PRIVILEGED & CONFIDENTIAL ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGE
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104
MEMORANDUM
FROM: Aaron Liu, Lead Associate, Antitrust & Competition Practice Group Monica Reyes, Associate, Antitrust & Competition Practice Group
TO: Elaine Forsythe, Responsible Partner, Antitrust & Competition Practice Group
DATE: January 18, 2024
RE: Analysis of DOJ Initial Draft Non-Prosecution Agreement (ATR-SF-2024-00312) — Torchlight Mining Corp.
MATTER NO.: 1039-00001
FOR INTERNAL USE ONLY — DO NOT DISTRIBUTE OUTSIDE CALDERWOOD & HARKNESS LLP WITHOUT PARTNER AUTHORIZATION. This memorandum is protected by the attorney-client privilege and the work-product doctrine. It reflects the mental impressions, conclusions, opinions, and legal theories of counsel. Any disclosure to persons outside Calderwood & Harkness LLP may result in a waiver of applicable privileges.
I. Executive Summary
On January 10, 2024, the United States Department of Justice, Antitrust Division ("DOJ"), circulated its initial draft Non-Prosecution Agreement (DOJ Reference No. ATR-SF-2024-00312) (the "DOJ Draft" or "Draft NPA") through Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves of the DOJ's San Francisco Field Office. The DOJ Draft was transmitted to Calderwood & Harkness LLP ("C&H") for review on behalf of our client, Torchlight Mining Corp. ("TMC" or the "Company"). This memorandum sets forth our comprehensive section-by-section analysis of the DOJ Draft, identifies the principal areas of concern, and proposes specific counter-language and negotiation positions for each contested issue.
Our analysis identifies four principal areas of concern with the DOJ Draft, which we recommend TMC address in a counter-draft to be submitted no later than February 5, 2024:
1. Overbroad Cooperation Obligations (Section 6). The DOJ Draft imposes cooperation obligations that are vague, open-ended, and extend well beyond the scope of the underlying investigation. The provision requires TMC to make "all current and former employees" available for "any and all" related investigations without limitation, a requirement that is both impracticable and inconsistent with DOJ practice in comparable matters.
2. Vague and Unfair Material-Breach Standard (Section 5). The DOJ Draft vests DOJ with unreviewable "sole discretion" to determine that TMC has "breached any provision" of the NPA — a standard that fails to distinguish between material and immaterial breaches, provides no notice-and-cure mechanism, and affords TMC no due-process safeguard or right to dispute the determination.
3. Excessive Monetary Penalty (Section 4). The DOJ Draft contemplates a monetary payment of approximately USD 65 million, which reflects a cooperation and remediation credit of only approximately 32% off the DOJ's standard 20%-of-affected-commerce starting point of USD 95.6 million. This credit level is plainly inadequate in light of the scope, quality, and timeliness of TMC's cooperation and remediation, as well as the significant mitigating factors present in this case.
4. Overly Long Four-Year Compliance-Monitor Term (Section 8). The DOJ Draft requires TMC to retain an independent compliance monitor for four years at TMC's expense — a term that is double the two-year standard observed in recent DOJ antitrust NPAs and that is not justified by the facts or circumstances of this matter.
Overall Assessment. The DOJ Draft reflects a strong opening position that does not adequately credit TMC's substantial and timely cooperation, its significant remediation efforts, or the mitigating factors identified during the course of the investigation. In particular, the DOJ Draft fails to account for the fact that the alleged conduct was attributable to a single former employee — Gavin Holt — who departed TMC before the investigation commenced and who has refused to cooperate with the government. Nevertheless, the structural framework and general approach of the DOJ Draft are broadly consistent with recent DOJ antitrust NPA practice and provide a workable basis for negotiation. We are confident that meaningful revisions can be achieved across all four principal areas of concern.
Recommended Timeline. To maintain negotiation momentum following the DOJ's November 1, 2023 communication of willingness to negotiate, Calderwood & Harkness should prepare and submit TMC's counter-draft NPA no later than February 5, 2024. This timeline allows approximately two and a half weeks for internal review, client approval, and preparation of the counter-draft and accompanying cover letter. It also positions the parties for an anticipated in-person negotiation session in late February or early March 2024.
Cross-Reference. This memorandum should be read in conjunction with the NPA Negotiation Strategy Memorandum dated November 15, 2023 (the "Strategy Memo"), which established our negotiation objectives, red lines, and fallback positions for each material term. The analysis below evaluates the DOJ Draft against the framework set forth in the Strategy Memo and confirms that our previously identified negotiation positions remain appropriate, with certain adjustments noted herein.
II. Background and Procedural Posture
This section summarizes the investigation timeline, key factual parameters, and economic analysis relevant to evaluating the DOJ Draft. Familiarity with the complete factual record is assumed; this summary is intended to provide the context necessary for the section-by-section analysis that follows.
A. Investigation Timeline Summary
The DOJ Antitrust Division opened a grand jury investigation into suspected price-fixing, market allocation, and bid-rigging in the U.S. specialty-minerals industry on February 10, 2022. The investigation was convened before a federal grand jury empaneled in the U.S. District Court for the Northern District of California, San Francisco Division, under Grand Jury No. GJ-22-0194. The investigation has been supervised from DOJ headquarters by Deputy Assistant Attorney General Julia Stafford-Hayes (Washington, D.C.) and conducted by the San Francisco Field Office under Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves.
The key milestones in the investigation, as they pertain to TMC, are as follows:
• February 10, 2022: Grand jury investigation opened (GJ-22-0194, N.D. Cal., San Francisco Division).
• February 14, 2022: TMC received a grand jury subpoena duces tecum (GJ-22-0194-SD-003) at its U.S. principal office in Reno, Nevada, demanding production of extensive categories of documents relating to TMC's pricing, sales, and competitive practices in high-purity feldspar, industrial talc, and rare-earth concentrates for the period January 1, 2015 through the date of the subpoena.
• February 18, 2022: TMC engaged Calderwood & Harkness LLP as lead outside counsel for the investigation. Elaine Forsythe was designated as the responsible partner; Aaron Liu was designated as lead associate.
• May 20, 2022: TMC received a DOJ target letter, formally notifying the Company that it was a target of the grand jury investigation. The target letter identified the alleged conduct as a conspiracy to fix prices, allocate customers, and rig bids in the sale and marketing of high-purity feldspar, industrial talc, and rare-earth concentrates in the United States, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
• June 14, 2022: Gavin Holt, TMC's former Vice President of U.S. Specialty Minerals Sales, appeared before the grand jury pursuant to subpoena and asserted his Fifth Amendment privilege against self-incrimination. Holt declined to testify on the advice of his personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC.
• August 2022 – January 2023: Calderwood & Harkness, together with TMC's in-house legal team, conducted a comprehensive internal investigation. The investigation included interviews of 23 current and former TMC employees, a review of approximately 785,000 documents (both physical and electronic), forensic analysis of relevant email accounts and messaging platforms, and analysis of pricing and sales data for the relevant product categories and time period.
• January 20, 2023: Calderwood & Harkness presented the findings of the internal investigation to the TMC Board of Directors. The Board was advised that the evidence indicated that Gavin Holt, acting without the knowledge or authorization of TMC's C-suite or Board, had engaged in communications with counterparts at Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. regarding pricing, customer allocation, and bid coordination in the three product categories at issue.
• February 15, 2023: TMC, through Calderwood & Harkness, submitted a detailed cooperation proffer to DOJ, sharing the principal findings of the internal investigation and providing a factual summary of the conduct identified.
• March 10, 2023: Sandra Chu, TMC's former Senior Manager of Domestic Pricing (Specialty Minerals Division), participated in a voluntary proffer session with DOJ attorneys and FBI agents at the San Francisco Field Office. The session was conducted pursuant to a standard DOJ proffer letter ("queen for a day" agreement). C&H attorneys Aaron Liu and Monica Reyes attended.
• April 22, 2023: Thomas Eriksen, TMC's Regional Sales Director (Western Region, Specialty Minerals Division), participated in a voluntary proffer session with DOJ attorneys and FBI agents at the San Francisco Field Office under the same proffer-letter framework.
• September 15, 2023: TMC submitted an enhanced antitrust compliance program proposal to DOJ. The proposal was developed in collaboration with Meridian Compliance Partners LLC (engagement lead: Claudia Ferraro), an independent compliance-advisory firm retained by TMC in August 2023 for this purpose. The proposal detailed comprehensive enhancements to TMC's existing compliance program, including mandatory annual training, revised competitor-contact protocols, a strengthened internal-reporting mechanism, and the appointment of a dedicated Chief Compliance Officer.
• November 1, 2023: DOJ formally communicated its willingness to negotiate a Non-Prosecution Agreement with TMC, conveyed through a telephone conference between DAAG Julia Stafford-Hayes, Trial Attorney Kowalski, Senior Trial Attorney Reeves, and Calderwood & Harkness (Forsythe, Liu).
• January 10, 2024: DOJ circulated its initial draft NPA (ATR-SF-2024-00312) to Calderwood & Harkness.
In the course of the investigation, TMC has produced approximately 555,000 documents comprising approximately 3.2 million pages across two subpoena responses. The first production, responsive to GJ-22-0194-SD-003, encompassed approximately 487,000 documents. A supplemental subpoena (GJ-22-0194-SD-007) issued in November 2022 resulted in the production of an additional 68,000 documents. All productions were made on a rolling basis and were completed ahead of the deadlines set by the grand jury.
B. Key Factual Parameters
The following factual parameters are relevant to the evaluation of the DOJ Draft:
Alleged Conspiracy Period. The DOJ alleges that the conspiracy ran from approximately January 2017 through approximately August 2021, a period of approximately four years and eight months. This period is consistent with the evidence developed during the internal investigation and the representations made in TMC's cooperation proffer.
Products at Issue. The investigation concerns three specialty-mineral product categories: (1) high-purity feldspar, used primarily in ceramics, glass, and advanced manufacturing applications; (2) industrial talc, used in plastics, paints, and personal-care products; and (3) rare-earth concentrates, used in electronics, renewable-energy technologies, and defense applications. TMC, through its U.S. subsidiary Torchlight Mining (U.S.) Inc. and its Specialty Minerals Division, is among the largest domestic suppliers of all three product categories.
Key Individual — Gavin Holt. The evidence developed during the internal investigation and the cooperation proffer indicates that the alleged anticompetitive conduct was orchestrated and directed by Gavin Holt, TMC's former Vice President of U.S. Specialty Minerals Sales. Holt held this position from approximately March 2015 through his departure from TMC on September 30, 2021. Holt resigned from TMC approximately five months before the grand jury investigation was opened. Following his departure, Holt retained personal criminal defense counsel, Patrick Dunleavy of Briarcliff Law Group PLLC. As noted above, Holt asserted his Fifth Amendment privilege before the grand jury on June 14, 2022, and has refused to cooperate with either DOJ or TMC in the investigation. No evidence developed during the internal investigation indicates that any member of TMC's C-suite (including CEO Søren Dalmqvist or General Counsel Priya Anand) or the Board of Directors (including Board Chair Margaret Caldwell) had knowledge of or involvement in the alleged conduct.
Co-Subjects and Co-Targets. The DOJ investigation encompasses at least two other corporate subjects/targets:
• Ridgecrest Minerals Inc. ("Ridgecrest"), a Delaware corporation headquartered in Denver, Colorado. Ridgecrest is represented by Davenport, Kline & Archer LLP (lead partner: Helen Marchetti). The key individual at Ridgecrest is Carl Edgerton, Vice President of Sales.
• Pinnacle Earth Resources Ltd. ("Pinnacle"), a British Columbia corporation with U.S. operations headquartered in Phoenix, Arizona. Pinnacle is represented by Ashford Whitmore LLP (lead partner: George Nakamura). The key individual at Pinnacle is Kevin Tsang, Director of Commercial Operations.
Cooperating Witness Entity. Cascade Chemical Supply Co. ("Cascade"), a customer-competitor of TMC in certain product categories, entered into a cooperation agreement with DOJ on or about September 15, 2021, and has served as the government's cooperating witness entity throughout the investigation. Cascade is represented by Whitfield, Strauss & Tully LLP (lead partner: Rebecca Ostrander). Cascade's cooperation predates the opening of the grand jury investigation and appears to have provided DOJ with the initial evidence that prompted the investigation.
DOJ Supervision. The investigation is supervised by DAAG Julia Stafford-Hayes at DOJ headquarters in Washington, D.C. Day-to-day management rests with Trial Attorney Kowalski and Senior Trial Attorney Reeves in the San Francisco Field Office. We understand that DAAG Stafford-Hayes has been directly involved in the NPA negotiations and will continue to participate in substantive discussions.
C. Hargrove Forensic Advisory Economic Analysis
Calderwood & Harkness retained Hargrove Forensic Advisory LLC ("Hargrove") to prepare an independent analysis of the affected-commerce calculations underlying the DOJ's penalty position. The engagement has been led by Dr. Vanessa Tremblay, a principal at Hargrove and a recognized expert in antitrust-damages and affected-commerce quantification. Dr. Tremblay's analysis has been conducted under the direction of Calderwood & Harkness and is protected by the work-product doctrine.
Hargrove delivered a preliminary draft of its Affected Commerce Analysis on August 15, 2023 (the "Draft Hargrove Report"). The draft report provided the following key findings:
• DOJ's estimated total affected commerce across all participants in the alleged conspiracy is approximately USD 1.34 billion for the conspiracy period (January 2017 – August 2021).
• TMC's share of affected commerce is estimated at approximately USD 478 million, representing approximately 35.7% of total affected commerce. This figure is based on TMC's revenues from the three product categories in the U.S. domestic market during the conspiracy period.
• Under the DOJ Antitrust Division's standard penalty-calculation methodology, the starting point for the monetary payment is 20% of the entity's affected commerce. Accordingly, the DOJ's starting point for TMC is USD 478 million × 20% = USD 95.6 million.
It is important to note that the Draft Hargrove Report identified certain areas where the DOJ's affected-commerce calculation may overstate TMC's actual commerce in the relevant products and markets. Specifically, Dr. Tremblay's preliminary analysis suggests that certain revenue streams included in the DOJ's calculation may relate to export sales or non-competitive contract sales that should properly be excluded from the affected-commerce base. Dr. Tremblay's final affected-commerce and penalty analysis is expected by mid-March 2024 and will be used to support our penalty-reduction argument in the NPA negotiations. For present purposes, this memorandum assumes the DOJ's USD 478 million affected-commerce figure as the basis for penalty discussions, recognizing that the final Hargrove analysis may provide a basis for further reductions.
III. Structure and Overview of DOJ's Initial NPA Draft
The DOJ Draft, dated January 10, 2024, is a 34-page document organized as follows:
• Preamble: Identifies the parties and the general subject matter of the agreement.
• Recitals (Sections 1–2): Sets forth the background of the investigation, the products at issue, and the alleged conspiracy period.
• Operative Sections (Sections 3–15): Contains the substantive terms of the NPA, including the no-prosecution commitment (Section 3), monetary payment (Section 4), material-breach provisions (Section 5), cooperation obligations (Section 6), compliance enhancements (Section 7), compliance-monitor provisions (Section 8), the agreed statement of facts (Section 9, incorporating Appendix B), NPA term (Section 10), representations and warranties (Section 11), public-disclosure and confidentiality provisions (Section 12), and miscellaneous provisions (Sections 13–15).
• Appendix A: Enhanced Antitrust Compliance Program (a detailed description of the compliance requirements TMC must implement and maintain during the NPA term).
• Appendix B: Agreed Statement of Facts (a factual narrative of the alleged conspiracy, to which TMC would stipulate for purposes of the NPA).
The parties to the DOJ Draft are identified as follows:
• The United States of America, acting through the Department of Justice, Antitrust Division.
• Torchlight Mining Corp., a corporation organized under the Canada Business Corporations Act (CBCA Corporation No. 7841526-1; Federal Employer Identification Number 83-2947106).
The DOJ Draft references TMC's registered office at 200 Bay Street, Suite 3400, Toronto, Ontario M5J 2J2, Canada, and its U.S. principal office at Torchlight Mining (U.S.) Inc., 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117. The Draft NPA contemplates execution by Søren Dalmqvist in his capacity as Chief Executive Officer of TMC, and by Julia Stafford-Hayes in her capacity as Deputy Assistant Attorney General, DOJ Antitrust Division.
General Assessment. The overall framework and structure of the DOJ Draft are consistent with recent DOJ antitrust NPAs, including those entered into in the auto-parts, generic-pharmaceuticals, and capacitors investigations. The DOJ Draft follows the standard template that DOJ has employed with increasing consistency since approximately 2018. However, as detailed in the section-by-section analysis below, several specific provisions of the DOJ Draft depart from recent precedent in ways that are unfavorable to TMC, particularly with respect to the monetary penalty, the material-breach standard, the cooperation obligations, and the compliance-monitor term. These departures are not justified by the facts of this case and provide ample room for negotiation.
IV. Section-by-Section Analysis
A. Preamble and Recitals (Sections 1–2)
Content. The Preamble and Recitals of the DOJ Draft identify the parties, reference the grand jury investigation (GJ-22-0194, N.D. Cal.), specify the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), and describe the alleged conspiracy period (approximately January 2017 through August 2021). The Recitals further reference the statutory basis for the investigation (Section 1 of the Sherman Act, 15 U.S.C. § 1) and describe the nature of the alleged conduct as a conspiracy to fix prices, allocate customers, and rig bids.
Concern. The Recitals describe the underlying conduct in overly conclusory and categorical language that effectively constitutes an admission of criminal liability beyond what is appropriate for a Non-Prosecution Agreement. By its nature, an NPA involves no admission of guilt — it is a resolution mechanism under which the government agrees not to prosecute in exchange for cooperation, remediation, and monetary payment, without requiring the entity to plead guilty or admit to the elements of a criminal offense. The DOJ Draft's Recitals, however, employ language such as "the conspiracy in which TMC participated" and "TMC's participation in the unlawful scheme" — phrasing that, if adopted, could be cited in civil litigation, regulatory proceedings, or foreign governmental investigations as evidence of an admission.
This concern is not merely theoretical. TMC faces pending and anticipated private civil antitrust litigation by customers in the U.S. (including the multidistrict litigation pending before Judge Hartwell in the Northern District of California, MDL No. 23-cv-04518), as well as potential regulatory inquiries by the Canadian Competition Bureau and the European Commission's Directorate-General for Competition. Admissions embedded in the NPA recitals could be used against TMC in those proceedings.
Proposed Revision. We recommend revising the Recitals to describe "the conduct described in Appendix B" or "the conduct that is the subject of this Agreement," rather than employing language that presupposes TMC's participation in a criminal conspiracy. Specifically:
• Replace "the conspiracy in which TMC participated" with "the conduct described in the Agreed Statement of Facts attached as Appendix B."
• Replace "TMC's participation in the unlawful scheme" with "the conduct that is the subject of this Agreement."
• Add a clause to the Recitals stating: "This Agreement does not constitute an admission of guilt or criminal liability by TMC, and TMC's entry into this Agreement shall not be construed as such in any proceeding."
These revisions are consistent with the language used in recent DOJ antitrust NPAs, including the NPA in United States v. [Company A] (2022) and the NPA in United States v. [Company B] (2023), both of which avoided conclusory language in the recitals and included express non-admission clauses.
B. No-Prosecution Commitment (Section 3)
Content. Section 3 of the DOJ Draft sets forth the core no-prosecution commitment: DOJ agrees not to bring criminal charges against TMC or any current TMC employee based on the conduct described in the NPA, provided that TMC complies with all terms of the agreement. The section includes a carve-out reserving DOJ's right to pursue charges against certain individuals.
Assessment. The no-prosecution commitment is the central element of the NPA and the primary benefit TMC receives in exchange for cooperation, remediation, and monetary payment. The basic structure of Section 3 is broadly acceptable and consistent with our negotiation objectives as set forth in the Strategy Memo. However, we have identified two significant concerns that must be addressed.
Concern 1 — Overbroad Carve-Out for Former Employees. The DOJ Draft includes a carve-out reserving the government's right to pursue charges against Gavin Holt individually, which is expected and not objectionable in principle. Holt was the principal actor in the alleged conspiracy, has refused to cooperate with both DOJ and TMC, and is the most likely target of individual prosecution. The reservation of DOJ's rights against Holt is standard NPA practice.
However, the carve-out as drafted is broader than necessary and introduces ambiguity. The relevant provision states that DOJ "reserves all rights with respect to any former employee of TMC." This language could sweep in individuals beyond Holt — including, for example, Sandra Chu (who departed TMC in November 2022 and cooperated fully with DOJ) or Thomas Eriksen (who remains employed but could depart during the NPA term). The breadth of this language undermines the protective purpose of the no-prosecution commitment and creates uncertainty for TMC and its current and former personnel.
Proposed Revision — Concern 1:
• Narrow the carve-out to identify Gavin Holt by name as the sole individual excluded from the no-prosecution commitment. The revised language should state: "Notwithstanding the foregoing, this Agreement does not bar or otherwise limit the prosecution of Gavin Holt (former Vice President, U.S. Specialty Minerals Sales, TMC) for any conduct, whether or not described in this Agreement."
• Clarify the definition of "current TMC employee" to include all individuals employed by TMC or its subsidiaries, including Torchlight Mining (U.S.) Inc., as of the date of execution of the NPA. This clarification is necessary because TMC's U.S. operations are conducted through its wholly owned subsidiary, and several relevant employees (including Thomas Eriksen) are employed by the U.S. subsidiary rather than the Canadian parent.
Concern 2 — Conditioning on Full Compliance with "Each and Every" Term. The no-prosecution commitment in the DOJ Draft is conditioned on the phrase "provided TMC fully complies with each and every term of this Agreement." This language sets an extraordinarily high standard that effectively transforms any technical non-compliance — however minor or inadvertent — into a potential basis for withdrawing the no-prosecution commitment and proceeding with criminal prosecution.
Such a standard is both impractical and unfair. Over the course of a multi-year NPA with numerous detailed obligations (cooperation, compliance, monitoring, reporting, and payment), minor administrative delays or good-faith disagreements about the scope of specific obligations are virtually inevitable. The "each and every term" standard creates a regime in which TMC's entire protection against prosecution could be vitiated by a trivial or technical deficiency, regardless of TMC's good-faith compliance with the agreement as a whole.
Proposed Revision — Concern 2:
• Replace "provided TMC fully complies with each and every term of this Agreement" with "provided TMC materially complies with the terms of this Agreement."
• Cross-reference the material-breach provisions discussed in Section IV.D below, so that the standard for evaluating TMC's compliance is consistent throughout the NPA and incorporates the notice-and-cure mechanism we propose for the material-breach section.
C. Monetary Payment (Section 4)
DOJ's Proposed Amount: Approximately USD 65 Million
Section 4 of the DOJ Draft requires TMC to pay a monetary amount of approximately USD 65 million to the United States Treasury. The DOJ's calculation basis, as reflected in the draft and in prior communications with DOJ staff, is as follows:
• TMC's affected commerce during the conspiracy period: USD 478 million.
• DOJ's standard penalty starting point (20% of affected commerce): USD 95.6 million.
• Implied cooperation and remediation credit: approximately 32% (i.e., $95.6 million × 0.68 ≈ $65 million).
This is the single most significant area of disagreement between the parties. The proposed penalty of USD 65 million is excessive in light of the nature and quality of TMC's cooperation and remediation, the mitigating factors present in this case, and the precedent established by recent DOJ antitrust NPAs.
1. Analysis of DOJ's Penalty Calculation
The DOJ's use of 20% of affected commerce as the starting point for the penalty calculation is consistent with established DOJ Antitrust Division methodology and is not contested. This starting point is well established in DOJ practice, is reflected in the U.S. Sentencing Guidelines' fine-calculation framework for organizations (U.S.S.G. § 2R1.1), and has been applied consistently in recent antitrust resolutions. Accordingly, we accept the USD 95.6 million figure as the appropriate starting point for purposes of this analysis, subject to the caveat noted above regarding Dr. Tremblay's forthcoming final analysis.
However, the implied cooperation and remediation credit of approximately 32% is plainly inadequate given the scope, quality, and timeliness of TMC's cooperation and the significant mitigating factors present in this matter. We set forth the specific grounds for this position below.
Cooperation Factors Supporting a Higher Credit:
(a) Extraordinary volume of document production. TMC produced approximately 555,000 documents totaling approximately 3.2 million pages across two subpoena responses. This production was completed on a rolling basis ahead of the deadlines set by the grand jury, and TMC made no objections or assertions of privilege that materially delayed or obstructed the production.
(b) Voluntary witness proffers. TMC made two key witnesses — Sandra Chu and Thomas Eriksen — available for voluntary proffer sessions with DOJ attorneys and FBI agents. These proffers were not compelled by subpoena; TMC affirmatively facilitated the cooperation of these individuals as part of its commitment to full and timely cooperation. Both Chu and Eriksen provided detailed and candid accounts of the matters within their knowledge.
(c) Thorough internal investigation with proactive sharing of findings. TMC conducted a comprehensive internal investigation that included interviews of 23 employees, an exhaustive document review, forensic analysis of electronic communications, and analysis of pricing and sales data. TMC shared the findings of this investigation with DOJ through the February 15, 2023 cooperation proffer, significantly in advance of any request by DOJ for such information. This proactive disclosure materially advanced the DOJ's investigation and saved the government substantial time and resources.
(d) Proactive development and submission of enhanced compliance program. TMC developed and submitted a comprehensive enhanced antitrust compliance program to DOJ on September 15, 2023, without being required to do so and well in advance of any NPA negotiation. The program was developed in collaboration with Meridian Compliance Partners LLC, an independent compliance-advisory firm, and represents a significant upgrade to TMC's pre-existing compliance framework.
(e) No C-suite or Board involvement. The evidence developed during the internal investigation — and confirmed through the cooperation proffer, the witness proffers, and DOJ's own investigation — demonstrates that the alleged conduct was orchestrated and directed by a single individual, Gavin Holt, acting without the knowledge or authorization of TMC's C-suite (CEO Søren Dalmqvist, General Counsel Priya Anand) or Board of Directors (Chair Margaret Caldwell). This factor distinguishes TMC from cases in which senior management was aware of or complicit in the anticompetitive conduct.
(f) Departure of the principal wrongdoer before the investigation. Gavin Holt departed TMC on September 30, 2021, approximately four and a half months before the grand jury investigation was opened in February 2022. TMC had no opportunity to prevent Holt's departure or to compel his cooperation with the investigation. Holt's refusal to cooperate is attributable to Holt alone and should not be held against TMC.
In light of these factors, a cooperation credit in the range of 45–55% is appropriate and is consistent with the credits granted in recent DOJ antitrust NPAs involving comparable levels of cooperation. By contrast, the 32% credit implied by the DOJ Draft is more consistent with cases in which the cooperating entity provided only partial or reluctant cooperation — a characterization that is wholly inapposite to TMC's conduct in this matter.
2. TMC's Counter-Position
As set forth in the Penalty Mitigation Memorandum dated September 1, 2023, our internal analysis estimated a penalty range of USD 30 million to USD 60 million, with a midpoint of approximately USD 45 million. The upper end of this range (USD 60 million) was identified as the maximum amount TMC should accept in a negotiated resolution; the midpoint (USD 45 million) was identified as our target.
In Calderwood & Harkness's letter to DOJ dated October 15, 2023, we argued for the maximum cooperation credit available under DOJ policy, citing each of the cooperation and mitigation factors enumerated above. The DOJ's response — reflected in the USD 65 million figure in the Draft NPA — indicates that while DOJ has provided some credit, it has not fully accounted for the strength of TMC's cooperation case.
Recommended Counter-Proposal: USD 48.5 Million. We recommend that TMC's counter-draft propose a monetary payment of USD 48.5 million, reflecting a cooperation and remediation credit of approximately 49.2% off the USD 95.6 million starting point (i.e., $95.6 million × 0.508 ≈ $48.6 million, rounded to $48.5 million). This figure represents a reasonable compromise within our previously identified range, provides sufficient room for further negotiation, and is supported by the cooperation and mitigation factors described above.
The justification for a credit in the range of approximately 49% is supported by the following:
• DOJ Antitrust Division Policy on Cooperation Credit. The DOJ has publicly stated that cooperation credit in antitrust matters can range from minimal reductions to credits of 50% or more for entities that provide "extraordinary cooperation." TMC's cooperation — involving voluminous document production, voluntary witness proffers, a comprehensive internal investigation shared proactively with DOJ, and the pre-emptive development of an enhanced compliance program — meets the DOJ's criteria for substantial-to-extraordinary cooperation.
• Recent NPA Precedents. Our review of publicly available DOJ antitrust NPAs and plea agreements from the past five years identifies cooperation credits of 40–55% in cases with comparable levels of cooperation. The precedent table attached as Appendix 2 to this memorandum details these comparators. In particular, cooperation credits of 45% or higher were granted in cases where (i) the cooperating entity conducted a thorough internal investigation and shared its findings proactively, (ii) the cooperating entity made key witnesses available for voluntary proffers, and (iii) the anticompetitive conduct was attributable to a limited number of individuals without C-suite involvement.
• Mitigating Factors. TMC's case presents several mitigating factors that further support a higher credit, including the absence of C-suite or Board involvement, the departure and non-cooperation of the principal wrongdoer, and TMC's proactive remediation efforts.
We recognize that the DOJ may resist a counter-proposal below USD 50 million. Our fallback position, as established in the Strategy Memo, is to accept a payment of up to USD 55 million if necessary to reach agreement, reflecting a cooperation credit of approximately 42.5%. We should not agree to a payment above USD 60 million absent extraordinary circumstances not currently anticipated.
3. Payment Mechanics
The DOJ Draft specifies that the monetary payment shall be made in a single lump sum within 30 days of execution of the NPA. This timeline is compressed and creates potential operational challenges for TMC.
Proposed Revision: We recommend extending the payment period to 60 days from execution, which is consistent with the payment timelines adopted in recent DOJ antitrust NPAs. A 60-day timeline will allow TMC sufficient time to process the payment through its corporate treasury function, coordinate with its auditor, Calvert & Associates LLP (engagement partner: Daniel Moreau), regarding the appropriate financial-statement treatment of the payment, and address any cross-border fund-transfer considerations arising from the payment by a Canadian parent corporation to the U.S. Treasury.
If the NPA is executed in early May 2024 (the current target), a 60-day payment period would result in payment by early July 2024, which is consistent with TMC's fiscal-year reporting cycle and will allow the payment to be reflected in TMC's Q2 2024 financial statements.
Note on Litigation Reserve. TMC's current litigation reserve stands at USD 50 million, having been increased from USD 30 million in the third quarter of 2023 in anticipation of the NPA resolution. The proposed counter-offer of USD 48.5 million is within the existing reserve. If the final negotiated amount exceeds USD 50 million, TMC will need to increase the reserve accordingly, with potential disclosure implications that should be discussed with TMC's securities counsel and auditor.
D. Material-Breach Standard (Section 5)
DOJ's Draft Provision
Section 5 of the DOJ Draft provides that if DOJ determines, "in its sole discretion," that TMC has "breached any provision of this Agreement," DOJ may declare the NPA void and proceed to prosecute TMC based on the Agreed Statement of Facts (Appendix B) and any other evidence available to it, including statements made by TMC and its employees during the course of cooperation.
This is the second most significant area of concern with the DOJ Draft. The material-breach provision is the mechanism by which DOJ's no-prosecution commitment can be withdrawn. As drafted, this provision is fundamentally unfair, provides no meaningful procedural safeguards, and exposes TMC to the risk of prosecution based on minor or technical non-compliance.
1. Analysis. The deficiencies in the DOJ Draft's material-breach provision are threefold:
First, the "sole discretion" standard is unreviewable. The DOJ Draft vests DOJ with unconstrained and unreviewable discretion to determine whether TMC has breached the NPA. Under this standard, DOJ could declare a breach and proceed to prosecution without any obligation to act reasonably, in good faith, or based on objective criteria. TMC would have no procedural mechanism to challenge or seek judicial review of DOJ's determination. This standard is inconsistent with the fundamental principles of fairness that should govern a negotiated resolution between a government agency and a cooperating entity.
Second, the "any provision" language fails to distinguish between material and immaterial breaches. The DOJ Draft permits DOJ to declare a breach and withdraw the no-prosecution commitment based on a failure to comply with "any provision" of the agreement, without regard to the significance or materiality of the breach. Under this language, a minor administrative delay in submitting a compliance report, a good-faith scheduling disagreement regarding a witness interview, or a technical deficiency in a compliance certification could theoretically expose TMC to criminal prosecution. This "hair trigger" standard creates perverse incentives: it discourages TMC from raising good-faith disputes about the scope of its obligations, because any dispute could be characterized as non-compliance.
Third, the remedy is disproportionate. The sole remedy for any breach — however minor — is prosecution based on the Agreed Statement of Facts. There is no graduated remedial framework, no opportunity for cure, and no proportionality between the severity of the breach and the consequence. The DOJ Draft treats a minor administrative deficiency the same as a willful and fundamental violation of the NPA's core obligations.
2. Proposed Revisions
We recommend the following revisions to Section 5:
(a) Replace "breached any provision" with "materially breached any material provision." This revision introduces a materiality threshold that is standard in negotiated agreements of all types and is consistent with recent DOJ NPA practice. It ensures that DOJ's right to withdraw the no-prosecution commitment is triggered only by breaches that are significant in nature and that relate to the core obligations of the agreement.
(b) Define "material breach." The NPA should define "material breach" as a breach that: (i) is not cured within 30 days of written notice from DOJ specifying the nature and basis of the alleged breach; and (ii) substantially undermines the purposes of the Agreement. This definition provides a clear and workable standard for both parties and ensures that minor or technical deficiencies — particularly those that are promptly cured — do not expose TMC to the catastrophic consequence of prosecution.
(c) Replace "sole discretion" with "good-faith determination." This revision preserves DOJ's authority to make the threshold determination of breach while introducing a basic good-faith standard that is subject to judicial review. A good-faith standard is reasonable and appropriate — it does not require DOJ to defer to TMC's self-assessment, but it does require DOJ to act reasonably and not arbitrarily.
(d) Add a cure provision. Before declaring a material breach, DOJ must provide TMC with written notice specifying the nature and factual basis of the alleged breach. TMC shall have a period of 30 calendar days from receipt of such notice to cure the alleged breach. If TMC cures the breach within the cure period, the breach shall be deemed not to have occurred for purposes of the NPA. This cure provision is standard in commercial agreements and has been adopted in several recent DOJ NPAs.
(e) Add a dispute-resolution mechanism. If TMC disputes DOJ's determination that a material breach has occurred (after the expiration of the cure period without cure), the matter shall be submitted to the United States District Court for the Northern District of California for resolution. The Court shall determine, based on a preponderance-of-the-evidence standard, whether a material breach has occurred. This mechanism provides a basic due-process safeguard that is appropriate given the gravity of the consequences of a breach determination (i.e., criminal prosecution).
We recognize that DOJ may resist the dispute-resolution mechanism, as it introduces judicial oversight of what DOJ traditionally considers a prosecutorial decision. However, several recent NPAs and deferred-prosecution agreements in the antitrust and FCPA contexts have included dispute-resolution provisions, and we believe there is a reasonable basis for insisting on this protection. At minimum, we should propose it as part of our opening counter-draft and be prepared to negotiate the specific mechanism (e.g., the standard of review, the scope of judicial authority, and whether the provision is subject to expedited proceedings).
E. Cooperation Obligations (Section 6)
DOJ's Draft Provision
Section 6 of the DOJ Draft requires TMC to "fully and truthfully cooperate" with DOJ in "any and all" related investigations and prosecutions. Specifically, the DOJ Draft requires TMC to make "all current and former employees" available for "any and all" interviews, testimony, and document production, "at TMC's expense," for a period of four years from the date of execution of the NPA.
1. Analysis — Overbroad Scope
The cooperation obligations as drafted are overbroad in several critical respects:
Undefined scope of "related investigations." The DOJ Draft requires cooperation in "any and all" related investigations, a phrase that is not defined and that could be construed to encompass investigations unrelated to the specialty-minerals conduct at issue in the NPA. For example, if DOJ were to open an investigation into pricing practices in a different product market in which TMC participates, the DOJ Draft's language could arguably require TMC to cooperate in that investigation under the NPA's cooperation obligation. This is plainly beyond the scope of what the NPA should require and would effectively transform the NPA into an open-ended cooperation mandate covering TMC's entire business.
"All current and former employees." The DOJ Draft requires TMC to make "all current and former employees" available for interviews and testimony. This requirement is both overbroad and impracticable. As to current employees, the obligation should be limited to employees with knowledge of the conduct described in the NPA — not the thousands of TMC employees worldwide who have no connection to the specialty-minerals business or the alleged conspiracy. As to former employees, TMC cannot compel former employees to participate in DOJ interviews or to provide testimony. Former employees are not under TMC's control and may have their own counsel and their own interests. The DOJ Draft's requirement that TMC make former employees "available" creates an obligation that TMC simply cannot fulfill.
No procedural safeguards. The DOJ Draft imposes no limitations on the frequency, timing, or notice requirements for DOJ's requests for witness interviews, testimony, or document production. Under the draft, DOJ could demand that a TMC executive appear for an interview on one day's notice, during critical business periods, without regard to scheduling conflicts or operational disruption. This absence of procedural safeguards is unreasonable and impractical.
2. Analysis — Duration
The DOJ Draft proposes a four-year cooperation period from execution. This is longer than the three-year term that has become standard in recent DOJ antitrust NPAs and is not justified by the particular facts of this case. A three-year cooperation period provides ample time for DOJ to complete its related proceedings against Ridgecrest, Pinnacle, and Gavin Holt — including any trials that may result from those proceedings. We are not aware of any circumstance that would require a fourth year of cooperation, and DOJ has not articulated a justification for the extended term in the Draft NPA or in its prior communications.
3. Proposed Revisions
We recommend the following revisions to Section 6:
(a) Limit scope to investigations arising from the conduct described in the NPA. The cooperation obligation should be limited to investigations and prosecutions "arising from the conduct described in this Agreement" — i.e., the specific price-fixing, market-allocation, and bid-rigging conduct in high-purity feldspar, industrial talc, and rare-earth concentrates during the period of approximately January 2017 through August 2021. This formulation is precise, is tied to the subject matter of the NPA, and is consistent with the cooperation provisions in recent DOJ antitrust NPAs.
(b) Replace "all current and former employees" with a targeted obligation. TMC should be required to make "current employees with knowledge of the conduct described in this Agreement" available for interviews and testimony. This formulation targets the relevant universe of employees (principally those in the Specialty Minerals Division's sales and pricing functions during the conspiracy period) while excluding the vast majority of TMC's workforce, which has no relevant knowledge. With respect to former employees, TMC should undertake to use "reasonable efforts to facilitate the cooperation" of former employees who have knowledge of the relevant conduct, but should not be required to compel participation that it has no legal authority to compel. The NPA should expressly acknowledge that TMC cannot guarantee the cooperation of former employees and that the failure of a former employee to cooperate shall not constitute a breach of the NPA.
(c) Add procedural safeguards. DOJ must provide TMC with reasonable advance notice — not less than 14 business days — for requests for witness interviews and testimony. Scheduling of interviews and testimony shall be conducted in a manner that reasonably accommodates TMC's business operations and the witness's availability. DOJ's requests for document production shall be made in writing and shall specify with reasonable particularity the documents or categories of documents sought.
(d) Reduce cooperation period from four years to three years. The cooperation period should run for three years from the date of execution of the NPA. If the NPA is executed in May 2024, the cooperation period would extend through May 2027. A three-year term is consistent with recent DOJ antitrust NPA practice and provides adequate time for DOJ to complete its related proceedings against Ridgecrest, Pinnacle, and Gavin Holt.
F. Compliance Enhancements (Section 7)
DOJ's Draft Provision. Section 7 of the DOJ Draft requires TMC to implement and maintain the Enhanced Antitrust Compliance Program described in Appendix A throughout the term of the NPA. The specific requirements set forth in the DOJ Draft and Appendix A include:
• Mandatory annual antitrust compliance training for all employees involved in pricing, sales, and marketing functions.
• Appointment of an independent Chief Compliance Officer who reports directly to the Board of Directors.
• Annual compliance certifications signed by the CEO and the General Counsel, attesting to the Company's compliance with the Enhanced Antitrust Compliance Program and the NPA.
• Implementation of competitor-contact protocols governing any communications between TMC employees and employees of competitors, including mandatory pre-approval and post-contact documentation requirements.
• Development and implementation of trade-association interaction policies governing TMC employee participation in trade-association meetings and events, with mandatory chaperone requirements and post-meeting reports.
• Establishment and maintenance of an internal reporting hotline, available to all TMC employees, through which potential antitrust-compliance concerns may be reported anonymously.
Assessment. The compliance requirements set forth in Section 7 and Appendix A are largely consistent with the Enhanced Antitrust Compliance Program proposal that TMC submitted to DOJ on September 15, 2023, which was developed in collaboration with Meridian Compliance Partners LLC (Claudia Ferraro, engagement lead). We reviewed the DOJ Draft's compliance provisions against the Meridian proposal and found that the DOJ has adopted the substance of TMC's proposed program with only minor modifications. This is a positive outcome and reflects DOJ's recognition of the quality and comprehensiveness of TMC's remediation efforts.
We note that TMC's existing compliance program was originally adopted in 2014 and, regrettably, had not conducted annual antitrust compliance training since 2018. This lapse in training — while it predates the alleged conspiracy period — is a deficiency that DOJ is likely aware of and that may have contributed to the environment in which Holt's alleged conduct occurred. The NPA compliance enhancements represent a significant and overdue upgrade to TMC's compliance infrastructure.
Minor Concerns. We have identified two relatively minor concerns with the compliance provisions that should be addressed in the counter-draft:
(a) Scope of mandatory training. The DOJ Draft requires annual antitrust compliance training for "all employees involved in pricing, sales, and marketing." This language should be clarified to cover employees in relevant business functions with pricing authority or customer-facing responsibilities — not administrative or clerical support staff in sales or marketing departments who have no pricing authority, competitive-intelligence access, or customer-contact responsibilities. An overly broad training mandate is not only operationally burdensome but is also counter-productive, as it dilutes the focus and impact of the training by including employees for whom it is irrelevant.
(b) Chief Compliance Officer reporting structure. The DOJ Draft requires the Chief Compliance Officer to "report directly to the Board." While we do not object to Board-level oversight of the compliance function, the specific reporting structure should be clarified to reflect TMC's existing corporate-governance framework. We recommend that the NPA specify that the Chief Compliance Officer shall report to the Audit Committee of the Board of Directors (currently chaired by Janet Moreau-Shaw), with a dotted-line reporting relationship to the CEO for day-to-day operational matters. This structure ensures robust Board oversight while maintaining operational efficiency and is consistent with best practices for compliance-officer reporting at publicly traded companies.
G. Compliance Monitor (Section 8)
DOJ's Draft Provision
Section 8 of the DOJ Draft requires TMC to retain an independent compliance monitor, selected by TMC and approved by DOJ, for a period of four years from the date of execution of the NPA. The compliance monitor is to be retained at TMC's expense and is granted broad access to TMC personnel, documents, and systems for purposes of evaluating TMC's compliance with the Enhanced Antitrust Compliance Program and the other requirements of the NPA. The monitor is required to submit semi-annual reports to DOJ assessing TMC's compliance status and making recommendations for corrective action as appropriate.
1. Analysis — Duration
A four-year compliance-monitor term is excessive and inconsistent with recent DOJ antitrust NPA practice. Our review of publicly available DOJ antitrust NPAs from the past five years indicates that a two-year monitor term is the standard. Three-year monitor terms have been imposed in a small number of cases involving particularly egregious conduct, recidivist behavior, or demonstrably inadequate compliance programs at the time of resolution. Four-year monitor terms are essentially without recent precedent in the antitrust context.
A four-year monitor term would extend the monitoring period to approximately May 2028, well beyond the three-year NPA term we are proposing (through May 2027). This creates an anomalous situation in which the compliance monitor would continue to operate after the NPA itself has expired — a result that is both illogical and without clear legal authority.
Moreover, the cost burden of a four-year monitor engagement is substantial. Based on Meridian Compliance Partners LLC's current fee structure, we estimate that the monitor engagement would cost TMC approximately USD 1.5–2 million per year, or approximately USD 6–8 million over a four-year term. By contrast, a two-year monitor term would reduce the total cost to approximately USD 3–4 million — a savings of USD 2–3 million over the alternative. While cost alone is not dispositive, it is a relevant consideration in the overall economic analysis of the NPA.
2. Analysis — Scope
The DOJ Draft grants the compliance monitor access to "all TMC personnel, documents, and systems" without limitation. This formulation is overbroad in several respects:
• It could be construed to grant the monitor access to attorney-client privileged communications and attorney work product, including communications between TMC and Calderwood & Harkness relating to this investigation and other legal matters. Such access would effect a waiver of privilege that TMC cannot accept.
• It extends to personnel, documents, and systems unrelated to antitrust compliance or the conduct at issue, including TMC's mining operations, environmental compliance, human resources, and financial systems. Granting the monitor unfettered access to these domains is not justified by the purposes of the NPA and would be operationally disruptive.
• It does not distinguish between TMC's various global business units and subsidiaries. The monitor's mandate should be limited to the business functions relevant to the alleged conduct — principally the U.S. Specialty Minerals Division and related commercial functions — rather than encompassing TMC's entire global enterprise.
We note that the semi-annual reporting cadence proposed in the DOJ Draft is reasonable and is consistent with standard practice. We do not object to this aspect of the monitoring provision.
3. Proposed Revisions
(a) Reduce monitor term from four years to two years. The monitoring period should run for two years from the date of execution of the NPA. If the NPA is executed in May 2024, the monitoring period would extend through May 2026. A two-year term is consistent with standard DOJ antitrust NPA practice, provides sufficient time for the monitor to conduct a thorough evaluation of TMC's compliance program, and is proportionate to the nature of the alleged conduct and the remediation already undertaken.
(b) Limit monitor access to relevant business functions. The monitor's access should be limited to personnel, documents, and systems relevant to antitrust compliance within the U.S. Specialty Minerals Division and related business functions. This formulation ensures that the monitor can effectively evaluate TMC's compliance program as it relates to the conduct at issue while preventing unnecessary intrusion into unrelated business operations.
(c) Add express privilege protections. The NPA should include an express provision stating that the monitor's access shall not extend to attorney-client privileged communications or attorney work product, and that any inadvertent disclosure of privileged materials to the monitor shall not constitute a waiver of privilege. This protection is standard in monitorship provisions and is essential to preserving TMC's ability to seek and receive confidential legal advice.
(d) Credit TMC's early remediation. Meridian Compliance Partners LLC (Claudia Ferraro, engagement lead) has been working with TMC since August 2023 — approximately nine months before the anticipated NPA execution date. Meridian has been pre-approved by DOJ as an acceptable compliance monitor. The early start of TMC's compliance-remediation efforts should be credited in setting the monitor term: TMC will have already had nearly a year of independent compliance oversight by the time the NPA is executed, which reduces the need for an extended post-execution monitoring period.
(e) Establish a clear reporting timeline. We propose that the monitor submit an initial baseline report within 90 days of NPA execution, assessing the current state of TMC's antitrust compliance program and identifying any areas for improvement. Thereafter, the monitor shall submit semi-annual reports to DOJ, with a final comprehensive report at the conclusion of the two-year monitoring period. The final report should assess TMC's overall compliance and provide a recommendation regarding whether continued monitoring is warranted — with the understanding that, absent a finding of material non-compliance, the monitoring period will conclude at the end of the two-year term.
H. Agreed Statement of Facts — Appendix B (Section 9)
DOJ's Draft Appendix B
Section 9 of the DOJ Draft incorporates by reference the Agreed Statement of Facts set forth in Appendix B. Appendix B is a 12-page factual narrative that describes the alleged conspiracy in detail, including:
• The roles of Gavin Holt (TMC), Carl Edgerton (Ridgecrest), and Kevin Tsang (Pinnacle) as the principal actors in the alleged conspiracy.
• A chronological account of at least 37 documented communications between Holt and his counterparts during the period March 2017 through July 2021. These communications include encrypted messages via the VaultChat messaging platform and in-person meetings at three annual conferences of the National Association of Specialty Minerals Corporations ("NASMC"), held in Arlington, Virginia (2018), Scottsdale, Arizona (2019), and Orlando, Florida (2021).
• Specific examples of customer-allocation agreements in which the conspirators allegedly agreed to allocate specific customers among themselves and to refrain from competing for each other's allocated accounts.
• Specific examples of bid-rigging in wh