quarterly-status-report-q2-2023.docx

1039-00001 · Torchlight Mining Corp · documents

quarterly-status-report-q2-2023.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / WORK PRODUCT DOCTRINE DO NOT DISTRIBUTE WITHOUT PRIOR APPROVAL OF OUTSIDE COUNSEL

CALDERWOOD & HARKNESS LLP Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104

July 10, 2023

MEMORANDUM

TO: Priya Anand, General Counsel Torchlight Mining Corp. 200 Bay Street, Suite 3400 Toronto, ON M5J 2J2, Canada

FROM: Elaine Forsythe, Partner Antitrust & Competition Practice Group Calderwood & Harkness LLP

RE: Quarterly Status Report — Q2 2023: DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)

MATTER NO.: 1039-00001

CLASSIFICATION: PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / WORK PRODUCT DOCTRINE — DO NOT DISTRIBUTE WITHOUT PRIOR APPROVAL OF OUTSIDE COUNSEL

This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in connection with the pending grand jury investigation of Torchlight Mining Corp. ("TMC" or the "Company") by the Antitrust Division of the U.S. Department of Justice ("DOJ"). It is provided solely for the use of the recipient and authorized personnel within TMC and should not be disclosed, distributed, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP ("C&H"). Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.

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I. EXECUTIVE SUMMARY

This report covers the period from April 1, 2023 through June 30, 2023, and summarizes the principal developments in the DOJ Antitrust Division's ongoing grand jury investigation (Grand Jury No. GJ-22-0194, U.S. District Court for the Northern District of California) during the second quarter of 2023. Q2 2023 was a highly active quarter for this matter, marked by several significant developments that have materially advanced both the investigation itself and TMC's cooperation posture vis-à-vis the government.

The principal developments during the quarter were as follows:

1. Witness Proffer Sessions. Two voluntary proffer sessions were conducted with TMC employees—Sandra Chu, Director of Pricing Analytics, and Thomas Eriksen, Regional Sales Manager (Western Region), each of the U.S. Specialty Minerals Division—on March 10, 2023 and April 22, 2023, respectively. Both sessions were conducted at the DOJ Antitrust Division San Francisco Field Office under queen-for-a-day protections negotiated in advance by C&H. The sessions were productive and consistent with the findings of TMC's internal investigation. The DOJ has not requested follow-up sessions with either witness at this time.

2. Second Grand Jury Subpoena. On May 15, 2023, TMC received a second grand jury subpoena duces tecum (Subpoena No. GJ-22-0194-SD-007) seeking expanded categories of documents, including customer-level pricing data, customer contract files, and NASMC-related communications over an extended date range (January 2015 through December 2022). C&H, in coordination with Redstone Digital Forensics Inc. ("Redstone"), completed the collection, processing, privilege review, and production of approximately 68,000 additional responsive documents by June 30, 2023. Cumulative production to the DOJ now stands at approximately 555,000 documents (approximately 3.2 million pages).

3. Compliance Consultant Engagement. At the close of Q2, C&H retained Meridian Compliance Partners LLC ("Meridian") on behalf of TMC to design and implement an enhanced antitrust compliance program. This engagement is intended both to genuinely strengthen TMC's compliance infrastructure and to demonstrate to the DOJ the Company's commitment to remediation—a factor that will be significant in any cooperation credit assessment and potential non-prosecution agreement ("NPA") negotiation.

4. Cooperation Dialogue. C&H has maintained regular and constructive dialogue with the DOJ's lead prosecutors, Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, throughout the quarter. A supplemental cooperation submission was provided to the DOJ on May 1, 2023. The investigation is being supervised by Deputy Assistant Attorney General Julia Stafford-Hayes. While the DOJ has not provided a formal indication of the disposition of the investigation as to TMC, the tone of communications has remained constructive and receptive to TMC's cooperation posture.

As of the close of Q2 2023, TMC remains a target of the grand jury investigation. The overarching cooperation strategy articulated in C&H's June 8, 2022 cooperation letter and further developed in the cooperation proffer submitted to the DOJ on February 15, 2023—which remains the foundational document in the cooperation dialogue—is on track. TMC's proactive posture, including timely witness availability and prompt document production, has been well-received by the government. We continue to believe that this strategy provides TMC with the best opportunity to resolve this matter through a non-prosecution agreement or, at minimum, to obtain substantial cooperation credit in any alternative resolution.

The balance of this memorandum provides detailed discussion of each of these developments and related matters.

II. WITNESS PROFFER SESSIONS

A. Sandra Chu — Proffer Session (March 10, 2023)

Sandra Chu, Director of Pricing Analytics within the U.S. Specialty Minerals Division of TMC, appeared for a voluntary proffer session with DOJ prosecutors on March 10, 2023. The session took place at the DOJ Antitrust Division San Francisco Field Office, located at 450 Golden Gate Avenue, Room 10-0101, San Francisco, California 94102. The DOJ was represented at the session by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves. Ms. Chu was accompanied by Aaron Liu, Lead Associate at Calderwood & Harkness, who served as her counsel for the session.

Proffer Letter Protections. Prior to the session, C&H negotiated and executed a proffer letter with the DOJ securing standard queen-for-a-day protections for Ms. Chu. The proffer letter was transmitted from C&H to the DOJ on March 5, 2023, and was countersigned by Ms. Kowalski on the same date. Under the terms of the proffer letter, statements made by Ms. Chu during the session cannot be used against her in the government's case-in-chief, although the government retains the right to use derivative evidence and to impeach with proffer statements in the event Ms. Chu later provides materially inconsistent testimony. These are standard protections consistent with prevailing DOJ Antitrust Division practice.

Witness Preparation. C&H conducted extensive preparation sessions with Ms. Chu in advance of the proffer. The preparation focused on a thorough review of relevant documents, an explanation of the proffer process and the scope of the queen-for-a-day protections, and a detailed discussion of the anticipated substantive areas of DOJ inquiry. A comprehensive witness preparation memorandum was prepared by Aaron Liu, dated March 1, 2023, and is maintained in the matter file. The preparation sessions were conducted over two days at C&H's San Francisco office.

Substance of the Proffer Session. The proffer session lasted approximately four and one-half hours, including breaks. The key topics addressed during the session included the following:

• Role and Reporting Structure. Ms. Chu described her role as Director of Pricing Analytics, a position she has held since June 2016. She reported directly to Gavin Holt, former Vice President of U.S. Specialty Minerals Sales, throughout the relevant period. Her responsibilities included analyzing market pricing data, preparing pricing recommendations, and implementing pricing adjustments as directed by her superiors.

• Pricing Adjustment Instructions. Ms. Chu testified that she received pricing-adjustment instructions from Mr. Holt on at least twelve (12) occasions during the alleged conspiracy period that, upon analysis, correlated temporally with competitor price movements in the relevant product markets. She described these instructions as typically being communicated via email or during one-on-one meetings, and stated that Mr. Holt generally characterized the adjustments as market-responsive decisions reflecting competitive conditions and customer demand signals.

• Product-Specific Pricing Processes. Ms. Chu provided detailed testimony regarding TMC's internal pricing processes for each of the three product categories at issue in the investigation: high-purity feldspar, industrial talc, and rare-earth concentrates. She described the typical pricing workflow, including the role of market intelligence, customer negotiations, and management approvals.

• Lack of Direct Knowledge of Competitor Communications. Ms. Chu consistently maintained throughout the session that she had no direct knowledge of any communications between Mr. Holt and personnel at Ridgecrest Minerals Inc. ("Ridgecrest") or Pinnacle Earth Resources Ltd. ("Pinnacle"). She stated that Mr. Holt did not disclose to her the basis for his pricing-adjustment instructions beyond the general characterizations described above, and that she had no reason during the relevant period to believe the instructions were derived from competitor coordination.

DOJ Focus Areas. The DOJ prosecutors inquired in considerable detail about several specific areas during the session. In particular, the prosecutors focused on the timing and substance of Mr. Holt's pricing instructions, probing whether there were patterns in the timing of instructions relative to competitor announcements, and whether Ms. Chu questioned the basis for the adjustments at any point. The prosecutors also asked whether Ms. Chu was aware of any communications—whether in person, by email, by telephone, or through any messaging application—between Mr. Holt and personnel at Ridgecrest (specifically Carl Edgerton, VP of Sales) or Pinnacle (specifically Kevin Tsang, former SVP of Commercial Operations). Ms. Chu responded consistently that she was not aware of any such communications.

Post-Proffer Assessment. A post-proffer debriefing memorandum was prepared by Aaron Liu and is dated March 12, 2023. Based on our observation of the session and the debriefing, C&H's assessment is that the proffer session went well. Ms. Chu's testimony was measured, consistent, and fully aligned with the findings of TMC's internal investigation. Her testimony corroborates the pricing-adjustment pattern identified in the internal investigation without establishing any personal culpability on her part. The DOJ prosecutors appeared satisfied with Ms. Chu's level of cooperation and the substance of her testimony. We do not anticipate that the DOJ will seek charges against Ms. Chu individually.

B. Thomas Eriksen — Proffer Session (April 22, 2023)

Thomas Eriksen, Regional Sales Manager (Western Region) within the U.S. Specialty Minerals Division of TMC, appeared for a voluntary proffer session with DOJ prosecutors on April 22, 2023. The session took place at the same DOJ Antitrust Division San Francisco Field Office location. The DOJ was again represented by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves. Mr. Eriksen was accompanied by Aaron Liu.

Proffer Letter Protections. As with the Chu session, C&H negotiated and executed a proffer letter with the DOJ securing queen-for-a-day protections for Mr. Eriksen. The proffer letter was transmitted from C&H to the DOJ on April 15, 2023, and was countersigned by Ms. Kowalski on the same date. The terms of the proffer letter were substantially identical to those governing the Chu session.

Witness Preparation. C&H conducted preparation sessions with Mr. Eriksen in advance of the proffer. A witness preparation memorandum was prepared by Aaron Liu, dated April 10, 2023, and is maintained in the matter file. The preparation sessions focused on Mr. Eriksen's attendance at trade association conferences, his interactions with competitor personnel, and his knowledge of pricing decisions within the division.

Substance of the Proffer Session. The proffer session lasted approximately three and three-quarter hours, including breaks. The key topics addressed during the session included the following:

• NASMC Conference Attendance. Mr. Eriksen confirmed his attendance at four quarterly conferences of the North American Specialty Minerals Council ("NASMC") during the alleged conspiracy period (January 2017 through August 2021). These conferences were held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida (two conferences at the Orlando location). Mr. Eriksen described the conferences as typical industry association events involving panel discussions, presentations, and networking opportunities.

• Observations Regarding Holt and Competitor Personnel. The DOJ prosecutors asked Mr. Eriksen whether he observed or participated in side meetings between Gavin Holt and counterparts at Ridgecrest (specifically Carl Edgerton) or Pinnacle (specifically Kevin Tsang) during or adjacent to the NASMC conferences. Mr. Eriksen stated that he observed Mr. Holt interacting socially with various industry participants, including Mr. Edgerton and Mr. Tsang, but that he was not present for any substantive discussions between them and was not aware of the content of any private conversations.

• Knowledge of Pricing Decisions. Mr. Eriksen described his role in the pricing process as primarily executing pricing decisions that were communicated to the sales team by division management. He stated that he had no involvement in the formulation of pricing strategy at the divisional level and did not participate in decisions regarding pricing adjustments for the three product categories at issue.

• VaultChat Encrypted Messaging Application. The DOJ prosecutors specifically inquired whether Mr. Eriksen was aware of any use of the VaultChat encrypted messaging application by Mr. Holt or other TMC personnel. Mr. Eriksen stated that he was not aware of any such use, and that he had not himself used VaultChat for any business-related communications.

DOJ Focus Areas. The prosecutors pressed Mr. Eriksen on specific conference dates and social events, asking whether he attended dinners or receptions at which competitor personnel were present, and whether he observed Mr. Holt engage in extended one-on-one conversations with Mr. Edgerton or Mr. Tsang at such events. Mr. Eriksen acknowledged attending certain group dinners at the conferences at which competitor personnel were present but denied observing any discussions that he understood to involve pricing or competitive information. The prosecutors also explored whether Mr. Eriksen had been directed by Mr. Holt or anyone else to avoid documenting certain communications or to use particular communication channels.

Post-Proffer Assessment. A post-proffer debriefing memorandum was prepared by Aaron Liu and is dated April 25, 2023. C&H's assessment is that the DOJ's questions suggested an ongoing interest in the extent of Mr. Eriksen's potential knowledge of the alleged conspiracy, but that the evidence of his direct participation in or awareness of any pricing coordination remains ambiguous at best. This assessment is consistent with the findings of the internal investigation, which identified no evidence directly implicating Mr. Eriksen in the alleged conduct. There is no indication at this time that the DOJ views Mr. Eriksen as a target or subject of the investigation. However, we will continue to monitor his status and will promptly advise if there is any change in the government's posture toward him.

C. Overall Witness Cooperation Assessment

The successful completion of both the Chu and Eriksen proffer sessions during Q2 2023 materially demonstrates TMC's ongoing commitment to making current employees available to the government on a voluntary basis, as communicated in C&H's June 8, 2022 cooperation letter to the DOJ and further elaborated in the cooperation proffer submitted February 15, 2023. The DOJ has not requested additional proffer sessions from either Ms. Chu or Mr. Eriksen at this time, and we interpret this as an indication that the government was satisfied with the substance and manner of their cooperation.

We note, for completeness, the continued posture of Gavin Holt. Mr. Holt, who served as Vice President of U.S. Specialty Minerals Sales until his resignation effective September 30, 2021, continues to be represented by personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, located at 50 California Street, Suite 2800, San Francisco, California 94111. As previously reported, Mr. Holt asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022, and has not cooperated with TMC's internal investigation or with the DOJ. The Holt carve-out—i.e., the understanding that any cooperation credit or resolution as to TMC does not preclude individual prosecution of Mr. Holt—remains a key consideration in any future NPA negotiation. The DOJ has indicated through counsel that it reserves the right to pursue charges against Mr. Holt individually, and we expect that any NPA offered to TMC would be conditioned, in part, on the Company's continued cooperation with respect to the government's case against Mr. Holt.

III. SECOND GRAND JURY SUBPOENA — RECEIPT AND COMPLIANCE

A. Receipt and Analysis

On May 15, 2023, TMC received a second grand jury subpoena duces tecum, designated Subpoena No. GJ-22-0194-SD-007, issued by the grand jury sitting in the United States District Court for the Northern District of California, San Francisco Division. The subpoena was served on TMC's registered agent for service of process in the United States and was promptly forwarded to C&H.

The second subpoena seeks additional categories of documents beyond those covered by the first subpoena (GJ-22-0194-SD-003), which was received on February 14, 2022 and with which TMC has fully complied. Specifically, the second subpoena seeks the following categories of materials:

(a) Detailed pricing data for each of the three product categories at issue in the investigation—high-purity feldspar, industrial talc, and rare-earth concentrates—on a customer-by-customer basis, for the period from January 1, 2015 through December 31, 2022;

(b) Customer contract files, including master supply agreements, amendments, side letters, pricing schedules, and rebate or volume-discount arrangements, for the same product categories and time period;

(c) NASMC-related communications, including conference attendance records, registration materials, agenda documents, presentation materials, pre- and post-conference correspondence, and any internal communications referencing NASMC events or interactions with competitor personnel at such events.

Upon receipt, C&H prepared an internal subpoena analysis memorandum, dated May 18, 2023 (prepared by Aaron Liu and Monica Reyes, Working Associate), assessing the scope of the second subpoena, identifying the responsive data sources within TMC's information systems, and estimating the likely volume of the production. Several aspects of the second subpoena are noteworthy:

• The expanded date range is significant. While the alleged conspiracy period is January 2017 through August 2021, the second subpoena reaches back to January 2015 (two years before the alleged conspiracy start) and extends through December 2022 (over a year after the alleged conspiracy end). This expansion strongly indicates that the DOJ is examining pre-conspiracy and post-conspiracy pricing patterns for comparison purposes, likely to support an economic analysis demonstrating the effect of the alleged conspiracy on pricing and to establish baseline competitive pricing levels.

• The customer-by-customer granularity of the pricing data request goes beyond the aggregate pricing data produced under the first subpoena and will enable the DOJ and its economic experts to conduct a more detailed analysis of the alleged price-fixing conduct, including potentially identifying specific customers who may have been affected by coordinated pricing.

• The NASMC-related communications request reflects the DOJ's continued focus on the trade association conferences as a facilitation mechanism for the alleged conspiracy, consistent with the DOJ's questioning of Mr. Eriksen at his proffer session.

B. Document Collection and Production

To effectuate the supplemental collection effort, C&H re-engaged Redstone Digital Forensics Inc. ("Redstone"), with Neil Ashworth continuing as Project Director (7925 Jones Branch Drive, Suite 600, McLean, Virginia 22102). Redstone has served as the forensic collection and e-discovery vendor on this matter since the commencement of the first subpoena response in early 2022.

The supplemental collection focused on the following additional custodians and data sources:

• TMC's pricing databases within the U.S. Specialty Minerals Division, including the Hollowell & Co.-based pricing management system and associated reporting tools;

• TMC's customer contract management systems, including the division's contract repository and related filing systems;

• NASMC-related files maintained by personnel in the U.S. Specialty Minerals Division, including email accounts, shared drives, and physical files;

• The collection was centered on TMC's U.S. Specialty Minerals Division offices located at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117, with supplemental collection from the San Francisco corporate office.

The collection, processing, review, and production proceeded on the following timeline:

• May 18–26, 2023: Redstone conducted forensic collection of data from the identified custodians and data sources. Approximately 68,000 additional documents were collected and ingested into Redstone's processing and review platform.

• May 29–June 23, 2023: The review team, led by Monica Reyes and supported by contract review attorneys, conducted a comprehensive responsiveness and privilege review of the collected documents. The review was conducted in accordance with the privilege review protocol established March 10, 2022.

• June 30, 2023: Production of responsive, non-privileged documents was completed and transmitted to the DOJ. The production was accompanied by a cover letter from Elaine Forsythe to Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, specifying the applicable Bates-number ranges (TMC-GJ-0487001 through TMC-GJ-0555000) and confirming the production format (load files with native format attachments, consistent with the production specifications agreed upon for the first subpoena production).

An accompanying privilege log, documenting all documents withheld on the basis of attorney-client privilege or work-product protection, was prepared and submitted concurrently with the production, dated June 30, 2023.

As a result of the second subpoena production, cumulative production to the DOJ now stands at approximately 555,000 documents (approximately 487,000 from the first subpoena production plus approximately 68,000 from the second subpoena production), totaling approximately 3.2 million pages. This is a substantial production that reflects TMC's commitment to full and timely compliance with the government's requests.

C. Privilege Review

The privilege review for the second subpoena production was conducted in accordance with the privilege review protocol that was established on March 10, 2022, at the outset of the first subpoena response. The review was performed on Redstone's hosting platform utilizing technology-assisted review workflows where appropriate, supplemented by manual review of documents flagged as potentially privileged.

The review team was led by Monica Reyes of Calderwood & Harkness, who oversaw the application of privilege designations and the preparation of the privilege log. All documents withheld or redacted on the basis of privilege were logged in accordance with the requirements of Federal Rule of Civil Procedure 26(b)(5)(A) and the specific logging protocols agreed upon with the DOJ.

Importantly, the FRE 502(d) clawback protections negotiated with the DOJ at the outset of this matter remain in full force and effect. Under the terms of the clawback agreement, the inadvertent production of privileged materials does not constitute a waiver of the privilege, and the government has agreed to return or destroy any such materials upon notification by C&H. No clawback requests were necessary during the Q2 2023 production.

No significant privilege disputes arose during the second production. There were a small number of documents as to which the privilege determination required careful analysis—principally documents reflecting dual-purpose communications involving both legal advice and business advice—but these were resolved internally in accordance with established review protocols and did not require negotiation with the DOJ.

IV. ENGAGEMENT OF MERIDIAN COMPLIANCE PARTNERS LLC

On or about the close of Q2 2023, with the formal engagement letter executed August 1, 2023 and substantive work commencing in early Q3, Calderwood & Harkness retained Meridian Compliance Partners LLC ("Meridian") on behalf of TMC to design and implement an enhanced antitrust compliance program for the Company. The engagement is being led by Claudia Ferraro, a recognized expert in antitrust compliance program design and implementation, at Meridian's Washington, D.C. office (1100 Connecticut Avenue NW, Suite 730, Washington, DC 20036).

Background and Rationale. The engagement of a compliance consultant was driven by the findings of TMC's internal investigation, which were presented to the TMC Board of Directors on January 20, 2023. Among the key findings was that TMC's existing antitrust compliance program—originally adopted in approximately 2014—was inadequate in several material respects:

• No annual antitrust compliance training had been conducted for commercial personnel since 2018, leaving a gap of nearly five years during which no training was provided;

• There was no structured monitoring of employee interactions at trade association events, including NASMC conferences, despite the fact that such events are well-recognized as high-risk settings for antitrust violations in the industrial minerals sector;

• No audit of employee contacts with competitor personnel had been performed at any time during the relevant period or thereafter.

These deficiencies are significant not only as a matter of compliance best practice but also as a factor in the DOJ's evaluation of TMC's cooperation and remediation efforts. The engagement of Meridian is therefore intended to serve dual purposes: first, to genuinely strengthen TMC's antitrust compliance infrastructure and reduce the risk of future violations; and second, to demonstrate to the DOJ that TMC is committed to meaningful remediation, which the DOJ's Antitrust Division has consistently identified as a significant factor in determining cooperation credit and the availability of non-prosecution agreements.

Scope of Engagement. Meridian's engagement encompasses the following workstreams:

1. Comprehensive Antitrust Compliance Risk Assessment. Meridian will conduct a company-wide assessment of TMC's antitrust compliance risks, including interviews with key personnel, review of existing policies and procedures, and benchmarking against industry best practices and DOJ guidance (including the DOJ's July 2019 Evaluation of Corporate Compliance Programs framework and its subsequent updates).

2. Mandatory Annual Training Modules. Meridian will design mandatory annual antitrust compliance training modules for all commercial personnel, including sales, marketing, pricing, and business development functions, as well as tailored training for senior management and the Board of Directors.

3. Competitor Contact Policies. Meridian will develop comprehensive policies governing employee contacts with competitor personnel, including pre-approval requirements, documentation obligations, and post-contact reporting.

4. Trade Association Interaction Guidelines. Meridian will prepare specific guidelines for employee participation in trade association events, including protocols for conference attendance, restrictions on certain types of interactions, and mandatory post-event certifications.

5. Compliance Hotline. Meridian will assist TMC in implementing a confidential compliance reporting hotline available to all employees, with established protocols for the investigation and escalation of reports.

6. Periodic Compliance Auditing. Meridian will design a periodic auditing process to test the effectiveness of the enhanced compliance program on an ongoing basis, including audit frequency, scope, and reporting.

Timeline and Submission to DOJ. C&H and Meridian are targeting the submission of the enhanced antitrust compliance program proposal to the DOJ by mid-September 2023 (targeted date: September 15, 2023). The submission will be accompanied by a cover letter from C&H explaining the program design, the rationale for each component, and TMC's commitment to full implementation. We believe this submission will be a significant milestone in the cooperation dialogue and will positively influence the DOJ's assessment of TMC's remediation efforts.

Privilege Protections. Meridian's engagement has been structured through Calderwood & Harkness—rather than directly with TMC—in order to preserve work-product protections to the extent possible. All of Meridian's work product, reports, and communications are being generated at the direction of counsel in anticipation of litigation and in connection with the provision of legal advice to TMC. While we recognize that the enhanced compliance program itself will ultimately be disclosed to the DOJ, the underlying work product, drafts, and analysis supporting the program design will be maintained as protected attorney work product.

V. DOJ INVESTIGATION STATUS AND COOPERATION DIALOGUE

Current Status of TMC's Cooperation

Following the submission of the cooperation proffer to the DOJ on February 15, 2023, and the successful completion of the Chu and Eriksen proffer sessions described in Section II above, C&H has maintained regular and constructive dialogue with the DOJ's lead prosecutors throughout Q2 2023. This dialogue has been conducted primarily through telephone conferences and correspondence between Elaine Forsythe and Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, with the investigation supervised at a senior level by Deputy Assistant Attorney General Julia Stafford-Hayes.

On May 1, 2023, C&H submitted a supplemental cooperation submission to the DOJ, providing additional factual context developed through the continued internal investigation and updated witness availability information. The supplemental submission was well-received; Ms. Kowalski acknowledged receipt and indicated that the DOJ would continue to assess TMC's cooperation in light of the totality of the Company's efforts.

DOJ Disposition

As of the close of Q2 2023, the DOJ has not provided a formal indication regarding the ultimate disposition of the investigation as to TMC—that is, whether it intends to seek an indictment, negotiate a plea agreement, or offer a non-prosecution agreement. This is not unusual at this stage of a major antitrust investigation. However, the tone of communications throughout the quarter has been constructive and professional. The DOJ has been responsive to C&H's outreach, has accommodated reasonable scheduling requests for proffer sessions, and has acknowledged TMC's timely compliance with the second subpoena. We interpret these signals as generally favorable to TMC's cooperation posture, though we caution against drawing definitive conclusions about the likely outcome at this stage.

Status of Co-Targets and Cooperator

The DOJ continues to investigate the following entities as co-targets:

• Ridgecrest Minerals Inc. ("Ridgecrest"), represented by Davenport, Kline & Archer LLP (lead partner: Helen Marchetti). Ridgecrest's cooperation posture is unknown to C&H, as no joint defense agreement or information-sharing arrangement is in place.

• Pinnacle Earth Resources Ltd. ("Pinnacle"), represented by Ashford Whitmore LLP (lead partner: George Nakamura). Similarly, Pinnacle's cooperation posture is unknown to C&H.

In addition, Cascade Chemical Supply Co. ("Cascade"), represented by Whitfield, Strauss & Tully LLP (lead partner: Rebecca Ostrander), continues to operate under its cooperation agreement with the DOJ, which was entered on or about September 15, 2021. Cascade is understood to be the first cooperator in the investigation and its cooperation agreement predates the issuance of the first subpoena to TMC. The substance of Cascade's cooperation—including the identity of cooperating witnesses and the specific information provided to the DOJ—is not known to C&H, although it is reasonable to infer that Cascade's cooperation played a significant role in the initiation of the investigation.

Joint Defense Agreements

Consistent with the recommendation set forth in C&H's memorandum to TMC dated July 15, 2022, no joint defense agreements have been entered with counsel for any co-target. As discussed in that memorandum, joint defense agreements are inadvisable in the current posture for several reasons, including the divergent interests of the co-targets, the risk that participation in a joint defense arrangement could be perceived by the DOJ as inconsistent with TMC's cooperation posture, and the potential for information learned through a joint defense arrangement to create complications in the cooperation dialogue. C&H continues to recommend against entering any such agreements.

VI. INTERNAL INVESTIGATION — STATUS UPDATE

The internal investigation conducted by C&H on behalf of TMC was substantially completed with the presentation of final findings to the TMC Board of Directors on January 20, 2023. The key findings of the internal investigation remain unchanged and are summarized below for reference:

• Principal Wrongdoer. Gavin Holt, former Vice President of U.S. Specialty Minerals Sales, exchanged pricing information with Carl Edgerton (Vice President of Sales, Ridgecrest Minerals Inc.) and Kevin Tsang (former Senior Vice President of Commercial Operations, Pinnacle Earth Resources Ltd.) on at least 37 documented occasions between March 2017 and July 2021. These exchanges were conducted primarily through VaultChat encrypted messages and in-person conversations at NASMC conferences.

• Scope of Conduct. The pricing information exchanged pertained to the three product categories at issue: high-purity feldspar, industrial talc, and rare-earth concentrates. The exchanges included both current pricing information and advance notice of planned pricing adjustments.

• No C-Suite or Board Involvement. The internal investigation identified no evidence implicating TMC's C-suite executives—including Søren Dalmqvist, Chief Executive Officer, and Priya Anand, General Counsel—or any member of the Board of Directors, including Board Chair Margaret Caldwell, in the alleged conduct. The investigation concluded that the conduct was confined to Mr. Holt and was not known to or authorized by senior management.

Updated Economic Analysis

While the internal investigation itself is substantially complete, the compliance with the second subpoena has generated additional data—principally the customer-by-customer pricing records and customer contract files produced to the DOJ—that is being incorporated into the ongoing affected-commerce analysis being conducted by Hargrove Forensic Advisory LLC ("Hargrove"). The Hargrove engagement is being led by Dr. Vanessa Tremblay, Engagement Partner, at Hargrove's Chicago office (233 South Wacker Drive, Suite 4800, Chicago, Illinois 60606).

Hargrove's work continues on the economic analysis of pricing patterns and affected-commerce volume. This analysis is critical for several reasons: it informs TMC's own understanding of the scope and impact of the alleged conduct; it provides a basis for evaluating the DOJ's affected-commerce calculations; and it will be essential to any penalty negotiation.

The DOJ's current estimate of total affected commerce across all participants is approximately USD 1.34 billion. The DOJ has attributed TMC's share of affected commerce at approximately USD 478 million, representing approximately 35.7% of the total. These figures are based on the DOJ's preliminary analysis and may be subject to revision as additional data (including data from the second subpoena production) is analyzed.

The affected-commerce figures are significant because the DOJ's standard starting point for penalty calculation in criminal antitrust cases is 20% of affected commerce. Applied to TMC's attributed share, this yields a starting penalty of approximately USD 95.6 million (USD 478 million × 20%). However, this figure is subject to potential reductions for cooperation credit and remediation efforts. Based on precedent cases and the DOJ's published guidance, C&H believes that TMC's cooperation posture, remediation efforts, and the compliance program enhancements should support a meaningful reduction from this starting point. The penalty mitigation analysis is discussed further in Section IX below.

VII. FINANCIAL AND DISCLOSURE MATTERS

A. Litigation Reserve

TMC's current litigation reserve for this matter stands at USD 30 million, which was established in March 2022 in connection with the Company's FY 2021 annual report (filed on SEDAR+ and with the U.S. Securities and Exchange Commission on Form 40-F on March 28, 2022). The reserve was established following the receipt of the first grand jury subpoena in February 2022 and was discussed and confirmed at the Audit Committee meeting on October 18, 2022.

In light of the developments since the reserve was established—including the receipt of the target letter on May 20, 2022, the evolving case posture, the DOJ's affected-commerce estimates, and the penalty range analysis framework—C&H recommends that TMC's Audit Committee consider increasing the litigation reserve. Based on our analysis of the DOJ's likely penalty demand and the range of potential outcomes, including cooperation credit reductions, we currently estimate the most probable penalty range at approximately USD 30 million to USD 60 million. This estimate will be further refined through the penalty mitigation memorandum analysis that C&H is preparing (discussed in Section IX below).

To support the Audit Committee's consideration of a reserve increase, C&H anticipates preparing an updated litigation reserve memorandum recommending an increase to USD 50 million. This memorandum will be coordinated with TMC's external auditors, Calvert & Associates LLP (Daniel Moreau, TMC Engagement Partner), to ensure adequacy under the applicable accounting standards—specifically ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under IFRS, as applicable to TMC's dual reporting obligations. The Audit Committee, chaired by Janet Moreau-Shaw, will be the appropriate body to approve any reserve adjustment.

We note that the timing of any reserve adjustment should be coordinated with TMC's disclosure obligations to ensure consistency between the reserve level and the Company's public disclosures regarding the investigation.

B. Professional Fees Update

Calderwood & Harkness's total fees and disbursements invoiced through June 30, 2023 are tracking toward the revised budget projection that was approved in Q1 2023. As Priya Anand is aware, the initial budget estimate for the matter was USD 12 million (as set forth in the engagement letter dated February 18, 2022). However, due to the expanded scope of the engagement—including the second grand jury subpoena, additional witness preparation sessions, and the compliance consultant engagement—the budget was revised upward during Q1 2023. The budget overage was approved by Priya Anand per the February 10, 2023 communication from Howard Bellamy, Billing Partner (Calderwood & Harkness LLP, One Liberty Plaza, 50th Floor, New York, New York 10006).

The current total projected fees and disbursements for C&H through the anticipated close of the matter are estimated at approximately USD 18.7 million. This projection assumes the matter resolves through a non-prosecution agreement or equivalent resolution, and does not account for the costs of trial preparation and trial in the event the matter were to proceed to indictment (which would substantially increase the fee estimate).

Vendor costs incurred and projected through Q2 2023 are as follows:

The grand total projected professional fees for the matter (C&H fees and disbursements plus all vendor costs) is estimated at approximately USD 23.95 million. We will continue to monitor the budget closely and will advise promptly of any material changes to the projection.

For reference, the hourly rates applicable to C&H personnel on this matter, as established in the engagement letter dated February 18, 2022, are as follows:

• Partners: USD 1,450 per hour

• Senior Associates: USD 950 per hour

• Associates: USD 725 per hour

• Plus disbursements at cost

C. D&O Insurance

TMC tendered notice of the investigation to Northland Mutual Insurance Co. (55 Yonge Street, Suite 2100, Toronto, Ontario M5E 1J4) on March 4, 2022, under D&O Policy No. NMI-DO-2021-5547. The policy has a policy period of July 1, 2021 through July 1, 2022 (renewed annually thereafter), with an aggregate limit of USD 50 million and a retention of USD 2.5 million.

Northland acknowledged coverage for defense costs of individual directors and officers of TMC who are or may become the subject of the investigation. However, Northland issued a reservation of rights regarding two significant issues: (1) entity-level coverage for TMC itself, and (2) the applicability of the regulatory/criminal exclusion contained in the policy. C&H responded to the reservation of rights by letter dated April 28, 2022, contesting the applicability of the criminal-act exclusion at the pre-adjudication stage. The criminal-act exclusion, by its terms, is triggered only by a "final adjudication" of criminal conduct, and C&H's position is that the exclusion cannot be invoked to deny coverage at a stage when no charges have been filed and no adjudication has occurred.

TMC's excess-layer carriers were also notified:

• Greystone Specialty Insurance Ltd. — Layer 2, providing USD 25 million excess of USD 50 million. Notified March 8, 2022.

• Sentinel Re Ltd. — Layer 3, providing USD 25 million excess of USD 75 million. Notified March 8, 2022.

There has been no material change in the insurance posture during Q2 2023. The reservation-of-rights dispute with Northland remains unresolved but is not currently impeding the defense or the payment of defense costs for individual directors and officers. C&H will continue to monitor the insurance situation and will engage insurance coverage counsel if necessary to resolve the reservation-of-rights dispute, particularly if the matter approaches a resolution that implicates entity-level coverage.

VIII. STAFFING AND TEAM UPDATE

Calderwood & Harkness's staffing for this matter has remained consistent throughout Q2 2023 and is as follows:

In addition to the core team listed above, C&H has utilized contract review attorneys for the document review component of the second subpoena production, as supervised by Monica Reyes. These contract attorneys are subject to C&H's standard confidentiality and privilege protections.

No staffing changes are anticipated for Q3 2023. The current team structure has proven effective and efficient, and the staffing level is appropriate for the anticipated Q3 workload, which will include the compliance program submission, the updated affected-commerce analysis, and continued cooperation dialogue with the DOJ.

IX. ANTICIPATED Q3 2023 DEVELOPMENTS AND NEXT STEPS

Looking ahead to Q3 2023 (July 1 through September 30, 2023), C&H anticipates the following principal developments and action items:

1. Enhanced Antitrust Compliance Program Submission. The submission of the enhanced antitrust compliance program proposal to the DOJ is targeted for September 15, 2023. C&H and Meridian Compliance Partners are working collaboratively to ensure that the program design reflects best practices, addresses the specific deficiencies identified in the internal investigation, and satisfies the DOJ's expectations as articulated in its published guidance. This submission is expected to be a significant milestone in the cooperation dialogue.

2. Updated Affected-Commerce Analysis. Hargrove Forensic Advisory is expected to complete its updated affected-commerce analysis incorporating the data produced under the second subpoena during Q3 2023. The updated analysis will provide TMC and C&H with a refined understanding of the affected-commerce figures and will serve as the foundation for the penalty mitigation analysis.

3. Litigation Reserve Memorandum. C&H will prepare an updated litigation reserve memorandum for the TMC Audit Committee, recommending an increase in the reserve from USD 30 million to USD 50 million. This memorandum will be coordinated with Calvert & Associates LLP regarding accounting standards compliance and will be submitted to the Audit Committee for consideration at its next scheduled meeting.

4. Continued Cooperation Dialogue. C&H will continue its regular dialogue with DOJ prosecutors Kowalski and Reeves. A specific objective for Q3 is to seek to understand the DOJ's timeline for resolution of the investigation and to explore whether the DOJ is prepared to begin NPA negotiations with TMC. C&H will calibrate the timing and substance of these discussions based on the government's signals and the status of the compliance program submission.

5. Penalty Mitigation Memorandum. C&H will prepare a comprehensive penalty mitigation memorandum analyzing the applicable provisions of the United States Sentencing Guidelines for organizations (USSG Chapter 8), relevant cooperation credit precedents in DOJ Antitrust Division matters, and the estimated penalty range for TMC based on the affected-commerce figures and applicable mitigating factors. This memorandum will inform TMC's negotiating position in any resolution discussions.

6. Monitoring Co-Targets and Cooperator. C&H will continue to monitor the status of co-targets Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd., as well as the ongoing Cascade Chemical Supply Co. cooperation, to the extent that developments are observable through public filings, press reports, or communications from the DOJ. Any significant developments involving the co-targets could affect the DOJ's timeline or posture with respect to TMC.

7. Monitoring Gavin Holt. C&H will continue to monitor Gavin Holt's separate proceedings through communication with his personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, as appropriate and to the extent consistent with TMC's interests. Any change in Mr. Holt's posture—including any decision to cooperate with the DOJ—would be a significant development for TMC's own resolution discussions.

X. CONCLUSION AND RECOMMENDATION

Q2 2023 was a productive and consequential quarter that materially advanced TMC's cooperation posture and positioned the Company favorably for the next phase of the DOJ's investigation. The successful completion of the Chu and Eriksen proffer sessions demonstrated TMC's genuine willingness to make current employees available to the government on a voluntary basis. The timely completion of the second subpoena production—a substantial undertaking involving approximately 68,000 additional documents—further evidenced TMC's commitment to full compliance and cooperation. And the engagement of Meridian Compliance Partners signals TMC's genuine commitment to remediation and the prevention of future antitrust violations, which C&H believes will be favorably received by the DOJ.

Based on the current posture of the matter, C&H recommends the following:

(a) Continue the Cooperation Strategy. TMC should continue its proactive cooperation strategy as outlined in the February 15, 2023 cooperation proffer and as implemented through the various measures described in this report. This strategy continues to provide the best opportunity for a favorable resolution of the investigation.

(b) Reserve Increase. The General Counsel should coordinate with the Audit Committee to consider the recommended increase of the litigation reserve from USD 30 million to USD 50 million, based on the updated penalty range analysis.

(c) Compliance Program. TMC should ensure that the necessary internal resources and management support are available to support Meridian's compliance program design work and the targeted September 2023 submission to the DOJ.

The next quarterly status report will be delivered in approximately October 2023, covering Q3 2023 developments.

We appreciate the continued confidence that TMC's management and Board have placed in Calderwood & Harkness in this matter, and we remain committed to achieving the best possible outcome for the Company. Please do not hesitate to contact me directly with any questions regarding this report or any aspect of the matter.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Elaine Forsythe Partner, Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-0147

Email: eforsythe@calderwoodharkness.com

Date: July 10, 2023

cc: Søren Dalmqvist, Chief Executive Officer, Torchlight Mining Corp. (via separate privileged communication) Howard Bellamy, Partner, Calderwood & Harkness LLP

PRIVILEGE NOTICE: This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in connection with its representation of Torchlight Mining Corp. It is intended solely for the use of the addressee and authorized personnel within Torchlight Mining Corp. This memorandum should not be disclosed, distributed, forwarded, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP. Any inadvertent disclosure of this memorandum does not constitute a waiver of the attorney-client privilege, the work-product doctrine, or any other applicable privilege or protection.

Vendor	Projected Total Fees	Notes
Redstone Digital Forensics Inc.	Approx. USD 2.3 million	Additional costs for second subpoena collection and processing
Hargrove Forensic Advisory LLC	Approx. USD 1.85 million	Ongoing economic analysis; updated affected-commerce work in progress
Meridian Compliance Partners LLC	Approx. USD 1.1 million	Engagement commencing; projected through NPA execution (if applicable)
Total Vendor Costs	Approx. USD 5.25 million
Attorney	Role	Office
Elaine Forsythe — Partner	Responsible Partner; leading defense strategy, directing internal investigation, and serving as lead negotiator with DOJ	San Francisco
Howard Bellamy — Partner	Billing Partner; managing engagement economics, client budgeting, and coordination of billing	New York
Aaron Liu — Lead Associate	Managing document review, grand jury subpoena responses, and witness preparation; attending proffer sessions as witness counsel	San Francisco
Monica Reyes — Working Associate	Handling privilege review, legal memoranda, and forensic consultant coordination	San Francisco

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / WORK PRODUCT DOCTRINE DO NOT DISTRIBUTE WITHOUT PRIOR APPROVAL OF OUTSIDE COUNSEL
CALDERWOOD & HARKNESS LLP Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104
July 10, 2023
MEMORANDUM
TO: Priya Anand, General Counsel Torchlight Mining Corp. 200 Bay Street, Suite 3400 Toronto, ON M5J 2J2, Canada
FROM: Elaine Forsythe, Partner Antitrust & Competition Practice Group Calderwood & Harkness LLP
RE: Quarterly Status Report — Q2 2023: DOJ Antitrust Division Grand Jury Investigation (Grand Jury No. GJ-22-0194, N.D. Cal.)
MATTER NO.: 1039-00001
CLASSIFICATION: PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / WORK PRODUCT DOCTRINE — DO NOT DISTRIBUTE WITHOUT PRIOR APPROVAL OF OUTSIDE COUNSEL
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared in connection with the pending grand jury investigation of Torchlight Mining Corp. ("TMC" or the "Company") by the Antitrust Division of the U.S. Department of Justice ("DOJ"). It is provided solely for the use of the recipient and authorized personnel within TMC and should not be disclosed, distributed, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP ("C&H"). Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
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I. EXECUTIVE SUMMARY
This report covers the period from April 1, 2023 through June 30, 2023, and summarizes the principal developments in the DOJ Antitrust Division's ongoing grand jury investigation (Grand Jury No. GJ-22-0194, U.S. District Court for the Northern District of California) during the second quarter of 2023. Q2 2023 was a highly active quarter for this matter, marked by several significant developments that have materially advanced both the investigation itself and TMC's cooperation posture vis-à-vis the government.
The principal developments during the quarter were as follows:
1.  Witness Proffer Sessions. Two voluntary proffer sessions were conducted with TMC employees—Sandra Chu, Director of Pricing Analytics, and Thomas Eriksen, Regional Sales Manager (Western Region), each of the U.S. Specialty Minerals Division—on March 10, 2023 and April 22, 2023, respectively. Both sessions were conducted at the DOJ Antitrust Division San Francisco Field Office under queen-for-a-day protections negotiated in advance by C&H. The sessions were productive and consistent with the findings of TMC's internal investigation. The DOJ has not requested follow-up sessions with either witness at this time.
2.  Second Grand Jury Subpoena. On May 15, 2023, TMC received a second grand jury subpoena duces tecum (Subpoena No. GJ-22-0194-SD-007) seeking expanded categories of documents, including customer-level pricing data, customer contract files, and NASMC-related communications over an extended date range (January 2015 through December 2022). C&H, in coordination with Redstone Digital Forensics Inc. ("Redstone"), completed the collection, processing, privilege review, and production of approximately 68,000 additional responsive documents by June 30, 2023. Cumulative production to the DOJ now stands at approximately 555,000 documents (approximately 3.2 million pages).
3.  Compliance Consultant Engagement. At the close of Q2, C&H retained Meridian Compliance Partners LLC ("Meridian") on behalf of TMC to design and implement an enhanced antitrust compliance program. This engagement is intended both to genuinely strengthen TMC's compliance infrastructure and to demonstrate to the DOJ the Company's commitment to remediation—a factor that will be significant in any cooperation credit assessment and potential non-prosecution agreement ("NPA") negotiation.
4.  Cooperation Dialogue. C&H has maintained regular and constructive dialogue with the DOJ's lead prosecutors, Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, throughout the quarter. A supplemental cooperation submission was provided to the DOJ on May 1, 2023. The investigation is being supervised by Deputy Assistant Attorney General Julia Stafford-Hayes. While the DOJ has not provided a formal indication of the disposition of the investigation as to TMC, the tone of communications has remained constructive and receptive to TMC's cooperation posture.
As of the close of Q2 2023, TMC remains a target of the grand jury investigation. The overarching cooperation strategy articulated in C&H's June 8, 2022 cooperation letter and further developed in the cooperation proffer submitted to the DOJ on February 15, 2023—which remains the foundational document in the cooperation dialogue—is on track. TMC's proactive posture, including timely witness availability and prompt document production, has been well-received by the government. We continue to believe that this strategy provides TMC with the best opportunity to resolve this matter through a non-prosecution agreement or, at minimum, to obtain substantial cooperation credit in any alternative resolution.
The balance of this memorandum provides detailed discussion of each of these developments and related matters.
II. WITNESS PROFFER SESSIONS
A. Sandra Chu — Proffer Session (March 10, 2023)
Sandra Chu, Director of Pricing Analytics within the U.S. Specialty Minerals Division of TMC, appeared for a voluntary proffer session with DOJ prosecutors on March 10, 2023. The session took place at the DOJ Antitrust Division San Francisco Field Office, located at 450 Golden Gate Avenue, Room 10-0101, San Francisco, California 94102. The DOJ was represented at the session by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves. Ms. Chu was accompanied by Aaron Liu, Lead Associate at Calderwood & Harkness, who served as her counsel for the session.
Proffer Letter Protections. Prior to the session, C&H negotiated and executed a proffer letter with the DOJ securing standard queen-for-a-day protections for Ms. Chu. The proffer letter was transmitted from C&H to the DOJ on March 5, 2023, and was countersigned by Ms. Kowalski on the same date. Under the terms of the proffer letter, statements made by Ms. Chu during the session cannot be used against her in the government's case-in-chief, although the government retains the right to use derivative evidence and to impeach with proffer statements in the event Ms. Chu later provides materially inconsistent testimony. These are standard protections consistent with prevailing DOJ Antitrust Division practice.
Witness Preparation. C&H conducted extensive preparation sessions with Ms. Chu in advance of the proffer. The preparation focused on a thorough review of relevant documents, an explanation of the proffer process and the scope of the queen-for-a-day protections, and a detailed discussion of the anticipated substantive areas of DOJ inquiry. A comprehensive witness preparation memorandum was prepared by Aaron Liu, dated March 1, 2023, and is maintained in the matter file. The preparation sessions were conducted over two days at C&H's San Francisco office.
Substance of the Proffer Session. The proffer session lasted approximately four and one-half hours, including breaks. The key topics addressed during the session included the following:
•  Role and Reporting Structure. Ms. Chu described her role as Director of Pricing Analytics, a position she has held since June 2016. She reported directly to Gavin Holt, former Vice President of U.S. Specialty Minerals Sales, throughout the relevant period. Her responsibilities included analyzing market pricing data, preparing pricing recommendations, and implementing pricing adjustments as directed by her superiors.
•  Pricing Adjustment Instructions. Ms. Chu testified that she received pricing-adjustment instructions from Mr. Holt on at least twelve (12) occasions during the alleged conspiracy period that, upon analysis, correlated temporally with competitor price movements in the relevant product markets. She described these instructions as typically being communicated via email or during one-on-one meetings, and stated that Mr. Holt generally characterized the adjustments as market-responsive decisions reflecting competitive conditions and customer demand signals.
•  Product-Specific Pricing Processes. Ms. Chu provided detailed testimony regarding TMC's internal pricing processes for each of the three product categories at issue in the investigation: high-purity feldspar, industrial talc, and rare-earth concentrates. She described the typical pricing workflow, including the role of market intelligence, customer negotiations, and management approvals.
•  Lack of Direct Knowledge of Competitor Communications. Ms. Chu consistently maintained throughout the session that she had no direct knowledge of any communications between Mr. Holt and personnel at Ridgecrest Minerals Inc. ("Ridgecrest") or Pinnacle Earth Resources Ltd. ("Pinnacle"). She stated that Mr. Holt did not disclose to her the basis for his pricing-adjustment instructions beyond the general characterizations described above, and that she had no reason during the relevant period to believe the instructions were derived from competitor coordination.
DOJ Focus Areas. The DOJ prosecutors inquired in considerable detail about several specific areas during the session. In particular, the prosecutors focused on the timing and substance of Mr. Holt's pricing instructions, probing whether there were patterns in the timing of instructions relative to competitor announcements, and whether Ms. Chu questioned the basis for the adjustments at any point. The prosecutors also asked whether Ms. Chu was aware of any communications—whether in person, by email, by telephone, or through any messaging application—between Mr. Holt and personnel at Ridgecrest (specifically Carl Edgerton, VP of Sales) or Pinnacle (specifically Kevin Tsang, former SVP of Commercial Operations). Ms. Chu responded consistently that she was not aware of any such communications.
Post-Proffer Assessment. A post-proffer debriefing memorandum was prepared by Aaron Liu and is dated March 12, 2023. Based on our observation of the session and the debriefing, C&H's assessment is that the proffer session went well. Ms. Chu's testimony was measured, consistent, and fully aligned with the findings of TMC's internal investigation. Her testimony corroborates the pricing-adjustment pattern identified in the internal investigation without establishing any personal culpability on her part. The DOJ prosecutors appeared satisfied with Ms. Chu's level of cooperation and the substance of her testimony. We do not anticipate that the DOJ will seek charges against Ms. Chu individually.
B. Thomas Eriksen — Proffer Session (April 22, 2023)
Thomas Eriksen, Regional Sales Manager (Western Region) within the U.S. Specialty Minerals Division of TMC, appeared for a voluntary proffer session with DOJ prosecutors on April 22, 2023. The session took place at the same DOJ Antitrust Division San Francisco Field Office location. The DOJ was again represented by Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves. Mr. Eriksen was accompanied by Aaron Liu.
Proffer Letter Protections. As with the Chu session, C&H negotiated and executed a proffer letter with the DOJ securing queen-for-a-day protections for Mr. Eriksen. The proffer letter was transmitted from C&H to the DOJ on April 15, 2023, and was countersigned by Ms. Kowalski on the same date. The terms of the proffer letter were substantially identical to those governing the Chu session.
Witness Preparation. C&H conducted preparation sessions with Mr. Eriksen in advance of the proffer. A witness preparation memorandum was prepared by Aaron Liu, dated April 10, 2023, and is maintained in the matter file. The preparation sessions focused on Mr. Eriksen's attendance at trade association conferences, his interactions with competitor personnel, and his knowledge of pricing decisions within the division.
Substance of the Proffer Session. The proffer session lasted approximately three and three-quarter hours, including breaks. The key topics addressed during the session included the following:
•  NASMC Conference Attendance. Mr. Eriksen confirmed his attendance at four quarterly conferences of the North American Specialty Minerals Council ("NASMC") during the alleged conspiracy period (January 2017 through August 2021). These conferences were held in Arlington, Virginia; Scottsdale, Arizona; and Orlando, Florida (two conferences at the Orlando location). Mr. Eriksen described the conferences as typical industry association events involving panel discussions, presentations, and networking opportunities.
•  Observations Regarding Holt and Competitor Personnel. The DOJ prosecutors asked Mr. Eriksen whether he observed or participated in side meetings between Gavin Holt and counterparts at Ridgecrest (specifically Carl Edgerton) or Pinnacle (specifically Kevin Tsang) during or adjacent to the NASMC conferences. Mr. Eriksen stated that he observed Mr. Holt interacting socially with various industry participants, including Mr. Edgerton and Mr. Tsang, but that he was not present for any substantive discussions between them and was not aware of the content of any private conversations.
•  Knowledge of Pricing Decisions. Mr. Eriksen described his role in the pricing process as primarily executing pricing decisions that were communicated to the sales team by division management. He stated that he had no involvement in the formulation of pricing strategy at the divisional level and did not participate in decisions regarding pricing adjustments for the three product categories at issue.
•  VaultChat Encrypted Messaging Application. The DOJ prosecutors specifically inquired whether Mr. Eriksen was aware of any use of the VaultChat encrypted messaging application by Mr. Holt or other TMC personnel. Mr. Eriksen stated that he was not aware of any such use, and that he had not himself used VaultChat for any business-related communications.
DOJ Focus Areas. The prosecutors pressed Mr. Eriksen on specific conference dates and social events, asking whether he attended dinners or receptions at which competitor personnel were present, and whether he observed Mr. Holt engage in extended one-on-one conversations with Mr. Edgerton or Mr. Tsang at such events. Mr. Eriksen acknowledged attending certain group dinners at the conferences at which competitor personnel were present but denied observing any discussions that he understood to involve pricing or competitive information. The prosecutors also explored whether Mr. Eriksen had been directed by Mr. Holt or anyone else to avoid documenting certain communications or to use particular communication channels.
Post-Proffer Assessment. A post-proffer debriefing memorandum was prepared by Aaron Liu and is dated April 25, 2023. C&H's assessment is that the DOJ's questions suggested an ongoing interest in the extent of Mr. Eriksen's potential knowledge of the alleged conspiracy, but that the evidence of his direct participation in or awareness of any pricing coordination remains ambiguous at best. This assessment is consistent with the findings of the internal investigation, which identified no evidence directly implicating Mr. Eriksen in the alleged conduct. There is no indication at this time that the DOJ views Mr. Eriksen as a target or subject of the investigation. However, we will continue to monitor his status and will promptly advise if there is any change in the government's posture toward him.
C. Overall Witness Cooperation Assessment
The successful completion of both the Chu and Eriksen proffer sessions during Q2 2023 materially demonstrates TMC's ongoing commitment to making current employees available to the government on a voluntary basis, as communicated in C&H's June 8, 2022 cooperation letter to the DOJ and further elaborated in the cooperation proffer submitted February 15, 2023. The DOJ has not requested additional proffer sessions from either Ms. Chu or Mr. Eriksen at this time, and we interpret this as an indication that the government was satisfied with the substance and manner of their cooperation.
We note, for completeness, the continued posture of Gavin Holt. Mr. Holt, who served as Vice President of U.S. Specialty Minerals Sales until his resignation effective September 30, 2021, continues to be represented by personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, located at 50 California Street, Suite 2800, San Francisco, California 94111. As previously reported, Mr. Holt asserted his Fifth Amendment privilege against self-incrimination before the grand jury on June 14, 2022, and has not cooperated with TMC's internal investigation or with the DOJ. The Holt carve-out—i.e., the understanding that any cooperation credit or resolution as to TMC does not preclude individual prosecution of Mr. Holt—remains a key consideration in any future NPA negotiation. The DOJ has indicated through counsel that it reserves the right to pursue charges against Mr. Holt individually, and we expect that any NPA offered to TMC would be conditioned, in part, on the Company's continued cooperation with respect to the government's case against Mr. Holt.
III. SECOND GRAND JURY SUBPOENA — RECEIPT AND COMPLIANCE
A. Receipt and Analysis
On May 15, 2023, TMC received a second grand jury subpoena duces tecum, designated Subpoena No. GJ-22-0194-SD-007, issued by the grand jury sitting in the United States District Court for the Northern District of California, San Francisco Division. The subpoena was served on TMC's registered agent for service of process in the United States and was promptly forwarded to C&H.
The second subpoena seeks additional categories of documents beyond those covered by the first subpoena (GJ-22-0194-SD-003), which was received on February 14, 2022 and with which TMC has fully complied. Specifically, the second subpoena seeks the following categories of materials:
(a) Detailed pricing data for each of the three product categories at issue in the investigation—high-purity feldspar, industrial talc, and rare-earth concentrates—on a customer-by-customer basis, for the period from January 1, 2015 through December 31, 2022;
(b) Customer contract files, including master supply agreements, amendments, side letters, pricing schedules, and rebate or volume-discount arrangements, for the same product categories and time period;
(c) NASMC-related communications, including conference attendance records, registration materials, agenda documents, presentation materials, pre- and post-conference correspondence, and any internal communications referencing NASMC events or interactions with competitor personnel at such events.
Upon receipt, C&H prepared an internal subpoena analysis memorandum, dated May 18, 2023 (prepared by Aaron Liu and Monica Reyes, Working Associate), assessing the scope of the second subpoena, identifying the responsive data sources within TMC's information systems, and estimating the likely volume of the production. Several aspects of the second subpoena are noteworthy:
•  The expanded date range is significant. While the alleged conspiracy period is January 2017 through August 2021, the second subpoena reaches back to January 2015 (two years before the alleged conspiracy start) and extends through December 2022 (over a year after the alleged conspiracy end). This expansion strongly indicates that the DOJ is examining pre-conspiracy and post-conspiracy pricing patterns for comparison purposes, likely to support an economic analysis demonstrating the effect of the alleged conspiracy on pricing and to establish baseline competitive pricing levels.
•  The customer-by-customer granularity of the pricing data request goes beyond the aggregate pricing data produced under the first subpoena and will enable the DOJ and its economic experts to conduct a more detailed analysis of the alleged price-fixing conduct, including potentially identifying specific customers who may have been affected by coordinated pricing.
•  The NASMC-related communications request reflects the DOJ's continued focus on the trade association conferences as a facilitation mechanism for the alleged conspiracy, consistent with the DOJ's questioning of Mr. Eriksen at his proffer session.
B. Document Collection and Production
To effectuate the supplemental collection effort, C&H re-engaged Redstone Digital Forensics Inc. ("Redstone"), with Neil Ashworth continuing as Project Director (7925 Jones Branch Drive, Suite 600, McLean, Virginia 22102). Redstone has served as the forensic collection and e-discovery vendor on this matter since the commencement of the first subpoena response in early 2022.
The supplemental collection focused on the following additional custodians and data sources:
•  TMC's pricing databases within the U.S. Specialty Minerals Division, including the Hollowell & Co.-based pricing management system and associated reporting tools;
•  TMC's customer contract management systems, including the division's contract repository and related filing systems;
•  NASMC-related files maintained by personnel in the U.S. Specialty Minerals Division, including email accounts, shared drives, and physical files;
•  The collection was centered on TMC's U.S. Specialty Minerals Division offices located at 8750 West Sahara Avenue, Suite 210, Reno, Nevada 89117, with supplemental collection from the San Francisco corporate office.
The collection, processing, review, and production proceeded on the following timeline:
•  May 18–26, 2023: Redstone conducted forensic collection of data from the identified custodians and data sources. Approximately 68,000 additional documents were collected and ingested into Redstone's processing and review platform.
•  May 29–June 23, 2023: The review team, led by Monica Reyes and supported by contract review attorneys, conducted a comprehensive responsiveness and privilege review of the collected documents. The review was conducted in accordance with the privilege review protocol established March 10, 2022.
•  June 30, 2023: Production of responsive, non-privileged documents was completed and transmitted to the DOJ. The production was accompanied by a cover letter from Elaine Forsythe to Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, specifying the applicable Bates-number ranges (TMC-GJ-0487001 through TMC-GJ-0555000) and confirming the production format (load files with native format attachments, consistent with the production specifications agreed upon for the first subpoena production).
An accompanying privilege log, documenting all documents withheld on the basis of attorney-client privilege or work-product protection, was prepared and submitted concurrently with the production, dated June 30, 2023.
As a result of the second subpoena production, cumulative production to the DOJ now stands at approximately 555,000 documents (approximately 487,000 from the first subpoena production plus approximately 68,000 from the second subpoena production), totaling approximately 3.2 million pages. This is a substantial production that reflects TMC's commitment to full and timely compliance with the government's requests.
C. Privilege Review
The privilege review for the second subpoena production was conducted in accordance with the privilege review protocol that was established on March 10, 2022, at the outset of the first subpoena response. The review was performed on Redstone's hosting platform utilizing technology-assisted review workflows where appropriate, supplemented by manual review of documents flagged as potentially privileged.
The review team was led by Monica Reyes of Calderwood & Harkness, who oversaw the application of privilege designations and the preparation of the privilege log. All documents withheld or redacted on the basis of privilege were logged in accordance with the requirements of Federal Rule of Civil Procedure 26(b)(5)(A) and the specific logging protocols agreed upon with the DOJ.
Importantly, the FRE 502(d) clawback protections negotiated with the DOJ at the outset of this matter remain in full force and effect. Under the terms of the clawback agreement, the inadvertent production of privileged materials does not constitute a waiver of the privilege, and the government has agreed to return or destroy any such materials upon notification by C&H. No clawback requests were necessary during the Q2 2023 production.
No significant privilege disputes arose during the second production. There were a small number of documents as to which the privilege determination required careful analysis—principally documents reflecting dual-purpose communications involving both legal advice and business advice—but these were resolved internally in accordance with established review protocols and did not require negotiation with the DOJ.
IV. ENGAGEMENT OF MERIDIAN COMPLIANCE PARTNERS LLC
On or about the close of Q2 2023, with the formal engagement letter executed August 1, 2023 and substantive work commencing in early Q3, Calderwood & Harkness retained Meridian Compliance Partners LLC ("Meridian") on behalf of TMC to design and implement an enhanced antitrust compliance program for the Company. The engagement is being led by Claudia Ferraro, a recognized expert in antitrust compliance program design and implementation, at Meridian's Washington, D.C. office (1100 Connecticut Avenue NW, Suite 730, Washington, DC 20036).
Background and Rationale. The engagement of a compliance consultant was driven by the findings of TMC's internal investigation, which were presented to the TMC Board of Directors on January 20, 2023. Among the key findings was that TMC's existing antitrust compliance program—originally adopted in approximately 2014—was inadequate in several material respects:
•  No annual antitrust compliance training had been conducted for commercial personnel since 2018, leaving a gap of nearly five years during which no training was provided;
•  There was no structured monitoring of employee interactions at trade association events, including NASMC conferences, despite the fact that such events are well-recognized as high-risk settings for antitrust violations in the industrial minerals sector;
•  No audit of employee contacts with competitor personnel had been performed at any time during the relevant period or thereafter.
These deficiencies are significant not only as a matter of compliance best practice but also as a factor in the DOJ's evaluation of TMC's cooperation and remediation efforts. The engagement of Meridian is therefore intended to serve dual purposes: first, to genuinely strengthen TMC's antitrust compliance infrastructure and reduce the risk of future violations; and second, to demonstrate to the DOJ that TMC is committed to meaningful remediation, which the DOJ's Antitrust Division has consistently identified as a significant factor in determining cooperation credit and the availability of non-prosecution agreements.
Scope of Engagement. Meridian's engagement encompasses the following workstreams:
1.  Comprehensive Antitrust Compliance Risk Assessment. Meridian will conduct a company-wide assessment of TMC's antitrust compliance risks, including interviews with key personnel, review of existing policies and procedures, and benchmarking against industry best practices and DOJ guidance (including the DOJ's July 2019 Evaluation of Corporate Compliance Programs framework and its subsequent updates).
2.  Mandatory Annual Training Modules. Meridian will design mandatory annual antitrust compliance training modules for all commercial personnel, including sales, marketing, pricing, and business development functions, as well as tailored training for senior management and the Board of Directors.
3.  Competitor Contact Policies. Meridian will develop comprehensive policies governing employee contacts with competitor personnel, including pre-approval requirements, documentation obligations, and post-contact reporting.
4.  Trade Association Interaction Guidelines. Meridian will prepare specific guidelines for employee participation in trade association events, including protocols for conference attendance, restrictions on certain types of interactions, and mandatory post-event certifications.
5.  Compliance Hotline. Meridian will assist TMC in implementing a confidential compliance reporting hotline available to all employees, with established protocols for the investigation and escalation of reports.
6.  Periodic Compliance Auditing. Meridian will design a periodic auditing process to test the effectiveness of the enhanced compliance program on an ongoing basis, including audit frequency, scope, and reporting.
Timeline and Submission to DOJ. C&H and Meridian are targeting the submission of the enhanced antitrust compliance program proposal to the DOJ by mid-September 2023 (targeted date: September 15, 2023). The submission will be accompanied by a cover letter from C&H explaining the program design, the rationale for each component, and TMC's commitment to full implementation. We believe this submission will be a significant milestone in the cooperation dialogue and will positively influence the DOJ's assessment of TMC's remediation efforts.
Privilege Protections. Meridian's engagement has been structured through Calderwood & Harkness—rather than directly with TMC—in order to preserve work-product protections to the extent possible. All of Meridian's work product, reports, and communications are being generated at the direction of counsel in anticipation of litigation and in connection with the provision of legal advice to TMC. While we recognize that the enhanced compliance program itself will ultimately be disclosed to the DOJ, the underlying work product, drafts, and analysis supporting the program design will be maintained as protected attorney work product.
V. DOJ INVESTIGATION STATUS AND COOPERATION DIALOGUE
Current Status of TMC's Cooperation
Following the submission of the cooperation proffer to the DOJ on February 15, 2023, and the successful completion of the Chu and Eriksen proffer sessions described in Section II above, C&H has maintained regular and constructive dialogue with the DOJ's lead prosecutors throughout Q2 2023. This dialogue has been conducted primarily through telephone conferences and correspondence between Elaine Forsythe and Trial Attorney Denise Kowalski and Senior Trial Attorney Marcus Reeves, with the investigation supervised at a senior level by Deputy Assistant Attorney General Julia Stafford-Hayes.
On May 1, 2023, C&H submitted a supplemental cooperation submission to the DOJ, providing additional factual context developed through the continued internal investigation and updated witness availability information. The supplemental submission was well-received; Ms. Kowalski acknowledged receipt and indicated that the DOJ would continue to assess TMC's cooperation in light of the totality of the Company's efforts.
DOJ Disposition
As of the close of Q2 2023, the DOJ has not provided a formal indication regarding the ultimate disposition of the investigation as to TMC—that is, whether it intends to seek an indictment, negotiate a plea agreement, or offer a non-prosecution agreement. This is not unusual at this stage of a major antitrust investigation. However, the tone of communications throughout the quarter has been constructive and professional. The DOJ has been responsive to C&H's outreach, has accommodated reasonable scheduling requests for proffer sessions, and has acknowledged TMC's timely compliance with the second subpoena. We interpret these signals as generally favorable to TMC's cooperation posture, though we caution against drawing definitive conclusions about the likely outcome at this stage.
Status of Co-Targets and Cooperator
The DOJ continues to investigate the following entities as co-targets:
•  Ridgecrest Minerals Inc. ("Ridgecrest"), represented by Davenport, Kline & Archer LLP (lead partner: Helen Marchetti). Ridgecrest's cooperation posture is unknown to C&H, as no joint defense agreement or information-sharing arrangement is in place.
•  Pinnacle Earth Resources Ltd. ("Pinnacle"), represented by Ashford Whitmore LLP (lead partner: George Nakamura). Similarly, Pinnacle's cooperation posture is unknown to C&H.
In addition, Cascade Chemical Supply Co. ("Cascade"), represented by Whitfield, Strauss & Tully LLP (lead partner: Rebecca Ostrander), continues to operate under its cooperation agreement with the DOJ, which was entered on or about September 15, 2021. Cascade is understood to be the first cooperator in the investigation and its cooperation agreement predates the issuance of the first subpoena to TMC. The substance of Cascade's cooperation—including the identity of cooperating witnesses and the specific information provided to the DOJ—is not known to C&H, although it is reasonable to infer that Cascade's cooperation played a significant role in the initiation of the investigation.
Joint Defense Agreements
Consistent with the recommendation set forth in C&H's memorandum to TMC dated July 15, 2022, no joint defense agreements have been entered with counsel for any co-target. As discussed in that memorandum, joint defense agreements are inadvisable in the current posture for several reasons, including the divergent interests of the co-targets, the risk that participation in a joint defense arrangement could be perceived by the DOJ as inconsistent with TMC's cooperation posture, and the potential for information learned through a joint defense arrangement to create complications in the cooperation dialogue. C&H continues to recommend against entering any such agreements.
VI. INTERNAL INVESTIGATION — STATUS UPDATE
The internal investigation conducted by C&H on behalf of TMC was substantially completed with the presentation of final findings to the TMC Board of Directors on January 20, 2023. The key findings of the internal investigation remain unchanged and are summarized below for reference:
•  Principal Wrongdoer. Gavin Holt, former Vice President of U.S. Specialty Minerals Sales, exchanged pricing information with Carl Edgerton (Vice President of Sales, Ridgecrest Minerals Inc.) and Kevin Tsang (former Senior Vice President of Commercial Operations, Pinnacle Earth Resources Ltd.) on at least 37 documented occasions between March 2017 and July 2021. These exchanges were conducted primarily through VaultChat encrypted messages and in-person conversations at NASMC conferences.
•  Scope of Conduct. The pricing information exchanged pertained to the three product categories at issue: high-purity feldspar, industrial talc, and rare-earth concentrates. The exchanges included both current pricing information and advance notice of planned pricing adjustments.
•  No C-Suite or Board Involvement. The internal investigation identified no evidence implicating TMC's C-suite executives—including Søren Dalmqvist, Chief Executive Officer, and Priya Anand, General Counsel—or any member of the Board of Directors, including Board Chair Margaret Caldwell, in the alleged conduct. The investigation concluded that the conduct was confined to Mr. Holt and was not known to or authorized by senior management.
Updated Economic Analysis
While the internal investigation itself is substantially complete, the compliance with the second subpoena has generated additional data—principally the customer-by-customer pricing records and customer contract files produced to the DOJ—that is being incorporated into the ongoing affected-commerce analysis being conducted by Hargrove Forensic Advisory LLC ("Hargrove"). The Hargrove engagement is being led by Dr. Vanessa Tremblay, Engagement Partner, at Hargrove's Chicago office (233 South Wacker Drive, Suite 4800, Chicago, Illinois 60606).
Hargrove's work continues on the economic analysis of pricing patterns and affected-commerce volume. This analysis is critical for several reasons: it informs TMC's own understanding of the scope and impact of the alleged conduct; it provides a basis for evaluating the DOJ's affected-commerce calculations; and it will be essential to any penalty negotiation.
The DOJ's current estimate of total affected commerce across all participants is approximately USD 1.34 billion. The DOJ has attributed TMC's share of affected commerce at approximately USD 478 million, representing approximately 35.7% of the total. These figures are based on the DOJ's preliminary analysis and may be subject to revision as additional data (including data from the second subpoena production) is analyzed.
The affected-commerce figures are significant because the DOJ's standard starting point for penalty calculation in criminal antitrust cases is 20% of affected commerce. Applied to TMC's attributed share, this yields a starting penalty of approximately USD 95.6 million (USD 478 million × 20%). However, this figure is subject to potential reductions for cooperation credit and remediation efforts. Based on precedent cases and the DOJ's published guidance, C&H believes that TMC's cooperation posture, remediation efforts, and the compliance program enhancements should support a meaningful reduction from this starting point. The penalty mitigation analysis is discussed further in Section IX below.
VII. FINANCIAL AND DISCLOSURE MATTERS
A. Litigation Reserve
TMC's current litigation reserve for this matter stands at USD 30 million, which was established in March 2022 in connection with the Company's FY 2021 annual report (filed on SEDAR+ and with the U.S. Securities and Exchange Commission on Form 40-F on March 28, 2022). The reserve was established following the receipt of the first grand jury subpoena in February 2022 and was discussed and confirmed at the Audit Committee meeting on October 18, 2022.
In light of the developments since the reserve was established—including the receipt of the target letter on May 20, 2022, the evolving case posture, the DOJ's affected-commerce estimates, and the penalty range analysis framework—C&H recommends that TMC's Audit Committee consider increasing the litigation reserve. Based on our analysis of the DOJ's likely penalty demand and the range of potential outcomes, including cooperation credit reductions, we currently estimate the most probable penalty range at approximately USD 30 million to USD 60 million. This estimate will be further refined through the penalty mitigation memorandum analysis that C&H is preparing (discussed in Section IX below).
To support the Audit Committee's consideration of a reserve increase, C&H anticipates preparing an updated litigation reserve memorandum recommending an increase to USD 50 million. This memorandum will be coordinated with TMC's external auditors, Calvert & Associates LLP (Daniel Moreau, TMC Engagement Partner), to ensure adequacy under the applicable accounting standards—specifically ASC 450 (Contingencies) under U.S. GAAP and IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) under IFRS, as applicable to TMC's dual reporting obligations. The Audit Committee, chaired by Janet Moreau-Shaw, will be the appropriate body to approve any reserve adjustment.
We note that the timing of any reserve adjustment should be coordinated with TMC's disclosure obligations to ensure consistency between the reserve level and the Company's public disclosures regarding the investigation.
B. Professional Fees Update
Calderwood & Harkness's total fees and disbursements invoiced through June 30, 2023 are tracking toward the revised budget projection that was approved in Q1 2023. As Priya Anand is aware, the initial budget estimate for the matter was USD 12 million (as set forth in the engagement letter dated February 18, 2022). However, due to the expanded scope of the engagement—including the second grand jury subpoena, additional witness preparation sessions, and the compliance consultant engagement—the budget was revised upward during Q1 2023. The budget overage was approved by Priya Anand per the February 10, 2023 communication from Howard Bellamy, Billing Partner (Calderwood & Harkness LLP, One Liberty Plaza, 50th Floor, New York, New York 10006).
The current total projected fees and disbursements for C&H through the anticipated close of the matter are estimated at approximately USD 18.7 million. This projection assumes the matter resolves through a non-prosecution agreement or equivalent resolution, and does not account for the costs of trial preparation and trial in the event the matter were to proceed to indictment (which would substantially increase the fee estimate).
Vendor costs incurred and projected through Q2 2023 are as follows:
The grand total projected professional fees for the matter (C&H fees and disbursements plus all vendor costs) is estimated at approximately USD 23.95 million. We will continue to monitor the budget closely and will advise promptly of any material changes to the projection.
For reference, the hourly rates applicable to C&H personnel on this matter, as established in the engagement letter dated February 18, 2022, are as follows:
•  Partners: USD 1,450 per hour
•  Senior Associates: USD 950 per hour
•  Associates: USD 725 per hour
•  Plus disbursements at cost
C. D&O Insurance
TMC tendered notice of the investigation to Northland Mutual Insurance Co. (55 Yonge Street, Suite 2100, Toronto, Ontario M5E 1J4) on March 4, 2022, under D&O Policy No. NMI-DO-2021-5547. The policy has a policy period of July 1, 2021 through July 1, 2022 (renewed annually thereafter), with an aggregate limit of USD 50 million and a retention of USD 2.5 million.
Northland acknowledged coverage for defense costs of individual directors and officers of TMC who are or may become the subject of the investigation. However, Northland issued a reservation of rights regarding two significant issues: (1) entity-level coverage for TMC itself, and (2) the applicability of the regulatory/criminal exclusion contained in the policy. C&H responded to the reservation of rights by letter dated April 28, 2022, contesting the applicability of the criminal-act exclusion at the pre-adjudication stage. The criminal-act exclusion, by its terms, is triggered only by a "final adjudication" of criminal conduct, and C&H's position is that the exclusion cannot be invoked to deny coverage at a stage when no charges have been filed and no adjudication has occurred.
TMC's excess-layer carriers were also notified:
•  Greystone Specialty Insurance Ltd. — Layer 2, providing USD 25 million excess of USD 50 million. Notified March 8, 2022.
•  Sentinel Re Ltd. — Layer 3, providing USD 25 million excess of USD 75 million. Notified March 8, 2022.
There has been no material change in the insurance posture during Q2 2023. The reservation-of-rights dispute with Northland remains unresolved but is not currently impeding the defense or the payment of defense costs for individual directors and officers. C&H will continue to monitor the insurance situation and will engage insurance coverage counsel if necessary to resolve the reservation-of-rights dispute, particularly if the matter approaches a resolution that implicates entity-level coverage.
VIII. STAFFING AND TEAM UPDATE
Calderwood & Harkness's staffing for this matter has remained consistent throughout Q2 2023 and is as follows:
In addition to the core team listed above, C&H has utilized contract review attorneys for the document review component of the second subpoena production, as supervised by Monica Reyes. These contract attorneys are subject to C&H's standard confidentiality and privilege protections.
No staffing changes are anticipated for Q3 2023. The current team structure has proven effective and efficient, and the staffing level is appropriate for the anticipated Q3 workload, which will include the compliance program submission, the updated affected-commerce analysis, and continued cooperation dialogue with the DOJ.
IX. ANTICIPATED Q3 2023 DEVELOPMENTS AND NEXT STEPS
Looking ahead to Q3 2023 (July 1 through September 30, 2023), C&H anticipates the following principal developments and action items:
1.  Enhanced Antitrust Compliance Program Submission. The submission of the enhanced antitrust compliance program proposal to the DOJ is targeted for September 15, 2023. C&H and Meridian Compliance Partners are working collaboratively to ensure that the program design reflects best practices, addresses the specific deficiencies identified in the internal investigation, and satisfies the DOJ's expectations as articulated in its published guidance. This submission is expected to be a significant milestone in the cooperation dialogue.
2.  Updated Affected-Commerce Analysis. Hargrove Forensic Advisory is expected to complete its updated affected-commerce analysis incorporating the data produced under the second subpoena during Q3 2023. The updated analysis will provide TMC and C&H with a refined understanding of the affected-commerce figures and will serve as the foundation for the penalty mitigation analysis.
3.  Litigation Reserve Memorandum. C&H will prepare an updated litigation reserve memorandum for the TMC Audit Committee, recommending an increase in the reserve from USD 30 million to USD 50 million. This memorandum will be coordinated with Calvert & Associates LLP regarding accounting standards compliance and will be submitted to the Audit Committee for consideration at its next scheduled meeting.
4.  Continued Cooperation Dialogue. C&H will continue its regular dialogue with DOJ prosecutors Kowalski and Reeves. A specific objective for Q3 is to seek to understand the DOJ's timeline for resolution of the investigation and to explore whether the DOJ is prepared to begin NPA negotiations with TMC. C&H will calibrate the timing and substance of these discussions based on the government's signals and the status of the compliance program submission.
5.  Penalty Mitigation Memorandum. C&H will prepare a comprehensive penalty mitigation memorandum analyzing the applicable provisions of the United States Sentencing Guidelines for organizations (USSG Chapter 8), relevant cooperation credit precedents in DOJ Antitrust Division matters, and the estimated penalty range for TMC based on the affected-commerce figures and applicable mitigating factors. This memorandum will inform TMC's negotiating position in any resolution discussions.
6.  Monitoring Co-Targets and Cooperator. C&H will continue to monitor the status of co-targets Ridgecrest Minerals Inc. and Pinnacle Earth Resources Ltd., as well as the ongoing Cascade Chemical Supply Co. cooperation, to the extent that developments are observable through public filings, press reports, or communications from the DOJ. Any significant developments involving the co-targets could affect the DOJ's timeline or posture with respect to TMC.
7.  Monitoring Gavin Holt. C&H will continue to monitor Gavin Holt's separate proceedings through communication with his personal counsel, Patrick Dunleavy of Briarcliff Law Group PLLC, as appropriate and to the extent consistent with TMC's interests. Any change in Mr. Holt's posture—including any decision to cooperate with the DOJ—would be a significant development for TMC's own resolution discussions.
X. CONCLUSION AND RECOMMENDATION
Q2 2023 was a productive and consequential quarter that materially advanced TMC's cooperation posture and positioned the Company favorably for the next phase of the DOJ's investigation. The successful completion of the Chu and Eriksen proffer sessions demonstrated TMC's genuine willingness to make current employees available to the government on a voluntary basis. The timely completion of the second subpoena production—a substantial undertaking involving approximately 68,000 additional documents—further evidenced TMC's commitment to full compliance and cooperation. And the engagement of Meridian Compliance Partners signals TMC's genuine commitment to remediation and the prevention of future antitrust violations, which C&H believes will be favorably received by the DOJ.
Based on the current posture of the matter, C&H recommends the following:
(a) Continue the Cooperation Strategy. TMC should continue its proactive cooperation strategy as outlined in the February 15, 2023 cooperation proffer and as implemented through the various measures described in this report. This strategy continues to provide the best opportunity for a favorable resolution of the investigation.
(b) Reserve Increase. The General Counsel should coordinate with the Audit Committee to consider the recommended increase of the litigation reserve from USD 30 million to USD 50 million, based on the updated penalty range analysis.
(c) Compliance Program. TMC should ensure that the necessary internal resources and management support are available to support Meridian's compliance program design work and the targeted September 2023 submission to the DOJ.
The next quarterly status report will be delivered in approximately October 2023, covering Q3 2023 developments.
We appreciate the continued confidence that TMC's management and Board have placed in Calderwood & Harkness in this matter, and we remain committed to achieving the best possible outcome for the Company. Please do not hesitate to contact me directly with any questions regarding this report or any aspect of the matter.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Elaine Forsythe Partner, Antitrust & Competition Practice Group 555 California Street, 40th Floor San Francisco, California 94104 Telephone: (415) 555-0147
Email: eforsythe@calderwoodharkness.com
Date: July 10, 2023
cc: Søren Dalmqvist, Chief Executive Officer, Torchlight Mining Corp. (via separate privileged communication) Howard Bellamy, Partner, Calderwood & Harkness LLP
PRIVILEGE NOTICE: This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP in connection with its representation of Torchlight Mining Corp. It is intended solely for the use of the addressee and authorized personnel within Torchlight Mining Corp. This memorandum should not be disclosed, distributed, forwarded, or otherwise disseminated to any third party without the prior written consent of Calderwood & Harkness LLP. Any inadvertent disclosure of this memorandum does not constitute a waiver of the attorney-client privilege, the work-product doctrine, or any other applicable privilege or protection.
Vendor | Projected Total Fees | Notes
Redstone Digital Forensics Inc. | Approx. USD 2.3 million | Additional costs for second subpoena collection and processing
Hargrove Forensic Advisory LLC | Approx. USD 1.85 million | Ongoing economic analysis; updated affected-commerce work in progress
Meridian Compliance Partners LLC | Approx. USD 1.1 million | Engagement commencing; projected through NPA execution (if applicable)
Total Vendor Costs | Approx. USD 5.25 million
Attorney | Role | Office
Elaine Forsythe — Partner | Responsible Partner; leading defense strategy, directing internal investigation, and serving as lead negotiator with DOJ | San Francisco
Howard Bellamy — Partner | Billing Partner; managing engagement economics, client budgeting, and coordination of billing | New York
Aaron Liu — Lead Associate | Managing document review, grand jury subpoena responses, and witness preparation; attending proffer sessions as witness counsel | San Francisco
Monica Reyes — Working Associate | Handling privilege review, legal memoranda, and forensic consultant coordination | San Francisco