1039-00001 · Torchlight Mining Corp · documents

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PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

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

MEMORANDUM

March 2, 2022

Matter No.: 1039-00001

TO: Priya Anand, General Counsel, Torchlight Mining Corp.

FROM: Aaron Liu, Calderwood & Harkness LLP

RE: Document Preservation Obligations — DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)

PRIVILEGE LEGEND: This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of Torchlight Mining Corp. in connection with the above-referenced matter. It contains legal analysis, mental impressions, and strategic recommendations of counsel. This memorandum should not be disclosed to any third party — including employees of Torchlight Mining Corp. outside of the legal department — without prior consultation with Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of the attorney-client privilege or the work-product protection.

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I. Purpose and Executive Summary

This memorandum outlines the legal obligations of Torchlight Mining Corp. ("TMC" or the "Company") to preserve documents and electronically stored information ("ESI") in connection with the investigation being conducted by the Antitrust Division of the United States Department of Justice ("DOJ") through a grand jury empaneled in the United States District Court for the Northern District of California, San Francisco Division (Grand Jury No. GJ-22-0194). The grand jury investigation concerns suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, with a specific focus on three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates.

The grand jury investigation was formally opened on February 10, 2022. TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 on February 14, 2022. The subpoena was served upon TMC's registered agent in the State of Nevada and forwarded to TMC's General Counsel on the same date. TMC engaged Calderwood & Harkness LLP on February 18, 2022, to serve as lead outside counsel in connection with the investigation.

On March 1, 2022, Calderwood & Harkness issued litigation hold notices to all TMC personnel on a company-wide basis and issued a supplemental targeted preservation notice directed specifically to personnel within the U.S. Specialty Minerals Division. Both notices were issued under the signature of Priya Anand, General Counsel of TMC, in order to underscore the Company's institutional commitment to preservation and compliance. The company-wide notice was distributed by email to all TMC employees globally, and the targeted notice was distributed in both electronic and hard-copy form to all personnel within the U.S. Specialty Minerals Division.

This memorandum supplements those litigation hold notices by providing TMC's General Counsel and in-house legal team with a comprehensive summary of the following:

• The legal framework governing document preservation obligations in the context of a federal grand jury investigation;

• The specific risks of spoliation and the criminal, evidentiary, and strategic consequences of any failure to preserve;

• Best practices for ensuring ongoing custodian compliance with the litigation hold;

• Recommendations for coordination with TMC's Information Technology department to ensure defensible preservation across all relevant data sources; and

• Immediate action items that must be completed within the coming days and weeks to establish a robust preservation posture.

TMC's preservation obligations are broad and extend to all documents and ESI that may be relevant to the matters under investigation. As discussed in detail below, potentially relevant materials include, without limitation, pricing communications and records, competitor contacts and correspondence, trade-association materials related to the North American Specialty Minerals Council ("NASMC"), encrypted messaging content (including, critically, VaultChat messages), bid submissions, customer allocation records, and internal analyses of competitive strategy and market positioning. The scope of preservation encompasses both TMC's Canadian parent entity and its U.S. subsidiary, Torchlight Mining (U.S.) Inc., and extends to documents in the possession, custody, or control of both current and former employees.

Given the severity of the potential consequences for any failure to preserve — including criminal prosecution for obstruction of justice, adverse evidentiary inferences in related civil proceedings, and the destruction of TMC's cooperation posture with the DOJ — it is imperative that TMC treat its preservation obligations with the utmost seriousness and ensure that all steps outlined in this memorandum are implemented promptly and completely.

II. Legal Framework for Document Preservation

A. Duty to Preserve Under Federal Law

The duty to preserve documents and ESI arises when an entity reasonably anticipates litigation or a government investigation. The duty is not contingent upon the formal commencement of proceedings; rather, it attaches at the point when the entity knew or should have known that relevant materials might be sought in connection with pending or reasonably foreseeable governmental or judicial proceedings.

In TMC's case, the duty to preserve was triggered no later than February 14, 2022, the date on which TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003. Receipt of a grand jury subpoena is the most unambiguous possible trigger for the preservation duty: it constitutes actual notice that the government is actively investigating matters to which the entity's documents may be relevant, and it imposes a direct legal obligation to produce specified categories of materials.

It bears noting, however, that TMC's preservation obligation may have been triggered at an earlier date. TMC's General Counsel became aware on or about January 18, 2022, that a competitor, Ridgecrest Minerals Inc. (Denver, Colorado), had received a target letter from the DOJ Antitrust Division on approximately January 12, 2022, in connection with what appeared to be the same or a closely related investigation. The circulation of target letters to competitors in the same product markets in which TMC operates would, under the reasonable-anticipation standard, likely be sufficient to trigger TMC's own preservation obligations. Although TMC's formal preservation efforts were initiated upon receipt of the subpoena on February 14, 2022, TMC should be prepared to address any questions from the DOJ regarding the period between approximately January 18, 2022 and February 14, 2022, and should confirm that no relevant materials were destroyed during that interval.

The following federal statutes impose criminal liability for the destruction, alteration, or concealment of documents in connection with a federal investigation:

18 U.S.C. § 1519 — Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy. This statute, enacted as part of the Sarbanes-Oxley Act of 2002, provides that whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States, or in relation to or contemplation of any such matter or case, shall be fined under Title 18 or imprisoned not more than 20 years, or both. Section 1519 is broadly construed and does not require that the defendant have knowledge of a specific pending proceeding; it is sufficient that the defendant acted with the intent to obstruct a matter within federal jurisdiction.

18 U.S.C. § 1512(c) — Obstruction of an Official Proceeding. This statute provides criminal penalties for any person who corruptly alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding. A grand jury investigation constitutes an "official proceeding" within the meaning of this statute. Violations are punishable by a fine and up to 20 years' imprisonment.

18 U.S.C. § 1505 — Obstruction of Proceedings Before Departments, Agencies, and Committees. This statute criminalizes the obstruction of pending proceedings before federal departments and agencies, including proceedings conducted by or under the authority of the DOJ. Penalties include a fine and up to five years' imprisonment, or up to eight years if the offense involves domestic or international terrorism.

Federal Rules of Criminal Procedure, Rule 17(c) — Subpoenas for Production of Documentary Evidence. Rule 17(c) authorizes the issuance of grand jury subpoenas requiring the production of documents and other tangible evidence. Failure to comply with a grand jury subpoena may result in a finding of contempt of court, with associated sanctions including fines and imprisonment.

Sarbanes-Oxley Act, Section 802 (codified at 18 U.S.C. § 1519 and § 1520). As noted above, Section 802 of the Sarbanes-Oxley Act imposes criminal penalties for the knowing destruction of documents with the intent to obstruct a federal investigation. This provision is of particular relevance to TMC because TMC is a reporting issuer listed on the New York Stock Exchange (NYSE: TMC) and the Toronto Stock Exchange (TSX: TRCL), and is therefore subject to the full scope of Sarbanes-Oxley obligations. TMC's status as a public company listed on two major exchanges heightens the scrutiny that regulators and the DOJ will apply to TMC's preservation conduct and amplifies the consequences of any deficiency.

B. Duty to Preserve Under the Grand Jury Subpoena

Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 was served on TMC on February 14, 2022. The subpoena requires the production of documents and ESI falling within twenty-three specified categories, each of which relates to pricing, customer allocation, competitor communications, or related commercial conduct in the markets for high-purity feldspar, industrial talc, and rare-earth concentrates. The subpoena covers the period from January 1, 2015 to the present.

The subpoena is addressed to Torchlight Mining Corp. and Torchlight Mining (U.S.) Inc. jointly and is directed to the records custodian or other officer designated by the Company to accept service of legal process. The original return date for the subpoena was March 16, 2022.

Calderwood & Harkness submitted a letter to Trial Attorney Denise Kowalski of the DOJ Antitrust Division, San Francisco Field Office, dated February 22, 2022, requesting a 60-day extension of the initial return date to permit orderly identification, collection, review, and production of responsive materials. As of the date of this memorandum, we have not yet received a formal response to the extension request, although Trial Attorney Kowalski indicated informally that the DOJ would be willing to discuss a reasonable extension. We will provide TMC with an update as soon as the extension is confirmed.

Regardless of the status of the extension request, the obligation to preserve all potentially responsive materials is immediate and absolute. An extension of the production deadline does not modify or defer the preservation obligation in any respect. TMC must take all necessary steps to ensure that no documents or ESI within the scope of the subpoena — or reasonably related to the matters under investigation — are destroyed, altered, concealed, or rendered inaccessible during the pendency of the investigation.

C. Scope of the Preservation Duty

The duty to preserve extends to all documents and ESI that are relevant or potentially relevant to the matters under investigation. In the context of a grand jury investigation, the scope of relevance is construed broadly. TMC should err on the side of over-inclusion; it is far better to preserve materials that ultimately prove to be irrelevant than to risk the destruction of materials that may later be determined to have been responsive or probative.

The following categories of documents and ESI are within the scope of TMC's preservation duty. This list is illustrative and should not be treated as exhaustive:

• Pricing Information: All pricing information, price lists, pricing proposals, pricing-adjustment records, discount schedules, rebate agreements, and pricing correspondence for the three product categories (high-purity feldspar, industrial talc, and rare-earth concentrates) from January 1, 2015 to the present. This includes both external pricing communications with customers and internal pricing analyses, pricing approvals, and pricing directives.

• Competitor Communications: All communications of any kind with competitors in the North American specialty-minerals sector, including but not limited to Ridgecrest Minerals Inc. (Denver, Colorado) and Pinnacle Earth Resources Ltd. (Sudbury, Ontario, Canada / Salt Lake City, Utah). This includes formal correspondence, informal communications, email exchanges, text messages, VaultChat messages, telephone call logs, meeting notes, and any other records of contact between TMC personnel and personnel of competitor firms.

• Cascade Chemical Supply Co. Communications: All communications with or documents relating to Cascade Chemical Supply Co. (Spokane, Washington). Calderwood & Harkness understands that the DOJ has identified Cascade Chemical Supply Co. as a cooperating witness entity in the investigation. Any documents reflecting TMC's commercial relationship with Cascade Chemical, including supply agreements, pricing discussions, and communications between TMC and Cascade Chemical personnel, must be preserved with particular care.

• NASMC Trade Association Materials: All documents relating to the North American Specialty Minerals Council ("NASMC"), including but not limited to membership records, correspondence, event invitations, conference agendas, attendee lists, presentations, meeting minutes, committee reports, side-meeting records, and informal communications among NASMC members. Particular attention should be directed to materials relating to NASMC quarterly conferences held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida during the years 2017 through 2021. Trade-association meetings and events are a common venue for the type of competitor coordination that the DOJ is investigating, and all materials relating to TMC's participation in NASMC activities are likely to be of significant interest to the grand jury.

• VaultChat Encrypted Messaging Content: All VaultChat encrypted messages and other messaging-application content involving TMC personnel in the U.S. Specialty Minerals Division. VaultChat messages are of particular significance to this investigation because the DOJ suspects that alleged coordination among competitors occurred in part through this encrypted messaging platform. The preservation of VaultChat data presents unique technical challenges (discussed further in Section VI below), and TMC must take immediate steps to ensure that VaultChat messages are not lost through auto-deletion, device replacement, or user action.

• Bid Submissions and Customer Allocation: All documents relating to bid submissions, requests for proposal, requests for quotation, customer allocation decisions, customer contact assignments, territory assignments, and any other records reflecting the process by which TMC determined which customers to serve, which bids to pursue, and how bid pricing was determined.

• Internal Strategy Documents: All internal memoranda, reports, analyses, presentations, board materials, and other documents relating to competitive strategy, market share analysis, pricing benchmarks, margin analysis, competitor intelligence, and market positioning for the three product categories at issue.

The preservation duty applies to both TMC's Canadian parent entity (Torchlight Mining Corp., 200 Bay Street, Suite 3400, Toronto, Ontario M5J 2J2, Canada) and its U.S. subsidiary (Torchlight Mining (U.S.) Inc., 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117). Although the grand jury is empaneled in the Northern District of California and the subpoena was served on TMC through its U.S. subsidiary, documents and ESI located at the Canadian parent that fall within the scope of the subpoena or that are relevant to the investigation are equally subject to the preservation obligation. TMC exercises possession, custody, or control over documents maintained at both entities, and any distinction between the parent and subsidiary for purposes of preservation would not be defensible.

III. Spoliation Risks and Consequences

The consequences of a failure to preserve documents and ESI in the context of a federal grand jury investigation are severe and multifaceted. This section summarizes the principal categories of risk.

A. Criminal Sanctions

The intentional or reckless destruction of documents relevant to a federal grand jury investigation constitutes a separate and independent criminal offense. Under 18 U.S.C. §§ 1503, 1505, 1512, and 1519, the destruction, alteration, concealment, or falsification of documents with the intent to obstruct a federal investigation is punishable by substantial fines and imprisonment of up to 20 years per offense. These penalties apply irrespective of the merits of the underlying investigation; even if TMC were ultimately found to have engaged in no anticompetitive conduct, the separate obstruction offense would expose the Company and its personnel to criminal liability.

It is important to emphasize that the standard for criminal liability in this context is not limited to intentional destruction. Even negligent destruction of relevant materials, if it occurs after the duty to preserve has attached and under circumstances suggesting that the entity failed to take reasonable steps to ensure preservation, can be treated by the DOJ as evidence of willful obstruction. The DOJ routinely investigates and prosecutes obstruction charges in antitrust matters, and the Antitrust Division has publicly stated that it views document destruction during an investigation as an aggravating factor that warrants enhanced penalties.

Individuals who destroy, conceal, or alter documents can be personally prosecuted, independent of any prosecution of the Company. TMC employees and officers who participate in, direct, or facilitate the destruction of relevant documents face personal criminal exposure, including the possibility of imprisonment. The Company itself can face additional obstruction charges, which would be layered on top of any substantive antitrust charges that may ultimately be brought.

B. Adverse Inferences and Evidentiary Consequences

In any related civil proceedings — and follow-on private antitrust litigation by customers, competitors, or classes of purchasers is entirely foreseeable — a court may instruct the jury to draw an adverse inference that destroyed documents contained information unfavorable to TMC. Under the Federal Rules of Civil Procedure, as interpreted by courts applying the framework established in Zubulake v. Ostrander National Bank Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003), and refined in the 2015 amendments to Rule 37(e), a party that fails to preserve ESI that should have been preserved in the anticipation or conduct of litigation may face case-dispositive sanctions, including adverse-inference instructions, issue preclusion, or, in extreme cases, default judgment.

A spoliation finding would also have devastating consequences for TMC's credibility in any forum. If the DOJ or a court determines that TMC failed to preserve relevant materials, that finding will color every aspect of TMC's defense, from the credibility of its witnesses to the weight given to its remaining documentary evidence. Spoliation findings, once made, are extremely difficult to overcome and tend to follow a litigant throughout the life of a case and beyond.

C. Impact on Cooperation Posture

TMC has communicated its willingness to cooperate with the DOJ investigation. As Priya Anand is aware, the decision to adopt a cooperative posture was made in consultation with Calderwood & Harkness and reflects a strategic assessment that TMC's best path to a favorable resolution — potentially including a non-prosecution agreement ("NPA"), a deferred prosecution agreement ("DPA"), or reduced penalties — lies in demonstrating full cooperation with the DOJ's investigative process.

Any evidence of document destruction, inadequate preservation, or non-compliance with the litigation hold would severely damage — and likely destroy — TMC's cooperation posture. The DOJ Antitrust Division's cooperation guidelines explicitly require that a company seeking cooperation credit must, among other things, promptly preserve, collect, and produce relevant documents, and must not engage in any conduct that impedes the investigation. A finding that TMC failed to preserve relevant materials would, at a minimum, disqualify TMC from receiving cooperation credit and, at worst, could convert TMC from a cooperation candidate to an aggravated prosecution target subject to enhanced charges and penalties.

As of the date of this memorandum, TMC has received a subpoena, not a target letter. This distinction is significant: it suggests that the DOJ has not yet determined that TMC is a target of the investigation, and TMC's current status affords the Company meaningful strategic flexibility. Maintaining a strong and demonstrably thorough preservation posture is essential to preserving TMC's current status and maximizing the opportunity for a favorable resolution.

IV. Identification of Custodians and Data Sources

A. Custodians

Calderwood & Harkness, in consultation with TMC's in-house legal team, has identified thirty-four (34) custodians whose documents and ESI are subject to the preservation obligation. The complete list of custodians, together with their respective roles, reporting relationships, and known data sources, is set forth in the Data Collection Protocol and Custodian List memorandum, which will be finalized and transmitted under separate cover on or about March 18, 2022. The custodian list will be updated on a rolling basis as additional custodians are identified through the internal investigation and document review process.

The following key custodians are highlighted here for purposes of immediate action and attention:

Gavin Holt — Former Vice President, U.S. Specialty Minerals Sales. Holt departed TMC effective September 30, 2021, approximately four and a half months before TMC received the grand jury subpoena. Although Holt is no longer employed by TMC, TMC's preservation obligation extends to all documents and ESI that were created, received, or maintained by Holt during his tenure with the Company. This includes all corporate email, shared-drive files, VaultChat messages (if provisioned by TMC), and any other business records associated with Holt's role as VP of U.S. Specialty Minerals Sales. TMC must also preserve any post-departure communications with Holt, if any exist on TMC systems. Holt's data is of particular sensitivity given his role overseeing U.S. specialty-minerals sales during a substantial portion of the relevant period. The preservation of Holt's data is addressed further in Section VI.C below. Holt has retained personal counsel at Briarcliff Law Group PLLC; his attorney of record is Patrick Dunleavy. Any communications directed to Holt regarding documents or the investigation should be coordinated through his counsel and Calderwood & Harkness.

Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division (current employee). As the Director of Pricing Analytics, Chu is responsible for the development and maintenance of pricing models, pricing databases, and pricing recommendations for the U.S. Specialty Minerals Division. Her files and communications are expected to contain a substantial volume of responsive material and are a high priority for collection.

Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division (current employee). Eriksen manages the Western Region sales team and has direct responsibility for customer relationships in the western United States. His communications with customers and his participation in the bid-submission process make him a significant custodian.

Priya Anand — General Counsel, TMC (current employee). As General Counsel, Priya Anand is a custodian by virtue of her role in TMC's initial response to the investigation, her oversight of the litigation hold process, and any communications she may have had regarding the matters under investigation prior to the engagement of outside counsel. Calderwood & Harkness recognizes the inherent complexity of the General Counsel's dual role as both a custodian and a key participant in the Company's legal response, and we will work closely with Priya to ensure that her preservation obligations are fully satisfied while protecting the privileged nature of her legal advice.

Richard Fong — Chief Financial Officer, TMC (current employee). Fong is included as a custodian because of his involvement in the Company's financial reporting, including the disclosure of the investigation in TMC's public filings and the establishment of litigation reserves. His communications may also contain relevant pricing or financial information relating to the products at issue.

Søren Dalmqvist — Chief Executive Officer, TMC (current employee). Dalmqvist is included as a precautionary custodian given his executive oversight role and the possibility that he received or participated in communications regarding competitive strategy, pricing, or competitor relationships at the executive level. Although we do not presently have reason to believe that Dalmqvist was directly involved in any of the conduct under investigation, prudence dictates that his data be preserved and, if appropriate, collected.

Other Personnel in the U.S. Specialty Minerals Division. The remaining custodians include sales representatives, account managers, operations personnel, and administrative staff within the U.S. Specialty Minerals Division who may have had access to or involvement with pricing, customer allocation, competitor communications, or NASMC-related activities. These individuals are identified by name and role in the Data Collection Protocol.

B. Data Sources

The preservation obligation extends to all media and platforms on which potentially relevant documents and ESI may reside. The following data sources have been identified as within the scope of preservation:

Corporate Email Systems. All email accounts — both active and archived — for identified custodians on TMC's corporate email platform. TMC operates Strathmore Data Systems / Ashgrove Software for its corporate email in both the Canadian and U.S. environments. All mailboxes, including inbox, sent items, deleted items, drafts, and archived folders, must be preserved. Any auto-purge or retention policies that would result in the deletion of email messages or attachments must be immediately suspended for all custodian accounts.

VaultChat Encrypted Messaging Application. VaultChat messages are of particular and heightened significance to this investigation. The DOJ suspects that alleged coordination among competitors in the North American specialty-minerals sector occurred in part through the VaultChat encrypted messaging platform, which is designed to provide end-to-end encryption and, in some configurations, includes auto-delete functionality. TMC's IT department must take the following immediate steps with respect to VaultChat data:

(a) Identify all VaultChat accounts that have been provisioned to TMC personnel, including accounts provisioned through TMC corporate channels and any accounts that individual employees may have created using TMC-provisioned devices or TMC email addresses;

(b) Locate any archived, backed-up, or server-side VaultChat data that may be accessible through TMC's IT infrastructure;

(c) Immediately suspend any automatic deletion features within VaultChat that may be enabled on TMC-managed accounts or devices; and

(d) If VaultChat data resides exclusively on personal devices (as is common with encrypted messaging applications), coordinate with Calderwood & Harkness on collection protocols for those devices (see Section VI below).

Shared Network Drives and File Servers. All shared drives accessible to U.S. Specialty Minerals Division personnel, including but not limited to pricing databases, customer files, bid documentation, sales reports, and any shared folders used for collaborative work. TMC IT should provide Calderwood & Harkness with a mapping of all shared drives and file servers relevant to the U.S. Specialty Minerals Division, including server locations, access permissions, and backup schedules.

Cloud Storage and Collaboration Platforms. Any cloud-based storage or collaboration platforms used by custodians for business purposes, including but not limited to Sundial Systems, Cobalt Ridge Systems, Hollowell Health IT, Larkspur Technologies, or similar services. TMC IT should confirm which cloud platforms are in use and ensure that all relevant data is preserved, including version histories and audit logs.

Personal Devices. Smartphones, tablets, laptops, and personal computers used for business purposes by any identified custodian. The preservation of data on personal devices is particularly critical for VaultChat messages, which in many cases reside solely on the device on which they were sent or received. TMC must take reasonable steps to ensure that custodians do not delete, reset, replace, or otherwise alter personal devices that may contain relevant data. Collection protocols for personal devices are addressed in Section VI.B below.

Physical and Hardcopy Documents. Paper files, notebooks, handwritten notes, printed emails, calendars, business cards, conference materials, and any other physical documents that may be relevant to the investigation. Custodians should be instructed to identify and segregate all physical documents that may fall within the scope of the hold and to refrain from discarding, shredding, or otherwise destroying any such materials.

NASMC Trade Association Records. Any documents received from or exchanged with NASMC, including conference agendas, attendee lists, presentations, meeting minutes, committee materials, side-meeting records, and informal communications among NASMC members. This includes both documents in TMC's possession and documents that TMC may need to request from NASMC (see Section VI.D below).

Backup Tapes and Archival Media. TMC IT should identify any backup tapes, disaster-recovery media, or other archival media that may contain relevant data, including data from the accounts of former employees such as Gavin Holt. All recycling, overwriting, and rotation schedules for backup tapes and archival media must be immediately suspended for any media that may contain data within the scope of the hold.

Voicemail Systems. Voicemail messages on TMC's corporate phone systems should be preserved where technically feasible. TMC IT should assess the capabilities of the Company's voicemail systems and advise Calderwood & Harkness as to whether voicemail messages can be retained and extracted.

V. Best Practices for Custodian Compliance

A. Communication and Acknowledgment

The effectiveness of any litigation hold depends upon the communication of clear, comprehensive instructions to each custodian and the confirmation that those instructions have been received and understood. Every custodian identified in the litigation hold must receive and acknowledge receipt of the hold notice. TMC should maintain a detailed log of all acknowledgments, including the date of receipt, the method of acknowledgment (e.g., signed written form, email confirmation, electronic acknowledgment through a hold-management platform), and the identity of the individual who provided the acknowledgment.

The targeted hold notice issued on March 1, 2022 to personnel in the U.S. Specialty Minerals Division includes custodian-specific preservation instructions tailored to the particular data sources and document categories relevant to each individual's role. Each custodian who received the targeted notice should be required to sign a written acknowledgment form confirming that he or she has: (i) read the hold notice in its entirety; (ii) understands the preservation obligations described in the notice; (iii) has taken steps to identify and preserve all potentially relevant documents and ESI within his or her possession, custody, or control; and (iv) will comply with the hold on an ongoing basis until further notice. Signed acknowledgment forms should be collected by TMC's legal department and provided to Calderwood & Harkness.

With respect to Gavin Holt (departed employee), TMC must ensure that all of Holt's former corporate email accounts, shared-drive files, VaultChat accounts (if provisioned by TMC), and any devices returned by Holt at the time of his departure have been preserved in their current state. TMC does not have the legal authority to compel Holt to preserve documents on personal devices or in personal accounts; however, TMC must preserve everything within its possession, custody, or control. As noted above, Holt has retained personal counsel at Briarcliff Law Group PLLC (Patrick Dunleavy). Any requests directed to Holt regarding the preservation or production of documents should be coordinated through Mr. Dunleavy and Calderwood & Harkness to ensure that proper protocols are followed and that no inadvertent disclosures occur.

B. Ongoing Custodian Reminders

Litigation holds are not "set and forget" measures. A litigation hold that is issued but never reinforced or monitored is, in the eyes of courts and regulators, little better than no hold at all. TMC should issue periodic reminder notices to all custodians reaffirming the hold and reminding them of their obligations. At a minimum, reminder notices should be issued on a quarterly basis. These reminders should reiterate the scope of the hold, remind custodians of the categories of documents and ESI that must be preserved, and ask custodians to confirm their ongoing compliance.

Calderwood & Harkness will assist TMC's legal department in drafting quarterly reminder notices. The first quarterly reminder should be issued on or about June 1, 2022, and subsequent reminders should follow at approximately 90-day intervals thereafter. The timing and content of reminders may be adjusted as the investigation evolves.

In addition to scheduled quarterly reminders, TMC should issue hold reminders in connection with specific triggering events, such as: (i) the issuance of additional subpoenas or information requests by the DOJ; (ii) changes to the scope of the investigation; (iii) the identification of new custodians; and (iv) the departure of any custodian from TMC's employment.

With respect to employee departures, any custodian who departs TMC during the pendency of the investigation — whether through resignation, termination, or retirement — should receive an exit-specific hold reminder as part of the offboarding process. TMC's Human Resources department should be instructed to coordinate with the legal department to ensure that no custodian departs the Company without receiving an exit-specific hold reminder and without the Company having first taken steps to preserve all of the departing custodian's data. Corporate email accounts, shared-drive access, VaultChat accounts, and any company-issued devices should be preserved and secured prior to account deactivation or device reassignment.

C. Custodian Interviews

As part of the internal investigation being conducted by Calderwood & Harkness, we will conduct interviews of key custodians to: (i) understand each custodian's document creation and retention practices; (ii) identify additional data sources that may not have been captured in the initial data-source mapping; (iii) assess each custodian's compliance with the litigation hold; and (iv) gather factual information relevant to the matters under investigation.

These custodian interviews are currently being scheduled for July through August 2022. The interview schedule will be shared with TMC's General Counsel in advance. All interviews will be conducted under the direction of Calderwood & Harkness attorneys and will be protected by the attorney-client privilege and the work-product doctrine.

TMC's in-house counsel should reinforce to all custodians the importance of full candor and cooperation with Calderwood & Harkness's interview requests. Custodians should understand that the interviews are being conducted to protect the Company's interests and that the attorney-client privilege applies to the communications. Custodians should also be informed that they have the right to retain personal counsel at their own expense, but that the Company's counsel represents the Company, not any individual employee.

D. Prohibition on Document Destruction

All routine document-destruction schedules, auto-delete policies, records-retention schedules, and any other automated or manual processes that would result in the deletion, destruction, or alteration of potentially relevant documents must be suspended immediately for all custodians and all data sources within the scope of the hold.

This suspension encompasses, without limitation:

• IT-managed auto-purge policies for corporate email (including policies that automatically delete emails older than a specified retention period);

• Auto-delete settings within VaultChat or other messaging applications;

• Voicemail auto-deletion policies;

• Scheduled recycling or overwriting of backup tapes and archival media;

• Routine destruction of hardcopy files under TMC's corporate records-retention policy; and

• Any other automated or manual processes that could result in the loss of potentially relevant data.

The suspension of routine document-destruction and records-retention schedules must remain in effect until Calderwood & Harkness provides written notice that the hold has been modified or lifted. No TMC employee — regardless of seniority or role — is authorized to destroy, delete, alter, or conceal any document or ESI that falls within the scope of the hold. Any employee who becomes aware of actual or attempted document destruction in violation of the hold should report the matter immediately to TMC's General Counsel.

VI. Recommendations for IT Coordination

The effective implementation of TMC's preservation obligations requires close coordination between TMC's IT department, TMC's in-house legal team, Calderwood & Harkness, and the e-discovery and forensic collection vendor retained for this matter. This section sets forth specific recommendations for IT coordination.

A. Immediate IT Actions

TMC's IT department — encompassing both the Canadian headquarters IT team and the U.S. operations IT team — should designate a single point of contact to serve as the primary liaison for all preservation and collection activities. This individual should have sufficient seniority and technical authority to implement the actions described in this memorandum and should be authorized to make real-time decisions regarding data preservation in coordination with Calderwood & Harkness.

The designated IT point of contact will coordinate directly with Calderwood & Harkness and with Redstone Digital Forensics Inc. (7925 Jones Branch Drive, Suite 600, McLean, Virginia 22102), which was retained by TMC on March 15, 2022 as the e-discovery and forensic collection vendor for this matter. The project director at Redstone Digital Forensics is Neil Ashworth, who will serve as the primary technical contact for all forensic collection activities.

As an immediate action item, TMC IT should provide Calderwood & Harkness and Redstone with a complete and detailed inventory of all data systems, servers, backup infrastructure, cloud platforms, and archival media used by the U.S. Specialty Minerals Division and by identified custodians. This inventory should include, at a minimum: (i) a list of all email servers and mail systems, with associated retention policies; (ii) a list of all file servers and shared drives, with associated backup and retention schedules; (iii) a list of all cloud storage platforms in use; (iv) a description of the VaultChat deployment, including the number of provisioned accounts and the location of any server-side data; (v) a list of all backup tapes and archival media, with associated rotation and recycling schedules; and (vi) a description of the voicemail system, including retention capabilities.

TMC IT must immediately suspend all auto-deletion, recycling, and overwriting schedules for email, shared drives, backup tapes, VaultChat data, voicemail, and all other data repositories that may contain relevant materials. This suspension should be documented in writing, with confirmation provided to Calderwood & Harkness that the suspension has been implemented.

B. Forensic Data Collection

Redstone Digital Forensics will conduct forensic imaging and collection of custodian data in accordance with the Data Collection Protocol memorandum that will be finalized on or about March 18, 2022. All collections will be conducted using forensically defensible methodologies to ensure the admissibility and integrity of collected data.

The following protocols must be employed for all forensic collections:

• Chain-of-Custody Documentation: A detailed chain-of-custody log must be maintained for every piece of data, device, or media that is collected, transferred, or stored. The log must record the identity of the custodian, the date and time of collection, the identity of the individual performing the collection, the method of collection, and the location and condition of the data or device at the time of collection.

• Hash-Value Verification: All forensic images and collected data sets must be verified using MD5 and SHA-256 hash values to ensure that the collected data is a true and accurate copy of the source data and that no alteration has occurred during the collection or transfer process.

• Write-blocking Protocols: All forensic imaging of physical devices (hard drives, USB drives, mobile devices) must be performed using hardware or software write-blockers to prevent any modification of the source data during the imaging process.

For personal devices — including smartphones, tablets, and personal laptops — used by custodians for business purposes, TMC should request that each custodian voluntarily submit his or her device for forensic imaging by Redstone. Voluntary submission is preferred because it avoids the legal complications associated with compelled production of personal property. If a custodian declines to submit a personal device, TMC's General Counsel and Calderwood & Harkness should be notified immediately so that appropriate legal measures can be evaluated, including the possibility of seeking a court order or, in the case of a company-issued device, exercising TMC's rights under its device-usage and BYOD policies.

VaultChat data collection is a high priority. As noted above, VaultChat is an encrypted messaging application that the DOJ suspects was used to facilitate the alleged anticompetitive coordination. Redstone should coordinate directly with TMC IT to: (i) determine whether any VaultChat data is stored on TMC's servers or in a TMC-managed cloud environment; (ii) identify which custodian devices contain VaultChat data; and (iii) develop device-level extraction protocols that will preserve the content, metadata, and timestamps of VaultChat messages without compromising the integrity of other data on the device.

C. Preservation of Gavin Holt's Data

The preservation of Gavin Holt's data requires special attention given Holt's departure from TMC on September 30, 2021 — approximately four and a half months before the issuance of the litigation hold. During the interval between Holt's departure and the issuance of the hold, Holt's data may have been subject to routine purging under TMC's standard offboarding and records-retention procedures. It is therefore essential that TMC IT take the following steps immediately:

(a) Confirm that Holt's corporate email account has been preserved and has not been purged, deleted, or overwritten since his departure date of September 30, 2021. If the account has been deactivated, confirm that a complete archive of the account contents exists and is accessible.

(b) Confirm that Holt's shared-drive files and home-directory files have been preserved and have not been deleted or reassigned since his departure date.

(c) Confirm whether a VaultChat account was provisioned to Holt by TMC, and if so, whether any VaultChat data associated with Holt's account is accessible on TMC systems or devices.

(d) Confirm whether Holt returned any company-issued devices (laptop, smartphone, tablet) at the time of his departure, and if so, confirm the current location and condition of those devices. All returned devices should be secured and preserved in their current state pending forensic imaging by Redstone.

(e) Provide a written certification to Calderwood & Harkness confirming the status of Holt's data, including whether any data has been purged or deleted and, if so, the date and scope of any such purging or deletion.

If any of Holt's data was deleted or purged between September 30, 2021 and the issuance of the litigation hold on March 1, 2022, this fact must be disclosed to Calderwood & Harkness immediately so that remediation steps can be assessed. Remediation may include efforts to recover deleted data from backup tapes, forensic recovery from devices, or engagement with third-party data-recovery specialists. The timing and circumstances of any data loss will also need to be documented in the event that the DOJ raises questions regarding the completeness of TMC's production.

D. Cloud and Third-Party Data

If TMC uses any third-party cloud services for data storage, document collaboration, or communications that may contain relevant data, TMC IT should issue preservation requests to those service providers in writing. Preservation requests should identify the specific accounts or data repositories to be preserved, the relevant time period, and the requirement that no data be deleted or overwritten pending further notice. Calderwood & Harkness can provide template preservation letters for this purpose.

Separately, TMC should consider whether it is appropriate to direct a preservation request to NASMC with respect to any records that NASMC may maintain reflecting TMC's participation in NASMC conferences, events, committees, or communications. Given the sensitivity of this issue — a preservation request to NASMC could alert other NASMC members to the investigation, to the extent they are not already aware — Calderwood & Harkness will advise TMC on the timing and content of any such request before it is issued.

E. Ongoing Monitoring and Compliance

The issuance of a litigation hold and the implementation of initial preservation steps are necessary but not sufficient. TMC must also implement ongoing monitoring to ensure that no custodian is deleting, moving, or altering documents subject to the hold, whether intentionally or inadvertently.

TMC IT should implement, to the extent technically feasible, monitoring tools or audit-log review procedures that will detect any custodian activity that is inconsistent with the hold, including: (i) bulk deletion of email messages; (ii) deletion or modification of files on shared drives; (iii) disabling or uninstalling of VaultChat or other messaging applications; (iv) factory-resetting of company-issued devices; and (v) any other activity that could result in the loss of relevant data.

TMC IT should provide Calderwood & Harkness with periodic compliance reports on at least a monthly basis. Each report should confirm that: (i) the suspension of auto-deletion and records-recycling schedules remains in effect; (ii) no incidents of custodian non-compliance have been identified (or, if incidents have occurred, provide details); and (iii) no data-migration, system-upgrade, or server-decommissioning activities have been undertaken that could affect preserved data.

Any planned data-migration projects, system upgrades, hardware replacements, or server decommissioning activities that could affect preserved data must be coordinated with Calderwood & Harkness before proceeding. TMC IT should not proceed with any such project without obtaining written confirmation from Calderwood & Harkness that the project has been reviewed and that adequate preservation measures are in place.

VII. Coordination with Calvert & Associates LLP (Independent Auditor)

TMC's independent auditor, Calvert & Associates LLP (Montreal, Quebec; engagement partner: Daniel Moreau), may require access to certain documents and information relating to the DOJ investigation for purposes of assessing litigation contingencies and determining the adequacy of TMC's litigation reserves under applicable accounting standards, including ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under International Financial Reporting Standards.

Any sharing of documents or information with Calvert & Associates in connection with the investigation must be carefully coordinated through Calderwood & Harkness. The sharing of privileged attorney-client communications or attorney work product with Calvert & Associates — without appropriate safeguards — could result in an inadvertent waiver of the attorney-client privilege or the work-product protection. To mitigate this risk, all communications with Calvert & Associates regarding the investigation should be channeled through TMC's General Counsel and Calderwood & Harkness, and any documents shared with Calvert & Associates should be provided subject to an express reservation of privilege and, where appropriate, under the protection of a common-interest or joint-defense agreement if such an arrangement is warranted.

TMC disclosed the existence of the DOJ investigation in its fiscal year 2021 annual report, which was filed on SEDAR+ and with the U.S. Securities and Exchange Commission on Form 40-F on March 28, 2022. The disclosure references the existence of the investigation and the Company's initial assessment of the potential exposure. Coordination with Calvert & Associates regarding the adequacy of the initial litigation reserve of USD 30 million — which was established on the basis of TMC's preliminary assessment of the range of potential outcomes — should be handled through privileged channels to ensure that the deliberative process underlying the reserve calculation remains protected.

VIII. Coordination with D&O Insurance Counsel

TMC tendered notice of the DOJ investigation to Northland Mutual Insurance Co. on March 4, 2022, under Directors & Officers Liability Policy No. NMI-DO-2021-5547. The primary-layer D&O policy provides an aggregate limit of USD 50 million, subject to a retention (self-insured amount) of USD 2.5 million. Excess coverage is provided by Greystone Specialty Insurance Ltd. (first excess layer) and Sentinel Re Ltd. (second excess layer), each of which was also placed on notice of the investigation.

TMC's document preservation obligations extend to communications with Northland Mutual and the excess-layer carriers regarding coverage for the investigation, including tender letters, coverage correspondence, reservation-of-rights letters, and any related communications. These communications should be identified, preserved, and segregated for review by Calderwood & Harkness.

In addition, privilege considerations must be carefully evaluated with respect to documents shared with insurance carriers or their counsel. Under the common-interest doctrine, communications between TMC and its D&O insurers regarding the defense of the investigation may, in certain circumstances, be protected from disclosure to third parties. However, the scope of the common-interest doctrine varies by jurisdiction, and the protection is not absolute. Calderwood & Harkness will advise TMC on the appropriate protocols for communications with insurance carriers and their counsel to ensure that privilege is maintained.

IX. Summary of Recommended Immediate Actions

Based on the foregoing analysis, Calderwood & Harkness recommends the following immediate actions. These actions should be treated as urgent priorities and should be completed within the timeframes indicated:

1. Confirm Custodian Acknowledgments. Confirm that all thirty-four (34) identified custodians have acknowledged receipt of the March 1, 2022 litigation hold notices (both the company-wide notice and, where applicable, the supplemental targeted notice to U.S. Specialty Minerals Division personnel). Collect and retain signed acknowledgment forms from each custodian. Target completion: March 10, 2022.

2. Designate IT Point of Contact. Designate a single IT point of contact within TMC (with authority spanning both Canadian and U.S. IT operations) to serve as the primary liaison for all preservation and collection activities with Calderwood & Harkness and Redstone Digital Forensics. Communicate the identity and contact information of the designated individual to Calderwood & Harkness. Target completion: immediate.

3. Suspend Auto-Deletion and Records-Recycling Schedules. Immediately suspend all auto-deletion, auto-purge, recycling, overwriting, and routine destruction schedules across all relevant systems, including corporate email, shared drives, backup tapes, VaultChat, voicemail, and all other data repositories that may contain relevant materials. Document the suspension in writing and provide confirmation to Calderwood & Harkness. Target completion: immediate (if not already completed).

4. Provide IT System Inventory. Provide Calderwood & Harkness and Redstone Digital Forensics with a complete inventory of all data systems, servers, backup infrastructure, cloud platforms, and archival media used by the U.S. Specialty Minerals Division and by identified custodians. Target completion: March 10, 2022.

5. Verify Preservation of Gavin Holt's Data. Confirm the preservation status of all data associated with former VP Gavin Holt, including corporate email, shared-drive files, VaultChat data, and any returned company-issued devices. Provide a written certification to Calderwood & Harkness confirming the status of Holt's data and disclosing any deletions or purges that may have occurred since his departure on September 30, 2021. Target completion: March 10, 2022.

6. Coordinate Personal-Device Collection. Initiate outreach to custodians regarding the voluntary submission of personal devices for forensic imaging, with particular emphasis on devices that may contain VaultChat messages or other business-related data. Coordinate the collection process with Redstone Digital Forensics. Target completion: ongoing, with initial outreach by March 15, 2022.

7. Implement Monitoring. Implement monitoring tools or audit-log review procedures to detect custodian non-compliance with the hold, including bulk deletions, unauthorized modifications, and device resets. Target completion: March 31, 2022.

8. Schedule Quarterly Hold Reminders. Establish a schedule for quarterly hold reminder notices to all custodians. The first quarterly reminder should be issued on or about June 1, 2022. Calderwood & Harkness will assist in drafting the reminder notices. Target completion: calendar reminders set by March 15, 2022.

9. Freeze Planned IT Projects. Identify and freeze any planned data-migration projects, server decommissioning activities, system upgrades, or hardware replacements that could affect preserved data. No such projects should proceed without prior written coordination with Calderwood & Harkness. Target completion: immediate.

X. Continuing Obligations and Contact Information

The preservation obligations described in this memorandum will remain in effect until Calderwood & Harkness provides written notice that the litigation hold has been modified or lifted. No modification or lifting of the hold will occur without a careful assessment of the status of the investigation and the legal requirements for continued preservation. TMC should not assume that the hold will be lifted upon the conclusion of the grand jury investigation; the preservation obligation may extend beyond the grand jury proceedings if related civil litigation or regulatory proceedings are pending or reasonably anticipated.

The scope of preservation may expand if additional subpoenas are issued, if the DOJ broadens the scope of its investigation, or if new custodians or data sources are identified. Calderwood & Harkness will promptly notify TMC of any changes to the scope of the hold and will issue supplemental hold notices as necessary.

Any questions regarding the scope of the hold, specific custodian obligations, data-source identification, or any other aspect of TMC's preservation obligations should be directed to:

Aaron Liu Lead Associate Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7200

Email: aliu@calderwoodharkness.com

Monica Reyes Working Associate Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7218

Email: mreyes@calderwoodharkness.com

For e-discovery, forensic collection, and technical data-preservation matters:

Neil Ashworth Project Director Redstone Digital Forensics Inc. 7925 Jones Branch Drive, Suite 600 McLean, Virginia 22102 Telephone: (703) 555-4100

Email: nashworth@redstonedigital.com

Closing

This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of Torchlight Mining Corp. in connection with Grand Jury No. GJ-22-0194 (N.D. Cal.). It contains legal analysis, mental impressions, conclusions, opinions, and recommendations of counsel and is protected from disclosure by the attorney-client privilege and the work-product doctrine. This memorandum should not be disseminated beyond TMC's legal department without the prior written approval of Calderwood & Harkness LLP. Inadvertent or unauthorized disclosure of this memorandum to any third party could result in a waiver of the protections described herein.

We are available to discuss the contents of this memorandum at your earliest convenience and to assist TMC in implementing each of the recommended actions described above. Given the urgency of the preservation obligations and the potential consequences of non-compliance, we recommend scheduling a call or meeting within the next several business days to confirm the status of the immediate action items and to address any questions or concerns.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Aaron Liu Lead Associate Antitrust & Competition Practice Group Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104

Date: March 2, 2022

cc:

Elaine Forsythe, Partner (Responsible Partner), Antitrust & Competition Practice Group, Calderwood & Harkness LLP

Monica Reyes, Working Associate, Antitrust & Competition Practice Group, Ca

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104
MEMORANDUM
March 2, 2022
Matter No.: 1039-00001
TO: Priya Anand, General Counsel, Torchlight Mining Corp.
FROM: Aaron Liu, Calderwood & Harkness LLP
RE: Document Preservation Obligations — DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)
PRIVILEGE LEGEND: This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of Torchlight Mining Corp. in connection with the above-referenced matter. It contains legal analysis, mental impressions, and strategic recommendations of counsel. This memorandum should not be disclosed to any third party — including employees of Torchlight Mining Corp. outside of the legal department — without prior consultation with Calderwood & Harkness LLP. Inadvertent disclosure of this memorandum does not constitute a waiver of the attorney-client privilege or the work-product protection.
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I. Purpose and Executive Summary
This memorandum outlines the legal obligations of Torchlight Mining Corp. ("TMC" or the "Company") to preserve documents and electronically stored information ("ESI") in connection with the investigation being conducted by the Antitrust Division of the United States Department of Justice ("DOJ") through a grand jury empaneled in the United States District Court for the Northern District of California, San Francisco Division (Grand Jury No. GJ-22-0194). The grand jury investigation concerns suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, with a specific focus on three product categories: high-purity feldspar, industrial talc, and rare-earth concentrates.
The grand jury investigation was formally opened on February 10, 2022. TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 on February 14, 2022. The subpoena was served upon TMC's registered agent in the State of Nevada and forwarded to TMC's General Counsel on the same date. TMC engaged Calderwood & Harkness LLP on February 18, 2022, to serve as lead outside counsel in connection with the investigation.
On March 1, 2022, Calderwood & Harkness issued litigation hold notices to all TMC personnel on a company-wide basis and issued a supplemental targeted preservation notice directed specifically to personnel within the U.S. Specialty Minerals Division. Both notices were issued under the signature of Priya Anand, General Counsel of TMC, in order to underscore the Company's institutional commitment to preservation and compliance. The company-wide notice was distributed by email to all TMC employees globally, and the targeted notice was distributed in both electronic and hard-copy form to all personnel within the U.S. Specialty Minerals Division.
This memorandum supplements those litigation hold notices by providing TMC's General Counsel and in-house legal team with a comprehensive summary of the following:
•  The legal framework governing document preservation obligations in the context of a federal grand jury investigation;
•  The specific risks of spoliation and the criminal, evidentiary, and strategic consequences of any failure to preserve;
•  Best practices for ensuring ongoing custodian compliance with the litigation hold;
•  Recommendations for coordination with TMC's Information Technology department to ensure defensible preservation across all relevant data sources; and
•  Immediate action items that must be completed within the coming days and weeks to establish a robust preservation posture.
TMC's preservation obligations are broad and extend to all documents and ESI that may be relevant to the matters under investigation. As discussed in detail below, potentially relevant materials include, without limitation, pricing communications and records, competitor contacts and correspondence, trade-association materials related to the North American Specialty Minerals Council ("NASMC"), encrypted messaging content (including, critically, VaultChat messages), bid submissions, customer allocation records, and internal analyses of competitive strategy and market positioning. The scope of preservation encompasses both TMC's Canadian parent entity and its U.S. subsidiary, Torchlight Mining (U.S.) Inc., and extends to documents in the possession, custody, or control of both current and former employees.
Given the severity of the potential consequences for any failure to preserve — including criminal prosecution for obstruction of justice, adverse evidentiary inferences in related civil proceedings, and the destruction of TMC's cooperation posture with the DOJ — it is imperative that TMC treat its preservation obligations with the utmost seriousness and ensure that all steps outlined in this memorandum are implemented promptly and completely.
II. Legal Framework for Document Preservation
A. Duty to Preserve Under Federal Law
The duty to preserve documents and ESI arises when an entity reasonably anticipates litigation or a government investigation. The duty is not contingent upon the formal commencement of proceedings; rather, it attaches at the point when the entity knew or should have known that relevant materials might be sought in connection with pending or reasonably foreseeable governmental or judicial proceedings.
In TMC's case, the duty to preserve was triggered no later than February 14, 2022, the date on which TMC received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003. Receipt of a grand jury subpoena is the most unambiguous possible trigger for the preservation duty: it constitutes actual notice that the government is actively investigating matters to which the entity's documents may be relevant, and it imposes a direct legal obligation to produce specified categories of materials.
It bears noting, however, that TMC's preservation obligation may have been triggered at an earlier date. TMC's General Counsel became aware on or about January 18, 2022, that a competitor, Ridgecrest Minerals Inc. (Denver, Colorado), had received a target letter from the DOJ Antitrust Division on approximately January 12, 2022, in connection with what appeared to be the same or a closely related investigation. The circulation of target letters to competitors in the same product markets in which TMC operates would, under the reasonable-anticipation standard, likely be sufficient to trigger TMC's own preservation obligations. Although TMC's formal preservation efforts were initiated upon receipt of the subpoena on February 14, 2022, TMC should be prepared to address any questions from the DOJ regarding the period between approximately January 18, 2022 and February 14, 2022, and should confirm that no relevant materials were destroyed during that interval.
The following federal statutes impose criminal liability for the destruction, alteration, or concealment of documents in connection with a federal investigation:
18 U.S.C. § 1519 — Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy. This statute, enacted as part of the Sarbanes-Oxley Act of 2002, provides that whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States, or in relation to or contemplation of any such matter or case, shall be fined under Title 18 or imprisoned not more than 20 years, or both. Section 1519 is broadly construed and does not require that the defendant have knowledge of a specific pending proceeding; it is sufficient that the defendant acted with the intent to obstruct a matter within federal jurisdiction.
18 U.S.C. § 1512(c) — Obstruction of an Official Proceeding. This statute provides criminal penalties for any person who corruptly alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object's integrity or availability for use in an official proceeding. A grand jury investigation constitutes an "official proceeding" within the meaning of this statute. Violations are punishable by a fine and up to 20 years' imprisonment.
18 U.S.C. § 1505 — Obstruction of Proceedings Before Departments, Agencies, and Committees. This statute criminalizes the obstruction of pending proceedings before federal departments and agencies, including proceedings conducted by or under the authority of the DOJ. Penalties include a fine and up to five years' imprisonment, or up to eight years if the offense involves domestic or international terrorism.
Federal Rules of Criminal Procedure, Rule 17(c) — Subpoenas for Production of Documentary Evidence. Rule 17(c) authorizes the issuance of grand jury subpoenas requiring the production of documents and other tangible evidence. Failure to comply with a grand jury subpoena may result in a finding of contempt of court, with associated sanctions including fines and imprisonment.
Sarbanes-Oxley Act, Section 802 (codified at 18 U.S.C. § 1519 and § 1520). As noted above, Section 802 of the Sarbanes-Oxley Act imposes criminal penalties for the knowing destruction of documents with the intent to obstruct a federal investigation. This provision is of particular relevance to TMC because TMC is a reporting issuer listed on the New York Stock Exchange (NYSE: TMC) and the Toronto Stock Exchange (TSX: TRCL), and is therefore subject to the full scope of Sarbanes-Oxley obligations. TMC's status as a public company listed on two major exchanges heightens the scrutiny that regulators and the DOJ will apply to TMC's preservation conduct and amplifies the consequences of any deficiency.
B. Duty to Preserve Under the Grand Jury Subpoena
Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003 was served on TMC on February 14, 2022. The subpoena requires the production of documents and ESI falling within twenty-three specified categories, each of which relates to pricing, customer allocation, competitor communications, or related commercial conduct in the markets for high-purity feldspar, industrial talc, and rare-earth concentrates. The subpoena covers the period from January 1, 2015 to the present.
The subpoena is addressed to Torchlight Mining Corp. and Torchlight Mining (U.S.) Inc. jointly and is directed to the records custodian or other officer designated by the Company to accept service of legal process. The original return date for the subpoena was March 16, 2022.
Calderwood & Harkness submitted a letter to Trial Attorney Denise Kowalski of the DOJ Antitrust Division, San Francisco Field Office, dated February 22, 2022, requesting a 60-day extension of the initial return date to permit orderly identification, collection, review, and production of responsive materials. As of the date of this memorandum, we have not yet received a formal response to the extension request, although Trial Attorney Kowalski indicated informally that the DOJ would be willing to discuss a reasonable extension. We will provide TMC with an update as soon as the extension is confirmed.
Regardless of the status of the extension request, the obligation to preserve all potentially responsive materials is immediate and absolute. An extension of the production deadline does not modify or defer the preservation obligation in any respect. TMC must take all necessary steps to ensure that no documents or ESI within the scope of the subpoena — or reasonably related to the matters under investigation — are destroyed, altered, concealed, or rendered inaccessible during the pendency of the investigation.
C. Scope of the Preservation Duty
The duty to preserve extends to all documents and ESI that are relevant or potentially relevant to the matters under investigation. In the context of a grand jury investigation, the scope of relevance is construed broadly. TMC should err on the side of over-inclusion; it is far better to preserve materials that ultimately prove to be irrelevant than to risk the destruction of materials that may later be determined to have been responsive or probative.
The following categories of documents and ESI are within the scope of TMC's preservation duty. This list is illustrative and should not be treated as exhaustive:
•  Pricing Information: All pricing information, price lists, pricing proposals, pricing-adjustment records, discount schedules, rebate agreements, and pricing correspondence for the three product categories (high-purity feldspar, industrial talc, and rare-earth concentrates) from January 1, 2015 to the present. This includes both external pricing communications with customers and internal pricing analyses, pricing approvals, and pricing directives.
•  Competitor Communications: All communications of any kind with competitors in the North American specialty-minerals sector, including but not limited to Ridgecrest Minerals Inc. (Denver, Colorado) and Pinnacle Earth Resources Ltd. (Sudbury, Ontario, Canada / Salt Lake City, Utah). This includes formal correspondence, informal communications, email exchanges, text messages, VaultChat messages, telephone call logs, meeting notes, and any other records of contact between TMC personnel and personnel of competitor firms.
•  Cascade Chemical Supply Co. Communications: All communications with or documents relating to Cascade Chemical Supply Co. (Spokane, Washington). Calderwood & Harkness understands that the DOJ has identified Cascade Chemical Supply Co. as a cooperating witness entity in the investigation. Any documents reflecting TMC's commercial relationship with Cascade Chemical, including supply agreements, pricing discussions, and communications between TMC and Cascade Chemical personnel, must be preserved with particular care.
•  NASMC Trade Association Materials: All documents relating to the North American Specialty Minerals Council ("NASMC"), including but not limited to membership records, correspondence, event invitations, conference agendas, attendee lists, presentations, meeting minutes, committee reports, side-meeting records, and informal communications among NASMC members. Particular attention should be directed to materials relating to NASMC quarterly conferences held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida during the years 2017 through 2021. Trade-association meetings and events are a common venue for the type of competitor coordination that the DOJ is investigating, and all materials relating to TMC's participation in NASMC activities are likely to be of significant interest to the grand jury.
•  VaultChat Encrypted Messaging Content: All VaultChat encrypted messages and other messaging-application content involving TMC personnel in the U.S. Specialty Minerals Division. VaultChat messages are of particular significance to this investigation because the DOJ suspects that alleged coordination among competitors occurred in part through this encrypted messaging platform. The preservation of VaultChat data presents unique technical challenges (discussed further in Section VI below), and TMC must take immediate steps to ensure that VaultChat messages are not lost through auto-deletion, device replacement, or user action.
•  Bid Submissions and Customer Allocation: All documents relating to bid submissions, requests for proposal, requests for quotation, customer allocation decisions, customer contact assignments, territory assignments, and any other records reflecting the process by which TMC determined which customers to serve, which bids to pursue, and how bid pricing was determined.
•  Internal Strategy Documents: All internal memoranda, reports, analyses, presentations, board materials, and other documents relating to competitive strategy, market share analysis, pricing benchmarks, margin analysis, competitor intelligence, and market positioning for the three product categories at issue.
The preservation duty applies to both TMC's Canadian parent entity (Torchlight Mining Corp., 200 Bay Street, Suite 3400, Toronto, Ontario M5J 2J2, Canada) and its U.S. subsidiary (Torchlight Mining (U.S.) Inc., 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117). Although the grand jury is empaneled in the Northern District of California and the subpoena was served on TMC through its U.S. subsidiary, documents and ESI located at the Canadian parent that fall within the scope of the subpoena or that are relevant to the investigation are equally subject to the preservation obligation. TMC exercises possession, custody, or control over documents maintained at both entities, and any distinction between the parent and subsidiary for purposes of preservation would not be defensible.
III. Spoliation Risks and Consequences
The consequences of a failure to preserve documents and ESI in the context of a federal grand jury investigation are severe and multifaceted. This section summarizes the principal categories of risk.
A. Criminal Sanctions
The intentional or reckless destruction of documents relevant to a federal grand jury investigation constitutes a separate and independent criminal offense. Under 18 U.S.C. §§ 1503, 1505, 1512, and 1519, the destruction, alteration, concealment, or falsification of documents with the intent to obstruct a federal investigation is punishable by substantial fines and imprisonment of up to 20 years per offense. These penalties apply irrespective of the merits of the underlying investigation; even if TMC were ultimately found to have engaged in no anticompetitive conduct, the separate obstruction offense would expose the Company and its personnel to criminal liability.
It is important to emphasize that the standard for criminal liability in this context is not limited to intentional destruction. Even negligent destruction of relevant materials, if it occurs after the duty to preserve has attached and under circumstances suggesting that the entity failed to take reasonable steps to ensure preservation, can be treated by the DOJ as evidence of willful obstruction. The DOJ routinely investigates and prosecutes obstruction charges in antitrust matters, and the Antitrust Division has publicly stated that it views document destruction during an investigation as an aggravating factor that warrants enhanced penalties.
Individuals who destroy, conceal, or alter documents can be personally prosecuted, independent of any prosecution of the Company. TMC employees and officers who participate in, direct, or facilitate the destruction of relevant documents face personal criminal exposure, including the possibility of imprisonment. The Company itself can face additional obstruction charges, which would be layered on top of any substantive antitrust charges that may ultimately be brought.
B. Adverse Inferences and Evidentiary Consequences
In any related civil proceedings — and follow-on private antitrust litigation by customers, competitors, or classes of purchasers is entirely foreseeable — a court may instruct the jury to draw an adverse inference that destroyed documents contained information unfavorable to TMC. Under the Federal Rules of Civil Procedure, as interpreted by courts applying the framework established in Zubulake v. Ostrander National Bank Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003), and refined in the 2015 amendments to Rule 37(e), a party that fails to preserve ESI that should have been preserved in the anticipation or conduct of litigation may face case-dispositive sanctions, including adverse-inference instructions, issue preclusion, or, in extreme cases, default judgment.
A spoliation finding would also have devastating consequences for TMC's credibility in any forum. If the DOJ or a court determines that TMC failed to preserve relevant materials, that finding will color every aspect of TMC's defense, from the credibility of its witnesses to the weight given to its remaining documentary evidence. Spoliation findings, once made, are extremely difficult to overcome and tend to follow a litigant throughout the life of a case and beyond.
C. Impact on Cooperation Posture
TMC has communicated its willingness to cooperate with the DOJ investigation. As Priya Anand is aware, the decision to adopt a cooperative posture was made in consultation with Calderwood & Harkness and reflects a strategic assessment that TMC's best path to a favorable resolution — potentially including a non-prosecution agreement ("NPA"), a deferred prosecution agreement ("DPA"), or reduced penalties — lies in demonstrating full cooperation with the DOJ's investigative process.
Any evidence of document destruction, inadequate preservation, or non-compliance with the litigation hold would severely damage — and likely destroy — TMC's cooperation posture. The DOJ Antitrust Division's cooperation guidelines explicitly require that a company seeking cooperation credit must, among other things, promptly preserve, collect, and produce relevant documents, and must not engage in any conduct that impedes the investigation. A finding that TMC failed to preserve relevant materials would, at a minimum, disqualify TMC from receiving cooperation credit and, at worst, could convert TMC from a cooperation candidate to an aggravated prosecution target subject to enhanced charges and penalties.
As of the date of this memorandum, TMC has received a subpoena, not a target letter. This distinction is significant: it suggests that the DOJ has not yet determined that TMC is a target of the investigation, and TMC's current status affords the Company meaningful strategic flexibility. Maintaining a strong and demonstrably thorough preservation posture is essential to preserving TMC's current status and maximizing the opportunity for a favorable resolution.
IV. Identification of Custodians and Data Sources
A. Custodians
Calderwood & Harkness, in consultation with TMC's in-house legal team, has identified thirty-four (34) custodians whose documents and ESI are subject to the preservation obligation. The complete list of custodians, together with their respective roles, reporting relationships, and known data sources, is set forth in the Data Collection Protocol and Custodian List memorandum, which will be finalized and transmitted under separate cover on or about March 18, 2022. The custodian list will be updated on a rolling basis as additional custodians are identified through the internal investigation and document review process.
The following key custodians are highlighted here for purposes of immediate action and attention:
Gavin Holt — Former Vice President, U.S. Specialty Minerals Sales. Holt departed TMC effective September 30, 2021, approximately four and a half months before TMC received the grand jury subpoena. Although Holt is no longer employed by TMC, TMC's preservation obligation extends to all documents and ESI that were created, received, or maintained by Holt during his tenure with the Company. This includes all corporate email, shared-drive files, VaultChat messages (if provisioned by TMC), and any other business records associated with Holt's role as VP of U.S. Specialty Minerals Sales. TMC must also preserve any post-departure communications with Holt, if any exist on TMC systems. Holt's data is of particular sensitivity given his role overseeing U.S. specialty-minerals sales during a substantial portion of the relevant period. The preservation of Holt's data is addressed further in Section VI.C below. Holt has retained personal counsel at Briarcliff Law Group PLLC; his attorney of record is Patrick Dunleavy. Any communications directed to Holt regarding documents or the investigation should be coordinated through his counsel and Calderwood & Harkness.
Sandra Chu — Director, Pricing Analytics, U.S. Specialty Minerals Division (current employee). As the Director of Pricing Analytics, Chu is responsible for the development and maintenance of pricing models, pricing databases, and pricing recommendations for the U.S. Specialty Minerals Division. Her files and communications are expected to contain a substantial volume of responsive material and are a high priority for collection.
Thomas Eriksen — Regional Sales Manager (Western Region), U.S. Specialty Minerals Division (current employee). Eriksen manages the Western Region sales team and has direct responsibility for customer relationships in the western United States. His communications with customers and his participation in the bid-submission process make him a significant custodian.
Priya Anand — General Counsel, TMC (current employee). As General Counsel, Priya Anand is a custodian by virtue of her role in TMC's initial response to the investigation, her oversight of the litigation hold process, and any communications she may have had regarding the matters under investigation prior to the engagement of outside counsel. Calderwood & Harkness recognizes the inherent complexity of the General Counsel's dual role as both a custodian and a key participant in the Company's legal response, and we will work closely with Priya to ensure that her preservation obligations are fully satisfied while protecting the privileged nature of her legal advice.
Richard Fong — Chief Financial Officer, TMC (current employee). Fong is included as a custodian because of his involvement in the Company's financial reporting, including the disclosure of the investigation in TMC's public filings and the establishment of litigation reserves. His communications may also contain relevant pricing or financial information relating to the products at issue.
Søren Dalmqvist — Chief Executive Officer, TMC (current employee). Dalmqvist is included as a precautionary custodian given his executive oversight role and the possibility that he received or participated in communications regarding competitive strategy, pricing, or competitor relationships at the executive level. Although we do not presently have reason to believe that Dalmqvist was directly involved in any of the conduct under investigation, prudence dictates that his data be preserved and, if appropriate, collected.
Other Personnel in the U.S. Specialty Minerals Division. The remaining custodians include sales representatives, account managers, operations personnel, and administrative staff within the U.S. Specialty Minerals Division who may have had access to or involvement with pricing, customer allocation, competitor communications, or NASMC-related activities. These individuals are identified by name and role in the Data Collection Protocol.
B. Data Sources
The preservation obligation extends to all media and platforms on which potentially relevant documents and ESI may reside. The following data sources have been identified as within the scope of preservation:
Corporate Email Systems. All email accounts — both active and archived — for identified custodians on TMC's corporate email platform. TMC operates Strathmore Data Systems / Ashgrove Software for its corporate email in both the Canadian and U.S. environments. All mailboxes, including inbox, sent items, deleted items, drafts, and archived folders, must be preserved. Any auto-purge or retention policies that would result in the deletion of email messages or attachments must be immediately suspended for all custodian accounts.
VaultChat Encrypted Messaging Application. VaultChat messages are of particular and heightened significance to this investigation. The DOJ suspects that alleged coordination among competitors in the North American specialty-minerals sector occurred in part through the VaultChat encrypted messaging platform, which is designed to provide end-to-end encryption and, in some configurations, includes auto-delete functionality. TMC's IT department must take the following immediate steps with respect to VaultChat data:
(a) Identify all VaultChat accounts that have been provisioned to TMC personnel, including accounts provisioned through TMC corporate channels and any accounts that individual employees may have created using TMC-provisioned devices or TMC email addresses;
(b) Locate any archived, backed-up, or server-side VaultChat data that may be accessible through TMC's IT infrastructure;
(c) Immediately suspend any automatic deletion features within VaultChat that may be enabled on TMC-managed accounts or devices; and
(d) If VaultChat data resides exclusively on personal devices (as is common with encrypted messaging applications), coordinate with Calderwood & Harkness on collection protocols for those devices (see Section VI below).
Shared Network Drives and File Servers. All shared drives accessible to U.S. Specialty Minerals Division personnel, including but not limited to pricing databases, customer files, bid documentation, sales reports, and any shared folders used for collaborative work. TMC IT should provide Calderwood & Harkness with a mapping of all shared drives and file servers relevant to the U.S. Specialty Minerals Division, including server locations, access permissions, and backup schedules.
Cloud Storage and Collaboration Platforms. Any cloud-based storage or collaboration platforms used by custodians for business purposes, including but not limited to Sundial Systems, Cobalt Ridge Systems, Hollowell Health IT, Larkspur Technologies, or similar services. TMC IT should confirm which cloud platforms are in use and ensure that all relevant data is preserved, including version histories and audit logs.
Personal Devices. Smartphones, tablets, laptops, and personal computers used for business purposes by any identified custodian. The preservation of data on personal devices is particularly critical for VaultChat messages, which in many cases reside solely on the device on which they were sent or received. TMC must take reasonable steps to ensure that custodians do not delete, reset, replace, or otherwise alter personal devices that may contain relevant data. Collection protocols for personal devices are addressed in Section VI.B below.
Physical and Hardcopy Documents. Paper files, notebooks, handwritten notes, printed emails, calendars, business cards, conference materials, and any other physical documents that may be relevant to the investigation. Custodians should be instructed to identify and segregate all physical documents that may fall within the scope of the hold and to refrain from discarding, shredding, or otherwise destroying any such materials.
NASMC Trade Association Records. Any documents received from or exchanged with NASMC, including conference agendas, attendee lists, presentations, meeting minutes, committee materials, side-meeting records, and informal communications among NASMC members. This includes both documents in TMC's possession and documents that TMC may need to request from NASMC (see Section VI.D below).
Backup Tapes and Archival Media. TMC IT should identify any backup tapes, disaster-recovery media, or other archival media that may contain relevant data, including data from the accounts of former employees such as Gavin Holt. All recycling, overwriting, and rotation schedules for backup tapes and archival media must be immediately suspended for any media that may contain data within the scope of the hold.
Voicemail Systems. Voicemail messages on TMC's corporate phone systems should be preserved where technically feasible. TMC IT should assess the capabilities of the Company's voicemail systems and advise Calderwood & Harkness as to whether voicemail messages can be retained and extracted.
V. Best Practices for Custodian Compliance
A. Communication and Acknowledgment
The effectiveness of any litigation hold depends upon the communication of clear, comprehensive instructions to each custodian and the confirmation that those instructions have been received and understood. Every custodian identified in the litigation hold must receive and acknowledge receipt of the hold notice. TMC should maintain a detailed log of all acknowledgments, including the date of receipt, the method of acknowledgment (e.g., signed written form, email confirmation, electronic acknowledgment through a hold-management platform), and the identity of the individual who provided the acknowledgment.
The targeted hold notice issued on March 1, 2022 to personnel in the U.S. Specialty Minerals Division includes custodian-specific preservation instructions tailored to the particular data sources and document categories relevant to each individual's role. Each custodian who received the targeted notice should be required to sign a written acknowledgment form confirming that he or she has: (i) read the hold notice in its entirety; (ii) understands the preservation obligations described in the notice; (iii) has taken steps to identify and preserve all potentially relevant documents and ESI within his or her possession, custody, or control; and (iv) will comply with the hold on an ongoing basis until further notice. Signed acknowledgment forms should be collected by TMC's legal department and provided to Calderwood & Harkness.
With respect to Gavin Holt (departed employee), TMC must ensure that all of Holt's former corporate email accounts, shared-drive files, VaultChat accounts (if provisioned by TMC), and any devices returned by Holt at the time of his departure have been preserved in their current state. TMC does not have the legal authority to compel Holt to preserve documents on personal devices or in personal accounts; however, TMC must preserve everything within its possession, custody, or control. As noted above, Holt has retained personal counsel at Briarcliff Law Group PLLC (Patrick Dunleavy). Any requests directed to Holt regarding the preservation or production of documents should be coordinated through Mr. Dunleavy and Calderwood & Harkness to ensure that proper protocols are followed and that no inadvertent disclosures occur.
B. Ongoing Custodian Reminders
Litigation holds are not "set and forget" measures. A litigation hold that is issued but never reinforced or monitored is, in the eyes of courts and regulators, little better than no hold at all. TMC should issue periodic reminder notices to all custodians reaffirming the hold and reminding them of their obligations. At a minimum, reminder notices should be issued on a quarterly basis. These reminders should reiterate the scope of the hold, remind custodians of the categories of documents and ESI that must be preserved, and ask custodians to confirm their ongoing compliance.
Calderwood & Harkness will assist TMC's legal department in drafting quarterly reminder notices. The first quarterly reminder should be issued on or about June 1, 2022, and subsequent reminders should follow at approximately 90-day intervals thereafter. The timing and content of reminders may be adjusted as the investigation evolves.
In addition to scheduled quarterly reminders, TMC should issue hold reminders in connection with specific triggering events, such as: (i) the issuance of additional subpoenas or information requests by the DOJ; (ii) changes to the scope of the investigation; (iii) the identification of new custodians; and (iv) the departure of any custodian from TMC's employment.
With respect to employee departures, any custodian who departs TMC during the pendency of the investigation — whether through resignation, termination, or retirement — should receive an exit-specific hold reminder as part of the offboarding process. TMC's Human Resources department should be instructed to coordinate with the legal department to ensure that no custodian departs the Company without receiving an exit-specific hold reminder and without the Company having first taken steps to preserve all of the departing custodian's data. Corporate email accounts, shared-drive access, VaultChat accounts, and any company-issued devices should be preserved and secured prior to account deactivation or device reassignment.
C. Custodian Interviews
As part of the internal investigation being conducted by Calderwood & Harkness, we will conduct interviews of key custodians to: (i) understand each custodian's document creation and retention practices; (ii) identify additional data sources that may not have been captured in the initial data-source mapping; (iii) assess each custodian's compliance with the litigation hold; and (iv) gather factual information relevant to the matters under investigation.
These custodian interviews are currently being scheduled for July through August 2022. The interview schedule will be shared with TMC's General Counsel in advance. All interviews will be conducted under the direction of Calderwood & Harkness attorneys and will be protected by the attorney-client privilege and the work-product doctrine.
TMC's in-house counsel should reinforce to all custodians the importance of full candor and cooperation with Calderwood & Harkness's interview requests. Custodians should understand that the interviews are being conducted to protect the Company's interests and that the attorney-client privilege applies to the communications. Custodians should also be informed that they have the right to retain personal counsel at their own expense, but that the Company's counsel represents the Company, not any individual employee.
D. Prohibition on Document Destruction
All routine document-destruction schedules, auto-delete policies, records-retention schedules, and any other automated or manual processes that would result in the deletion, destruction, or alteration of potentially relevant documents must be suspended immediately for all custodians and all data sources within the scope of the hold.
This suspension encompasses, without limitation:
•  IT-managed auto-purge policies for corporate email (including policies that automatically delete emails older than a specified retention period);
•  Auto-delete settings within VaultChat or other messaging applications;
•  Voicemail auto-deletion policies;
•  Scheduled recycling or overwriting of backup tapes and archival media;
•  Routine destruction of hardcopy files under TMC's corporate records-retention policy; and
•  Any other automated or manual processes that could result in the loss of potentially relevant data.
The suspension of routine document-destruction and records-retention schedules must remain in effect until Calderwood & Harkness provides written notice that the hold has been modified or lifted. No TMC employee — regardless of seniority or role — is authorized to destroy, delete, alter, or conceal any document or ESI that falls within the scope of the hold. Any employee who becomes aware of actual or attempted document destruction in violation of the hold should report the matter immediately to TMC's General Counsel.
VI. Recommendations for IT Coordination
The effective implementation of TMC's preservation obligations requires close coordination between TMC's IT department, TMC's in-house legal team, Calderwood & Harkness, and the e-discovery and forensic collection vendor retained for this matter. This section sets forth specific recommendations for IT coordination.
A. Immediate IT Actions
TMC's IT department — encompassing both the Canadian headquarters IT team and the U.S. operations IT team — should designate a single point of contact to serve as the primary liaison for all preservation and collection activities. This individual should have sufficient seniority and technical authority to implement the actions described in this memorandum and should be authorized to make real-time decisions regarding data preservation in coordination with Calderwood & Harkness.
The designated IT point of contact will coordinate directly with Calderwood & Harkness and with Redstone Digital Forensics Inc. (7925 Jones Branch Drive, Suite 600, McLean, Virginia 22102), which was retained by TMC on March 15, 2022 as the e-discovery and forensic collection vendor for this matter. The project director at Redstone Digital Forensics is Neil Ashworth, who will serve as the primary technical contact for all forensic collection activities.
As an immediate action item, TMC IT should provide Calderwood & Harkness and Redstone with a complete and detailed inventory of all data systems, servers, backup infrastructure, cloud platforms, and archival media used by the U.S. Specialty Minerals Division and by identified custodians. This inventory should include, at a minimum: (i) a list of all email servers and mail systems, with associated retention policies; (ii) a list of all file servers and shared drives, with associated backup and retention schedules; (iii) a list of all cloud storage platforms in use; (iv) a description of the VaultChat deployment, including the number of provisioned accounts and the location of any server-side data; (v) a list of all backup tapes and archival media, with associated rotation and recycling schedules; and (vi) a description of the voicemail system, including retention capabilities.
TMC IT must immediately suspend all auto-deletion, recycling, and overwriting schedules for email, shared drives, backup tapes, VaultChat data, voicemail, and all other data repositories that may contain relevant materials. This suspension should be documented in writing, with confirmation provided to Calderwood & Harkness that the suspension has been implemented.
B. Forensic Data Collection
Redstone Digital Forensics will conduct forensic imaging and collection of custodian data in accordance with the Data Collection Protocol memorandum that will be finalized on or about March 18, 2022. All collections will be conducted using forensically defensible methodologies to ensure the admissibility and integrity of collected data.
The following protocols must be employed for all forensic collections:
•  Chain-of-Custody Documentation: A detailed chain-of-custody log must be maintained for every piece of data, device, or media that is collected, transferred, or stored. The log must record the identity of the custodian, the date and time of collection, the identity of the individual performing the collection, the method of collection, and the location and condition of the data or device at the time of collection.
•  Hash-Value Verification: All forensic images and collected data sets must be verified using MD5 and SHA-256 hash values to ensure that the collected data is a true and accurate copy of the source data and that no alteration has occurred during the collection or transfer process.
•  Write-blocking Protocols: All forensic imaging of physical devices (hard drives, USB drives, mobile devices) must be performed using hardware or software write-blockers to prevent any modification of the source data during the imaging process.
For personal devices — including smartphones, tablets, and personal laptops — used by custodians for business purposes, TMC should request that each custodian voluntarily submit his or her device for forensic imaging by Redstone. Voluntary submission is preferred because it avoids the legal complications associated with compelled production of personal property. If a custodian declines to submit a personal device, TMC's General Counsel and Calderwood & Harkness should be notified immediately so that appropriate legal measures can be evaluated, including the possibility of seeking a court order or, in the case of a company-issued device, exercising TMC's rights under its device-usage and BYOD policies.
VaultChat data collection is a high priority. As noted above, VaultChat is an encrypted messaging application that the DOJ suspects was used to facilitate the alleged anticompetitive coordination. Redstone should coordinate directly with TMC IT to: (i) determine whether any VaultChat data is stored on TMC's servers or in a TMC-managed cloud environment; (ii) identify which custodian devices contain VaultChat data; and (iii) develop device-level extraction protocols that will preserve the content, metadata, and timestamps of VaultChat messages without compromising the integrity of other data on the device.
C. Preservation of Gavin Holt's Data
The preservation of Gavin Holt's data requires special attention given Holt's departure from TMC on September 30, 2021 — approximately four and a half months before the issuance of the litigation hold. During the interval between Holt's departure and the issuance of the hold, Holt's data may have been subject to routine purging under TMC's standard offboarding and records-retention procedures. It is therefore essential that TMC IT take the following steps immediately:
(a) Confirm that Holt's corporate email account has been preserved and has not been purged, deleted, or overwritten since his departure date of September 30, 2021. If the account has been deactivated, confirm that a complete archive of the account contents exists and is accessible.
(b) Confirm that Holt's shared-drive files and home-directory files have been preserved and have not been deleted or reassigned since his departure date.
(c) Confirm whether a VaultChat account was provisioned to Holt by TMC, and if so, whether any VaultChat data associated with Holt's account is accessible on TMC systems or devices.
(d) Confirm whether Holt returned any company-issued devices (laptop, smartphone, tablet) at the time of his departure, and if so, confirm the current location and condition of those devices. All returned devices should be secured and preserved in their current state pending forensic imaging by Redstone.
(e) Provide a written certification to Calderwood & Harkness confirming the status of Holt's data, including whether any data has been purged or deleted and, if so, the date and scope of any such purging or deletion.
If any of Holt's data was deleted or purged between September 30, 2021 and the issuance of the litigation hold on March 1, 2022, this fact must be disclosed to Calderwood & Harkness immediately so that remediation steps can be assessed. Remediation may include efforts to recover deleted data from backup tapes, forensic recovery from devices, or engagement with third-party data-recovery specialists. The timing and circumstances of any data loss will also need to be documented in the event that the DOJ raises questions regarding the completeness of TMC's production.
D. Cloud and Third-Party Data
If TMC uses any third-party cloud services for data storage, document collaboration, or communications that may contain relevant data, TMC IT should issue preservation requests to those service providers in writing. Preservation requests should identify the specific accounts or data repositories to be preserved, the relevant time period, and the requirement that no data be deleted or overwritten pending further notice. Calderwood & Harkness can provide template preservation letters for this purpose.
Separately, TMC should consider whether it is appropriate to direct a preservation request to NASMC with respect to any records that NASMC may maintain reflecting TMC's participation in NASMC conferences, events, committees, or communications. Given the sensitivity of this issue — a preservation request to NASMC could alert other NASMC members to the investigation, to the extent they are not already aware — Calderwood & Harkness will advise TMC on the timing and content of any such request before it is issued.
E. Ongoing Monitoring and Compliance
The issuance of a litigation hold and the implementation of initial preservation steps are necessary but not sufficient. TMC must also implement ongoing monitoring to ensure that no custodian is deleting, moving, or altering documents subject to the hold, whether intentionally or inadvertently.
TMC IT should implement, to the extent technically feasible, monitoring tools or audit-log review procedures that will detect any custodian activity that is inconsistent with the hold, including: (i) bulk deletion of email messages; (ii) deletion or modification of files on shared drives; (iii) disabling or uninstalling of VaultChat or other messaging applications; (iv) factory-resetting of company-issued devices; and (v) any other activity that could result in the loss of relevant data.
TMC IT should provide Calderwood & Harkness with periodic compliance reports on at least a monthly basis. Each report should confirm that: (i) the suspension of auto-deletion and records-recycling schedules remains in effect; (ii) no incidents of custodian non-compliance have been identified (or, if incidents have occurred, provide details); and (iii) no data-migration, system-upgrade, or server-decommissioning activities have been undertaken that could affect preserved data.
Any planned data-migration projects, system upgrades, hardware replacements, or server decommissioning activities that could affect preserved data must be coordinated with Calderwood & Harkness before proceeding. TMC IT should not proceed with any such project without obtaining written confirmation from Calderwood & Harkness that the project has been reviewed and that adequate preservation measures are in place.
VII. Coordination with Calvert & Associates LLP (Independent Auditor)
TMC's independent auditor, Calvert & Associates LLP (Montreal, Quebec; engagement partner: Daniel Moreau), may require access to certain documents and information relating to the DOJ investigation for purposes of assessing litigation contingencies and determining the adequacy of TMC's litigation reserves under applicable accounting standards, including ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under International Financial Reporting Standards.
Any sharing of documents or information with Calvert & Associates in connection with the investigation must be carefully coordinated through Calderwood & Harkness. The sharing of privileged attorney-client communications or attorney work product with Calvert & Associates — without appropriate safeguards — could result in an inadvertent waiver of the attorney-client privilege or the work-product protection. To mitigate this risk, all communications with Calvert & Associates regarding the investigation should be channeled through TMC's General Counsel and Calderwood & Harkness, and any documents shared with Calvert & Associates should be provided subject to an express reservation of privilege and, where appropriate, under the protection of a common-interest or joint-defense agreement if such an arrangement is warranted.
TMC disclosed the existence of the DOJ investigation in its fiscal year 2021 annual report, which was filed on SEDAR+ and with the U.S. Securities and Exchange Commission on Form 40-F on March 28, 2022. The disclosure references the existence of the investigation and the Company's initial assessment of the potential exposure. Coordination with Calvert & Associates regarding the adequacy of the initial litigation reserve of USD 30 million — which was established on the basis of TMC's preliminary assessment of the range of potential outcomes — should be handled through privileged channels to ensure that the deliberative process underlying the reserve calculation remains protected.
VIII. Coordination with D&O Insurance Counsel
TMC tendered notice of the DOJ investigation to Northland Mutual Insurance Co. on March 4, 2022, under Directors & Officers Liability Policy No. NMI-DO-2021-5547. The primary-layer D&O policy provides an aggregate limit of USD 50 million, subject to a retention (self-insured amount) of USD 2.5 million. Excess coverage is provided by Greystone Specialty Insurance Ltd. (first excess layer) and Sentinel Re Ltd. (second excess layer), each of which was also placed on notice of the investigation.
TMC's document preservation obligations extend to communications with Northland Mutual and the excess-layer carriers regarding coverage for the investigation, including tender letters, coverage correspondence, reservation-of-rights letters, and any related communications. These communications should be identified, preserved, and segregated for review by Calderwood & Harkness.
In addition, privilege considerations must be carefully evaluated with respect to documents shared with insurance carriers or their counsel. Under the common-interest doctrine, communications between TMC and its D&O insurers regarding the defense of the investigation may, in certain circumstances, be protected from disclosure to third parties. However, the scope of the common-interest doctrine varies by jurisdiction, and the protection is not absolute. Calderwood & Harkness will advise TMC on the appropriate protocols for communications with insurance carriers and their counsel to ensure that privilege is maintained.
IX. Summary of Recommended Immediate Actions
Based on the foregoing analysis, Calderwood & Harkness recommends the following immediate actions. These actions should be treated as urgent priorities and should be completed within the timeframes indicated:
1.  Confirm Custodian Acknowledgments. Confirm that all thirty-four (34) identified custodians have acknowledged receipt of the March 1, 2022 litigation hold notices (both the company-wide notice and, where applicable, the supplemental targeted notice to U.S. Specialty Minerals Division personnel). Collect and retain signed acknowledgment forms from each custodian. Target completion: March 10, 2022.
2.  Designate IT Point of Contact. Designate a single IT point of contact within TMC (with authority spanning both Canadian and U.S. IT operations) to serve as the primary liaison for all preservation and collection activities with Calderwood & Harkness and Redstone Digital Forensics. Communicate the identity and contact information of the designated individual to Calderwood & Harkness. Target completion: immediate.
3.  Suspend Auto-Deletion and Records-Recycling Schedules. Immediately suspend all auto-deletion, auto-purge, recycling, overwriting, and routine destruction schedules across all relevant systems, including corporate email, shared drives, backup tapes, VaultChat, voicemail, and all other data repositories that may contain relevant materials. Document the suspension in writing and provide confirmation to Calderwood & Harkness. Target completion: immediate (if not already completed).
4.  Provide IT System Inventory. Provide Calderwood & Harkness and Redstone Digital Forensics with a complete inventory of all data systems, servers, backup infrastructure, cloud platforms, and archival media used by the U.S. Specialty Minerals Division and by identified custodians. Target completion: March 10, 2022.
5.  Verify Preservation of Gavin Holt's Data. Confirm the preservation status of all data associated with former VP Gavin Holt, including corporate email, shared-drive files, VaultChat data, and any returned company-issued devices. Provide a written certification to Calderwood & Harkness confirming the status of Holt's data and disclosing any deletions or purges that may have occurred since his departure on September 30, 2021. Target completion: March 10, 2022.
6.  Coordinate Personal-Device Collection. Initiate outreach to custodians regarding the voluntary submission of personal devices for forensic imaging, with particular emphasis on devices that may contain VaultChat messages or other business-related data. Coordinate the collection process with Redstone Digital Forensics. Target completion: ongoing, with initial outreach by March 15, 2022.
7.  Implement Monitoring. Implement monitoring tools or audit-log review procedures to detect custodian non-compliance with the hold, including bulk deletions, unauthorized modifications, and device resets. Target completion: March 31, 2022.
8.  Schedule Quarterly Hold Reminders. Establish a schedule for quarterly hold reminder notices to all custodians. The first quarterly reminder should be issued on or about June 1, 2022. Calderwood & Harkness will assist in drafting the reminder notices. Target completion: calendar reminders set by March 15, 2022.
9.  Freeze Planned IT Projects. Identify and freeze any planned data-migration projects, server decommissioning activities, system upgrades, or hardware replacements that could affect preserved data. No such projects should proceed without prior written coordination with Calderwood & Harkness. Target completion: immediate.
X. Continuing Obligations and Contact Information
The preservation obligations described in this memorandum will remain in effect until Calderwood & Harkness provides written notice that the litigation hold has been modified or lifted. No modification or lifting of the hold will occur without a careful assessment of the status of the investigation and the legal requirements for continued preservation. TMC should not assume that the hold will be lifted upon the conclusion of the grand jury investigation; the preservation obligation may extend beyond the grand jury proceedings if related civil litigation or regulatory proceedings are pending or reasonably anticipated.
The scope of preservation may expand if additional subpoenas are issued, if the DOJ broadens the scope of its investigation, or if new custodians or data sources are identified. Calderwood & Harkness will promptly notify TMC of any changes to the scope of the hold and will issue supplemental hold notices as necessary.
Any questions regarding the scope of the hold, specific custodian obligations, data-source identification, or any other aspect of TMC's preservation obligations should be directed to:
Aaron Liu Lead Associate Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7200
Email: aliu@calderwoodharkness.com
Monica Reyes Working Associate Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7218
Email: mreyes@calderwoodharkness.com
For e-discovery, forensic collection, and technical data-preservation matters:
Neil Ashworth Project Director Redstone Digital Forensics Inc. 7925 Jones Branch Drive, Suite 600 McLean, Virginia 22102 Telephone: (703) 555-4100
Email: nashworth@redstonedigital.com
Closing
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of Torchlight Mining Corp. in connection with Grand Jury No. GJ-22-0194 (N.D. Cal.). It contains legal analysis, mental impressions, conclusions, opinions, and recommendations of counsel and is protected from disclosure by the attorney-client privilege and the work-product doctrine. This memorandum should not be disseminated beyond TMC's legal department without the prior written approval of Calderwood & Harkness LLP. Inadvertent or unauthorized disclosure of this memorandum to any third party could result in a waiver of the protections described herein.
We are available to discuss the contents of this memorandum at your earliest convenience and to assist TMC in implementing each of the recommended actions described above. Given the urgency of the preservation obligations and the potential consequences of non-compliance, we recommend scheduling a call or meeting within the next several business days to confirm the status of the immediate action items and to address any questions or concerns.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Aaron Liu Lead Associate Antitrust & Competition Practice Group Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, California 94104
Date: March 2, 2022
cc:
Elaine Forsythe, Partner (Responsible Partner), Antitrust & Competition Practice Group, Calderwood & Harkness LLP
Monica Reyes, Working Associate, Antitrust & Competition Practice Group, Ca

PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT

MEMORANDUM

CALDERWOOD & HARKNESS LLP

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