Contract analysis

I. EXECUTIVE SUMMARY This memorandum analyzes the economic impact of Redstone Gaming Corp.'s ("RGC" or the "Company") significant equity price appreciation on the proposed $35,000,000 mezzanine financing from Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (the "Fund" or "Pinnacle Bridge"), an investment vehicle managed by Pinnacle Bridge Capital Partners, LP, and compares the all-in cost of the mezzanine structu

II. BACKGROUND A. Proposed Mezzanine Financing — Summary of Terms Set forth below is a summary of the principal economic and structural terms of the proposed mezzanine financing as reflected in the non-binding term sheet executed by RGC and the Fund on December 2, 2022 (the "Term Sheet") and the draft Note Purchase Agreement most recently circulated on February 17, 2023. Borrower: Redstone Gaming Corp. (Nasdaq: RDGM)

III. RGC EQUITY RALLY — PRICE MOVEMENT ANALYSIS A. Stock Price Trajectory RGC common stock has experienced a substantial and sustained rally since the inception of the mezzanine financing process. The following data points track the price appreciation of RDGM shares over the relevant period: Total Appreciation: $14.75 − $8.40 = $6.35 per share, representing a 75.6% increase from the base price at the time the mezzani

IV. COST-OF-CAPITAL ANALYSIS — MEZZANINE STRUCTURE This Section presents a detailed analysis of the all-in cost of the proposed mezzanine financing with Pinnacle Bridge, incorporating each component of economic cost: cash interest, PIK interest, warrant dilution, transaction costs, and call protection constraints. A. Annual Cash Costs The mezzanine structure's direct annual cash costs are summarized as follows: Cash

V. ALTERNATIVE CAPITAL-RAISING OPTIONS In light of the materially changed economics of the mezzanine structure, we have analyzed three alternative capital-raising strategies that are now available to RGC given the Company's elevated stock price and improved market positioning. A. Follow-On Equity Offering The most straightforward alternative to the mezzanine financing is a registered follow-on offering of RGC common

VI. IMPACT ON TRANSACTION ECONOMICS — DECISION FRAMEWORK A. Original Rationale for the Mezzanine Structure At the time of engagement in October 2022, the mezzanine structure was selected by RGC management as the preferred financing vehicle for Project Catalyst and the tribal gaming expansion for sound strategic reasons. RGC common stock was then trading at $8.40 per share, producing a market capitalization of approxi

VII. ADDITIONAL CONSIDERATIONS A. Exclusivity Expiration The 90-day exclusivity period under the Term Sheet executed on December 2, 2022 expires by its terms on March 15, 2023. Under Section 4(a) of the Term Sheet, during the exclusivity period RGC agreed not to solicit, negotiate, or enter into any agreement with respect to mezzanine or subordinated debt financing from any party other than Pinnacle Bridge. The exclu

VIII. CONCLUSION AND RECOMMENDATION Based on the analysis presented in this memorandum, we reach the following conclusions:

1. The equity rally has materially increased the cost of the mezzanine structure. The 75.6% appreciation in RGC common stock between October 31, 2022 and March 10, 2023 has increased the all-in effective cost of the proposed mezzanine financing from approximately 14.0–14.5% per annum (at the time the terms were negotiated) to approximately 19.1% per annum when the current intrinsic value of the warrant dilution ($9,0

2. Lower-cost alternatives are now available. At the Company's current valuation level (approximately $811 million market capitalization), RGC has access to meaningfully lower-cost capital-raising alternatives, including: (a) A follow-on equity offering, with an estimated one-time cost of approximately 6% (underwriting fee) and no ongoing coupon or servicing obligation; (b) A convertible note, with an estimated cash

3. The mezzanine's call protection further limits flexibility. The 24-month non-call period would lock RGC into the mezzanine structure through approximately March 2025, regardless of the availability of more attractive refinancing alternatives during that period.

4. We concur with CFO Sandoval's recommendation. Based on the foregoing analysis, we concur with CFO Sandoval's March 3, 2023 recommendation to pause the mezzanine financing process with Pinnacle Bridge.

5. No contractual impediment to suspension. The 90-day exclusivity period under the Term Sheet expires on March 15, 2023. No extension need be requested. No break fee or termination fee is payable to Pinnacle Bridge. The only residual financial obligation is the expense reimbursement for WHC's legal fees (estimated at approximately $94,000 against the $175,000 cap), which is payable by RGC under the Term Sheet regard