letter-doj-transmitting-counter-draft-npa.docx

1039-00001 · Torchlight Mining Corp · documents

letter-doj-transmitting-counter-draft-npa.docx DOCUMENT Litigation

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CONTAINS INFORMATION SUBJECT TO FEDERAL RULE OF CRIMINAL PROCEDURE 6(e) ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT PRIVILEGED COMMUNICATION

CALDERWOOD & HARKNESS LLP Attorneys at Law

555 California Street, 40th Floor San Francisco, California 94104

Telephone: (415) 723-8800 Facsimile: (415) 723-8801 www.calderwoodharkness.com

Elaine Forsythe Partner Antitrust & Competition Practice Group Direct Dial: (415) 723-8847

Email: eforsythe@calderwoodharkness.com

February 5, 2024

VIA EMAIL AND Severin Partners LLC OVERNIGHT

Julia Stafford-Hayes Deputy Assistant Attorney General Antitrust Division U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, D.C. 20530

Re: In the Matter of Torchlight Mining Corp. — Grand Jury No. GJ-22-0194 (N.D. Cal.); DOJ Reference No. ATR-SF-2024-00312 — Submission of Torchlight Mining Corp.'s Counter-Draft Non-Prosecution Agreement

Dear Deputy Assistant Attorney General Stafford-Hayes:

I. Introduction and Purpose

We write on behalf of our client, Torchlight Mining Corp. ("TMC" or the "Company"), a corporation organized and existing under the Canada Business Corporations Act (CBCA Corporation No. 7841526-1), with its registered office at 200 Bay Street, Suite 3400, Toronto, Ontario, M5J 2J2, Canada. TMC's principal U.S. operations are conducted through its wholly-owned subsidiary, Torchlight Mining (U.S.) Inc. (Nevada Entity No. NV20160438721), located at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117. Calderwood & Harkness LLP has represented TMC in this matter since our engagement on February 18, 2022, in connection with the grand jury investigation designated Grand Jury No. GJ-22-0194, pending before the U.S. District Court for the Northern District of California, San Francisco Division, into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector.

The purpose of this letter is to transmit TMC's counter-draft of the proposed Non-Prosecution Agreement (the "NPA"), which responds to the Antitrust Division's initial draft circulated to this firm on January 10, 2024. TMC's counter-draft reflects careful consideration of the Division's proposed terms and the product of extensive internal deliberation by TMC's Board of Directors, senior management, and outside counsel.

Enclosed herewith, please find TMC's counter-draft of the NPA in clean form, together with a separate redline comparison marked against the Division's January 10, 2024 draft, which we provide for the Division's convenience in identifying the specific language that TMC has proposed to modify. This cover letter summarizes TMC's positions on the principal points of disagreement between the parties and offers our reasoning in support of the proposed revisions. We have endeavored to present TMC's positions in a manner that will facilitate productive discussion and, we hope, the efficient resolution of the remaining open issues.

II. Background and Context of TMC's Cooperation

Before turning to the substance of the counter-draft, we believe it is important to place TMC's proposed terms in the context of the Company's extensive, voluntary, and timely cooperation with the Division's investigation since its inception on February 10, 2022. TMC's cooperation has been comprehensive in scope and has materially advanced the Division's investigative objectives. We summarize the principal elements of that cooperation below.

Document Production. In response to the grand jury's first subpoena (GJ-22-0194-SD-003), TMC produced approximately 487,000 documents. Following issuance of the second subpoena (GJ-22-0194-SD-007), TMC produced an additional approximately 68,000 documents. In total, TMC has produced approximately 555,000 documents to the Division, encompassing in excess of 3.2 million pages. These productions were completed on a rolling basis and within the timeframes agreed upon by the parties, and included electronic communications, internal pricing analyses, bid documentation, sales records, and corporate governance materials spanning the entire period of alleged conduct and beyond. TMC undertook substantial efforts to ensure the completeness and accuracy of these productions, including engaging a third-party e-discovery vendor to conduct comprehensive searches across multiple custodians, data sources, and foreign-language repositories.

Internal Investigation. Calderwood & Harkness conducted a thorough and independent internal investigation on TMC's behalf. This investigation encompassed interviews of twenty-three (23) current and former TMC employees, including individuals at every relevant level of the Company's U.S. Specialty Minerals Division, as well as corporate officers and members of the Board of Directors. The investigation also involved a complete review of the produced document universe and an analysis of the relevant commercial transactions. The results of our investigation were shared with the Division to the extent consistent with the Company's privileges and cooperative obligations, including through the written proffer submitted on February 15, 2023, and the supplemental cooperation submission dated May 1, 2023.

Witness Cooperation. TMC voluntarily made available two key employees for proffer sessions with the Division. Sandra Chu, Director, Pricing Analytics, U.S. Specialty Minerals Division, participated in a voluntary proffer session with the Division on March 10, 2023. Thomas Eriksen, Regional Sales Manager, Western Region, U.S. Specialty Minerals Division, participated in a voluntary proffer session on April 22, 2023. TMC facilitated both employees' participation, including by providing counsel and by ensuring that the employees were fully prepared to respond to the Division's inquiries in a forthcoming and comprehensive manner. TMC's cooperation in making these witnesses available was voluntary and was not compelled by any subpoena or other process.

Written Proffer and Supplemental Submissions. TMC submitted a detailed written proffer to the Division on February 15, 2023, setting forth the Company's understanding of the relevant facts and the results of its internal investigation. A supplemental cooperation submission was provided on May 1, 2023, addressing additional topics identified during the course of the Division's investigation and our ongoing dialogue with the Division's attorneys.

Compliance Remediation. TMC retained Meridian Compliance Partners LLC, a nationally recognized compliance consultancy, to assist in the design and implementation of an enhanced antitrust compliance program. TMC submitted the resulting Enhanced Antitrust Compliance Program proposal to the Division on September 15, 2023. This program includes, among other elements, mandatory training for all employees in commercial roles, a revised code of conduct, enhanced audit and monitoring procedures, a confidential reporting hotline, and a disciplinary framework for compliance violations. TMC has already begun implementing key components of this program, well in advance of the execution of any NPA.

In light of the foregoing, TMC respectfully submits that its cooperation has been voluntary, timely, and comprehensive, and that it merits the maximum cooperation credit available under the Antitrust Division's policies and applicable guidance, including the Division's Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations and the Leniency Policy framework. TMC's cooperation has been exemplary, and we believe that the terms of the NPA should reflect that cooperation accordingly.

III. Enclosures

This letter is accompanied by the following enclosed documents:

1. Non-Prosecution Agreement — TMC Counter-Draft (Clean), dated February 5, 2024; and

2. Redline Comparison — DOJ Initial Draft (January 10, 2024) vs. TMC Counter-Draft (February 5, 2024).

TMC's counter-draft also includes revised drafts of Appendix A (Enhanced Antitrust Compliance Program) and Appendix B (Agreed Statement of Facts), reflecting TMC's proposed revisions to each appendix. The redline comparison encompasses the revisions to both the body of the NPA and the appendices. We discuss the principal areas of disagreement in detail below.

IV. Summary of Key Points of Disagreement

TMC's counter-draft addresses seven principal areas of disagreement with the Division's January 10, 2024 initial draft. We summarize TMC's positions on each of these issues in turn.

A. Monetary Payment

The Division's Proposal. The Division's initial draft proposes that TMC make a monetary payment of approximately sixty-five million U.S. dollars (USD $65,000,000) as a condition of the NPA.

TMC's Counter-Proposal. TMC's counter-draft proposes a monetary payment of forty-eight million, five hundred thousand U.S. dollars (USD $48,500,000).

TMC's Position and Reasoning. TMC's proposed figure is grounded in the Division's established methodology and reflects the application of appropriate cooperation and remediation credits.

TMC's share of affected commerce during the alleged conspiracy period — approximately January 2017 through August 2021 — is approximately four hundred seventy-eight million U.S. dollars (USD $478,000,000). This figure represents approximately 35.7% of the total estimated affected commerce of approximately one billion, three hundred forty million U.S. dollars (USD $1,340,000,000) across all identified participants in the alleged conspiracy. Applying the Division's standard starting point of twenty percent (20%) of affected commerce, the baseline calculation yields a figure of approximately ninety-five million, six hundred thousand U.S. dollars (USD $95,600,000) (i.e., USD $478,000,000 × 20%).

TMC submits that a cooperation and remediation credit of approximately 49.2% from the baseline figure is warranted in this case, resulting in a proposed payment of USD $48,500,000. This credit reflects the following factors, which TMC respectfully submits are among the most compelling available in any cooperation case:

(a) Breadth of Document Production. TMC produced approximately 555,000 documents totaling in excess of 3.2 million pages, representing a comprehensive and timely response to the grand jury's subpoenas and a level of production that materially exceeded the scope of what was legally required.

(b) Voluntary Witness Proffers. TMC voluntarily made Sandra Chu and Thomas Eriksen available for proffer sessions with the Division, providing the Division with access to critical percipient witnesses well in advance of any trial preparation.

(c) Early and Affirmative Commitment to Cooperation. TMC communicated its commitment to cooperate with the Division's investigation on June 8, 2022 — less than four months after the investigation commenced — and has maintained that commitment without interruption throughout the investigation.

(d) Proactive Compliance Remediation. TMC retained Meridian Compliance Partners LLC and submitted the Enhanced Antitrust Compliance Program to the Division on September 15, 2023, demonstrating TMC's genuine commitment to preventing recurrence of the alleged conduct.

(e) Absence of Senior Management Involvement. There is no evidence in the record — and none was identified during Calderwood & Harkness's comprehensive internal investigation — that TMC's senior management, including CEO Søren Dalmqvist and General Counsel Priya Anand, or any member of TMC's Board of Directors, had knowledge of or authorized the alleged conduct. The alleged conduct appears to have been confined to a small number of mid-level employees within the U.S. Specialty Minerals Division, acting without the knowledge or sanction of TMC's corporate leadership.

We note that Hargrove Forensic Advisory LLC has been retained to provide an independent economic analysis of the affected-commerce and penalty calculations. Dr. Vanessa Tremblay is currently finalizing that analysis, which we anticipate will be completed and delivered to the Division in March 2024. We reserve the right to supplement TMC's position on the monetary payment based on Dr. Tremblay's final conclusions.

Significantly, the Division's proposed figure of USD $65,000,000 implies a cooperation credit of only approximately 32% from the baseline — a level that, in TMC's respectful submission, is inconsistent with the Division's own precedent for cooperation of this breadth and quality. TMC is aware of no comparable case in which a company that provided the level of cooperation described above received a cooperation credit of less than 40%, and many such cases have resulted in credits in excess of 50%. TMC's proposed credit of approximately 49.2% is firmly within the range that the Division's precedent supports.

B. Cooperation Period

The Division's Proposal. The Division's initial draft proposes a four-year cooperation period commencing upon execution of the NPA.

TMC's Counter-Proposal. TMC's counter-draft proposes a three-year cooperation period. Assuming execution of the NPA in approximately May 2024, TMC's proposed cooperation period would expire in approximately May 2027.

TMC's Position. A three-year cooperation term is consistent with the Division's standard practice in comparable NPAs involving cooperating entities in antitrust matters. TMC is aware of numerous precedent agreements in which a three-year term was deemed sufficient to ensure the cooperating party's ongoing availability and the Division's ability to pursue related investigations and prosecutions.

Moreover, TMC's cooperation has been extensive and substantially front-loaded. The Division already has the benefit of the vast majority of the relevant documentary evidence, having received approximately 555,000 documents over the course of the investigation. The Division has also had the benefit of two proffer sessions with key TMC witnesses, a detailed written proffer, and a supplemental cooperation submission. In these circumstances, a four-year term is disproportionate to the Division's remaining needs and imposes an unnecessary burden and period of uncertainty on TMC, its shareholders (TMC is publicly listed on the Toronto Stock Exchange under the symbol TRCL and on the New York Stock Exchange under the symbol TMC), and its ongoing business operations.

TMC wishes to make clear that its request for a three-year term does not reflect any diminishment in its commitment to cooperation. TMC remains fully prepared, within the three-year term, to make current and former employees available for interviews and testimony as reasonably requested by the Division, to produce additional documents if necessary, and to otherwise fulfill its cooperation obligations in good faith.

C. Compliance Monitor Term

The Division's Proposal. The Division's initial draft proposes a four-year independent compliance monitor term.

TMC's Counter-Proposal. TMC's counter-draft proposes a two-year independent compliance monitor term, running from the date of NPA execution through two years thereafter (i.e., through approximately May 2026).

TMC's Position. TMC has already undertaken substantial compliance remediation well in advance of the execution of any NPA. The Enhanced Antitrust Compliance Program, designed in conjunction with Meridian Compliance Partners LLC and submitted to the Division on September 15, 2023, represents a comprehensive overhaul of TMC's antitrust compliance infrastructure. Key elements of the program — including mandatory training, enhanced audit procedures, and a revised code of conduct — are already in the process of implementation.

A two-year monitor term provides adequate oversight to verify the implementation and sustainability of these compliance enhancements. The monitor will have ample opportunity during a two-year period to assess whether the program has been effectively deployed, whether the Company's compliance culture has meaningfully changed, and whether the program's controls are functioning as designed. Four years of monitorship is excessive in light of the proactive remediation that TMC has already undertaken, imposes significant costs on the Company, and is not supported by the Division's practice in comparable cases involving cooperating entities that have demonstrated a genuine commitment to compliance reform.

We note that Meridian Compliance Partners LLC has been pre-approved by the Division as the proposed independent monitor. TMC intends to submit formal monitor engagement terms to the Division separately, and we would welcome the opportunity to discuss those terms at the Division's convenience. TMC's proposed two-year term would provide Meridian with sufficient time to conduct an initial assessment, a mid-term review, and a final evaluation of the compliance program's effectiveness.

D. Gavin Holt Carve-Out Language

The Division's Proposal. The Division's initial draft contains a broad reservation of rights with respect to Gavin Holt, TMC's former Vice President, U.S. Specialty Minerals Sales. The Division's language includes provisions that could be read to require TMC to affirmatively assist in any prosecution of Mr. Holt beyond the scope of TMC's general cooperation obligations under the NPA — including potential obligations to provide investigative assistance, facilitate access to non-employee witnesses, or undertake other affirmative steps that go beyond document production and the availability of current and former TMC employees.

TMC's Counter-Proposal. TMC accepts that the NPA does not extend non-prosecution protection to Mr. Holt individually and that the Division retains full discretion to pursue criminal charges against Mr. Holt. TMC does not seek to impede the Division's exercise of that prosecutorial discretion. However, TMC's counter-draft proposes the following modifications to the Holt carve-out language:

(i) TMC's cooperation obligation as to Mr. Holt should be coextensive with, and should not exceed, its general cooperation obligations under the NPA. That is, TMC's obligations should be limited to making current and former employees available for interviews and testimony and producing documents as reasonably requested by the Division, consistent with the general cooperation provisions of the NPA.

(ii) The NPA should not require TMC to waive any applicable attorney-client privilege or work-product protection as to communications between TMC and Mr. Holt during the period of his employment with the Company. TMC's privileges are corporate privileges, and any waiver thereof should be at the Company's sole discretion, consistent with established law.

By way of background, Mr. Holt resigned from TMC effective September 30, 2021 — approximately four months before the grand jury investigation commenced on February 10, 2022. Mr. Holt retained personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, San Francisco, and asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022. TMC has no control over Mr. Holt's individual decisions or his assertion of constitutional rights, and it would be inappropriate for the NPA to impose on TMC affirmative obligations that, in practical effect, require the Company to serve as an investigative agent of the Division in connection with any prosecution of a former employee.

TMC's position is that the Holt carve-out should be narrowly drawn to preserve the Division's prosecutorial discretion with respect to Mr. Holt individually, without imposing additional affirmative burdens on TMC that are not encompassed within the Company's general cooperation obligations.

E. Material Breach Standard

The Division's Proposal. The Division's initial draft contains a material-breach provision that, in TMC's respectful submission, is vaguely defined and could be triggered by the Division's unilateral determination, without providing TMC adequate notice or an opportunity to cure. The provision as drafted does not clearly distinguish between material, willful breaches and inadvertent or technical failures, and it does not require any consultation between the parties before the Division may invoke the breach remedies — including the Division's right to prosecute TMC based on the Agreed Statement of Facts set forth in NPA Appendix B.

TMC's Counter-Proposal. TMC's counter-draft proposes a more precisely defined material-breach standard that incorporates the following procedural safeguards:

(i) Written Notice. The Division shall provide TMC with written notice specifying the nature of the alleged breach in reasonable detail, including identification of the provision(s) of the NPA that the Division contends have been breached.

(ii) Thirty-Day Cure Period. TMC shall have a period of thirty (30) calendar days following receipt of written notice to cure the alleged breach, or to demonstrate to the Division's reasonable satisfaction that no breach has occurred.

(iii) Materiality and Willfulness. A breach shall not constitute a "material breach" for purposes of the NPA's remedial provisions unless the breach is both material and willful — that is, the breach must involve a deliberate failure to comply with a material obligation under the NPA, as distinguished from an inadvertent or technical failure that does not reflect a lack of good faith.

(iv) Good-Faith Consultation. Before the Division may invoke the breach remedies set forth in the NPA, including the right to prosecute TMC based on the Agreed Statement of Facts, the parties shall engage in good-faith consultation to attempt to resolve the dispute. Such consultation shall occur within a reasonable period following the expiration of the cure period, and in no event later than fifteen (15) calendar days after the cure period has expired.

These procedural protections are standard in the Division's NPA practice and reflect fundamental fairness. TMC submits that the Division's legitimate enforcement interests are fully served by a material-breach standard that requires written notice, a cure period, and good-faith consultation, while also protecting TMC from the risk that an inadvertent or technical failure — such as a minor delay in producing a small number of responsive documents — could be treated as a basis for prosecution.

F. Scope of Non-Prosecution Protection

The Division's Proposal. The Division's initial draft provides that the non-prosecution protection extends to TMC as an entity and to its current employees, with no coverage for former employees. Mr. Holt is expressly excluded from the non-prosecution protection, as discussed above.

TMC's Counter-Proposal. TMC's counter-draft requests that the non-prosecution protection be clarified to cover unambiguously:

(i) Torchlight Mining Corp. (CBCA Corporation No. 7841526-1), the Canadian parent entity;

(ii) Torchlight Mining (U.S.) Inc. (Nevada Entity No. NV20160438721), TMC's wholly-owned U.S. subsidiary; and

(iii) All current employees of TMC and Torchlight Mining (U.S.) Inc. as of the date of NPA execution.

TMC's Position. The non-prosecution protection must be unambiguous as to its scope. The Division's initial draft refers to "Torchlight Mining Corp." without specifying whether the protection extends to the U.S. subsidiary through which TMC's relevant commercial activities were conducted. Because the alleged conduct at issue occurred within the U.S. Specialty Minerals Division — which is housed within Torchlight Mining (U.S.) Inc. — it is essential that the NPA clearly and expressly extend non-prosecution protection to both the parent entity and the U.S. subsidiary. Failure to do so would leave open the possibility that the Division or a successor could pursue charges against the U.S. subsidiary entity notwithstanding the NPA, an outcome that would undermine the fundamental purpose of the agreement and create unacceptable legal uncertainty for TMC.

G. Agreed Statement of Facts (Appendix B)

TMC has proposed revisions to the Agreed Statement of Facts in Appendix B to ensure factual accuracy and to ensure that the statement does not contain characterizations or inferences that go beyond what TMC can reasonably accept in the context of a non-prosecution agreement, without an admission of criminal liability. TMC's proposed revisions are intended to bring the Agreed Statement of Facts into conformity with the factual record as TMC understands it, based on our internal investigation, our review of the produced documents, and the proffer sessions and submissions described above.

The specific proposed revisions to Appendix B are reflected in the enclosed redline comparison. We recognize that the Agreed Statement of Facts is a critical component of the NPA and that further negotiation on this appendix will be necessary. TMC respectfully proposes that the parties' respective counsel schedule a meeting — whether in person or by videoconference — to discuss the statement of facts in detail, with the goal of reaching agreement on language that is factually accurate, appropriately scoped, and acceptable to both parties.

V. Proposed Next Steps

TMC respectfully requests that the Division review the enclosed counter-draft and redline comparison and provide its comments at the Division's earliest convenience. We recognize that the Division has multiple matters competing for its attention and resources, and we are prepared to accommodate the Division's schedule.

To facilitate resolution of the open issues, TMC proposes a meeting or teleconference between counsel — Elaine Forsythe and Aaron Liu for TMC, and Denise Kowalski and Marcus Reeves for the Division — to discuss the principal areas of disagreement summarized above and to work toward mutually agreeable NPA terms. We are available at the Division's convenience and are prepared to meet in San Francisco, Washington, D.C., or by videoconference, as the Division prefers.

TMC reiterates its strong desire to resolve this matter expeditiously and cooperatively, consistent with the spirit of cooperation that has characterized the Company's engagement with the Division throughout this investigation. TMC's Board of Directors and CEO Søren Dalmqvist have authorized TMC's counsel to negotiate the NPA in good faith, and TMC is prepared to execute a final agreement promptly upon resolution of the outstanding issues described herein.

VI. Reservation of Rights

TMC's submission of this counter-draft and this cover letter does not constitute an admission of any violation of federal or state antitrust law, any other criminal statute, or any civil obligation. TMC expressly reserves all rights, claims, and defenses available to it under applicable law.

The NPA, if executed, will contain specific provisions regarding the scope of TMC's factual acknowledgments, and nothing in this letter or in the enclosed counter-draft should be construed as an admission of liability, culpability, or wrongdoing beyond what is expressly set forth in the final executed NPA. TMC's willingness to negotiate and enter into an NPA reflects its judgment that resolution of this matter through a negotiated agreement, rather than through litigation, is in the best interests of the Company, its shareholders, its employees, and its business operations, and should not be interpreted as an acknowledgment that any violation of law has occurred.

We appreciate the Division's consideration of TMC's positions as set forth herein and in the enclosed counter-draft. We are confident that the remaining areas of disagreement are susceptible to resolution through good-faith negotiation, and we look forward to working with the Division toward that end. Should the Division have any questions regarding this letter or the enclosed materials, please do not hesitate to contact me directly at (415) 723-8847 or eforsythe@calderwoodharkness.com.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner, Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104 Direct Dial: (415) 723-8847

Email: eforsythe@calderwoodharkness.com

cc: (via email)

Denise Kowalski, Trial Attorney, Antitrust Division, U.S. Department of Justice, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102

Marcus Reeves, Senior Trial Attorney, Antitrust Division, U.S. Department of Justice, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102

cc: (via separate cover, privileged)

Søren Dalmqvist, Chief Executive Officer, Torchlight Mining Corp.

Priya Anand, General Counsel, Torchlight Mining Corp.

cc: (via email, internal)

Howard Bellamy, Partner, Calderwood & Harkness LLP

Aaron Liu, Associate, Calderwood & Harkness LLP

Enclosures:

1. Non-Prosecution Agreement — TMC Counter-Draft (Clean), dated February 5, 2024

2. Redline Comparison — DOJ Initial Draft (January 10, 2024) vs. TMC Counter-Draft (February 5, 2024)

CONTAINS INFORMATION SUBJECT TO FEDERAL RULE OF CRIMINAL PROCEDURE 6(e) ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT PRIVILEGED COMMUNICATION
CALDERWOOD & HARKNESS LLP Attorneys at Law
555 California Street, 40th Floor San Francisco, California 94104
Telephone: (415) 723-8800 Facsimile: (415) 723-8801 www.calderwoodharkness.com
Elaine Forsythe Partner Antitrust & Competition Practice Group Direct Dial: (415) 723-8847
Email: eforsythe@calderwoodharkness.com
February 5, 2024
VIA EMAIL AND Severin Partners LLC OVERNIGHT
Julia Stafford-Hayes Deputy Assistant Attorney General Antitrust Division U.S. Department of Justice 950 Pennsylvania Avenue, NW Washington, D.C. 20530
Re: In the Matter of Torchlight Mining Corp. — Grand Jury No. GJ-22-0194 (N.D. Cal.); DOJ Reference No. ATR-SF-2024-00312 — Submission of Torchlight Mining Corp.'s Counter-Draft Non-Prosecution Agreement
Dear Deputy Assistant Attorney General Stafford-Hayes:
I. Introduction and Purpose
We write on behalf of our client, Torchlight Mining Corp. ("TMC" or the "Company"), a corporation organized and existing under the Canada Business Corporations Act (CBCA Corporation No. 7841526-1), with its registered office at 200 Bay Street, Suite 3400, Toronto, Ontario, M5J 2J2, Canada. TMC's principal U.S. operations are conducted through its wholly-owned subsidiary, Torchlight Mining (U.S.) Inc. (Nevada Entity No. NV20160438721), located at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117. Calderwood & Harkness LLP has represented TMC in this matter since our engagement on February 18, 2022, in connection with the grand jury investigation designated Grand Jury No. GJ-22-0194, pending before the U.S. District Court for the Northern District of California, San Francisco Division, into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector.
The purpose of this letter is to transmit TMC's counter-draft of the proposed Non-Prosecution Agreement (the "NPA"), which responds to the Antitrust Division's initial draft circulated to this firm on January 10, 2024. TMC's counter-draft reflects careful consideration of the Division's proposed terms and the product of extensive internal deliberation by TMC's Board of Directors, senior management, and outside counsel.
Enclosed herewith, please find TMC's counter-draft of the NPA in clean form, together with a separate redline comparison marked against the Division's January 10, 2024 draft, which we provide for the Division's convenience in identifying the specific language that TMC has proposed to modify. This cover letter summarizes TMC's positions on the principal points of disagreement between the parties and offers our reasoning in support of the proposed revisions. We have endeavored to present TMC's positions in a manner that will facilitate productive discussion and, we hope, the efficient resolution of the remaining open issues.
II. Background and Context of TMC's Cooperation
Before turning to the substance of the counter-draft, we believe it is important to place TMC's proposed terms in the context of the Company's extensive, voluntary, and timely cooperation with the Division's investigation since its inception on February 10, 2022. TMC's cooperation has been comprehensive in scope and has materially advanced the Division's investigative objectives. We summarize the principal elements of that cooperation below.
Document Production. In response to the grand jury's first subpoena (GJ-22-0194-SD-003), TMC produced approximately 487,000 documents. Following issuance of the second subpoena (GJ-22-0194-SD-007), TMC produced an additional approximately 68,000 documents. In total, TMC has produced approximately 555,000 documents to the Division, encompassing in excess of 3.2 million pages. These productions were completed on a rolling basis and within the timeframes agreed upon by the parties, and included electronic communications, internal pricing analyses, bid documentation, sales records, and corporate governance materials spanning the entire period of alleged conduct and beyond. TMC undertook substantial efforts to ensure the completeness and accuracy of these productions, including engaging a third-party e-discovery vendor to conduct comprehensive searches across multiple custodians, data sources, and foreign-language repositories.
Internal Investigation. Calderwood & Harkness conducted a thorough and independent internal investigation on TMC's behalf. This investigation encompassed interviews of twenty-three (23) current and former TMC employees, including individuals at every relevant level of the Company's U.S. Specialty Minerals Division, as well as corporate officers and members of the Board of Directors. The investigation also involved a complete review of the produced document universe and an analysis of the relevant commercial transactions. The results of our investigation were shared with the Division to the extent consistent with the Company's privileges and cooperative obligations, including through the written proffer submitted on February 15, 2023, and the supplemental cooperation submission dated May 1, 2023.
Witness Cooperation. TMC voluntarily made available two key employees for proffer sessions with the Division. Sandra Chu, Director, Pricing Analytics, U.S. Specialty Minerals Division, participated in a voluntary proffer session with the Division on March 10, 2023. Thomas Eriksen, Regional Sales Manager, Western Region, U.S. Specialty Minerals Division, participated in a voluntary proffer session on April 22, 2023. TMC facilitated both employees' participation, including by providing counsel and by ensuring that the employees were fully prepared to respond to the Division's inquiries in a forthcoming and comprehensive manner. TMC's cooperation in making these witnesses available was voluntary and was not compelled by any subpoena or other process.
Written Proffer and Supplemental Submissions. TMC submitted a detailed written proffer to the Division on February 15, 2023, setting forth the Company's understanding of the relevant facts and the results of its internal investigation. A supplemental cooperation submission was provided on May 1, 2023, addressing additional topics identified during the course of the Division's investigation and our ongoing dialogue with the Division's attorneys.
Compliance Remediation. TMC retained Meridian Compliance Partners LLC, a nationally recognized compliance consultancy, to assist in the design and implementation of an enhanced antitrust compliance program. TMC submitted the resulting Enhanced Antitrust Compliance Program proposal to the Division on September 15, 2023. This program includes, among other elements, mandatory training for all employees in commercial roles, a revised code of conduct, enhanced audit and monitoring procedures, a confidential reporting hotline, and a disciplinary framework for compliance violations. TMC has already begun implementing key components of this program, well in advance of the execution of any NPA.
In light of the foregoing, TMC respectfully submits that its cooperation has been voluntary, timely, and comprehensive, and that it merits the maximum cooperation credit available under the Antitrust Division's policies and applicable guidance, including the Division's Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations and the Leniency Policy framework. TMC's cooperation has been exemplary, and we believe that the terms of the NPA should reflect that cooperation accordingly.
III. Enclosures
This letter is accompanied by the following enclosed documents:
1. Non-Prosecution Agreement — TMC Counter-Draft (Clean), dated February 5, 2024; and
2. Redline Comparison — DOJ Initial Draft (January 10, 2024) vs. TMC Counter-Draft (February 5, 2024).
TMC's counter-draft also includes revised drafts of Appendix A (Enhanced Antitrust Compliance Program) and Appendix B (Agreed Statement of Facts), reflecting TMC's proposed revisions to each appendix. The redline comparison encompasses the revisions to both the body of the NPA and the appendices. We discuss the principal areas of disagreement in detail below.
IV. Summary of Key Points of Disagreement
TMC's counter-draft addresses seven principal areas of disagreement with the Division's January 10, 2024 initial draft. We summarize TMC's positions on each of these issues in turn.
A. Monetary Payment
The Division's Proposal. The Division's initial draft proposes that TMC make a monetary payment of approximately sixty-five million U.S. dollars (USD $65,000,000) as a condition of the NPA.
TMC's Counter-Proposal. TMC's counter-draft proposes a monetary payment of forty-eight million, five hundred thousand U.S. dollars (USD $48,500,000).
TMC's Position and Reasoning. TMC's proposed figure is grounded in the Division's established methodology and reflects the application of appropriate cooperation and remediation credits.
TMC's share of affected commerce during the alleged conspiracy period — approximately January 2017 through August 2021 — is approximately four hundred seventy-eight million U.S. dollars (USD $478,000,000). This figure represents approximately 35.7% of the total estimated affected commerce of approximately one billion, three hundred forty million U.S. dollars (USD $1,340,000,000) across all identified participants in the alleged conspiracy. Applying the Division's standard starting point of twenty percent (20%) of affected commerce, the baseline calculation yields a figure of approximately ninety-five million, six hundred thousand U.S. dollars (USD $95,600,000) (i.e., USD $478,000,000 × 20%).
TMC submits that a cooperation and remediation credit of approximately 49.2% from the baseline figure is warranted in this case, resulting in a proposed payment of USD $48,500,000. This credit reflects the following factors, which TMC respectfully submits are among the most compelling available in any cooperation case:
(a) Breadth of Document Production. TMC produced approximately 555,000 documents totaling in excess of 3.2 million pages, representing a comprehensive and timely response to the grand jury's subpoenas and a level of production that materially exceeded the scope of what was legally required.
(b) Voluntary Witness Proffers. TMC voluntarily made Sandra Chu and Thomas Eriksen available for proffer sessions with the Division, providing the Division with access to critical percipient witnesses well in advance of any trial preparation.
(c) Early and Affirmative Commitment to Cooperation. TMC communicated its commitment to cooperate with the Division's investigation on June 8, 2022 — less than four months after the investigation commenced — and has maintained that commitment without interruption throughout the investigation.
(d) Proactive Compliance Remediation. TMC retained Meridian Compliance Partners LLC and submitted the Enhanced Antitrust Compliance Program to the Division on September 15, 2023, demonstrating TMC's genuine commitment to preventing recurrence of the alleged conduct.
(e) Absence of Senior Management Involvement. There is no evidence in the record — and none was identified during Calderwood & Harkness's comprehensive internal investigation — that TMC's senior management, including CEO Søren Dalmqvist and General Counsel Priya Anand, or any member of TMC's Board of Directors, had knowledge of or authorized the alleged conduct. The alleged conduct appears to have been confined to a small number of mid-level employees within the U.S. Specialty Minerals Division, acting without the knowledge or sanction of TMC's corporate leadership.
We note that Hargrove Forensic Advisory LLC has been retained to provide an independent economic analysis of the affected-commerce and penalty calculations. Dr. Vanessa Tremblay is currently finalizing that analysis, which we anticipate will be completed and delivered to the Division in March 2024. We reserve the right to supplement TMC's position on the monetary payment based on Dr. Tremblay's final conclusions.
Significantly, the Division's proposed figure of USD $65,000,000 implies a cooperation credit of only approximately 32% from the baseline — a level that, in TMC's respectful submission, is inconsistent with the Division's own precedent for cooperation of this breadth and quality. TMC is aware of no comparable case in which a company that provided the level of cooperation described above received a cooperation credit of less than 40%, and many such cases have resulted in credits in excess of 50%. TMC's proposed credit of approximately 49.2% is firmly within the range that the Division's precedent supports.
B. Cooperation Period
The Division's Proposal. The Division's initial draft proposes a four-year cooperation period commencing upon execution of the NPA.
TMC's Counter-Proposal. TMC's counter-draft proposes a three-year cooperation period. Assuming execution of the NPA in approximately May 2024, TMC's proposed cooperation period would expire in approximately May 2027.
TMC's Position. A three-year cooperation term is consistent with the Division's standard practice in comparable NPAs involving cooperating entities in antitrust matters. TMC is aware of numerous precedent agreements in which a three-year term was deemed sufficient to ensure the cooperating party's ongoing availability and the Division's ability to pursue related investigations and prosecutions.
Moreover, TMC's cooperation has been extensive and substantially front-loaded. The Division already has the benefit of the vast majority of the relevant documentary evidence, having received approximately 555,000 documents over the course of the investigation. The Division has also had the benefit of two proffer sessions with key TMC witnesses, a detailed written proffer, and a supplemental cooperation submission. In these circumstances, a four-year term is disproportionate to the Division's remaining needs and imposes an unnecessary burden and period of uncertainty on TMC, its shareholders (TMC is publicly listed on the Toronto Stock Exchange under the symbol TRCL and on the New York Stock Exchange under the symbol TMC), and its ongoing business operations.
TMC wishes to make clear that its request for a three-year term does not reflect any diminishment in its commitment to cooperation. TMC remains fully prepared, within the three-year term, to make current and former employees available for interviews and testimony as reasonably requested by the Division, to produce additional documents if necessary, and to otherwise fulfill its cooperation obligations in good faith.
C. Compliance Monitor Term
The Division's Proposal. The Division's initial draft proposes a four-year independent compliance monitor term.
TMC's Counter-Proposal. TMC's counter-draft proposes a two-year independent compliance monitor term, running from the date of NPA execution through two years thereafter (i.e., through approximately May 2026).
TMC's Position. TMC has already undertaken substantial compliance remediation well in advance of the execution of any NPA. The Enhanced Antitrust Compliance Program, designed in conjunction with Meridian Compliance Partners LLC and submitted to the Division on September 15, 2023, represents a comprehensive overhaul of TMC's antitrust compliance infrastructure. Key elements of the program — including mandatory training, enhanced audit procedures, and a revised code of conduct — are already in the process of implementation.
A two-year monitor term provides adequate oversight to verify the implementation and sustainability of these compliance enhancements. The monitor will have ample opportunity during a two-year period to assess whether the program has been effectively deployed, whether the Company's compliance culture has meaningfully changed, and whether the program's controls are functioning as designed. Four years of monitorship is excessive in light of the proactive remediation that TMC has already undertaken, imposes significant costs on the Company, and is not supported by the Division's practice in comparable cases involving cooperating entities that have demonstrated a genuine commitment to compliance reform.
We note that Meridian Compliance Partners LLC has been pre-approved by the Division as the proposed independent monitor. TMC intends to submit formal monitor engagement terms to the Division separately, and we would welcome the opportunity to discuss those terms at the Division's convenience. TMC's proposed two-year term would provide Meridian with sufficient time to conduct an initial assessment, a mid-term review, and a final evaluation of the compliance program's effectiveness.
D. Gavin Holt Carve-Out Language
The Division's Proposal. The Division's initial draft contains a broad reservation of rights with respect to Gavin Holt, TMC's former Vice President, U.S. Specialty Minerals Sales. The Division's language includes provisions that could be read to require TMC to affirmatively assist in any prosecution of Mr. Holt beyond the scope of TMC's general cooperation obligations under the NPA — including potential obligations to provide investigative assistance, facilitate access to non-employee witnesses, or undertake other affirmative steps that go beyond document production and the availability of current and former TMC employees.
TMC's Counter-Proposal. TMC accepts that the NPA does not extend non-prosecution protection to Mr. Holt individually and that the Division retains full discretion to pursue criminal charges against Mr. Holt. TMC does not seek to impede the Division's exercise of that prosecutorial discretion. However, TMC's counter-draft proposes the following modifications to the Holt carve-out language:
(i) TMC's cooperation obligation as to Mr. Holt should be coextensive with, and should not exceed, its general cooperation obligations under the NPA. That is, TMC's obligations should be limited to making current and former employees available for interviews and testimony and producing documents as reasonably requested by the Division, consistent with the general cooperation provisions of the NPA.
(ii) The NPA should not require TMC to waive any applicable attorney-client privilege or work-product protection as to communications between TMC and Mr. Holt during the period of his employment with the Company. TMC's privileges are corporate privileges, and any waiver thereof should be at the Company's sole discretion, consistent with established law.
By way of background, Mr. Holt resigned from TMC effective September 30, 2021 — approximately four months before the grand jury investigation commenced on February 10, 2022. Mr. Holt retained personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, San Francisco, and asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022. TMC has no control over Mr. Holt's individual decisions or his assertion of constitutional rights, and it would be inappropriate for the NPA to impose on TMC affirmative obligations that, in practical effect, require the Company to serve as an investigative agent of the Division in connection with any prosecution of a former employee.
TMC's position is that the Holt carve-out should be narrowly drawn to preserve the Division's prosecutorial discretion with respect to Mr. Holt individually, without imposing additional affirmative burdens on TMC that are not encompassed within the Company's general cooperation obligations.
E. Material Breach Standard
The Division's Proposal. The Division's initial draft contains a material-breach provision that, in TMC's respectful submission, is vaguely defined and could be triggered by the Division's unilateral determination, without providing TMC adequate notice or an opportunity to cure. The provision as drafted does not clearly distinguish between material, willful breaches and inadvertent or technical failures, and it does not require any consultation between the parties before the Division may invoke the breach remedies — including the Division's right to prosecute TMC based on the Agreed Statement of Facts set forth in NPA Appendix B.
TMC's Counter-Proposal. TMC's counter-draft proposes a more precisely defined material-breach standard that incorporates the following procedural safeguards:
(i) Written Notice. The Division shall provide TMC with written notice specifying the nature of the alleged breach in reasonable detail, including identification of the provision(s) of the NPA that the Division contends have been breached.
(ii) Thirty-Day Cure Period. TMC shall have a period of thirty (30) calendar days following receipt of written notice to cure the alleged breach, or to demonstrate to the Division's reasonable satisfaction that no breach has occurred.
(iii) Materiality and Willfulness. A breach shall not constitute a "material breach" for purposes of the NPA's remedial provisions unless the breach is both material and willful — that is, the breach must involve a deliberate failure to comply with a material obligation under the NPA, as distinguished from an inadvertent or technical failure that does not reflect a lack of good faith.
(iv) Good-Faith Consultation. Before the Division may invoke the breach remedies set forth in the NPA, including the right to prosecute TMC based on the Agreed Statement of Facts, the parties shall engage in good-faith consultation to attempt to resolve the dispute. Such consultation shall occur within a reasonable period following the expiration of the cure period, and in no event later than fifteen (15) calendar days after the cure period has expired.
These procedural protections are standard in the Division's NPA practice and reflect fundamental fairness. TMC submits that the Division's legitimate enforcement interests are fully served by a material-breach standard that requires written notice, a cure period, and good-faith consultation, while also protecting TMC from the risk that an inadvertent or technical failure — such as a minor delay in producing a small number of responsive documents — could be treated as a basis for prosecution.
F. Scope of Non-Prosecution Protection
The Division's Proposal. The Division's initial draft provides that the non-prosecution protection extends to TMC as an entity and to its current employees, with no coverage for former employees. Mr. Holt is expressly excluded from the non-prosecution protection, as discussed above.
TMC's Counter-Proposal. TMC's counter-draft requests that the non-prosecution protection be clarified to cover unambiguously:
(i) Torchlight Mining Corp. (CBCA Corporation No. 7841526-1), the Canadian parent entity;
(ii) Torchlight Mining (U.S.) Inc. (Nevada Entity No. NV20160438721), TMC's wholly-owned U.S. subsidiary; and
(iii) All current employees of TMC and Torchlight Mining (U.S.) Inc. as of the date of NPA execution.
TMC's Position. The non-prosecution protection must be unambiguous as to its scope. The Division's initial draft refers to "Torchlight Mining Corp." without specifying whether the protection extends to the U.S. subsidiary through which TMC's relevant commercial activities were conducted. Because the alleged conduct at issue occurred within the U.S. Specialty Minerals Division — which is housed within Torchlight Mining (U.S.) Inc. — it is essential that the NPA clearly and expressly extend non-prosecution protection to both the parent entity and the U.S. subsidiary. Failure to do so would leave open the possibility that the Division or a successor could pursue charges against the U.S. subsidiary entity notwithstanding the NPA, an outcome that would undermine the fundamental purpose of the agreement and create unacceptable legal uncertainty for TMC.
G. Agreed Statement of Facts (Appendix B)
TMC has proposed revisions to the Agreed Statement of Facts in Appendix B to ensure factual accuracy and to ensure that the statement does not contain characterizations or inferences that go beyond what TMC can reasonably accept in the context of a non-prosecution agreement, without an admission of criminal liability. TMC's proposed revisions are intended to bring the Agreed Statement of Facts into conformity with the factual record as TMC understands it, based on our internal investigation, our review of the produced documents, and the proffer sessions and submissions described above.
The specific proposed revisions to Appendix B are reflected in the enclosed redline comparison. We recognize that the Agreed Statement of Facts is a critical component of the NPA and that further negotiation on this appendix will be necessary. TMC respectfully proposes that the parties' respective counsel schedule a meeting — whether in person or by videoconference — to discuss the statement of facts in detail, with the goal of reaching agreement on language that is factually accurate, appropriately scoped, and acceptable to both parties.
V. Proposed Next Steps
TMC respectfully requests that the Division review the enclosed counter-draft and redline comparison and provide its comments at the Division's earliest convenience. We recognize that the Division has multiple matters competing for its attention and resources, and we are prepared to accommodate the Division's schedule.
To facilitate resolution of the open issues, TMC proposes a meeting or teleconference between counsel — Elaine Forsythe and Aaron Liu for TMC, and Denise Kowalski and Marcus Reeves for the Division — to discuss the principal areas of disagreement summarized above and to work toward mutually agreeable NPA terms. We are available at the Division's convenience and are prepared to meet in San Francisco, Washington, D.C., or by videoconference, as the Division prefers.
TMC reiterates its strong desire to resolve this matter expeditiously and cooperatively, consistent with the spirit of cooperation that has characterized the Company's engagement with the Division throughout this investigation. TMC's Board of Directors and CEO Søren Dalmqvist have authorized TMC's counsel to negotiate the NPA in good faith, and TMC is prepared to execute a final agreement promptly upon resolution of the outstanding issues described herein.
VI. Reservation of Rights
TMC's submission of this counter-draft and this cover letter does not constitute an admission of any violation of federal or state antitrust law, any other criminal statute, or any civil obligation. TMC expressly reserves all rights, claims, and defenses available to it under applicable law.
The NPA, if executed, will contain specific provisions regarding the scope of TMC's factual acknowledgments, and nothing in this letter or in the enclosed counter-draft should be construed as an admission of liability, culpability, or wrongdoing beyond what is expressly set forth in the final executed NPA. TMC's willingness to negotiate and enter into an NPA reflects its judgment that resolution of this matter through a negotiated agreement, rather than through litigation, is in the best interests of the Company, its shareholders, its employees, and its business operations, and should not be interpreted as an acknowledgment that any violation of law has occurred.
We appreciate the Division's consideration of TMC's positions as set forth herein and in the enclosed counter-draft. We are confident that the remaining areas of disagreement are susceptible to resolution through good-faith negotiation, and we look forward to working with the Division toward that end. Should the Division have any questions regarding this letter or the enclosed materials, please do not hesitate to contact me directly at (415) 723-8847 or eforsythe@calderwoodharkness.com.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner, Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104 Direct Dial: (415) 723-8847
Email: eforsythe@calderwoodharkness.com
cc: (via email)
Denise Kowalski, Trial Attorney, Antitrust Division, U.S. Department of Justice, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102
Marcus Reeves, Senior Trial Attorney, Antitrust Division, U.S. Department of Justice, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102
cc: (via separate cover, privileged)
Søren Dalmqvist, Chief Executive Officer, Torchlight Mining Corp.
Priya Anand, General Counsel, Torchlight Mining Corp.
cc: (via email, internal)
Howard Bellamy, Partner, Calderwood & Harkness LLP
Aaron Liu, Associate, Calderwood & Harkness LLP
Enclosures:
1. Non-Prosecution Agreement — TMC Counter-Draft (Clean), dated February 5, 2024
2. Redline Comparison — DOJ Initial Draft (January 10, 2024) vs. TMC Counter-Draft (February 5, 2024)

CALDERWOOD & HARKNESS LLP

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