1039-00001 · Torchlight Mining Corp · documents

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PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION

CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7200 Facsimile: (415) 555-7201

March 8, 2022

MEMORANDUM

TO: Elaine Forsythe, Partner, Antitrust & Competition Practice Group

FROM: Monica Reyes, Associate, Antitrust & Competition Practice Group

RE: Confirmation of Excess-Layer D&O Carrier Notifications — Torchlight Mining Corp.

MATTER: Torchlight Mining Corp. — DOJ Antitrust Division Grand Jury Investigation

MATTER NUMBER: 1039-00001

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared by counsel for Torchlight Mining Corp. in anticipation of litigation and in connection with the rendering of legal advice. It is protected by the attorney-client privilege, the work-product doctrine, and all other applicable privileges. It should not be disclosed to any person outside of the firm or the client without prior authorization.

I. Purpose

This memorandum confirms that formal notice letters have been dispatched to the two excess-layer carriers in Torchlight Mining Corp.'s ("TMC") directors-and-officers ("D&O") liability insurance tower in connection with the investigation initiated by the Antitrust Division of the United States Department of Justice ("DOJ") through Grand Jury No. GJ-22-0194, empaneled in the United States District Court for the Northern District of California, San Francisco Division. Both notice letters were sent on March 7, 2022.

The notices to the excess-layer carriers were dispatched promptly following the formal primary-layer notice tendered to Northland Mutual Insurance Co. ("Northland Mutual"), the lead carrier in TMC's D&O tower, on March 4, 2022, under D&O Policy No. NMI-DO-2021-5547. The primary purpose of providing early and simultaneous notice to the excess layers is to preserve TMC's coverage rights at all levels of the insurance tower by ensuring timely notification consistent with the applicable policy requirements, follow-form endorsements, and prudent insurance practice. This memorandum documents the substance, method, and timing of each notice and sets forth the rationale for prompt notification, as well as the recommended next steps for monitoring carrier responses and coordinating with the broader coverage analysis currently underway.

II. Background

A. The Investigation

On February 10, 2022, the Antitrust Division of the United States Department of Justice formally opened a federal grand jury investigation into suspected antitrust violations in the North American specialty-minerals sector. The investigation, proceeding before Grand Jury No. GJ-22-0194, empaneled in the Northern District of California, San Francisco Division, is focused on suspected price-fixing, market allocation, and bid-rigging involving three principal product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These products are integral to a range of downstream industries, including ceramics manufacturing, specialty coatings, electronics, and advanced materials applications.

On February 14, 2022, Torchlight Mining Corp. received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003. The subpoena calls for the production of extensive categories of documents relating to TMC's pricing practices, customer and distributor communications, participation in trade associations and industry conferences, internal strategic planning documents, and communications with competitors, among other categories. The subpoena covers a period beginning approximately five years prior to the date of issuance and extends through the present.

Based on the scope and nature of the subpoena, as well as public reporting and informal communications with counsel for other companies in the sector, we understand that at least two other companies—Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.—have also received subpoenas in connection with the same grand jury investigation. The DOJ has estimated the total volume of affected commerce to be approximately USD 1.34 billion, with TMC's estimated share of the relevant market equaling approximately USD 478 million. These figures, while preliminary, indicate the potential severity of the investigation and the magnitude of the financial exposure facing TMC and its individual directors and officers.

Following receipt of the subpoena, TMC's Board of Directors, acting on the recommendation of its General Counsel, Priya Anand, engaged Calderwood & Harkness LLP on February 18, 2022 to represent the company in connection with all aspects of the DOJ investigation, including but not limited to subpoena compliance, witness preparation, privilege review, and coordination with TMC's D&O insurance carriers.

B. TMC's D&O Insurance Tower — Structure

TMC maintains a three-layer directors-and-officers liability insurance tower with an aggregate limit of USD 100 million, subject to a USD 2.5 million self-insured retention. The tower is structured as follows:

Primary Layer (Lead Carrier):

Carrier: Northland Mutual Insurance Co. Domicile: Toronto, Ontario, Canada Policy Number: NMI-DO-2021-5547 Policy Period: July 1, 2021 – July 1, 2022 (renewed annually) Aggregate Limit of Liability: USD 50,000,000 Self-Insured Retention: USD 2,500,000

The primary policy provides coverage for defense costs, settlements, and judgments arising from claims made against TMC's directors and officers, as well as entity coverage under certain specified circumstances, subject to the terms, conditions, and exclusions set forth in the policy.

Excess Layer 2:

Carrier: Greystone Specialty Insurance Ltd. Domicile: Hamilton, Bermuda Coverage: USD 25,000,000 excess of USD 50,000,000 (i.e., the Greystone layer attaches at the point of exhaustion of the primary layer and provides coverage up to a total aggregate of USD 75,000,000) Policy Form: Follow-form to Northland Mutual Policy No. NMI-DO-2021-5547, with certain specified endorsements and modifications as set forth in the Greystone excess policy

Excess Layer 3:

Carrier: Sentinel Re Ltd. Domicile: Hamilton, Bermuda Coverage: USD 25,000,000 excess of USD 75,000,000 (i.e., the Sentinel Re layer attaches at the point of exhaustion of the combined primary and Layer 2 limits and provides coverage up to a total aggregate of USD 100,000,000) Policy Form: Follow-form to Northland Mutual Policy No. NMI-DO-2021-5547, with certain specified endorsements and modifications as set forth in the Sentinel Re excess policy

The total tower limit is therefore USD 100,000,000 (primary USD 50,000,000 + Layer 2 USD 25,000,000 + Layer 3 USD 25,000,000), after satisfaction of the USD 2,500,000 self-insured retention. Both excess policies follow form to the primary Northland Mutual policy with respect to the scope of coverage, definitions, and most conditions, though each contains certain independent terms regarding notice, dispute resolution, and governing law, as discussed further below.

C. Primary-Layer Notice

On March 4, 2022, Calderwood & Harkness LLP, acting on behalf of TMC, tendered formal notice of the DOJ investigation to Northland Mutual Insurance Co. under Policy No. NMI-DO-2021-5547. The notice letter was addressed to:

Northland Mutual Insurance Co. Claims Department — Directors & Officers Liability 55 Yonge Street, Suite 2100 Toronto, Ontario M5E 1J4 Canada

Attn: Senior Claims Examiner, D&O Division

The notice letter described in detail the DOJ Antitrust Division grand jury investigation, including the grand jury number (GJ-22-0194), the court in which the grand jury was empaneled (U.S. District Court, Northern District of California, San Francisco Division), the subpoena received by TMC (Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003), the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), the nature of the suspected antitrust conduct (price-fixing, market allocation, and bid-rigging), and the potential exposure of TMC as an entity and of its individual directors and officers. The notice letter also identified the other known subjects of the investigation (Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.) and expressly reserved all of TMC's rights under the primary policy.

As of the date of this memorandum, Northland Mutual has acknowledged receipt of the March 4 notice letter but has not yet issued a formal coverage determination or a reservation-of-rights letter. We anticipate that a reservation-of-rights letter will be forthcoming, likely invoking certain standard exclusions and reservations. A separate memorandum analyzing coverage under the primary policy and the anticipated scope of any reservation of rights is currently being prepared and is targeted for completion by March 20, 2022.

III. Excess-Layer Notification Details

A. Notice to Greystone Specialty Insurance Ltd. (Layer 2)

On March 7, 2022, Calderwood & Harkness LLP, on behalf of TMC, dispatched a formal notice letter to Greystone Specialty Insurance Ltd. in connection with the DOJ grand jury investigation. The particulars of the notice are as follows:

Date of Notice Letter: March 7, 2022

Carrier: Greystone Specialty Insurance Ltd.

Carrier Domicile: Hamilton, Bermuda

Policy Layer: Excess Layer 2 — USD 25,000,000 excess of USD 50,000,000. This layer attaches upon exhaustion of the Northland Mutual primary-layer aggregate limit and provides coverage up to a cumulative aggregate of USD 75,000,000.

Addressee and Delivery Details: The notice letter was addressed and delivered to Greystone's designated claims contact as specified in the excess policy's follow-form provisions and the claims-reporting endorsement. The letter was sent via two methods to ensure timely and documented receipt: (1) overnight international courier service (Crestline Industries Priority, tracking confirmation obtained), and (2) electronic mail to the designated claims email address. A delivery confirmation was requested and is pending as of the date of this memorandum.

Content of Notice: The notice letter described the following matters in detail:

(a) The DOJ Antitrust Division grand jury investigation, identified by Grand Jury No. GJ-22-0194, empaneled in the United States District Court for the Northern District of California, San Francisco Division;

(b) The Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003, received by TMC on February 14, 2022, including a summary of the categories of documents and information demanded;

(c) The nature of the investigation, namely the suspicion of price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector;

(d) The specific products at issue: high-purity feldspar, industrial talc, and rare-earth concentrates;

(e) The identities of the other known subjects of the investigation, specifically Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.;

(f) The potential exposure of TMC as an entity and of its individual directors and officers, including but not limited to potential criminal penalties, treble-damages civil litigation, and associated defense costs; and

(g) A statement that the investigation constitutes a "Claim" or a circumstance reasonably likely to give rise to a "Claim" within the meaning of the D&O policy provisions, thereby triggering the notice obligations under the policy.

Cross-Reference to Primary-Layer Notice: The notice letter expressly referenced the March 4, 2022 notice previously tendered to Northland Mutual Insurance Co. under Primary Policy No. NMI-DO-2021-5547. A complete copy of the Northland Mutual notice letter was enclosed with the Greystone correspondence for Greystone's records and to ensure that Greystone had full visibility into the information provided to the primary carrier.

Preservation of Rights: The notice letter included an express reservation of all of TMC's rights under the Greystone excess policy, including without limitation the right to seek reimbursement of defense costs, the right to claim indemnification for settlements or judgments entered against individual directors and officers, and any rights arising under entity-coverage provisions. The letter further stated that TMC's notice should not be construed as a limitation on the scope of claims that may subsequently be asserted under the policy and that TMC reserved the right to supplement or amend the notice as additional information became available.

B. Notice to Sentinel Re Ltd. (Layer 3)

On March 7, 2022, Calderwood & Harkness LLP, on behalf of TMC, dispatched a formal notice letter to Sentinel Re Ltd. in connection with the same DOJ grand jury investigation. The particulars of the notice are as follows:

Date of Notice Letter: March 7, 2022

Carrier: Sentinel Re Ltd.

Carrier Domicile: Hamilton, Bermuda

Policy Layer: Excess Layer 3 — USD 25,000,000 excess of USD 75,000,000. This layer attaches upon exhaustion of the combined primary-layer and Layer 2 aggregate limits (i.e., at the USD 75,000,000 threshold) and provides coverage up to a cumulative aggregate of USD 100,000,000.

Addressee and Delivery Details: The notice letter was addressed and delivered to Sentinel Re's designated claims contact as specified in the excess policy's follow-form provisions and the claims-reporting endorsement. Consistent with the method used for the Greystone notice, the letter was sent via overnight international courier service (Crestline Industries Priority, tracking confirmation obtained) and via electronic mail to the designated claims email address. Delivery confirmation was requested and is pending as of the date of this memorandum.

Content of Notice: The Sentinel Re notice letter was substantively identical to the notice letter sent to Greystone Specialty Insurance Ltd. It described the DOJ Antitrust Division grand jury investigation (Grand Jury No. GJ-22-0194, N.D. Cal., San Francisco Division), the Grand Jury Subpoena Duces Tecum (No. GJ-22-0194-SD-003) received by TMC on February 14, 2022, the nature of the suspected antitrust conduct (price-fixing, market allocation, and bid-rigging), the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), the identities of the other known subjects (Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.), and the potential exposure of TMC and its individual directors and officers. The letter characterized the investigation as a "Claim" or a circumstance reasonably likely to give rise to a "Claim" within the meaning of the applicable policy provisions.

Cross-Reference to Primary-Layer Notice: As with the Greystone notice, the Sentinel Re letter expressly referenced the March 4, 2022 notice tendered to Northland Mutual under Primary Policy No. NMI-DO-2021-5547, and a complete copy of the Northland Mutual notice was enclosed.

Preservation of Rights: The notice letter included the same express reservation of all of TMC's rights under the Sentinel Re excess policy as was included in the Greystone notice, including the right to seek reimbursement of defense costs, indemnification for individual directors and officers, and any entity-coverage rights. TMC reserved the right to supplement or amend the notice as the investigation progresses and additional facts become available.

IV. Rationale for Prompt Notification of Excess Layers

Although the excess layers will not be triggered unless and until the underlying limits are exhausted—the Greystone Layer 2 will not attach until the Northland Mutual primary-layer aggregate limit of USD 50,000,000 has been exhausted, and the Sentinel Re Layer 3 will not attach until the combined primary and Layer 2 limits of USD 75,000,000 have been exhausted—prompt notice to all layers in the D&O tower is both prudent and consistent with standard industry practice. The rationale for this approach is grounded in several considerations:

Policy Notice Requirements. Many excess D&O policies, including follow-form policies such as those maintained by Greystone and Sentinel Re, contain notice provisions that require the insured to provide notification "as soon as practicable" or "promptly" after the insured becomes aware of a claim or circumstance that may give rise to a claim, regardless of whether the excess layer is expected to be triggered. Some courts have held that a failure to comply with notice requirements in an excess policy—even where the excess layer was not immediately at risk of being triggered—may provide the carrier with a viable coverage defense if it can demonstrate prejudice or, in certain jurisdictions, if the policy treats notice as a condition precedent to coverage. By providing notice to the excess layers simultaneously with or shortly after notice to the primary carrier, TMC minimizes the risk that an excess carrier could later assert a late-notice defense.

Potential for Significant Financial Exposure. Given the magnitude of the DOJ investigation—where total affected commerce has been estimated by the DOJ at approximately USD 1.34 billion, with TMC's estimated share of approximately USD 478 million—the potential financial exposure to TMC and its individual directors and officers is substantial. Under the Sentencing Guidelines for antitrust violations, corporate fines can be calculated as a percentage of the volume of affected commerce, and fines in the range of 20% to 50% of affected commerce are not uncommon in major price-fixing cases. In addition to potential criminal fines, TMC and its officers and directors face the prospect of follow-on civil treble-damages litigation by direct and indirect purchasers, which could result in damages multiples of the actual harm. When these potential exposures are combined with anticipated defense costs—which in complex antitrust grand jury investigations routinely reach into the tens of millions of dollars—it is not inconceivable that aggregate costs could approach or penetrate the excess layers. Timely notice is therefore essential to preserving coverage at all levels of the tower.

Preservation of the Insured's Bargained-For Coverage. TMC has made a significant investment in constructing a USD 100 million D&O tower for the protection of its directors, officers, and the entity itself. The premiums paid for the excess layers represent a substantial financial outlay, and the company is entitled to the benefit of the coverage it has purchased. Providing prompt and comprehensive notice to all carriers is the most effective means of preserving the full benefit of the bargained-for coverage and ensuring that no carrier can later disclaim responsibility based on untimely or insufficient notice.

Best Practices and Judicial Expectations. Courts evaluating coverage disputes frequently consider whether the insured acted reasonably and in good faith in providing notice to its carriers. Early, comprehensive notification to all layers in the tower demonstrates diligence and good faith, and it is consistent with the recommendations of leading insurance coverage practitioners and treatises. In the event of a future coverage dispute, TMC's prompt notification of the excess layers will be a favorable factor in any assessment of the reasonableness of the insured's conduct.

V. Copies of Notice Letters

Copies of both excess-layer notice letters—the March 7, 2022 letter to Greystone Specialty Insurance Ltd. and the March 7, 2022 letter to Sentinel Re Ltd.—are maintained in the firm's matter file under Matter No. 1039-00001. The original letters, together with courier tracking information and email transmission receipts, are preserved in the "Insurance — Carrier Notices" subfolder of the electronic matter file.

Copies of both notice letters, together with a copy of the March 4, 2022 primary-layer notice to Northland Mutual, have been provided to the following individuals at TMC:

• Priya Anand, General Counsel, Torchlight Mining Corp.; and

• Richard Fong, Chief Financial Officer, Torchlight Mining Corp.

These copies have been provided for the client's records and for coordination with TMC's internal risk-management function. Ms. Anand and Mr. Fong have been advised to retain these copies in TMC's corporate records and to notify Calderwood & Harkness immediately if they receive any direct communication from any carrier in the D&O tower.

VI. Next Steps

The following action items remain outstanding and should be monitored in the near term:

1. Monitor for Acknowledgment of Receipt. We are awaiting acknowledgment of receipt from both Greystone Specialty Insurance Ltd. and Sentinel Re Ltd. Upon receipt of confirmation from each carrier (whether via courier delivery confirmation, email acknowledgment, or written correspondence), we will docket any response deadlines specified in the respective policies or in the carrier's acknowledgment. If we do not receive acknowledgment from either carrier within ten business days of the date of the notice letters (i.e., by March 21, 2022), we will follow up with each carrier to confirm receipt.

2. Assess Impact of Primary Carrier's Reservation of Rights. Upon receipt of Northland Mutual's anticipated reservation-of-rights letter, we will assess whether the specific coverage defenses or exclusions raised by the primary carrier affect the excess layers. Because both the Greystone and Sentinel Re policies follow form to the Northland Mutual primary policy, any reservation of rights by the primary carrier—particularly with respect to exclusions such as the criminal-act exclusion, the regulatory-proceeding exclusion, or the prior-knowledge exclusion—may have implications for coverage at the excess layers. If the reservation of rights raises issues that warrant supplemental correspondence to the excess carriers (for example, to rebut an exclusion argument or to provide additional factual information), we will prepare and send such supplemental correspondence promptly.

3. Coordinate with Broader D&O Coverage Analysis. A comprehensive D&O coverage analysis memorandum is currently being prepared by the firm's insurance coverage team. That memorandum, which is targeted for completion by March 20, 2022, will assess in detail the applicability of the regulatory/criminal-act exclusion across all three layers of the tower, the scope of entity-versus-individual coverage, the allocation of defense costs among the various insureds, and the interplay among the three policies in the event of a coverage dispute. The findings of that analysis may necessitate further correspondence with the excess carriers or adjustments to the firm's coverage strategy.

4. Update This Memorandum. This memorandum will be updated if and when any carrier in the D&O tower responds with a formal coverage determination, a reservation-of-rights letter, a denial of coverage, or any other material communication relating to TMC's notice.

VII. Conclusion

Formal notice has been timely provided to both excess-layer carriers in Torchlight Mining Corp.'s directors-and-officers liability insurance tower—Greystone Specialty Insurance Ltd. (Layer 2) and Sentinel Re Ltd. (Layer 3)—in connection with the DOJ Antitrust Division grand jury investigation (Grand Jury No. GJ-22-0194, N.D. Cal.). Both notice letters were dispatched on March 7, 2022, three days after the primary-layer notice was tendered to Northland Mutual Insurance Co. All rights under the excess policies have been expressly reserved. The firm will continue to monitor carrier responses, coordinate with the broader insurance coverage workstream, and update the team as developments warrant.

Please let me know if you have any questions or if you would like to discuss any aspect of the excess-layer notifications or the coverage strategy.

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

Email: mreyes@calderwoodharkness.com

Distribution:

cc: Elaine Forsythe, Partner (matter file)

cc: Aaron Liu, Associate (for coordination with document production and overall matter management)

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It has been prepared in anticipation of litigation and in connection with the rendering of legal advice. Unauthorized disclosure is prohibited. If you have received this document in error, please notify the sender immediately and destroy all copies.

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-7200 Facsimile: (415) 555-7201
March 8, 2022
MEMORANDUM
TO: Elaine Forsythe, Partner, Antitrust & Competition Practice Group
FROM: Monica Reyes, Associate, Antitrust & Competition Practice Group
RE: Confirmation of Excess-Layer D&O Carrier Notifications — Torchlight Mining Corp.
MATTER: Torchlight Mining Corp. — DOJ Antitrust Division Grand Jury Investigation
MATTER NUMBER: 1039-00001
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum has been prepared by counsel for Torchlight Mining Corp. in anticipation of litigation and in connection with the rendering of legal advice. It is protected by the attorney-client privilege, the work-product doctrine, and all other applicable privileges. It should not be disclosed to any person outside of the firm or the client without prior authorization.
I. Purpose
This memorandum confirms that formal notice letters have been dispatched to the two excess-layer carriers in Torchlight Mining Corp.'s ("TMC") directors-and-officers ("D&O") liability insurance tower in connection with the investigation initiated by the Antitrust Division of the United States Department of Justice ("DOJ") through Grand Jury No. GJ-22-0194, empaneled in the United States District Court for the Northern District of California, San Francisco Division. Both notice letters were sent on March 7, 2022.
The notices to the excess-layer carriers were dispatched promptly following the formal primary-layer notice tendered to Northland Mutual Insurance Co. ("Northland Mutual"), the lead carrier in TMC's D&O tower, on March 4, 2022, under D&O Policy No. NMI-DO-2021-5547. The primary purpose of providing early and simultaneous notice to the excess layers is to preserve TMC's coverage rights at all levels of the insurance tower by ensuring timely notification consistent with the applicable policy requirements, follow-form endorsements, and prudent insurance practice. This memorandum documents the substance, method, and timing of each notice and sets forth the rationale for prompt notification, as well as the recommended next steps for monitoring carrier responses and coordinating with the broader coverage analysis currently underway.
II. Background
A. The Investigation
On February 10, 2022, the Antitrust Division of the United States Department of Justice formally opened a federal grand jury investigation into suspected antitrust violations in the North American specialty-minerals sector. The investigation, proceeding before Grand Jury No. GJ-22-0194, empaneled in the Northern District of California, San Francisco Division, is focused on suspected price-fixing, market allocation, and bid-rigging involving three principal product categories: high-purity feldspar, industrial talc, and rare-earth concentrates. These products are integral to a range of downstream industries, including ceramics manufacturing, specialty coatings, electronics, and advanced materials applications.
On February 14, 2022, Torchlight Mining Corp. received Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003. The subpoena calls for the production of extensive categories of documents relating to TMC's pricing practices, customer and distributor communications, participation in trade associations and industry conferences, internal strategic planning documents, and communications with competitors, among other categories. The subpoena covers a period beginning approximately five years prior to the date of issuance and extends through the present.
Based on the scope and nature of the subpoena, as well as public reporting and informal communications with counsel for other companies in the sector, we understand that at least two other companies—Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.—have also received subpoenas in connection with the same grand jury investigation. The DOJ has estimated the total volume of affected commerce to be approximately USD 1.34 billion, with TMC's estimated share of the relevant market equaling approximately USD 478 million. These figures, while preliminary, indicate the potential severity of the investigation and the magnitude of the financial exposure facing TMC and its individual directors and officers.
Following receipt of the subpoena, TMC's Board of Directors, acting on the recommendation of its General Counsel, Priya Anand, engaged Calderwood & Harkness LLP on February 18, 2022 to represent the company in connection with all aspects of the DOJ investigation, including but not limited to subpoena compliance, witness preparation, privilege review, and coordination with TMC's D&O insurance carriers.
B. TMC's D&O Insurance Tower — Structure
TMC maintains a three-layer directors-and-officers liability insurance tower with an aggregate limit of USD 100 million, subject to a USD 2.5 million self-insured retention. The tower is structured as follows:
Primary Layer (Lead Carrier):
Carrier: Northland Mutual Insurance Co. Domicile: Toronto, Ontario, Canada Policy Number: NMI-DO-2021-5547 Policy Period: July 1, 2021 – July 1, 2022 (renewed annually) Aggregate Limit of Liability: USD 50,000,000 Self-Insured Retention: USD 2,500,000
The primary policy provides coverage for defense costs, settlements, and judgments arising from claims made against TMC's directors and officers, as well as entity coverage under certain specified circumstances, subject to the terms, conditions, and exclusions set forth in the policy.
Excess Layer 2:
Carrier: Greystone Specialty Insurance Ltd. Domicile: Hamilton, Bermuda Coverage: USD 25,000,000 excess of USD 50,000,000 (i.e., the Greystone layer attaches at the point of exhaustion of the primary layer and provides coverage up to a total aggregate of USD 75,000,000) Policy Form: Follow-form to Northland Mutual Policy No. NMI-DO-2021-5547, with certain specified endorsements and modifications as set forth in the Greystone excess policy
Excess Layer 3:
Carrier: Sentinel Re Ltd. Domicile: Hamilton, Bermuda Coverage: USD 25,000,000 excess of USD 75,000,000 (i.e., the Sentinel Re layer attaches at the point of exhaustion of the combined primary and Layer 2 limits and provides coverage up to a total aggregate of USD 100,000,000) Policy Form: Follow-form to Northland Mutual Policy No. NMI-DO-2021-5547, with certain specified endorsements and modifications as set forth in the Sentinel Re excess policy
The total tower limit is therefore USD 100,000,000 (primary USD 50,000,000 + Layer 2 USD 25,000,000 + Layer 3 USD 25,000,000), after satisfaction of the USD 2,500,000 self-insured retention. Both excess policies follow form to the primary Northland Mutual policy with respect to the scope of coverage, definitions, and most conditions, though each contains certain independent terms regarding notice, dispute resolution, and governing law, as discussed further below.
C. Primary-Layer Notice
On March 4, 2022, Calderwood & Harkness LLP, acting on behalf of TMC, tendered formal notice of the DOJ investigation to Northland Mutual Insurance Co. under Policy No. NMI-DO-2021-5547. The notice letter was addressed to:
Northland Mutual Insurance Co. Claims Department — Directors & Officers Liability 55 Yonge Street, Suite 2100 Toronto, Ontario M5E 1J4 Canada
Attn: Senior Claims Examiner, D&O Division
The notice letter described in detail the DOJ Antitrust Division grand jury investigation, including the grand jury number (GJ-22-0194), the court in which the grand jury was empaneled (U.S. District Court, Northern District of California, San Francisco Division), the subpoena received by TMC (Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003), the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), the nature of the suspected antitrust conduct (price-fixing, market allocation, and bid-rigging), and the potential exposure of TMC as an entity and of its individual directors and officers. The notice letter also identified the other known subjects of the investigation (Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.) and expressly reserved all of TMC's rights under the primary policy.
As of the date of this memorandum, Northland Mutual has acknowledged receipt of the March 4 notice letter but has not yet issued a formal coverage determination or a reservation-of-rights letter. We anticipate that a reservation-of-rights letter will be forthcoming, likely invoking certain standard exclusions and reservations. A separate memorandum analyzing coverage under the primary policy and the anticipated scope of any reservation of rights is currently being prepared and is targeted for completion by March 20, 2022.
III. Excess-Layer Notification Details
A. Notice to Greystone Specialty Insurance Ltd. (Layer 2)
On March 7, 2022, Calderwood & Harkness LLP, on behalf of TMC, dispatched a formal notice letter to Greystone Specialty Insurance Ltd. in connection with the DOJ grand jury investigation. The particulars of the notice are as follows:
Date of Notice Letter: March 7, 2022
Carrier: Greystone Specialty Insurance Ltd.
Carrier Domicile: Hamilton, Bermuda
Policy Layer: Excess Layer 2 — USD 25,000,000 excess of USD 50,000,000. This layer attaches upon exhaustion of the Northland Mutual primary-layer aggregate limit and provides coverage up to a cumulative aggregate of USD 75,000,000.
Addressee and Delivery Details: The notice letter was addressed and delivered to Greystone's designated claims contact as specified in the excess policy's follow-form provisions and the claims-reporting endorsement. The letter was sent via two methods to ensure timely and documented receipt: (1) overnight international courier service (Crestline Industries Priority, tracking confirmation obtained), and (2) electronic mail to the designated claims email address. A delivery confirmation was requested and is pending as of the date of this memorandum.
Content of Notice: The notice letter described the following matters in detail:
(a) The DOJ Antitrust Division grand jury investigation, identified by Grand Jury No. GJ-22-0194, empaneled in the United States District Court for the Northern District of California, San Francisco Division;
(b) The Grand Jury Subpoena Duces Tecum No. GJ-22-0194-SD-003, received by TMC on February 14, 2022, including a summary of the categories of documents and information demanded;
(c) The nature of the investigation, namely the suspicion of price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector;
(d) The specific products at issue: high-purity feldspar, industrial talc, and rare-earth concentrates;
(e) The identities of the other known subjects of the investigation, specifically Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.;
(f) The potential exposure of TMC as an entity and of its individual directors and officers, including but not limited to potential criminal penalties, treble-damages civil litigation, and associated defense costs; and
(g) A statement that the investigation constitutes a "Claim" or a circumstance reasonably likely to give rise to a "Claim" within the meaning of the D&O policy provisions, thereby triggering the notice obligations under the policy.
Cross-Reference to Primary-Layer Notice: The notice letter expressly referenced the March 4, 2022 notice previously tendered to Northland Mutual Insurance Co. under Primary Policy No. NMI-DO-2021-5547. A complete copy of the Northland Mutual notice letter was enclosed with the Greystone correspondence for Greystone's records and to ensure that Greystone had full visibility into the information provided to the primary carrier.
Preservation of Rights: The notice letter included an express reservation of all of TMC's rights under the Greystone excess policy, including without limitation the right to seek reimbursement of defense costs, the right to claim indemnification for settlements or judgments entered against individual directors and officers, and any rights arising under entity-coverage provisions. The letter further stated that TMC's notice should not be construed as a limitation on the scope of claims that may subsequently be asserted under the policy and that TMC reserved the right to supplement or amend the notice as additional information became available.
B. Notice to Sentinel Re Ltd. (Layer 3)
On March 7, 2022, Calderwood & Harkness LLP, on behalf of TMC, dispatched a formal notice letter to Sentinel Re Ltd. in connection with the same DOJ grand jury investigation. The particulars of the notice are as follows:
Date of Notice Letter: March 7, 2022
Carrier: Sentinel Re Ltd.
Carrier Domicile: Hamilton, Bermuda
Policy Layer: Excess Layer 3 — USD 25,000,000 excess of USD 75,000,000. This layer attaches upon exhaustion of the combined primary-layer and Layer 2 aggregate limits (i.e., at the USD 75,000,000 threshold) and provides coverage up to a cumulative aggregate of USD 100,000,000.
Addressee and Delivery Details: The notice letter was addressed and delivered to Sentinel Re's designated claims contact as specified in the excess policy's follow-form provisions and the claims-reporting endorsement. Consistent with the method used for the Greystone notice, the letter was sent via overnight international courier service (Crestline Industries Priority, tracking confirmation obtained) and via electronic mail to the designated claims email address. Delivery confirmation was requested and is pending as of the date of this memorandum.
Content of Notice: The Sentinel Re notice letter was substantively identical to the notice letter sent to Greystone Specialty Insurance Ltd. It described the DOJ Antitrust Division grand jury investigation (Grand Jury No. GJ-22-0194, N.D. Cal., San Francisco Division), the Grand Jury Subpoena Duces Tecum (No. GJ-22-0194-SD-003) received by TMC on February 14, 2022, the nature of the suspected antitrust conduct (price-fixing, market allocation, and bid-rigging), the products at issue (high-purity feldspar, industrial talc, and rare-earth concentrates), the identities of the other known subjects (Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd.), and the potential exposure of TMC and its individual directors and officers. The letter characterized the investigation as a "Claim" or a circumstance reasonably likely to give rise to a "Claim" within the meaning of the applicable policy provisions.
Cross-Reference to Primary-Layer Notice: As with the Greystone notice, the Sentinel Re letter expressly referenced the March 4, 2022 notice tendered to Northland Mutual under Primary Policy No. NMI-DO-2021-5547, and a complete copy of the Northland Mutual notice was enclosed.
Preservation of Rights: The notice letter included the same express reservation of all of TMC's rights under the Sentinel Re excess policy as was included in the Greystone notice, including the right to seek reimbursement of defense costs, indemnification for individual directors and officers, and any entity-coverage rights. TMC reserved the right to supplement or amend the notice as the investigation progresses and additional facts become available.
IV. Rationale for Prompt Notification of Excess Layers
Although the excess layers will not be triggered unless and until the underlying limits are exhausted—the Greystone Layer 2 will not attach until the Northland Mutual primary-layer aggregate limit of USD 50,000,000 has been exhausted, and the Sentinel Re Layer 3 will not attach until the combined primary and Layer 2 limits of USD 75,000,000 have been exhausted—prompt notice to all layers in the D&O tower is both prudent and consistent with standard industry practice. The rationale for this approach is grounded in several considerations:
Policy Notice Requirements. Many excess D&O policies, including follow-form policies such as those maintained by Greystone and Sentinel Re, contain notice provisions that require the insured to provide notification "as soon as practicable" or "promptly" after the insured becomes aware of a claim or circumstance that may give rise to a claim, regardless of whether the excess layer is expected to be triggered. Some courts have held that a failure to comply with notice requirements in an excess policy—even where the excess layer was not immediately at risk of being triggered—may provide the carrier with a viable coverage defense if it can demonstrate prejudice or, in certain jurisdictions, if the policy treats notice as a condition precedent to coverage. By providing notice to the excess layers simultaneously with or shortly after notice to the primary carrier, TMC minimizes the risk that an excess carrier could later assert a late-notice defense.
Potential for Significant Financial Exposure. Given the magnitude of the DOJ investigation—where total affected commerce has been estimated by the DOJ at approximately USD 1.34 billion, with TMC's estimated share of approximately USD 478 million—the potential financial exposure to TMC and its individual directors and officers is substantial. Under the Sentencing Guidelines for antitrust violations, corporate fines can be calculated as a percentage of the volume of affected commerce, and fines in the range of 20% to 50% of affected commerce are not uncommon in major price-fixing cases. In addition to potential criminal fines, TMC and its officers and directors face the prospect of follow-on civil treble-damages litigation by direct and indirect purchasers, which could result in damages multiples of the actual harm. When these potential exposures are combined with anticipated defense costs—which in complex antitrust grand jury investigations routinely reach into the tens of millions of dollars—it is not inconceivable that aggregate costs could approach or penetrate the excess layers. Timely notice is therefore essential to preserving coverage at all levels of the tower.
Preservation of the Insured's Bargained-For Coverage. TMC has made a significant investment in constructing a USD 100 million D&O tower for the protection of its directors, officers, and the entity itself. The premiums paid for the excess layers represent a substantial financial outlay, and the company is entitled to the benefit of the coverage it has purchased. Providing prompt and comprehensive notice to all carriers is the most effective means of preserving the full benefit of the bargained-for coverage and ensuring that no carrier can later disclaim responsibility based on untimely or insufficient notice.
Best Practices and Judicial Expectations. Courts evaluating coverage disputes frequently consider whether the insured acted reasonably and in good faith in providing notice to its carriers. Early, comprehensive notification to all layers in the tower demonstrates diligence and good faith, and it is consistent with the recommendations of leading insurance coverage practitioners and treatises. In the event of a future coverage dispute, TMC's prompt notification of the excess layers will be a favorable factor in any assessment of the reasonableness of the insured's conduct.
V. Copies of Notice Letters
Copies of both excess-layer notice letters—the March 7, 2022 letter to Greystone Specialty Insurance Ltd. and the March 7, 2022 letter to Sentinel Re Ltd.—are maintained in the firm's matter file under Matter No. 1039-00001. The original letters, together with courier tracking information and email transmission receipts, are preserved in the "Insurance — Carrier Notices" subfolder of the electronic matter file.
Copies of both notice letters, together with a copy of the March 4, 2022 primary-layer notice to Northland Mutual, have been provided to the following individuals at TMC:
• Priya Anand, General Counsel, Torchlight Mining Corp.; and
• Richard Fong, Chief Financial Officer, Torchlight Mining Corp.
These copies have been provided for the client's records and for coordination with TMC's internal risk-management function. Ms. Anand and Mr. Fong have been advised to retain these copies in TMC's corporate records and to notify Calderwood & Harkness immediately if they receive any direct communication from any carrier in the D&O tower.
VI. Next Steps
The following action items remain outstanding and should be monitored in the near term:
1. Monitor for Acknowledgment of Receipt. We are awaiting acknowledgment of receipt from both Greystone Specialty Insurance Ltd. and Sentinel Re Ltd. Upon receipt of confirmation from each carrier (whether via courier delivery confirmation, email acknowledgment, or written correspondence), we will docket any response deadlines specified in the respective policies or in the carrier's acknowledgment. If we do not receive acknowledgment from either carrier within ten business days of the date of the notice letters (i.e., by March 21, 2022), we will follow up with each carrier to confirm receipt.
2. Assess Impact of Primary Carrier's Reservation of Rights. Upon receipt of Northland Mutual's anticipated reservation-of-rights letter, we will assess whether the specific coverage defenses or exclusions raised by the primary carrier affect the excess layers. Because both the Greystone and Sentinel Re policies follow form to the Northland Mutual primary policy, any reservation of rights by the primary carrier—particularly with respect to exclusions such as the criminal-act exclusion, the regulatory-proceeding exclusion, or the prior-knowledge exclusion—may have implications for coverage at the excess layers. If the reservation of rights raises issues that warrant supplemental correspondence to the excess carriers (for example, to rebut an exclusion argument or to provide additional factual information), we will prepare and send such supplemental correspondence promptly.
3. Coordinate with Broader D&O Coverage Analysis. A comprehensive D&O coverage analysis memorandum is currently being prepared by the firm's insurance coverage team. That memorandum, which is targeted for completion by March 20, 2022, will assess in detail the applicability of the regulatory/criminal-act exclusion across all three layers of the tower, the scope of entity-versus-individual coverage, the allocation of defense costs among the various insureds, and the interplay among the three policies in the event of a coverage dispute. The findings of that analysis may necessitate further correspondence with the excess carriers or adjustments to the firm's coverage strategy.
4. Update This Memorandum. This memorandum will be updated if and when any carrier in the D&O tower responds with a formal coverage determination, a reservation-of-rights letter, a denial of coverage, or any other material communication relating to TMC's notice.
VII. Conclusion
Formal notice has been timely provided to both excess-layer carriers in Torchlight Mining Corp.'s directors-and-officers liability insurance tower—Greystone Specialty Insurance Ltd. (Layer 2) and Sentinel Re Ltd. (Layer 3)—in connection with the DOJ Antitrust Division grand jury investigation (Grand Jury No. GJ-22-0194, N.D. Cal.). Both notice letters were dispatched on March 7, 2022, three days after the primary-layer notice was tendered to Northland Mutual Insurance Co. All rights under the excess policies have been expressly reserved. The firm will continue to monitor carrier responses, coordinate with the broader insurance coverage workstream, and update the team as developments warrant.
Please let me know if you have any questions or if you would like to discuss any aspect of the excess-layer notifications or the coverage strategy.
Monica Reyes Associate, Antitrust & Competition Practice Group Calderwood & Harkness LLP 555 California Street, 40th Floor San Francisco, CA 94104 Telephone: (415) 555-7218
Email: mreyes@calderwoodharkness.com
Distribution:
cc: Elaine Forsythe, Partner (matter file)
cc: Aaron Liu, Associate (for coordination with document production and overall matter management)
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work-product doctrine. It has been prepared in anticipation of litigation and in connection with the rendering of legal advice. Unauthorized disclosure is prohibited. If you have received this document in error, please notify the sender immediately and destroy all copies.

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LITIGATION

MEMORANDUM

MATTER NUMBER: 1039-00001

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