Contract analysis

I. Executive Summary The purpose of this memorandum is to advise the Audit Committee of the Board of Directors of Torchlight Mining Corp. ("TMC" or the "Company") on the appropriate litigation reserve to be established and maintained by TMC in connection with the ongoing investigation by the Antitrust Division of the United States Department of Justice ("DOJ") into suspected price-fixing, market allocation, and bid-r

II. Background — The DOJ Investigation A. Overview of the Investigation On February 10, 2022, the Antitrust Division of the United States Department of Justice formally opened a grand jury investigation, designated Grand Jury No. GJ-22-0194, in the United States District Court for the Northern District of California, San Francisco Division. The investigation concerns suspected violations of Section 1 of the Sherman A

III. Applicable Accounting Standards The litigation reserve analysis for the DOJ investigation must be conducted under two applicable financial-reporting frameworks, as TMC reports its financial results under both U.S. Generally Accepted Accounting Principles ("U.S. GAAP") and International Financial Reporting Standards ("IFRS"). TMC is a Canadian corporation listed on the Toronto Stock Exchange and cross-listed on t

IV. Analysis of Potential Financial Exposure A. DOJ Penalty Framework — Sherman Act Criminal Fines The statutory framework for criminal fines in antitrust cases is governed by Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and the Alternative Fines Act, 18 U.S.C. § 3571(d). Under Section 1 of the Sherman Act, a corporation convicted of a price-fixing, market-allocation, or bid-rigging offense faces a maximum

V. Assessment of Probability of Loss A. Probability Analysis Under ASC 450 ("Probable") The threshold question under ASC 450-20-25 is whether it is "probable" — generally interpreted as approximately 75% or greater — that TMC will incur a loss in connection with the DOJ investigation. We have assessed this question by considering the totality of the facts and circumstances known as of the date of this memorandum, inc

VI. Reasonableness of the USD 30 Million Reserve A. Establishing the Range As set forth in Section IV.C above, our estimated range of potential monetary exposure for TMC in connection with the DOJ investigation is approximately as follows: • Low end: approximately USD 38 million (assuming maximum cooperation credit and significant mitigating factors, with a 50–60% reduction from the base fine); • Mid-range: approxima

VII. D&O Insurance Considerations TMC tendered notice of the DOJ investigation to Northland Mutual Insurance Co. ("Northland") on March 4, 2022, under Directors & Officers Liability Insurance Policy No. NMI-DO-2021-5547. The policy has a policy period of July 1, 2021, through July 1, 2022, and is renewed annually. The primary-layer policy provides an aggregate limit of liability of USD 50 million, subject to a per-cl

VIII. Public Disclosure Considerations TMC's public disclosure obligations in connection with the DOJ investigation arise under both U.S. securities law (as a foreign private issuer listed on the NYSE and filing annual reports on SEC Form 40-F) and Canadian securities law (as a reporting issuer subject to continuous disclosure obligations under National Instrument 51-102). Initial Disclosure. TMC disclosed the existe