PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, CA 94104
MEMORANDUM
Date: December 1, 2023
To: Board of Directors, Torchlight Mining Corp.
Margaret Caldwell, Board Chair Janet Moreau-Shaw, Chair, Audit Committee All Other Directors
From: Elaine Forsythe, Responsible Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
Re: DOJ Antitrust Division Grand Jury Investigation (GJ-22-0194, N.D. Cal.) — Update on Non-Prosecution Agreement Negotiation Status
Matter No.: 1039-00001
Copies: Søren Dalmqvist, CEO; Priya Anand, General Counsel (via separate privileged transmittal)
I. Executive Summary
On November 1, 2023, the United States Department of Justice, Antitrust Division, through Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves of the San Francisco Field Office, communicated to Calderwood & Harkness its willingness to negotiate a non-prosecution agreement ("NPA") with Torchlight Mining Corp. ("TMC" or "the Company") in resolution of the grand jury investigation into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector. The investigation has been conducted under the authority of Grand Jury No. GJ-22-0194, empaneled in the U.S. District Court for the Northern District of California, San Francisco Division.
This is a significant and favorable development. It means the DOJ is prepared to resolve this matter without the filing of criminal charges against the Company, subject to negotiated terms that will include a monetary payment, cooperation obligations, compliance enhancements, and a compliance monitor. An NPA is the most favorable resolution available to TMC other than an outright declination, which the DOJ has not offered. The absence of criminal charges — even provisional charges, as would be present in a deferred prosecution agreement — substantially mitigates the reputational, operational, and collateral consequences that TMC would otherwise face.
This memorandum summarizes the following for the Board's consideration:
(a) the current posture of the investigation, including the background, the alleged conduct, and TMC's cooperation efforts to date;
(b) the basis for the DOJ's willingness to negotiate an NPA;
(c) the anticipated terms of the NPA, including the expected monetary payment range, cooperation obligations, compliance enhancements, compliance monitor requirements, no-prosecution protections, the agreed statement of facts, and the overall term of the agreement;
(d) Calderwood & Harkness's recommended negotiation strategy, including objectives, red lines, fallback positions, and a projected timeline; and
(e) upcoming milestones and Board action items.
Bottom Line Recommendation: Calderwood & Harkness recommends that the Board authorize management and counsel to proceed with NPA negotiations, targeting a resolution in the range of USD 40–50 million in monetary payments, a cooperation period of three years, and a compliance monitor term not exceeding two years. We believe this outcome is achievable based on the strength of TMC's cooperation record and the current posture of negotiations, and it represents the best realistic resolution of this matter. Formal Board authorization of the final NPA terms will be sought at a subsequent meeting once terms have been agreed in principle, which we anticipate occurring in the first or second quarter of 2024.
II. Privileged Nature of This Memorandum
This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation within the meaning of Federal Rule of Civil Procedure 26(b)(3) and applicable state-law equivalents. It reflects the legal analysis, mental impressions, and strategic assessments of counsel and is being provided to the Board of Directors of TMC solely for the purpose of rendering legal advice in connection with the pending DOJ investigation.
This memorandum should not be disclosed to any person outside the Board of Directors, the Chief Executive Officer, the General Counsel, and other persons specifically authorized by the General Counsel. Distribution should be limited to hard copies or encrypted electronic transmissions, and no copies should be stored on shared drives accessible to personnel who have not been specifically authorized to receive this communication. Board members are respectfully reminded that any disclosure — whether intentional or inadvertent — to persons outside the privilege circle could result in a waiver of the attorney-client privilege and work-product protections that are critical to the Company's defense posture in this matter and in any related civil litigation that may follow. Should any Board member receive an inquiry from any third party — including media, regulators, counterparties, or co-subjects in the investigation — regarding the contents of this memorandum or the status of the NPA negotiations, the Board member should decline to comment and immediately notify General Counsel Priya Anand.
III. Background and Current Posture of the Investigation
A. Investigation Origins and Timeline
The DOJ Antitrust Division formally opened its investigation on February 10, 2022, when it empaneled Grand Jury No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. The investigation was initiated by the San Francisco Field Office of the Antitrust Division and has been supervised from Washington, D.C. by Deputy Assistant Attorney General Julia Stafford-Hayes.
The investigation was triggered by the cooperation agreement of Cascade Chemical Supply Co., a downstream distributor and processor of specialty minerals headquartered in Spokane, Washington. Cascade is represented by Whitfield, Strauss & Tully LLP, with partner Rebecca Ostrander serving as lead counsel. Cascade entered into a cooperation agreement with the DOJ in approximately September 2021, pursuant to which it agreed to provide testimony, documents, and other evidence regarding anticompetitive conduct in the specialty-minerals sector. Cascade's cooperation has served as the evidentiary foundation for the broader investigation and has provided the DOJ with significant documentary and testimonial evidence regarding the alleged conduct of TMC and its co-subjects.
The key milestones in the investigation timeline relevant to TMC are as follows:
• September 2021 (approx.): Cascade Chemical Supply Co. enters cooperation agreement with DOJ.
• February 10, 2022: DOJ empanels Grand Jury No. GJ-22-0194 in N.D. Cal.
• February 14, 2022: TMC receives Grand Jury Subpoena No. GJ-22-0194-SD-003 (first subpoena), requiring the production of documents relating to the pricing, sale, and distribution of specialty minerals in North America.
• February 18, 2022: TMC engages Calderwood & Harkness LLP to represent the Company in the investigation.
• May 20, 2022: TMC receives a DOJ target letter, formally elevating the Company's status from "subject" to "target" of the investigation.
• June 14, 2022: Gavin Holt (former VP, U.S. Specialty Minerals Sales) asserts Fifth Amendment privilege before the grand jury.
• February 15, 2023: TMC submits written cooperation proffer to DOJ.
• March 10, 2023 and April 22, 2023: Voluntary proffer sessions conducted with TMC employees Sandra Chu and Thomas Eriksen, respectively.
• September 15, 2023: TMC submits Enhanced Antitrust Compliance Program proposal to DOJ.
• November 1, 2023: DOJ communicates willingness to negotiate NPA with TMC.
The co-subjects and co-targets identified by the DOJ in this investigation are:
• Ridgecrest Minerals Inc., headquartered in Denver, Colorado. Ridgecrest is represented by Davenport, Kline & Archer LLP, with partner Helen Marchetti serving as lead counsel.
• Pinnacle Earth Resources Ltd., incorporated in Ontario, Canada, with its principal place of business in Sudbury, Ontario, and U.S. operations based in Salt Lake City, Utah. Pinnacle is represented by Ashford Whitmore LLP, with partner George Nakamura serving as lead counsel.
TMC elected not to enter into joint defense agreements with either Ridgecrest or Pinnacle. This decision, which has been discussed with the Board on prior occasions, was made to preserve TMC's ability to negotiate independently with the DOJ and to avoid any implication that TMC was coordinating its defense strategy with entities that may bear significantly greater culpability. Calderwood & Harkness continues to believe this was the correct strategic decision.
B. Alleged Conduct
The DOJ alleges that from approximately January 2017 through at least August 2021, senior commercial personnel at TMC, Ridgecrest Minerals, and Pinnacle Earth Resources engaged in agreements to fix prices, allocate customers, and rig bids for three product categories sold to U.S. industrial and chemical-manufacturing customers:
(i) high-purity feldspar;
(ii) industrial talc; and
(iii) rare-earth concentrates.
According to the DOJ's theory of the case, these agreements were reached and implemented by a small group of senior commercial personnel at the three companies. The key individuals identified by the DOJ as participants in the alleged conspiracy are:
• Gavin Holt, former Vice President, U.S. Specialty Minerals Sales, Torchlight Mining Corp. Holt departed TMC on September 30, 2021, before the investigation became known to the Company. His departure was described at the time as voluntary, though the Company's internal investigation subsequently determined that Holt's departure coincided with heightened activity in external communications with competitors that may have signaled his awareness of impending regulatory scrutiny.
• Carl Edgerton, Vice President of Sales, Ridgecrest Minerals Inc.
• Kevin Tsang, former Senior Vice President, Commercial Operations, Pinnacle Earth Resources Ltd.
The DOJ alleges that the coordination among these individuals was carried out through three principal channels:
(a) In-person meetings at the quarterly conferences of the North American Specialty Minerals Council ("NASMC"), an industry trade association. These meetings took place at various locations, including Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida. The DOJ has obtained hotel records, flight manifests, and expense reports confirming the attendance of Holt, Edgerton, and Tsang at overlapping conference sessions between 2017 and 2021.
(b) Encrypted messaging via the "VaultChat" application, a commercially available encrypted communications platform. The DOJ has obtained VaultChat records — likely through Cascade's cooperation and possibly through independent forensic recovery — that document discussions among the alleged co-conspirators regarding pricing levels, customer allocation, and bid coordination. Calderwood & Harkness has identified thirty-seven (37) documented Holt-competitor communications in the VaultChat records that are directly relevant to the alleged conspiracy.
(c) Occasional telephone calls between the alleged participants, some of which were placed from personal mobile devices rather than corporate lines.
The DOJ estimates the total affected commerce — that is, the total volume of commerce in the three product categories sold to U.S. customers during the conspiracy period by the alleged co-conspirators — at approximately USD 1.34 billion. The DOJ's estimate of TMC's share of affected commerce is approximately USD 478 million, representing approximately 35.7% of the total. These figures are central to the calculation of the expected monetary payment, as discussed in Section V.A below.
C. TMC's Cooperation Efforts to Date
From the outset of this matter, Calderwood & Harkness has advised the Company to pursue a strategy of robust and timely cooperation with the DOJ, consistent with the protection of the Company's legal rights and privileges. The Company has followed this advice, and TMC's cooperation record is strong. It is this cooperation record that has been the primary factor in the DOJ's decision to offer NPA negotiations rather than pursue indictment.
The principal elements of TMC's cooperation efforts are summarized below:
Document Production. TMC has produced approximately 555,000 documents, comprising approximately 3.2 million pages, in response to two grand jury subpoenas: Subpoena No. GJ-22-0194-SD-003 (received February 14, 2022) and Subpoena No. GJ-22-0194-SD-007 (received August 5, 2022). The document collection, processing, review, and production were managed by Redstone Digital Forensics Inc., with Neil Ashworth serving as Project Director. Calderwood & Harkness supervised the review process using a managed-review protocol with predictive coding technology to ensure completeness and privilege protection. The productions were completed on an expedited rolling basis, with the first production made within forty-five days of the first subpoena and all subsequent productions completed within the timeframes negotiated with the DOJ.
Internal Investigation. Calderwood & Harkness conducted a comprehensive internal investigation on behalf of the Company. The investigation included interviews of twenty-three (23) current and former TMC employees with knowledge of or potential involvement in the commercial activities at issue. The interviews covered individuals across the U.S. Specialty Minerals Sales group, the Pricing Analytics department, regional sales management, and senior leadership. The findings of the internal investigation were presented to this Board at its meeting on January 20, 2023. As previously reported, the internal investigation concluded that the anticompetitive conduct was primarily attributable to Gavin Holt, who acted without the knowledge or authorization of TMC's senior management or Board. While certain other TMC employees may have had peripheral awareness of Holt's external communications, the evidence did not establish that any current TMC employee was a knowing participant in the alleged conspiracy.
Written Cooperation Proffer. On February 15, 2023, TMC submitted a written cooperation proffer to the DOJ through Calderwood & Harkness. The proffer summarized the findings of the internal investigation, identified the relevant documentary evidence, described the communications between Holt and his alleged co-conspirators, and set forth TMC's position regarding the scope and nature of the alleged conduct. The proffer was well received by the DOJ, and Trial Attorney Kowalski acknowledged its thoroughness during subsequent discussions with Calderwood & Harkness.
Voluntary Proffer Sessions. TMC made two employees available for voluntary proffer sessions with the DOJ:
• Sandra Chu, Director, Pricing Analytics, provided a proffer session on March 10, 2023. Chu provided detailed testimony regarding the Company's pricing processes, the information available to Holt in his role, and her observations regarding anomalies in pricing patterns during the conspiracy period.
• Thomas Eriksen, Regional Sales Manager, Western Region, provided a proffer session on April 22, 2023. Eriksen testified regarding customer interactions, bid processes, and communications he had observed between Holt and external parties.
Both proffer sessions were conducted with counsel present and subject to "queen-for-a-day" protections, meaning that the statements made by Chu and Eriksen cannot be used directly against them in any subsequent prosecution, though the DOJ may use the information to develop independent evidence.
Enhanced Antitrust Compliance Program. On September 15, 2023, TMC submitted to the DOJ a detailed proposal for an Enhanced Antitrust Compliance Program. This program was developed by Meridian Compliance Partners LLC, with Claudia Ferraro serving as Engagement Lead, in conjunction with Calderwood & Harkness. The program is described in greater detail in Section V.C below. The DOJ has reviewed the proposal and has indicated that it views TMC's proactive compliance remediation favorably.
D. Gavin Holt's Separate Status
Gavin Holt, TMC's former Vice President of U.S. Specialty Minerals Sales, retained personal counsel — Briarcliff Law Group PLLC, with Patrick Dunleavy serving as lead attorney — on approximately June 10, 2022, shortly after receiving his own target letter from the DOJ. On June 14, 2022, Holt appeared before Grand Jury No. GJ-22-0194 and asserted his Fifth Amendment privilege against self-incrimination, declining to testify. He has not provided testimony to the grand jury at any point since that date.
Holt also declined to participate in TMC's internal investigation. Calderwood & Harkness made multiple requests to Briarcliff Law Group for Holt's voluntary participation in the internal investigation, all of which were declined. TMC did not seek to compel Holt's participation, as he is a former employee and the Company lacks the contractual or legal authority to compel his cooperation.
The DOJ has indicated, both in its November 1, 2023 communication and in prior discussions, that any NPA with TMC will include a "Holt carve-out." This means that the DOJ expressly reserves the right to pursue criminal charges against Holt individually, regardless of TMC's resolution. The NPA's no-prosecution protections would not extend to Holt, and the DOJ's investigation of Holt's personal conduct would continue independently.
TMC has no obligation to indemnify Holt for personal criminal exposure. Holt's employment agreement, which was reviewed by Calderwood & Harkness in connection with the internal investigation, does not contain an indemnification provision covering criminal conduct that was not undertaken in the good-faith belief that it was in the Company's best interests. Moreover, California Labor Code and applicable corporate indemnification statutes do not require indemnification for conduct that is ultimately determined to have been undertaken in bad faith or in violation of law.
IV. DOJ's Communication of Willingness to Negotiate NPA
A. The November 1, 2023 Communication
On November 1, 2023, Trial Attorney Denise Kowalski of the DOJ Antitrust Division, San Francisco Field Office, communicated to Elaine Forsythe of Calderwood & Harkness by telephone that the DOJ is prepared to negotiate a non-prosecution agreement with TMC. Senior Trial Attorney Marcus Reeves also participated in the call. The call lasted approximately forty minutes and covered the following key points:
• The DOJ cited TMC's cooperation as the primary factor supporting resolution short of indictment. Specifically, the DOJ noted the volume and timeliness of TMC's document productions, the voluntary proffer sessions of Sandra Chu and Thomas Eriksen, the quality and thoroughness of the written cooperation proffer, and TMC's proactive compliance remediation efforts.
• The DOJ indicated that it expects to circulate an initial draft NPA to Calderwood & Harkness in January 2024. The draft will include proposed monetary payment terms, cooperation obligations, compliance requirements, a compliance monitor provision, and an agreed statement of facts.
• The DOJ confirmed that the NPA would not cover Gavin Holt individually. Holt's personal exposure remains a separate matter, and the DOJ's investigation and potential prosecution of Holt will proceed independently.
• The DOJ noted that related investigations of Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. remain ongoing. The DOJ did not disclose the status of its discussions with those entities, and Calderwood & Harkness did not inquire. The resolution or non-resolution of the Ridgecrest and Pinnacle matters is not expected to affect the terms of TMC's NPA, though those matters may influence the timeline.
• The DOJ did not provide a specific monetary figure during the call but indicated that the terms would be "consistent with the Division's standard methodology for cooperation credit." Calderwood & Harkness interprets this as confirmation that the standard 20%-of-affected-commerce starting-point calculation will apply, with cooperation credits to be negotiated.
Calderwood & Harkness responded by expressing TMC's interest in pursuing NPA negotiations expeditiously and by confirming that the Company's cooperation posture remains fully intact. No commitments were made during the call, and Calderwood & Harkness reserved all rights and positions on behalf of TMC.
B. Significance of NPA vs. Other Outcomes
The DOJ's willingness to negotiate an NPA is the most significant development in this investigation since its inception. To provide context for the Board, it is useful to compare the NPA outcome to the other potential resolution mechanisms available to the DOJ:
Declination. A declination is the most favorable possible outcome — the DOJ simply declines to bring charges. However, the DOJ has not offered a declination, and given the strength of the evidence (including the VaultChat records and Cascade's cooperation testimony), Calderwood & Harkness does not believe a declination was a realistic possibility. The NPA is the next best alternative.
Non-Prosecution Agreement (NPA). An NPA is an agreement between the DOJ and a company in which the DOJ agrees not to file criminal charges, provided the company complies with specified conditions. Unlike a deferred prosecution agreement, no criminal information or indictment is filed with any court. The NPA is a private contractual agreement between the parties. If the company complies with all terms through the agreement's duration, the NPA expires and the DOJ's right to prosecute based on the described conduct terminates. The NPA is the resolution mechanism that has been offered to TMC.
Deferred Prosecution Agreement (DPA). A DPA involves the filing of a criminal information or indictment with a court, followed by a deferral of prosecution for a specified period. If the company complies with the DPA's terms, the charges are dismissed. However, the mere filing of charges — even if ultimately dismissed — carries significant reputational and collateral consequences, including potential debarment triggers, cross-border regulatory notifications, and adverse counterparty reactions. The DPA is a materially less favorable outcome than an NPA.
Guilty Plea. A guilty plea results in a criminal conviction for the Company. A guilty plea carries a felony record, potential statutory penalties, mandatory debarment provisions in certain government contracting contexts, and severe reputational harm. A guilty plea was and remains the worst-case outcome for TMC.
In summary, the NPA is the most favorable realistic resolution available. It avoids a criminal conviction, avoids the filing of charges, and provides TMC and its current employees (other than Holt) with protection from prosecution for the investigated conduct. The Company will be required to make a monetary payment, cooperate with ongoing investigations, implement compliance enhancements, and submit to a compliance monitor, but these obligations are manageable and time-limited.
V. Anticipated NPA Terms
Based on Calderwood & Harkness's experience with DOJ Antitrust Division NPAs and DPAs, our analysis of the specific facts of this investigation, and our discussions with the DOJ to date, we anticipate that the NPA will include the following principal terms. Each is discussed in detail below.
A. Monetary Payment
The DOJ Antitrust Division applies a standard methodology for calculating monetary penalties in connection with NPAs and DPAs. The starting-point calculation is 20% of affected commerce — that is, 20% of the total dollar volume of commerce in the relevant product markets attributable to the company during the conspiracy period.
The calculation for TMC is as follows:
• TMC's Affected Commerce: USD 478 million (as estimated by the DOJ; this figure has been provisionally accepted by Calderwood & Harkness subject to the Hargrove analysis described below)
• Starting-Point Penalty (20% of Affected Commerce): USD 478 million × 20% = USD 95.6 million
However, the DOJ's methodology provides for significant cooperation and remediation credits that can reduce the starting-point penalty. Based on precedent — including the DOJ's resolutions in recent antitrust NPA matters in the automotive-parts, capacitor, and generic-pharmaceuticals sectors — Calderwood & Harkness estimates that TMC is eligible for a reduction in the range of approximately 40% to 55% from the starting-point figure.
Calderwood & Harkness's recommended target for the monetary payment is approximately USD 45–50 million, reflecting substantial but not maximum cooperation credit. This target reflects our assessment that TMC's cooperation has been strong but that the DOJ is unlikely to grant the maximum available credit in a case involving the volume and duration of conduct alleged here. The thirty-seven documented Holt-competitor communications and the VaultChat records represent evidence of significant anticompetitive conduct, and the DOJ will factor the seriousness of the alleged offense into its credit determination.
Hargrove Forensic Advisory LLC, under the direction of Dr. Vanessa Tremblay, is preparing a final affected-commerce and penalty analysis. This analysis will (i) evaluate the accuracy of the DOJ's USD 478 million affected-commerce figure; (ii) identify potential arguments for a lower affected-commerce calculation based on product-category definitions, customer eligibility, and temporal scope; and (iii) develop a comprehensive penalty credit analysis supporting a credit at the higher end of the range. The Hargrove analysis is expected to be completed in the first quarter of 2024, in time to inform TMC's counter-draft response to the DOJ's initial NPA proposal.
For reference, TMC's current litigation reserve stands at USD 50 million. This reserve was increased from USD 30 million during the third quarter of 2023, as recommended by Calderwood & Harkness and coordinated with Calvert & Associates LLP (Daniel Moreau, TMC engagement partner) and the Audit Committee. If the monetary payment is ultimately negotiated within the USD 45–50 million range, the current reserve should be adequate to cover the payment. Further reserve adjustment may not be necessary, but this will be confirmed after final NPA terms are known and in consultation with Calvert & Associates and Ironbridge Capital Markets Inc. (Alan Kirkwood, TMC relationship partner) regarding any disclosure or market-impact considerations.
B. Cooperation Obligations
The NPA is expected to require TMC to cooperate fully with the DOJ in any related investigations or prosecutions for a period of two to four years following execution of the agreement. This is standard in DOJ Antitrust Division NPAs and reflects the DOJ's ongoing need for TMC's cooperation in connection with its continuing investigations of Ridgecrest, Pinnacle, Gavin Holt, and potentially other entities or individuals.
The cooperation obligations will likely include:
• Making current and, to the extent practicable, former TMC employees available for interviews and testimony by the DOJ, including grand jury testimony if required;
• Continuing to produce documents upon reasonable request by the DOJ in connection with related investigations;
• Not impeding, obstructing, or interfering with the DOJ's investigation or prosecution of other entities or individuals, including Gavin Holt;
• Promptly disclosing to the DOJ any evidence of additional anticompetitive conduct discovered by TMC during the cooperation period; and
• Maintaining the integrity and availability of documents and data relevant to the investigation.
Calderwood & Harkness's recommended position is to negotiate a cooperation period of no more than three years from the date of NPA execution. A three-year period is consistent with recent DOJ antitrust NPAs and provides the DOJ with a reasonable window within which to complete its related investigations. Additionally, Calderwood & Harkness recommends negotiating reasonable limitations on the scope of the cooperation obligation, including: (i) reasonable advance notice of interview requests; (ii) the right of employees to have counsel present during interviews; (iii) limitations on the frequency and duration of document-production requests after the initial production is complete; and (iv) a clear statement that cooperation does not require TMC to waive any attorney-client privilege or work-product protection not already waived.
C. Compliance Enhancements
The NPA is expected to require TMC to implement and maintain the Enhanced Antitrust Compliance Program that was submitted in proposal form to the DOJ on September 15, 2023. This program was developed by Meridian Compliance Partners LLC, with Claudia Ferraro serving as Engagement Lead, in conjunction with Calderwood & Harkness. The DOJ has reviewed the proposal and has expressed general satisfaction with its scope and rigor.
The key elements of the Enhanced Antitrust Compliance Program include:
• Mandatory annual antitrust training for all commercial personnel, including sales, marketing, pricing, business development, and supply-chain management employees. Training modules will be developed and delivered by Meridian Compliance Partners and will include both in-person and online components.
• Appointment of an independent Chief Compliance Officer reporting directly to the Board of Directors (or a designated Board committee) with authority over antitrust-compliance matters. The CCO will have a direct reporting line to the Audit Committee and will not be subordinate to the General Counsel on compliance matters.
• Annual compliance certifications by the CEO and General Counsel, confirming that TMC has maintained its antitrust compliance program in accordance with the NPA requirements and that they are not aware of any antitrust violations by TMC employees.
• Competitor-contact protocols establishing clear policies governing permissible and impermissible communications between TMC employees and competitors, including documentation requirements, pre-approval processes for competitor interactions at trade-association events, and mandatory reporting of unsolicited competitor communications regarding pricing, customers, or market allocation.
• Trade-association interaction policies governing TMC employees' participation in industry trade associations, including the NASMC and similar organizations, with requirements for legal counsel review and pre-clearance of agendas and discussion topics.
• Anonymous reporting hotline for TMC employees to report suspected antitrust violations or compliance concerns without fear of retaliation. The hotline will be operated by an independent third-party provider and will be available 24 hours per day, seven days per week.
• Periodic compliance auditing conducted by Meridian Compliance Partners or another qualified firm, with results reported to the Board of Directors and the compliance monitor (during the monitor period).
Many elements of this program have already been implemented on an interim basis, and TMC is well-positioned to formalize the program as a condition of the NPA. Calderwood & Harkness does not anticipate significant difficulty in negotiating the compliance-enhancement terms of the NPA, as TMC's proactive remediation has already addressed many of the DOJ's likely requirements.
D. Compliance Monitor
The DOJ is likely to require TMC to retain an independent compliance monitor for a period of one to three years following NPA execution. The compliance monitor would be responsible for assessing TMC's implementation and maintenance of the Enhanced Antitrust Compliance Program, reporting to the DOJ on TMC's compliance efforts, and providing recommendations for program improvements.
Calderwood & Harkness's recommended position is as follows:
• The monitor term should not exceed two years. A two-year monitor term is appropriate given TMC's proactive remediation efforts and the fact that many elements of the compliance program are already in operation.
• Meridian Compliance Partners LLC should be proposed as the compliance monitor, subject to DOJ approval. Meridian is already familiar with TMC's operations, compliance infrastructure, and the specific risks at issue. Using Meridian as the monitor would minimize the disruption and cost associated with on-boarding a new firm. Calderwood & Harkness has informally discussed this approach with DOJ Trial Attorney Kowalski, who indicated that the DOJ would consider pre-approved monitors on a case-by-case basis.
• The monitor's scope should be limited to antitrust-compliance matters and should not extend to general corporate governance, financial controls, or other areas of corporate compliance that are not at issue in this investigation.
• Estimated Meridian monitoring fees are approximately USD 500,000 to USD 750,000 per year, depending on the frequency and depth of monitoring activities. This estimate is based on Meridian's current rate structure and the anticipated scope of the monitoring engagement.
E. No-Prosecution Protections
The central benefit of the NPA to TMC is the DOJ's agreement not to bring criminal charges against the Company or its current employees for the conduct described in the NPA, provided TMC complies with all NPA terms during the agreement's term. This protection is essential to TMC's continued operations and reputation, and Calderwood & Harkness will negotiate to ensure that the no-prosecution protections are as broad as possible.
Specifically, the NPA should provide:
• The DOJ agrees not to bring criminal charges against TMC for the price-fixing, market-allocation, and bid-rigging conduct described in the NPA and the agreed statement of facts.
• The no-prosecution protections extend to TMC's subsidiaries, including Torchlight Mining (U.S.) Inc. (Nevada; Entity No. NV20160438721), which is the Company's principal U.S. operating subsidiary and the entity through which the relevant specialty-minerals sales were conducted.
• The no-prosecution protections extend to all current TMC employees, other than Gavin Holt, with respect to the conduct described in the NPA.
• The "Holt carve-out" is expected and, in Calderwood & Harkness's assessment, acceptable. Holt's personal exposure is not within TMC's control, and the Company's NPA should not be conditioned on any particular outcome for Holt. The DOJ has made clear that its reservation of rights with respect to Holt is non-negotiable.
F. Agreed Statement of Facts
The DOJ will likely require an agreed statement of facts ("SOF") as an appendix to the NPA. The SOF is a factual recitation that both parties agree is accurate and that describes the conduct at issue, the participants involved, the products affected, and the conspiracy period. The SOF serves two primary functions: (i) it provides a public record of the factual basis for the NPA resolution; and (ii) it provides the DOJ with a factual foundation for prosecution if TMC materially breaches the NPA.
The SOF is expected to address the following topics:
• The alleged conspiracy to fix prices, allocate customers, and rig bids for high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. industrial and chemical-manufacturing customers;
• The roles of Gavin Holt, Carl Edgerton (Ridgecrest), and Kevin Tsang (Pinnacle) in the alleged conspiracy;
• The methods of coordination, including in-person meetings at NASMC conferences, VaultChat communications, and telephone calls;
• TMC's share of affected commerce (USD 478 million) and the conspiracy period (approximately January 2017 through August 2021); and
• TMC's cooperation and remediation efforts.
Critical negotiating point: The SOF should avoid language that constitutes a corporate admission of criminal liability. This is the single most important drafting issue in the entire NPA negotiation. Calderwood & Harkness will insist that the SOF recite facts without admitting that TMC as an entity engaged in, authorized, or ratified the anticompetitive conduct. The framing should attribute the conduct to individual actors — primarily Gavin Holt — rather than to TMC as a corporate entity. Appropriate formulations include "TMC acknowledges that the following facts are true and accurate" rather than "TMC admits that it violated Section 1 of the Sherman Act" or similar language.
This distinction is not merely semantic. If TMC materially breaches the NPA, the DOJ could use the SOF to prosecute the Company. The language of the SOF would be a critical piece of evidence in any such prosecution. Additionally, the SOF may be cited in related civil litigation by private plaintiffs seeking treble damages under Section 4 of the Clayton Act. While an NPA (unlike a guilty plea) does not constitute prima facie evidence of a Sherman Act violation in civil proceedings, broadly worded factual admissions in the SOF could be used by civil plaintiffs as admissions under Federal Rule of Evidence 801(d)(2). Accordingly, the SOF language must be carefully negotiated to minimize both criminal and civil exposure.
G. Term of the NPA
The NPA is expected to have a term of three years from the date of execution. During this period, TMC must comply with all obligations set forth in the NPA, including the monetary payment, cooperation obligations, compliance enhancements, and compliance monitor requirements.
If TMC complies with all obligations through the full term of the NPA, the agreement expires by its terms and the DOJ's right to prosecute TMC based on the conduct described in the NPA terminates permanently. Upon expiration, TMC will have no continuing obligations to the DOJ in connection with the investigated conduct (other than any cooperation obligations that may have been independently negotiated with a specific end date).
If TMC materially breaches the NPA during its term, the DOJ may terminate the agreement and proceed with criminal charges. As discussed in Section VII below, Calderwood & Harkness will negotiate a clearly defined material-breach standard with notice-and-cure provisions to protect TMC from arbitrary or disputed breach determinations.
VI. Financial Impact Assessment
A. Monetary Payment Impact
The estimated monetary payment of USD 45–50 million would be payable to the United States Treasury within sixty (60) days of the execution of the NPA. This is the standard payment timeline in DOJ Antitrust Division NPAs, and Calderwood & Harkness does not anticipate that the DOJ will agree to a longer payment period absent exceptional circumstances.
TMC's current litigation reserve of USD 50 million should be adequate to cover the monetary payment if it falls within the anticipated range. However, the following additional considerations apply:
• If the final negotiated amount exceeds USD 50 million (which Calderwood & Harkness considers unlikely but possible), an increase to the litigation reserve would be necessary.
• The payment of USD 45–50 million will have a direct impact on TMC's cash position and may require coordination with the Company's treasury function to ensure liquidity is available within the sixty-day payment window.
• Calderwood & Harkness is coordinating with Calvert & Associates LLP (Daniel Moreau, TMC engagement partner) and Ironbridge Capital Markets Inc. (Alan Kirkwood, TMC relationship partner) regarding the disclosure obligations and potential market impact associated with the NPA execution and monetary payment. The payment amount will be a material item requiring disclosure under applicable securities laws.
B. Professional Fees to Date
The professional fees and disbursements incurred in connection with this investigation through approximately November 2023 are summarized below:
Calderwood & Harkness's total fees and disbursements through the anticipated close of the matter are estimated at approximately USD 18.7 million. Additional fees are expected to be incurred through NPA execution, compliance-monitor setup, and ongoing advisory support during the initial period of the NPA's implementation. These additional fees will be budgeted and communicated to the General Counsel as the negotiations progress.
The initial fee budget for the matter was approximately USD 12 million, established at the time of engagement in February 2022. The budget overage was approved by General Counsel Priya Anand in the first quarter of 2023, when the scope of the investigation expanded following the receipt of the second grand jury subpoena and the DOJ's request for additional document categories. The expanded scope, the complexity of the VaultChat records analysis, and the proffer-session preparation contributed to the fee increase. Calderwood & Harkness believes the fee level is commensurate with the complexity and stakes of the matter and is within the range of fees incurred by similarly situated companies in comparable DOJ antitrust investigations.
C. D&O Insurance
TMC tendered notice of the investigation to its primary directors' and officers' liability insurer, Northland Mutual Insurance Co., on March 4, 2022. The relevant policy details are as follows:
• Primary Policy: Northland Mutual Insurance Co., Policy No. NMI-DO-2021-5547; aggregate limit USD 50 million; self-insured retention USD 2.5 million.
• Excess Layer 2: Greystone Specialty Insurance Ltd., USD 25 million in excess of USD 50 million (attachment point: USD 50 million).
• Excess Layer 3: Sentinel Re Ltd., USD 25 million in excess of USD 75 million (attachment point: USD 75 million).
Northland acknowledged coverage for defense costs incurred by individual directors and officers in connection with the investigation but issued a reservation-of-rights letter on April 15, 2022, in which it reserved its rights with respect to entity coverage and the policy's regulatory/criminal-exclusion provision. Calderwood & Harkness responded to Northland's reservation-of-rights letter on April 28, 2022, contesting the application of the criminal-act exclusion at the pre-adjudication stage and arguing that entity defense costs are covered under the policy's entity-coverage extension.
The NPA monetary payment is unlikely to be covered under the D&O policies. Virtually all D&O policies, including TMC's Northland policy, exclude coverage for fines, penalties, and disgorgement payments. The NPA monetary payment, while characterized as a monetary obligation rather than a criminal fine, is functionally equivalent to a penalty and will almost certainly fall within the penalty/fine exclusion. Calderwood & Harkness has advised General Counsel Anand accordingly.
Individual defense costs for current and former directors and officers who have been interviewed or otherwise involved in the investigation remain potentially covered under the D&O policies, and TMC should continue to pursue recovery of those costs from Northland, subject to the reservation-of-rights dispute.
D. Public Disclosure
TMC first publicly disclosed the existence of the DOJ investigation in its fiscal year 2021 annual report, filed on SEDAR+ and with the U.S. Securities and Exchange Commission on Form 40-F on March 28, 2022. The disclosure described the investigation in general terms, noted the Company's cooperation with the DOJ, and stated that management was unable to predict the outcome of the investigation or estimate the potential financial impact.
The litigation reserve was initially disclosed at USD 30 million and was increased to USD 50 million in the Company's third-quarter 2023 SEC filings. The increase was disclosed in TMC's Form 6-K filed on November 14, 2023, with an accompanying narrative noting that the reserve adjustment reflected developments in the investigation and management's updated assessment of the potential financial impact.
The execution of an NPA will constitute a material event requiring prompt disclosure under both U.S. and Canadian securities laws. TMC will need to issue a press release and file a Form 6-K (with the SEC) and a material change report (under Canadian securities regulations) disclosing the principal terms of the NPA, including the monetary payment amount, the cooperation and compliance obligations, and the NPA term. The Company should coordinate the timing and content of these disclosures with Calderwood & Harkness, General Counsel Anand, and Ironbridge Capital Markets to manage the market impact and ensure compliance with all applicable disclosure obligations. TMC's equity securities are listed on the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC), and both exchanges have real-time disclosure requirements that must be observed.
VII. Recommended Negotiation Strategy
A. Negotiation Objectives
Calderwood & Harkness recommends that the following negotiation objectives guide TMC's approach to the NPA negotiations:
1. Monetary Payment. Target a payment in the range of USD 45–50 million, representing approximately 47–52% cooperation credit against the USD 95.6 million starting-point penalty. To support this target, Calderwood & Harkness will argue for maximum credit based on TMC's voluntary cooperation, the thoroughness of its internal investigation, the voluntary proffer sessions of Chu and Eriksen, and the Company's proactive compliance remediation efforts. The Hargrove affected-commerce and penalty analysis will provide additional support for our position on both the base calculation and the appropriate credit level.
2. Cooperation Period. The cooperation period should be no more than three years from the date of NPA execution. A three-year period is consistent with recent DOJ antitrust precedent and provides the DOJ with adequate time to complete its related investigations while limiting the duration of TMC's ongoing obligations.
3. Compliance Monitor. The monitor term should be two years maximum. Meridian Compliance Partners LLC should be proposed as the approved monitor, and the monitor's scope should be limited to antitrust-compliance matters. The monitor should not have authority to review or opine on general corporate governance, financial controls, or matters unrelated to the antitrust compliance program.
4. No-Prosecution Protections. The NPA's no-prosecution protections should cover TMC, all of its subsidiaries (including Torchlight Mining (U.S.) Inc.), and all current TMC employees, with the Holt carve-out accepted. Calderwood & Harkness will seek to ensure that the no-prosecution protections are as comprehensive as possible and that they survive the expiration of the NPA term.
5. Agreed Statement of Facts. The SOF should avoid language constituting a corporate admission of criminal liability. Conduct should be attributed to individual actors, primarily Gavin Holt. Factual recitations should be narrow and accurate, limited to the specific products, customers, and time period at issue. Calderwood & Harkness will resist any DOJ effort to include broad corporate-responsibility language or characterizations of the conduct that could be used as admissions in civil litigation.
6. Material-Breach Standard. The NPA should include a clearly defined material-breach standard, specifying what conduct would constitute a breach and providing TMC with notice-and-cure provisions before the DOJ may terminate the agreement and proceed with prosecution. The notice period should be no less than thirty (30) days, and TMC should have the right to respond to any alleged breach in writing before the DOJ makes a final determination.
B. Red Lines
Calderwood & Harkness recommends that the following be treated as non-negotiable red lines — positions from which TMC should not retreat:
• The monetary payment must not exceed USD 55 million. A payment above this level would exceed TMC's current litigation reserve and would represent an inadequate cooperation credit relative to TMC's cooperation efforts.
• The cooperation obligations must not require TMC to waive any attorney-client privilege or work-product protection not already waived in the course of the investigation. TMC's privilege protections are essential to its defense in potential civil litigation and must be preserved.
• The compliance-monitor term must not exceed three years. A monitor term longer than three years would impose an undue burden on TMC's operations and would be disproportionate to the compliance risks at issue.
• The NPA must not require a corporate guilty plea or any admission of criminal liability. This is the fundamental premise of the NPA structure, and any DOJ proposal that would require TMC to admit criminal liability would be tantamount to a plea agreement rather than an NPA and would be categorically rejected.
C. Fallback Positions
In the event the DOJ's initial positions on key terms exceed Calderwood & Harkness's recommended objectives, the following fallback positions are recommended:
• Monetary payment above USD 55 million: If the DOJ insists on a payment above USD 55 million, Calderwood & Harkness recommends seeking a structured payment schedule — for example, two installments of equal amounts payable over twelve months — rather than accepting the headline number. This would ease the cash-flow impact on TMC while allowing the DOJ to report a higher total payment amount. Calderwood & Harkness would also redouble its arguments for a higher cooperation credit, supported by the Hargrove analysis.
• Four-year cooperation period: If the DOJ insists on a four-year cooperation period, Calderwood & Harkness would recommend accepting a three-and-a-half-year period as a compromise. This split-the-difference approach is consistent with negotiation norms in DOJ antitrust matters and would represent a manageable extension beyond our three-year target.
• Broader SOF language: If the DOJ insists on broader language in the agreed statement of facts — for example, language characterizing TMC as having "participated in" or "benefited from" the conspiracy — Calderwood & Harkness would propose qualifying language such as "TMC acknowledges that the following facts are true and accurate" rather than "TMC admits that it violated Section 1 of the Sherman Act" or "TMC acknowledges its participation in a conspiracy." The distinction between acknowledging facts and admitting legal conclusions is critical and has been accepted by the DOJ in prior NPA negotiations.
D. Timeline
The anticipated timeline for the NPA negotiation is as follows:
Calderwood & Harkness will keep the Board and General Counsel informed of developments at each stage of this timeline and will seek Board input and authorization at appropriate decision points.
VIII. Status of Co-Subjects / Related Matters
For the Board's awareness, the following is a summary of the status of the investigation with respect to the other entities and individuals involved:
Ridgecrest Minerals Inc. Ridgecrest is separately represented by Davenport, Kline & Archer LLP, with partner Helen Marchetti serving as lead counsel. The status of Ridgecrest's negotiations with the DOJ is unknown to Calderwood & Harkness, as TMC elected not to enter into a joint defense agreement with Ridgecrest. The DOJ has not disclosed the status of its discussions with Ridgecrest. Ridgecrest's resolution or non-resolution is not expected to materially affect the terms of TMC's NPA, though the timing of Ridgecrest's resolution could influence the DOJ's overall timeline for concluding the investigation.
Pinnacle Earth Resources Ltd. Pinnacle is separately represented by Ashford Whitmore LLP, with partner George Nakamura serving as lead counsel. As with Ridgecrest, the status of Pinnacle's negotiations with the DOJ is unknown to Calderwood & Harkness, and no JDA exists between TMC and Pinnacle. Pinnacle's cross-border status (incorporation in Ontario, Canada, with U.S. operations in Utah) may introduce additional complexity into its resolution with the DOJ.
Cascade Chemical Supply Co. Cascade is the cooperating witness entity whose cooperation agreement with the DOJ triggered the investigation. Cascade is represented by Whitfield, Strauss & Tully LLP, with partner Rebecca Ostrander serving as lead counsel. Cascade's cooperation with the DOJ is ongoing and is expected to continue through the conclusion of the related investigations. Cascade's testimony and documentary evidence remain the evidentiary foundation for the broader investigation, including the case against Ridgecrest, Pinnacle, and Gavin Holt.
Gavin Holt. Holt is represented individually by Briarcliff Law Group PLLC, with Patrick Dunleavy serving as lead counsel. Holt's personal resolution with the DOJ is entirely separate from TMC's. As noted throughout this memorandum, the DOJ has reserved the right to prosecute Holt individually under the NPA's Holt carve-out. The outcome of Holt's personal matter will have no bearing on TMC's obligations under the NPA, and TMC has no obligation to indemnify Holt or otherwise participate in his defense.
IX. Board Action Items and Requested Authorization