1039-00001 · Torchlight Mining Corp · documents

initial-case-assessment-status-report.docx DOCUMENT Litigation

27 / 88 ← → ✕

CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104

Telephone: (415) 391-7000 Facsimile: (415) 391-7001 www.calderwoodharkness.com

PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

This memorandum has been prepared by Calderwood & Harkness LLP in connection with the provision of legal advice to Torchlight Mining Corp. and its subsidiaries, and in anticipation of litigation. It is protected from disclosure by the attorney-client privilege and the work-product doctrine. This memorandum contains the mental impressions, conclusions, opinions, and legal theories of the attorneys at Calderwood & Harkness LLP. It is not to be disclosed, disseminated, distributed, or copied, in whole or in part, to any third party — including any co-defendant, joint-venture partner, insurer, auditor, or financial advisor — without the prior express written consent of Calderwood & Harkness LLP. Any inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection. If you have received this memorandum in error, please notify Calderwood & Harkness LLP immediately and return or destroy all copies.

March 15, 2022

MEMORANDUM

I. EXECUTIVE SUMMARY

The purpose of this memorandum is to provide Torchlight Mining Corp. ("TMC") — through its Chief Executive Officer, Søren Dalmqvist, and its General Counsel, Priya Anand — with a comprehensive initial assessment of the grand jury investigation commenced by the Antitrust Division of the United States Department of Justice ("DOJ"), the scope of the grand jury subpoena served on TMC, a preliminary review of TMC's potential legal exposure under applicable federal antitrust statutes, and our recommended immediate next steps for TMC's response and defense strategy.

This matter was opened on February 10, 2022, when the DOJ formally commenced Grand Jury Investigation No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. Four days later, on February 14, 2022, TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 at its U.S. principal office in Reno, Nevada. TMC engaged Calderwood & Harkness LLP ("C&H") on February 18, 2022, and we have been working diligently since that date to understand the scope of the investigation, preserve and collect relevant documents, and develop an initial assessment of TMC's position.

The DOJ investigation concerns suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, with a particular focus on three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These are core products within TMC's U.S. Specialty Minerals Division, and the investigation squarely implicates TMC's commercial activities in these markets during the period from approximately January 2017 through August 2021.

Based on our preliminary analysis, the investigation involves at least three producer entities — TMC, Ridgecrest Minerals Inc. ("Ridgecrest"), and Pinnacle Earth Resources Ltd. ("Pinnacle") — as well as one cooperating witness entity, Cascade Chemical Supply Co. ("Cascade"), which entered into a cooperation agreement with the DOJ in approximately September 2021. The cooperation of Cascade, a downstream distributor and processor of specialty minerals, appears to have been the catalyst for the broader investigation into upstream producers such as TMC.

This status report covers the following subjects:

(a) Background and investigation timeline;

(b) The scope of Grand Jury Subpoena No. GJ-22-0194-SD-003;

(d) Preliminary legal framework and exposure assessment;

(e) Document preservation and collection status;

(f) Insurance and financial considerations, including public disclosure obligations; and

(g) Recommended immediate next steps and timeline.

As set forth in greater detail below, while the DOJ investigation represents a serious legal matter that warrants TMC's sustained attention and significant resources, we believe that TMC's position is not without meaningful mitigating factors. Most notably, there is no evidence at this stage that TMC's C-suite leadership or Board of Directors had knowledge of or authorized the alleged anticompetitive conduct. The individual most directly implicated — former Vice President of U.S. Specialty Minerals Sales, Gavin Holt — departed the company in September 2021, before the grand jury investigation commenced. TMC's early engagement of outside counsel and its willingness to cooperate with the DOJ are favorable factors under the Department's cooperation policies. Our preliminary recommendation is that TMC adopt a posture of full cooperation with the DOJ, subject to the results of the internal investigation and formal Board authorization, as this path offers the strongest prospect of achieving a non-prosecution agreement or, at minimum, a deferred prosecution agreement with significantly reduced monetary penalties.

II. BACKGROUND AND INVESTIGATION TIMELINE

A. Origin of the Investigation

Based on information available to us at this time — including details gleaned from the face of the grand jury subpoena, our initial conversations with DOJ counsel, and publicly available information — the investigation originated with the cooperation of Cascade Chemical Supply Co., a Washington state corporation headquartered in Spokane, Washington. Cascade is a downstream distributor and processor of specialty minerals that purchases raw and semi-processed materials from upstream producers, including TMC, Ridgecrest, and Pinnacle. Cascade's president is Leonard Massey, and the company is represented in connection with its cooperation by Whitfield, Strauss & Tully LLP, a Seattle-based law firm, with Rebecca Ostrander serving as lead partner on the engagement.

We understand that Cascade entered into a formal cooperation agreement with the DOJ Antitrust Division on approximately September 15, 2021. The precise terms of that agreement are not available to us, but it is standard practice in Antitrust Division investigations for a cooperating entity to provide both documentary evidence and witness testimony in exchange for leniency or immunity from prosecution. We anticipate that Cascade's cooperation provided the DOJ with documents and testimony that formed the evidentiary basis for opening the broader investigation into upstream producers — that is, the companies suspected of coordinating pricing, allocating markets, and rigging bids among themselves.

Separately, Ridgecrest Minerals Inc., a Delaware corporation headquartered in Denver, Colorado, received a target letter from the DOJ on approximately January 12, 2022 — approximately one month before the grand jury investigation was formally opened. The issuance of a target letter to Ridgecrest is a significant development because it indicates that, as of that date, the DOJ had already accumulated sufficient evidence to identify Ridgecrest as a likely defendant. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a mid-market private equity fund, and its CEO is Brian Novotny. Ridgecrest is represented by Davenport, Kline & Archer LLP, a Denver-based firm, with Helen Marchetti serving as lead partner.

We note that TMC has not, as of the date of this memorandum, received a target letter from the DOJ. The absence of a target letter is a noteworthy distinction, though it does not necessarily indicate that the DOJ views TMC's potential culpability as materially different from Ridgecrest's. It may simply reflect the DOJ's sequencing of investigative steps, or it may be an early indication that the DOJ's evidence against Ridgecrest is, at this stage, more developed. We will continue to monitor this issue closely.

B. Formal Opening and TMC's Involvement

The following timeline sets forth the key events in the investigation from its formal opening through the date of this memorandum:

February 10, 2022: The DOJ formally opens Grand Jury Investigation No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. The investigation is supervised by the Antitrust Division's Criminal Enforcement Section in Washington, D.C. The lead prosecutors assigned to the matter are Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, both of the DOJ Antitrust Division's San Francisco Field Office, located at 450 Golden Gate Avenue, Room 10-0101, San Francisco, California 94102. The Supervising Deputy Assistant Attorney General overseeing the investigation is Julia Stafford-Hayes.

February 14, 2022: TMC receives Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 at its U.S. principal office, located at Torchlight Mining (U.S.) Inc., 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117. The subpoena was served on TMC's registered agent and immediately forwarded to General Counsel Priya Anand. The initial return date specified in the subpoena was March 16, 2022.

February 18, 2022: TMC formally engages Calderwood & Harkness LLP to represent it in connection with the grand jury investigation. The engagement letter, executed on this date, established the scope of the representation, including defense of the grand jury subpoena, conduct of an internal investigation, and, as appropriate, negotiation with the DOJ regarding potential resolution of the matter.

February 22, 2022: C&H transmits a letter to the DOJ Antitrust Division (attention: Trial Attorney Denise Kowalski) acknowledging receipt of the subpoena, confirming C&H's representation of TMC, and requesting a 60-day extension of the initial return date to allow sufficient time for document collection, review, and production. This request is standard practice in grand jury subpoena matters and is consistent with the DOJ's typical willingness to accommodate reasonable production schedules. As of this writing, the DOJ has informally indicated that it is amenable to the extension, and we expect formal confirmation shortly.

March 1, 2022: C&H issues a company-wide litigation hold notice under the signature of General Counsel Priya Anand, directing all TMC employees to preserve documents and electronically stored information ("ESI") potentially relevant to the investigation. Simultaneously, C&H issues a supplemental targeted hold directed specifically to personnel in TMC's U.S. Specialty Minerals Division, including custodian-specific preservation instructions covering VaultChat encrypted messages, personal devices used for company-related communications, and trade-association-related materials.

March 2, 2022: C&H transmits a detailed memorandum to General Counsel Priya Anand regarding TMC's document preservation obligations under federal law, including the potential consequences of document destruction or spoliation in the context of a pending grand jury investigation.

March 4, 2022: C&H tenders notice of the grand jury investigation to Northland Mutual Insurance Co. ("Northland") under TMC's Directors & Officers Liability Insurance Policy, Policy No. NMI-DO-2021-5547. The notice was transmitted to Northland's claims department in accordance with the policy's notice provisions. A discussion of insurance coverage considerations appears in Section VII below.

March 15, 2022: C&H retains Redstone Digital Forensics Inc. ("Redstone"), a digital forensics and electronic discovery firm based in McLean, Virginia, to perform forensic data collection, processing, hosting, and managed review of TMC's ESI in connection with the grand jury subpoena response. The project director assigned by Redstone is Neil Ashworth, a certified forensic examiner with extensive experience in DOJ antitrust investigations.

C. Co-Subjects and Other Entities

In addition to TMC, the following entities and individuals are known to be subjects of or otherwise involved in the DOJ investigation:

Pinnacle Earth Resources Ltd. ("Pinnacle"): An Ontario corporation headquartered in Sudbury, Ontario, Canada, with U.S. operations based in Salt Lake City, Utah. Pinnacle's CEO is Douglas Harlowe. Of particular significance, Pinnacle's former Senior Vice President of Commercial Operations, Kevin Tsang, has been identified as a key individual in the investigation. Mr. Tsang is believed to have been a direct counterpart of Gavin Holt (TMC) and Carl Edgerton (Ridgecrest) in the alleged anticompetitive communications. Pinnacle is represented by Ashford Whitmore LLP, a firm with offices in Toronto and New York, with George Nakamura serving as lead partner.

Ridgecrest Minerals Inc. ("Ridgecrest"): As described above, Ridgecrest is a Delaware corporation headquartered in Denver, Colorado, and a portfolio company of Marlowe Asset Management Peak Capital Partners LP. Its CEO is Brian Novotny. Ridgecrest's Vice President of Sales, Carl Edgerton, has been identified in DOJ materials as a key participant in the alleged conspiracy. Ridgecrest received a target letter from the DOJ on approximately January 12, 2022, and is represented by Davenport, Kline & Archer LLP (Helen Marchetti, lead partner).

Cascade Chemical Supply Co. ("Cascade"): As described above, Cascade is the cooperating witness entity that triggered the investigation. It is a Washington state corporation headquartered in Spokane, Washington, led by president Leonard Massey, and represented by Whitfield, Strauss & Tully LLP (Rebecca Ostrander, lead partner).

North American Specialty Minerals Council ("NASMC"): NASMC is a 501(c)(6) tax-exempt trade association headquartered at 2300 Wilson Boulevard, Suite 400, Arlington, Virginia 22201. NASMC organizes quarterly industry conferences attended by participants across the specialty-minerals value chain and publishes pricing benchmarks and market reports for various mineral products. The DOJ suspects that several allegedly anticompetitive meetings occurred on the margins of NASMC conferences held between 2017 and 2021 — specifically, that representatives of TMC, Ridgecrest, and Pinnacle used these conferences as opportunities to coordinate pricing and allocate markets outside of the formal conference proceedings. NASMC's role as a venue for the alleged conduct does not necessarily implicate the organization itself as a participant in the conspiracy, but its records, conference attendee lists, and meeting minutes are likely to be sought by the DOJ and are within the scope of TMC's subpoena obligations.

III. SCOPE OF GRAND JURY SUBPOENA NO. GJ-22-0194-SD-003

A. Document Categories Requested

Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 is a comprehensive and broadly drafted subpoena that requests the production of documents across a wide range of categories. The principal categories of documents and information requested are as follows:

1. Product-Related Documents. All documents relating to the pricing, sale, marketing, production, and distribution of high-purity feldspar, industrial talc, and rare-earth concentrates in the United States and North America, including but not limited to contracts, invoices, purchase orders, shipping records, production schedules, inventory records, and sales reports, for the period from January 1, 2015, through the date of the subpoena (February 14, 2022).

2. Competitor Communications. All communications between any TMC employee, officer, director, or agent and any employee, officer, director, or agent of Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. (or any of their respective subsidiaries or affiliates), relating to pricing, pricing strategies, price lists, price increases or decreases, customer allocation, geographic market allocation, bid proposals, bid submissions, bid coordination, market conditions, supply conditions, capacity, or any other aspect of the competitive dynamics of the high-purity feldspar, industrial talc, and rare-earth concentrates markets.

3. Internal Pricing Documents. All internal pricing analyses, price lists, price matrices, price-change notifications, price-change authorizations, pricing-committee meeting records, pricing-approval workflows, and any other documents reflecting TMC's process for setting, adjusting, or approving prices for the three product categories.

4. Trade Association Documents. All documents related to TMC's membership in, attendance at, or participation in trade associations, industry groups, and industry conferences, with specific reference to the North American Specialty Minerals Council (NASMC) and its quarterly conferences and events, including but not limited to attendance records, registration confirmations, meeting agendas, meeting minutes, presentation materials, and communications with other attendees.

5. Customer Contracts and Bids. All customer contracts, customer proposals, bid submissions, requests for proposals (RFPs), requests for quotations (RFQs), and related communications for the three product categories, including documents reflecting the award or non-award of customer accounts or supply contracts.

6. Personnel Records. Personnel files, employment agreements, separation agreements, non-competition agreements, non-disclosure agreements, and organizational charts for TMC's U.S. Specialty Minerals Division, including but not limited to the files of any individual who held a position involving pricing, sales, business development, or competitor relations during the relevant period.

7. Electronic Communications — All Platforms. All communications via any medium or platform, including but not limited to corporate email, personal email used for company business, instant messaging platforms, text messages, and encrypted messaging applications, with specific reference to the VaultChat application. The subpoena expressly identifies VaultChat by name and requests all communications transmitted or received through VaultChat by any TMC employee in connection with the three product categories or communications with competitors.

The breadth of these categories is notable but not unusual for a DOJ Antitrust Division grand jury subpoena. The express identification of VaultChat suggests that the DOJ — likely through Cascade's cooperation — has specific intelligence regarding the use of encrypted messaging by individuals involved in the alleged conspiracy. This is a significant detail and will require careful attention during the document collection and review process, as discussed further in Section VI below.

B. Temporal and Geographic Scope

The temporal scope of the subpoena extends from January 1, 2015, through February 14, 2022 — a period of approximately seven years. This is broader than the alleged conspiracy period (approximately January 2017 through August 2021, based on our current understanding), which is not uncommon in DOJ investigations. The DOJ typically requests documents predating the alleged conspiracy to identify the formation of the conspiracy and establish baseline competitive conditions, and documents postdating the conspiracy to identify continuing effects or potential obstruction.

The geographic scope of the subpoena is U.S.-focused but extends to all communications touching United States commerce in the three product categories, regardless of where the communications originated or where the communicating parties were physically located. This means that communications originating from or sent to TMC's Canadian headquarters in Toronto, Ontario, are within scope to the extent they relate to U.S. sales, U.S. customers, or U.S. market conditions for the relevant products. The subpoena expressly encompasses both TMC's Canadian headquarters and its U.S. subsidiary, Torchlight Mining (U.S.) Inc.

The extraterritorial reach of the subpoena to TMC's Canadian operations raises certain cross-border considerations, including potential conflicts with Canadian privacy and data-protection laws (including the Personal Information Protection and Electronic Documents Act, or PIPEDA) and the potential applicability of blocking-statute provisions. C&H is analyzing these issues and will provide separate guidance as appropriate. At this stage, our preliminary view is that production of documents from TMC's Canadian systems to a U.S. grand jury can be accomplished in compliance with applicable Canadian law, subject to implementation of appropriate data-transfer protocols.

C. Estimated Volume and Production Approach

Based on our preliminary assessment of custodian data volumes and the range of data sources implicated by the subpoena, C&H estimates the total universe of potentially responsive documents at several hundred thousand items, likely in the range of 400,000 to 600,000 documents (prior to deduplication and the application of search terms and relevance filters). After the application of targeted search terms and date filters, we expect the reviewable document population to be substantially smaller, though still significant.

C&H has proposed to the DOJ a rolling production schedule, pursuant to which TMC will produce responsive, non-privileged documents on a periodic basis rather than in a single production at a fixed return date. This is standard practice in large-scale grand jury subpoena responses and allows TMC to demonstrate good faith and cooperation while managing the logistical realities of collection, processing, review, and privilege screening. Our first production is targeted for early April 2022, approximately six weeks after service of the subpoena.

To date, we have identified 34 custodians across TMC whose documents and communications are potentially responsive to the subpoena. These custodians span the U.S. Specialty Minerals Division as well as selected corporate-function personnel (finance, legal, and executive leadership). The data sources subject to collection include:

• Corporate email (Strathmore Data Systems / Ashbury Software);

• Shared network drives and departmental file shares;

• VaultChat archives (including server-side logs and device-level backups);

• Personal mobile devices, where company-related communications occurred on personal phones or tablets;

• Cloud storage repositories (including Cobalt Ridge Systems, Aldermere Systems, and Larkspur Technologies accounts); and

• Physical paper files in select instances.

Redstone Digital Forensics Inc. has been engaged to perform forensic collection from all identified data sources, process the collected data using industry-standard e-discovery tools, host the data on a secure review platform, and provide managed review support. Redstone's project director, Neil Ashworth, is coordinating directly with C&H associate Monica Reyes on the collection protocol and custodian prioritization.

IV. KEY INDIVIDUALS — PERSONS OF INTEREST

The following individuals have been identified, through our preliminary review of available documents and information, as persons of particular interest in connection with the DOJ investigation. This section provides background on each individual and our preliminary assessment of their relevance and potential exposure.

A. Gavin Holt — Former Vice President, U.S. Specialty Minerals Sales

Gavin Holt is the individual most directly implicated in the alleged anticompetitive conduct at the center of the DOJ investigation. Mr. Holt held the position of Vice President, U.S. Specialty Minerals Sales, and served as the head of the commercial pricing function for TMC's U.S. Specialty Minerals Division from approximately 2016 to 2021. In this capacity, Mr. Holt had primary responsibility for setting and adjusting prices for high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. customers, and he represented TMC at industry conferences and trade-association events, including NASMC quarterly conferences.

Mr. Holt resigned from TMC effective September 30, 2021 — approximately four and one-half months before the DOJ formally commenced the grand jury investigation and approximately two weeks after Cascade entered into its cooperation agreement with the DOJ. We do not know whether Mr. Holt's departure was motivated by awareness of the impending investigation, though the timing warrants close scrutiny during the internal investigation.

Based on our preliminary review of documents and communications available to us, Mr. Holt is the individual most directly linked to the alleged pricing communications with counterparts at Ridgecrest (Carl Edgerton, Vice President of Sales) and Pinnacle (Kevin Tsang, former Senior Vice President of Commercial Operations). Of particular significance, our preliminary review indicates that Mr. Holt used the VaultChat encrypted messaging application to communicate with these competitor representatives. The first documented VaultChat exchange between Mr. Holt and Mr. Edgerton that we have been able to identify was dated March 14, 2017, which is consistent with the approximate beginning of the alleged conspiracy period.

As of the date of this memorandum, Mr. Holt has not retained personal counsel, to the best of our knowledge. C&H anticipates that Mr. Holt may retain counsel in the near future, particularly if he becomes aware of the investigation through press reports or contact from the DOJ. We note the following critical considerations regarding Mr. Holt:

• Mr. Holt is a former employee of TMC. As such, TMC has limited ability to compel his cooperation in the internal investigation or in any proceeding. TMC cannot require Mr. Holt to submit to an interview, produce documents, or refrain from asserting his constitutional rights.

• Mr. Holt may assert his Fifth Amendment privilege against self-incrimination in response to any request for testimony, whether from TMC, the DOJ, or the grand jury.

• Mr. Holt's potential decision to cooperate with the DOJ — or to seek immunity in exchange for testimony — could significantly affect TMC's exposure and defense strategy. If Mr. Holt cooperates with the DOJ, he would likely provide testimony that is adverse to TMC's interests.

• Conversely, if Mr. Holt does not cooperate with the DOJ, the Department's ability to prove the alleged conspiracy against TMC may depend more heavily on documentary evidence and the testimony of other cooperators (including Cascade's personnel).

C&H will attempt to establish contact with Mr. Holt through available channels to determine whether he is willing to participate in TMC's internal investigation on a voluntary basis. However, we recognize that this effort may not be successful.

B. Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division

Sandra Chu currently holds the position of Director, Pricing Analytics, within TMC's U.S. Specialty Minerals Division. Ms. Chu reported directly to Gavin Holt during his tenure as Vice President of U.S. Specialty Minerals Sales and was responsible for the analytical work underlying TMC's pricing decisions for the three product categories at issue.

Ms. Chu is a significant fact witness regarding TMC's internal pricing processes, including the mechanisms by which price changes were proposed, analyzed, approved, and implemented. Our preliminary review of documents suggests that Ms. Chu received instructions from Mr. Holt to adjust published price lists on multiple occasions during the alleged conspiracy period. Of particular concern, the timing and direction of certain of those adjustments appear to correlate with price movements announced by Ridgecrest and Pinnacle in the same product categories. The degree to which this correlation reflects coincidence, legitimate market dynamics, or coordinated conduct is a central question for the internal investigation.

We have no indication at this time that Ms. Chu was aware of or participated in any direct communications between Mr. Holt and competitor personnel. However, her knowledge of the internal pricing process — and, critically, the instructions she received from Mr. Holt — will be essential to building the factual record. Ms. Chu remains employed by TMC, and C&H recommends that she be among the first witnesses interviewed in the internal investigation.

C. Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division

Thomas Eriksen is the Regional Sales Manager for the Western Region within TMC's U.S. Specialty Minerals Division. Mr. Eriksen's role involves direct customer engagement, pricing negotiations, and participation in industry events. Significantly, Mr. Eriksen attended NASMC quarterly conferences during the alleged conspiracy period. Our preliminary review of TMC's travel and expense records indicates that Mr. Eriksen attended approximately four NASMC conferences between 2017 and 2021 at which the alleged side meetings with competitor personnel are believed to have taken place. Conference locations identified in the records include Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida.

The DOJ may view Mr. Eriksen as a direct participant in or a witness to informal meetings, dinners, or discussions at NASMC events at which anticompetitive topics were discussed. His testimony regarding what occurred at these events — and, equally important, what did not occur — will be critical. Mr. Eriksen remains employed by TMC, and C&H recommends that he be interviewed at an early stage of the internal investigation.

D. Senior Leadership

C&H has also conducted a preliminary assessment of the involvement, if any, of TMC's senior leadership in the alleged conduct. Our findings at this stage are as follows:

Priya Anand, General Counsel: Ms. Anand oversaw TMC's initial document-preservation efforts in the immediate aftermath of the subpoena's receipt and prior to C&H's engagement. She has been instrumental in facilitating C&H's access to TMC's personnel and records. Based on our review to date, there is no indication that Ms. Anand had knowledge of or involvement in the alleged anticompetitive conduct. Ms. Anand's interview will be important to understanding the history of TMC's antitrust compliance program and the steps taken to preserve documents upon receipt of the subpoena.

Søren Dalmqvist, Chief Executive Officer: Mr. Dalmqvist is the ultimate decision-maker on TMC's cooperation and settlement strategy in connection with the investigation. Based on our review to date, there is no indication that Mr. Dalmqvist had personal involvement in or knowledge of the alleged conduct. Mr. Dalmqvist's engagement and support will be essential to implementing the cooperation strategy and remedial measures discussed in this memorandum.

Richard Fong, Chief Financial Officer: Mr. Fong is relevant to the investigation primarily in connection with financial disclosure and reserve-setting matters, as well as any questions regarding pricing authority delegation and financial controls within the U.S. Specialty Minerals Division. Based on our review to date, there is no indication that Mr. Fong had knowledge of or involvement in the alleged anticompetitive conduct.

Margaret Caldwell, Board Chair, and Janet Moreau-Shaw, Audit Committee Chair: Ms. Caldwell and Ms. Moreau-Shaw are relevant in their respective governance roles, particularly with respect to the Board's oversight of the investigation, disclosure obligations, and financial-reserve adequacy. There is no indication that either individual had knowledge of or involvement in the alleged conduct.

V. PRELIMINARY LEGAL FRAMEWORK AND EXPOSURE ASSESSMENT

A. Applicable Legal Framework

The alleged conduct at the center of the DOJ investigation — price-fixing, market allocation, and bid-rigging among horizontal competitors — constitutes a criminal violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Section 1 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Violations of Section 1 are felonies.

Under the DOJ Antitrust Division's long-standing Criminal Enforcement Policy, agreements among horizontal competitors to fix prices, allocate markets or customers, or rig bids are treated as per se unlawful. This means that, unlike many other categories of antitrust claims, the DOJ is not required to prove that the alleged conduct was unreasonable under a "rule of reason" analysis. The existence of an agreement to fix prices, allocate markets, or rig bids is itself sufficient to establish liability. The DOJ need not prove that the conspiracy was successful, that prices were actually elevated, or that any particular customer suffered harm — only that the agreement existed and that it affected, or was intended to affect, interstate or foreign commerce.

The potential criminal penalties for violations of Section 1 are severe:

• Corporate penalties: For a corporation, the maximum fine is the greater of (i) $100 million or (ii) twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss caused to victims of the offense, pursuant to 18 U.S.C. § 3571(d). In practice, this alternative-fine provision means that fines in large antitrust conspiracies can substantially exceed $100 million.

• Individual penalties: For an individual, the maximum fine is $1 million, and the maximum term of imprisonment is 10 years, pursuant to 15 U.S.C. § 1. In addition, individuals may be subject to an alternative fine under 18 U.S.C. § 3571(d) equal to twice the gross pecuniary gain or loss.

In practice, the DOJ Antitrust Division's standard starting point for calculating the monetary penalty for a corporate defendant is 20% of the volume of affected commerce — that is, the total sales of the relevant products made by the defendant during the period of the conspiracy. This figure is then adjusted upward or downward based on various factors, including the defendant's role in the conspiracy, its cooperation with the investigation, and the presence or absence of mitigating factors such as an effective compliance program.

In addition to monetary penalties, corporate defendants in antitrust criminal cases are typically subject to probation (often three to five years), mandatory compliance-program requirements, and court-imposed reporting obligations. The reputational consequences of a criminal antitrust conviction or plea — particularly for a publicly traded company — can also be substantial and may affect TMC's relationships with customers, regulators, and capital markets.

B. Preliminary Affected-Commerce Estimate

The volume of "affected commerce" is the key variable in estimating TMC's potential financial exposure. Affected commerce refers to the total value of TMC's U.S. sales of the relevant products (high-purity feldspar, industrial talc, and rare-earth concentrates) during the period of the alleged conspiracy.

Based on financial data provided by TMC's finance team, TMC's U.S. Specialty Minerals Division generated total revenue of approximately USD $687 million in fiscal year 2021. This figure encompasses all products sold by the Division, not solely the three product categories at issue. The alleged conspiracy period, as we currently understand it, spans from approximately January 2017 through August 2021 — a period of approximately four years and eight months.

Our preliminary estimate of TMC's aggregate U.S. sales in the three product categories during the conspiracy period is in the range of several hundred million dollars. We are continuing to refine this estimate based on product-level revenue data that TMC's finance team is compiling at our request. To arrive at a defensible estimate of affected commerce, C&H strongly recommends retaining a forensic economics expert (discussed further in Section VIII.B below) to conduct a rigorous analysis of TMC's sales data, the relevant product markets, and the overlap between TMC's sales and the alleged conspiracy's scope.

Looking beyond TMC's own sales, the DOJ's estimate of total affected commerce across all participants in the alleged conspiracy is likely to be substantial. Based on our understanding of the relative market positions of TMC, Ridgecrest, and Pinnacle in the North American specialty-minerals sector, we estimate that the DOJ's total affected-commerce figure across all participants could exceed USD $1 billion. This figure is significant because it influences the DOJ's overall approach to the case, the resources it is willing to devote to prosecution, and the penalties it will seek from each participant.

C. TMC's Potential Exposure Scenarios

Based on our preliminary analysis, we have identified the following exposure scenarios for TMC. These scenarios are preliminary and will be refined as the internal investigation progresses and as we obtain additional information from the DOJ.

Worst Case — Indictment: If the DOJ were to indict TMC — either as a result of a breakdown in cooperation or based on a determination that TMC's conduct warrants prosecution — the potential consequences would be significant. Applying the DOJ's standard 20% penalty metric to our preliminary affected-commerce estimate, a fine in the range potentially approaching or exceeding USD $95 million is conceivable, subject to refinement as affected-commerce data becomes more precise. In addition to the monetary fine, an indictment would expose TMC to the risk of conviction at trial, mandatory compliance obligations, probation, and severe reputational harm. As a dual-listed public company (TSX: TRCL; NYSE: TMC), TMC would face immediate and sustained adverse market reaction, potential customer defections, and heightened regulatory scrutiny in multiple jurisdictions.

Cooperation / Non-Prosecution Agreement Scenario: If TMC cooperates fully and promptly with the DOJ and can demonstrate effective remediation of the conduct and the compliance gaps that allowed it to occur, the DOJ's cooperation policies provide for significant credit in the disposition of the matter. Under the Antitrust Division's current policies, full and timely cooperation can result in a reduction of monetary penalties of 40% to 50% or more relative to the guidelines range. A non-prosecution agreement ("NPA") — under which the DOJ agrees not to prosecute TMC in exchange for TMC's cooperation, remediation, and payment of a monetary penalty — is a realistic outcome in this scenario, given TMC's cooperative posture and the absence of C-suite involvement in the alleged conduct. A deferred prosecution agreement ("DPA"), under which charges are filed but deferred and ultimately dismissed upon TMC's satisfaction of agreed-upon conditions, is an alternative outcome that is somewhat less favorable than an NPA but materially preferable to an indictment.

In either an NPA or DPA scenario, the monetary penalty would likely be substantially lower than in the indictment scenario — potentially in the range of USD $45 million to $60 million, though this estimate is highly preliminary and depends on numerous factors that will become clearer as the investigation progresses.

Individual Exposure — Gavin Holt: Gavin Holt faces significant individual criminal exposure. If the DOJ determines that Mr. Holt was a principal organizer or active participant in the alleged conspiracy, he could face individual indictment under Section 1 of the Sherman Act, with potential penalties including substantial fines and a term of imprisonment of up to 10 years. Any resolution of the matter between TMC and the DOJ may need to address the "Holt carve-out" — that is, whether the DOJ reserves the right to pursue Mr. Holt individually regardless of TMC's cooperation, or whether TMC's cooperation includes provisions regarding Mr. Holt's conduct. It is standard practice for the DOJ to require cooperating companies to provide evidence and testimony against culpable individuals as a condition of cooperation credit.

Civil Follow-On Risk: It is well established that DOJ criminal antitrust investigations frequently trigger private civil litigation. Under Section 4 of the Clayton Act, 15 U.S.C. § 15, private plaintiffs who have been injured by anticompetitive conduct may bring civil actions to recover treble damages (i.e., three times their actual damages), plus attorneys' fees and costs. Class actions on behalf of direct and indirect purchasers of the relevant products are commonplace in the wake of publicized antitrust investigations. TMC should be prepared for the filing of one or more private treble-damages class actions following public disclosure of the DOJ investigation. The potential civil exposure is separate from and additive to the criminal penalties discussed above and could be substantial.

D. Mitigating Factors

Notwithstanding the seriousness of the DOJ investigation and the potential exposure described above, TMC's position includes several significant mitigating factors that, in our assessment, meaningfully improve the company's prospects for a favorable resolution:

1. No C-Suite or Board Involvement. Based on our review to date, there is no evidence that TMC's senior leadership — including CEO Søren Dalmqvist, General Counsel Priya Anand, CFO Richard Fong, or any member of the Board of Directors — had knowledge of, authorized, or participated in the alleged anticompetitive conduct. The conduct appears to have been confined to a small number of individuals within the U.S. Specialty Minerals Division, principally Gavin Holt. The absence of senior-management involvement is a significant mitigating factor under the DOJ's corporate prosecution policies and sentencing guidelines.

2. Departure of Principal Wrongdoer. Gavin Holt, the individual most directly implicated in the alleged conduct, departed TMC effective September 30, 2021 — prior to the commencement of the grand jury investigation. His departure reduces the ongoing risk of continued anticompetitive conduct and demonstrates that TMC is not continuing to employ or protect the individual responsible.

3. Existing Compliance Program. TMC adopted an antitrust compliance policy in approximately 2014, which reflects an institutional commitment to lawful competitive practices. However, we note candidly that C&H's preliminary assessment of the compliance program reveals significant gaps: annual antitrust compliance training was not conducted after approximately 2018; the program did not include monitoring of trade-association interactions; and there was no systematic audit of employee contacts with competitors. While the existence of a compliance program is a mitigating factor, its deficiencies may limit the credit TMC receives under the DOJ's evaluation of the program's effectiveness. Remediation of these gaps should be a priority, as discussed in our recommended next steps.

4. Early Engagement of Counsel and Cooperative Posture. TMC engaged C&H promptly upon receipt of the subpoena and has demonstrated a willingness to cooperate fully with the DOJ. Early engagement of experienced antitrust counsel, prompt issuance of litigation holds, and a forthcoming approach to document production are all factors that the DOJ considers favorably in assessing cooperation credit.

VI. DOCUMENT PRESERVATION AND COLLECTION STATUS

A. Litigation Hold

Upon C&H's engagement, we worked with General Counsel Priya Anand to implement a comprehensive litigation hold designed to ensure the preservation of all documents and electronically stored information potentially relevant to the DOJ investigation. The following steps have been taken:

• Company-Wide Litigation Hold (March 1, 2022): A company-wide litigation hold notice was issued on March 1, 2022, under the signature of General Counsel Priya Anand. The notice was distributed to all TMC employees globally via email and posted on TMC's internal compliance portal. The notice directed all employees to preserve documents and ESI in their possession, custody, or control that could be relevant to the investigation, including emails, instant messages, text messages, VaultChat messages, documents stored on shared drives or cloud platforms, handwritten notes, and physical documents. The notice instructed employees to suspend all routine document-retention and auto-deletion policies pending further notice.

• Supplemental Targeted Hold (March 1, 2022): A supplemental targeted hold was issued on the same date, directed specifically to personnel in TMC's U.S. Specialty Minerals Division and other individuals identified as potential custodians. This hold included custodian-specific preservation instructions tailored to each individual's role and data sources, with particular emphasis on the preservation of VaultChat encrypted messages, personal mobile device content where company-related communications may have occurred, and all materials related to trade-association memberships, conferences, and events.

• C&H Preservation Guidance Memorandum (March 2, 2022): C&H transmitted a detailed memorandum to General Counsel Priya Anand regarding TMC's legal obligations to preserve documents and ESI in the context of a pending grand jury investigation. The memorandum addressed the severe consequences of document destruction or spoliation, including potential obstruction-of-justice charges, adverse inferences, and the impact on cooperation credit.

We are monitoring custodian compliance with the litigation hold through periodic acknowledgment confirmations and will implement follow-up reminders as necessary.

B. Data Collection

Redstone Digital Forensics Inc. was retained on March 15, 2022, to perform all forensic data collection, processing, hosting, and managed review in connection with the subpoena response. The following summarizes the current status of data collection:

• Custodians: Thirty-four (34) custodians have been identified across TMC whose documents and communications are potentially responsive to the subpoena. Custodians include current and former employees in the U.S. Specialty Minerals Division (sales, pricing, operations, and management), corporate-function personnel (legal, finance, executive leadership), and selected individuals with trade-association-related responsibilities. The custodian list was finalized in a data collection protocol and custodian list memorandum issued on March 18, 2022, prepared by C&H associate Monica Reyes and approved by C&H partner Elaine Forsythe.

• Data Sources: As described in Section III.C above, the data sources subject to collection include corporate email (Strathmore Data Systems / Ashbury Software), shared network drives, VaultChat archives (server-side logs and device-level backups), personal mobile devices, and cloud storage repositories. Redstone has commenced forensic imaging and collection from TMC's U.S. systems in Reno, Nevada, and from TMC's Canadian headquarters systems in Toronto, Ontario. Cross-border data transfer is being conducted in accordance with applicable privacy and data-protection requirements.

• First Production Target: C&H has targeted the first rolling production of documents to the DOJ for early April 2022. Based on current processing and review timelines, we anticipate that the first production will consist of approximately 42,000 documents drawn from the highest-priority custodians and the most directly responsive data sources.

C. Privilege Review

The protection of TMC's attorney-client privilege and work-product materials is a critical component of the subpoena response. C&H has established a comprehensive privilege review protocol, set forth in a memorandum dated March 10, 2022, which addresses the following:

• Standards for identification of materials protected by the attorney-client privilege and the work-product doctrine, including communications with in-house counsel (Priya Anand and her team), communications with outside counsel (including C&H and any prior counsel), and litigation-related materials prepared in anticipation of this or other proceedings;

• Review workflow within Redstone's hosting and review platform, including first-level reviewer instructions, quality-control sampling, escalation procedures for ambiguous privilege determinations, and partner-level final review of all privilege calls;

• Privilege log format and content, in compliance with applicable federal rules and Northern District of California local rules; and

• Clawback provisions addressing the inadvertent production of privileged materials.

In addition, C&H will seek entry of a Federal Rule of Evidence 502(d) order from the court supervising the grand jury proceedings. A Rule 502(d) order provides that the disclosure of privileged or work-product-protected information in connection with a federal proceeding does not constitute a waiver of the privilege or protection in any federal or state proceeding. This order provides an important safety net against the consequences of any inadvertent production of privileged materials in the context of a high-volume, accelerated document production.

VII. INSURANCE AND FINANCIAL CONSIDERATIONS

A. Directors & Officers Liability Insurance

TMC maintains a Directors & Officers Liability Insurance policy with Northland Mutual Insurance Co. ("Northland"), Policy No. NMI-DO-2021-5547. The policy period is July 1, 2021, through July 1, 2022, subject to annual renewal. C&H tendered notice of the DOJ investigation to Northland on March 4, 2022, in accordance with the policy's notice provisions.

The key financial parameters of TMC's D&O insurance program are as follows:

C&H is separately preparing a detailed coverage analysis memorandum addressing the following issues, among others:

• Whether and to what extent the Northland policy provides entity defense-cost coverage for TMC's costs in defending the grand jury investigation, including attorneys' fees, e-discovery vendor costs, and forensic expert fees;

• Whether and to what extent the policy provides individual officer and director coverage for individuals who may be personally investigated or charged;

• The applicability of the policy's regulatory-proceeding and criminal-act exclusion, and specifically whether this exclusion operates at the pre-adjudication stage (i.e., whether Northland is obligated to advance defense costs prior to a final adjudication of criminal liability); and

• Coordination among the primary and excess layers in the event that defense costs approach or exceed the primary policy's aggregate limit.

We anticipate receiving Northland's initial response to the notice of claim within the coming weeks. C&H will advise TMC promptly upon receipt of Northland's coverage position and will engage with Northland's coverage counsel as necessary to protect TMC's rights under the policy.

B. Public Disclosure Obligations

TMC is a dual-listed public company, with its shares traded on the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC). As such, TMC is subject to the continuous disclosure requirements of both Canadian securities regulators (through the Canadian Securities Administrators and SEDAR+) and the U.S. Securities and Exchange Commission (through its Form 40-F filing obligations as a foreign private issuer).

The existence of the DOJ grand jury investigation constitutes a material contingency that requires disclosure in TMC's public filings. TMC's fiscal year 2021 annual report — which is anticipated to be filed on SEDAR+ and with the SEC on Form 40-F on or about March 28, 2022 — should include appropriate disclosure of the investigation in the legal-proceedings and risk-factors sections of the annual report. C&H is working with TMC's securities counsel and investor-relations team to prepare disclosure language that accurately describes the investigation and TMC's response while avoiding unnecessary prejudice to TMC's legal position. The disclosure should note that the investigation is in its early stages, that TMC is cooperating with the DOJ, and that the ultimate outcome and financial impact of the investigation cannot be determined at this time.

In connection with the public disclosure, C&H recommends that TMC establish an initial litigation reserve. Based on the current early stage of the investigation and the range of potential outcomes discussed in Section V.C above, we believe that an initial reserve in the range of USD $30 million is appropriate under the applicable accounting standards — specifically, ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under IFRS. This reserve reflects our preliminary estimate of the low end of the reasonably possible range of outcomes in a cooperation scenario and is subject to refinement as the matter develops and as the affected-commerce analysis is completed.

C&H will coordinate with Calvert & Associates LLP, TMC's independent auditor (engagement partner: Daniel Moreau), and Ironbridge Capital Markets Inc., TMC's financial advisor (relationship partner: Alan Kirkwood), regarding the adequacy, accounting treatment, and disclosure of the reserve. It is important that the reserve amount and the associated disclosure language be carefully calibrated to comply with applicable accounting standards and securities-law requirements while preserving TMC's litigation position.

C. Engagement Budget

Per the engagement letter dated February 18, 2022, Calderwood & Harkness LLP's hourly billing rates for this matter are as follows:

Disbursements (including travel, copying, courier, and similar costs) are billed at cost, plus applicable markups as set forth in the engagement letter.

C&H's initial budget estimate for the internal investigation and grand jury defense phase of this matter is USD $12 million. This estimate covers C&H's professional fees through a projected period of approximately 12 to 18 months and includes the conduct of the internal investigation, witness interviews, document review and production, DOJ negotiations, and related advisory work. This estimate does not include vendor costs — principally the fees of Redstone Digital Forensics Inc. for e-discovery services and the fees of any forensic accounting or economics expert that may be retained — which are separate line items that will be estimated and tracked independently.

C&H will provide quarterly status reports and budget updates to TMC's General Counsel and CFO, and will flag any material changes to the budget estimate as they arise. We are committed to managing this engagement efficiently while providing the thoroughness and quality of representation that the matter demands.

VIII. RECOMMENDED IMMEDIATE NEXT STEPS

Based on the foregoing analysis, C&H recommends that TMC take the following immediate actions. Each recommendation is explained in further detail below.

A. Internal Investigation

C&H recommends that TMC authorize the launch of a comprehensive internal investigation to determine the scope and nature of the alleged anticompetitive conduct, identify all individuals who participated in or had knowledge of the conduct, and develop the factual record necessary to inform TMC's defense and cooperation strategy. An internal investigation is a predicate to any meaningful cooperation with the DOJ, as the Antitrust Division expects cooperating companies to provide a comprehensive factual account of the conduct at issue.

C&H will prepare a detailed internal investigation plan for submission to TMC's General Counsel and CEO. The plan will address the scope of the investigation, the staffing and resource requirements, the witness interview schedule, the document review methodology, and the anticipated timeline for completion of the investigation's principal phases. We are targeting issuance of the investigation plan within one week of the date of this memorandum.

The priority witness interviews for the initial phase of the internal investigation are as follows:

1. Sandra Chu — Director, Pricing Analytics: As discussed in Section IV.B, Ms. Chu is a critical fact witness regarding TMC's internal pricing processes and the instructions she received from Gavin Holt. Her interview should be conducted at the earliest practicable date.

2. Thomas Eriksen — Regional Sales Manager (Western Region): As discussed in Section IV.C, Mr. Eriksen attended multiple NASMC conferences during the alleged conspiracy period and may have direct knowledge of interactions between TMC personnel and competitor representatives at those events.

3. Additional U.S. Specialty Minerals Division Personnel: Other individuals within the Division who may have knowledge of pricing practices, competitor interactions, or trade-association activities will be identified and prioritized as the investigation progresses.

4. Gavin Holt — Former VP, U.S. Specialty Minerals Sales: C&H will attempt to arrange a voluntary interview with Mr. Holt through any available channels, including direct outreach and, if he retains counsel, through his counsel. We recognize, however, that Mr. Holt is under no obligation to cooperate and may decline.

5. Priya Anand — General Counsel: Ms. Anand's interview will focus on the history of TMC's antitrust compliance program, the steps taken to preserve documents upon receipt of the subpoena, and any knowledge she may have regarding the pricing practices of the U.S. Specialty Minerals Division.

6. Richard Fong — Chief Financial Officer: Mr. Fong's interview will address the delegation of pricing authority within TMC, the financial controls applicable to the U.S. Specialty Minerals Division, and the financial data necessary for the affected-commerce analysis.

B. Forensic Economics Expert

C&H recommends that TMC retain a forensic accounting and economics expert to conduct a rigorous analysis of pricing patterns in the North American specialty-minerals market, assess the volume of affected commerce attributable to TMC during the alleged conspiracy period, and provide a defensible basis for penalty-range estimates. This analysis is essential to TMC's ability to engage credibly with the DOJ on potential monetary penalties and to establish an appropriate litigation reserve.

C&H has identified Hargrove Forensic Advisory LLC, a Chicago-based forensic economics and consulting firm, as a suitable candidate for this engagement. The proposed engagement partner is Dr. Vanessa Tremblay, who has extensive experience in antitrust damages and affected-commerce analysis in the mining and industrial-minerals sectors. We recommend engaging Hargrove in the second quarter of 2022, once sufficient underlying financial data has been compiled and the internal investigation has progressed to the point where the scope of the alleged conduct is more clearly defined.

C. Grand Jury Subpoena Compliance

C&H will continue to manage the document collection, processing, review, and production process on an accelerated timeline to demonstrate TMC's good faith and cooperation with the DOJ. The key near-term milestones for subpoena compliance are:

• Complete the first rolling production to the DOJ by early April 2022, with an anticipated volume of approximately 42,000 documents drawn from the highest-priority custodians and data sources;

• Continue rolling productions on a regular cadence (approximately every three to four weeks) through the remainder of 2022, with the goal of completing substantially all productions by year-end 2022; and

• Maintain ongoing communication with the DOJ regarding production status, any issues arising during the review process, and any requests for prioritization of specific document categories or custodians.

D. Cooperation Strategy

Based on our assessment of the facts and circumstances known to us at this time, C&H's preliminary recommendation is that TMC adopt a posture of full cooperation with the DOJ Antitrust Division. This recommendation is grounded in the following considerations:

(i) The absence of C-suite involvement in the alleged conduct significantly reduces the reputational and governance risks associated with co

CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104
Telephone: (415) 391-7000 Facsimile: (415) 391-7001 www.calderwoodharkness.com
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
This memorandum has been prepared by Calderwood & Harkness LLP in connection with the provision of legal advice to Torchlight Mining Corp. and its subsidiaries, and in anticipation of litigation. It is protected from disclosure by the attorney-client privilege and the work-product doctrine. This memorandum contains the mental impressions, conclusions, opinions, and legal theories of the attorneys at Calderwood & Harkness LLP. It is not to be disclosed, disseminated, distributed, or copied, in whole or in part, to any third party — including any co-defendant, joint-venture partner, insurer, auditor, or financial advisor — without the prior express written consent of Calderwood & Harkness LLP. Any inadvertent disclosure of this memorandum does not constitute a waiver of any applicable privilege or protection. If you have received this memorandum in error, please notify Calderwood & Harkness LLP immediately and return or destroy all copies.
March 15, 2022
MEMORANDUM
I. EXECUTIVE SUMMARY
The purpose of this memorandum is to provide Torchlight Mining Corp. ("TMC") — through its Chief Executive Officer, Søren Dalmqvist, and its General Counsel, Priya Anand — with a comprehensive initial assessment of the grand jury investigation commenced by the Antitrust Division of the United States Department of Justice ("DOJ"), the scope of the grand jury subpoena served on TMC, a preliminary review of TMC's potential legal exposure under applicable federal antitrust statutes, and our recommended immediate next steps for TMC's response and defense strategy.
This matter was opened on February 10, 2022, when the DOJ formally commenced Grand Jury Investigation No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. Four days later, on February 14, 2022, TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 at its U.S. principal office in Reno, Nevada. TMC engaged Calderwood & Harkness LLP ("C&H") on February 18, 2022, and we have been working diligently since that date to understand the scope of the investigation, preserve and collect relevant documents, and develop an initial assessment of TMC's position.
The DOJ investigation concerns suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, with a particular focus on three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These are core products within TMC's U.S. Specialty Minerals Division, and the investigation squarely implicates TMC's commercial activities in these markets during the period from approximately January 2017 through August 2021.
Based on our preliminary analysis, the investigation involves at least three producer entities — TMC, Ridgecrest Minerals Inc. ("Ridgecrest"), and Pinnacle Earth Resources Ltd. ("Pinnacle") — as well as one cooperating witness entity, Cascade Chemical Supply Co. ("Cascade"), which entered into a cooperation agreement with the DOJ in approximately September 2021. The cooperation of Cascade, a downstream distributor and processor of specialty minerals, appears to have been the catalyst for the broader investigation into upstream producers such as TMC.
This status report covers the following subjects:
(a) Background and investigation timeline;
(b) The scope of Grand Jury Subpoena No. GJ-22-0194-SD-003;
(c) Key individuals and entities involved in the investigation;
(d) Preliminary legal framework and exposure assessment;
(e) Document preservation and collection status;
(f) Insurance and financial considerations, including public disclosure obligations; and
(g) Recommended immediate next steps and timeline.
As set forth in greater detail below, while the DOJ investigation represents a serious legal matter that warrants TMC's sustained attention and significant resources, we believe that TMC's position is not without meaningful mitigating factors. Most notably, there is no evidence at this stage that TMC's C-suite leadership or Board of Directors had knowledge of or authorized the alleged anticompetitive conduct. The individual most directly implicated — former Vice President of U.S. Specialty Minerals Sales, Gavin Holt — departed the company in September 2021, before the grand jury investigation commenced. TMC's early engagement of outside counsel and its willingness to cooperate with the DOJ are favorable factors under the Department's cooperation policies. Our preliminary recommendation is that TMC adopt a posture of full cooperation with the DOJ, subject to the results of the internal investigation and formal Board authorization, as this path offers the strongest prospect of achieving a non-prosecution agreement or, at minimum, a deferred prosecution agreement with significantly reduced monetary penalties.
II. BACKGROUND AND INVESTIGATION TIMELINE
A. Origin of the Investigation
Based on information available to us at this time — including details gleaned from the face of the grand jury subpoena, our initial conversations with DOJ counsel, and publicly available information — the investigation originated with the cooperation of Cascade Chemical Supply Co., a Washington state corporation headquartered in Spokane, Washington. Cascade is a downstream distributor and processor of specialty minerals that purchases raw and semi-processed materials from upstream producers, including TMC, Ridgecrest, and Pinnacle. Cascade's president is Leonard Massey, and the company is represented in connection with its cooperation by Whitfield, Strauss & Tully LLP, a Seattle-based law firm, with Rebecca Ostrander serving as lead partner on the engagement.
We understand that Cascade entered into a formal cooperation agreement with the DOJ Antitrust Division on approximately September 15, 2021. The precise terms of that agreement are not available to us, but it is standard practice in Antitrust Division investigations for a cooperating entity to provide both documentary evidence and witness testimony in exchange for leniency or immunity from prosecution. We anticipate that Cascade's cooperation provided the DOJ with documents and testimony that formed the evidentiary basis for opening the broader investigation into upstream producers — that is, the companies suspected of coordinating pricing, allocating markets, and rigging bids among themselves.
Separately, Ridgecrest Minerals Inc., a Delaware corporation headquartered in Denver, Colorado, received a target letter from the DOJ on approximately January 12, 2022 — approximately one month before the grand jury investigation was formally opened. The issuance of a target letter to Ridgecrest is a significant development because it indicates that, as of that date, the DOJ had already accumulated sufficient evidence to identify Ridgecrest as a likely defendant. Ridgecrest is a portfolio company of Marlowe Asset Management Peak Capital Partners LP, a mid-market private equity fund, and its CEO is Brian Novotny. Ridgecrest is represented by Davenport, Kline & Archer LLP, a Denver-based firm, with Helen Marchetti serving as lead partner.
We note that TMC has not, as of the date of this memorandum, received a target letter from the DOJ. The absence of a target letter is a noteworthy distinction, though it does not necessarily indicate that the DOJ views TMC's potential culpability as materially different from Ridgecrest's. It may simply reflect the DOJ's sequencing of investigative steps, or it may be an early indication that the DOJ's evidence against Ridgecrest is, at this stage, more developed. We will continue to monitor this issue closely.
B. Formal Opening and TMC's Involvement
The following timeline sets forth the key events in the investigation from its formal opening through the date of this memorandum:
February 10, 2022: The DOJ formally opens Grand Jury Investigation No. GJ-22-0194 in the United States District Court for the Northern District of California, San Francisco Division. The investigation is supervised by the Antitrust Division's Criminal Enforcement Section in Washington, D.C. The lead prosecutors assigned to the matter are Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, both of the DOJ Antitrust Division's San Francisco Field Office, located at 450 Golden Gate Avenue, Room 10-0101, San Francisco, California 94102. The Supervising Deputy Assistant Attorney General overseeing the investigation is Julia Stafford-Hayes.
February 14, 2022: TMC receives Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 at its U.S. principal office, located at Torchlight Mining (U.S.) Inc., 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117. The subpoena was served on TMC's registered agent and immediately forwarded to General Counsel Priya Anand. The initial return date specified in the subpoena was March 16, 2022.
February 18, 2022: TMC formally engages Calderwood & Harkness LLP to represent it in connection with the grand jury investigation. The engagement letter, executed on this date, established the scope of the representation, including defense of the grand jury subpoena, conduct of an internal investigation, and, as appropriate, negotiation with the DOJ regarding potential resolution of the matter.
February 22, 2022: C&H transmits a letter to the DOJ Antitrust Division (attention: Trial Attorney Denise Kowalski) acknowledging receipt of the subpoena, confirming C&H's representation of TMC, and requesting a 60-day extension of the initial return date to allow sufficient time for document collection, review, and production. This request is standard practice in grand jury subpoena matters and is consistent with the DOJ's typical willingness to accommodate reasonable production schedules. As of this writing, the DOJ has informally indicated that it is amenable to the extension, and we expect formal confirmation shortly.
March 1, 2022: C&H issues a company-wide litigation hold notice under the signature of General Counsel Priya Anand, directing all TMC employees to preserve documents and electronically stored information ("ESI") potentially relevant to the investigation. Simultaneously, C&H issues a supplemental targeted hold directed specifically to personnel in TMC's U.S. Specialty Minerals Division, including custodian-specific preservation instructions covering VaultChat encrypted messages, personal devices used for company-related communications, and trade-association-related materials.
March 2, 2022: C&H transmits a detailed memorandum to General Counsel Priya Anand regarding TMC's document preservation obligations under federal law, including the potential consequences of document destruction or spoliation in the context of a pending grand jury investigation.
March 4, 2022: C&H tenders notice of the grand jury investigation to Northland Mutual Insurance Co. ("Northland") under TMC's Directors & Officers Liability Insurance Policy, Policy No. NMI-DO-2021-5547. The notice was transmitted to Northland's claims department in accordance with the policy's notice provisions. A discussion of insurance coverage considerations appears in Section VII below.
March 15, 2022: C&H retains Redstone Digital Forensics Inc. ("Redstone"), a digital forensics and electronic discovery firm based in McLean, Virginia, to perform forensic data collection, processing, hosting, and managed review of TMC's ESI in connection with the grand jury subpoena response. The project director assigned by Redstone is Neil Ashworth, a certified forensic examiner with extensive experience in DOJ antitrust investigations.
C. Co-Subjects and Other Entities
In addition to TMC, the following entities and individuals are known to be subjects of or otherwise involved in the DOJ investigation:
Pinnacle Earth Resources Ltd. ("Pinnacle"): An Ontario corporation headquartered in Sudbury, Ontario, Canada, with U.S. operations based in Salt Lake City, Utah. Pinnacle's CEO is Douglas Harlowe. Of particular significance, Pinnacle's former Senior Vice President of Commercial Operations, Kevin Tsang, has been identified as a key individual in the investigation. Mr. Tsang is believed to have been a direct counterpart of Gavin Holt (TMC) and Carl Edgerton (Ridgecrest) in the alleged anticompetitive communications. Pinnacle is represented by Ashford Whitmore LLP, a firm with offices in Toronto and New York, with George Nakamura serving as lead partner.
Ridgecrest Minerals Inc. ("Ridgecrest"): As described above, Ridgecrest is a Delaware corporation headquartered in Denver, Colorado, and a portfolio company of Marlowe Asset Management Peak Capital Partners LP. Its CEO is Brian Novotny. Ridgecrest's Vice President of Sales, Carl Edgerton, has been identified in DOJ materials as a key participant in the alleged conspiracy. Ridgecrest received a target letter from the DOJ on approximately January 12, 2022, and is represented by Davenport, Kline & Archer LLP (Helen Marchetti, lead partner).
Cascade Chemical Supply Co. ("Cascade"): As described above, Cascade is the cooperating witness entity that triggered the investigation. It is a Washington state corporation headquartered in Spokane, Washington, led by president Leonard Massey, and represented by Whitfield, Strauss & Tully LLP (Rebecca Ostrander, lead partner).
North American Specialty Minerals Council ("NASMC"): NASMC is a 501(c)(6) tax-exempt trade association headquartered at 2300 Wilson Boulevard, Suite 400, Arlington, Virginia 22201. NASMC organizes quarterly industry conferences attended by participants across the specialty-minerals value chain and publishes pricing benchmarks and market reports for various mineral products. The DOJ suspects that several allegedly anticompetitive meetings occurred on the margins of NASMC conferences held between 2017 and 2021 — specifically, that representatives of TMC, Ridgecrest, and Pinnacle used these conferences as opportunities to coordinate pricing and allocate markets outside of the formal conference proceedings. NASMC's role as a venue for the alleged conduct does not necessarily implicate the organization itself as a participant in the conspiracy, but its records, conference attendee lists, and meeting minutes are likely to be sought by the DOJ and are within the scope of TMC's subpoena obligations.
III. SCOPE OF GRAND JURY SUBPOENA NO. GJ-22-0194-SD-003
A. Document Categories Requested
Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 is a comprehensive and broadly drafted subpoena that requests the production of documents across a wide range of categories. The principal categories of documents and information requested are as follows:
1. Product-Related Documents. All documents relating to the pricing, sale, marketing, production, and distribution of high-purity feldspar, industrial talc, and rare-earth concentrates in the United States and North America, including but not limited to contracts, invoices, purchase orders, shipping records, production schedules, inventory records, and sales reports, for the period from January 1, 2015, through the date of the subpoena (February 14, 2022).
2. Competitor Communications. All communications between any TMC employee, officer, director, or agent and any employee, officer, director, or agent of Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. (or any of their respective subsidiaries or affiliates), relating to pricing, pricing strategies, price lists, price increases or decreases, customer allocation, geographic market allocation, bid proposals, bid submissions, bid coordination, market conditions, supply conditions, capacity, or any other aspect of the competitive dynamics of the high-purity feldspar, industrial talc, and rare-earth concentrates markets.
3. Internal Pricing Documents. All internal pricing analyses, price lists, price matrices, price-change notifications, price-change authorizations, pricing-committee meeting records, pricing-approval workflows, and any other documents reflecting TMC's process for setting, adjusting, or approving prices for the three product categories.
4. Trade Association Documents. All documents related to TMC's membership in, attendance at, or participation in trade associations, industry groups, and industry conferences, with specific reference to the North American Specialty Minerals Council (NASMC) and its quarterly conferences and events, including but not limited to attendance records, registration confirmations, meeting agendas, meeting minutes, presentation materials, and communications with other attendees.
5. Customer Contracts and Bids. All customer contracts, customer proposals, bid submissions, requests for proposals (RFPs), requests for quotations (RFQs), and related communications for the three product categories, including documents reflecting the award or non-award of customer accounts or supply contracts.
6. Personnel Records. Personnel files, employment agreements, separation agreements, non-competition agreements, non-disclosure agreements, and organizational charts for TMC's U.S. Specialty Minerals Division, including but not limited to the files of any individual who held a position involving pricing, sales, business development, or competitor relations during the relevant period.
7. Electronic Communications — All Platforms. All communications via any medium or platform, including but not limited to corporate email, personal email used for company business, instant messaging platforms, text messages, and encrypted messaging applications, with specific reference to the VaultChat application. The subpoena expressly identifies VaultChat by name and requests all communications transmitted or received through VaultChat by any TMC employee in connection with the three product categories or communications with competitors.
The breadth of these categories is notable but not unusual for a DOJ Antitrust Division grand jury subpoena. The express identification of VaultChat suggests that the DOJ — likely through Cascade's cooperation — has specific intelligence regarding the use of encrypted messaging by individuals involved in the alleged conspiracy. This is a significant detail and will require careful attention during the document collection and review process, as discussed further in Section VI below.
B. Temporal and Geographic Scope
The temporal scope of the subpoena extends from January 1, 2015, through February 14, 2022 — a period of approximately seven years. This is broader than the alleged conspiracy period (approximately January 2017 through August 2021, based on our current understanding), which is not uncommon in DOJ investigations. The DOJ typically requests documents predating the alleged conspiracy to identify the formation of the conspiracy and establish baseline competitive conditions, and documents postdating the conspiracy to identify continuing effects or potential obstruction.
The geographic scope of the subpoena is U.S.-focused but extends to all communications touching United States commerce in the three product categories, regardless of where the communications originated or where the communicating parties were physically located. This means that communications originating from or sent to TMC's Canadian headquarters in Toronto, Ontario, are within scope to the extent they relate to U.S. sales, U.S. customers, or U.S. market conditions for the relevant products. The subpoena expressly encompasses both TMC's Canadian headquarters and its U.S. subsidiary, Torchlight Mining (U.S.) Inc.
The extraterritorial reach of the subpoena to TMC's Canadian operations raises certain cross-border considerations, including potential conflicts with Canadian privacy and data-protection laws (including the Personal Information Protection and Electronic Documents Act, or PIPEDA) and the potential applicability of blocking-statute provisions. C&H is analyzing these issues and will provide separate guidance as appropriate. At this stage, our preliminary view is that production of documents from TMC's Canadian systems to a U.S. grand jury can be accomplished in compliance with applicable Canadian law, subject to implementation of appropriate data-transfer protocols.
C. Estimated Volume and Production Approach
Based on our preliminary assessment of custodian data volumes and the range of data sources implicated by the subpoena, C&H estimates the total universe of potentially responsive documents at several hundred thousand items, likely in the range of 400,000 to 600,000 documents (prior to deduplication and the application of search terms and relevance filters). After the application of targeted search terms and date filters, we expect the reviewable document population to be substantially smaller, though still significant.
C&H has proposed to the DOJ a rolling production schedule, pursuant to which TMC will produce responsive, non-privileged documents on a periodic basis rather than in a single production at a fixed return date. This is standard practice in large-scale grand jury subpoena responses and allows TMC to demonstrate good faith and cooperation while managing the logistical realities of collection, processing, review, and privilege screening. Our first production is targeted for early April 2022, approximately six weeks after service of the subpoena.
To date, we have identified 34 custodians across TMC whose documents and communications are potentially responsive to the subpoena. These custodians span the U.S. Specialty Minerals Division as well as selected corporate-function personnel (finance, legal, and executive leadership). The data sources subject to collection include:
• Corporate email (Strathmore Data Systems / Ashbury Software);
• Shared network drives and departmental file shares;
• VaultChat archives (including server-side logs and device-level backups);
• Personal mobile devices, where company-related communications occurred on personal phones or tablets;
• Cloud storage repositories (including Cobalt Ridge Systems, Aldermere Systems, and Larkspur Technologies accounts); and
• Physical paper files in select instances.
Redstone Digital Forensics Inc. has been engaged to perform forensic collection from all identified data sources, process the collected data using industry-standard e-discovery tools, host the data on a secure review platform, and provide managed review support. Redstone's project director, Neil Ashworth, is coordinating directly with C&H associate Monica Reyes on the collection protocol and custodian prioritization.
IV. KEY INDIVIDUALS — PERSONS OF INTEREST
The following individuals have been identified, through our preliminary review of available documents and information, as persons of particular interest in connection with the DOJ investigation. This section provides background on each individual and our preliminary assessment of their relevance and potential exposure.
A. Gavin Holt — Former Vice President, U.S. Specialty Minerals Sales
Gavin Holt is the individual most directly implicated in the alleged anticompetitive conduct at the center of the DOJ investigation. Mr. Holt held the position of Vice President, U.S. Specialty Minerals Sales, and served as the head of the commercial pricing function for TMC's U.S. Specialty Minerals Division from approximately 2016 to 2021. In this capacity, Mr. Holt had primary responsibility for setting and adjusting prices for high-purity feldspar, industrial talc, and rare-earth concentrates sold to U.S. customers, and he represented TMC at industry conferences and trade-association events, including NASMC quarterly conferences.
Mr. Holt resigned from TMC effective September 30, 2021 — approximately four and one-half months before the DOJ formally commenced the grand jury investigation and approximately two weeks after Cascade entered into its cooperation agreement with the DOJ. We do not know whether Mr. Holt's departure was motivated by awareness of the impending investigation, though the timing warrants close scrutiny during the internal investigation.
Based on our preliminary review of documents and communications available to us, Mr. Holt is the individual most directly linked to the alleged pricing communications with counterparts at Ridgecrest (Carl Edgerton, Vice President of Sales) and Pinnacle (Kevin Tsang, former Senior Vice President of Commercial Operations). Of particular significance, our preliminary review indicates that Mr. Holt used the VaultChat encrypted messaging application to communicate with these competitor representatives. The first documented VaultChat exchange between Mr. Holt and Mr. Edgerton that we have been able to identify was dated March 14, 2017, which is consistent with the approximate beginning of the alleged conspiracy period.
As of the date of this memorandum, Mr. Holt has not retained personal counsel, to the best of our knowledge. C&H anticipates that Mr. Holt may retain counsel in the near future, particularly if he becomes aware of the investigation through press reports or contact from the DOJ. We note the following critical considerations regarding Mr. Holt:
• Mr. Holt is a former employee of TMC. As such, TMC has limited ability to compel his cooperation in the internal investigation or in any proceeding. TMC cannot require Mr. Holt to submit to an interview, produce documents, or refrain from asserting his constitutional rights.
• Mr. Holt may assert his Fifth Amendment privilege against self-incrimination in response to any request for testimony, whether from TMC, the DOJ, or the grand jury.
• Mr. Holt's potential decision to cooperate with the DOJ — or to seek immunity in exchange for testimony — could significantly affect TMC's exposure and defense strategy. If Mr. Holt cooperates with the DOJ, he would likely provide testimony that is adverse to TMC's interests.
• Conversely, if Mr. Holt does not cooperate with the DOJ, the Department's ability to prove the alleged conspiracy against TMC may depend more heavily on documentary evidence and the testimony of other cooperators (including Cascade's personnel).
C&H will attempt to establish contact with Mr. Holt through available channels to determine whether he is willing to participate in TMC's internal investigation on a voluntary basis. However, we recognize that this effort may not be successful.
B. Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division
Sandra Chu currently holds the position of Director, Pricing Analytics, within TMC's U.S. Specialty Minerals Division. Ms. Chu reported directly to Gavin Holt during his tenure as Vice President of U.S. Specialty Minerals Sales and was responsible for the analytical work underlying TMC's pricing decisions for the three product categories at issue.
Ms. Chu is a significant fact witness regarding TMC's internal pricing processes, including the mechanisms by which price changes were proposed, analyzed, approved, and implemented. Our preliminary review of documents suggests that Ms. Chu received instructions from Mr. Holt to adjust published price lists on multiple occasions during the alleged conspiracy period. Of particular concern, the timing and direction of certain of those adjustments appear to correlate with price movements announced by Ridgecrest and Pinnacle in the same product categories. The degree to which this correlation reflects coincidence, legitimate market dynamics, or coordinated conduct is a central question for the internal investigation.
We have no indication at this time that Ms. Chu was aware of or participated in any direct communications between Mr. Holt and competitor personnel. However, her knowledge of the internal pricing process — and, critically, the instructions she received from Mr. Holt — will be essential to building the factual record. Ms. Chu remains employed by TMC, and C&H recommends that she be among the first witnesses interviewed in the internal investigation.
C. Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division
Thomas Eriksen is the Regional Sales Manager for the Western Region within TMC's U.S. Specialty Minerals Division. Mr. Eriksen's role involves direct customer engagement, pricing negotiations, and participation in industry events. Significantly, Mr. Eriksen attended NASMC quarterly conferences during the alleged conspiracy period. Our preliminary review of TMC's travel and expense records indicates that Mr. Eriksen attended approximately four NASMC conferences between 2017 and 2021 at which the alleged side meetings with competitor personnel are believed to have taken place. Conference locations identified in the records include Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida.
The DOJ may view Mr. Eriksen as a direct participant in or a witness to informal meetings, dinners, or discussions at NASMC events at which anticompetitive topics were discussed. His testimony regarding what occurred at these events — and, equally important, what did not occur — will be critical. Mr. Eriksen remains employed by TMC, and C&H recommends that he be interviewed at an early stage of the internal investigation.
D. Senior Leadership
C&H has also conducted a preliminary assessment of the involvement, if any, of TMC's senior leadership in the alleged conduct. Our findings at this stage are as follows:
Priya Anand, General Counsel: Ms. Anand oversaw TMC's initial document-preservation efforts in the immediate aftermath of the subpoena's receipt and prior to C&H's engagement. She has been instrumental in facilitating C&H's access to TMC's personnel and records. Based on our review to date, there is no indication that Ms. Anand had knowledge of or involvement in the alleged anticompetitive conduct. Ms. Anand's interview will be important to understanding the history of TMC's antitrust compliance program and the steps taken to preserve documents upon receipt of the subpoena.
Søren Dalmqvist, Chief Executive Officer: Mr. Dalmqvist is the ultimate decision-maker on TMC's cooperation and settlement strategy in connection with the investigation. Based on our review to date, there is no indication that Mr. Dalmqvist had personal involvement in or knowledge of the alleged conduct. Mr. Dalmqvist's engagement and support will be essential to implementing the cooperation strategy and remedial measures discussed in this memorandum.
Richard Fong, Chief Financial Officer: Mr. Fong is relevant to the investigation primarily in connection with financial disclosure and reserve-setting matters, as well as any questions regarding pricing authority delegation and financial controls within the U.S. Specialty Minerals Division. Based on our review to date, there is no indication that Mr. Fong had knowledge of or involvement in the alleged anticompetitive conduct.
Margaret Caldwell, Board Chair, and Janet Moreau-Shaw, Audit Committee Chair: Ms. Caldwell and Ms. Moreau-Shaw are relevant in their respective governance roles, particularly with respect to the Board's oversight of the investigation, disclosure obligations, and financial-reserve adequacy. There is no indication that either individual had knowledge of or involvement in the alleged conduct.
V. PRELIMINARY LEGAL FRAMEWORK AND EXPOSURE ASSESSMENT
A. Applicable Legal Framework
The alleged conduct at the center of the DOJ investigation — price-fixing, market allocation, and bid-rigging among horizontal competitors — constitutes a criminal violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Section 1 prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Violations of Section 1 are felonies.
Under the DOJ Antitrust Division's long-standing Criminal Enforcement Policy, agreements among horizontal competitors to fix prices, allocate markets or customers, or rig bids are treated as per se unlawful. This means that, unlike many other categories of antitrust claims, the DOJ is not required to prove that the alleged conduct was unreasonable under a "rule of reason" analysis. The existence of an agreement to fix prices, allocate markets, or rig bids is itself sufficient to establish liability. The DOJ need not prove that the conspiracy was successful, that prices were actually elevated, or that any particular customer suffered harm — only that the agreement existed and that it affected, or was intended to affect, interstate or foreign commerce.
The potential criminal penalties for violations of Section 1 are severe:
• Corporate penalties: For a corporation, the maximum fine is the greater of (i) $100 million or (ii) twice the gross pecuniary gain derived from the offense or twice the gross pecuniary loss caused to victims of the offense, pursuant to 18 U.S.C. § 3571(d). In practice, this alternative-fine provision means that fines in large antitrust conspiracies can substantially exceed $100 million.
• Individual penalties: For an individual, the maximum fine is $1 million, and the maximum term of imprisonment is 10 years, pursuant to 15 U.S.C. § 1. In addition, individuals may be subject to an alternative fine under 18 U.S.C. § 3571(d) equal to twice the gross pecuniary gain or loss.
In practice, the DOJ Antitrust Division's standard starting point for calculating the monetary penalty for a corporate defendant is 20% of the volume of affected commerce — that is, the total sales of the relevant products made by the defendant during the period of the conspiracy. This figure is then adjusted upward or downward based on various factors, including the defendant's role in the conspiracy, its cooperation with the investigation, and the presence or absence of mitigating factors such as an effective compliance program.
In addition to monetary penalties, corporate defendants in antitrust criminal cases are typically subject to probation (often three to five years), mandatory compliance-program requirements, and court-imposed reporting obligations. The reputational consequences of a criminal antitrust conviction or plea — particularly for a publicly traded company — can also be substantial and may affect TMC's relationships with customers, regulators, and capital markets.
B. Preliminary Affected-Commerce Estimate
The volume of "affected commerce" is the key variable in estimating TMC's potential financial exposure. Affected commerce refers to the total value of TMC's U.S. sales of the relevant products (high-purity feldspar, industrial talc, and rare-earth concentrates) during the period of the alleged conspiracy.
Based on financial data provided by TMC's finance team, TMC's U.S. Specialty Minerals Division generated total revenue of approximately USD $687 million in fiscal year 2021. This figure encompasses all products sold by the Division, not solely the three product categories at issue. The alleged conspiracy period, as we currently understand it, spans from approximately January 2017 through August 2021 — a period of approximately four years and eight months.
Our preliminary estimate of TMC's aggregate U.S. sales in the three product categories during the conspiracy period is in the range of several hundred million dollars. We are continuing to refine this estimate based on product-level revenue data that TMC's finance team is compiling at our request. To arrive at a defensible estimate of affected commerce, C&H strongly recommends retaining a forensic economics expert (discussed further in Section VIII.B below) to conduct a rigorous analysis of TMC's sales data, the relevant product markets, and the overlap between TMC's sales and the alleged conspiracy's scope.
Looking beyond TMC's own sales, the DOJ's estimate of total affected commerce across all participants in the alleged conspiracy is likely to be substantial. Based on our understanding of the relative market positions of TMC, Ridgecrest, and Pinnacle in the North American specialty-minerals sector, we estimate that the DOJ's total affected-commerce figure across all participants could exceed USD $1 billion. This figure is significant because it influences the DOJ's overall approach to the case, the resources it is willing to devote to prosecution, and the penalties it will seek from each participant.
C. TMC's Potential Exposure Scenarios
Based on our preliminary analysis, we have identified the following exposure scenarios for TMC. These scenarios are preliminary and will be refined as the internal investigation progresses and as we obtain additional information from the DOJ.
Worst Case — Indictment: If the DOJ were to indict TMC — either as a result of a breakdown in cooperation or based on a determination that TMC's conduct warrants prosecution — the potential consequences would be significant. Applying the DOJ's standard 20% penalty metric to our preliminary affected-commerce estimate, a fine in the range potentially approaching or exceeding USD $95 million is conceivable, subject to refinement as affected-commerce data becomes more precise. In addition to the monetary fine, an indictment would expose TMC to the risk of conviction at trial, mandatory compliance obligations, probation, and severe reputational harm. As a dual-listed public company (TSX: TRCL; NYSE: TMC), TMC would face immediate and sustained adverse market reaction, potential customer defections, and heightened regulatory scrutiny in multiple jurisdictions.
Cooperation / Non-Prosecution Agreement Scenario: If TMC cooperates fully and promptly with the DOJ and can demonstrate effective remediation of the conduct and the compliance gaps that allowed it to occur, the DOJ's cooperation policies provide for significant credit in the disposition of the matter. Under the Antitrust Division's current policies, full and timely cooperation can result in a reduction of monetary penalties of 40% to 50% or more relative to the guidelines range. A non-prosecution agreement ("NPA") — under which the DOJ agrees not to prosecute TMC in exchange for TMC's cooperation, remediation, and payment of a monetary penalty — is a realistic outcome in this scenario, given TMC's cooperative posture and the absence of C-suite involvement in the alleged conduct. A deferred prosecution agreement ("DPA"), under which charges are filed but deferred and ultimately dismissed upon TMC's satisfaction of agreed-upon conditions, is an alternative outcome that is somewhat less favorable than an NPA but materially preferable to an indictment.
In either an NPA or DPA scenario, the monetary penalty would likely be substantially lower than in the indictment scenario — potentially in the range of USD $45 million to $60 million, though this estimate is highly preliminary and depends on numerous factors that will become clearer as the investigation progresses.
Individual Exposure — Gavin Holt: Gavin Holt faces significant individual criminal exposure. If the DOJ determines that Mr. Holt was a principal organizer or active participant in the alleged conspiracy, he could face individual indictment under Section 1 of the Sherman Act, with potential penalties including substantial fines and a term of imprisonment of up to 10 years. Any resolution of the matter between TMC and the DOJ may need to address the "Holt carve-out" — that is, whether the DOJ reserves the right to pursue Mr. Holt individually regardless of TMC's cooperation, or whether TMC's cooperation includes provisions regarding Mr. Holt's conduct. It is standard practice for the DOJ to require cooperating companies to provide evidence and testimony against culpable individuals as a condition of cooperation credit.
Civil Follow-On Risk: It is well established that DOJ criminal antitrust investigations frequently trigger private civil litigation. Under Section 4 of the Clayton Act, 15 U.S.C. § 15, private plaintiffs who have been injured by anticompetitive conduct may bring civil actions to recover treble damages (i.e., three times their actual damages), plus attorneys' fees and costs. Class actions on behalf of direct and indirect purchasers of the relevant products are commonplace in the wake of publicized antitrust investigations. TMC should be prepared for the filing of one or more private treble-damages class actions following public disclosure of the DOJ investigation. The potential civil exposure is separate from and additive to the criminal penalties discussed above and could be substantial.
D. Mitigating Factors
Notwithstanding the seriousness of the DOJ investigation and the potential exposure described above, TMC's position includes several significant mitigating factors that, in our assessment, meaningfully improve the company's prospects for a favorable resolution:
1. No C-Suite or Board Involvement. Based on our review to date, there is no evidence that TMC's senior leadership — including CEO Søren Dalmqvist, General Counsel Priya Anand, CFO Richard Fong, or any member of the Board of Directors — had knowledge of, authorized, or participated in the alleged anticompetitive conduct. The conduct appears to have been confined to a small number of individuals within the U.S. Specialty Minerals Division, principally Gavin Holt. The absence of senior-management involvement is a significant mitigating factor under the DOJ's corporate prosecution policies and sentencing guidelines.
2. Departure of Principal Wrongdoer. Gavin Holt, the individual most directly implicated in the alleged conduct, departed TMC effective September 30, 2021 — prior to the commencement of the grand jury investigation. His departure reduces the ongoing risk of continued anticompetitive conduct and demonstrates that TMC is not continuing to employ or protect the individual responsible.
3. Existing Compliance Program. TMC adopted an antitrust compliance policy in approximately 2014, which reflects an institutional commitment to lawful competitive practices. However, we note candidly that C&H's preliminary assessment of the compliance program reveals significant gaps: annual antitrust compliance training was not conducted after approximately 2018; the program did not include monitoring of trade-association interactions; and there was no systematic audit of employee contacts with competitors. While the existence of a compliance program is a mitigating factor, its deficiencies may limit the credit TMC receives under the DOJ's evaluation of the program's effectiveness. Remediation of these gaps should be a priority, as discussed in our recommended next steps.
4. Early Engagement of Counsel and Cooperative Posture. TMC engaged C&H promptly upon receipt of the subpoena and has demonstrated a willingness to cooperate fully with the DOJ. Early engagement of experienced antitrust counsel, prompt issuance of litigation holds, and a forthcoming approach to document production are all factors that the DOJ considers favorably in assessing cooperation credit.
VI. DOCUMENT PRESERVATION AND COLLECTION STATUS
A. Litigation Hold
Upon C&H's engagement, we worked with General Counsel Priya Anand to implement a comprehensive litigation hold designed to ensure the preservation of all documents and electronically stored information potentially relevant to the DOJ investigation. The following steps have been taken:
• Company-Wide Litigation Hold (March 1, 2022): A company-wide litigation hold notice was issued on March 1, 2022, under the signature of General Counsel Priya Anand. The notice was distributed to all TMC employees globally via email and posted on TMC's internal compliance portal. The notice directed all employees to preserve documents and ESI in their possession, custody, or control that could be relevant to the investigation, including emails, instant messages, text messages, VaultChat messages, documents stored on shared drives or cloud platforms, handwritten notes, and physical documents. The notice instructed employees to suspend all routine document-retention and auto-deletion policies pending further notice.
• Supplemental Targeted Hold (March 1, 2022): A supplemental targeted hold was issued on the same date, directed specifically to personnel in TMC's U.S. Specialty Minerals Division and other individuals identified as potential custodians. This hold included custodian-specific preservation instructions tailored to each individual's role and data sources, with particular emphasis on the preservation of VaultChat encrypted messages, personal mobile device content where company-related communications may have occurred, and all materials related to trade-association memberships, conferences, and events.
• C&H Preservation Guidance Memorandum (March 2, 2022): C&H transmitted a detailed memorandum to General Counsel Priya Anand regarding TMC's legal obligations to preserve documents and ESI in the context of a pending grand jury investigation. The memorandum addressed the severe consequences of document destruction or spoliation, including potential obstruction-of-justice charges, adverse inferences, and the impact on cooperation credit.
We are monitoring custodian compliance with the litigation hold through periodic acknowledgment confirmations and will implement follow-up reminders as necessary.
B. Data Collection
Redstone Digital Forensics Inc. was retained on March 15, 2022, to perform all forensic data collection, processing, hosting, and managed review in connection with the subpoena response. The following summarizes the current status of data collection:
• Custodians: Thirty-four (34) custodians have been identified across TMC whose documents and communications are potentially responsive to the subpoena. Custodians include current and former employees in the U.S. Specialty Minerals Division (sales, pricing, operations, and management), corporate-function personnel (legal, finance, executive leadership), and selected individuals with trade-association-related responsibilities. The custodian list was finalized in a data collection protocol and custodian list memorandum issued on March 18, 2022, prepared by C&H associate Monica Reyes and approved by C&H partner Elaine Forsythe.
• Data Sources: As described in Section III.C above, the data sources subject to collection include corporate email (Strathmore Data Systems / Ashbury Software), shared network drives, VaultChat archives (server-side logs and device-level backups), personal mobile devices, and cloud storage repositories. Redstone has commenced forensic imaging and collection from TMC's U.S. systems in Reno, Nevada, and from TMC's Canadian headquarters systems in Toronto, Ontario. Cross-border data transfer is being conducted in accordance with applicable privacy and data-protection requirements.
• First Production Target: C&H has targeted the first rolling production of documents to the DOJ for early April 2022. Based on current processing and review timelines, we anticipate that the first production will consist of approximately 42,000 documents drawn from the highest-priority custodians and the most directly responsive data sources.
C. Privilege Review
The protection of TMC's attorney-client privilege and work-product materials is a critical component of the subpoena response. C&H has established a comprehensive privilege review protocol, set forth in a memorandum dated March 10, 2022, which addresses the following:
• Standards for identification of materials protected by the attorney-client privilege and the work-product doctrine, including communications with in-house counsel (Priya Anand and her team), communications with outside counsel (including C&H and any prior counsel), and litigation-related materials prepared in anticipation of this or other proceedings;
• Review workflow within Redstone's hosting and review platform, including first-level reviewer instructions, quality-control sampling, escalation procedures for ambiguous privilege determinations, and partner-level final review of all privilege calls;
• Privilege log format and content, in compliance with applicable federal rules and Northern District of California local rules; and
• Clawback provisions addressing the inadvertent production of privileged materials.
In addition, C&H will seek entry of a Federal Rule of Evidence 502(d) order from the court supervising the grand jury proceedings. A Rule 502(d) order provides that the disclosure of privileged or work-product-protected information in connection with a federal proceeding does not constitute a waiver of the privilege or protection in any federal or state proceeding. This order provides an important safety net against the consequences of any inadvertent production of privileged materials in the context of a high-volume, accelerated document production.
VII. INSURANCE AND FINANCIAL CONSIDERATIONS
A. Directors & Officers Liability Insurance
TMC maintains a Directors & Officers Liability Insurance policy with Northland Mutual Insurance Co. ("Northland"), Policy No. NMI-DO-2021-5547. The policy period is July 1, 2021, through July 1, 2022, subject to annual renewal. C&H tendered notice of the DOJ investigation to Northland on March 4, 2022, in accordance with the policy's notice provisions.
The key financial parameters of TMC's D&O insurance program are as follows:
C&H is separately preparing a detailed coverage analysis memorandum addressing the following issues, among others:
• Whether and to what extent the Northland policy provides entity defense-cost coverage for TMC's costs in defending the grand jury investigation, including attorneys' fees, e-discovery vendor costs, and forensic expert fees;
• Whether and to what extent the policy provides individual officer and director coverage for individuals who may be personally investigated or charged;
• The applicability of the policy's regulatory-proceeding and criminal-act exclusion, and specifically whether this exclusion operates at the pre-adjudication stage (i.e., whether Northland is obligated to advance defense costs prior to a final adjudication of criminal liability); and
• Coordination among the primary and excess layers in the event that defense costs approach or exceed the primary policy's aggregate limit.
We anticipate receiving Northland's initial response to the notice of claim within the coming weeks. C&H will advise TMC promptly upon receipt of Northland's coverage position and will engage with Northland's coverage counsel as necessary to protect TMC's rights under the policy.
B. Public Disclosure Obligations
TMC is a dual-listed public company, with its shares traded on the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC). As such, TMC is subject to the continuous disclosure requirements of both Canadian securities regulators (through the Canadian Securities Administrators and SEDAR+) and the U.S. Securities and Exchange Commission (through its Form 40-F filing obligations as a foreign private issuer).
The existence of the DOJ grand jury investigation constitutes a material contingency that requires disclosure in TMC's public filings. TMC's fiscal year 2021 annual report — which is anticipated to be filed on SEDAR+ and with the SEC on Form 40-F on or about March 28, 2022 — should include appropriate disclosure of the investigation in the legal-proceedings and risk-factors sections of the annual report. C&H is working with TMC's securities counsel and investor-relations team to prepare disclosure language that accurately describes the investigation and TMC's response while avoiding unnecessary prejudice to TMC's legal position. The disclosure should note that the investigation is in its early stages, that TMC is cooperating with the DOJ, and that the ultimate outcome and financial impact of the investigation cannot be determined at this time.
In connection with the public disclosure, C&H recommends that TMC establish an initial litigation reserve. Based on the current early stage of the investigation and the range of potential outcomes discussed in Section V.C above, we believe that an initial reserve in the range of USD $30 million is appropriate under the applicable accounting standards — specifically, ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under IFRS. This reserve reflects our preliminary estimate of the low end of the reasonably possible range of outcomes in a cooperation scenario and is subject to refinement as the matter develops and as the affected-commerce analysis is completed.
C&H will coordinate with Calvert & Associates LLP, TMC's independent auditor (engagement partner: Daniel Moreau), and Ironbridge Capital Markets Inc., TMC's financial advisor (relationship partner: Alan Kirkwood), regarding the adequacy, accounting treatment, and disclosure of the reserve. It is important that the reserve amount and the associated disclosure language be carefully calibrated to comply with applicable accounting standards and securities-law requirements while preserving TMC's litigation position.
C. Engagement Budget
Per the engagement letter dated February 18, 2022, Calderwood & Harkness LLP's hourly billing rates for this matter are as follows:
Disbursements (including travel, copying, courier, and similar costs) are billed at cost, plus applicable markups as set forth in the engagement letter.
C&H's initial budget estimate for the internal investigation and grand jury defense phase of this matter is USD $12 million. This estimate covers C&H's professional fees through a projected period of approximately 12 to 18 months and includes the conduct of the internal investigation, witness interviews, document review and production, DOJ negotiations, and related advisory work. This estimate does not include vendor costs — principally the fees of Redstone Digital Forensics Inc. for e-discovery services and the fees of any forensic accounting or economics expert that may be retained — which are separate line items that will be estimated and tracked independently.
C&H will provide quarterly status reports and budget updates to TMC's General Counsel and CFO, and will flag any material changes to the budget estimate as they arise. We are committed to managing this engagement efficiently while providing the thoroughness and quality of representation that the matter demands.
VIII. RECOMMENDED IMMEDIATE NEXT STEPS
Based on the foregoing analysis, C&H recommends that TMC take the following immediate actions. Each recommendation is explained in further detail below.
A. Internal Investigation
C&H recommends that TMC authorize the launch of a comprehensive internal investigation to determine the scope and nature of the alleged anticompetitive conduct, identify all individuals who participated in or had knowledge of the conduct, and develop the factual record necessary to inform TMC's defense and cooperation strategy. An internal investigation is a predicate to any meaningful cooperation with the DOJ, as the Antitrust Division expects cooperating companies to provide a comprehensive factual account of the conduct at issue.
C&H will prepare a detailed internal investigation plan for submission to TMC's General Counsel and CEO. The plan will address the scope of the investigation, the staffing and resource requirements, the witness interview schedule, the document review methodology, and the anticipated timeline for completion of the investigation's principal phases. We are targeting issuance of the investigation plan within one week of the date of this memorandum.
The priority witness interviews for the initial phase of the internal investigation are as follows:
1. Sandra Chu — Director, Pricing Analytics: As discussed in Section IV.B, Ms. Chu is a critical fact witness regarding TMC's internal pricing processes and the instructions she received from Gavin Holt. Her interview should be conducted at the earliest practicable date.
2. Thomas Eriksen — Regional Sales Manager (Western Region): As discussed in Section IV.C, Mr. Eriksen attended multiple NASMC conferences during the alleged conspiracy period and may have direct knowledge of interactions between TMC personnel and competitor representatives at those events.
3. Additional U.S. Specialty Minerals Division Personnel: Other individuals within the Division who may have knowledge of pricing practices, competitor interactions, or trade-association activities will be identified and prioritized as the investigation progresses.
4. Gavin Holt — Former VP, U.S. Specialty Minerals Sales: C&H will attempt to arrange a voluntary interview with Mr. Holt through any available channels, including direct outreach and, if he retains counsel, through his counsel. We recognize, however, that Mr. Holt is under no obligation to cooperate and may decline.
5. Priya Anand — General Counsel: Ms. Anand's interview will focus on the history of TMC's antitrust compliance program, the steps taken to preserve documents upon receipt of the subpoena, and any knowledge she may have regarding the pricing practices of the U.S. Specialty Minerals Division.
6. Richard Fong — Chief Financial Officer: Mr. Fong's interview will address the delegation of pricing authority within TMC, the financial controls applicable to the U.S. Specialty Minerals Division, and the financial data necessary for the affected-commerce analysis.
B. Forensic Economics Expert
C&H recommends that TMC retain a forensic accounting and economics expert to conduct a rigorous analysis of pricing patterns in the North American specialty-minerals market, assess the volume of affected commerce attributable to TMC during the alleged conspiracy period, and provide a defensible basis for penalty-range estimates. This analysis is essential to TMC's ability to engage credibly with the DOJ on potential monetary penalties and to establish an appropriate litigation reserve.
C&H has identified Hargrove Forensic Advisory LLC, a Chicago-based forensic economics and consulting firm, as a suitable candidate for this engagement. The proposed engagement partner is Dr. Vanessa Tremblay, who has extensive experience in antitrust damages and affected-commerce analysis in the mining and industrial-minerals sectors. We recommend engaging Hargrove in the second quarter of 2022, once sufficient underlying financial data has been compiled and the internal investigation has progressed to the point where the scope of the alleged conduct is more clearly defined.
C. Grand Jury Subpoena Compliance
C&H will continue to manage the document collection, processing, review, and production process on an accelerated timeline to demonstrate TMC's good faith and cooperation with the DOJ. The key near-term milestones for subpoena compliance are:
• Complete the first rolling production to the DOJ by early April 2022, with an anticipated volume of approximately 42,000 documents drawn from the highest-priority custodians and data sources;
• Continue rolling productions on a regular cadence (approximately every three to four weeks) through the remainder of 2022, with the goal of completing substantially all productions by year-end 2022; and
• Maintain ongoing communication with the DOJ regarding production status, any issues arising during the review process, and any requests for prioritization of specific document categories or custodians.
D. Cooperation Strategy
Based on our assessment of the facts and circumstances known to us at this time, C&H's preliminary recommendation is that TMC adopt a posture of full cooperation with the DOJ Antitrust Division. This recommendation is grounded in the following considerations:
(i) The absence of C-suite involvement in the alleged conduct significantly reduces the reputational and governance risks associated with co