PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT COMMUNICATION This memorandum was prepared by attorneys at Calderwood & Harkness LLP and constitutes privileged and confidential attorney work product and attorney-client communication. This document is protected from disclosure by the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. This memorandum is intended solely for the use of the addressees identified herein and should not be disclosed to any third party, including counterparty counsel, without the prior written consent of Calderwood & Harkness LLP. Any inadvertent disclosure does not constitute a waiver of any applicable privilege.
MEMORANDUM
Date: October 24, 2022
To: Sandra Tung, Responsible Partner, M&A, Calderwood & Harkness LLP Marcus J. Linden, Founder & Managing Partner, Greenfield Agricultural Partners LLC
From: Tiffany Rosenthal, Working Associate, M&A, Calderwood & Harkness LLP Derek Okonkwo, Lead Associate, M&A, Calderwood & Harkness LLP
Re: Preliminary IP Due Diligence Summary — TerraVault BioSciences Inc. SoilPulse™ Patent Portfolio; Proposed PrairieSense Technologies LLC Joint Venture
Matter No.: 2022-M&A-00437
Copies: File
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I. Executive Summary
This memorandum summarizes the preliminary findings of the intellectual property due diligence performed by Velthorn IP Consulting LLC, led by Dr. Miriam Sokoloff, on TerraVault BioSciences Inc.'s ("TerraVault") SoilPulse™ patent and intellectual property portfolio. Velthorn IP Consulting LLC ("Velthorn IP") was retained by Calderwood & Harkness LLP on behalf of Greenfield Agricultural Partners LLC ("Greenfield") in connection with the proposed formation of PrairieSense Technologies LLC ("PrairieSense" or the "JV"), an Iowa limited liability company to be established as a joint venture between Greenfield and TerraVault.
The proposed joint venture contemplates total initial capitalization of $12,000,000, structured as follows: Greenfield is to contribute $7,200,000 in cash, representing a 60% equity interest in the JV, while TerraVault is to contribute $4,800,000, representing a 40% equity interest, consisting of $2,400,000 in cash and $2,400,000 in the form of an IP and technology license contribution relating to TerraVault's SoilPulse™ precision soil-health sensor platform. The IP component of TerraVault's contribution is central to the deal economics and has become the subject of a significant valuation dispute between the parties that threatens to impede the negotiation of definitive transaction documents.
Key Findings. The IP due diligence, which commenced on October 3, 2022, with Velthorn IP's preliminary report delivered on October 17, 2022, yielded the following principal findings:
•  Velthorn IP estimates the fair market value of the SoilPulse™ IP portfolio at $1,800,000, which is substantially below the $4,500,000 valuation prepared by Ridgeline Advisors LLC ("Ridgeline Advisors"), TerraVault's financial advisor, led by Catherine Holloway, Managing Director. The $2,700,000 gap between these two valuations reflects fundamentally different risk weightings, scope-of-analysis assumptions, and treatment of the pending patent application and associated trade secrets.
•  Greenfield's proposed compromise valuation of $2,400,000 for the IP contribution would maintain TerraVault's 40% equity stake in the JV while reflecting a $600,000 premium above Velthorn IP's base estimate, acknowledging some incremental value in the pending patent application and related trade secrets. This compromise is within the range that we believe is defensible based on the due diligence findings.
•  Velthorn IP identified moderate patent validity risks associated with TerraVault's issued U.S. Patent No. 10,842,317, including prior art references that could form the basis of a credible invalidity challenge. The claims were narrowed during prosecution to overcome prior art objections, which limits the scope of patent protection and increases the potential for competitor design-arounds.
•  Velthorn IP's preliminary freedom-to-operate analysis identified three potentially relevant third-party patents, including one held by a large agrochemical conglomerate, that could pose theoretical infringement risks. While the preliminary assessment suggests that the SoilPulse™ system likely does not infringe these third-party patents, the risk cannot be definitively eliminated without a formal opinion of counsel. A full freedom-to-operate opinion should be commissioned prior to execution of the definitive JV Operating Agreement.
•  The patent validity and freedom-to-operate risks identified by Velthorn IP should be factored into both the IP contribution valuation and the representations, warranties, and indemnification provisions in the definitive JV Operating Agreement.
Velthorn IP Consulting LLC's engagement fee for the preliminary IP due diligence was $42,000, structured as a flat fee. These fees are being passed through to Greenfield separately from Calderwood & Harkness LLP's legal fees.
This memorandum synthesizes Velthorn IP's preliminary report findings with our own legal analysis and provides recommendations regarding the valuation negotiation, additional due diligence steps, and key provisions for inclusion in the definitive JV Operating Agreement. Sections II through IX below address the transaction background, the IP portfolio composition, patent validity and enforceability risks, freedom-to-operate concerns, the valuation dispute and its impact on deal economics, and recommended next steps.
II. Background
A. Transaction Overview
Greenfield Agricultural Partners LLC and TerraVault BioSciences Inc. have been in negotiations since approximately July 2022 regarding the proposed formation of PrairieSense Technologies LLC as an Iowa limited liability company for the development, manufacturing, and commercialization of integrated soil-health sensor systems designed for commercial row-crop agriculture in the U.S. Midwest. The JV is intended to combine Greenfield's operational expertise, agricultural industry relationships, and financial resources with TerraVault's proprietary SoilPulse™ precision soil-health sensor technology and associated intellectual property.
Greenfield Agricultural Partners LLC is an Iowa limited liability company with its headquarters at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309. Greenfield is the proposed 60% equity contributor and operating partner for the JV. Greenfield manages approximately $680 million in committed capital across three fund vintages and currently holds 14 active portfolio companies, with a strategic focus on Midwest agriculture and chemicals. Marcus J. Linden, Greenfield's Founder and Managing Partner, has led the negotiations on behalf of Greenfield and has been the primary point of contact for deal structuring and economic discussions.
TerraVault BioSciences Inc. is a Delaware corporation qualified to do business in the State of Illinois, with its headquarters at 1720 Innovation Parkway, Champaign, Illinois 61820. TerraVault is the proposed 40% equity contributor and technology/IP licensor for the JV. TerraVault is a venture-backed precision agriculture company 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's existing investor base includes Meridian Venture Partners, which led TerraVault's Series A financing round with an $8 million investment, and Bluestem Capital Group, which led TerraVault's Series B financing round with an $18 million investment. TerraVault has raised cumulative funding of approximately $38 million through its Series B round.
From a financial performance standpoint, TerraVault reported 2022 revenue of approximately $6.2 million and 2022 EBITDA of approximately $(3.8) million, reflecting the company's continued investment in research and development and commercial deployment activities. TerraVault's flagship product, the SoilPulse™ real-time soil nutrient and moisture sensor array, is currently deployed in pilot programs covering approximately 45,000 acres across the states of Illinois, Indiana, and Iowa. While the SoilPulse™ technology has demonstrated meaningful commercial promise during its pilot deployment phase, TerraVault has not yet achieved positive cash flow from operations, and the technology remains in a relatively early stage of commercial adoption.
Under the proposed deal structure, total initial capitalization of PrairieSense Technologies LLC would be $12,000,000, with contributions as follows:
•  Greenfield: $7,200,000 in cash, representing a 60% equity interest in PrairieSense Technologies LLC.
•  TerraVault: $4,800,000 in total, consisting of $2,400,000 in cash and $2,400,000 in the form of an IP and technology license contribution, representing a 40% equity interest in PrairieSense Technologies LLC.
The IP component of TerraVault's contribution—the license of SoilPulse™ intellectual property to the JV—is central to the deal economics, as it constitutes half of TerraVault's total contribution and directly determines TerraVault's equity position. As discussed in Section VI of this memorandum, the valuation of this IP contribution has become a significant point of contention between the parties.
B. Scope of Engagement
Velthorn IP Consulting LLC, located at 120 S. LaSalle Street, Suite 900, Chicago, Illinois 60603, was retained by Calderwood & Harkness LLP on behalf of Greenfield to perform preliminary intellectual property due diligence on TerraVault's SoilPulse™ patent portfolio in connection with the proposed JV transaction. The engagement was structured under the direction of Calderwood & Harkness LLP in order to preserve the attorney-client privilege and work product protections applicable to the diligence findings and analysis.
The scope of Velthorn IP's engagement encompassed the following work streams:
(a) Review and analysis of issued patents owned by or assigned to TerraVault BioSciences Inc. relating to the SoilPulse™ technology platform;
(b) Review and analysis of pending patent applications filed by or on behalf of TerraVault relating to the SoilPulse™ technology platform;
(c) Review and analysis of registered trademarks owned by TerraVault associated with the SoilPulse™ brand;
(d) Review of associated prosecution histories for the issued patent and pending application, including all office actions, responses, amendments, and examiner correspondence;
(e) Preliminary assessment of patent validity, enforceability, and claim scope for the issued patent, including a preliminary prior art search and analysis;
(f) High-level freedom-to-operate analysis to identify third-party patents that could pose infringement risks for the proposed JV's commercialization of SoilPulse™-based products in the U.S. Midwest market; and
(g) Preliminary valuation assessment of the SoilPulse™ IP portfolio, employing income-based and market-comparable methodologies.
The diligence engagement commenced on October 3, 2022, and Velthorn IP delivered its preliminary report to Calderwood & Harkness LLP on October 17, 2022. The lead consultant for the engagement was Dr. Miriam Sokoloff, a registered patent attorney and technology valuation specialist with over 20 years of experience in agricultural and environmental technology IP matters. This memorandum synthesizes the findings set forth in Velthorn IP's preliminary report with our own legal analysis and recommendations. The full Velthorn IP preliminary report is on file and is listed as Appendix A; it is available upon request but is not reproduced in this memorandum.
C. Counterparty Counsel
TerraVault BioSciences Inc. is represented in the proposed JV transaction by the law firm of Whitfield, Carey & Stokes LLP, located at 233 S. Wacker Drive, Suite 5600, Chicago, Illinois 60606. The lead attorneys for TerraVault in this matter are Jonathan Everett Carey, Partner (Corporate/M&A), and Priya Nandakumar, Associate (Corporate). To date, our interactions with counterparty counsel have been cordial and professional, though substantive disagreements regarding IP valuation and certain governance provisions remain unresolved. It is anticipated that the definitive agreement negotiations will be conducted primarily between Calderwood & Harkness LLP and Whitfield, Carey & Stokes LLP, with direct principal-to-principal discussions between Mr. Linden and Dr. Mehta on key commercial terms as appropriate.
III. Summary of TerraVault SoilPulse™ IP Portfolio
The following is a summary of the intellectual property assets comprising the SoilPulse™ IP portfolio that TerraVault has proposed to contribute (via license) to PrairieSense Technologies LLC as part of its equity contribution. The portfolio consists of one issued U.S. patent, one pending U.S. patent application, one registered U.S. trademark, and certain associated trade secrets and proprietary software. Each asset is discussed in turn below.
A. Issued Patent — U.S. Patent No. 10,842,317
TerraVault's principal patent asset is U.S. Patent No. 10,842,317, entitled "Multi-Electrode Soil Nutrient Sensor Array with Integrated Wireless Telemetry for Real-Time Agricultural Soil Analysis." The patent relates to a system and method for real-time soil nutrient sensing using a multi-electrode array integrated with wireless data transmission capabilities, enabling remote monitoring of soil health parameters in agricultural field settings.
The key details of this issued patent are as follows:
•  Patent Number: U.S. Patent No. 10,842,317
•  Issue Date: March 9, 2021
•  Named Inventors: Dr. Lian Xu and Dr. Anand Mehta
•  Assignee: TerraVault BioSciences Inc.
•  Maintenance Fee Status: Current through next due date
Claim Scope. The patent contains a total of 24 claims, including 3 independent claims and 21 dependent claims. The independent claims are directed to a multi-sensor soil probe incorporating an integrated wireless telemetry module for real-time measurement of macronutrients (nitrogen, phosphorus, potassium), select micronutrients, pH, and moisture content in agricultural soil. The independent claims recite specific structural elements of the multi-electrode sensor array, including the arrangement and composition of the sensing electrodes, the integration of the wireless communication module, and the method by which sensor data is transmitted from in-ground probes to a remote data aggregation system. The dependent claims cover specific sensor configurations (including electrode material compositions and spatial arrangements), calibration methods for field deployment, and data analytics integrations for processing and visualizing the collected soil health data.
Prosecution History. The underlying patent application was filed in 2018. During prosecution, the U.S. Patent and Trademark Office ("USPTO") issued one office action raising obviousness concerns under 35 U.S.C. § 103 based on a combination of prior art references in the soil sensing and wireless agricultural monitoring fields. In response, TerraVault's patent counsel amended the independent claims to narrow the scope of the claimed invention, specifically adding limitations relating to the integrated wireless telemetry configuration and the specific multi-electrode arrangement that distinguishes the SoilPulse™ system from prior art soil probes. The examiner subsequently allowed the claims as amended. No inter partes review, post-grant review, or other post-issuance challenge proceedings have been initiated against this patent to date. The narrowing of claims during prosecution is significant from a valuation perspective, as discussed in Section IV below, because it limits the scope of protection afforded by the patent and may increase the feasibility of design-around strategies by competitors.
Maintenance Fee Status. According to the records reviewed by Velthorn IP, all maintenance fees for U.S. Patent No. 10,842,317 are current, and the next maintenance fee payment is not due until the four-year anniversary of the patent's issue date (approximately March 2025). No lapse or delinquency in maintenance fee payments was identified.
B. Pending Patent Application — U.S. App. No. 17/509,664
TerraVault has one pending U.S. patent application relating to the SoilPulse™ technology platform:
•  Application Number: U.S. App. No. 17/509,664
•  Filing Date: October 25, 2021
•  Named Inventor: Dr. Lian Xu
•  Assignee: TerraVault BioSciences Inc.
•  Application Type: Continuation-in-part of the application underlying U.S. Patent No. 10,842,317
This pending application is a continuation-in-part ("CIP") application directed to next-generation improvements to the SoilPulse™ sensor platform. The disclosed subject matter includes, among other things, machine-learning-based predictive soil health analytics that leverage historical and real-time sensor data to generate predictive models of soil nutrient depletion and replenishment cycles, as well as enhanced sensor durability features designed to enable multi-season field deployment without the need for sensor replacement or recalibration. The CIP application claims priority to the parent application underlying U.S. Patent No. 10,842,317, but also includes new matter that is not entitled to the benefit of the earlier priority date.
Status. As of the date of Velthorn IP's preliminary report (October 17, 2022), no office action had been issued by the USPTO with respect to U.S. App. No. 17/509,664. Based on current USPTO examination timelines for the relevant art unit, Velthorn IP estimates that an initial office action is likely to be issued in late 2022 or during the first half of 2023. The application remains subject to examination, and there is meaningful uncertainty regarding whether and in what form the pending claims will ultimately issue as a patent.
Valuation Implications. As a pending application, the claims set forth in U.S. App. No. 17/509,664 may be narrowed, amended, or rejected during prosecution. The ultimate scope of any patent that issues from this application cannot be predicted with confidence at this stage. Accordingly, Velthorn IP recommends that any valuation of the SoilPulse™ IP portfolio be based primarily on the issued patent (U.S. Patent No. 10,842,317), with only a contingency-based adjustment for the pending application reflecting the probability-weighted value of the potential additional patent protection. This approach contrasts with the methodology reportedly employed by Ridgeline Advisors, which gave greater weight to the pending application in its valuation analysis, as discussed further in Section VI below.
C. Registered Trademark — SoilPulse™
TerraVault holds one registered U.S. trademark associated with the SoilPulse™ product line:
•  Mark: SoilPulse
•  Registration Number: U.S. Reg. No. 6,318,205
•  Registration Status: Active; registered on the Principal Register of the USPTO
•  Goods and Services: The registration covers agricultural sensor devices and related software applications for soil monitoring, classified under International Classes 9 and 42.
Velthorn IP confirmed that no pending oppositions, cancellation proceedings, or other challenges to the SoilPulse™ trademark registration were identified as of the date of the preliminary report. The trademark appears to be properly maintained and in active use in commerce in connection with TerraVault's pilot deployments of the SoilPulse™ sensor system.
While the SoilPulse™ trademark provides important brand protection and would be a necessary component of any IP license to the JV, the trademark has limited standalone economic value relative to the patent portfolio. The brand recognition associated with "SoilPulse" is still nascent, given the early-stage nature of TerraVault's commercial operations and the limited geographic scope of its current pilot deployments. Velthorn IP did not assign a separate independent value to the trademark but noted that it contributes marginally to the overall portfolio value as an adjunct to the patent and technology assets.
D. Other IP Considerations
In addition to the issued patent, pending patent application, and registered trademark described above, the SoilPulse™ IP portfolio includes certain trade secrets and proprietary software that are relevant to the proposed JV, though they were not the primary focus of Velthorn IP's patent-centered diligence.
Trade Secrets. TerraVault maintains proprietary manufacturing processes and sensor calibration algorithms that are not covered by the claims of the issued patent or the pending application. These trade secrets are protected by TerraVault's internal confidentiality measures, including restricted access protocols, employee non-disclosure agreements, and contractor confidentiality provisions. Velthorn IP noted that the trade secret component of TerraVault's IP was not independently valued as part of the preliminary diligence engagement, but acknowledged that the trade secrets are relevant to the overall IP package proposed for contribution to the JV. The existence and scope of these trade secret protections should be subject to further diligence, as discussed in Section VII.B below.
Proprietary Software. TerraVault's data analytics platform, which processes and visualizes the soil health data collected by the SoilPulse™ sensor array, incorporates proprietary software developed by TerraVault's engineering team. This software is protected by copyright under applicable federal law. While copyright protections apply to the expression of the software code, they do not protect the underlying functional concepts or algorithms, which may be more appropriately addressed through patent or trade secret protections. The proprietary software was not a primary focus of Velthorn IP's diligence, and we recommend that additional review of software ownership, licensing, and open-source compliance be conducted as part of any expanded due diligence engagement.
Third-Party License-In Agreements. Based on the materials reviewed by Velthorn IP and the representations made by TerraVault during the diligence process, no material third-party license-in agreements were identified that would encumber the SoilPulse™ technology or restrict TerraVault's ability to license the technology to the JV. TerraVault appears to own the core SoilPulse™ intellectual property free and clear, without any third-party liens, encumbrances, or inbound license restrictions that would impair the proposed IP contribution. This conclusion is based on preliminary review and should be confirmed through comprehensive representations and warranties in the definitive JV Operating Agreement, as well as through further documentary diligence on TerraVault's IP assignment and licensing records.
IV. Patent Validity Assessment
A. Prior Art Analysis
As part of its preliminary due diligence, Velthorn IP conducted a prior art search to identify patents, published patent applications, academic publications, and other publicly available references that predate TerraVault's priority date and that are potentially relevant to the patentability of the claims in U.S. Patent No. 10,842,317. The prior art search was conducted using standard patent and non-patent literature databases, including the USPTO full-text database, the European Patent Office's Espacenet system, and relevant academic databases in the fields of agricultural technology, soil science, and wireless sensor networks.
The prior art search identified several potentially relevant references in the field of agricultural soil sensing. Of these, Velthorn IP flagged two references as potentially material to the validity of U.S. Patent No. 10,842,317:
(1) Multi-Electrode Soil Probe Reference. The first reference is a U.S. patent directed to a multi-electrode soil probe designed for laboratory and field-based soil nutrient analysis. This reference discloses a multi-electrode sensor configuration that shares certain structural similarities with the SoilPulse™ sensor array. However, the reference does not disclose wireless data transmission capabilities; the disclosed system relies on wired connections to a stationary data collection unit. The absence of wireless telemetry is a key distinction from the SoilPulse™ claims as issued.
(2) Wireless Agricultural Sensor Network Reference. The second reference is a published academic paper describing a wireless sensor network designed for agricultural field monitoring, including environmental parameters such as temperature, humidity, and general soil moisture. While this reference discloses wireless data transmission in an agricultural sensor context, it does not disclose multi-electrode soil nutrient sensing and is not specific to the measurement of macronutrients, micronutrients, or pH using the type of sensor array claimed in U.S. Patent No. 10,842,317.
Velthorn IP's Assessment. Velthorn IP assessed that U.S. Patent No. 10,842,317 would likely survive a validity challenge based on the novel combination of a multi-sensor electrode array with integrated wireless telemetry for real-time soil nutrient analysis. Neither of the two identified prior art references, taken individually, anticipates the full scope of the independent claims in the issued patent. Moreover, the specific integration of multi-electrode soil nutrient sensing with wireless telemetry for real-time agricultural field monitoring appears to represent a genuine advance over the prior art that was available at the time of filing.
However, Velthorn IP cautioned that a well-funded and technically sophisticated challenger could mount a credible invalidity argument based on a combination of the identified prior art references under an obviousness theory (35 U.S.C. § 103). Specifically, a challenger could argue that it would have been obvious to a person of ordinary skill in the art to combine the multi-electrode soil probe technology disclosed in the first reference with the wireless agricultural sensor network technology disclosed in the second reference, yielding the claimed combination of multi-electrode soil nutrient sensing with integrated wireless telemetry. While TerraVault would have defenses to such an argument—including the structural specificity of the claim limitations as narrowed during prosecution—the risk of a successful invalidity challenge is not trivial.
Risk Level: Moderate. The patent is not bulletproof. While Velthorn IP believes the patent would more likely than not survive a validity challenge, the identified prior art introduces meaningful uncertainty that should be reflected in the IP valuation and in the protective provisions of the JV Operating Agreement. The narrowing of claims during prosecution, while necessary to overcome the examiner's obviousness rejection, reduced the scope of the patent's protective umbrella and potentially increased the vulnerability of the patent to further challenge.
B. Enforceability Considerations
Velthorn IP reviewed the prosecution history of U.S. Patent No. 10,842,317 for any indications of inequitable conduct or other enforceability concerns. Based on this review, Velthorn IP identified no inequitable conduct issues. There is no evidence in the prosecution file that TerraVault or its patent counsel withheld material prior art from the USPTO, made material misrepresentations during prosecution, or engaged in any other conduct that could give rise to an inequitable conduct defense in a future enforcement action.
Additionally, Velthorn IP confirmed that there is no litigation history involving U.S. Patent No. 10,842,317. The patent has not been asserted against any third party in an infringement action, and no third party has challenged the patent's validity in any judicial or administrative proceeding.
Notwithstanding the absence of specific enforceability concerns, Velthorn IP noted that the claims as narrowed during prosecution may be susceptible to design-around by competitors who implement alternative sensor configurations that fall outside the specific claim limitations of the issued patent. For example, a competitor could potentially develop a soil nutrient sensing system that utilizes a different electrode arrangement, a different wireless communication protocol, or a different sensor integration architecture that achieves comparable functionality without literally infringing the patent's claims. The feasibility and cost of such design-around strategies were not assessed in detail by Velthorn IP but represent a relevant consideration in evaluating the long-term competitive protection afforded by the patent.
Enforceability Risk Level: Low to Moderate. While no specific enforceability defects were identified, the narrowed claim scope limits the patent's ability to capture the full range of potentially competing sensor technologies, which diminishes the patent's value as an exclusionary right and should be factored into the valuation analysis.
C. Pending Application Risk
As noted in Section III.B above, U.S. App. No. 17/509,664 has not yet been examined by the USPTO, and there is significant uncertainty regarding whether and in what form claims will ultimately issue. The pending application covers subject matter that extends beyond the scope of the issued patent, including machine-learning-based predictive analytics and enhanced sensor durability features. If broad claims issue from this application, the overall SoilPulse™ patent portfolio's value would increase materially, as the JV would benefit from patent protection covering both the core sensor hardware and the next-generation software and analytics capabilities.
Conversely, if the claims in the pending application are substantially narrowed during prosecution or if the application is rejected entirely, the pending application would contribute limited incremental value to the portfolio. Given the current uncertainty, Velthorn IP recommends that any IP valuation be based primarily on the issued patent (U.S. Patent No. 10,842,317), with only a probability-weighted contingency adjustment reflecting the potential additional value of the pending application. This approach is consistent with standard IP valuation practice for portfolios that include pending applications in early-stage prosecution.
It is worth noting that the continuation-in-part nature of U.S. App. No. 17/509,664 introduces additional complexity. Claims that rely on new matter introduced in the CIP application are not entitled to the benefit of the parent application's earlier priority date, which means they could be subject to additional prior art references published between the parent application's filing date and the CIP's filing date. This further increases the uncertainty surrounding the ultimate scope of protection that may be obtained from the pending application.
V. Freedom-to-Operate Analysis
Velthorn IP performed a preliminary freedom-to-operate ("FTO") search and analysis to identify third-party patents that could pose infringement risks for the proposed JV's commercialization of SoilPulse™-based products in the U.S. Midwest market. The FTO analysis was designed to assess whether PrairieSense Technologies LLC, as the licensee of the SoilPulse™ technology, could manufacture, sell, and deploy SoilPulse™ sensor systems without infringing valid third-party patent rights.
The FTO search identified three potentially relevant third-party patents in the fields of wireless agricultural sensors and soil testing devices. Velthorn IP reviewed the claims and specifications of each of these third-party patents and compared them against the known technical specifications of the SoilPulse™ system as described in TerraVault's patent filings and product documentation. The results of this preliminary analysis are summarized as follows:
(1) First Third-Party Patent. A patent held by a large agrochemical conglomerate that covers certain aspects of wireless sensor data transmission in agricultural field settings. This patent includes claims directed to a method of collecting and transmitting environmental sensor data from distributed field nodes to a central processing system using a specific wireless communication protocol. Velthorn IP performed a preliminary claim construction analysis and concluded that the SoilPulse™ system likely does not infringe this patent, primarily because the SoilPulse™ system employs a different wireless communication architecture and data transmission protocol than the specific method claimed in the third-party patent. However, Velthorn IP cautioned that this conclusion is preliminary in nature and that the risk of infringement cannot be definitively eliminated without a comprehensive claim construction analysis and a formal opinion of counsel.
(2) Second Third-Party Patent. A patent directed to a multi-probe soil testing apparatus for agricultural applications. Upon review, Velthorn IP determined that the claims of this patent are directed to a fundamentally different sensor technology (electrochemical ion-selective electrodes in a non-wireless configuration) and that the risk of overlap with the SoilPulse™ system is low.
(3) Third Third-Party Patent. A patent directed to a data analytics platform for processing agricultural sensor data. While this patent covers software-based analytics functionalities that have some conceptual overlap with TerraVault's data analytics platform, the specific claim limitations are directed to a different analytical methodology (regression-based crop yield prediction) that does not appear to overlap with the machine-learning-based predictive soil health analytics employed by the SoilPulse™ system. Velthorn IP assessed the risk of infringement as low.
Recommendation. While the preliminary FTO analysis did not identify any third-party patents that clearly and directly overlap with the SoilPulse™ system's technical implementation, the analysis was preliminary in scope and based on limited claim construction. If the JV proceeds to the definitive agreement stage, we strongly recommend that a formal freedom-to-operate opinion be commissioned from Velthorn IP or from specialized patent counsel prior to commercial launch of SoilPulse™-based products by PrairieSense Technologies LLC. A formal FTO opinion would involve a more comprehensive prior art search, detailed claim construction analysis, and a written legal opinion addressing the risk of infringement for each identified third-party patent. This additional work would require a separately negotiated engagement with Velthorn IP (or alternative patent counsel) and would involve additional time and cost beyond the scope of the preliminary engagement.
FTO Risk Level: Low to Moderate. Based on the preliminary analysis, the freedom-to-operate risk for the proposed JV is assessed as low to moderate. No "red flag" infringement issues were identified, but the risk profile cannot be fully resolved without a formal opinion of counsel. The identified third-party patent held by the large agrochemical conglomerate warrants particular attention given the resources and litigation propensity of the patent holder.
VI. IP Valuation Analysis and Dispute
A. Velthorn IP Consulting Valuation
Velthorn IP performed a preliminary valuation of the SoilPulse™ IP portfolio using a two-pronged methodology: (i) an income-based approach employing a discounted cash flow analysis of projected royalty savings that the JV would realize by in-licensing the SoilPulse™ technology from TerraVault, as compared to the cost of developing comparable technology independently or licensing equivalent technology from a third party; and (ii) a market comparables analysis based on publicly available data regarding comparable precision agriculture IP transactions, including patent portfolio acquisitions and technology licensing deals in the agricultural sensor and precision farming sectors.
The key assumptions underlying Velthorn IP's valuation are as follows:
(a) discount Rate. Velthorn IP applied a discount rate reflective of early-stage technology risk, taking into account the limited commercial deployment history of the SoilPulse™ system (approximately 45,000 pilot acres across three states), the absence of positive cash flow, and the inherent uncertainty associated with technology adoption rates in the commercial row-crop agriculture market.
(b) Pending Application Treatment. Velthorn IP assigned only a probability-weighted value to the pending patent application (U.S. App. No. 17/509,664), reflecting the significant uncertainty regarding whether and in what form claims will issue. Consistent with standard IP valuation practice, the pending application was treated as a contingent asset rather than a fully realized intellectual property right.
(c) Claim Narrowing. The narrowing of claims during prosecution of U.S. Patent No. 10,842,317 was factored into the valuation as a scope-limiting factor that reduces the patent's competitive exclusionary value and increases the potential for competitor design-arounds.
(d) License Structure. The valuation assumes that the SoilPulse™ technology would be contributed to the JV as a technology license (not an outright assignment of patent ownership), consistent with the proposed term sheet structure. TerraVault would retain ownership of the underlying IP assets, and the JV would hold a license to use the technology within the defined field of use and geographic scope.
Based on these assumptions and the two-pronged methodology described above, Velthorn IP estimated the fair market value of the SoilPulse™ IP portfolio at $1,800,000.
Velthorn IP noted that this estimate reflects the value of the patent portfolio and associated trademark as the primary IP assets, and does not purport to independently value the trade secret and proprietary software components of TerraVault's technology platform. To the extent that these additional IP categories carry incremental value, the Velthorn IP estimate may understate the total value of the technology package proposed for contribution. However, Velthorn IP emphasized that even with a reasonable adjustment for trade secrets and software, the total portfolio value would remain well below Ridgeline Advisors' $4,500,000 estimate.
B. Ridgeline Advisors LLC Valuation (TerraVault's Advisor)
Ridgeline Advisors LLC, located at 444 N. Michigan Avenue, Suite 1800, Chicago, Illinois 60611, is serving as financial advisor to TerraVault in connection with the proposed JV transaction. The Ridgeline Advisors engagement is led by Catherine Holloway, Managing Director. Ridgeline Advisors prepared an independent valuation of the SoilPulse™ IP portfolio at the request of TerraVault and delivered its valuation report to TerraVault and its counsel at Whitfield, Carey & Stokes LLP.
Ridgeline Advisors' estimated fair market value of the SoilPulse™ IP portfolio is $4,500,000.
Based on the information available to us (including a summary of Ridgeline's methodology provided by counterparty counsel during preliminary negotiations), Ridgeline Advisors' valuation methodology reportedly relied on a broader market comparables analysis that included a wider set of comparable transactions, including transactions involving more mature precision agriculture technology platforms. Ridgeline's analysis reportedly gave greater weight to several factors that Velthorn IP either discounted or excluded from its primary valuation scope:
(a) The pending patent application (U.S. App. No. 17/509,664) was assigned a higher probability-weighted value, reflecting Ridgeline's more optimistic assessment of the likelihood that broad claims will issue;
(b) Projected growth of the SoilPulse™ platform was modeled using more aggressive market penetration assumptions, reflecting anticipated expansion beyond the current 45,000-acre pilot deployment;
(c) TerraVault's asserted first-mover advantage in the precision soil-health sensor market was treated as a significant competitive differentiator warranting a premium valuation; and
(d) The valuation scope was broader, incorporating the estimated value of TerraVault's associated trade secrets (manufacturing processes and calibration algorithms) and proprietary data analytics software, which were not the primary focus of Velthorn IP's patent-centered diligence.
We have not had the opportunity to review Ridgeline Advisors' full valuation report and supporting workpapers. We have requested access to these materials through counterparty counsel, and Whitfield, Carey & Stokes LLP has indicated that TerraVault is considering the request but has not yet agreed to provide the full report. If access is granted, we recommend that Velthorn IP perform a detailed review and critique of Ridgeline's assumptions, comparable transaction selection, and discount rate methodology.
C. Valuation Gap Analysis
The $2,700,000 gap between Velthorn IP's estimate of $1,800,000 and Ridgeline Advisors' estimate of $4,500,000 is substantial and reflects fundamentally different risk weightings and scope-of-analysis assumptions. While valuation divergences are not unusual in IP valuation contexts—particularly for early-stage agritech companies with limited commercial operating histories—the magnitude of this gap is significant for purposes of determining TerraVault's equity stake in the JV and the resulting governance dynamics.
The key drivers of the valuation gap, as identified by our analysis, are as follows:
(i) Treatment of Pending Patent Application. This is the single largest driver of the valuation divergence. Velthorn IP applied a conservative, probability-weighted approach to the pending application, treating it as a contingent asset with significant prosecution risk. Ridgeline reportedly assigned substantially greater value to the pending application based on a more optimistic assessment of the likelihood and scope of patent issuance.
(ii) Patent Validity Risks and Design-Around Potential. Velthorn IP's identification of moderate patent validity risks and the narrowed claim scope of the issued patent were reflected in its valuation through a risk-adjusted discount. Ridgeline's valuation appears to have given less weight to these risks, treating the issued patent as providing broader competitive protection than Velthorn IP's analysis supports.
(iii) Scope of Analysis — Trade Secrets and Software. Ridgeline's valuation reportedly incorporated the value of TerraVault's trade secrets and proprietary software as part of the overall IP package, while Velthorn IP's diligence was primarily focused on the patent portfolio and trademark. This difference in scope accounts for a portion of the valuation gap, though the magnitude of the trade secret and software value component is difficult to assess without access to Ridgeline's full report.
(iv) discount Rate Assumptions. The two valuations reportedly employed different discount rates, reflecting different assessments of the technology risk, market risk, and commercial adoption trajectory for the SoilPulse™ platform. Velthorn IP applied a higher discount rate consistent with early-stage technology risk, while Ridgeline's discount rate appears to reflect a more optimistic view of near-term commercialization prospects.
D. Impact on Deal Economics
The valuation dispute has direct and material implications for the equity ownership and governance structure of PrairieSense Technologies LLC. Under the current deal economics as proposed by Greenfield, the parties' contributions and resulting equity positions are as follows:
Under Greenfield's proposed deal structure (IP valued at $2,400,000):
If TerraVault's demanded IP valuation of $3,600,000 were accepted, TerraVault's total contribution would increase to $6,000,000 ($2,400,000 in cash plus $3,600,000 in IP), yielding a 50% equity stake in PrairieSense Technologies LLC ($6,000,000 / $12,000,000 = 50%). This would fundamentally alter the governance and economic dynamics of the JV in several critical respects:
(a) Governance. A 50/50 equity split would eliminate Greenfield's majority position and likely require the adoption of a co-equal governance framework with mutual veto rights, supermajority voting requirements, and deadlock resolution mechanisms. This is inconsistent with Greenfield's role as the operating partner and the party contributing the majority of cash capital.
(b) Economic Returns. A shift from 60/40 to 50/50 would dilute Greenfield's share of JV distributions, reducing the anticipated returns on Greenfield's $7,200,000 cash investment by approximately 17% on a per-dollar basis relative to TerraVault's effective per-dollar economics.
(c) Fund Reporting. Greenfield's fund investors expect Greenfield to maintain controlling positions in its portfolio company investments. A 50/50 joint venture would raise questions regarding control and consolidation accounting treatment that could affect Greenfield's fund-level reporting.
Greenfield is unwilling to concede a 50% equity stake to TerraVault. The 60/40 split is foundational to Greenfield's role as operating partner and majority equity holder, and Marcus Linden has communicated this position clearly in principal-to-principal discussions with Dr. Mehta. TerraVault, through Whitfield, Carey & Stokes LLP, has indicated that it insists on a minimum IP valuation of $3,600,000, which would imply the 50% equity position described above. This impasse represents the most significant unresolved commercial issue in the transaction negotiations.
E. Recommended Compromise Position
Based on the findings of Velthorn IP's diligence and our analysis of the valuation gap, we recommend that Greenfield adopt the following negotiating position:
Greenfield's proposed compromise IP valuation: $2,400,000.
This valuation represents a $600,000 premium above Velthorn IP's $1,800,000 base estimate, acknowledging that there is some incremental value in the pending patent application (U.S. App. No. 17/509,664) and the associated trade secrets and proprietary software that were not fully captured in Velthorn IP's patent-focused valuation. At the same time, the $2,400,000 compromise remains $2,100,000 below Ridgeline Advisors' $4,500,000 estimate, reflecting the substantial patent validity risks, claim scope limitations, and pending application uncertainties identified by Velthorn IP.
At the $2,400,000 IP valuation, TerraVault's total contribution remains $4,800,000 ($2,400,000 in cash plus $2,400,000 in IP), preserving the 40% equity position and the intended 60/40 governance framework. This structure is consistent with Greenfield's deal thesis and fund-level investment parameters.
To mitigate the risk associated with any premium above Velthorn IP's $1,800,000 base valuation, we recommend that the definitive JV Operating Agreement include the following protective provisions:
(a) Robust IP representations and warranties from TerraVault covering ownership, non-infringement, patent validity, prosecution status, and the absence of encumbrances on the contributed technology;
(b) Comprehensive IP indemnification provisions under which TerraVault would indemnify the JV and Greenfield against third-party intellectual property claims, including claims of patent infringement and trade secret misappropriation;
(c) An IP valuation adjustment mechanism that would provide for a post-closing adjustment to TerraVault's equity percentage if the pending patent application (U.S. App. No. 17/509,664) is rejected or if the claims that ultimately issue are materially narrower than the claims currently pending; and
(d) A technology escrow or step-in right provision that would protect the JV's continued access to the SoilPulse™ technology in the event of a TerraVault insolvency or material breach of the license.
These provisions, together with the recommended additional due diligence steps described in Section VII below, should provide Greenfield with adequate protection at the $2,400,000 IP valuation level.
VII. Recommendations and Next Steps
A. Valuation Negotiation Strategy
We recommend the following approach to the IP valuation negotiation with TerraVault and its counsel:
(1) Anchor on Velthorn IP's Valuation. Present Velthorn IP's $1,800,000 estimate as the starting point for negotiations, supported by the objective findings regarding patent validity risks, claim narrowing, and pending application uncertainty. Velthorn IP's report provides a credible, independent basis for a lower valuation that should carry significant weight in the negotiation.
(2) $2,400,000 as Greenfield's Ceiling. Position the $2,400,000 compromise valuation as Greenfield's maximum acceptable IP valuation, representing a meaningful premium above the independent diligence estimate that reflects Greenfield's good-faith willingness to acknowledge value in the broader technology package (trade secrets, software, and pending application) that Velthorn IP did not fully capture.
(3) Emphasize Objective Risk Factors. In discussions with counterparty counsel, emphasize the patent validity risks, the narrowing of claims during prosecution, the uncertainty of the pending application, and the preliminary FTO concerns as objective, independently verified bases for a lower valuation. These are not negotiating positions; they are findings of fact that TerraVault's own IP counsel should be able to corroborate.
(4) Request Access to Ridgeline Report. Continue to press for access to Ridgeline Advisors' full valuation report and supporting workpapers. If access is provided, we will arrange for Velthorn IP to review and critique Ridgeline's methodology and assumptions, which may provide additional leverage in the negotiation.
(5) Escalation Path. If TerraVault continues to insist on a minimum IP valuation of $3,600,000 and the implied shift to 50/50 equity, this becomes a potential deal-breaking issue. In that scenario, Greenfield should be prepared to (a) propose alternative deal structures that preserve the 60/40 equity split while providing TerraVault with additional economic consideration (e.g., performance-based earn-out provisions or preferred distribution rights), or (b) walk away from the transaction if an acceptable commercial resolution cannot be reached.
B. Additional Due Diligence Recommended
If negotiations continue and the parties move toward execution of a definitive JV Operating Agreement, we recommend the following additional due diligence steps:
(1) Formal Freedom-to-Operate Opinion. Commission a formal FTO opinion from Velthorn IP or specialized patent counsel addressing the identified third-party patents and any additional potentially relevant patents identified through an expanded search. This opinion should be completed prior to execution of the definitive agreement and certainly prior to commercial launch of SoilPulse™-based products by the JV.
(2) Trade Secret Diligence. Conduct further diligence on TerraVault's trade secret protections, including a review of TerraVault's internal confidentiality policies, employee and contractor non-disclosure and IP assignment agreements, and the specific measures in place to protect the proprietary manufacturing processes and calibration algorithms that TerraVault claims as trade secrets. This diligence is important both for valuation purposes and to ensure that the JV would receive unencumbered rights to utilize TerraVault's proprietary technology.
(3) Employee and Contractor IP Assignment Review. Review TerraVault's IP assignment agreements with its employees and contractors, particularly Dr. Lian Xu (the named inventor on both the issued patent and the pending application) and other key technical personnel, to confirm that all IP rights have been properly assigned to TerraVault and that no individual inventor or contractor retains any ownership interest in the SoilPulse™ technology.
(4) Updated Valuation Following USPTO Action. Consider obtaining an updated valuation from Velthorn IP once the status of U.S. App. No. 17/509,664 becomes clearer following the USPTO's initial examination. If an office action issues prior to the execution of the definitive agreement, the content and substance of that office action could materially affect the valuation analysis and should be taken into account.
(5) Software and Open-Source Compliance Review. Conduct a review of TerraVault's proprietary software for open-source code usage and compliance with applicable open-source licenses, to ensure that no "copyleft" or similar obligations would affect the JV's ability to commercialize the SoilPulse™ data analytics platform.
C. JV Operating Agreement Provisions
The first draft of the JV Operating Agreement for PrairieSense Technologies LLC is scheduled for circulation on or about November 1, 2022. Based on the findings of this IP due diligence, we recommend that the first draft include, at a minimum, the following IP-related provisions:
(1) Comprehensive IP Representations and Warranties from TerraVault. TerraVault should represent and warrant that (a) it is the sole and exclusive owner of the SoilPulse™ IP portfolio, free and clear of all liens, encumbrances, and third-party claims; (b) the SoilPulse™ technology, as licensed to the JV, does not infringe any third-party intellectual property rights; (c) U.S. Patent No. 10,842,317 is valid and enforceable and all maintenance fees are current; (d) all material information regarding the prosecution history of the issued patent and pending application has been disclosed to Greenfield; and (e) the pending application (U.S. App. No. 17/509,664) is in good standing before the USPTO, with all required filings and fees current.
(2) IP Indemnification Provisions. TerraVault should indemnify the JV and Greenfield (and their respective affiliates, officers, directors, and members) against any and all losses, liabilities, damages, costs, and expenses (including reasonable attorneys' fees) arising from (a) any third-party claim that the SoilPulse™ technology as licensed to the JV infringes any third-party intellectual property right, (b) any breach of TerraVault's IP representations and warranties, and (c) any challenge to the validity or enforceability of the contributed IP assets.
(3) Technology License Terms. The Operating Agreement (or an ancillary technology license agreement to be executed concurrently) should specify the scope of the license-in from TerraVault to PrairieSense Technologies LLC, including (a) the field of use (integrated soil-health sensor systems for commercial row-crop agriculture), (b) the geographic scope (United States, with an initial focus on the Midwest region), (c) the duration of the license (coterminous with the JV's existence), (d) sublicensing restrictions (any sublicensing to require TerraVault consent), and (e) the exclusivity of the license within the defined field and territory.
(4) Non-Compete Provisions. The Operating Agreement should include a three-year non-compete restriction covering the U.S. Midwest (specifically, the states of Iowa, Illinois, Indiana, Minnesota, Wisconsin, Missouri, Nebraska, Kansas, South Dakota, North Dakota, and Ohio) that restricts TerraVault from licensing the SoilPulse™ technology to any third party within the defined territory during the term of the JV. This non-compete is essential to protect the JV's exclusive market position and the value of Greenfield's investment.
(5) IP Valuation Adjustment Mechanisms. The Operating Agreement should include provisions for an adjustment to TerraVault's equity percentage in the event that the pending patent application (U.S. App. No. 17/509,664) is rejected by the USPTO or if the claims that ultimately issue are materially narrower than the claims currently pending. The specific mechanics of this adjustment (e.g., a downward adjustment to TerraVault's equity percentage by a specified amount, or a mandatory cash equalization payment) should be negotiated as part of the definitive agreement discussions.
D. Coordination with Tax Advisors
The tax treatment of TerraVault's $2,400,000 IP contribution to PrairieSense Technologies LLC is a significant structuring consideration that should be addressed in coordination with the parties' respective tax advisors. Specifically:
(1) IRC Section 721 Treatment. The contribution of intellectual property to a partnership (or LLC taxed as a partnership) is generally governed by Internal Revenue Code Section 721, which provides for nonrecognition of gain or loss upon contribution of property to a partnership in exchange for a partnership interest. However, certain exceptions and special rules may apply, including the rules governing contributions of property with built-in gain or loss (IRC § 704(c)) and the anti-abuse provisions applicable to disguised sales of partnership interests (IRC § 707).
(2) Built-in Gain Issues. To the extent that the fair market value of the contributed IP exceeds TerraVault's tax basis in the IP (which is likely, given that the IP was developed internally and may have a relatively low tax basis), the Operating Agreement's allocation provisions must address the allocation of built-in gain in accordance with IRC Section 704(c). Failure to properly address built-in gain allocations could result in adverse tax consequences for Greenfield.
(3) Tax Advisor Coordination. Clarendon & Marsh CPAs LLP (engagement partner: William Desmond) has been engaged to prepare a separate tax structuring memorandum addressing these issues. We are coordinating with Clarendon & Marsh to ensure that the IP valuation and contribution structure reflected in the Operating Agreement is consistent with the intended tax treatment, and we expect to receive the tax structuring memorandum in advance of the circulation of the first draft of the Operating Agreement.
VIII. Velthorn IP Consulting Engagement — Fees and Status
The following is a summary of the Velthorn IP Consulting LLC engagement terms and current fee status:
•  Engagement Fee: $42,000 (flat fee for the preliminary IP due diligence engagement, inclusive of all work streams described in Section II.B above).
•  Fee Responsibility: The Velthorn IP engagement fee is being passed through to Greenfield Agricultural Partners LLC separately from Calderwood & Harkness LLP's legal fees. The fee has been invoiced by Velthorn IP directly to Greenfield, with a copy provided to Calderwood & Harkness LLP for record-keeping purposes.
•  Additional Diligence Scope. If additional due diligence is required beyond the scope of the preliminary engagement—including a formal freedom-to-operate opinion, an updated valuation following USPTO examination of the pending application, or an expanded review of TerraVault's trade secret protections—Velthorn IP has indicated that the scope and fees for such additional work would need to be separately agreed upon through a supplemental engagement letter. Based on preliminary discussions with Dr. Sokoloff, a formal FTO opinion is estimated to cost between $25,000 and $40,000, depending on scope and complexity, and an updated valuation would cost approximately $15,000 to $20,000.
•  Calderwood & Harkness Legal Fees. Calderwood & Harkness LLP's own legal fees for this matter are subject to the soft cap of $350,000 as set forth in the engagement letter dated August 15, 2022, between Calderwood & Harkness LLP and Greenfield Agricultural Partners LLC. As of the date of this memorandum, Calderwood & Harkness's accrued fees and expenses in this matter are within budget and are not expected to exceed the soft cap absent significant scope expansion or protracted negotiation of the definitive agreement.
IX. Conclusion
Based on the foregoing analysis, we offer the following concluding observations and recommendations:
The SoilPulse™ IP portfolio has meaningful value as the technological foundation for the proposed Prairi