Contract analysis

I. Executive Summary On January 10, 2024, the United States Department of Justice, Antitrust Division ("DOJ"), circulated its initial draft Non-Prosecution Agreement (DOJ Reference No. ATR-SF-2024-00312) (the "DOJ Draft" or "Draft NPA") through Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves of the DOJ's San Francisco Field Office. The DOJ Draft was transmitted to Calderwood & Harkness LLP ("C&

1. Overbroad Cooperation Obligations (Section 6). The DOJ Draft imposes cooperation obligations that are vague, open-ended, and extend well beyond the scope of the underlying investigation. The provision requires TMC to make "all current and former employees" available for "any and all" related investigations without limitation, a requirement that is both impracticable and inconsistent with DOJ practice in comparable

2. Vague and Unfair Material-Breach Standard (Section 5). The DOJ Draft vests DOJ with unreviewable "sole discretion" to determine that TMC has "breached any provision" of the NPA — a standard that fails to distinguish between material and immaterial breaches, provides no notice-and-cure mechanism, and affords TMC no due-process safeguard or right to dispute the determination.

3. Excessive Monetary Penalty (Section 4). The DOJ Draft contemplates a monetary payment of approximately USD 65 million, which reflects a cooperation and remediation credit of only approximately 32% off the DOJ's standard 20%-of-affected-commerce starting point of USD 95.6 million. This credit level is plainly inadequate in light of the scope, quality, and timeliness of TMC's cooperation and remediation, as well as

4. Overly Long Four-Year Compliance-Monitor Term (Section 8). The DOJ Draft requires TMC to retain an independent compliance monitor for four years at TMC's expense — a term that is double the two-year standard observed in recent DOJ antitrust NPAs and that is not justified by the facts or circumstances of this matter. Overall Assessment. The DOJ Draft reflects a strong opening position that does not adequately credi

II. Background and Procedural Posture This section summarizes the investigation timeline, key factual parameters, and economic analysis relevant to evaluating the DOJ Draft. Familiarity with the complete factual record is assumed; this summary is intended to provide the context necessary for the section-by-section analysis that follows. A. Investigation Timeline Summary The DOJ Antitrust Division opened a grand jury

III. Structure and Overview of DOJ's Initial NPA Draft The DOJ Draft, dated January 10, 2024, is a 34-page document organized as follows: • Preamble: Identifies the parties and the general subject matter of the agreement. • Recitals (Sections 1–2): Sets forth the background of the investigation, the products at issue, and the alleged conspiracy period. • Operative Sections (Sections 3–15): Contains the substantive te

IV. Section-by-Section Analysis A. Preamble and Recitals (Sections 1–2) Content. The Preamble and Recitals of the DOJ Draft identify the parties, reference the grand jury investigation (GJ-22-0194, N.D. Cal.), specify the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), and describe the alleged conspiracy period (approximately January 2017 through August 2021). The Recitals furt

Section 4 of the DOJ Draft requires TMC to pay a monetary amount of approximately USD 65 million to the United States Treasury. The DOJ's calculation basis, as reflected in the draft and in prior communications with DOJ staff, is as follows: • TMC's affected commerce during the conspiracy period: USD 478 million. • DOJ's standard penalty starting point (20% of affected commerce): USD 95.6 million. • Implied cooperati

1. Analysis of DOJ's Penalty Calculation The DOJ's use of 20% of affected commerce as the starting point for the penalty calculation is consistent with established DOJ Antitrust Division methodology and is not contested. This starting point is well established in DOJ practice, is reflected in the U.S. Sentencing Guidelines' fine-calculation framework for organizations (U.S.S.G. § 2R1.1), and has been applied consiste

2. TMC's Counter-Position As set forth in the Penalty Mitigation Memorandum dated September 1, 2023, our internal analysis estimated a penalty range of USD 30 million to USD 60 million, with a midpoint of approximately USD 45 million. The upper end of this range (USD 60 million) was identified as the maximum amount TMC should accept in a negotiated resolution; the midpoint (USD 45 million) was identified as our targe

3. Payment Mechanics The DOJ Draft specifies that the monetary payment shall be made in a single lump sum within 30 days of execution of the NPA. This timeline is compressed and creates potential operational challenges for TMC. Proposed Revision: We recommend extending the payment period to 60 days from execution, which is consistent with the payment timelines adopted in recent DOJ antitrust NPAs. A 60-day timeline w

Section 5 of the DOJ Draft provides that if DOJ determines, "in its sole discretion," that TMC has "breached any provision of this Agreement," DOJ may declare the NPA void and proceed to prosecute TMC based on the Agreed Statement of Facts (Appendix B) and any other evidence available to it, including statements made by TMC and its employees during the course of cooperation. This is the second most significant area o

1. Analysis. The deficiencies in the DOJ Draft's material-breach provision are threefold: First, the "sole discretion" standard is unreviewable. The DOJ Draft vests DOJ with unconstrained and unreviewable discretion to determine whether TMC has breached the NPA. Under this standard, DOJ could declare a breach and proceed to prosecution without any obligation to act reasonably, in good faith, or based on objective cri

2. Proposed Revisions We recommend the following revisions to Section 5: (a) Replace "breached any provision" with "materially breached any material provision." This revision introduces a materiality threshold that is standard in negotiated agreements of all types and is consistent with recent DOJ NPA practice. It ensures that DOJ's right to withdraw the no-prosecution commitment is triggered only by breaches that ar

Section 6 of the DOJ Draft requires TMC to "fully and truthfully cooperate" with DOJ in "any and all" related investigations and prosecutions. Specifically, the DOJ Draft requires TMC to make "all current and former employees" available for "any and all" interviews, testimony, and document production, "at TMC's expense," for a period of four years from the date of execution of the NPA.

1. Analysis — Overbroad Scope The cooperation obligations as drafted are overbroad in several critical respects: Undefined scope of "related investigations." The DOJ Draft requires cooperation in "any and all" related investigations, a phrase that is not defined and that could be construed to encompass investigations unrelated to the specialty-minerals conduct at issue in the NPA. For example, if DOJ were to open an

2. Analysis — Duration The DOJ Draft proposes a four-year cooperation period from execution. This is longer than the three-year term that has become standard in recent DOJ antitrust NPAs and is not justified by the particular facts of this case. A three-year cooperation period provides ample time for DOJ to complete its related proceedings against Ridgecrest, Pinnacle, and Gavin Holt — including any trials that may r

3. Proposed Revisions We recommend the following revisions to Section 6: (a) Limit scope to investigations arising from the conduct described in the NPA. The cooperation obligation should be limited to investigations and prosecutions "arising from the conduct described in this Agreement" — i.e., the specific price-fixing, market-allocation, and bid-rigging conduct in high-purity feldspar, industrial talc, and rare-ea

Section 8 of the DOJ Draft requires TMC to retain an independent compliance monitor, selected by TMC and approved by DOJ, for a period of four years from the date of execution of the NPA. The compliance monitor is to be retained at TMC's expense and is granted broad access to TMC personnel, documents, and systems for purposes of evaluating TMC's compliance with the Enhanced Antitrust Compliance Program and the other

1. Analysis — Duration A four-year compliance-monitor term is excessive and inconsistent with recent DOJ antitrust NPA practice. Our review of publicly available DOJ antitrust NPAs from the past five years indicates that a two-year monitor term is the standard. Three-year monitor terms have been imposed in a small number of cases involving particularly egregious conduct, recidivist behavior, or demonstrably inadequat

2. Analysis — Scope The DOJ Draft grants the compliance monitor access to "all TMC personnel, documents, and systems" without limitation. This formulation is overbroad in several respects: • It could be construed to grant the monitor access to attorney-client privileged communications and attorney work product, including communications between TMC and Calderwood & Harkness relating to this investigation and other leg

3. Proposed Revisions (a) Reduce monitor term from four years to two years. The monitoring period should run for two years from the date of execution of the NPA. If the NPA is executed in May 2024, the monitoring period would extend through May 2026. A two-year term is consistent with standard DOJ antitrust NPA practice, provides sufficient time for the monitor to conduct a thorough evaluation of TMC's compliance pro

Section 9 of the DOJ Draft incorporates by reference the Agreed Statement of Facts set forth in Appendix B. Appendix B is a 12-page factual narrative that describes the alleged conspiracy in detail, including: • The roles of Gavin Holt (TMC), Carl Edgerton (Ridgecrest), and Kevin Tsang (Pinnacle) as the principal actors in the alleged conspiracy. • A chronological account of at least 37 documented communications betw