OPERATING AGREEMENT OF PRAIRIESENSE TECHNOLOGIES LLC

OPERATING AGREEMENT OF PRAIRIESENSE TECHNOLOGIES LLC
SECOND DRAFT
DRAFT — FOR DISCUSSION PURPOSES ONLY — SUBJECT TO FURTHER NEGOTIATION
January 9, 2023
Prepared by:
Calderwood & Harkness LLP 800 Walnut Street, Suite 2400 Des Moines, Iowa 50309
Circulated to:
Whitfield, Carey & Stokes LLP 233 S. Wacker Drive, Suite 5600 Chicago, Illinois 60606
Attention: Jonathan Everett Carey and Priya Nandakumar
Matter Number: 2022-M&A-00437 Drafter: Derek Okonkwo, Lead Associate, Calderwood & Harkness LLP
TRANSMITTAL NOTE
January 9, 2023
Jonathan Everett Carey, Esq. Priya Nandakumar, Esq. Whitfield, Carey & Stokes LLP 233 S. Wacker Drive, Suite 5600 Chicago, Illinois 60606
Re: PrairieSense Technologies LLC — Second Draft of Operating Agreement (Matter No. 2022-M&A-00437)
Dear Jonathan and Priya:
On behalf of Greenfield Agricultural Partners LLC ("Greenfield"), please find enclosed the second draft of the Operating Agreement of PrairieSense Technologies LLC (the "Company"). This draft has been prepared in connection with the proposed joint venture between Greenfield and TerraVault BioSciences Inc. ("TerraVault").
As you will recall, we circulated the initial draft of the Operating Agreement on November 1, 2022. Your firm returned a redline version on November 28, 2022, containing forty-seven (47) open comments and proposed revisions. Following the receipt of that redline, the parties and their respective counsel met in person on December 12, 2022 in Des Moines, Iowa for a full-day negotiation session. This second draft reflects the partial resolution of certain open items discussed at that in-person session.
In preparing this second draft, we have endeavored to incorporate the compromise positions reached on December 12 with respect to a number of key issues, including, among others, the sublicensing approval mechanism, ownership of IP improvements, the introduction of supermajority consent provisions, the CTO nomination right, the narrowing of the non-compete covenant, the shift from court jurisdiction to binding arbitration for dispute resolution, the restructuring of the distribution waterfall, and the addition of a buy-sell (shotgun) provision as a deadlock resolution mechanism.
Notwithstanding the progress reflected in this draft, we wish to highlight that certain key provisions remain as proposed by Greenfield and are the subject of ongoing negotiation. In particular, the board composition provisions in Article VI continue to reflect Greenfield's position of a five-member Board of Managers with a three-to-two allocation in favor of Greenfield. Similarly, the IP contribution valuation set forth in Article III and Article V remains at $2,400,000, reflecting Greenfield's compromise position based on the independent assessment of Velthorn IP Consulting LLC. We understand that TerraVault maintains its position on both of these issues, and we have included bracketed language throughout the draft to identify these and other open items for ease of reference.
We kindly request that you review this second draft and provide your comments at your earliest convenience so that we may continue to work toward a mutually acceptable definitive agreement. We note that approximately thirty (30) of the forty-seven (47) comments from your November 28, 2022 redline have been addressed in this draft, with approximately seventeen (17) remaining open.
This draft is furnished for discussion purposes only. It is non-binding and subject to further negotiation, revision, and approval by the parties and their respective legal counsel. Neither the circulation of this draft nor any discussions related thereto shall constitute or be deemed to constitute a binding commitment or agreement by either party. All rights are expressly reserved.
We look forward to receiving your response.
Very truly yours,
Derek Okonkwo Lead Associate Calderwood & Harkness LLP 800 Walnut Street, Suite 2400 Des Moines, Iowa 50309 Tel: (515) 555-7200 dokonkwo@calderwoodharkness.com
cc: Sandra Tung, Partner, Calderwood & Harkness LLP Marcus J. Linden, Greenfield Agricultural Partners LLC
OPERATING AGREEMENT
OF
PRAIRIESENSE TECHNOLOGIES LLC
An Iowa Limited Liability Company
Dated as of __, 2023
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OPERATING AGREEMENT OF PRAIRIESENSE TECHNOLOGIES LLC
This OPERATING AGREEMENT (this "Agreement") of PrairieSense Technologies LLC, an Iowa limited liability company (the "Company"), is entered into as of __, 2023 (the "Effective Date"), by and between:
GREENFIELD AGRICULTURAL PARTNERS LLC, an Iowa limited liability company, with its principal offices at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309 ("Greenfield" or "GAP");
and
TERRAVAULT BIOSCIENCES INC., a Delaware corporation qualified to do business in the State of Illinois, with its principal offices at 1720 Innovation Parkway, Champaign, Illinois 61820 ("TerraVault" or "TVBS").
Greenfield and TerraVault are each referred to herein as a "Member" and collectively as the "Members."
RECITALS
WHEREAS, Greenfield is an Iowa limited liability company engaged in agricultural investment and development activities, with extensive experience in the commercialization of agricultural technologies across the United States Midwest;
WHEREAS, TerraVault is a Delaware corporation engaged in the development of proprietary soil-health sensor technologies, including the SoilPulse™ Technology (as defined herein), and holds certain patents, patent applications, trademarks, trade secrets, and know-how related thereto;
WHEREAS, the Members desire to form a joint venture limited liability company under the laws of the State of Iowa for the purpose of developing, manufacturing, and commercializing integrated soil-health sensor systems for commercial row-crop agriculture in the United States, with an initial focus on the U.S. Midwest;
WHEREAS, in connection with the formation of the Company, Greenfield will contribute cash capital and TerraVault will contribute a combination of cash capital and an exclusive license to the SoilPulse™ Technology, as more fully described herein;
WHEREAS, Greenfield and TerraVault have entered into a Mutual Non-Disclosure Agreement dated July 11, 2022, and have engaged in due diligence and negotiations concerning the terms of this joint venture; and
WHEREAS, the Members desire to set forth their respective rights, obligations, and responsibilities with respect to the Company and to provide for the governance, operation, and management thereof;
NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations, and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree as follows:
ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.1 — Definitions
As used in this Agreement, the following terms shall have the meanings set forth below:
"Act" means the Iowa Revised Uniform Limited Liability Company Act, Iowa Code Chapter 489, as amended from time to time.
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person. For purposes of this definition, "control" (including the correlative terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if such Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of such other Person.
"Agreement" means this Operating Agreement of PrairieSense Technologies LLC, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Board" or "Board of Managers" means the governing body of the Company as established and described in Article VI of this Agreement.
"Capital Contribution" means the total amount of cash, property, or services (or any combination thereof) contributed by a Member to the capital of the Company, including Initial Capital Contributions and any additional capital contributions made pursuant to Section 3.4.
"Cash Contribution" means any Capital Contribution made in the form of cash or cash equivalents.
"Code" means the Internal Revenue Code of 1986, as amended, or any successor statute, and any reference to a specific provision of the Code shall include any successor provision thereto.
"Company" means PrairieSense Technologies LLC, an Iowa limited liability company formed pursuant to this Agreement and the Act.
"Confidential Information" has the meaning set forth in Article XIII, and shall be interpreted in a manner consistent with the Mutual Non-Disclosure Agreement between Greenfield and TerraVault dated July 11, 2022 (the "Mutual NDA").
"Distributable Cash" has the meaning set forth in Section 8.1.
"Effective Date" means the date of execution of this Agreement by both Members, as set forth on the first page hereof.
"Fiscal Year" means the calendar year, commencing January 1 and ending December 31 of each year, or such other fiscal year as may be required by the Code.
"GAP" or "Greenfield" means Greenfield Agricultural Partners LLC, an Iowa limited liability company, with its principal offices at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309.
"GAAP" means United States generally accepted accounting principles, consistently applied.
"Greenfield Managers" means the three (3) Managers appointed by Greenfield to the Board of Managers in accordance with Section 6.1.
"Initial Capital Contribution" means the Capital Contribution made by each Member as set forth in Section 3.1 and Schedule 3.1 attached hereto.
"IP Contribution" means the contribution by TerraVault to the Company of the exclusive license to the SoilPulse™ Technology, as described in Article V, which is valued at Two Million Four Hundred Thousand Dollars ($2,400,000) for purposes of this Agreement.
"Manager" means a member of the Board of Managers, appointed in accordance with Article VI.
"Member" means Greenfield or TerraVault, each a "Member" and collectively, the "Members," and shall include any Person admitted as a substitute or additional Member in accordance with the terms of this Agreement.
"Membership Interest" means a Member's percentage ownership interest in the Company, as set forth in Section 3.2, including such Member's share of Net Profits, Net Losses, distributions, and all other rights and obligations arising under this Agreement.
"Net Profits" and "Net Losses" mean, for each Fiscal Year or other period, the net income or net loss of the Company as determined in accordance with Article VII.
"Non-Compete Territory" means the following states within the United States: Iowa, Illinois, Indiana, Minnesota, Wisconsin, Missouri, Nebraska, Kansas, South Dakota, North Dakota, and Ohio.
"Permitted Transfer" has the meaning set forth in Section 10.2.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, government, governmental agency, or other entity of any kind.
"Purpose" has the meaning set forth in Section 2.4.
"SoilPulse™ Technology" means the proprietary soil-health sensor platform developed by TerraVault, including without limitation: (a) United States Patent No. 10,842,317, entitled "Integrated Multi-Spectral Soil Health Sensor System and Method" (issued March 9, 2021); (b) pending United States Patent Application No. 17/509,664, entitled "Improved Soil Nutrient and Moisture Profiling Apparatus" (filed October 25, 2021); (c) the SoilPulse™ trademark, United States Registration No. 6,318,205; and (d) all associated trade secrets, know-how, technical data, software, algorithms, specifications, documentation, and other proprietary information relating thereto.
"Technology License" means the exclusive license granted by TerraVault to the Company with respect to the SoilPulse™ Technology, as described in Article V of this Agreement and as set forth in the Technology License Agreement attached hereto as Exhibit A.
"TerraVault" or "TVBS" means TerraVault BioSciences Inc., a Delaware corporation qualified to do business in the State of Illinois, with its principal offices at 1720 Innovation Parkway, Champaign, Illinois 61820.
"TerraVault Managers" means the two (2) Managers appointed by TerraVault to the Board of Managers in accordance with Section 6.1.
"Transfer" means any direct or indirect sale, assignment, transfer, conveyance, pledge, hypothecation, encumbrance, gift, bequest, or other disposition, whether voluntary or involuntary, by operation of law or otherwise, of all or any portion of a Membership Interest or any rights or interests therein.
"Treasury Regulations" means the regulations promulgated by the United States Department of the Treasury under the Code, as such regulations may be amended from time to time. All references herein to specific sections of the Treasury Regulations shall include any corresponding provisions of succeeding, similar, substitute, proposed, or final Treasury Regulations.
Section 1.2 — Rules of Interpretation
The following rules of interpretation shall apply to this Agreement:
(a) All references herein to "Articles," "Sections," "Schedules," and "Exhibits" are to the Articles, Sections, Schedules, and Exhibits of this Agreement unless otherwise specified.
(b) The headings, titles, and captions of the Articles, Sections, and other subdivisions of this Agreement are inserted for convenience of reference only and shall not be used in the interpretation or construction of any provision of this Agreement.
(c) Whenever the context requires, the singular shall include the plural, and the plural shall include the singular. The use of any gender shall include all genders.
(d) The word "including" (and correlative words such as "include" and "includes") shall mean "including without limitation" and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.
(e) The words "hereof," "herein," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(f) This Agreement shall be governed by, interpreted under, and construed in accordance with the laws of the State of Iowa, without regard to principles of conflicts of law.
(g) Unless otherwise specified, all references to dollar amounts or "$" shall mean the lawful currency of the United States of America.
(h) The terms "days" shall refer to calendar days unless expressly stated as "business days." "Business days" means any day other than a Saturday, Sunday, or any day on which banks in Des Moines, Iowa are authorized or required by law to be closed.
ARTICLE II — FORMATION AND ORGANIZATION
Section 2.1 — Formation
The Company has been or shall be formed as a limited liability company under the name "PrairieSense Technologies LLC" by the filing of Articles of Organization with the Secretary of State of the State of Iowa pursuant to the provisions of the Act. The rights and obligations of the Members and the administration, dissolution, and termination of the Company shall be governed by this Agreement and, to the extent not inconsistent herewith, by the Act. To the extent that any provision of this Agreement is inconsistent with any mandatory provision of the Act, the Act shall control; provided, however, that to the extent the Act permits the Members to modify or supplement its provisions by agreement, this Agreement shall control. The registered agent of the Company in the State of Iowa shall be Capitol Filings Inc., located at 220 E. Court Avenue, Des Moines, Iowa 50309, which is Greenfield's existing registered agent and shall serve as the Company's registered agent unless and until changed by the Board.
Section 2.2 — Name
The name of the Company is "PrairieSense Technologies LLC." The Company may conduct business under such name or under any trade name or names as the Board may from time to time approve. The Board shall cause to be filed any fictitious name certificates and similar filings, and any amendments thereto, required by the laws of the State of Iowa or any other jurisdiction in which the Company conducts business.
Section 2.3 — Principal Office
The initial principal office of the Company shall be located at 4100 Grand Prairie Drive, Suite 300, Des Moines, Iowa 50309, co-located with Greenfield's headquarters. The Board may change the principal office of the Company to any other location within the United States upon the approval of a majority of the Managers. The Company shall maintain at its principal office, or at such other place as the Board may determine, the books, records, and other documents required to be maintained pursuant to this Agreement and the Act.
Section 2.4 — Purpose
The purpose of the Company (the "Purpose") is to engage in the development, manufacturing, and commercialization of integrated soil-health sensor systems for commercial row-crop agriculture in the United States, with an initial focus on the U.S. Midwest, and any and all activities incidental, ancillary, or related thereto as the Board may from time to time determine to be in furtherance of the foregoing. The Company shall have the power and authority to do any and all acts and things necessary, appropriate, proper, advisable, incidental, or convenient to or in furtherance of the Purpose, including the power to enter into contracts, incur indebtedness, acquire and dispose of property, hire employees and independent contractors, and engage in any other lawful activity consistent with the Purpose.
Section 2.5 — Term
The term of the Company shall commence upon the filing of the Articles of Organization with the Iowa Secretary of State and shall continue in perpetual existence until dissolved in accordance with the provisions of Article XII of this Agreement and the Act.
Section 2.6 — Filings
The Members shall cause to be filed all certificates, documents, and instruments that are necessary or appropriate under the Act and under the laws of any jurisdiction in which the Company conducts business to form, maintain, and preserve the Company as a limited liability company in good standing. Without limiting the generality of the foregoing, the Members authorize and direct the filing of any required foreign qualification certificates, annual reports, and similar filings in the State of Illinois and such other states within the U.S. Midwest as may be necessary as the Company's operations expand. The Members shall cooperate in the execution, delivery, and filing of all such documents.
ARTICLE III — CAPITAL CONTRIBUTIONS AND MEMBERSHIP INTERESTS
Section 3.1 — Initial Capital Contributions
The total initial capitalization of the Company shall be Twelve Million Dollars ($12,000,000). Each Member shall make the following Initial Capital Contributions to the Company:
(a) Greenfield shall contribute Seven Million Two Hundred Thousand Dollars ($7,200,000) in cash to the Company, representing a sixty percent (60%) Membership Interest in the Company.
(b) TerraVault shall contribute a total of Four Million Eight Hundred Thousand Dollars ($4,800,000) to the Company, consisting of:
(i) Two Million Four Hundred Thousand Dollars ($2,400,000) in cash; and
(ii) The IP Contribution, being an exclusive license to the SoilPulse™ Technology as described in Article V of this Agreement and in the Technology License Agreement attached hereto as Exhibit A, which IP Contribution is valued at Two Million Four Hundred Thousand Dollars ($2,400,000) by agreement of the Members for purposes of this Agreement.
The Initial Capital Contributions of each Member are set forth in detail on Schedule 3.1 attached hereto.
The valuation of TerraVault's IP Contribution at Two Million Four Hundred Thousand Dollars ($2,400,000) reflects Greenfield's compromise position. For reference, Greenfield's independent IP advisor, Velthorn IP Consulting LLC, has estimated the fair market value of the SoilPulse™ Technology License at One Million Eight Hundred Thousand Dollars ($1,800,000). TerraVault's financial advisor, Ridgeline Advisors LLC, has valued the IP at Four Million Five Hundred Thousand Dollars ($4,500,000). The Members have provisionally agreed upon a compromise valuation of Two Million Four Hundred Thousand Dollars ($2,400,000), subject to the open item noted below.
[OPEN ITEM: TerraVault has proposed an IP valuation of $3,600,000, which would result in a total TerraVault contribution of $6,000,000 and a 50% Membership Interest. This provision remains open and subject to negotiation.]
Section 3.2 — Membership Interests
The Membership Interests of the Members in the Company shall be as follows:
The Membership Interests set forth above reflect the Initial Capital Contributions described in Section 3.1 and are subject to adjustment as provided in this Agreement, including pursuant to the anti-dilution provisions of Section 3.4 and Schedule 3.4.
[OPEN ITEM: TerraVault has proposed that Membership Interests be allocated 50/50 based on its proposed IP valuation of $3,600,000. This allocation remains open and subject to negotiation.]
Section 3.3 — Timing of Capital Contributions
(a) Cash Contributions. Each Member's Cash Contribution shall be due and payable within ten (10) business days following the Effective Date. Greenfield shall wire its Cash Contribution of Seven Million Two Hundred Thousand Dollars ($7,200,000) to the Company's designated operating account at Heartland National Bank, N.A., 666 Locust Street, Des Moines, Iowa 50309, in accordance with wire instructions to be provided by the Company. TerraVault shall wire its Cash Contribution of Two Million Four Hundred Thousand Dollars ($2,400,000) to the same account in accordance with the same wire instructions.
(b) IP Contribution. TerraVault's IP Contribution shall be made simultaneously with the Effective Date by execution and delivery of the Technology License Agreement in the form attached hereto as Exhibit A, granting to the Company the exclusive license to the SoilPulse™ Technology as described in Article V. Upon execution and delivery of the Technology License Agreement, TerraVault's IP Contribution shall be deemed to have been made in full.
(c) Failure to Contribute. If any Member fails to make its Capital Contribution within the time period specified herein, such failure shall constitute a material breach of this Agreement, and the non-defaulting Member shall have the right, in addition to any other remedies available at law or in equity, to (i) advance the defaulting Member's contribution as a loan bearing interest at the rate of twelve percent (12%) per annum, compounding monthly, or (ii) reduce the defaulting Member's Membership Interest in accordance with the anti-dilution formula set forth in Schedule 3.4.
Section 3.4 — Additional Capital Contributions
(a) No Obligation. No Member shall be required to make additional capital contributions to the Company beyond the Initial Capital Contributions set forth in Section 3.1, without the unanimous written consent of all Members.
(b) Third-Party Financing. If the Board determines that additional capital is needed by the Company, the Board shall first evaluate whether third-party debt financing on commercially reasonable terms is available to the Company. In this regard, the Members acknowledge that preliminary discussions have been held with Heartland National Bank, N.A. regarding a potential revolving credit facility of up to Four Million Dollars ($4,000,000), and the Board shall pursue such financing in good faith prior to calling upon the Members for additional capital contributions.
(c) Pro Rata Contributions. If the Members unanimously agree that additional capital contributions are required, such contributions shall be made pro rata in accordance with the Members' respective Membership Interests, unless the Members otherwise agree in writing.
(d) Anti-Dilution. In the event that one Member makes an additional capital contribution and the other Member does not participate pro rata in such contribution, the non-contributing Member's Membership Interest shall be subject to dilution in accordance with the anti-dilution formula set forth in Schedule 3.4 attached hereto.
Section 3.5 — Capital Accounts
(a) A separate capital account shall be established and maintained for each Member in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv) and the principles set forth therein. Each Member's capital account shall be (i) credited with the amount of any Capital Contributions made by such Member (including the agreed value of any non-cash contributions), such Member's allocable share of Net Profits and any items of income or gain specially allocated to such Member, and any other items required to be credited thereto under Treasury Regulations, and (ii) debited with the amount of any distributions made to such Member, such Member's allocable share of Net Losses and any items of loss or deduction specially allocated to such Member, and any other items required to be debited therefrom under Treasury Regulations.
(b) The initial capital accounts of the Members shall be as follows:
(c) No Member shall be entitled to withdraw any portion of its capital account or to receive any distribution from the Company, except as specifically provided in this Agreement. No Member shall be entitled to receive any interest on its Capital Contributions or its capital account balance.
Section 3.6 — No Interest on Capital
No interest shall accrue or be payable on or with respect to any Capital Contribution made by any Member to the Company.
Section 3.7 — Return of Capital
No Member shall have the right to demand or receive the return of all or any portion of its Capital Contribution, except upon dissolution of the Company in accordance with Article XII of this Agreement. No Member shall have priority over any other Member for the return of Capital Contributions, except as expressly provided in Article VIII and Article XII.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES
Section 4.1 — Mutual Representations
Each Member hereby represents and warrants to the other Member and to the Company, as of the Effective Date, as follows:
(a) Organization and Good Standing. Such Member is duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation. Greenfield is a limited liability company duly organized and validly existing under the laws of the State of Iowa. TerraVault is a corporation duly organized and validly existing under the laws of the State of Delaware and is qualified to do business as a foreign corporation in the State of Illinois.
(b) Authority. Such Member has full power and authority to execute, deliver, and perform its obligations under this Agreement. The execution, delivery, and performance of this Agreement by such Member have been duly authorized by all necessary action on the part of such Member, including any required approvals by its governing body, members, stockholders, or partners, as applicable.
(c) No Violation. The execution, delivery, and performance of this Agreement by such Member does not and will not (i) violate or conflict with any provision of such Member's certificate of formation, articles of organization, certificate of incorporation, bylaws, operating agreement, or other organizational documents, (ii) violate or conflict with any material agreement, contract, instrument, or obligation to which such Member is a party or by which it or its properties are bound, or (iii) violate any applicable law, statute, regulation, order, judgment, or decree of any governmental authority.
(d) No Consent Required. No consent, approval, authorization, license, permit, or order of, or filing, registration, or qualification with, any governmental authority or any other Person is required in connection with the execution, delivery, or performance by such Member of this Agreement, except as has been obtained or made prior to the Effective Date or as may be disclosed in writing by such Member to the other Member.
(e) Binding Obligation. This Agreement constitutes, or upon execution and delivery will constitute, a legal, valid, and binding obligation of such Member, enforceable against such Member in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 4.2 — Greenfield's Representations
Greenfield hereby additionally represents and warrants to TerraVault and to the Company, as of the Effective Date, as follows:
(a) Financial Capacity. Greenfield has available cash resources sufficient to fund its Initial Capital Contribution of Seven Million Two Hundred Thousand Dollars ($7,200,000) and is not aware of any impediment to the timely funding thereof.
(b) Accredited Investor. Greenfield is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.
(c) Investment Intent. Greenfield is acquiring its Membership Interest for investment purposes and not with a view toward any distribution thereof in violation of applicable securities laws.
Section 4.3 — TerraVault's Representations
TerraVault hereby additionally represents and warrants to Greenfield and to the Company, as of the Effective Date, as follows:
(a) Ownership of SoilPulse™ Technology. TerraVault is the sole and exclusive owner of the SoilPulse™ Technology, including without limitation:
(i) United States Patent No. 10,842,317, entitled "Integrated Multi-Spectral Soil Health Sensor System and Method," issued on March 9, 2021, for which TerraVault is the sole and exclusive owner of record;
(ii) United States Patent Application No. 17/509,664, entitled "Improved Soil Nutrient and Moisture Profiling Apparatus," filed on October 25, 2021, for which TerraVault is the sole applicant of record;
(iii) The SoilPulse™ trademark, United States Registration No. 6,318,205, for which TerraVault is the sole registrant of record; and
(iv) All associated trade secrets, know-how, technical data, software, algorithms, specifications, and documentation constituting part of the SoilPulse™ Technology.
(b) No Litigation. There is no pending or, to TerraVault's knowledge, threatened action, suit, proceeding, claim, investigation, or arbitration challenging TerraVault's ownership of the SoilPulse™ Technology or the validity of any patent, patent application, or trademark registration related thereto.
(c) No Liens. The SoilPulse™ Technology is free and clear of all liens, encumbrances, security interests, pledges, charges, claims, options, rights of first refusal, or other restrictions of any kind, except as may be expressly disclosed in writing to Greenfield.
(d) Right to License. TerraVault has the right to grant the exclusive license of the SoilPulse™ Technology to the Company as contemplated by Article V and the Technology License Agreement without the consent of any third party, including TerraVault's existing investors, Meridian Venture Partners and Bluestem Capital Group, except as may be required under TerraVault's existing certificate of incorporation, bylaws, or investor agreements, all of which required consents have been or will be obtained prior to the Effective Date.
(e) Non-Infringement. To TerraVault's knowledge, the SoilPulse™ Technology does not infringe upon, misappropriate, or otherwise violate the intellectual property rights of any third party. TerraVault has not received any written notice or claim alleging any such infringement, misappropriation, or violation.
(f) Financial Capacity. TerraVault has available cash resources sufficient to fund its Cash Contribution of Two Million Four Hundred Thousand Dollars ($2,400,000) and is not aware of any impediment to the timely funding thereof.
(g) Accredited Investor. TerraVault is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.
(h) Investment Intent. TerraVault is acquiring its Membership Interest for investment purposes and not with a view toward any distribution thereof in violation of applicable securities laws.
ARTICLE V — TECHNOLOGY LICENSE
Section 5.1 — Grant of License
Subject to the terms and conditions of this Agreement and the Technology License Agreement attached hereto as Exhibit A, TerraVault hereby grants to the Company an exclusive, royalty-free, non-transferable (except as otherwise provided in this Agreement) license to use, develop, modify, improve, and commercialize the SoilPulse™ Technology solely within the scope of the Company's Purpose as set forth in Section 2.4 (the "Technology License"). The Technology License shall be effective as of the Effective Date and shall be coterminous with the term of the Company, continuing in effect for so long as the Company remains in existence unless earlier terminated in accordance with the provisions of this Agreement or the Technology License Agreement.
The Technology License covers the following intellectual property:
(a) United States Patent No. 10,842,317, entitled "Integrated Multi-Spectral Soil Health Sensor System and Method," issued on March 9, 2021;
(b) Pending United States Patent Application No. 17/509,664, entitled "Improved Soil Nutrient and Moisture Profiling Apparatus," filed on October 25, 2021, and any patent(s) issuing therefrom;
(c) The SoilPulse™ trademark, United States Registration No. 6,318,205; and
(d) All associated trade secrets, know-how, technical data, software, algorithms, specifications, documentation, and other proprietary information relating to the SoilPulse™ Technology.
Section 5.2 — Scope of License
(a) Field of Use. The Technology License is limited to the development, manufacturing, and commercialization of integrated soil-health sensor systems for commercial row-crop agriculture, as described in the Purpose set forth in Section 2.4.
(b) Geographic Focus. The Technology License shall initially be focused on the U.S. Midwest (the Non-Compete Territory), with potential geographic expansion to other regions of the United States upon the approval of the Board.
(c) Sublicensing. The Company shall have the right to grant sublicenses of the SoilPulse™ Technology to third parties solely within the field of use and geographic scope of the Technology License; provided, however, that any such sublicense shall require the prior written approval of the Board of Managers, acting by majority vote. This provision reflects a compromise resolved during the December 12, 2022 negotiation session; the first draft required unilateral consent of TerraVault for any sublicensing, which has been revised to a Board-level approval requirement.
Section 5.3 — Retained Rights of TerraVault
(a) Ownership. TerraVault retains all right, title, and interest in and to the SoilPulse™ Technology, including all patents, patent applications, trademarks, trade secrets, and other intellectual property rights related thereto, subject to the exclusive license granted to the Company herein.
(b) Research and Development. TerraVault may continue to use the SoilPulse™ Technology for its own internal research and development purposes, provided that such use does not conflict with the exclusive license granted to the Company under this Article V.
(c) Licensing Outside Scope. Subject to the non-compete restrictions set forth in Article XI of this Agreement, TerraVault may license the SoilPulse™ Technology to third parties outside the Non-Compete Territory and outside the field of commercial row-crop agriculture.
Section 5.4 — Improvements and Derivative Technology
(a) Joint Ownership of Company-Developed Improvements. Any improvements, modifications, enhancements, adaptations, or derivative technology developed by the Company or by any employee, contractor, or agent of the Company using or building upon the SoilPulse™ Technology (collectively, "Company Improvements") shall be jointly owned by the Members in proportion to their respective Membership Interests. This provision has been revised from the first draft, which assigned all Company Improvements solely to the Company. The current language reflects the compromise position reached during the December 12, 2022 negotiation session.
(b) TerraVault Background IP. Notwithstanding the foregoing, TerraVault's background intellectual property — that is, any intellectual property owned by TerraVault prior to the Effective Date or developed by TerraVault independently of the Company and outside the scope of the Technology License — shall remain the sole and exclusive property of TerraVault.
(c) Cross-License Agreement. The terms and conditions governing the ownership, licensing, and exploitation of Company Improvements shall be set forth in a separate IP Improvement and Cross-License Agreement to be negotiated in good faith by the Members and appended to this Agreement as Exhibit B. The Members shall use commercially reasonable efforts to negotiate and execute such agreement within sixty (60) days of the Effective Date.
Section 5.5 — IP Protection
(a) Confidentiality. The Company shall take all reasonable steps to protect the confidentiality of trade secrets and proprietary information constituting part of the SoilPulse™ Technology, including implementing appropriate security measures, employee and contractor confidentiality agreements, and information access controls.
(b) Patent and Trademark Maintenance. TerraVault shall be responsible, at TerraVault's own cost and expense, for the maintenance, prosecution, and renewal of all existing patents and trademark registrations related to the SoilPulse™ Technology, including the timely payment of maintenance fees and annuities and the prosecution of any pending patent applications. TerraVault shall have the right to request reimbursement from the Company for costs directly related to enforcement of such patents and trademarks within the Company's field of use, subject to Board approval of such reimbursement.
(c) Consultation Before Abandonment. TerraVault shall not abandon or permit to lapse any patent or trademark registration related to the SoilPulse™ Technology without first providing the Company with at least ninety (90) days' prior written notice and a reasonable opportunity to consult with TerraVault regarding such decision. If the Company objects to such abandonment or lapse, the parties shall negotiate in good faith regarding the disposition of such intellectual property, including the Company's right to assume responsibility for the maintenance of such patent or trademark at the Company's expense.
Section 5.6 — Valuation of IP Contribution
For purposes of this Agreement, the SoilPulse™ Technology License is valued at Two Million Four Hundred Thousand Dollars ($2,400,000). This valuation is used solely for purposes of determining TerraVault's Initial Capital Contribution, its initial capital account, and the allocation of Membership Interests under this Agreement.
[OPEN ITEM: TerraVault maintains that the IP Contribution should be valued at $3,600,000, supported by the Ridgeline Advisors LLC valuation of $4,500,000 (dated September 30, 2022). Greenfield's position is based on Velthorn IP Consulting LLC's independent assessment of $1,800,000 (dated October 15, 2022), with a compromise value of $2,400,000. Resolution of this issue directly affects Membership Interest allocations under Section 3.2 and capital account balances under Section 3.5. The parties have agreed to continue negotiations on this point.]
ARTICLE VI — MANAGEMENT AND GOVERNANCE
Section 6.1 — Board of Managers
(a) Establishment. The business and affairs of the Company shall be managed by a Board of Managers consisting of five (5) Managers. The Board shall have the full power and authority to manage the business and affairs of the Company, and the Company shall not be managed by its Members except as expressly provided herein.
(b) Appointment. Greenfield shall have the right to appoint three (3) Managers to the Board (the "Greenfield Managers"). TerraVault shall have the right to appoint two (2) Managers to the Board (the "TerraVault Managers"). Each Member shall exercise its appointment right by delivering written notice to the other Member identifying its appointed Managers.
[OPEN ITEM: TerraVault has proposed a six-member Board with equal representation (three Greenfield Managers and three TerraVault Managers) and an independent tie-breaking mechanism (such as an independent sixth manager or binding mediation). Greenfield maintains its position of a five-member Board consistent with the 60/40 ownership split. This provision is the subject of ongoing negotiation and constitutes a primary impasse item between the parties.]
Section 6.2 — Initial Managers
The initial Managers of the Company shall be:
Greenfield Managers:
(a) Marcus J. Linden (Chair of the Board)
(b) Rachel Yun-Park
(c) [One additional Greenfield designee to be determined]
TerraVault Managers:
(a) Dr. Anand Mehta
(b) Dr. Lian Xu
The initial Managers are also set forth on Schedule 6.2 attached hereto.
Section 6.3 — Term and Removal
(a) Term. Each Manager shall serve at the pleasure of the Member that appointed such Manager and shall hold office until such Manager's resignation, removal, incapacity, or death, or until a successor is duly appointed.
(b) Removal and Replacement. Each Member may remove and replace any or all of its appointed Managers at any time, with or without cause, by delivering written notice to the other Member and to the Company. Upon receipt of such notice, the removal and replacement shall be effective immediately. The vacating Manager shall have no further rights or obligations as a Manager under this Agreement.
(c) Vacancies. In the event of a vacancy on the Board caused by the resignation, removal, incapacity, or death of a Manager, the Member that appointed such Manager shall have the right to appoint a replacement Manager by delivering written notice to the other Member and to the Company.
Section 6.4 — Meetings of the Board
(a) Regular Meetings. The Board shall hold regular meetings at least quarterly, at such times and places as the Board may determine from time to time.
(b) Special Meetings. Special meetings of the Board may be called by any Manager upon not less than five (5) business days' prior written notice to all other Managers, specifying the time, place (or means of remote participation), and purpose of such meeting.
(c) Manner of Meeting. Meetings of the Board may be held in person, by teleconference, by videoconference, or by any combination thereof that permits all Managers participating in the meeting to hear and communicate with each other simultaneously.
(d) Quorum. A quorum for the transaction of business at any meeting of the Board shall consist of a majority of the total number of Managers (i.e., three of five Managers), provided that at least one (1) Manager appointed by each Member is present in person or participating by teleconference or videoconference. No business shall be transacted at any meeting at which a quorum is not present, except to adjourn the meeting to a later time and date.
(e) Location. Unless otherwise agreed by the Managers, regular quarterly meetings of the Board shall be held on a rotating basis between Des Moines, Iowa and Champaign, Illinois.
(f) Action by Written Consent. Any action required or permitted to be taken at a meeting of the Board may be taken without a meeting if a written consent setting forth the action to be taken is signed by the number of Managers required to approve such action at a duly convened meeting of the Board. Such written consent shall have the same force and effect as a vote of the Board at a duly convened meeting.
(g) Minutes. Minutes shall be prepared for each meeting of the Board and shall be distributed to all Managers within ten (10) business days following such meeting. Minutes shall be maintained in the Company's records at its principal office.
Section 6.5 — Voting
Each Manager shall have one (1) vote on each matter submitted to the Board for a vote. Except as otherwise expressly provided in this Agreement, all actions of the Board shall require the affirmative vote of a majority of the Managers present at a duly convened meeting at which a quorum is present (i.e., three of five Managers). By virtue of Greenfield's right to appoint three (3) of the five (5) Managers, Greenfield effectively holds a majority voting position on the Board for all matters requiring a simple majority vote.
Section 6.6 — Consent Rights / Supermajority Matters
Notwithstanding Section 6.5, the following actions (each, a "Supermajority Matter") shall require the affirmative vote of at least four (4) of the five (5) Managers — thereby requiring the concurrence of at least one (1) TerraVault Manager in addition to all three (3) Greenfield Managers (or, alternatively, all two (2) TerraVault Managers and at least two (2) Greenfield Managers):
(a) Any amendment or modification of this Agreement;
(b) The admission of any new Member to the Company;
(c) Any merger, consolidation, or sale of all or substantially all of the assets of the Company;
(d) The voluntary dissolution or commencement of winding up of the Company;
(e) The incurrence by the Company of indebtedness in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate, whether in a single transaction or a series of related transactions;
(f) Capital expenditures by the Company exceeding Seven Hundred Fifty Thousand Dollars ($750,000) in any Fiscal Year that are not included in the approved annual operating budget;
(g) The entry by the Company into any contract or agreement with a total value exceeding One Million Dollars ($1,000,000);
(h) Any related-party transaction between the Company and a Member or any Affiliate of a Member, regardless of the amount;
(i) Any material change to the Company's business plan or scope of Purpose as set forth in Section 2.4.
The supermajority consent provisions set forth in this Section 6.6 represent a compromise introduced in this second draft. The first draft of this Agreement did not contain any supermajority provisions, and all Board actions were subject to simple majority approval. TerraVault's counsel proposed blanket consent rights over all material actions, which Greenfield did not accept. The provisions in this Section 6.6 are intended to address TerraVault's legitimate governance concerns while preserving Greenfield's majority position on day-to-day operational matters.
With respect to certain technology-related decisions, R&D budget matters, and sublicensing decisions, the following compromise positions were reached at the December 12, 2022 negotiation session:
(i) R&D Budget. The research and development budget shall be included within the overall annual operating budget of the Company, which is subject to majority Board approval under Section 6.8. The R&D budget is not subject to separate or independent approval rights of TerraVault.
(ii) Sublicensing. Sublicensing of the SoilPulse™ Technology requires Board majority approval pursuant to Section 5.2, and is not subject to unilateral TerraVault consent.
[OPEN ITEM: TerraVault continues to demand independent consent rights over all technology-related decisions, R&D budget approval, and sublicensing decisions, separate from Board majority voting. Greenfield's position is that the supermajority provisions in this Section 6.6 and the Board approval requirements adequately protect TerraVault's interests. This matter remains the subject of ongoing negotiation.]
Section 6.7 — Officers
(a) Appointment. The Board may appoint such officers of the Company as the Board may from time to time determine to be necessary or appropriate for the management and conduct of the Company's business, including a Chief Executive Officer ("CEO"), a Chief Financial Officer ("CFO"), a Chief Technology Officer ("CTO"), and such other officers as the Board deems appropriate. Officers shall serve at the pleasure of the Board and shall have such powers, duties, and responsibilities as may be delegated to them by the Board.
(b) CEO Appointment. The appointment of the Chief Executive Officer of the Company shall require a supermajority vote of the Board (i.e., at least four of five Managers).
(c) CTO Nomination. TerraVault shall have the right to nominate the initial Chief Technology Officer candidate of the Company, subject to approval by the Board acting by majority vote. This CTO nomination right is a new provision added in this second draft, reflecting a compromise reached during the December 12, 2022 negotiation session. The first draft was silent on CTO nomination rights.
(d) Initial Officers. The initial officers of the Company shall be determined by the Board upon or promptly following execution of this Agreement.
(e) Removal of Officers. Any officer may be removed by the Board at any time, with or without cause. Removal of the CEO shall require a supermajority vote of the Board.
Section 6.8 — Annual Budget
(a) Approval. The Board shall approve an annual operating budget and business plan for the Company (the "Annual Budget") by no later than November 30 of the Fiscal Year immediately preceding the Fiscal Year to which the Annual Budget relates. The Annual Budget shall include, among other things, projected revenue, operating expenses, capital expenditures, research and development expenditures, marketing and sales expenses, headcount, and any other items deemed appropriate by the Board.
(b) Voting Standard. The Annual Budget shall be approved by a majority vote of the Board.
(c) Default Budget. In the event that the Board fails to approve an Annual Budget for any Fiscal Year by December 31 of the preceding Fiscal Year, the Annual Budget for the immediately preceding Fiscal Year shall remain in effect, adjusted upward by three percent (3%) to account for inflation, until such time as a new Annual Budget is approved by the Board. During any period in which the default budget is in effect, the Company shall limit its expenditures to those contemplated by the default budget, and no expenditures in excess of the default budget shall be made without the approval of the Board.
Section 6.9 — Deadlock
(a) Escalation. If the Board is unable to reach the required vote on any Supermajority Matter (as defined in Section 6.6) or on any other material matter within a period of thirty (30) days following the first meeting at which such matter was submitted to a vote of the Board (or, if submitted by written consent, thirty (30) days after the matter was first circulated for consent), the matter shall be escalated to the respective principals of the Members — Marcus J. Linden for Greenfield and Dr. Anand Mehta for TerraVault — for good-faith negotiation for an additional period of thirty (30) days.
(b) Buy-Sell Trigger. If the matter is not resolved within the sixty (60)-day period described in subsection (a) above (consisting of the initial thirty (30)-day Board-level period and the subsequent thirty (30)-day principal-level negotiation period), either Member may invoke the buy-sell provisions set forth in Section 10.5 of this Agreement. The buy-sell mechanism set forth in Section 10.5 is a new provision added in this second draft as a deadlock resolution mechanism and represents a compromise reached during the December 12, 2022 negotiation session.
ARTICLE VII — ALLOCATIONS OF PROFITS AND LOSSES
Section 7.1 — Net Profits and Net Losses
Net Profits and Net Losses of the Company for each Fiscal Year (or other applicable period) shall be determined in accordance with federal income tax accounting principles, as set forth in the Code and Treasury Regulations, consistently applied, and shall be adjusted for all items of income, gain, loss, deduction, and credit required to be separately stated or specially allocated under the Code and Treasury Regulations.
Section 7.2 — General Allocation
Subject to the special allocation provisions of Section 7.3, Net Profits and Net Losses of the Company for each Fiscal Year (or other applicable period) shall be allocated to the Members in accordance with their respective Membership Interests, as follows:
Section 7.3 — Special Allocations
(a) Regulatory Allocations. The following regulatory allocations shall be made in accordance with the applicable provisions of the Code and Treasury Regulations, and shall be made prior to the general allocation of Net Profits and Net Losses under Section 7.2:
(i) Qualified Income Offset. If a Member unexpectedly receives an adjustment, allocation, or distribution described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6) that creates or increases a deficit balance in such Member's capital account in excess of such Member's share of Company minimum gain, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate such deficit balance as quickly as possible.
(ii) Minimum Gain Chargeback. If there is a net decrease in Company minimum gain (as defined in Treasury Regulation Section 1.704-2(b)(2)) during any Fiscal Year, each Member shall be specially allocated items of Company income and gain for such year in the manner and to the extent required by Treasury Regulation Section 1.704-2(f).
(iii) Member Nonrecourse Deductions. Any Member nonrecourse deductions (as defined in Treasury Regulation Section 1.704-2(i)(1)) for any Fiscal Year shall be specially allocated to the Member who bears the economic risk of loss with respect to the underlying Member nonrecourse debt.
(iv) Nonrecourse Deduction Allocations. Nonrecourse deductions (as defined in Treasury Regulation Section 1.704-2(b)(1)) for any Fiscal Year shall be allocated to the Members in accordance with their respective Membership Interests.
(b) Section 704(c) Allocations — IP Contribution. In accordance with Section 704(c) of the Code and Treasury Regulation Section 1.704-3, any items of income, gain, loss, and deduction with respect to TerraVault's IP Contribution of the SoilPulse™ Technology License (valued at Two Million Four Hundred Thousand Dollars ($2,400,000) for purposes of this Agreement) shall be allocated among the Members so as to take into account any variation between the adjusted tax basis of such property and its agreed fair market value at the time of contribution. Such allocations shall be made using the "traditional method" described in Treasury Regulation Section 1.704-3(b). To the extent that the IP Contribution has a tax basis different from Two Million Four Hundred Thousand Dollars ($2,400,000), any built-in gain or built-in loss attributable to such difference shall be specially allocated to TerraVault in accordance with Section 704(c) of the Code and the applicable Treasury Regulations.
(c) Tax Structuring. The provisions of this Section 7.3 have been drafted in coordination with the tax structuring analysis prepared by Clarendon & Marsh CPAs LLP in the memorandum dated November 14, 2022, and are intended to be consistent with the recommendations set forth therein.
(d) Ordering. The special allocations set forth in this Section 7.3 shall be made before the general allocation of Net Profits and Net Losses under Section 7.2. To the extent that any special allocation is inconsistent with the economic interests of the Members, subsequent allocations of Net Profits and Net Losses shall be adjusted so as to offset the effect of such special allocation to the extent possible and consistent with the Code and Treasury Regulations.
Section 7.4 — Tax Elections
(a) Partnership Classification. The Company shall file federal and state income tax returns as a partnership for federal income tax purposes (i.e., as a pass-through entity). The Company shall not elect to be treated as an association taxable as a corporation for federal income tax purposes.
(b) Section 754 Election. In the event of a Transfer of all or any portion of a Member's Membership Interest, the Company shall, upon the request of the transferee, make an election under Section 754 of the Code (and any similar election under applicable state or local tax law) to adjust the basis of Company property.
(c) Tax Matters Member. Greenfield, as the majority Member, shall serve as the "Tax Matters Member" (or "partnership representative" under the Bipartisan Budget Act of 2015, as applicable) of the Company and shall be responsible for all interactions with the Internal Revenue Service and applicable state tax authorities regarding the Company's tax matters. The Tax Matters Member shall keep the other Member informed of any material tax proceedings and shall not settle or compromise any tax matter that could materially and adversely affect the other Member without the prior written consent of such Member.
(d) Other Elections. Any other tax elections required or permitted to be made by the Company shall be made by the Tax Matters Member, in consultation with the Company's tax advisors, in a manner consistent with the best interests of the Company and its Members.
ARTICLE VIII — DISTRIBUTIONS
Section 8.1 — Distributable Cash
"Distributable Cash" means, for any period, the aggregate cash receipts of the Company from all sources (including revenues, capital contributions, and proceeds of borrowings) less the sum of (i) all cash expenditures for operating expenses, (ii) debt service payments (including principal and interest), (iii) reserves for working capital, contingencies, and future capital expenditures as determined by the Board in its reasonable discretion, and (iv) any other amounts that the Board, in its reasonable business judgment, determines should be retained by the Company for the prudent operation of its business.
Section 8.2 — Distribution Waterfall
To the extent Distributable Cash is available, distributions shall be made to the Members in the following order of priority:
(a) First — Return of Capital. First, to the Members, pro rata in proportion to their respective unreturned Capital Contributions, until each Member has received distributions equal to the full amount of its unreturned Capital Contributions.
(b) Second — Preferred Return. Second, to the Members, pro rata in proportion to their respective unreturned cash Capital Contributions, until each Member has received a cumulative preferred return equal to eight percent (8%) per annum on such Member's unreturned cash Capital Contributions, compounding annually from the date such cash Capital Contributions were made. For purposes of this Section 8.2(b), "cash Capital Contributions" means the following amounts: (i) with respect to Greenfield, Seven Million Two Hundred Thousand Dollars ($7,200,000); and (ii) with respect to TerraVault, Two Million Four Hundred Thousand Dollars ($2,400,000). For the avoidance of doubt, no preferred return shall accrue or be payable with respect to TerraVault's IP Contribution of Two Million Four Hundred Thousand Dollars ($2,400,000).
This provision has been revised from the first draft, which applied the preferred return equally to all Capital Contributions (including the IP Contribution). The current draft limits the preferred return to cash Capital Contributions only, reflecting a compromise position reached during the December 12, 2022 negotiation session.
(c) Third — Remaining Distributions. Third, any remaining Distributable Cash shall be distributed to the Members pro rata in accordance with their respective Memb