PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
CALDERWOOD & HARKNESS LLP 800 Walnut Street, Suite 2400 Des Moines, Iowa 50309
MEMORANDUM TO FILE
Matter Number: 2022-M&A-00437
Date: February 27, 2023
TO: File
FROM: Derek Okonkwo, Lead Associate, Mergers & Acquisitions
REVIEWED BY: Sandra Tung, Responsible Partner, Mergers & Acquisitions
DATE: February 27, 2023
RE: Deal Status — Proposed Joint Venture Between Greenfield Agricultural Partners LLC and TerraVault BioSciences Inc. (PrairieSense Technologies LLC) — Impasse and Client Instructions to Terminate
I. Purpose of Memorandum
This memorandum is prepared for the file in connection with the proposed joint venture between Greenfield Agricultural Partners LLC ("Greenfield" or "GAP"), our client, and TerraVault BioSciences Inc. ("TerraVault"), the counterparty. The proposed joint venture entity was to be named PrairieSense Technologies LLC and was to be organized as an Iowa limited liability company with a total proposed initial capitalization of Twelve Million Dollars ($12,000,000).
The purpose of this memorandum is to memorialize in detail: (i) the impasse reached between the parties on key definitive terms of the proposed joint venture, with particular focus on the governance structure and intellectual property valuation disputes that have proven to be unbridgeable; (ii) a summary of the recent communications between counsel and between the principals of the respective parties; (iii) the client's formal instruction, received on the date hereof, to prepare termination correspondence to counterparty's counsel; and (iv) recommendations for the orderly closing out of this matter, including the return or destruction of confidential information, preservation of work product, and related administrative steps.
The matter was initially opened at Calderwood & Harkness LLP on August 15, 2022. Approximately seven months of active negotiation have now elapsed, during which time the parties exchanged a non-binding term sheet, conducted substantial due diligence (including intellectual property and financial due diligence), circulated two drafts of a definitive JV Operating Agreement with extensive redlines and comments, held multiple negotiation sessions both in person and by teleconference, and engaged in direct principal-to-principal discussions. Despite these sustained efforts, the parties have been unable to reach agreement on the fundamental economic and governance terms of the proposed transaction, and the client has determined that continued negotiation is unlikely to be productive.
II. Background and Transaction Summary
A. The Parties
Greenfield Agricultural Partners LLC. Greenfield Agricultural Partners LLC is an Iowa limited liability company headquartered at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309. Greenfield is a strategic private investment firm focused on agriculture, agribusiness, and specialty chemicals. The firm manages approximately $680 million in committed capital across three fund vintages and currently holds fourteen active portfolio companies spanning the agricultural value chain, including seed technology, crop protection, precision agriculture equipment, and food processing. Greenfield was founded in 2009 by Marcus J. Linden, who serves as Founder and Managing Partner. Rachel Yun-Park serves as Chief Financial Officer. For purposes of this transaction, Marcus Linden served as the principal decision-maker, with Rachel Yun-Park providing input on financial structuring and capital allocation matters. Greenfield's investment thesis for the proposed joint venture centered on the growing demand for precision soil-health monitoring in commercial row-crop agriculture and the strategic fit of TerraVault's SoilPulse™ platform with Greenfield's existing portfolio of precision agriculture investments.
TerraVault BioSciences Inc. TerraVault BioSciences Inc. is a Delaware corporation qualified to do business in Illinois, headquartered at 1720 Innovation Parkway, Champaign, Illinois 61820. TerraVault is a precision agriculture technology company specializing in the development of integrated soil-health sensor systems and data analytics platforms for commercial agricultural applications. The company was co-founded in 2017 by Dr. Anand Mehta, who serves as Chief Executive Officer, and Dr. Lian Xu, who serves as Chief Technology Officer. TerraVault is venture-backed, having raised approximately $38 million in cumulative equity funding through its Series B round. Meridian Venture Partners led TerraVault's Series A financing at $8 million, and Bluestem Capital Group led the Series B round at $18 million. As context for the negotiations, it bears noting that both Meridian Venture Partners and Bluestem Capital Group hold board seats on TerraVault's board of directors and, as discussed in greater detail below, their influence over TerraVault's negotiating positions was a factor in the impasse. TerraVault reported fiscal year 2022 revenue of approximately $6.2 million and fiscal year 2022 EBITDA of approximately $(3.8) million (i.e., a net operating loss), reflecting the company's pre-profitability, growth-stage status. TerraVault's core asset for purposes of the proposed transaction is its SoilPulse™ platform, which integrates proprietary hardware sensors with a cloud-based data analytics platform for real-time soil-health monitoring.
Proposed JV Entity: PrairieSense Technologies LLC. The proposed joint venture entity was to be named PrairieSense Technologies LLC and was to be organized as an Iowa limited liability company. The stated purpose of PrairieSense was the development, manufacturing, and commercialization of integrated soil-health sensor systems for commercial row-crop agriculture in the United States Midwest region. It is important to note for the record that PrairieSense Technologies LLC was never actually formed. No articles of organization were filed with the Iowa Secretary of State, no definitive JV Operating Agreement was executed, and no capital contributions were made. The entity exists only as a proposed concept reflected in draft transaction documents and correspondence.
B. Proposed Deal Structure
The proposed transaction was structured as a newly-formed limited liability company joint venture with the following key economic and structural terms:
Capitalization. The total initial capital commitment for PrairieSense Technologies LLC was $12,000,000. This amount was to be funded by the two members as follows:
Greenfield Agricultural Partners LLC: 60% equity interest in PrairieSense, to be acquired through an all-cash capital contribution of $7,200,000. Greenfield was to serve as the majority equity holder and operating partner, with responsibility for the day-to-day management and strategic direction of the joint venture.
TerraVault BioSciences Inc.: 40% equity interest in PrairieSense, to be acquired through a blended capital contribution consisting of (a) $2,400,000 in cash and (b) a technology license contribution valued at $2,400,000 (under Greenfield's proposed valuation), pursuant to which TerraVault would grant PrairieSense an exclusive license to the SoilPulse™ platform and related intellectual property within the Midwest Territory (as defined below) for the term of the joint venture. The aggregate TerraVault contribution would thus total $4,800,000 ($2,400,000 cash plus $2,400,000 in-kind IP contribution), representing 40% of the $12,000,000 total capitalization.
Governance. The proposed governance structure called for a five-member board of managers, with three managers appointed by Greenfield and two managers appointed by TerraVault. This allocation was intended to reflect the 60/40 equity split and to provide Greenfield with majority governance control commensurate with its majority economic stake. Certain specified actions (including any amendment to the operating agreement, dissolution of the JV, admission of new members, and transactions above a specified dollar threshold) were to require supermajority or unanimous consent of the board, thereby providing TerraVault with protective minority rights on fundamental matters while preserving Greenfield's day-to-day operational control.
Non-Compete. The proposed deal structure included a three-year non-compete covenant restricting TerraVault from directly or indirectly licensing, sublicensing, or otherwise making the SoilPulse™ platform available to third parties for deployment in the United States Midwest region during the term of the joint venture. The "Midwest Territory" was defined to include the following states: Iowa, Illinois, Indiana, Minnesota, Wisconsin, Missouri, Nebraska, Kansas, South Dakota, North Dakota, and Ohio.
Governing Law. The JV Operating Agreement was to be governed by the laws of the State of Iowa, and any disputes arising thereunder were to be resolved through binding arbitration in Des Moines, Iowa under the rules of the American Arbitration Association.
Credit Facility. Preliminary (and never-executed) discussions were held with Heartland National Bank, N.A. regarding a $4,000,000 revolving credit facility to be made available to PrairieSense Technologies LLC following formation. The relationship manager at Heartland National Bank was Douglas Fenn. These discussions did not progress to the term sheet stage, no formal application was submitted, and no commitment or lender fees were incurred.
C. Counterparty Counsel and Advisors
The following is a summary of the professional advisors engaged by the respective parties in connection with the proposed transaction:
TerraVault's Legal Counsel. TerraVault was represented by Whitfield, Carey & Stokes LLP, a Chicago, Illinois-based law firm. The lead partner on the matter was Jonathan Everett Carey, and the primary associate was Priya Nandakumar. All legal correspondence and drafts exchanged between counsel were between Calderwood & Harkness and Whitfield, Carey & Stokes.
TerraVault's Financial Advisor. TerraVault retained Ridgeline Advisors LLC, a Chicago, Illinois-based financial advisory firm, as its financial advisor in connection with the transaction. Catherine Holloway, Managing Director at Ridgeline Advisors, prepared a preliminary valuation analysis of TerraVault's SoilPulse™ intellectual property contribution. As discussed in greater detail in Section III.D below, Ridgeline's valuation of the SoilPulse™ IP at $4,500,000 was a significant point of contention in the negotiations.
Greenfield's IP Consultant. Calderwood & Harkness LLP retained Velthorn IP Consulting LLC, a Chicago, Illinois-based intellectual property consulting firm, on behalf of Greenfield to perform an independent assessment of the SoilPulse™ intellectual property portfolio and to provide a valuation opinion. The lead consultant was Dr. Miriam Sokoloff. As discussed in Section III.D, Velthorn's valuation of $1,800,000 differed materially from the Ridgeline valuation.
Greenfield's Tax and Accounting Advisor. Clarendon & Marsh CPAs LLP, a Des Moines, Iowa-based accounting firm, was retained by Greenfield to provide preliminary tax structuring analysis for the proposed joint venture. The engagement partner was William Desmond. Clarendon & Marsh's analysis addressed, among other matters, the tax treatment of TerraVault's IP contribution to the JV entity, allocation of profits and losses among the members, and Iowa state and local tax considerations.
III. Chronological Summary of Key Events
A. Pre-Engagement and Early Negotiations (June–September 2022)
June 20, 2022 — Initial Meeting. Marcus J. Linden (Greenfield) and Dr. Anand Mehta (TerraVault) met for the first time at the Midwest AgTech Summit in Kansas City, Missouri. According to discussions with Marcus Linden during the engagement, this initial meeting involved a high-level exchange of business concepts and mutual interest in a potential collaboration involving TerraVault's SoilPulse™ platform and Greenfield's capital, operational expertise, and existing portfolio of precision agriculture investments. Several follow-up calls between the principals took place during the weeks following the summit, though no formal term sheet or binding commitments were discussed at that stage.
July 11, 2022 — Mutual Non-Disclosure Agreement. The parties executed a Mutual Non-Disclosure Agreement (the "NDA" or "Mutual NDA"), effective July 11, 2022, to facilitate the exchange of confidential and proprietary information in connection with the evaluation of a potential business transaction. The NDA has a two-year term from its effective date (expiring on or about July 11, 2024) and includes standard provisions regarding the definition of confidential information, permitted use, exceptions, return or destruction obligations, and remedies for breach. As discussed in Section VI of this memorandum, the NDA survives the termination of negotiations and remains in full force and effect.
August 15, 2022 — Matter Opened; Engagement Letter Executed. Calderwood & Harkness LLP formally opened this matter on August 15, 2022, and an engagement letter was executed by Marcus J. Linden on behalf of Greenfield Agricultural Partners LLC. The scope of the engagement encompassed representation of Greenfield in connection with all aspects of the proposed joint venture with TerraVault, including negotiation and drafting of the definitive JV Operating Agreement and all related ancillary agreements, intellectual property due diligence coordination, and regulatory analysis.
August 22, 2022 — Preliminary Non-Binding Term Sheet Submitted. Calderwood & Harkness, on behalf of Greenfield, submitted a preliminary non-binding term sheet to TerraVault proposing the core structure of the transaction: a $12,000,000 joint venture with a 60/40 equity split in favor of Greenfield, a five-member board of managers with three seats allocated to Greenfield, and a three-year non-compete restricting TerraVault from licensing SoilPulse™ to third parties in the Midwest Territory during the JV term. The term sheet was denominated as preliminary and non-binding, subject to the negotiation and execution of a definitive JV Operating Agreement.
September 9, 2022 — Counterparty Markup of Term Sheet. TerraVault, through Whitfield, Carey & Stokes LLP, returned a marked-up version of the non-binding term sheet. The markup reflected TerraVault's initial positions on several key terms, including its preferred governance structure (equal board representation), IP valuation expectations, and objections to the scope of the proposed non-compete. The markup served as the basis for further discussion between the parties.
September 26, 2022 — Execution of Non-Binding Term Sheet. Following additional discussions between counsel and between the principals, a non-binding term sheet was executed by Marcus J. Linden, on behalf of Greenfield, and Dr. Anand Mehta, on behalf of TerraVault, on September 26, 2022. The term sheet reflected agreement in principle on the basic transaction structure (formation of a new Iowa LLC, $12 million capitalization, blended cash and IP contribution by TerraVault) while noting the following items as expressly open and subject to further negotiation: (a) the valuation of TerraVault's SoilPulse™ intellectual property contribution, (b) board composition and governance consent rights, and (c) the scope and duration of the non-compete covenant. The term sheet included binding provisions relating to exclusivity (a 120-day exclusivity period), confidentiality (incorporating the NDA by reference), and governing law (Iowa).
B. Due Diligence and Initial Drafting (October–November 2022)
October 3, 2022 — Commencement of IP Due Diligence. intellectual property due diligence was formally commenced by Velthorn IP Consulting LLC, under the direction of lead consultant Dr. Miriam Sokoloff. The scope of the IP review included the following TerraVault intellectual property assets:
(a) U.S. Patent No. 10,842,317, entitled "Integrated Multi-Sensor Soil Health Monitoring System and Method," issued March 9, 2021, which covers certain hardware and method claims relating to TerraVault's sensor array technology;
(b) Pending U.S. Patent Application No. 17/509,664, filed October 25, 2021, covering additional claims related to soil data analytics and machine learning algorithms for nutrient and moisture prediction models; and
(c) SoilPulse™ trademark, U.S. Registration No. 6,318,205, covering goods and services in the fields of agricultural technology, soil monitoring systems, and related data analytics services.
Velthorn's review also encompassed an assessment of the strength and enforceability of the patent portfolio, the status and likelihood of allowance of the pending patent application, the scope of trade secret protections surrounding TerraVault's proprietary algorithms and data sets, and an independent valuation of the SoilPulse™ IP portfolio as a contributed asset to the proposed joint venture.
October 17, 2022 — Velthorn IP Preliminary Report. Velthorn IP Consulting delivered its preliminary report to Calderwood & Harkness. The report estimated the fair market value of the SoilPulse™ intellectual property portfolio at approximately $1,800,000. This valuation was significantly below the valuation of $4,500,000 prepared by Ridgeline Advisors LLC on behalf of TerraVault. The Velthorn report noted several factors supporting a lower valuation, including: (i) the limited commercial track record of the SoilPulse™ platform in the Midwest row-crop market specifically; (ii) the pending (and therefore uncertain) status of U.S. Patent Application No. 17/509,664; (iii) the existence of comparable competing technologies in the precision soil-monitoring space from larger, well-capitalized competitors; and (iv) the relatively early stage of the SoilPulse™ platform's integration with standard commercial farming equipment and data management systems used by Midwest row-crop operations. By contrast, the Ridgeline Advisors valuation placed greater weight on projected future revenue attributable to the IP, the breadth of the patent claims, and the strategic value of the technology in the context of the proposed joint venture. The valuation gap between the two reports — $1,800,000 (Velthorn) versus $4,500,000 (Ridgeline) — would become one of the central and ultimately unbridgeable disputes in the negotiation.
November 1, 2022 — First Draft of JV Operating Agreement Circulated. Calderwood & Harkness LLP circulated the first draft of the proposed JV Operating Agreement for PrairieSense Technologies LLC to Whitfield, Carey & Stokes LLP. The draft was comprehensive, covering formation, purpose, capitalization, membership interests, governance, distributions, transfer restrictions, intellectual property licensing, non-compete provisions, representations and warranties, indemnification, dissolution, and dispute resolution. The first draft reflected Greenfield's positions on all key terms, including the five-member board of managers (with three Greenfield-appointed and two TerraVault-appointed managers), the $2,400,000 IP valuation for TerraVault's SoilPulse™ contribution, and the three-year Midwest non-compete. The draft also included a detailed technology license agreement to be appended as an exhibit, pursuant to which TerraVault would grant PrairieSense an exclusive license to the SoilPulse™ IP within the Midwest Territory.
November 28, 2022 — Counterparty Redline Received. Whitfield, Carey & Stokes LLP returned a heavily marked redline of the first draft JV Operating Agreement. The redline contained forty-seven open comments and proposed substantive changes. Among the key counterparty positions reflected in the redline were the following:
(a) Governance: TerraVault proposed equal board representation through a six-member board of managers, with three seats allocated to each party. TerraVault further proposed broad consent rights over all technology-related decisions, including R&D budget allocation, sublicensing of SoilPulse™ IP, hiring and termination of technology personnel, and any modifications to the SoilPulse™ platform or related IP.
(b) IP Valuation: TerraVault proposed an IP contribution valuation of $3,600,000, significantly above Greenfield's proposed valuation of $2,400,000, though below Ridgeline's initial valuation of $4,500,000. At a $3,600,000 IP valuation, TerraVault's total contribution would have equaled $6,000,000 ($2,400,000 cash plus $3,600,000 IP), implying a 50% equity interest in a $12,000,000 entity.
(c) Non-Compete: TerraVault flatly rejected the proposed three-year Midwest non-compete as overbroad, unreasonable in scope and duration, and likely unenforceable under applicable law. Whitfield, Carey & Stokes cited concerns that the restriction would impair TerraVault's ability to commercialize SoilPulse™ outside the JV context and could be challenged as an unreasonable restraint of trade.
(d) Other Items: The redline also proposed changes to distribution waterfall provisions, management fee structures, drag-along and tag-along rights, termination triggers, and the valuation methodology to be applied upon a buy-sell event.
C. Negotiation Sessions and Second Draft (December 2022–January 2023)
December 12, 2022 — In-Person Negotiation Session. An in-person negotiation session was held in Des Moines, Iowa at the offices of Calderwood & Harkness LLP. Attendees included Sandra Tung and Derek Okonkwo (Calderwood & Harkness, for Greenfield), Jonathan Everett Carey and Priya Nandakumar (Whitfield, Carey & Stokes, for TerraVault), Marcus Linden and Rachel Yun-Park (Greenfield principals), and Dr. Anand Mehta (TerraVault principal). The session lasted approximately five hours. During the session, the governance structure and IP valuation were identified as the two primary impasse issues. Some progress was made on ancillary provisions, including the distribution waterfall, management fee caps, and certain administrative provisions of the operating agreement. However, neither party materially moved from its core position on governance or IP valuation. The parties agreed to a second round of drafting to attempt to narrow the remaining gaps, with the understanding that the governance and IP valuation issues would need to be resolved before a definitive agreement could be reached.
January 9, 2023 — Second Draft of JV Operating Agreement Circulated. Calderwood & Harkness circulated the second draft of the JV Operating Agreement to Whitfield, Carey & Stokes. The second draft reflected partial resolution of certain open items from the December 12 negotiation session, including agreed-upon distribution provisions, updated management fee caps, and refined administrative and reporting provisions. However, the second draft retained Greenfield's core positions on the two central disputed issues: the five-member board of managers (with a 3-2 Greenfield majority) and the $2,400,000 IP valuation for TerraVault's SoilPulse™ contribution. The second draft also included revised technology license terms that were responsive to certain of TerraVault's comments on the original technology license exhibit, and a narrowed (though still retained) three-year non-compete covenant. Specifically, the non-compete was narrowed to focus more precisely on direct licensing of SoilPulse™ to third-party agricultural operations in the Midwest Territory and to exclude certain pre-existing TerraVault customer relationships from the restriction. Despite these modifications, the core non-compete obligation was preserved.
January 23, 2023 — TerraVault Counterproposal. TerraVault, through Whitfield, Carey & Stokes, delivered a formal counterproposal in response to the second draft. The counterproposal reiterated TerraVault's demands on the two central issues:
(a) Governance: TerraVault demanded 50/50 governance through a six-member board of managers with equal representation (three seats per party) and insisted on TerraVault consent rights over all technology-related matters, including R&D budget allocation, sublicensing decisions, modifications to the SoilPulse™ platform, and hiring or termination of senior technology personnel. The counterproposal framed these consent rights as non-negotiable, characterizing them as essential protections for TerraVault's contributed intellectual property.
(b) IP Valuation: TerraVault demanded a minimum valuation of $3,600,000 for the SoilPulse™ technology license contribution. The counterproposal was accompanied by a supplemental memorandum from Catherine Holloway of Ridgeline Advisors providing additional justification for the higher valuation, though the memorandum did not materially alter the analysis from Ridgeline's initial valuation report.
The January 23 counterproposal made clear that TerraVault's positions on these two issues were firm and had the support of TerraVault's board of directors, including the representatives of Meridian Venture Partners and Bluestem Capital Group.
D. The IP Valuation Impasse — Detailed Analysis
The IP valuation dispute was one of the two fundamental issues that led to the collapse of negotiations. A detailed summary of the parties' respective positions is set forth below.
Ridgeline Advisors Valuation (TerraVault). Ridgeline Advisors LLC, TerraVault's retained financial advisor, prepared a preliminary valuation analysis of TerraVault's SoilPulse™ intellectual property portfolio. Under the direction of Catherine Holloway, Managing Director, Ridgeline valued the SoilPulse™ IP at $4,500,000. The Ridgeline analysis employed an income approach, projecting the discounted present value of future royalty income and licensing revenue attributable to the SoilPulse™ platform over a ten-year projection period. The analysis placed significant weight on the strategic value of the technology in the context of the proposed joint venture, the breadth of the issued patent claims, and projected growth in the precision soil-monitoring market.
Velthorn IP Consulting Valuation (Greenfield). Velthorn IP Consulting LLC, retained by Calderwood & Harkness on behalf of Greenfield, estimated the fair market value of the SoilPulse™ intellectual property portfolio at $1,800,000. Dr. Miriam Sokoloff's analysis employed a comparable transactions approach supplemented by a cost approach, and assigned lower values based on the limited commercial deployment of SoilPulse™ in the Midwest row-crop market, the pending status of key patent claims, and the competitive landscape.
Greenfield's Compromise Position. Greenfield proposed a compromise IP valuation of $2,400,000, representing the midpoint between Velthorn's $1,800,000 estimate and an upward adjustment intended to account for strategic value and to facilitate agreement. At this valuation, TerraVault's total contribution would be $4,800,000 ($2,400,000 cash plus $2,400,000 IP), representing exactly 40% of the $12,000,000 total capitalization. This valuation was integral to maintaining the 60/40 equity split that underpinned the entire proposed governance and economic structure of the joint venture.
TerraVault's Demanded Valuation. TerraVault insisted on a minimum IP valuation of $3,600,000 for the SoilPulse™ contribution. At this valuation, TerraVault's total contribution would have been $6,000,000 ($2,400,000 cash plus $3,600,000 IP), which equals exactly 50% of the $12,000,000 total capitalization ($6,000,000 / $12,000,000 = 50%). This was fundamentally unacceptable to Greenfield, which was unwilling to concede more than a 40% equity stake to TerraVault given that Greenfield was to serve as the 60% equity contributor and operating partner responsible for the day-to-day management and strategic direction of PrairieSense. A 50% equity split would have eliminated Greenfield's majority economic interest and would have been inconsistent with Greenfield's $7,200,000 all-cash contribution versus TerraVault's $2,400,000 cash contribution.
The Gap. The gap between the parties' positions on IP valuation was $1,200,000 ($3,600,000 demanded by TerraVault minus $2,400,000 proposed by Greenfield). However, the practical significance of this gap was far greater than its nominal dollar amount, because the IP valuation directly determined TerraVault's equity percentage. The $1,200,000 valuation gap translated into a ten percentage point swing in equity ownership (from 40% to 50% for TerraVault), with cascading implications for governance, economic rights, distributions, and control. Despite multiple rounds of negotiation, this gap proved unbridgeable. Neither party was willing to make meaningful concessions, and the valuation dispute became inextricably linked with the governance impasse (as discussed below).
E. The Governance Impasse — Detailed Analysis
The governance dispute was the second of the two fundamental issues that led to the collapse of negotiations. The parties' respective positions are detailed below.
Greenfield's Position. Greenfield proposed a five-member board of managers, with three managers to be appointed by Greenfield and two managers to be appointed by TerraVault. This governance structure was designed to reflect and be consistent with the 60/40 equity split, providing Greenfield with majority board control commensurate with its majority economic stake and its role as operating partner. Greenfield's position was that, as the party contributing $7,200,000 in cash (representing the largest single capital contribution to the venture), it was entitled to governance control proportionate to its economic interest. The proposed structure included meaningful minority protective rights for TerraVault on specified fundamental matters (such as amendments to the operating agreement, dissolution, admission of new members, and transactions above a material dollar threshold), but reserved day-to-day management authority and ordinary-course business decisions to the Greenfield-controlled majority.
TerraVault's Position. TerraVault demanded a six-member board of managers with equal representation, allocating three seats to each party. In addition to equal board representation, TerraVault insisted on broad consent rights over all technology-related decisions, including R&D budget allocation, sublicensing of SoilPulse™ IP, modifications to the SoilPulse™ platform, and hiring or termination of senior technology personnel. Equal board representation combined with these broad technology consent rights would have given TerraVault effective veto power over the joint venture's core technology operations, notwithstanding that TerraVault held (under Greenfield's proposed structure) only a 40% equity interest. TerraVault's position was that its technology was the foundational asset of the joint venture and that it needed sufficient governance protections to ensure the integrity and continued development of the SoilPulse™ platform.
Interrelationship of Governance and IP Valuation Issues. It is important to note that the governance and IP valuation disputes were deeply interrelated and mutually reinforcing. TerraVault's insistence on a $3,600,000 IP valuation was designed to support a 50% equity argument, which in turn would justify equal governance (50/50 board representation). Conversely, if the IP were valued at $2,400,000 and TerraVault held only a 40% equity interest, TerraVault's demand for equal governance would lack economic justification. The two issues thus formed a single integrated negotiating position for TerraVault: a 50/50 economic and governance partnership. Greenfield, by contrast, viewed the transaction as a 60/40 venture in which its $7.2 million cash contribution and operating partner role warranted commensurate economic and governance control. These fundamentally different visions of the joint venture's structure and balance of power were at the core of the impasse.
F. Non-Compete Dispute
In addition to the governance and IP valuation impasses, the parties disagreed on the scope and enforceability of the proposed non-compete covenant.
Greenfield's Position. Greenfield proposed a three-year non-compete restricting TerraVault from directly or indirectly licensing, sublicensing, or otherwise making the SoilPulse™ platform available to any third party for deployment in the Midwest Territory (Iowa, Illinois, Indiana, Minnesota, Wisconsin, Missouri, Nebraska, Kansas, South Dakota, North Dakota, and Ohio) during the term of the joint venture. Greenfield viewed this restriction as essential to protect the value of the joint venture's exclusive technology license and to ensure that PrairieSense would not face competition from TerraVault's own technology within its core market.
TerraVault's Position. Jonathan Everett Carey of Whitfield, Carey & Stokes argued that the proposed three-year non-compete was overbroad in geographic scope and duration and would likely be unenforceable under applicable law. TerraVault objected that the restriction would effectively preclude TerraVault from commercializing SoilPulse™ with any other partner or customer in eleven states for a period of three years, which TerraVault characterized as an unreasonable restraint that would harm TerraVault's overall business and depress the value of its existing investor commitments. TerraVault rejected the provision in its entirety in its November 28, 2022 redline.
Second Draft Modifications. In the second draft of the JV Operating Agreement circulated on January 9, 2023, Calderwood & Harkness narrowed the non-compete scope somewhat in response to TerraVault's objections. Specifically, the revision excluded certain pre-existing TerraVault customer relationships from the restriction and clarified that the covenant applied only to direct third-party licensing of the SoilPulse™ platform for row-crop applications (as opposed to all agricultural applications). Notwithstanding these modifications, the core three-year territorial restriction was retained. TerraVault continued to object to the provision in its January 23, 2023 counterproposal.
Relative Significance. While the non-compete dispute was significant, both parties acknowledged throughout the negotiation that governance and IP valuation were the primary barriers to reaching a definitive agreement. The non-compete issue, while unresolved, was viewed by both sides as potentially resolvable through further negotiation had the core economic and governance terms been settled. It therefore remained a secondary, though not insignificant, open item.
IV. Recent Communications Leading to Termination
A. February 6, 2023 — Tung-Carey Telephone Call
On February 6, 2023, Sandra Tung (Calderwood & Harkness LLP) and Jonathan Everett Carey (Whitfield, Carey & Stokes LLP) held a telephone call to assess the status of negotiations and discuss potential paths forward. The call lasted approximately thirty minutes and focused on the two primary impasse issues: governance structure and IP valuation.
During the call, both counsel acknowledged that a material gap existed between the parties' positions on these two fundamental issues. Mr. Carey communicated that TerraVault's positions on equal governance (six-member board with equal representation and broad technology consent rights) and the $3,600,000 IP valuation were firm and non-negotiable. Mr. Carey further stated that these positions had the full support of TerraVault's board of directors, including the board representatives of Meridian Venture Partners and Bluestem Capital Group, TerraVault's principal venture capital investors. Ms. Tung communicated that Greenfield's positions on the five-member board (with Greenfield majority control) and the $2,400,000 IP valuation were likewise firm, reflecting Greenfield's fundamental investment thesis and risk tolerance for the proposed transaction.
The call concluded without any path to compromise identified. Both counsel acknowledged candidly that the gap between the parties' positions on the two central issues might not be bridgeable given the fundamental difference in how each party conceived of the joint venture's governance and economic structure. No further drafting rounds were proposed by either side.
Following the call, Ms. Tung debriefed Marcus Linden and Rachel Yun-Park on the substance of the conversation. Ms. Tung recommended that, before making a final decision to terminate negotiations, Greenfield consider a direct principal-to-principal conversation between Marcus Linden and Dr. Anand Mehta as a final effort to determine whether any resolution was possible. Ms. Tung's recommendation was based on the observation that, while counsel's positions had hardened, the personal relationship between the principals remained cordial and there was at least a possibility that a direct conversation might surface a creative compromise or alternative structure that had not been explored at the working level.
B. February 14, 2023 — Linden-Mehta Principal-to-Principal Call
At Sandra Tung's recommendation, Marcus J. Linden (Greenfield) and Dr. Anand Mehta (TerraVault) held a direct principal-to-principal telephone call on February 14, 2023, without counsel present. The purpose of the call was to make a final effort to determine whether the impasse could be resolved through direct engagement between the decision-makers.
According to Marcus Linden's debrief with Sandra Tung and Derek Okonkwo, conducted on the same day as the call, the conversation lasted approximately forty-five minutes and was cordial but substantively unproductive. Both principals reiterated their respective positions on the two disputed issues. Specifically:
Dr. Mehta reportedly stated that TerraVault's SoilPulse™ technology was the "irreplaceable asset" of the proposed joint venture and that without SoilPulse™, the venture would have no viable product or competitive differentiation. Dr. Mehta emphasized that TerraVault's board and investors would not approve a transaction in which TerraVault accepted a minority governance position on technology matters, given that TerraVault was contributing the core technology that would drive the venture's value. Dr. Mehta characterized TerraVault's demand for equal governance and a $3,600,000 IP valuation as a reflection of the technology's true strategic worth to the partnership.
Marcus Linden communicated that Greenfield, as the 60% equity contributor providing $7.2 million in cash — more than three times TerraVault's cash contribution of $2.4 million — required governance control commensurate with its economic stake. Mr. Linden emphasized that Greenfield's investment committee would not approve a structure in which Greenfield bore the majority of the financial risk while TerraVault exercised co-equal or greater control over the venture's operations, including technology decisions. Mr. Linden stated that Greenfield's proposed $2,400,000 IP valuation was already a compromise above Velthorn's independent assessment of $1,800,000 and that further concessions on valuation were not supportable.
No resolution was reached during the call. Both principals expressed personal regret that the transaction appeared unlikely to proceed and acknowledged the mutual effort that had been invested over the preceding months. The conversation ended amicably, with both parties leaving open the possibility of revisiting a collaboration in the future under different circumstances, though neither party proposed a specific alternative structure or timeline.
Following the call, Marcus Linden communicated to Sandra Tung that he had concluded that the impasse was not resolvable and that he wished to terminate negotiations. Mr. Linden stated that he did not believe continued discussions on the current terms would be productive and that Greenfield's resources would be better deployed on other investment opportunities. Mr. Linden requested that Calderwood & Harkness prepare formal termination correspondence.
C. February 27, 2023 — Client Instruction to Terminate
On February 27, 2023, Marcus J. Linden formally instructed Calderwood & Harkness LLP to prepare and send termination correspondence to Whitfield, Carey & Stokes LLP on behalf of TerraVault BioSciences Inc., notifying TerraVault that Greenfield is terminating negotiations regarding the proposed PrairieSense Technologies LLC joint venture. Rachel Yun-Park (CFO, Greenfield) concurred with this instruction. The instruction was communicated by Mr. Linden to Sandra Tung by telephone, with a confirming email sent later the same day.
Mr. Linden expressed that Greenfield may wish to revisit the opportunity with TerraVault at a later date if circumstances change — for example, if TerraVault's financial position evolves, if there are changes in TerraVault's investor base or governance demands, or if market conditions create a revised basis for IP valuation discussions. However, Mr. Linden was clear that Greenfield does not wish to continue the current negotiation and that the termination correspondence should be definitive in tone while maintaining a professional and cordial relationship with TerraVault and its counsel.
V. Financial Projections and Sunk Costs
A. Proposed JV Financial Projections (Never Finalized)
During the course of the negotiation, the parties collaboratively developed preliminary financial projections for PrairieSense Technologies LLC. These projections were prepared on a working-draft basis and were never finalized, agreed upon, or incorporated into a definitive agreement. They are summarized here for the record:
Breakeven was expected to occur during Year 2, with projected EBITDA of $420,000 in that year. Five-year cumulative EBITDA was projected at approximately $18,600,000. Revenue growth was premised on the successful commercialization and scaling of the SoilPulse™ platform across the Midwest Territory, with initial deployments in Iowa and Illinois followed by expansion to additional states over the projection period.
It should be emphasized that these projections were preliminary and subject to significant assumptions and uncertainties, including the pace of customer adoption, competitive dynamics, the status of TerraVault's pending patent application, and the ability of PrairieSense to recruit qualified engineering and sales personnel. The projections were not endorsed by either party as final or binding.
B. Costs Incurred to Date
The following is a summary of the professional fees and costs incurred in connection with the proposed transaction:
Calderwood & Harkness LLP. Professional fees and disbursements incurred by Calderwood & Harkness in connection with the engagement will be summarized in the final invoice upon matter closing. The engagement letter included a soft fee cap of $350,000 for the matter. A final accounting will be prepared by Oliver Mackenzie, billing partner, in connection with the matter closing procedures described in Section VII.D below.
Velthorn IP Consulting LLC. Fees of $42,000 have been incurred by Velthorn IP Consulting for the intellectual property due diligence review and valuation analysis. These fees were billed through Calderwood & Harkness and passed through to Greenfield as a separate disbursement item.
Heartland National Bank, N.A. Preliminary discussions with Heartland National Bank regarding a potential $4,000,000 revolving credit facility for PrairieSense Technologies LLC did not progress to the term sheet or formal application stage. No commitment fees, application fees, or other lender fees were incurred. The relationship manager, Douglas Fenn, should be notified of the termination of the transaction as a matter of professional courtesy, though no formal notice obligation exists.
Clarendon & Marsh CPAs LLP. Clarendon & Marsh performed a preliminary tax structuring analysis in connection with the proposed joint venture, addressing (among other matters) the tax treatment of TerraVault's in-kind IP contribution, allocation of profits and losses under the proposed operating agreement, and Iowa state and local tax considerations. Fees were billed directly to Greenfield by Clarendon & Marsh and are not reflected on Calderwood & Harkness's invoices.
VI. Surviving Obligations
Notwithstanding the termination of negotiations, the following obligations survive and must be addressed:
Mutual Non-Disclosure Agreement. The Mutual Non-Disclosure Agreement dated July 11, 2022, between Greenfield Agricultural Partners LLC and TerraVault BioSciences Inc. remains in full force and effect. The NDA has a two-year term from its effective date, expiring on or about July 11, 2024. All confidential information exchanged between the parties during the evaluation and negotiation process — including TerraVault's financial data, revenue and EBITDA figures, intellectual property details, SoilPulse™ technology specifications, patent applications, business plans, and customer data, as well as Greenfield's investment strategy, fund information, portfolio company details, and financial information — remains subject to the NDA's confidentiality, non-use, and return or destruction obligations. Both Calderwood & Harkness and Greenfield must comply with the NDA's terms, and the termination letter should expressly reference the NDA's continuing obligations.
Exclusivity Provisions. The non-binding term sheet dated September 26, 2022, included binding exclusivity provisions that required the parties to negotiate exclusively with each other for a specified period. These exclusivity provisions will expire by their terms upon termination of negotiations. The termination letter should expressly confirm the expiration of any exclusivity obligations so that both parties are free to pursue alternative transactions, partnerships, or collaborations without restriction.
Absence of Binding Contractual Obligations. No definitive JV Operating Agreement was executed between the parties. PrairieSense Technologies LLC was never formed as a legal entity. No articles of organization were filed, no capital contributions were made, and no bank accounts were opened. Accordingly, no binding contractual obligations exist between Greenfield and TerraVault with respect to the proposed joint venture other than the Mutual NDA (which survives). The parties are not bound by any of the terms reflected in the draft JV Operating Agreement, the non-binding term sheet (other than its surviving binding provisions), or any other negotiation documents exchanged during the process.
Surviving Provisions of the Non-Binding Term Sheet. The non-binding term sheet dated September 26, 2022 contains certain provisions that were designated as binding and survive the termination of negotiations. These include the confidentiality provisions (which incorporate the NDA by reference) and the governing law provision (Iowa law). These provisions remain in effect in accordance with their terms.
VII. Recommendations
A. Formal Termination of Negotiations
Calderwood & Harkness should promptly prepare and send a formal termination letter addressed to Whitfield, Carey & Stokes LLP, on behalf of their client TerraVault BioSciences Inc., notifying TerraVault that Greenfield Agricultural Partners LLC is terminating negotiations regarding the proposed PrairieSense Technologies LLC joint venture. The termination letter should be drafted in a professional and respectful tone consistent with Marcus Linden's instruction that Greenfield wishes to maintain a cordial relationship with TerraVault and its principals. The letter should include the following elements:
(a) A clear statement that Greenfield is terminating negotiations regarding the proposed joint venture;
(b) Confirmation that no definitive JV Operating Agreement has been executed and that neither party has any binding obligations to the other with respect to the proposed joint venture, other than under the Mutual NDA;
(c) Express confirmation that the Mutual NDA dated July 11, 2022 remains in full force and effect and a reminder to both parties of the return or destruction obligations under the NDA with respect to confidential information;
(d) Confirmation that any exclusivity obligations under the non-binding term sheet dated September 26, 2022 have expired or are terminated;
(e) A reference to Calderwood & Harkness matter number 2022-M&A-00437; and
(f) An expression of appreciation for the efforts of all parties and their counsel during the negotiation process.
The target date for sending the termination letter is on or before March 3, 2023.
B. Preservation of Work Product and Files
All drafts, memoranda, correspondence, due diligence materials, internal analyses, and attorney work product generated in connection with this matter should be preserved in the matter file in accordance with Calderwood & Harkness LLP's document retention policies and applicable ethical and professional responsibility obligations. Particular care should be taken to preserve the following materials, given Marcus Linden's expressed interest in potentially revisiting a transaction with TerraVault in the future:
(a) The Velthorn IP Consulting report (preliminary and any supplemental analyses), including Dr. Sokoloff's valuation methodology, assumptions, and supporting data;
(b) The tax structuring analysis prepared by Clarendon & Marsh CPAs LLP, including any memoranda or working papers that were shared with Calderwood & Harkness during the engagement;
(c) All drafts and redlines of the JV Operating Agreement, the technology license exhibit, and all other ancillary agreements;
(d) The non-binding term sheet (signed and unsigned drafts), the Mutual NDA, and all related correspondence; and
(e) Internal memoranda and notes from negotiation sessions, including the December 12, 2022 in-person session.
These materials may have value in the event Greenfield revisits this opportunity and should be retained for at least the period prescribed by Calderwood & Harkness's retention schedule.
C. Return of Counterparty Confidential Information
In accordance with the terms of the Mutual NDA, Greenfield Agricultural Partners LLC and Calderwood & Harkness LLP should promptly return or destroy all confidential information received from TerraVault BioSciences Inc. during the evaluation and negotiation process. This includes, without limitation:
(a) TerraVault financial statements, revenue data, and business plans;
(b) SoilPulse™ technology specifications, architecture documents, and user manuals;
(c) Patent applications, prosecution files, and IP portfolio summaries provided by TerraVault;
(d) Customer lists, pipeline data, and market analyses provided by TerraVault; and
(e) Any copies, summaries, or derivative materials created from the foregoing.
Upon completion of the return or destruction process, a written confirmation of return or destruction should be prepared and sent to Whitfield, Carey & Stokes LLP, as required by the NDA. This confirmation should specify the categories of materials returned or destroyed and the date of completion. Calderwood & Harkness should coordinate with Greenfield (including Rachel Yun-Park) to ensure that all copies of TerraVault confidential information in Greenfield's possession or control are also returned or destroyed, and that Greenfield's confirmation is included in the written notice.
D. Matter Closing
Following the issuance of the termination letter and the completion of the return or destruction obligations described in Section VII.C, the matter should be formally closed in accordance with Calderwood & Harkness's standard matter-closing procedures. Specifically:
(a) A final invoice should be prepared by Oliver Mackenzie, billing partner, reflecting all remaining unbilled professional fees and disbursements through the date of matter closing;
(b) A matter closing memorandum should be prepared by Derek Okonkwo and circulated to the engagement team (Sandra Tung, Oliver Mackenzie, and relevant associates and staff) and to the client (Marcus Linden and Rachel Yun-Park); and
(c) The matter file should be archived in accordance with Calderwood & Harkness's document retention policies.
E. Future Engagement Considerations
Marcus Linden indicated during his February 27, 2023 instruction call that Greenfield may wish to revisit a transaction with TerraVault BioSciences Inc. at some future date if circumstances change. Circumstances that might prompt renewed discussions include, among other things, changes in TerraVault's financial position (such as additional funding rounds, revenue growth, or a shift toward profitability), revised IP valuation expectations on TerraVault's part, changes in TerraVault's investor composition or board governance that may soften its negotiating positions, or evolving market conditions in the precision agriculture sector that may alter the competitive landscape and the parties' respective leverage.
Should such discussions resume, the following steps would be required:
(a) A new engagement letter would need to be executed between Calderwood & Harkness and Greenfield, reflecting the scope, terms, and fee arrangements for the renewed engagement;
(b) An updated conflict check would need to be conducted to confirm that no conflicts of interest have arisen since the closing of this matter; and
(c) The existing Mutual NDA (if still within its two-year term, i.e., on or before approximately July 11, 2024) would remain operative and could serve as the confidentiality framework for renewed discussions. If the NDA has expired by the time discussions resume, a new NDA would need to be negotiated and executed before any confidential information is exchanged.
VIII. Conclusion
After approximately seven months of active negotiation, from the matter opening on August 15, 2022 through the client's termination instruction on February 27, 2023, the proposed $12,000,000 joint venture between Greenfield Agricultural Partners LLC and TerraVault BioSciences Inc. — to be structured as PrairieSense Technologies LLC, an Iowa limited liability company — has reached an impasse on two fundamental and interrelated issues: governance structure and intellectual property valuation.
The gap between the parties' positions on these issues is material and structural. On governance, Greenfield insists on majority board control (a five-member board with three Greenfield-appointed managers) consistent with its 60% equity stake, while TerraVault demands co-equal governance (a six-member board with equal representation and broad technology consent rights) that would provide TerraVault with effective veto power over the joint venture's core operations. On IP valuation, Greenfield has proposed a compromise valuation of $2,400,000 for TerraVault's SoilPulse™ technology contribution, while TerraVault insists on $3,600,000, a gap that would shift TerraVault's equity interest from 40% to 50% and eliminate Greenfield's majority economic position.
Based on the most recent communications between counsel (the February 6, 2023 telephone call between Sandra Tung and Jonathan Everett Carey) and between the principals directly (the February 14, 2023 telephone call between Marcus J. Linden and Dr. Anand Mehta), neither party is willing to make further concessions, and the gap does not appear bridgeable under the current transaction structure and negotiating framework.
Greenfield Agricultural Partners LLC, through its Founder and Managing Partner Marcus J. Linden, with the concurrence of Chief Financial Officer Rachel Yun-Park, has instructed Calderwood & Harkness LLP to terminate negotiations and to send formal termination correspondence to Whitfield, Carey & Stokes LLP on behalf of TerraVault. The recommendations set forth in Section VII above should be implemented promptly to ensure an orderly conclusion of the matter, compliance with continuing NDA obligations, preservation of work product, and proper matter closing.
This memorandum is prepared for the file to document the status of the transaction, the basis for the impasse, the client's instructions, and recommended next steps. It constitutes attorney work product and a privileged attorney-client communication and should be treated accordingly.
Prepared by:
________________________________________
Derek Okonkwo Lead Associate, Mergers & Acquisitions Calderwood & Harkness LLP
Date: February 27, 2023
Reviewed by:
________________________________________
Sandra Tung Responsible Partner, Mergers & Acquisitions Calderwood & Harkness LLP
Date: February 27, 2023
Matter No.: 2022-M&A-00437 PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
| Metric | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Projected Revenue | $3,500,000 | $7,800,000 | $14,200,000 | $21,500,000 | $28,000,000 |
| Projected EBITDA | $(1,200,000) | $420,000 | $4,100,000 | $6,800,000 | $8,480,000 |