Contract analysis

I. Executive Summary The purpose of this memorandum is to analyze the directors-and-officers ("D&O") liability insurance coverage available to Torchlight Mining Corp. ("TMC" or the "Company") and its current and former directors and officers in connection with the United States Department of Justice, Antitrust Division ("DOJ") grand jury investigation designated Grand Jury No. GJ-22-0194, pending before the U.S. Dist

II. Background A. The DOJ Investigation The DOJ Antitrust Division formally opened a grand jury investigation on approximately February 10, 2022, designated Grand Jury No. GJ-22-0194, before the U.S. District Court for the Northern District of California, San Francisco Division. The grand jury sits in San Francisco and is expected to hear testimony and receive documentary evidence over a period of several months or l

III. TMC's D&O Insurance Program — Structure TMC maintains a D&O insurance program consisting of a primary layer and two excess layers, providing total aggregate coverage of USD 100 million. The structure of the program is summarized below and set forth in detail in Attachment A to this memorandum. A. Primary Layer: Northland Mutual Insurance Co. The primary layer of TMC's D&O insurance program is provided by Northla

IV. Coverage Analysis — Insuring Agreements The Northland Primary Policy contains three separate insuring agreements, commonly referred to as Side A, Side B, and Side C. Each insuring agreement addresses a different category of covered loss and has distinct implications for the DOJ investigation. This Section analyzes each insuring agreement in turn. A. Side A Coverage (Non-Indemnifiable Loss) Side A of the Northland

V. The Regulatory / Criminal-Act Exclusion A. Policy Language

Section IV.17 of the Northland Primary Policy (NMI-DO-2021-5547) contains a criminal-act exclusion, which is commonly referred to in the D&O insurance industry as a "Conduct Exclusion" or "Regulatory/Criminal Exclusion." The exclusion, in relevant part, provides: The Insurer shall not be liable for Loss arising from any Claim or Investigation based upon, arising out of, or attributable to any deliberately dishonest,

VI. Scope of Covered "Loss" — Defense Costs A. Definition of Defense Costs The Northland Policy defines "Loss" broadly to include, among other things, defense costs — that is, "reasonable and necessary attorneys' fees, expert fees, and other costs and expenses incurred in the investigation, defense, or settlement of a covered Claim or Investigation." The policy's definition of "Loss" is inclusive and is designed to e

1. Calderwood & Harkness Legal Fees. C&H's legal fees for the defense of TMC and its current directors and officers in the DOJ investigation constitute the largest single category of defense costs. C&H's billing rates for this matter are as follows: Partners at USD 1,450 per hour; Senior Associates at USD 950 per hour; Associates at USD 725 per hour. C&H's initial budget estimate for the investigation through the ant

2. Forensic and Expert Fees. TMC has retained or anticipates retaining the following forensic and expert service providers: • Hargrove Forensic Advisory LLC — engaged to provide economic analysis of the specialty-minerals market, including pricing trends, market concentration, and competitive dynamics. Hargrove's work product will be used to support TMC's defense in the investigation and in any subsequent proceedings

3. Compliance Consultant Fees. TMC may in the future retain Meridian Compliance Partners LLC to assist with the development and implementation of enhanced antitrust compliance programs, which may be required as part of any NPA or DPA resolution. Whether compliance-consultant fees are covered as "defense costs" under the policy is a question that requires careful analysis. Many modern D&O policies cover compliance and

4. Personal Counsel Fees. The fees of Patrick Dunleavy of Briarcliff Law Group PLLC for the representation of Gavin Holt are covered defense costs to the extent Holt is entitled to coverage under Side A (as discussed in Section VII below). The fees of any personal counsel retained by other insured persons would similarly be covered. Question: Internal Investigation and Compliance Remediation Costs. A question arises

VII. Gavin Holt — Special Coverage Considerations Gavin Holt presents the most complex coverage issue in the D&O analysis, and his situation merits separate treatment. The following summarizes the key facts and coverage considerations specific to Holt. Background. Holt served as TMC's Vice President, U.S. Specialty Minerals Sales, from approximately January 2015 until his resignation effective September 30, 2021. Thr

VIII. Other Current Directors and Officers — Coverage Posture In addition to Gavin Holt, the following current directors and officers have potential exposure or involvement in the DOJ investigation. This Section summarizes the coverage posture for each. Søren Dalmqvist (CEO). Mr. Dalmqvist has served as TMC's CEO since 2018 and held that position throughout a substantial portion of the relevant conduct period. Howeve

IX. Excess-Layer Coverage Considerations A. Greystone Specialty Insurance Ltd. (Layer 2) The first excess layer of TMC's D&O tower is provided by Greystone Specialty Insurance Ltd. ("Greystone"), which provides USD 25 million in coverage in excess of the USD 50 million Northland primary layer. Greystone's policy is a follow-form policy, meaning that it incorporates by reference the same insuring agreements, definitio