNERS LLC, an Iowa limited liability company, with its principal office at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309 ("Greenfield" or "GAP");
and
TERRAVAULT BIOSCIENCES INC., a Delaware corporation qualified to do business in the State of Illinois, with its principal office at 1720 Innovation Parkway, Champaign, Illinois 61820 ("TerraVault" or "TVBS").
Each of Greenfield and TerraVault is referred to herein individually as a "Member" and collectively as the "Members."
RECITALS
A. Greenfield is a strategic private investment firm focused on agriculture, agribusiness, crop sciences, and related chemical and biological inputs. Greenfield currently manages approximately Six Hundred Eighty Million Dollars ($680,000,000) in committed capital across three fund vintages, with fourteen (14) active portfolio companies spanning the agricultural value chain, and possesses significant expertise in the
B. TerraVault is a precision agriculture technology company that has developed the proprietary SoilPulse™ real-time soil nutrient and moisture sensor platform (the "SoilPulse™ Technology"), which enables high-frequency, in-situ measurement of key soil health parameters including nitrogen, phosphorus, potassium, soil moisture, and organic carbon levels. The SoilPulse™ Technology is protected by United States Patent No. 10,842,317, entitled "Real-Time Soil Nutrient and Moisture Sensor Array System and Method," issued by the United States Patent and Trademark Office on March 9, 2021, pending United States Patent Application No. 17/509,664, filed October 25, 2021, and United States Trademark Registration No. 6,318,205 for the mark "SoilPulse." The SoilPulse™ Technology is currently deployed in pilot programs covering approximately forty-five thousand (45,000) acres of commercial row-crop farmland across the States of Illinois, Indiana, and Iowa.
C. The Members desire to form PrairieSense Technologies LLC as an Iowa limited liability company under the Iowa Revised Uniform Limited Liability Company Act (Iowa Code Chapter 489) for the purpose of developing, manufacturing, and commercializing integrated soil-health sensor systems for commercial row-crop agriculture in the United States, with an initial focus on the U.S. Midwest, leveraging Greenfield's capital resources, agricultural industry relationships, and operational capabilities, together with TerraVault's proprietary SoilPulse™ Technology and deep technical expertise in precision agriculture sensor systems.
D. The Members wish to set forth their respective rights, obligations, and interests in the Company, including with respect to governance, capital contributions, allocations and distributions of profits and losses, intellectual property licensing, transfer restrictions, and other matters, all as more fully set forth in this Agreement.
E. In connection with the formation of the Company, the Members entered into that certain Mutual Non-Disclosure Agreement dated July 11, 2022 (the "Mutual NDA"), by and between Greenfield and TerraVault, which governs the exchange of confidential and proprietary information between the Members in connection with their evaluation of the transactions contemplated hereby. The Mutual NDA shall remain in full force and effect and is supplemented, but not superseded, by the confidentiality provisions of Article XI of this Agreement.
F. The Members have negotiated the principal terms and structure of the Company as reflected in that certain Non-Binding Term Sheet dated September 26, 2022 (the "Term Sheet"), executed by Marcus J. Linden on behalf of Greenfield and Dr. Anand Mehta on behalf of TerraVault. The Term Sheet sets forth and shall be superseded in its entirety upon execution and delivery of this Agreement by all Members.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Act" means the Iowa Revised Uniform Limited Liability Company Act, Iowa Code Chapter 489, as amended from time to time.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract, or otherwise, and the terms "controlled by" and "under common control with" shall have correlative meanings. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if the first Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of the second Person.
"Agreement" means this Operating Agreement of PrairieSense Technologies LLC, including all Exhibits hereto, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Board" or "Board of Managers" means the governing body of the Company, as described in Article VI of this Agreement.
"Business Day" means any day other than a Saturday, Sunday, or a day on which banking institutions in Des Moines, Iowa are authorized or required by law to be closed.
"Capital Account" means, with respect to each Member, such Member's capital account as maintained pursuant to Section 4.4 of this Agreement.
"Capital Contribution" means, with respect to each Member, the total capital contributed by such Member to the Company, as set forth in Section 4.1, including any additional Capital Contributions made pursuant to Section 4.2.
"Cash Contribution" means the cash portion of a Member's Capital Contribution.
"Certificate of Organization" means the Certificate of Organization of the Company filed with the Iowa Secretary of State, as amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute thereto. References to specific provisions of the Code shall be deemed to include corresponding provisions of any successor statute.
"Company" means PrairieSense Technologies LLC, an Iowa limited liability company formed pursuant to this Agreement and the Act.
"Confidential Information" has the meaning set forth in Section 11.1.
"Distributable Cash" means, as of any date of determination, the excess, if any, of (a) the aggregate cash and cash equivalents of the Company on hand as of such date, over (b) the sum of (i) all amounts required to pay the Company's current and reasonably anticipated debts, liabilities, and obligations as they become due in the ordinary course of business, (ii) such reserves as the Board may reasonably determine to be necessary or appropriate for the Company's working capital needs, capital expenditures, contingent liabilities, and other business purposes, and (iii) any amounts required to be withheld by the Company pursuant to applicable law.
"EBITDA" means, for any period, the Company's earnings before interest expense, income tax expense (if any), depreciation, and amortization for such period, calculated in accordance with GAAP, with such adjustments as the Board may approve in connection with the annual budget process.
"Effective Date" has the meaning set forth in the preamble to this Agreement.
"Fiscal Year" means the calendar year, or such other fiscal year as the Board may select in accordance with the Code.
"Foreground IP" has the meaning set forth in Section 9.3.
"GAAP" means generally accepted accounting principles as in effect in the United States, as promulgated by the Financial Accounting Standards Board and its predecessors and successors, consistently applied.
"Greenfield Manager" means a Manager appointed by Greenfield pursuant to Section 6.2(a).
"Initial Capital Contributions" means the Capital Contributions described in Section 4.1 of this Agreement.
"IP Contribution" means TerraVault's contribution to the Company of an exclusive license to the SoilPulse™ Technology, as set forth in Section 4.1(b) and Article IX of this Agreement.
"IP Contribution Value" means being the agreed fair market value of the IP Contribution as set forth in Section 4.1(b)(ii).
"Major Decision" has the meaning set forth in Section 6.5.
"Manager" means a member of the Board of Managers appointed in accordance with Section 6.2, and "Managers" means all such members collectively.
"Member" means each of Greenfield and TerraVault, and any Person admitted as a substitute or additional Member of the Company in accordance with the terms of this Agreement, in each case for so long as such Person holds a Membership Interest. "Members" means all such Persons collectively.
"Membership Interest" means a Member's entire interest in the Company, including such Member's economic interest (i.e., the right to receive allocations and distributions), governance rights (i.e., the right to vote on matters submitted to the Members and to appoint Managers), and any other rights and obligations attributable to being a Member under this Agreement and the Act.
"Midwest Territory" means the States of Iowa, Illinois, Indiana, Minnesota, Wisconsin, Missouri, Nebraska, Kansas, South Dakota,
"Mutual NDA" has the meaning set forth in Recital E.
"Non-Compete Period" means the period commencing on the Effective Date and ending on the anniversary thereof.
"Percentage Interest" means, with respect to each Member, the percentage interest in the Company set forth opposite such Member's name on Exhibit A, as the same may be adjusted from time to time in accordance with the terms of this Agreement. As of the Effective Date, the Percentage Interests of the Members are as follows: Greenfield — TerraVault —
"Person" means any individual, corporation, limited liability company, partnership, limited partnership, joint venture, association, trust, estate, governmental authority, or other entity of any kind.
"SoilPulse™ Technology" means the technology, intellectual property, trade secrets, know-how, technical data, software, algorithms, calibration data, sensor specifications, and documentation related to TerraVault's SoilPulse™ real-time soil nutrient and moisture sensor platform, as more fully described in Exhibit B attached hereto, including all improvements, modifications, and derivatives thereof developed by TerraVault prior to the Effective Date.
"Supermajority Vote" means the affirmative vote of Managers holding at least of the total Board votes, which shall require the affirmative vote of at least Managers then serving on the Board.
"Technology License" means the exclusive, royalty-free license to the SoilPulse™ Technology granted by TerraVault to the Company pursuant to Article IX and the Technology License Agreement.
"Technology License Agreement" means the Technology License Agreement to be entered into between TerraVault (as Licensor) and the Company (as Licensee) in substantially the form attached hereto as Exhibit C, as the same may be amended from time to time.
"Term Sheet" has the meaning set forth in Recital F.
"TerraVault Manager" means a Manager appointed by TerraVault pursuant to Section 6.2(b).
"Transfer" means, with respect to any Membership Interest, any direct or indirect sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance, gift, bequest, or other disposition, whether voluntary or involuntary, by operation of law or otherwise, of all or any portion of such Membership Interest or any economic, governance, or other right therein. "Transferred" and "Transferring" shall have correlative meanings.
"Treasury Regulations" means the regulations promulgated under the Code by the United States Department of the Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
Section 1.2 — Rules of Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) The headings and captions used in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any provision hereof.
(b) Unless the context otherwise requires, words importing the singular number shall include the plural and vice versa, and words importing one gender shall include all genders.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation" or "but not limited to," regardless of whether such phrase actually appears.
(d) References to "Articles," "Sections," "Exhibits," and other subdivisions refer to the corresponding Articles, Sections, Exhibits, and other subdivisions of this Agreement unless expressly provided otherwise.
(e) References to any statute, law, or regulation shall be deemed to include all amendments, re-enactments, and successor provisions thereto, and all rules and regulations promulgated thereunder, in each case as in effect from time to time.
(f) All dollar amounts referenced in this Agreement are expressed in the lawful currency of the United States of America.
(g) The word "or" is not exclusive.
(h) The word "extent" in the phrase "to the extent" means the degree to which a subject or other thing extends, and such phrase shall not mean simply "if."
(i) The words "hereof," "herein," "hereunder," and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(j) This Agreement has been jointly drafted and negotiated by the Members and their respective counsel, and no provision hereof shall be construed against any Member solely on the ground that such Member drafted or proposed such provision.
ARTICLE II — FORMATION OF THE COMPANY
Section 2.1 — Formation
The Company has been or shall be formed as a limited liability company under the Act by the filing of a Certificate of Organization with the Secretary of State of the State of Iowa in accordance with Iowa Code Section 489.201. The rights and liabilities of the Members shall be as provided in the Act, except as otherwise expressly provided in this Agreement. To the extent permitted by the Act, this Agreement shall control as to any matter with respect to which the Act would otherwise govern, except that in the event of a conflict between this Agreement and any non-waivable provision of the Act, the Act shall control.
Section 2.2 — Name
The Company shall conduct business under the name "PrairieSense Technologies LLC" or such other name or names as the Board of Managers may from time to time approve in accordance with the Act and applicable law. The Board shall have the authority to file or cause to be filed any trade name, fictitious business name, or "doing business as" certificates as may be necessary or appropriate in connection with the Company's business.
Section 2.3 — Principal Office
The Company's initial principal office shall be located in Des Moines, Iowa, at such specific address as the Board of Managers shall determine. The Board may relocate the Company's principal office from time to time by resolution, provided that any relocation of the Company's principal office outside of the State of Iowa shall constitute a Major Decision and shall require a Supermajority Vote in accordance with Section 6.5.
Section 2.4 — Registered Agent and Registered Office
The Company's initial registered agent shall be Capitol Filings Inc., 220 E. Court Avenue, Des Moines, Iowa 50309, and the Company's initial registered office shall be at the address of such registered agent. The Board may change the Company's registered agent and registered office from time to time in accordance with the Act by filing the appropriate amendment with the Iowa Secretary of State.
Section 2.5 — Term
The Company shall have perpetual existence and shall continue in full force and effect until dissolved in accordance with the provisions of Article XII of this Agreement. The existence of the Company as a separate legal entity shall continue until a certificate of dissolution has been filed with the Iowa Secretary of State in accordance with the Act.
Section 2.6 — Purpose
The purpose of the Company shall be to engage in the development, manufacturing, and commercialization of integrated soil-health sensor systems for commercial row-crop agriculture in the United States, with an initial focus on the U.S. Midwest, and to conduct any and all activities ancillary, related, or incidental thereto, including the licensing of intellectual property, the purchase and sale of equipment and components, the hiring of employees and consultants, the entry into contracts and partnerships with agricultural cooperatives, distributors, and end-users, and such other lawful activities as may be approved by the Board of Managers from time to time. Notwithstanding the foregoing, the Company shall not engage in any business activity outside the scope described in the preceding sentence without the prior approval of the Board as a Major Decision under Section 6.5.
Section 2.7 — Qualification in Other Jurisdictions
The Board of Managers shall cause the Company to qualify to do business as a foreign limited liability company in such other states or jurisdictions as the Board may determine to be necessary or appropriate for the conduct of the Company's business, including the States of Illinois and Indiana, where TerraVault's SoilPulse™ Technology pilot programs are currently deployed. The Company shall file all necessary applications, certificates, and reports, and shall pay all fees and taxes, required in connection with such qualification.
ARTICLE III — MEMBERS
Section 3.1 — Members
The Members of the Company as of the Effective Date are set forth below:
The names, addresses, Percentage Interests, and Capital Contributions of the Members are set forth on Exhibit A attached hereto and incorporated herein by reference.
Section 3.2 — Membership Interests; Percentage Interests
As of the Effective Date, the Membership Interests and Percentage Interests of the Members shall be as follows:
(a) Greenfield Agricultural Partners LLC: Percentage Interest.
(b) TerraVault BioSciences Inc.: Percentage Interest.
The Percentage Interests of the Members may be adjusted from time to time in accordance with the provisions of this Agreement, including Section 4.3 (Dilution for Non-Participation). All Membership Interests shall constitute personal property of the respective Members and shall not be deemed to give any Member any interest in, or right to possession of, any specific property of the Company.
Section 3.3 — Representations and Warranties of Members
(a) Representations and Warranties of Each Member. Each Member hereby represents and warrants to the other Member and to the Company as of the Effective Date as follows:
(i) Such Member is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its formation and has all requisite power and authority to carry on its business as now conducted.
(ii) Such Member has full power, authority, and legal capacity to enter into this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement by such Member have been duly authorized by all necessary action on the part of such Member, including approval by its board of directors, board of managers, or other governing body, as applicable.
(iii) This Agreement has been duly executed and delivered by such Member and constitutes the valid and binding obligation of such Member, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
(iv) The execution, delivery, and performance of this Agreement by such Member do not and will not (A) conflict with, result in a breach of, or constitute a default under, the organizational documents of such Member, (B) violate any applicable law, regulation, order, or decree of any governmental authority, or (C) conflict with, result in a breach of, or constitute a default under, any material agreement, contract, or instrument to which such Member is a party or by which it or its properties are bound.
(v) Such Member is acquiring its Membership Interest for its own account, for investment purposes only, and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended, or any applicable state securities laws. Such Member is an "accredited investor" as defined in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended.
(vi) Such Member has received and reviewed such information as it has deemed necessary to make an informed investment decision with respect to the acquisition of its Membership Interest, and has had the opportunity to ask questions of and receive answers from the other Member concerning the Company and the terms and conditions of this Agreement.
(b) Additional Representations and Warranties of TerraVault. TerraVault hereby additionally represents and warrants to Greenfield and to the Company as of the Effective Date as follows:
(i) TerraVault owns or controls all right, title, and interest in and to the SoilPulse™ Technology, including all patents, patent applications, trademarks, trade secrets, know-how, and other intellectual property rights described in Exhibit B, and has the full right, power, and authority to grant the IP Contribution and the Technology License to the Company as contemplated by this Agreement and the Technology License Agreement, free and clear of all liens, encumbrances, security interests, licenses, and other claims, except for the existing equity rights of Meridian Venture Partners and Bluestem Capital Group as equity investors in TerraVault, which rights do not encumber, restrict, or otherwise limit TerraVault's ability to grant the IP Contribution or the Technology License.
(ii) To TerraVault's knowledge, the SoilPulse™ Technology does not infringe, misappropriate, or otherwise violate any intellectual property rights of any third party, and there is no pending or threatened claim, litigation, or proceeding alleging any such infringement, misappropriation, or violation.
(iii) TerraVault has taken commercially reasonable steps to protect the confidentiality and proprietary nature of the trade secrets and know-how included in the SoilPulse™ Technology, including requiring all employees, consultants, and contractors with access thereto to execute confidentiality and invention assignment agreements.
(iv) U.S. Patent No. 10,842,317 is subsisting and, to TerraVault's knowledge, valid and enforceable, and all maintenance fees due as of the Effective Date have been paid. U.S. Patent Application No. 17/509,664 is pending and in good standing with the United States Patent and Trademark Office.
Section 3.4 — No Personal Liability
No Member shall be personally liable for any debt, obligation, or liability of the Company, whether arising in contract, tort, or otherwise, solely by reason of being a Member of the Company. Except as otherwise provided in this Agreement or required by the Act, the debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, shall be solely the debts, obligations, and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation, or liability solely by reason of its status as a Member.
ARTICLE IV — CAPITAL CONTRIBUTIONS
Section 4.1 — Initial Capital Contributions
The total initial capitalization of the Company shall be Twelve Million Dollars ($12,000,000). The Initial Capital Contributions of the Members shall be as follows:
(a) Greenfield's Contribution. Greenfield shall contribute in cash (the "Greenfield Cash Contribution") to the Company's operating account, to be funded by wire transfer of immediately available funds within Business Days after the Effective Date. Greenfield's Initial Capital Contribution represents of the total initial capitalization of the Company.
(b) TerraVault's Contribution. TerraVault shall contribute a total of in value to the Company, consisting of the following:
(i) Cash Component. Two Million Four Hundred Thousand Dollars ($2,400,000) in cash (the "TerraVault Cash Contribution"), to be funded to the Company's operating account by wire transfer of immediately available funds within Business Days after the Effective Date.
(ii) IP Component. An exclusive license to the SoilPulse™ Technology, contributed to the Company pursuant to the Technology License Agreement described in Article IX of this Agreement, with an agreed IP Contribution Value of The Members acknowledge and agree that the IP Contribution Value of represents the negotiated fair market value of the IP Contribution as agreed by the Members for all purposes of this Agreement, including for purposes of maintaining Capital Accounts and making allocations and distributions hereunder. The IP Contribution Value of
TerraVault's Initial Capital Contribution represents of the total initial capitalization of the Company.
Section 4.2 — Additional Capital Contributions
(a) No Member shall be required to make additional Capital Contributions to the Company beyond its Initial Capital Contribution without such Member's prior written consent. The making of additional Capital Contributions shall be entirely voluntary.
(b) From time to time, the Board of Managers may determine that the Company requires additional capital to fund its operations, growth, or other business needs. In such event, the Board may request additional Capital Contributions from the Members by providing written notice to each Member specifying the aggregate amount of additional capital requested and the purpose thereof (a "Capital Call Notice"). Any Capital Call Notice shall require
(c) Upon receipt of a Capital Call Notice, each Member shall have the right (but not the obligation) to contribute its pro rata share of the additional capital requested, based on its Percentage Interest. Each Member shall notify the Board in writing within thirty (30) days of receipt of the Capital Call Notice whether it elects to participate in such capital call and, if so, the amount of its additional Capital Contribution.
(d) A Member who declines to participate in, or contributes less than its full pro rata share of, an approved additional capital call shall be subject to dilution of its Percentage Interest in accordance with Section 4.3.
Section 4.3 — Dilution for Non-Participation
(a) If a Member (the "Non-Contributing Member") declines to contribute its full pro rata share of an additional capital call approved pursuant to Section 4.2 and the other Member (the "Contributing Member") contributes additional capital in excess of the Non-Contributing Member's proportionate share, the Percentage Interests of the Members shall be adjusted on a weighted-average basis, determined by dividing (i) the aggregate Capital Contributions (Initial Capital Contributions plus all additional Capital Contributions) of each Member, by (ii) the aggregate Capital Contributions of all Members, and expressing the result as a percentage.
(b) Any adjustment to Percentage Interests pursuant to this Section 4.3 shall be effective as of the date on which the contributing Member's additional Capital Contribution is received by the Company, and Exhibit A shall be deemed amended accordingly without the need for further action by the Members.
Section 4.4 — Capital Accounts
(a) A separate Capital Account shall be maintained for each Member in accordance with the principles set forth in Treasury Regulation Section 1.704-1(b)(2)(iv) and the rules described in this Section 4.4. Each Member's Capital Account shall be adjusted as follows:
(i) Increases. Each Member's Capital Account shall be increased by (A) the amount of cash contributed by such Member to the Company, (B) the fair market value of property contributed by such Member to the Company (net of liabilities secured by such contributed property that the Company is considered to assume or take subject to), and (C) allocations to such Member of net income and gain (including income and gain exempt from tax and income and gain described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in Treasury Regulation Section 1.704-1(b)(4)(i)).
(ii) Decreases. Each Member's Capital Account shall be decreased by (A) the amount of cash distributed to such Member by the Company, (B) the fair market value of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to), (C) allocations to such Member of net loss and deduction (including expenditures described in Section 705(a)(2)(B) of the Code and loss and deduction described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g), but excluding items described in Treasury Regulation Section 1.704-1(b)(4)(i) or (ii)), and (D) any other items required to be reflected under the Capital Account maintenance rules of Treasury Regulation Section 1.704-1(b)(2)(iv).
(b) As of the Effective Date, the initial Capital Account balances of the Members shall be as follows:
(i) Greenfield: representing Greenfield's Cash Contribution.
(ii) TerraVault: representing TerraVault's Cash Contribution of $2,400,000 plus the IP Contribution Value of
(c) In the event of a Transfer of a Membership Interest in accordance with Article X, the Capital Account of the transferor shall carry over to the transferee to the extent of the Membership Interest Transferred, in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(l).
(d) The manner in which Capital Accounts are to be maintained pursuant to this Section 4.4 is intended to comply with the requirements of Treasury Regulation Section 1.704-1(b)(2)(iv). This Section 4.4 shall be interpreted and applied in a manner consistent with such Treasury Regulation, and the Board, in consultation with the Company's tax advisors, shall make any adjustments to Capital Accounts as may be necessary or appropriate to maintain compliance with such Treasury Regulation.
Section 4.5 — No Interest on Capital Contributions
No Member shall receive interest on or with respect to its Capital Contributions or its Capital Account balance. The rate of return on, and the risk of loss of, Capital Contributions shall be borne entirely by the Members in accordance with the terms of this Agreement.
Section 4.6 — No Withdrawal of Capital
No Member shall have the right to withdraw, demand, or receive the return of any portion of its Capital Contribution or Capital Account balance at any time without the prior written consent of the Board of Managers. Under circumstances requiring a return of a Member's Capital Contribution, no Member shall have the right to receive property other than cash in return of its Capital Contribution, except as otherwise provided in Section 12.2.
Section 4.7 — Proposed Credit Facility
(a) The Members acknowledge that the Company may seek third-party debt financing to supplement its capital resources and to fund working capital, capital expenditures, and other business needs. Preliminary, non-binding discussions have been held with Heartland National Bank, N.A. ("Heartland"), 666 Locust Street, Des Moines, Iowa 50309, regarding a potential Four Million Dollar ($4,000,000) revolving credit facility (the "Proposed Credit Facility"). As of the date of this Agreement, no term sheet, commitment letter, or definitive documentation has been executed in connection with the Proposed Credit Facility.
(b) Any debt financing incurred by the Company, including the Proposed Credit Facility, shall require Board approval as a Major Decision under Section 6.5, and no Member shall be required to any indebtedness of the Company without such Member's prior written consent.
ARTICLE V — ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 — Allocation of Profits and Losses
(a) Except as otherwise provided in Section 5.2, the net profits and net losses of the Company for each Fiscal Year (or portion thereof) shall be allocated to the Members in proportion to their respective Percentage Interests. As of the Effective Date, such allocations shall be made
(b) All allocations of net profits and net losses shall be made in accordance with the provisions of Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. For purposes of determining the net profits and net losses to be allocated pursuant to this Section 5.1, each item of income, gain, loss, deduction, and credit of the Company shall be determined in accordance with GAAP, except that items required to be specially allocated pursuant to Section 5.2 shall not be taken into account in computing net profits and net losses.
(c) If a Member's Percentage Interest changes during any Fiscal Year as a result of additional Capital Contributions or Transfers, the net profits and net losses (and each item thereof) for such Fiscal Year shall be allocated among the Members using the "interim closing of the books" method or such other permissible method as the Board, in consultation with the Company's tax advisors, may determine in accordance with Section 706 of the Code and the Treasury Regulations thereunder.
Section 5.2 — Special Allocations
Notwithstanding Section 5.1, the following special allocations shall be made in the following order of priority:
(a) Qualified Income Offset. If any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of such Member as quickly as possible, provided that an allocation pursuant to this Section 5.2(a) shall be made only if and to the extent that such Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article V have been tentatively made as if this Section 5.2(a) were not in this Agreement. For purposes of this Section 5.2(a), "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (i) credit to such Capital Account any amounts that such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Treasury Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), and (ii) debit to such Capital Account the items described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6).
(b) Minimum Gain Chargeback. Notwithstanding any other provision of this Article V, if there is a net decrease in Company Minimum Gain during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulation Section 1.704-2(g). Allocations pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704-2(f)(6). This Section 5.2(b) is intended to comply with the minimum gain chargeback requirement of Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
(c) Member Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other provision of this Article V (other than Section 5.2(b)), if there is a net decrease in Member Nonrecourse Debt Minimum Gain attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(5), shall be specially allocated items of Company income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to such Member's share of the net decrease in Member Nonrecourse Debt Minimum Gain attributable to such Member Nonrecourse Debt, determined in accordance with Treasury Regulation Section 1.704-2(i)(4). This Section 5.2(c) is intended to comply with the chargeback requirement of Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(d) Nonrecourse Deductions. Nonrecourse Deductions (as defined in Treasury Regulation Section 1.704-2(b)(1)) for any Fiscal Year shall be allocated to the Members in proportion to their respective Percentage Interests.
(e) Section 704(c) Allocations. The IP Contribution shall be subject to allocations under Section 704(c) of the Code and the Treasury Regulations thereunder to account for the difference, if any, between the IP Contribution Value ( and the contributing Member's adjusted tax basis in the SoilPulse™ Technology as of the Effective Date. Such allocations shall be made using the unless the Members agree in writing to use an alternative method permitted under Treasury Regulation Section 1.704-3. The purpose of such allocations is to ensure that the tax consequences of the IP Contribution are borne appropriately by TerraVault, as the contributing Member, in a manner consistent with Section 704(c) principles.
(f) Built-in Gain/Loss. Any built-in gain or built-in loss associated with the IP Contribution (i.e., the difference between the IP Contribution Value and TerraVault's adjusted tax basis in the SoilPulse™ Technology) shall be allocated to TerraVault for federal, state, and local income tax purposes in accordance with Section 704(c) of the Code and the Treasury Regulations thereunder.
(g) Curative Allocations. The allocations set forth in Sections 5.2(a) through 5.2(d) (the "Regulatory Allocations") are intended to comply with certain requirements of the Treasury Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Company income, gain, loss, or deduction pursuant to this Section 5.2(g). Therefore, notwithstanding any other provision of this Article V (other than the Regulatory Allocations), the Board, in consultation with the Company's tax advisors, shall make such offsetting special allocations of Company income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member's Capital Account balance is, to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of this Agreement.
Section 5.3 — Tax Allocations
(a) Except as otherwise provided in Sections 5.2(e) and 5.2(f), for federal, state, and local income tax purposes, each item of income, gain, loss, deduction, and credit of the Company shall be allocated among the Members in a manner consistent with the economic allocations set forth in this Article V.
(b) The "tax matters partner" of the Company (within the meaning of Section 6231(a)(7) of the Code, as in effect prior to the Bipartisan Budget Act of 2015) or the "partnership representative" of the Company (within the meaning of Section 6223 of the Code, as amended by the Bipartisan Budget Act of 2015), as applicable, shall be designated by The initial partnership representative shall be Marcus J. Linden or such other individual as Greenfield may designate in writing to TerraVault and the Company. The partnership representative shall keep TerraVault reasonably informed of all material tax matters and proceedings involving the Company and shall provide TerraVault with copies of all material correspondence with the Internal Revenue Service relating to the Company's tax affairs. The partnership representative shall not settle or compromise any tax audit, examination, or proceeding without the prior written consent of TerraVault, which consent shall not be unreasonably withheld, conditioned, or delayed.
Section 5.4 — Distributions
(a) General Distributions. Distributable Cash shall be distributed to the Members in proportion to their respective Percentage Interests at such times and in such amounts as the Board of Managers shall determine, but no less frequently than quarterly (within forty-five (45) days after the end of each calendar quarter), to the extent Distributable Cash is available. The Board shall use commercially reasonable efforts to maximize distributions to the Members consistent with the prudent management of the Company's business and the maintenance of appropriate reserves.
(b) Tax Distributions. In addition to any other distributions made pursuant to this Section 5.4, the Company shall make quarterly estimated tax distributions to each Member in amounts sufficient to cover each Member's estimated federal and state income tax liability attributable to the allocation of taxable income from the Company to such Member for such quarter. Such tax distributions shall be calculated based on the highest marginal combined federal and state income tax rate applicable to for the applicable taxable year (taking into account the deductibility of state income taxes for federal purposes, as applicable). Tax distributions shall be treated as advances against, and shall reduce, the amount of any subsequent distributions to which the receiving Member would otherwise be entitled under Section 5.4(c). Tax distributions shall be made no later than fifteen (15) days prior to each quarterly estimated tax payment date prescribed by the Code.
(c) Distribution Waterfall. Subject to Section 5.4(d), all Distributable Cash (including proceeds from a liquidation of the Company's assets) shall be distributed to the Members in the following order of priority:
First, to each Member, in proportion to their respective unreturned Capital Contributions, until each Member has received an aggregate amount of distributions equal to such Member's unreturned Capital Contributions (for this purpose, "unreturned Capital Contributions" means the excess, if any, of a Member's aggregate Capital Contributions over the aggregate amount of distributions previously received by such Member under this clause "First");
Second, to each Member, in proportion to their respective unreturned Capital Contributions (as of the time of the relevant distribution, after giving effect to distributions under the "First" tier), until each Member has received a cumulative preferred return equal to per annum (compounded annually) on such Member's unreturned Capital Contributions, calculated from the date of each such Capital Contribution through the date of the relevant distribution;
Third, all remaining Distributable Cash shall be distributed to the Members in proportion to their respective Percentage Interests (i.e.,
(d) Limitations on Distributions. Notwithstanding any other provision of this Agreement, no distribution shall be made by the Company to any Member if, after giving effect to such distribution:
(i) the Company would be unable to pay its debts as they become due in the ordinary course of the Company's business; or
(ii) the Company's total assets would be less than the sum of its total liabilities plus, unless this Agreement provides otherwise, the amount that would be needed, if the Company were to be dissolved at the time of the distribution, to satisfy the preferential rights of other Members upon dissolution that are superior to the rights of the Member receiving the distribution.
Section 5.5 — Withholding
The Company may withhold from any distribution to a Member any amounts required to be withheld by the Company under applicable provisions of the Code, or any provision of any federal, state, local, or foreign tax law. Any amounts so withheld shall be treated as if such amounts had been distributed to the applicable Member for all purposes of this Agreement, including for purposes of maintaining Capital Accounts and computing the amounts distributable to such Member under Section 5.4.
ARTICLE VI — MANAGEMENT AND GOVERNANCE
Section 6.1 — Manager-Managed Company
The Company shall be a "manager-managed" limited liability company, as such term is used in the Act. The business and affairs of the Company shall be managed by or under the direction of the Board of Managers. Except as otherwise expressly provided in this Agreement, the Board of Managers shall have full and exclusive authority, power, and discretion to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters, and to perform any and all other acts or activities customary or incidental to the management of the Company's business. No Member, acting solely in its capacity as a Member and not as a Manager or officer, shall have any authority to act for, bind, or otherwise obligate the Company, and each Member agrees that it shall not hold itself out as having such authority.
Section 6.2 — Board of Managers; Composition
(a) Size and Appointment. The Board of Managers shall consist of appointed as follows:
(i) Greenfield Managers. Greenfield shall have the right to appoint three (3) Managers to the Board (each, a "Greenfield Manager").
(ii) TerraVault Managers. TerraVault shall have the right to appoint to the Board (each, a "TerraVault Manager").
(b) Initial Greenfield Managers. The initial Greenfield Managers shall be:
(i) Marcus J. Linden (Chairperson);
(ii) Rachel Yun-Park; and
(iii) One additional Greenfield designee, to be named by Greenfield in writing to the Company and TerraVault prior to the Effective Date.
(c) Initial TerraVault Managers. The initial TerraVault Managers shall be:
(i) Dr. Anand Mehta; and
(ii) Dr. Lian Xu
(d) Each Manager shall serve until such Manager's resignation, removal, death, or disability. Each appointing Member shall have the sole and exclusive right to appoint, remove, and replace the Managers designated by such Member, and no other Member, the Company, or the Board shall have any right to appoint, remove, or replace a Manager designated by another Member.
Section 6.3 — Chairperson