ESCROW AGREEMENT
Dated as of July 16, 2024
among
TORCHLIGHT MINING CORP. (as Purchaser)
SAMUEL KERENSKY (as Shareholder Representative)
and
CLEARMONT NATIONAL BANK, N.A. (as Escrow Agent)
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ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of July 16, 2024 (the "Effective Date"), by and among:
(1) TORCHLIGHT MINING CORP., a corporation organized and existing under the laws of the Province of British Columbia, Canada, with its principal executive offices located at 1200 – 885 West Georgia Street, Vancouver, BC V6C 3E8, Canada (the "Purchaser" or "Torchlight");
(2) SAMUEL KERENSKY, an individual, acting in his capacity as the Shareholder Representative (as defined herein) of and on behalf of the former stockholders of Ridgeline Cobalt Inc., with a mailing address at c/o Ridgeline Cobalt Inc. (former), 44 Lakeshore Drive, Suite 300, Marquette, MI 49855 (the "Shareholder Representative"); and
(3) CLEARMONT NATIONAL BANK, N.A., a national banking association organized and existing under the laws of the United States of America, with offices located at 300 Delaware Avenue, Suite 700, Wilmington, DE 19801 (the "Escrow Agent").
Each of Torchlight, the Shareholder Representative, and the Escrow Agent is referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS:
A. Torchlight Mining Corp. has completed a cash tender offer (the "Offer") pursuant to which Torchlight acquired 16,740,000 shares, representing approximately 93.0% of the 18,000,000 issued and outstanding shares of common stock, par value $0.001 per share (the "Shares"), of Ridgeline Cobalt Inc., a corporation organized under the laws of the State of Delaware ("Ridgeline" or "RCI"), at a price of $2.50 per Share in cash, for aggregate consideration of Forty-Five Million Dollars ($45,000,000) (the "Aggregate Consideration");
B. The Offer was made pursuant to the terms and conditions of that certain Offer-to-Purchase Agreement dated as of May 2, 2024 (as amended, supplemented, or otherwise modified from time to time, the "Purchase Agreement"), by and between Torchlight and Ridgeline, which Purchase Agreement provides for certain indemnification obligations of the former stockholders of Ridgeline in favor of Torchlight and its affiliates, subject to the limitations, thresholds, caps, and other terms set forth therein;
C. Pursuant to Section 2.4 of the Purchase Agreement, the Parties agreed that a portion of the Aggregate Consideration equal to Nine Million Dollars ($9,000,000) (representing twenty percent (20%) of the Aggregate Consideration) shall be deposited into an escrow account to secure the indemnification obligations of the former stockholders of Ridgeline under Article VIII of the Purchase Agreement;
D. Concurrently with the closing of the Offer on July 16, 2024, Torchlight effected a short-form merger (the "Merger") of Ridgeline with and into Torchlight pursuant to Section 253 of the Delaware General Corporation Law, Title 8 of the Delaware Code (the "DGCL"), whereupon Ridgeline ceased to exist as a separate entity and Torchlight became the surviving corporation;
E. The Purchase Agreement provides for the appointment of Samuel Kerensky, who served as an independent director and the Chair of the Special Committee of the Board of Directors of Ridgeline, as the Shareholder Representative, authorized to act on behalf of and bind the former stockholders of Ridgeline in connection with escrow claims, releases, disputes, and all related matters arising under this Agreement and the Purchase Agreement; and
F. The Parties desire to establish the terms and conditions upon which the Escrow Agent will hold, invest, and distribute the Escrow Amount (as defined below) in accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:
ARTICLE 1 — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Basket Amount" means Four Hundred Fifty Thousand Dollars ($450,000), representing one percent (1%) of the Aggregate Consideration of $45,000,000. The Basket Amount is structured as a "tipping basket," such that once the aggregate amount of all qualifying Losses (determined after application of the De Minimis Threshold) exceeds the Basket Amount, the Indemnified Parties shall be entitled to recovery of all qualifying Losses from the first dollar thereof, and not merely those Losses in excess of the Basket Amount.
"Business Day" means any day that is not a Saturday, a Sunday, or any other day on which national banking institutions in the State of Delaware or the Province of British Columbia, Canada, are authorized or required by law, regulation, or executive order to close.
"Claim Notice" has the meaning set forth in Section 4.1.
"Closing Date" means July 16, 2024.
"De Minimis Threshold" means Twenty-Five Thousand Dollars ($25,000) per individual claim. Individual Losses that are less than the De Minimis Threshold shall not be asserted against the Escrow Amount, shall not be counted toward or aggregated for purposes of satisfying the Basket Amount, and shall not be recoverable from the Escrow Amount or otherwise under this Agreement or the Purchase Agreement.
"Escrow Account" means the segregated trust account designated as Account No. 4410-7832-001 maintained at Clearmont National Bank, N.A. in the name and title described in Section 2.2.
"Escrow Amount" means Nine Million Dollars ($9,000,000) in cash, deposited by Torchlight into the Escrow Account on the Closing Date, together with all interest, dividends, and other income earned thereon and added thereto pursuant to Section 3.2, less any amounts previously distributed from the Escrow Account in accordance with the terms of this Agreement.
"Escrow Period" means the period commencing on the Closing Date and ending on the Expiration Date; provided, however, that with respect to any Pending Claims outstanding as of the Expiration Date, the Escrow Period shall be extended solely with respect to the Reserve Amount attributable to such Pending Claims until the final resolution thereof in accordance with Section 4.6 and Section 5.3.
"Expiration Date" means January 16, 2026, the date that is eighteen (18) months following the Closing Date.
"Fundamental Representations" means those representations and warranties of the former stockholders of Ridgeline and Ridgeline that are designated as "Fundamental Representations" under Section 8.1(a) of the Purchase Agreement, which representations and warranties survive for a period of thirty-six (36) months from the Closing Date (i.e., until July 16, 2027), and with respect to which the applicable indemnification cap is equal to one hundred percent (100%) of the Aggregate Consideration ($45,000,000), rather than the Indemnification Cap.
"Indemnification Cap" means Nine Million Dollars ($9,000,000), representing twenty percent (20%) of the Aggregate Consideration, which amount is equal to the Escrow Amount. The Indemnification Cap is the maximum aggregate liability of the former stockholders of Ridgeline for indemnification obligations under the Purchase Agreement (other than with respect to claims relating to Fundamental Representations, fraud, or willful breach, which are subject to a separate cap of $45,000,000).
"Indemnified Parties" means Torchlight and its affiliates, and their respective officers, directors, employees, agents, successors, and permitted assigns.
"Losses" has the meaning ascribed thereto in Section 8.2 of the Purchase Agreement, and shall include, without limitation, all damages, losses, liabilities, obligations, claims, demands, assessments, judgments, settlements, penalties, fines, costs, and expenses (including reasonable attorneys' fees and expenses of investigation, defense, and enforcement), whether or not involving a third-party claim.
"Objection Notice" has the meaning set forth in Section 4.4.
"Pending Claim" means any claim for Losses asserted by Torchlight by delivery of a Claim Notice that remains unresolved as of any date of determination, including claims that are the subject of an Objection Notice and that have not been finally resolved by joint written instructions, settlement, arbitration award, or final, non-appealable order of a court of competent jurisdiction.
"Purchase Agreement" means the Offer-to-Purchase Agreement dated as of May 2, 2024, by and between Torchlight and Ridgeline, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"R&W Insurance Policy" means that certain representations and warranties insurance policy, designated as Policy No. NSW-RWI-2024-05117, issued by Northern Shield Specialty Insurance Co., a Connecticut-domiciled insurer, in favor of Torchlight, providing a policy limit of Nine Million Dollars ($9,000,000) in excess of a Nine Million Dollar ($9,000,000) retention, with the Escrow Amount constituting such retention.
"Released Amount" means any amount released from the Escrow Account to the Shareholder Representative (for the benefit of the former stockholders of Ridgeline) in accordance with Section 5.2 or Section 5.3 of this Agreement.
"Reserve Amount" has the meaning set forth in Section 4.7.
"Resolved Amount" means the amount determined to be payable to Torchlight in satisfaction of a Pending Claim, as determined by (a) joint written instructions of Torchlight and the Shareholder Representative, (b) a settlement agreement, (c) a final, binding arbitration award, or (d) a final, non-appealable order of a court of competent jurisdiction.
"Response Period" has the meaning set forth in Section 4.4.
"Shareholder Representative" means Samuel Kerensky, acting in his capacity as the representative of the former stockholders of Ridgeline in accordance with Section 9.1 of this Agreement and the Purchase Agreement.
Section 1.2 — Interpretation
(a) Unless the context otherwise requires, references in this Agreement to "Articles," "Sections," "Exhibits," and "Schedules" shall be to Articles, Sections, Exhibits, and Schedules of and to this Agreement, respectively.
(b) Words in the singular shall include the plural and vice versa, and words in one gender shall include all genders. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The word "or" is not exclusive. The terms "herein," "hereof," "hereunder," and words of similar import shall refer to this Agreement as a whole and not to any particular provision hereof.
(c) All references to dollar amounts in this Agreement shall be to lawful currency of the United States of America unless otherwise specified.
(d) Capitalized terms used but not defined in this Agreement shall have the respective meanings ascribed to such terms in the Purchase Agreement, which terms and definitions are incorporated herein by reference.
(e) The table of contents and headings contained in this Agreement are included for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.
(f) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
(g) References to any statute, rule, or regulation shall include any successor statute, rule, or regulation and any amendments or modifications thereto.
ARTICLE 2 — ESTABLISHMENT OF ESCROW
Section 2.1 — Deposit of Escrow Amount
(a) On the Closing Date, Torchlight shall deposit, or cause to be deposited, Nine Million Dollars ($9,000,000) in immediately available funds by wire transfer of federal funds into the Escrow Account in accordance with the wire transfer instructions set forth on Exhibit A attached hereto. The Escrow Agent hereby acknowledges receipt of the Escrow Amount, or shall promptly confirm receipt thereof following deposit on the Closing Date.
(b) The Parties acknowledge and agree that the Escrow Amount is being withheld from the Aggregate Consideration of Forty-Five Million Dollars ($45,000,000) otherwise payable through Hargrove Depositary Services, Inc. (the depositary and paying agent appointed under the Purchase Agreement) to the former stockholders of Ridgeline and is being deposited into the Escrow Account simultaneously with the closing of the Offer and the Merger. The deposit of the Escrow Amount into the Escrow Account constitutes partial satisfaction of Torchlight's obligation to pay the Aggregate Consideration in connection with the Offer.
(c) The Parties further acknowledge and agree that the Escrow Amount constitutes the sole and exclusive source of recovery for indemnification claims asserted by the Indemnified Parties under Article VIII of the Purchase Agreement, subject to the following:
(i) With respect to claims relating to representations and warranties other than Fundamental Representations, the Escrow Amount shall be the sole and exclusive source of recovery, subject to the Indemnification Cap of $9,000,000;
(ii) With respect to claims relating to Fundamental Representations, recovery shall be sought first from the Escrow Amount (to the extent funds remain available therein), and thereafter from the R&W Insurance Policy (which provides excess coverage of $9,000,000 above the $9,000,000 retention constituted by the Escrow Amount), and thereafter directly from the former stockholders of Ridgeline as provided in the Purchase Agreement, subject to an aggregate cap of $45,000,000; and
(iii) Nothing in this Agreement shall limit Torchlight's right to pursue recovery under the R&W Insurance Policy for amounts in excess of the $9,000,000 retention.
Section 2.2 — Escrow Account
(a) Clearmont National Bank, N.A., in its capacity as Escrow Agent, shall establish and maintain the Escrow Account as a segregated trust account, separate and apart from the Escrow Agent's general assets and from any other accounts maintained by the Escrow Agent on behalf of third parties.
(b) The Escrow Account shall be titled as follows: "Clearmont National Bank, N.A., as Escrow Agent – Torchlight Mining Corp. / Ridgeline Cobalt Inc. Indemnification Escrow."
(c) For purposes of tax reporting with respect to the Escrow Account, the Employer Identification Number ("EIN") to be associated with the Escrow Account shall be Torchlight's EIN: 98-0743218, or such other EIN as may be jointly directed in writing by Torchlight and the Shareholder Representative for tax withholding and reporting purposes.
Section 2.3 — Status of Escrow Amount
(a) The Escrow Amount shall not constitute property of Torchlight, the Shareholder Representative, or any of the former stockholders of Ridgeline until such Escrow Amount (or any portion thereof) is distributed from the Escrow Account in accordance with the express terms of this Agreement. Until so distributed, the Escrow Amount shall be held by the Escrow Agent in the Escrow Account for the purposes and subject to the terms and conditions set forth herein.
(b) For United States federal, state, and local income tax purposes, the former stockholders' pro rata share of the Escrow Amount shall be treated as deferred consideration received in connection with the Offer and the Merger, and shall be treated in accordance with the applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder. Each of the Parties shall report the transactions contemplated by this Agreement in a manner consistent with the foregoing characterization unless otherwise required by a change in applicable law.
(c) No Party shall have any ownership interest in, or right or title to, any specific investment or asset comprising the Escrow Amount except as expressly provided in this Agreement.
ARTICLE 3 — INVESTMENT OF ESCROW FUNDS
Section 3.1 — Permitted Investments
(a) The Escrow Agent shall invest and reinvest the Escrow Amount, as directed jointly in writing by Torchlight and the Shareholder Representative, in one or more of the following categories of permitted investments (each, a "Permitted Investment"):
(i) Direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (including United States Treasury bills, notes, and bonds) with remaining maturities of ninety (90) days or less from the date of purchase;
(ii) Money market funds registered under the Investment Company Act of 1940, as amended, that invest primarily in obligations described in clause (i) above and that maintain a net asset value of $1.00 per share;
(iii) Certificates of deposit issued by Clearmont National Bank, N.A. with maturities of ninety (90) days or less from the date of issuance; and
(iv) Such other investments as Torchlight and the Shareholder Representative may jointly direct in writing, provided that the Escrow Agent shall not be required to invest in any investment that is inconsistent with the Escrow Agent's investment policies or applicable law.
(b) In the event that Torchlight and the Shareholder Representative do not deliver joint written investment instructions to the Escrow Agent, or in the event of any disagreement between Torchlight and the Shareholder Representative regarding the investment of the Escrow Amount, the Escrow Agent shall invest the Escrow Amount in a Clearmont National Bank, N.A. money market deposit account (or such successor account as may be designated by the Escrow Agent from time to time).
(c) The Escrow Agent shall have no liability for any losses arising from the investment or reinvestment of the Escrow Amount in accordance with this Section 3.1, including any losses resulting from the liquidation of any investment in order to make a distribution required hereunder. The Parties acknowledge that the Escrow Agent is not acting as an investment advisor and makes no recommendation or representation with respect to any Permitted Investment.
(d) Torchlight and the Shareholder Representative acknowledge and agree that any investment directed or made hereunder may result in a loss of principal and that the Escrow Agent shall not be held liable for any such loss, provided that the Escrow Agent has complied with the investment instructions received.
Section 3.2 — Income and Tax Reporting
(a) All interest, dividends, and other income earned on the investment or reinvestment of the Escrow Amount (collectively, "Investment Income") shall be added to and become part of the Escrow Amount and shall be subject to the terms and conditions of this Agreement.
(b) For United States federal, state, and local income tax purposes, all Investment Income earned on the Escrow Amount shall be reported as income of the former stockholders of Ridgeline, allocated among such former stockholders on a pro rata basis in proportion to their respective holdings of Ridgeline common stock immediately prior to the effectiveness of the Merger. The Shareholder Representative shall provide, or cause to be provided, to the Escrow Agent a completed and duly executed Internal Revenue Service Form W-9 (Request for Taxpayer Identification Number and Certification) for the Shareholder Representative (or for such other persons as may be required for proper tax reporting), and such other tax documentation as the Escrow Agent may reasonably request, within ten (10) Business Days following the Effective Date.
(c) The Escrow Agent is hereby authorized to deduct and withhold from any amounts otherwise distributable from the Escrow Account such amounts as may be required to be withheld under applicable federal, state, local, or foreign tax laws. Any amounts so withheld shall be treated as having been distributed to the person in respect of which such deduction or withholding was made for all purposes of this Agreement. To the extent that the Escrow Agent is required to withhold taxes and has not received a properly completed Form W-9 or other applicable tax documentation, the Escrow Agent shall withhold at the applicable statutory backup withholding rate then in effect.
(d) The Escrow Agent shall provide annual tax reporting statements, including IRS Forms 1099 (or such other forms as may be required), to the Shareholder Representative and to the Internal Revenue Service with respect to all Investment Income earned on the Escrow Amount.
ARTICLE 4 — CLAIM PROCEDURES
Section 4.1 — Claim Notice
At any time during the Escrow Period (or, with respect to Pending Claims, until the final resolution thereof, and, with respect to claims relating to Fundamental Representations, until July 16, 2027), Torchlight may submit a written claim notice (a "Claim Notice") to the Escrow Agent and the Shareholder Representative in accordance with Section 9.2. Each Claim Notice shall be substantially in the form attached hereto as Exhibit E and shall specify:
(i) the nature and type of the indemnification claim being asserted (e.g., breach of representation or warranty, breach of covenant, indemnifiable third-party claim);
(ii) the specific representations, warranties, covenants, or other provisions of the Purchase Agreement alleged to have been breached or that give rise to the indemnification obligation;
(iii) a reasonably detailed description of the facts, circumstances, and events giving rise to the claim, including, to the extent reasonably available, copies of any supporting documents, agreements, correspondence, or other evidence; and
(iv) the aggregate amount of Losses claimed by the Indemnified Parties in connection with such claim, or, if the amount of such Losses is not yet finally determinable, a good faith estimate of the reasonably anticipated amount of such Losses (which estimate may be revised upward or downward by Torchlight by delivery of a supplemental Claim Notice).
The delivery of a Claim Notice shall not constitute an admission by the Shareholder Representative or any former stockholder of Ridgeline that any Loss has been incurred or that any indemnification obligation exists.
Section 4.2 — De Minimis Threshold
No individual claim for Losses in an amount less than the De Minimis Threshold of Twenty-Five Thousand Dollars ($25,000) shall be asserted against the Escrow Amount, shall be the subject of a Claim Notice, or shall be counted toward or aggregated for purposes of satisfying the Basket Amount. For the avoidance of doubt, individual claims that do not meet the De Minimis Threshold shall not be recoverable under this Agreement or the Purchase Agreement, regardless of whether the aggregate of all such sub-threshold claims would otherwise exceed the Basket Amount.
Section 4.3 — Basket / Tipping Basket
(a) No Losses shall be recoverable from the Escrow Amount unless and until the aggregate amount of all qualifying Losses (i.e., individual claims, each of which equals or exceeds the De Minimis Threshold of $25,000) exceeds the Basket Amount of Four Hundred Fifty Thousand Dollars ($450,000).
(b) Once the aggregate amount of qualifying Losses exceeds the Basket Amount, the Indemnified Parties shall be entitled to recovery from the first dollar of qualifying Losses (not merely the amount in excess of the Basket Amount), subject to and up to the Indemnification Cap of Nine Million Dollars ($9,000,000); provided, however, that with respect to Losses arising from breaches of Fundamental Representations, the applicable cap shall be Forty-Five Million Dollars ($45,000,000) (equal to 100% of the Aggregate Consideration), with recovery first from the Escrow Amount and thereafter from the R&W Insurance Policy and directly from the former stockholders as provided in the Purchase Agreement. This "tipping basket" mechanism means that the Basket Amount serves as a threshold rather than a deductible.
Section 4.4 — Response Period / Objection
(a) Upon receipt of a Claim Notice, the Shareholder Representative shall have thirty (30) Business Days following the date of such receipt (the "Response Period") to deliver a written objection notice (an "Objection Notice") to the Escrow Agent and Torchlight.
(b) Each Objection Notice shall set forth in reasonable detail:
(i) the basis for the Shareholder Representative's objection to the Claim Notice, in whole or in part, including the specific factual and legal grounds for contesting the claim;
(ii) the amount, if any, that the Shareholder Representative concedes is payable to Torchlight from the Escrow Amount with respect to such claim (the "Conceded Amount"); and
(iii) the amount, if any, of the claimed Losses to which the Shareholder Representative objects (the "Disputed Amount").
(c) For the avoidance of doubt, the failure of the Shareholder Representative to deliver a timely Objection Notice within the Response Period shall be deemed an acceptance of the Claim Notice and the amount of Losses specified therein, and the Escrow Agent shall proceed in accordance with Section 4.5.
Section 4.5 — Uncontested Claims
(a) If the Shareholder Representative does not deliver an Objection Notice within the Response Period, the Escrow Agent shall, within five (5) Business Days following the expiration of the Response Period, release from the Escrow Account to Torchlight (by wire transfer of immediately available funds to the account specified on Exhibit B attached hereto) an amount equal to the Losses specified in the applicable Claim Notice; provided, however, that in no event shall the aggregate amount released from the Escrow Account to Torchlight exceed the then-remaining balance of the Escrow Amount.
(b) If the Shareholder Representative delivers an Objection Notice that concedes a portion of the claim (the Conceded Amount), the Escrow Agent shall, within five (5) Business Days following receipt of such Objection Notice, release from the Escrow Account to Torchlight (by wire transfer of immediately available funds to the account specified on Exhibit B) an amount equal to the Conceded Amount. The Disputed Amount shall be treated as a Pending Claim in accordance with Section 4.6.
Section 4.6 — Contested Claims / Dispute Resolution
(a) If the Shareholder Representative delivers a timely Objection Notice with respect to all or any portion of a Claim Notice, the disputed portion of such claim (or the entire claim, if fully disputed) shall constitute a "Pending Claim," and the Escrow Agent shall not release any portion of the Escrow Amount attributable to such Pending Claim except as provided in this Section 4.6.
(b) Following delivery of an Objection Notice, Torchlight and the Shareholder Representative shall negotiate in good faith for a period of thirty (30) calendar days following the date of delivery of such Objection Notice (the "Negotiation Period") in an attempt to resolve the dispute. During the Negotiation Period, each Party shall make its senior representatives reasonably available for discussion and shall provide such information as may be reasonably requested by the other in connection with the resolution of the dispute.
(c) If Torchlight and the Shareholder Representative are unable to resolve the dispute within the Negotiation Period, either Party may:
(i) submit the dispute to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, with such arbitration to be conducted by a single arbitrator mutually selected by Torchlight and the Shareholder Representative (or, if they are unable to agree on an arbitrator within fifteen (15) days, as appointed by the American Arbitration Association in accordance with its rules), with the seat of arbitration in Wilmington, Delaware; or
(ii) commence litigation in the Delaware Court of Chancery (or, if such court declines to exercise jurisdiction, in any federal or state court of competent jurisdiction sitting in Wilmington, Delaware), as provided in Section 9.8 of this Agreement.
(d) The Escrow Agent shall not release any portion of the Escrow Amount that is the subject of a Pending Claim until it receives either:
(i) joint written instructions signed by both Torchlight and the Shareholder Representative directing the Escrow Agent as to the distribution of the disputed funds, substantially in the form attached hereto as Exhibit F; or
(ii) a certified copy of a final, non-appealable order, judgment, or decree of a court of competent jurisdiction, or a final, binding arbitration award, directing the distribution of the disputed funds, together with a written request from the prevailing Party to distribute such funds in accordance with such order, judgment, decree, or award.
(e) The Escrow Agent shall distribute the disputed funds in accordance with such joint written instructions, court order, or arbitration award within five (5) Business Days following receipt thereof.
Section 4.7 — Reservation for Pending Claims
(a) On the Expiration Date, the Escrow Agent shall determine the aggregate amount of all Pending Claims then outstanding (the "Reserve Amount"). The Escrow Agent shall retain in the Escrow Account an amount equal to the Reserve Amount, which amount shall continue to be held, invested, and distributed in accordance with the terms of this Agreement until all such Pending Claims are finally resolved.
(b) The Reserve Amount shall be calculated based on the aggregate Losses set forth in the applicable Claim Notices for all Pending Claims outstanding as of the Expiration Date (or, if a good faith estimate was provided in lieu of a definitive amount, the amount of such estimate as most recently supplemented).
(c) To the extent that Pending Claims remain outstanding as of the Expiration Date, the Escrow Period shall be automatically extended solely with respect to the Reserve Amount and the Pending Claims to which such Reserve Amount relates, and the provisions of this Agreement shall remain in full force and effect with respect to such Reserve Amount until the final resolution of all such Pending Claims.
ARTICLE 5 — RELEASE OF ESCROW FUNDS
Section 5.1 — Interim Releases
There shall be no scheduled interim releases of the Escrow Amount during the Escrow Period. The full Escrow Amount shall remain in the Escrow Account from the Closing Date through the Expiration Date, subject only to deductions for (a) amounts released to Torchlight in satisfaction of resolved indemnification claims in accordance with Article 4, and (b) amounts deducted for applicable tax withholding or Escrow Agent fees as expressly permitted under this Agreement.
Section 5.2 — Release at Expiration
(a) Promptly following the Expiration Date, and in any event within ten (10) Business Days following January 16, 2026, the Escrow Agent shall release from the Escrow Account to the Shareholder Representative (for distribution to the former stockholders of Ridgeline on a pro rata basis in proportion to their respective holdings of Ridgeline common stock immediately prior to the effectiveness of the Merger) the remaining balance of the Escrow Amount, calculated as follows:
Remaining Balance = Escrow Amount — less (a) the aggregate amount of all Losses previously paid from the Escrow Account to Torchlight in satisfaction of resolved claims during the Escrow Period; — less (b) the Reserve Amount retained for any Pending Claims outstanding as of the Expiration Date pursuant to Section 4.7; — less (c) any amounts deducted for applicable tax withholding or Escrow Agent fees as expressly permitted under this Agreement.
(b) The release of the remaining balance to the Shareholder Representative shall be made by wire transfer of immediately available funds to the account designated by the Shareholder Representative on Exhibit C attached hereto, or to such other account as the Shareholder Representative may designate in writing to the Escrow Agent at least five (5) Business Days prior to the Expiration Date.
(c) Upon the release of the remaining balance (excluding the Reserve Amount) to the Shareholder Representative, the Escrow Agent shall have no further obligations with respect to such released amounts. The Shareholder Representative shall be solely responsible for the distribution of released funds to the former stockholders of Ridgeline in accordance with their pro rata entitlements.
Section 5.3 — Release of Reserve Amount
(a) Upon the final resolution of each Pending Claim (whether by joint written instructions, settlement agreement, final binding arbitration award, or final non-appealable court order), the Escrow Agent shall, within five (5) Business Days following receipt of appropriate documentation evidencing such resolution, release from the Reserve Amount:
(i) to Torchlight (by wire transfer to the account specified on Exhibit B), the Resolved Amount, if any, determined to be payable to Torchlight with respect to such Pending Claim; and
(ii) to the Shareholder Representative (by wire transfer to the account specified on Exhibit C, for pro rata distribution to the former stockholders of Ridgeline), the remaining portion of the Reserve Amount that was attributable to such resolved Pending Claim, calculated as the amount reserved for such Pending Claim minus the Resolved Amount.
(b) This process shall be repeated for each Pending Claim as it is resolved until all Pending Claims have been finally resolved and the entire Reserve Amount has been distributed. Upon distribution of the final portion of the Reserve Amount, the obligations of the Escrow Agent under this Agreement shall terminate (subject to the survival of the indemnification obligations set forth in Section 8.2).
Section 5.4 — Fundamental Representations Claims
(a) Notwithstanding any provision of this Agreement to the contrary, claims with respect to Fundamental Representations (which survive for thirty-six (36) months from the Closing Date, i.e., until July 16, 2027) may be asserted against the Escrow Amount to the extent funds remain in the Escrow Account on the date such claim is asserted; provided, however, that any such claim must have been asserted by delivery of a valid Claim Notice to the Escrow Agent and the Shareholder Representative prior to the expiration of the applicable survival period for such Fundamental Representations (i.e., prior to July 16, 2027).
(b) Losses arising from breaches of Fundamental Representations shall not be subject to the Indemnification Cap of $9,000,000 but shall instead be subject to a separate cap equal to Forty-Five Million Dollars ($45,000,000), representing one hundred percent (100%) of the Aggregate Consideration.
(c) Recovery for Losses arising from breaches of Fundamental Representations shall be sought in the following order of priority:
(i) First, from the Escrow Amount, to the extent funds remain available in the Escrow Account;
(ii) Second, from the R&W Insurance Policy (Policy No. NSW-RWI-2024-05117), which provides a $9,000,000 limit in excess of the $9,000,000 retention (with the Escrow Amount serving as the retention); and
(iii) Third, directly from the former stockholders of Ridgeline in accordance with Article VIII of the Purchase Agreement, subject to the aggregate cap of $45,000,000.
(d) For the avoidance of doubt, to the extent that the Escrow Amount has been fully distributed to the Shareholder Representative at or following the Expiration Date and no Reserve Amount remains, Torchlight's recourse for Fundamental Representations claims shall be limited to the R&W Insurance Policy and direct claims against the former stockholders as provided in the Purchase Agreement.
ARTICLE 6 — RELATIONSHIP TO R&W INSURANCE POLICY
Section 6.1 — Acknowledgment of R&W Insurance
(a) The Parties acknowledge and agree that Torchlight has procured a representations and warranties insurance policy designated as Policy No. NSW-RWI-2024-05117 (the "R&W Insurance Policy"), issued by Northern Shield Specialty Insurance Co., a specialty insurer domiciled in the State of Connecticut. The R&W Insurance Policy was placed by Cartwright Insurance Group Ltd., an insurance brokerage firm with offices at 120 Broadway, Suite 3510, New York, NY 10271.
(b) The material terms of the R&W Insurance Policy are as follows:
(i) Policy Limit: Nine Million Dollars ($9,000,000);
(ii) Retention: Nine Million Dollars ($9,000,000), which retention is constituted by the Escrow Amount deposited under this Agreement;
(iii) Policy Term: Three (3) years from the Closing Date, expiring on July 16, 2027;
(iv) Named Insured: Torchlight Mining Corp.;
(v) Policy Premium: Three Hundred Fifteen Thousand Dollars ($315,000), allocated equally between Torchlight and the former stockholders of Ridgeline (i.e., $157,500 payable by Torchlight and $157,500 payable by the former stockholders, with the former stockholders' share having been deducted from the Escrow Amount at closing or otherwise funded from the Aggregate Consideration prior to the deposit of the Escrow Amount).
(c) Nothing in this Agreement shall be construed to modify, limit, or otherwise affect the terms and conditions of the R&W Insurance Policy, which is governed exclusively by its own terms. The Escrow Agent shall have no duties or responsibilities with respect to the R&W Insurance Policy.
Section 6.2 — Coordination of Recovery
(a) Torchlight covenants and agrees that it shall first seek recovery for indemnification Losses from the Escrow Amount (subject to the terms and conditions set forth in this Agreement and the Purchase Agreement, including the De Minimis Threshold, the Basket Amount, and the Indemnification Cap) before making claims under the R&W Insurance Policy for Losses in excess of the $9,000,000 retention.
(b) Nothing in this Agreement shall be construed to limit, restrict, or otherwise impair Torchlight's right to assert claims under the R&W Insurance Policy for Losses that exceed the $9,000,000 retention or that relate to Fundamental Representations claims for which the aggregate cap is $45,000,000.
(c) Torchlight shall provide the Shareholder Representative with reasonable notice of any claims made or intended to be made under the R&W Insurance Policy, to the extent such claims relate to matters that are also the subject of claims against the Escrow Amount. The Shareholder Representative shall have no independent right to make claims under the R&W Insurance Policy, which is maintained solely for the benefit of Torchlight.
ARTICLE 7 — DUTIES AND LIABILITY OF ESCROW AGENT
Section 7.1 — Duties of Escrow Agent
(a) Clearmont National Bank, N.A. is acting solely in its capacity as escrow agent under this Agreement and undertakes to perform only such duties as are expressly set forth herein. The Escrow Agent shall not have any duty or obligation arising under this Agreement other than those specifically provided for in this Agreement, and no implied covenants, duties, or obligations shall be read into this Agreement against the Escrow Agent.
(b) The Escrow Agent shall hold, invest, and distribute the Escrow Amount strictly in accordance with the terms and conditions of this Agreement and the written instructions provided by Torchlight and the Shareholder Representative (or either of them, as applicable) in accordance with the express provisions hereof.
(c) The Escrow Agent may rely upon, and shall be fully protected in acting or refraining from acting upon, any written notice, instruction, certificate, statement, request, consent, waiver, receipt, or other document or instrument that it in good faith believes to be genuine, to have been signed or presented by the proper person or persons, and to conform to the requirements of this Agreement. The Escrow Agent shall have no duty to verify or investigate the accuracy, completeness, or authenticity of any such document or the authority of the person executing or delivering the same.
(d) The Escrow Agent may consult with legal counsel of its own choosing (including in-house counsel) and shall be fully protected in any action taken, suffered, or omitted by it in good faith in accordance with the advice or opinion of such counsel.
(e) The Escrow Agent shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder.
Section 7.2 — Standard of Care; Limitation of Liability
(a) The Escrow Agent shall not be liable for any act taken or omitted to be taken by it in good faith and believed by it to be authorized or within its rights, powers, or duties under this Agreement, except in cases of the Escrow Agent's own gross negligence, willful misconduct, or fraud, as determined by a final, non-appealable judgment of a court of competent jurisdiction.
(b) The Escrow Agent shall not be required to take any action that, in its sole and reasonable judgment, would cause it to violate any applicable law, regulation, or order of any governmental authority or regulatory body. The Escrow Agent shall not incur any liability for failing to act pending receipt of instructions from the Parties in accordance with this Agreement.
(c) The Escrow Agent shall not be deemed a fiduciary for any Party or for any former stockholder of Ridgeline by reason of its service hereunder. Nothing in this Agreement shall be construed to create a trust, agency, partnership, or joint venture between the Escrow Agent and any other Party.
(d) In no event shall the Escrow Agent be liable for any consequential, indirect, special, incidental, or punitive damages of any kind, regardless of the form of action and whether or not any such damages are foreseeable.
(e) The Escrow Agent shall not be responsible for, and shall have no duty to monitor or inquire into, the performance or non-performance of any obligation of any other Party under the Purchase Agreement or any other agreement related to the transactions contemplated thereby.
Section 7.3 — Conflicting Instructions; Interpleader
(a) If at any time the Escrow Agent receives conflicting instructions from Torchlight, on the one hand, and the Shareholder Representative, on the other hand, or if the Escrow Agent is otherwise uncertain as to the proper disposition or distribution of all or any portion of the Escrow Amount, the Escrow Agent shall be entitled to refrain from taking any action (other than continuing to hold and invest the Escrow Amount as provided herein) until the Escrow Agent receives:
(i) joint written instructions signed by both Torchlight and the Shareholder Representative resolving such conflict or uncertainty; or
(ii) a certified copy of a final, non-appealable order, judgment, or decree of a court of competent jurisdiction directing the Escrow Agent with respect to the distribution of the Escrow Amount.
(b) The Escrow Agent may, at its sole option and in its sole discretion, deposit the Escrow Amount (or any disputed portion thereof) with a court of competent jurisdiction in the State of Delaware by way of an action in the nature of interpleader, and upon such deposit, the Escrow Agent shall be relieved and discharged of all further obligations and liabilities under this Agreement with respect to the funds so deposited. In the event the Escrow Agent commences an interpleader action, the Escrow Agent shall be entitled to recover its reasonable attorneys' fees, costs, and expenses incurred in connection with such interpleader action from the Escrow Amount (or from the Parties, jointly and severally, to the extent that the Escrow Amount is insufficient).
(c) The Escrow Agent shall not be liable for any delay in performance of its duties hereunder arising from circumstances beyond its reasonable control, including acts of God, flood, fire, earthquake, war, terrorism, pandemic, governmental action, labor disruption, or failure of communication systems.
Section 7.4 — Resignation or Removal of Escrow Agent
(a) The Escrow Agent may resign from its duties and obligations under this Agreement upon not less than thirty (30) days' prior written notice to Torchlight and the Shareholder Representative. Such resignation shall take effect upon the appointment of a successor escrow agent in accordance with Section 7.4(c) below.
(b) The Escrow Agent may be removed from its duties and obligations under this Agreement by the joint written consent of Torchlight and the Shareholder Representative, delivered to the Escrow Agent not less than thirty (30) days prior to the effective date of such removal.
(c) Upon the resignation or removal of the Escrow Agent, Torchlight and the Shareholder Representative shall jointly appoint a successor escrow agent within thirty (30) days following the date of notice of resignation or removal. The successor escrow agent shall be a federally chartered national banking association organized under the laws of the United States with capital and surplus in excess of Five Hundred Million Dollars ($500,000,000). If Torchlight and the Shareholder Representative are unable to agree upon a successor escrow agent within such thirty (30) day period, either Party may petition the Delaware Court of Chancery (or, if such court declines jurisdiction, any federal or state court of competent jurisdiction sitting in Wilmington, Delaware) for the appointment of a successor escrow agent.
(d) Upon appointment of a successor escrow agent, the resigning or removed Escrow Agent shall transfer and deliver the Escrow Amount (together with all accrued Investment Income) to the successor escrow agent, and the successor escrow agent shall thereupon be vested with all of the rights, powers, duties, and obligations of the Escrow Agent under this Agreement. Upon such transfer, the resigning or removed Escrow Agent shall be discharged from any further obligations under this Agreement (except for obligations that accrued prior to the effective date of such transfer, including any outstanding indemnification obligations under Section 8.2 in favor of the resigning or removed Escrow Agent).
(e) Pending the appointment of a successor escrow agent, the resigning or removed Escrow Agent shall continue to hold the Escrow Amount in the Escrow Account in accordance with the terms of this Agreement and shall continue to perform its duties hereunder.
ARTICLE 8 — ESCROW AGENT COMPENSATION AND INDEMNIFICATION
Section 8.1 — Fees
(a) Torchlight shall pay the Escrow Agent's fees and expenses for its services under this Agreement in accordance with the fee schedule attached hereto as Exhibit D, which fees and expenses include, without limitation, the annual administration fee, account maintenance fees, and per-transaction wire transfer fees.
(b) All fees and expenses of the Escrow Agent shall be the sole obligation of Torchlight and shall not be deducted from the Escrow Amount without the prior written consent of both Torchlight and the Shareholder Representative; provided, however, that if Torchlight fails to pay the Escrow Agent's fees and expenses within thirty (30) days following receipt of an invoice, the Escrow Agent may, upon ten (10) Business Days' prior written notice to Torchlight and the Shareholder Representative, deduct such fees and expenses from the Escrow Amount.
(c) The Escrow Agent's fees and expenses shall be reasonable and customary for escrow services of the nature contemplated hereby.
Section 8.2 — Indemnification of Escrow Agent
(a) Torchlight and the Shareholder Representative (on behalf of the former stockholders of Ridgeline, and from the Escrow Amount to the extent permitted and only upon joint written consent of Torchlight and the Shareholder Representative) shall jointly and severally indemnify, defend, and hold harmless the Escrow Agent, and its officers, directors, employees, agents, successors, and assigns, from and against any and all losses, damages, costs, expenses (including reasonable attorneys' fees and disbursements), claims, actions, suits, proceedings, or liabilities of any kind or nature whatsoever (collectively, "Escrow Agent Losses") arising from or in connection with the Escrow Agent's acceptance of appointment or the performance or non-performance of its duties under this Agreement, except to the extent that such Escrow Agent Losses are finally determined by a court of competent jurisdiction (in a final, non-appealable judgment) to have been caused by the Escrow Agent's own gross negligence, willful misconduct, or fraud.
(b) The indemnification obligations set forth in this Section 8.2 shall survive the termination of this Agreement, the resignation or removal of the Escrow Agent, and the distribution of the Escrow Amount. As between Torchlight and the Shareholder Representative (on behalf of the former stockholders), each shall bear fifty percent (50%) of any Escrow Agent Losses for which indemnification is required under this Section 8.2, unless one Party is primarily responsible for the event giving rise to such Escrow Agent Losses, in which case such Party shall bear one hundred percent (100%) of such Escrow Agent Losses.
ARTICLE 9 — GENERAL PROVISIONS
Section 9.1 — Shareholder Representative
(a) Samuel Kerensky is hereby appointed, confirmed, and authorized to act as the Shareholder Representative for and on behalf of the former stockholders of Ridgeline in connection with all matters arising under or relating to this Agreement. The Shareholder Representative shall have full power and authority, without the need for further action, approval, or consent of any former stockholder of Ridgeline, to:
(i) receive and review Claim Notices delivered by Torchlight under this Agreement;
(ii) deliver Objection Notices and any supplemental or responsive notices in connection with indemnification claims;
(iii) negotiate, compromise, settle, and resolve any indemnification claims on behalf of the former stockholders of Ridgeline, including the authority to agree to payments from the Escrow Amount;
(iv) provide joint written instructions to the Escrow Agent in connection with distributions from the Escrow Account;
(v) receive releases of the Escrow Amount on behalf of the former stockholders of Ridgeline and distribute such amounts to the former stockholders in accordance with their pro rata entitlements;