Contract analysis

From: Elaine Forsythe <eforsythe@calderwoodharkness.com> To: Søren Dalmqvist <slindqvist@torchlightmining.com> Cc: Howard Bellamy <hbellamy@calderwoodharkness.com> Date: Fri, 20 May 2022 04:47:00 -0000 Subject: URGENT — PRIVILEGED AND CONFIDENTIAL: Receipt of DOJ Target Letter — Torchlight Mining Corp.

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This communication is protected by the attorney-client privilege and the work product doctrine. It contains confidential legal advice rendered by Calderwood & Harkness LLP to Torchlight Mining Corp. in connection with C&H Matter No. 1039-00001. This email and any attachments are intended solely for the named recipients. If you have received this communication in error, please notify the sender immediately and delete

I am writing to inform you of a significant and time-sensitive development.

Today, May 20, 2022, Calderwood & Harkness received notification that the Antitrust Division of the United States Department of Justice has issued a target letter to Torchlight Mining Corp. ("TMC") in connection with the investigation being conducted before Grand Jury No. GJ-22-0194, pending in the United States District Court for the Northern District of California, San Francisco Division. The letter was issued by t

The target letter identifies TMC as a "target" of the grand jury investigation into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, specifically involving high-purity feldspar, industrial talc, and rare-earth concentrates.

I want to be direct about what this means. Under DOJ policy, a "target" is a person or entity as to which the prosecutor or the grand jury has substantial evidence linking them to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. This represents a material escalation from TMC's prior status as a subpoena recipient. It signals that the Antitrust Division believes it has dev

As you are aware, Ridgecrest Minerals Inc. received a target letter from the DOJ on approximately January 12, 2022, and TMC now finds itself in a comparable posture. The underlying investigation was triggered by the cooperation of Cascade Chemical Supply Co., which entered into a cooperation agreement with the DOJ in approximately September 2021. Since receiving Grand Jury Subpoena No. GJ-22-0194-SD-003 on February 1

The receipt of the target letter raises several issues that warrant urgent discussion:

1. **Defense Strategy Reassessment.** We need to evaluate whether the cooperation approach outlined in our current defense strategy remains the optimal path, or whether adjustments are warranted in light of this development. A non-prosecution agreement ("NPA") remains a viable and, in my view, achievable objective, but the negotiation posture and terms we pursue may require refinement given that TMC is now formally d

2. **Public Disclosure Obligations.** TMC disclosed the existence of the DOJ investigation in its FY 2021 annual report filed on March 28, 2022 (on SEDAR+ and SEC Form 40-F). Receipt of a target letter is a material development that may trigger supplemental disclosure obligations under both TSX and NYSE American listing requirements and applicable SEC rules. We should coordinate promptly with Calvert & Associates LLP

3. **Litigation Reserve.** TMC currently maintains a litigation reserve of USD 30 million, established in March 2022 in connection with this matter. The target letter may warrant a reassessment of the adequacy of that reserve. I recommend discussing this with Richard Fong and with Janet Moreau-Shaw in her capacity as Audit Committee Chair at the earliest opportunity.

4. **D&O Insurance.** As you will recall, we tendered notice to Northland Mutual Insurance Co. under Policy No. NMI-DO-2021-5547 on March 4, 2022. The target letter may affect the ongoing coverage discussions, particularly given Northland's reservation of rights with respect to the regulatory and criminal conduct exclusion. We should update the carrier promptly and assess the implications for coverage.

5. **Board Notification.** I recommend that we promptly inform Margaret Caldwell, as Board Chair, and the full Audit Committee of this development. However, I ask that we coordinate the timing and content of that communication — please see my request below.

6. **Gavin Holt.** The target letter reinforces the significance of the allegations concerning the conduct of Gavin Holt, former Vice President of Commercial Strategy, who departed TMC effective September 30, 2021. As you know, our internal investigation has focused significantly on Mr. Holt's activities. Given the nature of the target letter and the individual exposure risks it implies, Mr. Holt will very likely nee

7. **Internal Investigation Acceleration.** The target letter underscores the critical importance of completing our internal investigation on an expedited basis. Aaron Liu and Monica Reyes are continuing witness interviews and document review, and Redstone Digital Forensics (Neil Ashworth) is managing the e-discovery platform. I intend to accelerate the remaining workstreams and will provide you with an updated timel

I would like to convene an urgent call with both of you to discuss the target letter and our recommended course of action. I am proposing tomorrow, Saturday, May 21, at a time that works for your schedules — ideally mid-morning Pacific time. If Saturday is not feasible, then first thing Monday, May 23, is the absolute latest we should wait. Howard Bellamy and Aaron Liu will join from our side.

In the interim, our team will prepare a detailed written memorandum analyzing the target letter and its legal, strategic, and disclosure implications. I expect to have that analysis to you early next week.

**Priya** — I ask that you please hold off on any communications with the Board, auditors, or external advisors regarding the target letter until after our call, so that we can coordinate messaging carefully. This includes any communications with Daniel Moreau at Calvert & Associates.

- Schedule urgent call: Søren, Priya, Elaine, Howard, and Aaron — Saturday, May 21, or Monday, May 23 at the latest - Calderwood & Harkness to prepare detailed target letter analysis memorandum (to follow early next week) - Priya to hold on all Board, auditor, and external advisor communications pending our call - Consider engaging Ironbridge Capital Markets Inc. (Alan Kirkwood) for a financial impact assessment, if

I want to be clear-eyed with you: this is a serious development, and we should treat it as such. However, it is not an unexpected one, and TMC has been preparing for this possibility since we were engaged in February. The cooperative posture TMC has maintained, the proactive steps taken with respect to document production, the internal investigation, and the remediation measures already underway collectively position

Please let me know your availability for the call as soon as possible. I am reachable on my mobile this evening and through the weekend.

**Elaine Forsythe** Partner | Antitrust & Competition Practice Group Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, CA 94104 Direct: +1 (415) 704-2318 Email: eforsythe@calderwoodharkness.com

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