PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT DO NOT DISTRIBUTE WITHOUT PRIOR AUTHORIZATION OF OUTSIDE COUNSEL
CALDERWOOD & HARKNESS LLP 555 California Street, 40th Floor San Francisco, California 94104
May 25, 2024
MEMORANDUM
TO: Priya Anand, General Counsel, Torchlight Mining Corp., 200 Bay Street, Suite 3400, Toronto, ON M5J 2J2, Canada
FROM: Aaron Liu, Calderwood & Harkness LLP, 555 California Street, 40th Floor, San Francisco, CA 94104
CC: Elaine Forsythe, Responsible Partner, Calderwood & Harkness LLP; Monica Reyes, Calderwood & Harkness LLP
RE: Post-NPA Compliance Obligations Summary — Torchlight Mining Corp. Non-Prosecution Agreement (DOJ Ref. No. ATR-SF-2024-00312)
MATTER NO.: 1039-00001
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in connection with the legal representation of Torchlight Mining Corp. ("TMC") by Calderwood & Harkness LLP ("C&H"). This memorandum and its contents are protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges and protections. This memorandum should not be disclosed, reproduced, or distributed to any person other than the intended recipients without the prior written authorization of Calderwood & Harkness LLP. Inadvertent disclosure does not constitute a waiver of any applicable privilege.
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I. PURPOSE AND BACKGROUND
The purpose of this memorandum is to provide TMC's General Counsel with a comprehensive, practical catalog of all ongoing obligations arising under the Non-Prosecution Agreement ("NPA") executed on May 6, 2024, by Søren Dalmqvist, Chief Executive Officer of Torchlight Mining Corp. ("TMC" or the "Company"), and Julia Stafford-Hayes, Deputy Assistant Attorney General, Antitrust Division, United States Department of Justice ("DOJ"), bearing DOJ Reference Number ATR-SF-2024-00312.
The NPA resolved the DOJ Antitrust Division's grand jury investigation (Grand Jury No. GJ-22-0194, United States District Court, Northern District of California, San Francisco Division) into suspected price-fixing, market allocation, and bid-rigging in the North American specialty-minerals sector, involving high-purity feldspar, industrial talc, and rare-earth concentrates. The investigation, which commenced in approximately early 2022, examined the conduct of TMC and several other market participants during the period from approximately January 2017 through August 2021. The DOJ formally closed the investigation as to TMC on May 20, 2024, following execution of the NPA and TMC's satisfaction of all pre-execution conditions.
This memorandum is intended to serve as a practical compliance roadmap for TMC management and in-house legal personnel, identifying each material obligation under the NPA, setting forth actionable deadlines, and designating responsible parties. We have endeavored to present the information in a manner that will facilitate day-to-day compliance management and internal governance processes. This memorandum should be read in conjunction with the NPA itself, including its appendices, which remain the controlling documents in all respects. In the event of any inconsistency between this summary and the NPA, the terms of the NPA govern.
Critical Note: The NPA has a three-year term running from May 6, 2024, through May 6, 2027. TMC's compliance with the NPA's terms is not optional or aspirational — it is a binding legal obligation, breach of which could result in the DOJ prosecuting TMC criminally based on the Agreed Statement of Facts set forth in NPA Appendix B. As discussed in greater detail in Section X below, the consequences of a material breach would be severe and potentially existential for the Company. Strict and timely adherence to every obligation described in this memorandum is therefore of the utmost importance.
II. SUMMARY OF KEY NPA TERMS
Before turning to the detailed obligation-by-obligation analysis, we set forth below a summary of the key terms of the NPA for ease of reference.
Monetary Payment. TMC is obligated to pay USD 48.5 million to the United States Treasury within sixty (60) calendar days of the NPA's execution date, establishing a hard payment deadline of July 5, 2024. The calculation basis for this amount is as follows: the DOJ determined TMC's affected commerce during the conspiracy period to be approximately USD 478 million. Applying the standard 20% baseline under the DOJ's penalty guidelines yields a starting point of approximately USD 95.6 million. The final payment amount of USD 48.5 million reflects a reduction of approximately 49.2% from this starting point, reflecting cooperation credit and remediation credit negotiated by C&H on TMC's behalf. This reduction was a product of TMC's early and substantial cooperation with the investigation, TMC's voluntary disclosure of additional evidence during the investigation, and TMC's proactive remediation efforts, including the engagement of Meridian Compliance Partners LLC and the initiation of an enhanced compliance program prior to the NPA's execution.
Cooperation Period. TMC must continue to cooperate fully with the DOJ in any related investigations or prosecutions for a period of three years from the NPA's execution date, running from May 6, 2024, through May 6, 2027.
Independent Compliance Monitor. TMC must retain and cooperate with an independent compliance monitor for a period of two years from the NPA's execution date, running from May 6, 2024, through May 6, 2026. Meridian Compliance Partners LLC, with Claudia Ferraro serving as engagement lead, has been pre-approved by the DOJ to serve in this capacity.
Enhanced Antitrust Compliance Program. TMC must implement and maintain the Enhanced Antitrust Compliance Program described in NPA Appendix A throughout the full three-year NPA term. The program encompasses mandatory annual training, appointment of an independent Chief Compliance Officer, annual compliance certifications, competitor-contact protocols, trade-association interaction policies, a confidential reporting hotline, and periodic auditing and monitoring.
No Criminal Charges. In exchange for TMC's compliance with all NPA terms, the DOJ agrees not to bring criminal charges against TMC or any current TMC employee. However, the NPA contains a significant carve-out: the NPA does not cover Gavin Holt individually. Mr. Holt is a former TMC employee who resigned from the Company on September 30, 2021, and is separately represented by Briarcliff Law Group PLLC (Patrick Dunleavy, lead counsel). The DOJ expressly reserves the right to pursue criminal charges against Mr. Holt in his individual capacity.
III. OBLIGATION NO. 1 — MONETARY PAYMENT
A. Amount and Payment Details
Under Section 4 of the NPA, TMC is obligated to make a payment of USD 48,500,000.00 (forty-eight million five hundred thousand dollars) to the United States Treasury. This payment is due within sixty (60) calendar days of the NPA's execution date of May 6, 2024, establishing a hard deadline of July 5, 2024.
Payment must be made by wire transfer to the Treasury account designated in the NPA's payment instructions, and the wire transfer must reference NPA DOJ Reference Number ATR-SF-2024-00312 to ensure proper crediting. The specific wire-transfer instructions, including the receiving bank's ABA routing number, account number, and beneficiary designation, are set forth in the payment annex to the NPA and have been separately provided to TMC's Treasury department. C&H has confirmed these wire-transfer instructions with the DOJ's San Francisco Field Office and has verified their accuracy as of the date of this memorandum.
B. Action Items
The following action items should be completed promptly to ensure timely payment:
1. Arrange Wire Transfer. TMC's Chief Financial Officer, Richard Fong, and the TMC Treasury department should arrange for the wire transfer well in advance of the July 5, 2024, deadline. We strongly recommend initiating the wire transfer no later than July 1, 2024, to allow for any processing delays and to provide a buffer against the hard deadline. TMC should confirm the payment instructions directly with the DOJ contact personnel — specifically, Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, DOJ Antitrust Division, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102 — prior to initiating the transfer.
2. Obtain Written Confirmation. Upon completion of the wire transfer, TMC should obtain written confirmation from the DOJ that the payment has been received and properly credited. C&H will coordinate with the DOJ's San Francisco Field Office to obtain this confirmation and will provide a copy to TMC's General Counsel and CFO for the Company's records.
3. Accounting Treatment and Disclosure. TMC should coordinate with its external auditors at Calvert & Associates LLP (Daniel Moreau, engagement partner) and with Ironbridge Capital Markets Inc. (Alan Kirkwood) regarding the appropriate accounting treatment of the USD 48.5 million payment and any necessary disclosures in TMC's periodic filings. The payment should be charged against TMC's existing litigation reserve, which was increased to USD 50 million in Q3 2023. The remaining reserve balance of approximately USD 1.5 million should be sufficient to cover residual costs associated with the NPA, including ongoing hosting fees, compliance-monitor costs, and outside counsel fees, although TMC may wish to reassess the adequacy of this reserve in light of projected costs through May 2027.
4. Reserve Adequacy. TMC's CFO and in-house legal team should confirm the adequacy of the litigation reserve to cover the NPA payment and any remaining costs. If the remaining balance of approximately USD 1.5 million is determined to be insufficient to cover projected ongoing costs, TMC should consider adjusting the reserve in consultation with Calvert & Associates LLP.
C. Deadline
Hard Deadline: July 5, 2024. Failure to make the required payment by this date constitutes a material breach of the NPA and could trigger DOJ prosecution of TMC based on the Agreed Statement of Facts. There is no grace period or extension provision for the monetary payment obligation. This deadline must be treated as inviolable.
IV. OBLIGATION NO. 2 — COOPERATION OBLIGATIONS
A. Scope of Cooperation
Under Sections 5 and 6 of the NPA, TMC is required to continue to cooperate fully with the DOJ in any ongoing or future investigations or prosecutions related to the conduct described in the NPA. This cooperation obligation is broad in scope and extends for the full three-year cooperation period, from May 6, 2024, through May 6, 2027.
The cooperation obligation encompasses, without limitation, the following specific requirements:
(a) Employee Availability. TMC must make current and former TMC employees available for interviews, depositions, grand jury testimony, and trial testimony at the DOJ's reasonable request. TMC must use its best efforts to secure the attendance and cooperation of such employees, including by providing reasonable accommodations for scheduling and travel.
(b) Document and Information Production. TMC must provide documents, records, data, and information as reasonably requested by the DOJ in connection with any related investigation or prosecution. This obligation extends to materials not previously produced, including any documents or data that come into TMC's possession after the NPA's execution date.
(c) Non-Obstruction. TMC must not take any action, directly or indirectly, to obstruct, impede, delay, or interfere with any related investigation or prosecution by the DOJ, including any investigation or prosecution of individuals or entities not covered by the NPA.
(d) Disclosure of Newly discovered Evidence. TMC must promptly disclose to the DOJ any newly discovered evidence relevant to the conduct described in the NPA or to any related investigation, including evidence that comes to TMC's attention through the compliance-monitoring process, the enhanced compliance program, or the ordinary course of business. This is an affirmative and ongoing disclosure obligation that requires TMC to remain vigilant throughout the cooperation period.
B. Relevant Individuals
The following TMC employees and former employees may be called upon by the DOJ to provide cooperation in the form of interviews, testimony, or other assistance during the cooperation period:
• Sandra Chu, Director, Pricing Analytics, U.S. Specialty Minerals Division. Ms. Chu remains employed by TMC and was a key witness during the internal investigation. She was interviewed by C&H on four occasions between March and July 2022 and provided extensive information regarding pricing communications and practices within the U.S. Specialty Minerals Division.
• Thomas Eriksen, Regional Sales Manager, Western Region, U.S. Specialty Minerals Division. Mr. Eriksen remains employed by TMC and was interviewed by C&H on three occasions during the internal investigation. Mr. Eriksen had direct interactions with representatives of Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd. in the course of his sales responsibilities during portions of the relevant period.
• Priya Anand, General Counsel. Ms. Anand joined TMC in 2020 and was not involved in the underlying conduct. However, she has been the Company's primary legal representative throughout the investigation and may be called upon to provide testimony regarding TMC's internal investigation, cooperation efforts, and remediation activities.
• Søren Dalmqvist, Chief Executive Officer. Mr. Dalmqvist joined TMC as CEO in January 2019 and authorized the Company's cooperation with the DOJ investigation. He executed the NPA on TMC's behalf and may be called upon to provide testimony regarding TMC's corporate governance and compliance initiatives.
• Richard Fong, Chief Financial Officer. Mr. Fong may be called upon to provide testimony or information regarding the financial aspects of the conduct under investigation, including TMC's affected commerce calculations and pricing data.
• Additional Current Employees. A total of 23 TMC employees were interviewed during the internal investigation conducted by C&H. All of these employees may potentially be called upon by the DOJ during the cooperation period. A complete list of these individuals, including their current titles and contact information, is maintained in the confidential internal-investigation files held by C&H.
Note Regarding Gavin Holt. Gavin Holt is a former TMC employee who served as Senior Vice President and Head of the U.S. Specialty Minerals Division from approximately 2015 through his resignation on September 30, 2021. Mr. Holt is individually carved out of the NPA, and the DOJ has expressly reserved the right to pursue criminal charges against him. Mr. Holt is separately represented by Briarcliff Law Group PLLC (Patrick Dunleavy, lead counsel). TMC has no obligation to produce Mr. Holt for interviews or testimony, as he is no longer a TMC employee and TMC has no contractual mechanism to compel his cooperation. However, TMC must not impede the DOJ's access to Mr. Holt or take any action that could be construed as discouraging Mr. Holt's cooperation with the DOJ. We note for the record that Mr. Holt previously asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022.
Contact Information Maintenance. TMC should maintain current contact information for all 23 individuals interviewed during the internal investigation throughout the cooperation period. This includes monitoring employee departures and role changes to ensure that TMC can promptly facilitate scheduling of interviews and testimony as requested by the DOJ. We recommend that TMC's Human Resources department provide quarterly updates to the General Counsel's office regarding the employment status of all identified individuals.
C. Coordination with Co-Subject Investigations
The DOJ's investigation of the North American specialty-minerals sector has not been fully concluded as to all subjects. TMC should be aware that the DOJ's investigation may continue with respect to the following entities:
• Ridgecrest Minerals Inc. Ridgecrest is represented by Davenport, Kline & Archer LLP (Helen Marchetti, lead counsel). The key individual at Ridgecrest identified in the investigation is Carl Edgerton, who held a senior commercial role at Ridgecrest during the relevant period. The Agreed Statement of Facts in NPA Appendix B specifically references communications between Gavin Holt and Carl Edgerton as part of the alleged conspiracy.
• Pinnacle Earth Resources Ltd. Pinnacle is represented by Ashford Whitmore LLP (George Nakamura, lead counsel). The key individual at Pinnacle identified in the investigation is Kevin Tsang, who held a senior commercial role at Pinnacle during the relevant period. The Agreed Statement of Facts similarly references communications between Gavin Holt and Kevin Tsang.
• Cascade Chemical Supply Co. Cascade has been identified as a cooperating witness in the investigation and is represented by Whitfield, Strauss & Tully LLP (Rebecca Ostrander, lead counsel). Leonard Massey, President of Cascade, has been cooperating with the DOJ and may be involved in ongoing proceedings as a government witness.
TMC's cooperation obligations under the NPA require TMC to cooperate fully with the DOJ without regard to any joint-defense considerations. As previously recommended by C&H, TMC did not enter into any joint-defense agreement with counsel for Ridgecrest or Pinnacle, and we reiterate that recommendation. TMC personnel should not communicate with personnel of any co-subject — including Ridgecrest, Pinnacle, or Cascade — about the investigation, the NPA, or any related matter without prior approval from C&H.
D. Operational Recommendations
To ensure the efficient and compliant discharge of TMC's cooperation obligations, we recommend the following operational protocols:
1. Single Point of Contact. Designate Priya Anand, General Counsel, as the single point of contact for all DOJ cooperation requests directed to TMC. All such requests should be immediately forwarded to C&H for review and coordination before any substantive response is provided.
2. Outside Counsel Coordination. All cooperation requests from the DOJ should be routed through Calderwood & Harkness (Elaine Forsythe and Aaron Liu) before any substantive response is provided by TMC. C&H will assess the scope and nature of each request, coordinate witness preparation as necessary, and ensure that TMC's responses are consistent with its NPA obligations while preserving all applicable privileges.
3. Separation-of-Function Protocols. Employees who are identified as potential witnesses — including Sandra Chu, Thomas Eriksen, and others — should not be involved in managing the cooperation process or making decisions about TMC's response to specific DOJ requests. This separation of functions is important both to protect the integrity of witness testimony and to minimize the risk of any appearance of improper influence or coordination.
4. Quarterly Internal Check-Ins. TMC should conduct quarterly internal check-ins to confirm ongoing compliance with all cooperation obligations. These check-ins should be coordinated by the General Counsel's office and should include a review of (i) any outstanding or anticipated DOJ requests, (ii) the employment status of all identified witnesses, (iii) any potential issues or concerns regarding cooperation, and (iv) any developments in related investigations that may affect TMC's obligations.
E. Duration
Cooperation Period: May 6, 2024 — May 6, 2027 (three years from the NPA execution date). TMC's cooperation obligations automatically terminate upon the expiration of the NPA term, unless TMC has materially breached the NPA prior to that date.
V. OBLIGATION NO. 3 — ENHANCED ANTITRUST COMPLIANCE PROGRAM
A. Program Requirements (NPA Appendix A)
Under Section 7 of the NPA and the detailed specifications set forth in NPA Appendix A, TMC is obligated to implement and maintain an Enhanced Antitrust Compliance Program (the "Program") throughout the full three-year NPA term. The Program was jointly developed by Calderwood & Harkness and Meridian Compliance Partners LLC (Claudia Ferraro, engagement lead) in consultation with the DOJ and reflects industry best practices for antitrust compliance in the extractive-industries sector.
The Program is intentionally more robust than TMC's prior antitrust compliance program, which was adopted in approximately 2014 and had not been meaningfully updated or enforced in the years preceding the investigation. Notably, the prior program had not conducted mandatory annual antitrust training since approximately 2018, a fact that was identified during the internal investigation and that contributed to the DOJ's assessment of TMC's compliance culture during the relevant period. The Enhanced Program is designed to address these deficiencies and to ensure that TMC has a functioning, effective antitrust compliance program going forward.
The key elements of the Program are as follows:
1. Mandatory Annual Antitrust Training
TMC must provide mandatory annual antitrust training to all employees involved in pricing, sales, marketing, and business development activities. The training must include, at a minimum, instruction on the basic principles of U.S. antitrust law (including the Sherman Act, the Clayton Act, and the Federal Trade Commission Act), the specific types of conduct prohibited by Section 1 of the Sherman Act (including price-fixing, market allocation, bid-rigging, and information-sharing agreements), and the consequences of antitrust violations for both the Company and individual employees. Training must be tailored to the specific risks and activities of the audience, with particular focus on personnel within the U.S. Specialty Minerals Division, which was the division involved in the conduct under investigation. Training materials and attendance records must be maintained for the full NPA term.
2. Appointment of Independent Chief Compliance Officer
TMC must appoint an independent Chief Compliance Officer ("CCO") within ninety (90) days of the NPA's execution date, establishing a deadline of August 4, 2024. The CCO must possess appropriate qualifications and experience in corporate compliance, preferably with specific expertise in antitrust or competition law. Critically, the CCO must have a direct reporting line to the TMC Board of Directors and must not report solely to the General Counsel. This structural independence requirement is intended to ensure that the CCO has the authority, resources, and organizational standing necessary to effectively oversee and enforce the compliance program. The CCO will serve as the Company's primary internal champion for antitrust compliance and will play a central role in all aspects of the Program.
3. Annual Compliance Certifications
As discussed in greater detail in Section VII below, the CEO (Søren Dalmqvist) and General Counsel (Priya Anand) must each execute annual compliance certifications attesting that TMC has maintained and adhered to the Enhanced Antitrust Compliance Program during the preceding twelve-month period. These certifications are due annually on or before the anniversary of the NPA's execution date. C&H prepared a template for these certifications dated May 10, 2024, which is enclosed with this memorandum.
4. Competitor-Contact Protocols
TMC must adopt and enforce written policies governing all contacts between TMC employees and competitors or their representatives. These policies must include pre-approval requirements for any interactions with competitors, whether in the context of industry associations, trade shows, conferences, or any other forum. The policies must clearly delineate permissible and impermissible topics of discussion and must require post-interaction reporting by any TMC employee who has contact with a competitor.
5. Trade-Association Interaction Policies
In light of the fact that certain of the conduct under investigation occurred in connection with industry-association events and communications, the Program requires TMC to adopt specific protocols governing participation in trade-association activities. These protocols apply to all trade associations but are particularly focused on the North American Specialty Minerals Council ("NASMC"), headquartered at 2300 Wilson Boulevard, Suite 400, Arlington, VA 22201, which was the primary industry association in the affected sector during the relevant period. Under these protocols, no TMC employee may attend NASMC events or any other trade-association events without prior compliance clearance from the CCO or the General Counsel's office. Additionally, all TMC employees who attend trade-association events must complete a post-event reporting form documenting any contacts with competitors and the topics discussed.
6. Confidential Reporting Hotline
TMC must maintain a confidential reporting hotline (or equivalent mechanism) through which employees and other stakeholders can anonymously report potential antitrust violations or concerns. The hotline must be operated by an independent third-party provider, must be available in all languages spoken by TMC employees, and must ensure the anonymity and non-retaliation protections required by the Program. All reports received through the hotline must be investigated promptly and thoroughly, and the results of such investigations must be documented and reported to the CCO and the General Counsel.
7. Periodic Auditing and Monitoring
The Program requires annual audits of TMC's compliance with its antitrust policies. These audits are to be conducted by the CCO and, during the two-year monitor term, in coordination with the independent compliance monitor. The audits must assess the effectiveness of the compliance program as a whole, identify any gaps or deficiencies, and recommend corrective actions. Audit results and recommendations must be reported to the TMC Board of Directors.
B. Implementation Deadlines
The following implementation deadlines are established by the NPA and NPA Appendix A:
• CCO Appointment: August 4, 2024 (90 calendar days from NPA execution). TMC must identify, recruit, and formally appoint an independent Chief Compliance Officer by this date. The CCO's appointment must be reported to the compliance monitor and to the DOJ.
• Compliance Policy Update and Dissemination: July 5, 2024 (60 calendar days from NPA execution). All antitrust compliance policies must be updated to conform to the requirements of NPA Appendix A and must be disseminated to all relevant TMC employees by this date.
• First Annual Training Cycle: September 3, 2024 (120 calendar days from NPA execution). The first annual antitrust training cycle must be completed, with all designated employees having received training, by this date.
• First Annual Compliance Certification: May 6, 2025 (one year from NPA execution). The first annual compliance certification must be executed by the CEO and General Counsel and submitted to the DOJ on or before this date. Subsequent certifications are due annually on May 6, 2026, and May 6, 2027.
C. Duration
The Enhanced Antitrust Compliance Program must be maintained throughout the full NPA term, from May 6, 2024, through May 6, 2027. As a practical matter, and as a matter of sound corporate governance, we strongly recommend that TMC maintain the Program — or an equivalent robust antitrust compliance program — indefinitely beyond the expiration of the NPA term. An effective antitrust compliance program is not merely a regulatory requirement; it is a critical safeguard against future legal risk and an essential component of responsible corporate citizenship.
VI. OBLIGATION NO. 4 — INDEPENDENT COMPLIANCE MONITOR
A. Monitor Identity and Engagement
Meridian Compliance Partners LLC ("Meridian") has been pre-approved by the DOJ to serve as the independent compliance monitor under the NPA. Claudia Ferraro, a principal of Meridian, serves as the engagement lead. Meridian's offices are located at 1100 Connecticut Avenue NW, Suite 730, Washington, DC 20036.
The terms of the monitor engagement were proposed to the DOJ by C&H in a letter dated April 20, 2024, and were finalized upon execution of the NPA. Meridian has been involved in the matter since early in the internal investigation, having been initially engaged by TMC on the recommendation of C&H to assist with the development of the Enhanced Antitrust Compliance Program. Meridian's familiarity with TMC's operations, compliance history, and the nature of the underlying conduct positions it well to serve as an effective and efficient monitor.
B. Monitor Scope of Work
The compliance monitor's mandate under the NPA includes the following activities:
(a) Review and assess TMC's implementation of the Enhanced Antitrust Compliance Program, including an evaluation of the adequacy and effectiveness of each program element described in NPA Appendix A.
(b) Conduct on-site reviews at TMC's offices and operational sites as necessary to evaluate compliance program implementation and effectiveness. These reviews may include unannounced visits.
(c) Conduct interviews of TMC employees at all levels, including senior management, to assess compliance awareness, culture, and adherence to program requirements.
(d) Review relevant documents, records, communications, and data as necessary to evaluate compliance, including pricing data, sales communications, and records of competitor contacts and trade-association interactions.
(e) Issue written reports to TMC and to the DOJ documenting the monitor's findings regarding the state of TMC's antitrust compliance, including any identified deficiencies and recommended corrective actions.
(f) Recommend specific corrective actions where deficiencies or weaknesses are identified, and assess TMC's implementation of previously recommended corrective actions.
TMC is required to provide the monitor with full access to all personnel, documents, systems, and information reasonably necessary for the monitor to carry out its mandate. Any unreasonable delay or impediment to the monitor's access could be construed as a failure to cooperate and, in extreme circumstances, could constitute a material breach of the NPA.
C. Reporting Schedule
The NPA establishes the following reporting schedule for the compliance monitor:
TMC will have the opportunity to review and comment on draft monitor reports before they are submitted to the DOJ. The typical review period is thirty (30) calendar days from TMC's receipt of the draft report. TMC's comments will be considered by the monitor but are not binding; the monitor retains ultimate editorial discretion over the content of its reports to the DOJ. C&H should be involved in the review of all draft monitor reports to ensure that TMC's comments are appropriately framed and that any privileged information is protected.
D. TMC's Obligations Regarding the Monitor
TMC's specific obligations with respect to the compliance monitor include the following:
1. Full Cooperation. TMC must cooperate fully and in good faith with the monitor at all times. This includes responding promptly and completely to information requests, making employees available for interviews on reasonable notice, and providing access to all relevant documents and systems.
2. Internal Compliance Liaison. TMC must designate an internal compliance liaison to serve as the primary point of contact for the monitor. We recommend that the newly appointed CCO serve in this role once the CCO position is filled (by August 4, 2024). Pending the CCO's appointment, the General Counsel should serve as the interim compliance liaison.
3. Funding. TMC is responsible for funding the monitor's fees and expenses in accordance with the vendor engagement letter dated August 1, 2023. The total fees incurred by Meridian through the date of NPA execution were approximately USD 1.1 million. Projected additional fees during the two-year monitor term will be substantial and should be separately budgeted by TMC's finance department. We recommend that TMC request a fee estimate from Meridian for the monitor term and incorporate this estimate into TMC's financial planning.
4. Implementation of Corrective Actions. TMC must implement corrective actions recommended by the monitor within the timeframes specified in the monitor's reports. If TMC disagrees with a specific recommendation or believes that a recommended timeframe is impracticable, TMC should raise its concerns with the monitor promptly and, if necessary, seek guidance from C&H regarding the appropriate course of action. TMC should not unilaterally decline to implement a monitor recommendation without consulting outside counsel, as such a refusal could be viewed unfavorably by the DOJ.
E. Duration
Monitor Term: May 6, 2024 — May 6, 2026 (two years from the NPA execution date). Upon expiration of the monitor term, TMC must continue to maintain the Enhanced Antitrust Compliance Program through the end of the full NPA term (May 6, 2027). During the period from May 6, 2026, through May 6, 2027, TMC's compliance will be subject to the annual certification process described in Section VII below, rather than active monitoring by Meridian.
VII. OBLIGATION NO. 5 — ANNUAL COMPLIANCE CERTIFICATIONS
A. Requirement
Under Section 7(f) of the NPA, the CEO (Søren Dalmqvist) and General Counsel (Priya Anand) must each execute annual compliance certifications certifying that TMC has maintained and adhered to the Enhanced Antitrust Compliance Program during the preceding twelve-month period. Each certification must be signed individually by the CEO and the General Counsel and must be submitted to the DOJ Antitrust Division in accordance with the schedule set forth below.
The certifications are not mere formalities. They represent personal attestations by TMC's most senior executive and legal officers that the Company has satisfied its compliance obligations under the NPA. A materially false or misleading certification could constitute a material breach of the NPA and could also give rise to independent liability for the individual certifying officers. Accordingly, the certification process must be undertaken with the seriousness and rigor that it demands.
C&H has prepared a template for the annual compliance certifications, dated May 10, 2024, which is enclosed with this memorandum. The template has been drafted to conform to the requirements of the NPA and to provide an appropriate level of specificity regarding the certifying officers' diligence in verifying compliance.
B. Certification Deadlines
• First Certification: On or before May 6, 2025 (covering the period May 6, 2024 — May 5, 2025)
• Second Certification: On or before May 6, 2026 (covering the period May 6, 2025 — May 5, 2026)
• Third and Final Certification: On or before May 6, 2027 (covering the period May 6, 2026 — May 5, 2027)
All certifications are to be submitted to the DOJ Antitrust Division through the designated DOJ contacts: Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, San Francisco Field Office, 450 Golden Gate Avenue, Room 10-0101, San Francisco, CA 94102, or such successor contacts as may be designated by the DOJ from time to time.
C. Preparation Process
In advance of each annual certification, the following preparation steps should be completed:
1. Internal Compliance Review. TMC's in-house legal team, in coordination with the CCO, should conduct a comprehensive internal review of the Company's adherence to the Enhanced Antitrust Compliance Program during the preceding twelve-month period. This review should encompass, at a minimum, an assessment of (i) completion of mandatory training, (ii) adherence to competitor-contact and trade-association protocols, (iii) operation of the confidential reporting hotline, (iv) completion of any required audits, and (v) implementation of any corrective actions recommended by the compliance monitor.
2. Coordination with Monitor. During the two-year monitor term (through May 6, 2026), TMC should coordinate with Meridian to confirm that there are no unresolved deficiencies or pending corrective actions that would preclude the issuance of a compliance certification. Any outstanding issues should be resolved prior to the certification deadline, or, if resolution is not feasible, should be disclosed in the certification with an explanation of the steps being taken to achieve compliance.
3. Outside Counsel Review. All compliance certifications should be reviewed by outside counsel (Calderwood & Harkness or successor counsel) before execution. C&H will review the supporting documentation, confirm that the certifications are factually accurate and legally sufficient, and advise on any qualifications or caveats that may be appropriate.
4. Execution and Submission. Following outside counsel review, the certifications should be executed by the CEO and General Counsel and submitted to the DOJ in advance of the applicable deadline. C&H will coordinate the submission process with the DOJ.
VIII. OBLIGATION NO. 6 — DOCUMENT RETENTION
A. NPA Document-Retention Requirements
Under Section 8 of the NPA, TMC is required to retain all documents related to the conduct described in the NPA — specifically, the alleged price-fixing, market-allocation, and bid-rigging conspiracy during the period from approximately January 2017 through August 2021, involving high-purity feldspar, industrial talc, and rare-earth concentrates — for the full NPA term, through May 6, 2027, and as otherwise required by applicable law.
This document-retention obligation is broad and encompasses, without limitation, the following categories of materials:
(a) All documents produced to the DOJ in connection with Grand Jury Subpoena No. GJ-22-0194-SD-003 and Grand Jury Subpoena No. GJ-22-0194-SD-007. These two productions encompass approximately 555,000 documents totaling approximately 3.2 million pages. The original production sets, including all Bates-numbered images and associated metadata, must be preserved in their entirety.
(b) All internal-investigation work product, including memoranda of witness interviews (23 total witness interviews documented by C&H), analytical summaries, timeline reconstructions, and other materials generated during the course of the internal investigation. These materials are privileged attorney-client communications and attorney work product; their retention does not constitute a waiver of any privilege.
(c) All communications with the compliance monitor, Meridian Compliance Partners LLC, including engagement correspondence, information requests and responses, draft and final monitor reports, and TMC's comments on draft reports.
(d) All documents, records, and data underlying or related to the Enhanced Antitrust Compliance Program, including training materials, attendance records, compliance-policy versions, competitor-contact reports, trade-association interaction reports, hotline reports and investigation files, audit results, and compliance certifications.
B. Existing Litigation Hold
TMC issued a company-wide litigation hold on March 1, 2022, supplemented by targeted notices to U.S. Specialty Minerals Division personnel, upon learning of the DOJ's grand jury investigation. This litigation hold should remain in full force and effect through at least May 6, 2027, the end of the NPA term. We recommend that the litigation hold be periodically re-issued or refreshed, particularly as employees depart the Company, change roles, or transition to new technology platforms. At a minimum, a reminder notice should be circulated to all hold custodians on an annual basis.
TMC's legal department should maintain a current list of all litigation-hold custodians and should coordinate with Human Resources and Information Technology to ensure that departing employees' documents and data are preserved in accordance with the hold. Any proposed destruction, deletion, or disposition of documents that may fall within the scope of the litigation hold should be reviewed and approved by the General Counsel's office and C&H before action is taken.
C. E-discovery Data
TMC's e-discovery data for this matter is currently hosted on the platform maintained by Redstone Digital Forensics Inc. ("Redstone"), with Neil Ashworth serving as project director. Redstone's offices are located at 7925 Jones Branch Drive, Suite 600, McLean, VA 22102. The Redstone platform contains all collected data, processed documents, review sets, production files (including Bates-numbered documents and associated load files), and privilege logs from both productions to the DOJ.
This data must be maintained on the Redstone platform (or a substantially equivalent platform) throughout the NPA term to ensure that TMC can promptly and efficiently respond to any DOJ cooperation requests that require access to previously produced documents or underlying data. TMC should coordinate with Redstone regarding data-hosting costs, retention schedules, and any platform migrations that may be necessary during the NPA term. The total fees incurred by Redstone through the conclusion of the active investigation phase were approximately USD 2.3 million; ongoing hosting fees during the NPA term will be lower but should be budgeted separately.
TMC should ensure that the privilege logs from both productions remain accessible and current, as DOJ cooperation requests may raise privilege issues that require reference to the original privilege determinations.
D. Duration
Minimum Retention Period: Through May 6, 2027 (end of NPA term). As a prudential measure, C&H recommends that TMC retain all investigation-related documents for an additional two years beyond the expiration of the NPA, through approximately May 2029. This extended retention period provides a buffer against potential post-NPA disputes, related civil litigation (including any treble-damages claims under Section 4 of the Clayton Act), and potential regulatory inquiries from non-U.S. competition authorities.
IX. OBLIGATION NO. 7 — NO OBSTRUCTION / GOOD FAITH
A. General Obligation
Under Section 9 of the NPA, TMC is subject to a broad no-obstruction and good-faith obligation throughout the three-year NPA term. This obligation encompasses the following requirements:
(a) TMC must not engage in any conduct, directly or indirectly, that obstructs, impedes, delays, or interferes with the DOJ's investigation of any other persons or entities related to the conduct described in the NPA. This prohibition extends to all TMC officers, directors, employees, agents, and representatives.
(b) TMC must act in good faith in fulfilling all of its obligations under the NPA, including its cooperation, compliance-program, and document-retention obligations.
(c) TMC must promptly disclose to the DOJ any evidence of potential criminal conduct by any TMC employee, former employee, or agent related to the subject matter of the investigation. This affirmative disclosure obligation requires TMC to maintain appropriate internal reporting and escalation mechanisms to ensure that relevant information is promptly identified, investigated, and, where appropriate, disclosed to the DOJ.
B. Practical Guidance
The no-obstruction obligation has several important practical implications for TMC's day-to-day operations during the NPA term:
1. No Communications with Co-Subjects. No TMC personnel — including officers, directors, employees, and agents — should communicate with employees, officers, directors, or counsel of Ridgecrest Minerals Inc., Pinnacle Earth Resources Ltd., or Cascade Chemical Supply Co. regarding the DOJ investigation, the NPA, or any related matter without prior express authorization from Calderwood & Harkness. This prohibition applies to all forms of communication, whether in person, by telephone, by email, or through any other medium. Casual or inadvertent contacts at industry events or other venues should be carefully managed; TMC personnel should be instructed to disengage from any conversation that turns to the investigation or related topics and to report such contacts to the General Counsel's office and C&H promptly.
2. Media and Third-Party Inquiries. Any inquiries from the media, regulators, investors, industry participants, or other third parties regarding the DOJ investigation, the NPA, or any related matter should be directed to TMC's General Counsel and outside counsel. TMC employees should not provide substantive responses to such inquiries without prior authorization from the General Counsel.
3. Witness Communications. TMC should exercise caution in any communications with individuals who are or may become witnesses in related proceedings. While TMC is not prohibited from communicating with its own current employees in the ordinary course of business, TMC should avoid any communications that could be perceived as attempting to influence, discourage, or coordinate witness testimony. Any concerns about the scope or propriety of specific communications should be raised with C&H.
X. MATERIAL BREACH CONSEQUENCES
The consequences of a material breach of the NPA are severe and warrant careful attention by all TMC personnel involved in the compliance process. Under Section 10 of the NPA, if the DOJ determines, in its sole discretion, that TMC has committed a material breach of any term of the NPA, the DOJ may prosecute TMC criminally based on the Agreed Statement of Facts set forth in NPA Appendix B.
The Agreed Statement of Facts is a detailed factual recitation that TMC has acknowledged and agreed to as part of the NPA. It includes admissions regarding:
• The conspiracy period (approximately January 2017 through August 2021);
• The three affected product categories (high-purity feldspar, industrial talc, and rare-earth concentrates);
• TMC's affected commerce during the conspiracy period of approximately USD 478 million;
• The conduct of Gavin Holt, TMC's former Senior Vice President and Head of the U.S. Specialty Minerals Division, in communicating with Carl Edgerton of Ridgecrest Minerals Inc. and Kevin Tsang of Pinnacle Earth Resources Ltd. in furtherance of the alleged conspiracy; and
• The nature of the agreements reached, including agreements to fix prices, allocate markets, and rig bids for contracts in the specialty-minerals sector.
The NPA does provide for a notice-and-cure process in the event of an alleged breach. Under this process, the DOJ must provide TMC with written notice of the alleged breach and an opportunity to cure the breach within a specified period before the DOJ may declare a formal breach and proceed with prosecution. However, TMC should not rely on this notice-and-cure mechanism as a safety net; it is intended to address inadvertent or minor deficiencies, not willful or systematic failures to comply.
In the event of a material breach and subsequent prosecution, TMC could be exposed to penalties significantly in excess of the USD 48.5 million NPA payment. Under Section 1 of the Sherman Act (15 U.S.C. § 1), a corporation convicted of a criminal antitrust violation may be fined up to the greater of (a) USD 100 million or (b) twice the gross gain derived from the offense or twice the gross loss caused to the victims. Given TMC's affected commerce of approximately USD 478 million, a criminal fine in the event of conviction could potentially reach hundreds of millions of dollars.
Beyond the immediate financial penalties, a criminal conviction would expose TMC to a range of collateral consequences, including but not limited to:
• Government-contract debarment and suspension proceedings;
• Civil treble-damages actions under Section 4 of the Clayton Act by direct purchasers and, in some jurisdictions, indirect purchasers;
• Potential investigations and enforcement actions by non-U.S. competition authorities (including the Canadian Competition Bureau, the European Commission, and other jurisdictions where TMC operates);
• Reputational damage, loss of customer confidence, and adverse effects on TMC's business relationships; and
• Potential securities-fraud claims or shareholder derivative actions arising from the Company's alleged failure to maintain adequate compliance controls.
In short, the stakes of NPA compliance are exceptionally high, and TMC must treat every obligation under the NPA with the seriousness and urgency that the circumstances demand.
XI. D&O INSURANCE CONSIDERATIONS
TMC tendered notice of the DOJ investigation to its primary directors' and officers' liability insurance carrier, Northland Mutual Insurance Co., on March 4, 2022. The relevant policy details are as follows:
• Primary Layer: Northland Mutual Insurance Co., Policy No. NMI-DO-2021-5547, with an aggregate limit of USD 50 million and a retention (deductible) of USD 2.5 million.
• Excess Layer 2: Greystone Specialty Insurance Ltd., providing USD 25 million in excess of the USD 50 million primary layer (i.e., USD 25 million xs USD 50 million).
• Excess Layer 3: Sentinel Re Ltd., providing USD 25 million in excess of the combined USD 75 million primary and first excess layers (i.e., USD 25 million xs USD 75 million).
Northland acknowledged coverage for the defense costs of individual TMC directors and officers in connection with the investigation but reserved its rights regarding entity-level coverage and the applicability of the policy's regulatory/criminal exclusion. TMC should continue to coordinate with Northland and its insurance counsel regarding the status of coverage.
Several insurance-related considerations arise from the ongoing NPA obligations:
1. Additional Defense Costs. TMC's ongoing cooperation obligations under the NPA, which require TMC to make employees available for interviews and testimony, may generate additional defense costs for individual directors and officers who are called upon by the DOJ. To the extent that individual TMC directors or officers require independent counsel in connection with such proceedings, these defense costs may be covered under the D&O policy, subject to the policy's terms and any reservations of rights by the carrier. TMC should coordinate with Northland regarding continued coverage for these potential costs.
2. NPA Monetary Payment. The USD 48.5 million NPA payment to the U.S. Treasury is likely not covered under the D&O policy. D&O policies typically contain exclusions for penalties, fines, and amounts paid to government entities pursuant to settlement agreements or non-prosecution agreements. TMC should confirm this analysis with its insurance counsel to ensure that the payment is properly classified and that no coverage claim is inadvertently forfeited.
3. Ongoing Tower Maintenance. TMC should ensure that its D&O insurance tower is maintained throughout the NPA term and should consider the NPA's compliance obligations and potential exposure when evaluating renewal terms and coverage limits.
XII. PUBLIC DISCLOSURE CONSIDERATIONS
TMC is a reporting issuer in Canada and files reports with the U.S. Securities and Exchange Commission. The Company's public disclosure obligations require careful attention in light of the NPA's execution and ongoing compliance requirements.
TMC previously disclosed the existence of the DOJ investigation in its fiscal year 2021 annual report, filed on March 28, 2022, on SEDAR+ and as an SEC Form 40-F. TMC subsequently increased its litigation reserve to USD 50 million in its Q3 2023 10-Q filings, reflecting the anticipated resolution costs.
The following disclosure-related steps should be taken in connection with the NPA:
1. NPA Disclosure. TMC will need to disclose the NPA's execution and its material terms in its next periodic filing. Depending on timing, this disclosure may appear in TMC's Q2 2024 10-Q filing or in an earlier Form 8-K equivalent filing. The disclosure should describe the material terms of the NPA, including the monetary payment amount, the cooperation period, the compliance-monitor requirement, and the enhanced compliance program obligation. Disclosure language should be carefully crafted to accurately describe the NPA's terms while preserving any applicable privileges and avoiding inadvertent admissions beyond those contained in the Agreed Statement of Facts.
2. Accounting Treatment. TMC should coordinate with Calvert & Associates LLP (Daniel Moreau, audit engagement partner) regarding the appropriate accounting treatment of the USD 48.5 million payment, including whether the payment should be classified as a settlement expense, a fine, or another category, and whether the payment should be recorded in Q2 2024 or an earlier period. TMC should also confirm the adequacy of the existing litigation reserve and determine whether any adjustment to the reserve is necessary in light of projected ongoing costs.
3. Investor Communications. TMC should coordinate with Ironbridge Capital Markets Inc. (Alan Kirkwood) regarding any investor-communications strategy in connection with the NPA disclosure. This may include preparation of talking points for investor inquiries, coordination with TMC's investor-relations team, and consideration of whether a proactive investor communication (such as a press release or investor call) is advisable.
XIII. MASTER CALENDAR OF DEADLINES AND MILESTONES
The following table sets forth all key deadlines and milestones arising under the NPA, together with the responsible parties for each obligation. This calendar should be incorporated into TMC's internal compliance-management systems and should be reviewed at each quarterly compliance check-in.
XIV. RECOMMENDED INTERNAL GOVERNANCE
To ensure sustained and effective compliance with all NPA obligations over the three-year term, we recommend that TMC establish the following internal governance structures and processes: