PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
This document is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is not to be disclosed to any person or entity without the express authorization of the Responsible Partner.
INTERNAL MEMORANDUM
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104
Matter: Torchlight Mining Corp. — DOJ Antitrust Division Grand Jury Investigation
Matter Number: 1039-00001
Date: November 15, 2023
From: Elaine Forsythe, Partner, Antitrust & Competition Practice Group
To: Howard Bellamy, Partner; Aaron Liu, Lead Associate; Monica Reyes, Associate
Cc: File
Re: Non-Prosecution Agreement — Negotiation Strategy, Objectives, Red Lines, and Fallback Positions
DISTRIBUTION NOTE: This memorandum is prepared exclusively for the use of the Calderwood & Harkness LLP legal team in connection with the defense of Torchlight Mining Corp. ("TMC" or the "Company") in the DOJ Antitrust Division investigation (Grand Jury No. GJ-22-0194, U.S. District Court, Northern District of California, San Francisco Division). It is not to be shared with the client or any third party without the express authorization of the Responsible Partner. This memorandum reflects the mental impressions, conclusions, opinions, and legal theories of counsel and is prepared in anticipation of litigation.
I. PURPOSE AND BACKGROUND
A. Purpose of This Memorandum
On November 1, 2023, the United States Department of Justice, Antitrust Division (the "DOJ" or the "Division"), communicated its willingness to negotiate a non-prosecution agreement ("NPA") with Torchlight Mining Corp. ("TMC" or the "Company") in connection with Grand Jury Investigation No. GJ-22-0194 pending before the United States District Court for the Northern District of California, San Francisco Division. This communication, conveyed via telephone by Trial Attorney Denise Kowalski to the undersigned, represents a significant and favorable development in this matter and opens a critical phase of engagement with the Division.
This memorandum sets forth the Calderwood & Harkness team's recommended negotiation strategy for the NPA discussions. Specifically, this memorandum identifies the following with respect to each material NPA term:
(i) our specific negotiation objectives and target positions;
(ii) the arguments and evidentiary bases supporting those positions;
(iii) hard red lines that must not be conceded under any circumstances without further authorization; and
(iv) fallback positions where the team has identified areas of permissible flexibility.
This memorandum is intended to serve as the team's working roadmap for NPA negotiations with the Division. Our principal counterparts in the negotiations will be Trial Attorney Denise Kowalski, Senior Trial Attorney Marcus Reeves, and, for the more significant terms and likely in the final negotiation rounds, supervising Deputy Assistant Attorney General Julia Stafford-Hayes. The team should be prepared for the possibility that DAAG Stafford-Hayes may also participate in interim sessions given the visibility of this investigation within the Division's front office.
It is important to emphasize that this memorandum reflects the team's internal deliberations, assessments of relative strengths and vulnerabilities, and strategic recommendations. It is not a communication to the client and should not be transmitted to any person outside the Calderwood & Harkness legal team assigned to this matter without the express prior approval of the Responsible Partner.
B. Procedural History Leading to NPA Negotiations
To ensure that all team members are operating from a common factual and procedural foundation, the following summarizes the key milestones in this matter from the inception of the investigation through the DOJ's November 1, 2023 communication:
Initiation of Investigation and Engagement of Counsel. The grand jury investigation was opened on February 10, 2022, under Grand Jury No. GJ-22-0194 in the Northern District of California. TMC received a grand jury subpoena duces tecum, designated GJ-22-0194-SD-003, on February 14, 2022. The subpoena called for the production of a broad range of documents relating to TMC's sales, pricing, and customer relationships in the high-purity feldspar, industrial talc, and rare-earth concentrates product markets in the United States for the period January 2015 through the date of the subpoena. TMC engaged Calderwood & Harkness LLP on February 18, 2022 to represent the Company in connection with the investigation. The firm's initial engagement letter was countersigned by General Counsel Priya Anand on that date.
Target Letter and Escalation of TMC's Status. On May 20, 2022, TMC received a DOJ target letter, which elevated the Company from subject to target status in the investigation. The target letter identified the following areas of investigative focus: alleged price-fixing, customer allocation, and bid-rigging in the specialty minerals product markets referenced above. The receipt of the target letter was a material development that informed the Company's subsequent decision to adopt a full-cooperation posture.
Decision to Cooperate and Cooperation Posture. Following extensive consultations between Calderwood & Harkness and TMC's leadership, including CEO Søren Dalmqvist, General Counsel Priya Anand, and Board Chair Margaret Caldwell, the Company adopted a full-cooperation posture with the Division. A formal cooperation letter was submitted to DOJ on June 8, 2022, communicating TMC's willingness to cooperate voluntarily and to provide information beyond the scope of the grand jury subpoena. This decision was made after careful assessment of the strength of the evidence, the availability of the DOJ's Antitrust Division leniency and cooperation credit policies, and the Company's strategic interest in resolving the investigation as expeditiously and favorably as possible.
Internal Investigation. Calderwood & Harkness, with the assistance of Hargrove Forensic Advisory (financial analysis and affected-commerce quantification, led by Dr. Vanessa Tremblay) and Redstone Digital Forensics (electronic discovery and forensic data collection, engagement led by James Whittaker), conducted a comprehensive internal investigation. The investigation included the collection and review of electronic communications, documents, and data from current and former employees, as well as interviews of 23 TMC employees across multiple departments and levels of seniority. The internal investigation was completed in January 2023, and its findings were presented to the TMC Board of Directors at a special session on January 20, 2023. The key findings of the internal investigation are summarized in Section II below.
Cooperation Proffer. On February 15, 2023, Calderwood & Harkness submitted a detailed cooperation proffer to the Division, presenting the findings of TMC's internal investigation. The proffer identified the evidence of the alleged conduct, the individuals involved, the relevant product markets and time periods, and the Company's own assessment of the scope and nature of the conduct. The proffer was delivered in person by the undersigned and Aaron Liu to Trial Attorney Kowalski and Senior Trial Attorney Reeves at the DOJ's San Francisco field office.
Witness Proffer Sessions. Following the submission of the cooperation proffer, TMC made two witnesses available for voluntary proffer sessions with the Division:
• Sandra Chu, Director, Pricing Analytics: Proffer session conducted March 10, 2023 at the DOJ's San Francisco field office. Chu provided testimony regarding her receipt of pricing instructions from Gavin Holt and the timing of published price-list adjustments. Calderwood & Harkness represented Chu at the session (Aaron Liu attended).
• Thomas Eriksen, Regional Sales Manager, Western Region: Proffer session conducted April 22, 2023 at the DOJ's San Francisco field office. Eriksen provided testimony regarding his attendance at NASMC conferences and his interactions with competitor personnel. Calderwood & Harkness represented Eriksen at the session (the undersigned and Monica Reyes attended).
Both proffer sessions were conducted voluntarily and without subpoena compulsion, which is a significant cooperation point that we intend to emphasize in negotiations.
Second Subpoena and Document Production. TMC received a second grand jury subpoena, designated GJ-22-0194-SD-007, in early 2023, calling for additional categories of documents. Compliance with the second subpoena was completed on June 30, 2023. In total, TMC's cumulative document production in response to both subpoenas and as part of its voluntary cooperation comprised approximately 555,000 documents, representing approximately 3.2 million pages of materials. This production was managed by Redstone Digital Forensics and reviewed by the Calderwood & Harkness document review team under the supervision of Monica Reyes.
Enhanced Compliance Program Proposal. On September 15, 2023, Calderwood & Harkness, in collaboration with Meridian Compliance Partners LLC (engagement lead Claudia Ferraro), submitted a detailed Enhanced Antitrust Compliance Program proposal to the Division. This submission was made proactively, before any NPA requirement, and was intended to demonstrate TMC's commitment to remediation and to establish a foundation for the compliance terms of any resolution agreement. The program proposal is discussed in greater detail in Section VI below.
DOJ Communication of Willingness to Negotiate NPA. On November 1, 2023, Trial Attorney Denise Kowalski telephoned the undersigned and communicated that the Division was willing to negotiate a non-prosecution agreement with TMC. Kowalski indicated that the Division recognized TMC's cooperation and remedial efforts and that an NPA — rather than a deferred prosecution agreement ("DPA") or criminal charges — was being considered as the appropriate resolution vehicle for the Company. Kowalski further indicated that the Division anticipated circulating an initial draft NPA in early 2024 and looked forward to engaging in discussions regarding the material terms. This communication marks the beginning of the negotiation phase that is the subject of this memorandum.
C. Current Posture of the Investigation
To properly frame the negotiation strategy, the team must understand the current posture of the investigation as it relates to the other corporate subjects/targets and the cooperating entities and individuals.
Co-Subjects/Co-Targets. Two other companies have been identified as subjects or targets of the investigation:
• Ridgecrest Minerals Inc. ("Ridgecrest"), represented by Davenport, Kline & Archer LLP (lead partner Helen Marchetti). Ridgecrest is a Delaware corporation with its principal place of business in Denver, Colorado. Its relevant employee is Carl Edgerton, VP of Sales, who is alleged to have been Gavin Holt's primary counterpart in the conspiracy.
• Pinnacle Earth Resources Ltd. ("Pinnacle"), represented by Ashford Whitmore LLP (lead partner George Nakamura). Pinnacle is a Canadian corporation with significant U.S. operations. Its relevant individual is Kevin Tsang, former SVP, Commercial Operations, who departed Pinnacle in approximately mid-2021.
The status of Ridgecrest's and Pinnacle's respective negotiations with the DOJ is unknown to us. We are not party to any joint defense agreement with either company (see Section X.D below regarding the decision against entering JDAs), and we have no reliable intelligence regarding their respective cooperation postures or negotiation status. It is possible that one or both have already reached or are actively negotiating resolution agreements with the Division, and the team should be mindful of the potential impact of those negotiations on DOJ's posture with TMC.
Cooperating Witness Entity. Cascade Chemical Supply Co. ("Cascade"), represented by Whitfield, Strauss & Tully LLP (lead partner Rebecca Ostrander), is a cooperating witness entity that entered into a cooperation agreement with DOJ on approximately September 15, 2021. Cascade is understood to have been the first-in applicant under the Division's Leniency Program. Cascade's cooperation is presumed to have been the catalyst for the grand jury investigation that led to TMC's subpoena. The Division's evidence base presumably includes testimony and documents obtained from Cascade, and the Division's familiarity with the facts of the alleged conduct has been significantly informed by Cascade's cooperation.
Gavin Holt. Gavin Holt is the former Vice President, U.S. Specialty Minerals Sales at TMC. Holt is the individual most directly implicated in the alleged price-fixing, customer-allocation, and bid-rigging conduct that is the subject of the investigation. Holt departed TMC effective September 30, 2021. He is separately represented by Briarcliff Law Group PLLC (lead counsel Patrick Dunleavy). Holt asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022. He declined to participate in TMC's internal investigation when invited to do so through his counsel. TMC has no ability to compel Holt's cooperation, and this fact has significant implications for the cooperation obligations to be included in the NPA, as discussed in Section IV.B below. It is anticipated that DOJ will seek to prosecute Holt individually, and the NPA will carve out any protections for Holt, as discussed in Section V.C below.
Current TMC Employees. There is no evidence that any member of TMC's C-suite, including CEO Søren Dalmqvist and General Counsel Priya Anand, or any member of the Board of Directors, including Board Chair Margaret Caldwell, had knowledge of, authorized, or participated in the alleged conduct. The internal investigation confirmed that the conduct was confined to Holt and, to the extent of their involvement (which is ambiguous in Eriksen's case and limited in Chu's case), the individuals identified in Section II.B below.
D. Client Decision-Making Authority
The team should be clear on the client's internal decision-making structure with respect to the NPA:
CEO Søren Dalmqvist is the primary decision-maker on cooperation and settlement strategy, acting in consultation with General Counsel Priya Anand and Board Chair Margaret Caldwell. For purposes of the negotiations, the undersigned has a direct reporting line to Dalmqvist and Anand and is authorized to engage in substantive negotiations with the Division on all material NPA terms, subject to the red lines and escalation thresholds identified in this memorandum.
Any final NPA must be approved by the TMC Board of Directors prior to execution. This is both a matter of corporate governance and a requirement of TMC's bylaws for agreements of this magnitude and nature. A separate board resolution will be required to authorize the CEO to execute the NPA on behalf of the Company. Calderwood & Harkness will prepare the necessary board materials and draft resolution once terms are agreed in principle.
Budget Note. Total professional fees through the current date are tracking toward approximately USD 18.7 million for Calderwood & Harkness fees and disbursements, plus approximately USD 1.85 million for Hargrove Forensic Advisory, USD 2.3 million for Redstone Digital Forensics, and an anticipated USD 1.1 million for Meridian Compliance Partners through NPA execution. The aggregate professional fees therefore stand at approximately USD 23.95 million. This substantially exceeds the initial budget estimate of USD 12 million that was approved by General Counsel Priya Anand in Q1 2023. The budget overage was approved by Anand in connection with the expanded scope of the internal investigation, the second subpoena production, and the compliance program development. The team should be mindful of fee sensitivity as we enter the negotiation phase, as additional significant professional fees will be incurred during the drafting, negotiation, and execution of the NPA.
II. SUMMARY OF KEY INTERNAL INVESTIGATION FINDINGS BEARING ON NEGOTIATIONS
The following summarizes the findings of the internal investigation that are most directly relevant to the NPA negotiation strategy. This summary is not a comprehensive restatement of the internal investigation report presented to the Board on January 20, 2023. Rather, it highlights the findings that will shape our negotiating positions, arguments, and vulnerabilities.
A. The Alleged Conduct
The DOJ alleges that from approximately January 2017 through at least August 2021, senior commercial personnel at TMC, Ridgecrest Minerals Inc., and Pinnacle Earth Resources Ltd. engaged in a conspiracy to fix prices, allocate customers, and rig bids for three categories of specialty minerals products sold to U.S. industrial and chemical-manufacturing customers: (i) high-purity feldspar, (ii) industrial talc, and (iii) rare-earth concentrates.
The individual participants alleged by the DOJ are:
• Gavin Holt (TMC), former Vice President, U.S. Specialty Minerals Sales;
• Carl Edgerton (Ridgecrest), Vice President of Sales; and
• Kevin Tsang (Pinnacle), former Senior Vice President, Commercial Operations.
The alleged coordination channels through which the conspiracy was conducted include:
(a) In-person meetings at the quarterly conferences of the North American Specialty Minerals Council ("NASMC"), which were held at various locations including Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida. The NASMC conferences provided a facially legitimate industry setting for the participants to meet without attracting suspicion;
(b) Encrypted messaging via the "VaultChat" application, which the participants used for written communications regarding pricing, customer allocation, and bid coordination. VaultChat is a commercial encrypted messaging platform with auto-delete functionality, although the auto-delete feature does not appear to have been consistently utilized by all participants; and
(c) Occasional direct telephone calls between Holt and his counterparts Edgerton and Tsang, the existence of which is inferred from phone records obtained by the Division and corroborated by Cascade's cooperation.
The conspiracy allegedly involved agreements to: set minimum prices for the three product categories sold to certain U.S. customers; allocate specific large-volume customers among the three companies to avoid competitive bidding; and rig bids on certain requests for proposals ("RFPs") issued by major industrial customers, with the participants taking turns submitting the designated "winning" bid while the others submitted artificially inflated bids.
B. Evidence Summary
The internal investigation identified the following key categories of evidence that bear on the NPA negotiations:
VaultChat and Other Communications. Redstone Digital Forensics recovered at least 37 documented communications between Holt and his counterparts Edgerton and Tsang, spanning from approximately March 2017 through July 2021. These communications were recovered from backup data associated with Holt's TMC-issued mobile device, which was preserved by TMC's IT department upon Holt's departure in September 2021. The communications include discussions of upcoming pricing actions, identification of specific customers to be "protected" or allocated, and coordination regarding specific bids. The content of these communications is damaging and will be a focal point of the DOJ's case. We cannot credibly dispute their existence or content; our strategy instead focuses on confining responsibility for this conduct to Holt as an individual acting without corporate authorization.
Sandra Chu — Pricing Instructions. Sandra Chu, Director of Pricing Analytics, received instructions from Holt to adjust TMC's published price lists on at least 12 occasions that are correlated in timing with competitor price movements identified by Hargrove Forensic Advisory. Chu's testimony at her proffer session confirmed that she implemented Holt's pricing instructions as part of her normal job responsibilities. However — and this is a critical point for the NPA negotiations — there is no direct evidence that Chu knew of the inter-competitor communications underlying Holt's instructions, nor did she have reason to suspect an unlawful basis for the pricing directives. Chu credibly testified that she understood the price adjustments to be based on Holt's assessment of market conditions and competitive pricing intelligence gathered through legitimate channels. The absence of evidence linking Chu to knowledge of the conspiracy supports our position that she should be protected under the NPA.
Thomas Eriksen — NASMC Conferences. Thomas Eriksen, Regional Sales Manager for TMC's Western Region, attended four NASMC quarterly conferences during the conspiracy period at which side meetings between Holt, Edgerton, and Tsang allegedly occurred. The evidence regarding Eriksen's direct participation in these side meetings is ambiguous. Certain scheduling documents and hotel records place Eriksen in proximity to the alleged meetings, but there is no documentary evidence (e.g., communications, notes) confirming his participation in or awareness of the substantive discussions. Eriksen has consistently denied knowledge of any anticompetitive agreements in both the internal investigation interview and his DOJ proffer session. The ambiguity of the evidence regarding Eriksen supports our position that he should be protected under the NPA, although we acknowledge that the DOJ may take a different view of the evidence and may press on this point.
Absence of C-Suite or Board Involvement. The internal investigation found no evidence — documentary, testimonial, or circumstantial — that any member of TMC's C-suite or Board of Directors had knowledge of, authorized, or was in any way involved in the alleged conduct. CEO Søren Dalmqvist, General Counsel Priya Anand, and Board Chair Margaret Caldwell were each interviewed during the internal investigation and each credibly denied any knowledge of the conduct. There are no communications, meeting records, or other documents linking any senior officer or director to the alleged conspiracy. This finding is central to our narrative that the conduct was attributable to a single rogue individual operating outside the bounds of his authority and in violation of TMC's antitrust compliance policies.
Compliance Program Deficiencies. The internal investigation identified significant deficiencies in TMC's antitrust compliance program that may have facilitated Holt's conduct. TMC adopted a formal antitrust compliance program in 2014, but by the time of the relevant conduct, the program had become largely dormant. Specifically: no annual antitrust training had been conducted since 2018; there was no monitoring of employee interactions at trade-association events, including NASMC conferences; there was no audit or review protocol for contacts between TMC commercial personnel and competitors; and the compliance program lacked any mechanism for detecting or investigating potential antitrust violations. These deficiencies, while not constituting independent liability, undercut any argument that TMC took all reasonable steps to prevent the conduct and may be cited by DOJ to argue for a higher penalty or more stringent compliance terms. Our strategy addresses this vulnerability by emphasizing TMC's proactive remediation efforts, including the development and submission of the Enhanced Antitrust Compliance Program.
C. Affected Commerce and Financial Exposure
The financial dimensions of the alleged conspiracy are significant and will drive the monetary-payment negotiation.
Total Affected Commerce. The DOJ estimates total affected commerce across all participants at approximately USD 1.34 billion for the period January 2017 through August 2021. This figure represents the aggregate sales of high-purity feldspar, industrial talc, and rare-earth concentrates by TMC, Ridgecrest, and Pinnacle to U.S. customers during the conspiracy period.
TMC's Share of Affected Commerce. The DOJ attributes approximately USD 478 million in affected commerce to TMC, representing approximately 35.7% of total affected commerce. This figure is the baseline for penalty calculations.
DOJ Standard Penalty Calculation. The DOJ Antitrust Division's standard starting-point penalty in NPA and DPA resolutions is 20% of affected commerce. Applying this formula: USD 478 million × 20% = USD 95.6 million. This figure represents the unadjusted penalty baseline from which cooperation credits and other mitigating factors would be applied.
Hargrove Forensic Advisory Preliminary Analysis. Dr. Vanessa Tremblay of Hargrove Forensic Advisory has conducted a preliminary analysis that supports the USD 478 million affected-commerce figure as a reasonable approximation but has identified potential arguments for narrowing the calculation. Specifically, Dr. Tremblay has identified that certain product subcategories within the three broad product markets may not have been affected by the alleged conduct, and that there is a colorable argument for a shorter conspiracy period based on gaps in the communication evidence during certain quarters. Dr. Tremblay's final analysis is expected to be delivered in Q1 2024, in advance of NPA execution. The final analysis will be critical to the penalty negotiation, and no agreement on the monetary payment figure should be reached until it is in hand.
III. NEGOTIATION OBJECTIVES — MONETARY PAYMENT
The monetary payment is the single most visible term of the NPA, both to the client and to the public. The following sets forth our negotiation strategy for this term.
A. Target Range
Opening Position: USD 35 million. Our opening position in the penalty negotiation will be USD 35 million. This figure reflects a cooperation credit of approximately 63% from the DOJ's USD 95.6 million starting-point penalty. Our rationale for this opening position is grounded in the extraordinary nature and scope of TMC's cooperation, which we believe justifies a credit at or near the top of the Division's cooperation-credit range. Specifically, our arguments for this opening position include:
• TMC produced approximately 555,000 documents (approximately 3.2 million pages), substantially exceeding the scope of the subpoena;
• TMC conducted 23 employee interviews during the internal investigation and shared its findings with the Division through the February 15, 2023 cooperation proffer;
• TMC voluntarily made two witnesses (Chu and Eriksen) available for proffer sessions without subpoena compulsion;
• TMC proactively initiated compliance remediation, retaining Meridian Compliance Partners and submitting a detailed Enhanced Antitrust Compliance Program to DOJ on September 15, 2023, before any NPA requirement mandated such action; and
• The conduct was confined to a single individual (Holt) acting without C-suite knowledge or authorization, and TMC moved swiftly to investigate and remediate once the conduct came to light.
We recognize that USD 35 million is an aggressive opening position and that the DOJ is unlikely to accept it without significant pushback. However, beginning at this level preserves negotiating room and signals the strength of our cooperation arguments.
Expected Realistic Outcome: USD 40–50 million. Based on our assessment of recent comparable NPA resolutions in antitrust matters, the strength of TMC's cooperation case, and the Division's likely resistance to a sub-$40 million figure, we believe the most realistic outcome falls in the USD 40 to 50 million range. The penalty mitigation memorandum prepared by the undersigned and circulated internally on September 1, 2023, estimated a settlement range of USD 30 to 60 million, with a midpoint of USD 45 million. That assessment remains the team's best estimate.
Acceptable Ceiling: USD 50 million. We will seek authorization from CEO Dalmqvist and General Counsel Anand to negotiate up to a ceiling of USD 50 million. Any agreement at or below this level falls within TMC's existing litigation reserve and avoids the need for a reserve adjustment, which would have adverse financial-statement and securities-disclosure implications (discussed in Section III.D below). Authorization to exceed USD 50 million will require escalation to the Board of Directors.
Hard Ceiling: USD 60 million. Under no circumstances should the team agree to a monetary payment exceeding USD 60 million. A payment at this level would represent only a 37% cooperation credit from the starting-point penalty and would not adequately reflect the extent of TMC's cooperation. If DOJ insists on a figure above USD 60 million, the team should communicate that TMC would need to reassess whether an NPA resolution is in the Company's interest and whether trial or other alternatives should be explored. This is a true red line.
B. Key Arguments for Maximum Cooperation Credit
The following arguments should be developed and presented to the Division in support of the maximum cooperation credit:
First, TMC's cooperation was timely, comprehensive, and voluntary. Although TMC was not the first-in applicant under the Leniency Program (Cascade Chemical Supply Co. obtained that advantage), TMC adopted a full-cooperation posture promptly after receiving the target letter and provided cooperation that was both broader and deeper than what was required under the grand jury subpoenas. The 555,000 documents produced, the 23 employee interviews conducted, the two voluntary witness proffer sessions, and the detailed cooperation proffer represent a level of cooperation that is exceptional by any measure.
Second, TMC made witnesses available for proffer sessions without subpoena compulsion. The voluntary nature of the Chu and Eriksen proffer sessions is significant. TMC was under no obligation to make these individuals available for DOJ interviews absent a subpoena, and both witnesses provided testimony that was helpful to the Division's understanding of the facts. This voluntary production of witnesses should be credited under the Division's cooperation policies.
Third, TMC conducted a thorough internal investigation and shared its findings with the DOJ. The internal investigation was comprehensive, involving the review of hundreds of thousands of documents and interviews of 23 employees. The findings were presented to the Division in the February 15, 2023 cooperation proffer in a transparent and forthcoming manner. TMC did not withhold unfavorable findings or seek to minimize the evidence of the alleged conduct.
Fourth, TMC proactively initiated compliance remediation before any NPA requirement. The development and submission of the Enhanced Antitrust Compliance Program in September 2023 demonstrates TMC's commitment to preventing future violations and constitutes a significant remedial step undertaken at the Company's own initiative and expense. The proactive nature of this remediation distinguishes TMC from companies that undertake compliance reforms only when required to do so by the terms of a resolution agreement.
Fifth, the conduct was attributable to a single rogue individual acting without C-suite knowledge or authorization. The internal investigation found no evidence that any member of TMC's senior management or Board of Directors knew of, authorized, or participated in the alleged conduct. The conduct was confined to Gavin Holt, a mid-level commercial executive who violated TMC's antitrust compliance policies. Under the Division's own policies regarding corporate criminal enforcement, a company that did not authorize or direct the illegal conduct is entitled to significant mitigation credit.
C. Payment Terms
Objective: 60-day payment window. We will seek a 60-day payment window from the date of NPA execution for TMC to remit the agreed monetary payment to the U.S. Treasury. A 60-day window is consistent with TMC's treasury management processes and provides adequate time for the Company to arrange the wire transfer in coordination with its banking institutions.
Fallback: 90-day payment window. If the Division pushes back on the 60-day window or if we determine that offering a longer payment window would be useful as a negotiating concession to secure a lower headline penalty number, we may propose a 90-day payment window. This additional flexibility may be particularly useful in the final stages of negotiation where the parties are close to agreement on the monetary figure.
Payment will be made by wire transfer to the U.S. Treasury, in the amount and to the account designated in the NPA. TMC's Chief Financial Officer, Richard Fong, will coordinate the wire transfer logistics with the Company's primary banking institution. Calderwood & Harkness will provide Fong with the relevant payment instructions and confirm the wire transfer with the Division upon completion.
D. Accounting and Disclosure Implications
The monetary payment term of the NPA has significant accounting and securities-disclosure implications that must be coordinated across multiple advisors.
Financial Statement Treatment. Calderwood & Harkness will coordinate with Calvert & Associates LLP, TMC's independent auditor (engagement partner Daniel Moreau), regarding the appropriate financial-statement treatment of the NPA monetary payment. The current USD 50 million litigation reserve established in Q3 2023 should be sufficient to absorb a settlement within the target range. If the negotiated payment exceeds the reserve, an adjustment will be required and will need to be disclosed in TMC's financial statements for the relevant reporting period. Aaron Liu should arrange a coordination call with Daniel Moreau in early December 2023 to discuss potential scenarios.
Market Disclosure Strategy. TMC is dual-listed on the Toronto Stock Exchange (TSX: TRCL) and the New York Stock Exchange (NYSE: TMC) and is subject to both Canadian continuous disclosure obligations (SEDAR+) and U.S. reporting obligations (SEC Form 40-F and, as applicable, Form 6-K). Ironbridge Capital Markets Inc. (TMC's financial advisor, relationship partner Alan Kirkwood) should be engaged to advise on the timing and content of market disclosures relating to the NPA. A press release and corresponding regulatory filings will be required promptly upon NPA execution. The disclosure strategy is discussed further in Section X.C below.
IV. NEGOTIATION OBJECTIVES — COOPERATION OBLIGATIONS
The cooperation obligations to be imposed under the NPA are among the most operationally significant terms for TMC. While TMC has demonstrated a strong willingness to cooperate with the Division and will continue to do so, it is essential that the NPA's cooperation provisions be appropriately bounded to avoid imposing disproportionate or open-ended burdens on the Company.
A. Duration. DOJ Expected Position. Based on standard Division practice and recent precedent in comparable antitrust NPA resolutions, the DOJ will likely seek a cooperation period of three to five years from the date of NPA execution. A five-year cooperation period is not uncommon in matters involving significant affected commerce and multiple co-defendants.
Our Target: Two years from NPA execution. We will advocate for a two-year cooperation period, arguing that the extensive cooperation already provided by TMC — including the 555,000-document production, the cooperation proffer, and the witness proffer sessions — has substantially satisfied the Division's evidentiary needs and that a two-year forward-looking period is sufficient to address any remaining cooperation requirements, including testimony at any trial of individual defendants.
Acceptable Fallback: Three years from NPA execution. If the Division rejects a two-year term, as is likely, we are prepared to accept a three-year cooperation period. A three-year term is consistent with standard Division practice and is within the range of what we believe the Company will accept.
Red Line: Four years or longer. A cooperation period of four years or longer is unacceptable. Such a prolonged obligation would impose a disproportionate operational and financial burden on TMC, requiring the Company to maintain investigative readiness, preserve personnel availability, and divert management attention for an extended period. If the Division insists on a cooperation term exceeding three years, the team should escalate the issue and reassess the overall NPA terms.
B. Scope of Cooperation Obligations
The scope of the cooperation obligations is as important as their duration. The team must ensure that the NPA's cooperation provisions are narrowly tailored to the identified conduct and do not create open-ended or unbounded obligations.
Objective: Limit cooperation to the specific conduct described in the NPA. The cooperation obligations should be limited to the alleged price-fixing, customer allocation, and bid-rigging in high-purity feldspar, industrial talc, and rare-earth concentrates in the North American market during the conspiracy period (January 2017 through August 2021). The NPA should clearly define the scope of the cooperation obligation by reference to these specific products, markets, time periods, and conduct.
Red Line: Resist open-ended cooperation clauses. We must resist any provision requiring TMC to cooperate with "all investigations" conducted by the Division or any other government agency, or any provision that extends TMC's cooperation obligations to unrelated matters, future investigations, or conduct outside the scope of the NPA. Such provisions are sometimes included in DOJ-drafted agreements and would effectively transform the NPA into an ongoing obligation of indefinite scope. This is not acceptable.
Employee Availability for Interviews and Testimony. It is anticipated that the NPA will require TMC to make current and former employees available for DOJ interviews and testimony at trial or other proceedings. Our position on this term is as follows:
• Current employees: Acceptable. TMC can direct current employees to make themselves available for DOJ interviews and testimony, subject to the employees' right to obtain separate counsel if they choose to do so.
• Former employees: Best-efforts standard only. TMC cannot compel former employees to cooperate with the Division. The NPA's cooperation obligation with respect to former employees should be limited to a best-efforts standard — i.e., TMC will use reasonable best efforts to encourage former employees to cooperate, but TMC cannot guarantee their cooperation.
Holt-Specific Limitation. Any cooperation obligation with respect to making employees available must expressly acknowledge the limitation on TMC's ability to compel the cooperation of Gavin Holt. Holt departed TMC effective September 30, 2021. He is separately represented by Briarcliff Law Group PLLC (Patrick Dunleavy). He has asserted his Fifth Amendment privilege before the grand jury and has declined to participate in TMC's internal investigation. TMC has no employment relationship with Holt, no contractual right to compel his cooperation, and no legal means of requiring him to make himself available to the Division. The NPA must contain express language acknowledging this limitation. Any provision that would deem TMC in breach of the NPA due to Holt's refusal to cooperate would be fundamentally unfair and is not acceptable.
C. Ongoing Document Preservation and Production
Objective: Narrowly scoped continuing production obligation. We anticipate that the NPA will include an ongoing obligation for TMC to preserve and, upon request, produce documents relevant to the investigation. Our objective is to limit this obligation to documents specifically relevant to the identified conduct — i.e., documents relating to the alleged price-fixing, customer allocation, and bid-rigging in the three specified product markets during the conspiracy period. We should resist any provision requiring TMC to preserve and produce documents relating to the Company's broader business operations, future commercial activities, or unrelated matters.
Document-Retention Sunset. We will negotiate a reasonable sunset date for any heightened document-retention obligation. Our position is that any such obligation should expire at the end of the cooperation period (i.e., two or three years from NPA execution, depending on the outcome of the duration negotiation). Once the cooperation period expires, TMC should be free to manage its documents in accordance with its standard document-retention policies.
V. NEGOTIATION OBJECTIVES — NO-PROSECUTION PROTECTIONS
The no-prosecution protections are the core of the NPA and represent the fundamental consideration that TMC is receiving in exchange for its monetary payment, cooperation, and compliance commitments. These protections must be comprehensive, clearly drafted, and unambiguous.
A. Entity Protection
Objective: The NPA must provide that the DOJ agrees not to bring criminal charges against TMC or any of its subsidiaries (including, specifically, Torchlight Mining (U.S.) Inc., the principal domestic operating subsidiary) based on the conduct described in the NPA, so long as TMC complies with all NPA terms. This provision must be drafted broadly enough to cover all criminal theories of liability that could be based on the alleged conduct, including but not limited to violations of Section 1 of the Sherman Act (15 U.S.C. § 1), conspiracy (18 U.S.C. § 371), and any other federal criminal statute.
This is our single most critical objective. The entire purpose of the NPA is to provide TMC with certainty that the Company will not face criminal prosecution in connection with this matter, provided it complies with the NPA's terms. The entity protection must be absolute, subject only to the material breach clause discussed in Section VII.A below.
The entity protection should expressly cover all TMC subsidiaries and affiliates to the extent they are or may be implicated in the alleged conduct. The team should prepare a list of all relevant TMC entities for inclusion in the NPA.
B. Individual Employee Protection
Objective: In addition to entity-level protection, the NPA must provide that DOJ agrees not to bring criminal charges against any current TMC employee based on the conduct described in the NPA. This protection should cover all individuals who were employees of TMC at the time of the NPA execution, regardless of whether they were employees during the conspiracy period.
Sandra Chu and Thomas Eriksen. These two individuals must be specifically protected. The internal investigation concluded that neither has individual criminal exposure warranting prosecution:
• Sandra Chu: Chu received and implemented Holt's pricing instructions, but there is no direct evidence that she knew of the inter-competitor communications underlying those instructions. Chu cooperated fully with the internal investigation and provided testimony at her proffer session. Her conduct does not rise to the level of a knowing participant in the conspiracy.
• Thomas Eriksen: Eriksen attended NASMC conferences where the side meetings allegedly occurred, but the evidence of his direct participation is ambiguous, and he has consistently denied knowledge of any anticompetitive agreements. Eriksen cooperated fully with the internal investigation and provided testimony at his proffer session. The evidence does not support a finding that Eriksen was a knowing participant in the conspiracy.
Red Line: If the DOJ insists on reserving the right to prosecute current employees other than Holt, we must insist on written commitments regarding Chu and Eriksen specifically, whether by naming them in the NPA or by reference to "all current TMC employees who provided cooperation." TMC's cooperation posture was premised in part on a commitment to protect the current employees who participated in the investigation and proffer sessions in good faith. An NPA that exposes Chu or Eriksen to prosecution would fundamentally undermine the trust that TMC placed in the cooperation process and would be unacceptable to TMC's leadership.
C. Gavin Holt Carve-Out
It is fully expected that the DOJ will insist on carving Gavin Holt out of any no-prosecution protections contained in the NPA, reserving the Division's right to pursue individual criminal charges against him. This is consistent with the Division's standard practice of resolving corporate liability through NPAs or DPAs while pursuing individual culpability through separate proceedings.
TMC's Position: The Holt carve-out is acceptable. TMC has no objection to the DOJ prosecuting Holt individually. Holt resigned from TMC effective September 30, 2021. He is separately represented by Briarcliff Law Group PLLC (Patrick Dunleavy). He has asserted his Fifth Amendment privilege before the grand jury. He declined TMC's invitation to participate in the internal investigation. He is the individual most directly implicated in the alleged conduct, and the evidence — including the VaultChat communications — establishes his central role in the conspiracy. TMC has no obligation to protect Holt, and doing so would be inconsistent with the Company's cooperation posture.
Narrow Drafting of the Carve-Out. While the Holt carve-out is acceptable in principle, it is essential that the carve-out language be narrowly drafted to refer only to Gavin Holt by name. The language should not inadvertently create a broader carve-out that could be used to prosecute other former TMC employees who may have had peripheral involvement in the relevant events. Acceptable language would be: "other than Gavin Holt, who is separately referenced in this Agreement" or substantially equivalent formulations. Broader language referencing "former employees generally" or "former employees who did not cooperate" or similar open-ended formulations is not acceptable, as it could potentially sweep in other former employees whose involvement, if any, was de minimis or unwitting.
No Affirmative Obligation to Assist Holt Prosecution. As a secondary objective, the NPA should not require TMC to affirmatively assist DOJ in any prosecution of Holt beyond TMC's general cooperation obligations under the NPA. Specifically, the NPA should not require TMC to:
(i) waive the attorney-client privilege or work-product protection as to any communications between TMC and Holt during his employment;
(ii) produce documents protected by TMC's own privilege in connection with the Holt prosecution; or
(iii) take any action that would be inconsistent with TMC's own legal interests or rights.
TMC's general cooperation obligations — including making current employees available for testimony and producing non-privileged documents — will provide the Division with ample evidence to pursue Holt. There is no need for the NPA to impose additional, privilege-implicating obligations in connection with the individual prosecution.
VI. NEGOTIATION OBJECTIVES — COMPLIANCE ENHANCEMENTS
A. Compliance Program Requirements
TMC has already taken the initiative to develop and submit a comprehensive Enhanced Antitrust Compliance Program to the DOJ. This program was designed by Calderwood & Harkness and Meridian Compliance Partners LLC (engagement lead Claudia Ferraro) and was submitted to the Division on September 15, 2023. The proactive submission of this program positions TMC well in the compliance negotiation, as it demonstrates that the Company has already committed to the remedial measures that the Division would ordinarily require.
Objective: Our primary objective is to have the NPA's compliance requirements substantially mirror the Enhanced Antitrust Compliance Program already proposed by TMC, avoiding additional DOJ-imposed requirements that would be operationally burdensome, inconsistent with TMC's organizational structure, or duplicative of the measures already being implemented. We expect the Division's compliance requirements to include the following elements, and our position on each is as set forth below:
Mandatory Annual Antitrust Training. The NPA will require mandatory annual antitrust training for all commercial personnel and management-level employees. This requirement is acceptable and is already incorporated into the Enhanced Antitrust Compliance Program submitted to DOJ. TMC has engaged an outside training provider and conducted its first enhanced training session in October 2023.
Appointment of a Chief Compliance Officer. The NPA will require the appointment of an independent Chief Compliance Officer with responsibility for the antitrust compliance program. This requirement is acceptable and is already part of the proposed program. However, we should negotiate the meaning of "independent" to ensure that it refers to a CCO who reports directly to the Board Audit Committee rather than to the CEO — a structural independence safeguard — and not an external appointment or an individual who is independent of TMC in the sense of having no employment relationship with the Company. An externally appointed CCO imposed by DOJ would be operationally disruptive and is not warranted by the facts of this case.
Annual Compliance Certifications. The NPA will likely require annual certifications by the CEO and General Counsel attesting to the Company's compliance with the NPA's terms and the effectiveness of the antitrust compliance program. This requirement is acceptable. Calderwood & Harkness will prepare template certifications for CEO Dalmqvist and General Counsel Anand to review and execute on an annual basis.
Competitor-Contact Protocols and Trade-Association Policies. The NPA will require the adoption of formal protocols governing contacts between TMC personnel and competitor personnel, as well as policies governing TMC's participation in trade associations (including NASMC). This requirement is acceptable and is already a core element of the Enhanced Antitrust Compliance Program. The protocols include pre-approval requirements for attendance at trade-association events, mandatory reporting of contacts with competitor personnel, and prohibition on certain categories of discussions with competitors.
Internal Reporting Hotline. The NPA will require the establishment of an internal reporting hotline for employees to report suspected antitrust violations or other compliance concerns. This requirement is acceptable and the hotline has already been implemented as part of the Enhanced Antitrust Compliance Program.
Periodic Compliance Auditing. The NPA will require periodic auditing of the antitrust compliance program to assess its implementation and effectiveness. This requirement is acceptable in principle, but we should negotiate the cadence. Our position is that annual auditing is appropriate and sufficient. Quarterly auditing, which the Division may propose, would be operationally burdensome, disproportionate to the nature of the conduct, and inconsistent with standard corporate compliance practices. Annual audits, conducted by an independent auditor or the compliance monitor, provide adequate oversight without imposing an excessive burden.
B. Compliance Monitor
DOJ Expected Position. The Division will almost certainly require the appointment of an independent compliance monitor as a condition of the NPA. The appointment of an independent monitor is standard practice in Antitrust Division NPAs and DPAs involving significant conduct, and it would be unrealistic to resist the monitor requirement altogether.
Monitor Term — Our Target: Two years. We will advocate for a two-year monitor term commencing on the date of NPA execution. A two-year term is sufficient to assess the implementation and effectiveness of the Enhanced Antitrust Compliance Program and is consistent with recent precedent in comparable Antitrust Division resolutions.
Monitor Term — Fallback: Two years is the position. Unlike other NPA terms where we have identified fallback positions, the two-year monitor term is a firm position. We should resist any term longer than two years.
Red Line: Three-year monitor term. A three-year monitor term that is co-extensive with the NPA cooperation period would be disproportionate. The monitor's role is to assess compliance program implementation, not to serve as a quasi-regulator over TMC's business operations for the entire duration of the NPA. If the compliance program is effectively implemented within two years, there is no justification for an additional year of monitoring. A three-year term would also significantly increase costs to TMC without a commensurate benefit to the Division or the public interest.
Monitor Selection — Meridian Compliance Partners LLC. Our objective is to have the Division pre-approve Meridian Compliance Partners LLC (Claudia Ferraro) as the independent compliance monitor. Meridian has developed the Enhanced Antitrust Compliance Program and has detailed familiarity with TMC's business operations, organizational structure, and the design of the compliance measures. Appointing Meridian as the monitor would avoid the significant cost, time, and operational disruption of onboarding a new monitor who would need to develop the same level of familiarity before being effective.
We anticipate that the Division may object to Meridian's selection on the ground that Meridian's existing relationship with TMC compromises its independence. We should be prepared to address this objection with the following counterarguments:
(i) Meridian was retained to design the Enhanced Antitrust Compliance Program, not to serve as TMC's ongoing compliance function. Meridian's engagement was limited in scope and duration and does not create an ongoing financial dependence on TMC.
(ii) The engagement with Meridian was specifically structured under Calderwood & Harkness's direction with the potential monitor candidacy in mind. The engagement terms preserve Meridian's independence and do not create any conflict of interest.
(iii) Meridian has no financial relationship with TMC beyond the current engagement and has not provided any other services to TMC or its affiliates.
(iv) The DOJ's own policies recognize that familiarity with the company's operations can enhance a monitor's effectiveness. Requiring a new monitor to start from scratch would delay the implementation assessment and increase costs without improving the quality of monitoring.
If the Division rejects Meridian, we should negotiate TMC's right to propose three candidates for the Division's consideration, with the Division selecting one from the proposed list. We should avoid a process in which the Division unilaterally selects the monitor without TMC input.
Monitor Scope — Detailed Scope-of-Work Appendix. It is critical that the monitor's authority be clearly defined and bounded. We will negotiate a detailed scope-of-work appendix (to be attached to the NPA as Appendix A or similar) that limits the monitor's authority to the following activities:
(i) Reviewing the implementation of the Enhanced Antitrust Compliance Program elements listed in the NPA appendix, including training completion records, policy adoption documentation, and hotline reports;
(ii) Conducting interviews of TMC employees regarding their awareness of and compliance with the antitrust compliance program;
(iii) Reviewing training records, compliance audit results, and other compliance program documentation; and
(iv) Submitting semi-annual written reports to the DOJ and TMC summarizing the monitor's findings and any recommendations for program improvements.
The monitor should not have authority to:
(a) Access TMC's attorney-client privileged communications or attorney work product;
(b) Direct changes to TMC's business operations, commercial strategy, or pricing decisions;
(c) Second-guess TMC's commercial pricing decisions, which are legitimate business judgments and are not properly within the monitor's purview;
(d) Expand the scope of the monitoring engagement beyond the Enhanced Antitrust Compliance Program elements specified in the NPA; or
(e) Engage in any investigative activity beyond the compliance assessment described in the scope-of-work appendix.
Monitor Costs. TMC will bear the costs of the compliance monitor, as is standard practice. However, we should negotiate a fee-cap or budget-approval mechanism to prevent runaway costs. Specifically, we propose that the NPA include a provision requiring the monitor to submit a proposed annual budget for TMC's and the Division's review, with any material deviations from the approved budget requiring prior written approval. This mechanism protects TMC from excessive costs while ensuring the monitor has adequate resources to fulfill its mandate.
VII. NEGOTIATION OBJECTIVES — MATERIAL BREACH AND CONSEQUENCES
A. Material Breach Standard
The NPA will include a material breach provision that allows the DOJ to prosecute TMC if TMC materially breaches the agreement. This is a standard feature of all NPAs and DPAs and is, in essence, the enforcement mechanism that gives the agreement its force. While we cannot avoid the inclusion of a material breach provision, we can and must negotiate the substantive and procedural standards that govern its invocation.
Objective: Clear, specific, and procedurally protective breach standard. We will negotiate a material breach provision that includes the following elements:
(i) Written Notice Requirement. DOJ must provide TMC with written notice specifying the alleged breach in reasonable detail, including the specific NPA provision(s) that TMC is alleged to have violated and the factual basis for the allegation. Verbal notice or informal communications should not be sufficient to trigger the breach clause.
(ii) Cure Period. TMC must be afforded a cure period of not less than 30 calendar days from receipt of DOJ's written notice to remedy the alleged breach. During the cure period, TMC should have the opportunity to investigate the allegation, take corrective action, and demonstrate to DOJ that the breach has been remedied or that it did not occur.
(iii) Willfulness or Bad Faith Standard. The breach must be willful or in bad faith to constitute a "material breach" warranting prosecution. Inadvertent, technical, or de minimis violations of the NPA's terms should not trigger the breach clause. For example, a missed deadline for a compliance certification that is promptly corrected, or a good-faith disagreement about the scope of a document-production request, should not be deemed material breaches.
(iv) Meet-and-Confer Process. Before the DOJ may invoke the material breach clause and proceed with prosecution, the parties must engage in a meet-and-confer process during which TMC has the opportunity to present its position on the alleged breach and the parties may attempt to resolve the dispute without resorting to the extreme remedy of criminal prosecution. This procedural safeguard is essential to prevent the Division from using the breach clause as a sword rather than a shield.
Red Line: No unilateral breach determination. We will refuse any provision that allows the DOJ to declare a material breach unilaterally, without notice and an opportunity to cure. A provision that permits DOJ to proceed directly to prosecution upon its own internal determination of a breach, without affording TMC any procedural protections, would render the NPA illusory and would deprive TMC of the certainty and stability that is the fundamental purpose of the agreement.
B. Agreed Statement of Facts
The NPA will include an Agreed Statement of Facts (typically designated as Appendix B or a similar attachment) that DOJ could use as the factual basis for prosecution if TMC materiall