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MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT

From: Sophie Tremblay, Associate, Calderwood & Harkness LLP

To: Claudia Merritt, Partner, Banking & Finance; Marcus Leung, Lead Associate, Banking & Finance

Date: January 25, 2023

Re: Redstone Gaming Corp. — Securities Law Analysis: Private Placement Exemption for Warrant Issuance in Connection with Proposed $35,000,000 Mezzanine Financing

Matter No.: 1033-00001

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I. Executive Summary

This memorandum analyzes the availability of the exemption from registration under Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), for the proposed issuance by Redstone Gaming Corp. ("RGC"), a Nevada corporation publicly traded on the Nasdaq Capital Market (ticker: RDGM), of warrants (the "Warrants") to purchase 1,650,000 shares of RGC common stock, par value $0.001 per share (the "Warrant Shares"), to Pinnacle Bridge Mezzanine Opportunities Fund IV, LP ("Fund IV"), a Delaware limited partnership, in connection with the proposed $35,000,000 mezzanine financing (the "Mezzanine Financing"). The Warrants are being issued as an equity kicker component of the Mezzanine Financing and represent warrant coverage of approximately 3.00% of RGC's fully diluted common equity, calculated on the basis of approximately 55,000,000 shares of common stock outstanding on a fully diluted basis as of the date hereof. The Warrants carry a strike price of $9.24 per share, representing 110% of the 30-day volume-weighted average price ("VWAP") of $8.40 per share as of the commitment date.

Based on the analysis set forth below, it is our conclusion that the issuance of the Warrants and the Warrant Shares issuable upon exercise thereof qualifies for exemption from the registration requirements of Section 5 of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and the safe harbor provided by Rule 506(b) of Regulation D promulgated thereunder ("Regulation D"), subject to the satisfaction of customary conditions and the implementation of the recommended actions described in Section X of this memorandum.

The key factors supporting this conclusion include: (i) the offering involves a single institutional purchaser (Fund IV) that qualifies as an "accredited investor" within the meaning of Rule 501(a) of Regulation D; (ii) no general solicitation or general advertising has been employed in connection with the offering; (iii) Fund IV has been provided with, and has access to, all material information regarding RGC, including its public SEC filings and private financial information furnished in connection with the diligence process; and (iv) appropriate transfer restrictions and legends will be imposed on the Warrants and the Warrant Shares. We address each of these factors, as well as the integration doctrine, transfer restrictions, registration rights considerations, the role of the placement agent, and the intersection with gaming regulatory requirements, in the sections that follow.

This memorandum has been prepared at the request of the engagement team for internal use in connection with the Mezzanine Financing and is subject to the attorney-client privilege and the attorney work product doctrine.

II. Background and Transaction Overview

A. The Proposed Mezzanine Financing

RGC is a Nevada corporation engaged in the ownership and operation of gaming and entertainment facilities in Nevada, Arizona, and New Mexico. RGC's common stock is listed on the Nasdaq Capital Market under the ticker symbol "RDGM." As of September 30, 2022, RGC reported last-twelve-month ("LTM") revenue of approximately $387,600,000 and LTM EBITDA (as adjusted) of approximately $58,100,000, according to RGC's Annual Report on Form 10-K for the fiscal year ended June 30, 2022, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.

RGC is currently exploring a $35,000,000 mezzanine term note (the "Notes") with Pinnacle Bridge Capital Partners, LP ("Pinnacle Bridge" or "PBCP"), a leading institutional credit and mezzanine investment platform headquartered in New York, New York. The Notes would be structured as senior subordinated notes due 2028 and would bear interest at a rate of 10.50% per annum payable in cash, plus 3.00% per annum payable in kind ("PIK"), for an all-in yield of 13.50% per annum. The Notes would have a five-year maturity from the date of issuance, with customary prepayment provisions, financial covenants, and affirmative and negative covenants currently being negotiated.

The Notes would be subordinated to all existing and permitted senior indebtedness of RGC, including, without limitation, all obligations arising under or in connection with the $200,000,000 Senior Secured Revolving Credit Facility, dated as of March 15, 2019 (as amended and restated), among RGC, as borrower, the lenders party thereto, and Cornerstone National Bank, N.A., as administrative agent (the "Senior Credit Facility"). As of September 30, 2022, approximately $142,000,000 was drawn under the Senior Credit Facility. The subordination arrangements between the Notes and the Senior Credit Facility are expected to be governed by a separate Intercreditor Agreement among RGC, Fund IV, and Cornerstone National Bank, N.A., as administrative agent under the Senior Credit Facility.

The proceeds of the Mezzanine Financing would be used by RGC for two principal purposes: (i) approximately $22,000,000 for the development and deployment of RGC's next-generation digital wagering platform, internally designated "Project Catalyst," which is expected to enable RGC to offer real-time sports betting and interactive gaming products across its existing Nevada properties and, pending regulatory approval, through its tribal gaming management contracts; and (ii) approximately $13,000,000 for the expansion of RGC's tribal gaming management contracts in Arizona and New Mexico, including the negotiation of new management contracts with the Pueblo of Acoma and the Tohono O'odham Nation, as well as the renovation and expansion of existing managed facilities.

The Mezzanine Financing is governed by a Mezzanine Note Purchase Agreement (the "Note Purchase Agreement"), which is currently being negotiated between Calderwood & Harkness LLP ("C&H"), as counsel to RGC, and Wainwright Hess & Caldwell LLP ("WHC"), as counsel to Pinnacle Bridge and Fund IV. The lead partner at WHC on this engagement is Margaret Forsythe, with Ryan Castellano serving as the lead associate. A term sheet for the Mezzanine Financing was executed by RGC and Pinnacle Bridge on December 2, 2022, and includes a 90-day exclusivity period expiring on March 15, 2023, during which RGC has agreed not to solicit or accept competing mezzanine or subordinated debt proposals.

B. The Warrant Issuance

As part of the equity kicker component of the Mezzanine Financing, RGC would issue to Fund IV the Warrants to purchase 1,650,000 shares of RGC common stock. The Warrants represent warrant coverage of approximately 3.00% of RGC's fully diluted common equity, based on approximately 55,000,000 shares of common stock outstanding on a fully diluted basis (including shares issuable under existing equity incentive plans, outstanding options, and other convertible securities, but excluding the Warrants themselves). The warrant coverage percentage was negotiated between RGC and Pinnacle Bridge as part of the overall economic terms of the Mezzanine Financing and is reflected in the executed term sheet.

The Warrants carry a strike price of $9.24 per share, which represents 110% of the 30-day VWAP of RGC common stock of approximately $8.40 per share as of the commitment date referenced in the term sheet. The Warrants are expected to have a term of seven years from the date of issuance, with customary anti-dilution protections (including weighted-average adjustments for stock splits, stock dividends, and below-market issuances), cashless exercise provisions, and limited transfer restrictions. The specific terms of the Warrants are set forth in a separate Warrant Agreement (the "Warrant Agreement"), the first draft of which was circulated by C&H to WHC on January 27, 2023 — two days after the date of this memorandum. It is noted that the Warrant Agreement draft was being finalized contemporaneously with the preparation of this analysis, and the final terms of the Warrant Agreement may affect certain of the conclusions and recommendations set forth herein. Any material changes to the terms of the Warrant Agreement as a result of ongoing negotiations with WHC should be reviewed for their impact on the exemption analysis.

The issuance of the Warrants is expected to occur simultaneously with the closing of the Mezzanine Financing, at which time the Warrants will be delivered to Fund IV (or its designated nominee) against delivery of the mezzanine loan proceeds to RGC. No separate consideration is being paid by Fund IV for the Warrants; the Warrants are an integral part of the overall economics of the Mezzanine Financing, and the parties have agreed that the Warrants are being issued in consideration of Fund IV's commitment to fund the full $35,000,000 of mezzanine notes.

C. The Securities at Issue

For purposes of this analysis, it is important to identify the securities that are the subject of the proposed exemption:

The Warrants. The Warrants themselves constitute "securities" within the meaning of Section 2(a)(1) of the Securities Act. Section 2(a)(1) defines the term "security" to include, among other things, any "warrant" or "right to subscribe to or purchase" any security. Accordingly, the issuance of the Warrants by RGC to Fund IV constitutes a sale of securities within the meaning of Section 2(a)(3) of the Securities Act and is subject to the registration requirements of Section 5, absent an available exemption.

The Warrant Shares. The shares of RGC common stock issuable upon exercise of the Warrants — the Warrant Shares — are also securities within the meaning of Section 2(a)(1) and will require either registration or an available exemption at the time of exercise. The exercise of the Warrants by Fund IV will constitute a separate sale of securities for purposes of Section 5. It is therefore necessary to ensure that either (a) a registration statement covering the Warrant Shares is in effect at the time of exercise, or (b) an exemption from registration (such as the Section 4(a)(2) exemption or an exemption under Regulation D) is available at the time of exercise. As discussed further in Section VII below, the draft Warrant Agreement is expected to include registration rights provisions that may facilitate the registration of the Warrant Shares prior to exercise.

RGC is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). RGC's common stock is registered under Section 12(g) of the Exchange Act, and RGC is subject to the ongoing periodic reporting requirements of Sections 13(a) and 15(d) of the Exchange Act, including the filing of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. RGC's status as a reporting company is relevant both to the information requirements under Regulation D and to the availability of Form S-3 for any subsequent registration of the Warrant Shares.

III. Section 4(a)(2) Statutory Exemption

A. Statutory Framework

Section 4(a)(2) of the Securities Act provides an exemption from the registration requirements of Section 5 for "transactions by an issuer not involving any public offering." This exemption, commonly referred to as the "private placement" exemption, is one of the most widely used exemptions from registration and has been the subject of extensive judicial interpretation and SEC guidance.

The seminal judicial interpretation of the Section 4(a)(2) exemption is the U.S. Supreme Court's decision in SEC v. Ralston Purina Co., 346 U.S. 119 (1953). In Ralston Purina, the Court held that the applicability of the Section 4(a)(2) exemption depends on whether the particular class of persons affected needs the protection of the Securities Act's registration provisions. The Court emphasized that the exemption was intended to apply to transactions "where there is no practical need for [the registration requirement's] application or where the public benefits are too remote." Id. at 125.

Drawing on Ralston Purina and its progeny, courts and the SEC have identified the following key factors relevant to determining whether an offering constitutes a "public offering" for purposes of Section 4(a)(2):

(i) The number and sophistication of offerees. The fewer and more sophisticated the offerees, the more likely the transaction qualifies as a private placement. While there is no bright-line numerical limit, the focus is on whether the offerees are capable of evaluating the merits and risks of the investment and of fending for themselves.

(ii) The manner of offering. If the offering is made through direct, personal communications with identified offerees, rather than through general solicitation or general advertising, it is more likely to qualify as a private placement.

(iii) The relationship of the offerees to the issuer. Offerees who have a pre-existing relationship with the issuer, or who have been identified through channels that ensure their sophistication and access to information, are more likely to be the type of persons who do not need the protections of registration.

(iv) The availability of information. The offerees must have access to the type of information that would be contained in a registration statement — or, alternatively, must be in a position to obtain such information by virtue of their relationship with the issuer or other circumstances.

(v) The need for the protections afforded by registration. This overarching inquiry looks to whether, considering all of the circumstances, the offerees are the type of persons who need the protections that registration is designed to provide.

The burden of establishing the availability of the Section 4(a)(2) exemption rests on the party claiming the exemption — in this case, RGC as the issuer. See Ralston Purina, 346 U.S. at 126; see also SEC Release No. 33-4552 (Nov. 6, 1962) (noting that the issuer bears the burden of proving the availability of the exemption). It is therefore important that RGC maintain contemporaneous records documenting the private nature of the offering and the sophistication and access to information of the offeree.

B. Application to the Warrant Issuance

Applying the Ralston Purina factors to the proposed warrant issuance, we conclude that the issuance of the Warrants to Fund IV satisfies the requirements of the Section 4(a)(2) exemption for transactions not involving a public offering:

Number of offerees. The proposed transaction involves only one offeree — Fund IV, acting through its general partner, Pinnacle Bridge Capital Management, LLC. Pinnacle Bridge Capital Management, LLC is the sole general partner of Fund IV and is authorized to make all investment decisions on behalf of the fund. The investment decision with respect to the Mezzanine Financing and the associated Warrants is being made by Victor Hargrove, Managing Partner, and Danielle Okonkwo, Head of Credit Investments, at Pinnacle Bridge Capital Management, LLC. No other persons or entities have been solicited or offered the opportunity to participate in the warrant issuance. This single-offeree structure is the paradigmatic case for a Section 4(a)(2) exemption.

Furthermore, RGC did not engage in any general solicitation or general advertising in connection with the offering. RGC was introduced to Pinnacle Bridge through Ashford Peak Advisory Group, LLC ("Ashford Peak"), a registered broker-dealer engaged by RGC on October 14, 2022, to serve as placement agent in connection with the Mezzanine Financing. Ashford Peak identified Pinnacle Bridge through its existing network of institutional credit investors. The introduction was made through a private, targeted outreach to a limited number of sophisticated institutional investors with demonstrated interest and expertise in the gaming and hospitality sectors. All communications regarding the Mezzanine Financing and the warrant issuance have been conducted on a confidential, non-public basis.

Sophistication. Fund IV is a sophisticated institutional investor by any measure. Pinnacle Bridge Capital Partners, LP manages approximately $3.8 billion in assets under management across multiple credit and mezzanine investment strategies, with a particular focus on the gaming, hospitality, and consumer sectors. Fund IV itself is a dedicated mezzanine fund with significant experience in evaluating and investing in complex junior capital structures, including subordinated debt instruments with equity kickers such as warrants and conversion features. The fund's general partner and its investment professionals — including Mr. Hargrove and Ms. Okonkwo — possess extensive experience in the analysis of gaming industry businesses, capital structures, and regulatory frameworks. Fund IV is well beyond the sophistication threshold contemplated by Ralston Purina and its progeny, and is fully capable of evaluating the merits and risks of the proposed investment without the protections afforded by registration.

Access to information. Fund IV has access to all material information regarding RGC. As a Nasdaq-listed company, RGC is subject to the ongoing periodic reporting requirements of the Exchange Act, and its public filings — including its Annual Report on Form 10-K for the fiscal year ended June 30, 2022, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K — are publicly available on the SEC's EDGAR system. In addition, in connection with the Mezzanine Financing, RGC has provided Fund IV with extensive non-public financial and operational information, including management projections, capital expenditure budgets relating to Project Catalyst, details regarding the tribal gaming management contracts in Arizona and New Mexico, and other proprietary materials provided under the terms of a mutual Non-Disclosure Agreement dated October 20, 2022. Fund IV has also had the opportunity to conduct its own independent diligence, including meetings with RGC's management team and advisors. The level of information access provided to Fund IV is substantially equivalent to — and in many respects exceeds — the information that would be contained in a registration statement.

Manner of offering. As noted above, the offering was conducted through direct, arm's-length negotiations between RGC and Pinnacle Bridge, facilitated by Ashford Peak as placement agent. There was no general solicitation or general advertising within the meaning of Regulation D. All communications regarding the warrant issuance have been made in the context of private, bilateral discussions between the parties and their respective legal counsel and advisors. The offering materials were not disseminated to the public or to any persons other than Pinnacle Bridge and its authorized representatives.

Conclusion. Based on the foregoing analysis, the warrant issuance to Fund IV satisfies the requirements of the Section 4(a)(2) exemption for transactions not involving a public offering. The single-offeree structure, the unquestionable sophistication of Fund IV, the comprehensive access to information, and the private, non-solicited nature of the offering all strongly support the conclusion that the transaction does not involve a "public offering" within the meaning of the Securities Act.

IV. Regulation D — Rule 506(b) Safe Harbor

A. Overview of Rule 506(b)

While we believe the warrant issuance independently qualifies for the Section 4(a)(2) exemption as analyzed in Section III above, we recommend that RGC also structure the transaction to comply with the safe harbor provided by Rule 506(b) of Regulation D. Rule 506(b) provides a non-exclusive safe harbor under Section 4(a)(2), meaning that compliance with Rule 506(b) is deemed to satisfy the requirements of Section 4(a)(2), without prejudice to the availability of the statutory exemption on its own terms.

The principal advantages of relying on the Rule 506(b) safe harbor, in addition to the statutory exemption, include:

(i) Regulatory certainty. Rule 506(b) provides a clear, well-defined set of conditions, the satisfaction of which eliminates the need to satisfy the less precisely delineated standards of the statutory exemption on a facts-and-circumstances basis.

(ii) Federal preemption of state blue sky laws. Securities sold in a transaction that complies with Rule 506 are "covered securities" under Section 18(b)(4)(D) of the Securities Act, meaning that state securities regulators may not impose substantive registration or qualification requirements on the offering. States may require only notice filings and the payment of filing fees. This preemption significantly reduces the compliance burden associated with multi-state offerings.

(iii) Unlimited fundraising. Unlike certain other Regulation D exemptions (e.g., Rules 504 and 505, the latter of which was repealed effective May 22, 2017), Rule 506 does not impose a dollar limit on the aggregate offering amount.

Under Rule 506(b), an issuer may sell securities to an unlimited number of "accredited investors" (as defined in Rule 501(a) of Regulation D) and up to 35 non-accredited purchasers who, individually or through their purchaser representative, possess "such knowledge and experience in financial and business matters that [they are] capable of evaluating the merits and risks of the prospective investment." Rule 502(b)(2)(ii). The issuer may not, however, use any form of general solicitation or general advertising in connection with the offering, which distinguishes Rule 506(b) from the more recently adopted Rule 506(c), which permits general solicitation provided that all purchasers are verified accredited investors.

B. Accredited Investor Status of Fund IV

A threshold requirement for reliance on Rule 506(b) is that the purchaser qualify as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. We have evaluated the accredited investor status of Fund IV under the following provisions of Rule 501(a):

Rule 501(a)(3) — Entity with total assets exceeding $5,000,000. Rule 501(a)(3) defines an accredited investor to include any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, partnership, or limited liability company, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. Fund IV is a Delaware limited partnership that was formed in 2019 and has been in continuous operation as an investment vehicle since that date. Fund IV is not being formed for the specific purpose of acquiring the Warrants. As a fund within the Pinnacle Bridge platform, which manages approximately $3.8 billion in assets under management across its various investment vehicles, Fund IV's total assets substantially exceed the $5,000,000 threshold. We have reviewed Fund IV's most recently available audited financial statements (for the fiscal year ended December 31, 2021), which reflect total assets in excess of $750,000,000. Accordingly, Fund IV independently satisfies the accredited investor test under Rule 501(a)(3).

Rule 501(a)(7) — Entity in which all equity owners are accredited investors. Rule 501(a)(7) provides an alternative basis for accredited investor status: any entity in which all of the equity owners are accredited investors. While we have not independently verified the accredited investor status of each limited partner of Fund IV, the entity-level tests under Rule 501(a)(3) are independently satisfied, as described above, and reliance on Rule 501(a)(7) is not necessary for purposes of this analysis. Nevertheless, as a matter of best practice, we recommend that the accredited investor questionnaire requested from Fund IV include a representation from Fund IV's general partner as to the accredited investor status of its equity owners.

Qualified Institutional Buyer (QIB) status. While the status of Fund IV as a "qualified institutional buyer" (or "QIB") within the meaning of Rule 144A under the Securities Act is not a requirement for reliance on Regulation D, it is worth noting that Fund IV's assets under management strongly support the conclusion that Fund IV also qualifies as a QIB. Under Rule 144A(a)(1)(i), an entity qualifies as a QIB if it owns and invests on a discretionary basis at least $100,000,000 in securities of issuers that are not affiliated with the entity. Given Pinnacle Bridge's $3.8 billion in assets under management, this threshold is readily satisfied. Fund IV's QIB status may become relevant if RGC or Fund IV subsequently considers a resale of the Warrants or Warrant Shares in a transaction pursuant to Rule 144A.

Recommendation. Notwithstanding our analysis above, we recommend that C&H obtain, prior to the closing of the Mezzanine Financing, a written accredited investor questionnaire and investor representation letter from Fund IV (executed by an authorized officer of Pinnacle Bridge Capital Management, LLC, in its capacity as general partner of Fund IV), confirming Fund IV's accredited investor status under Rule 501(a)(3) (and, if applicable, Rule 501(a)(7)) and, if desired, its QIB status under Rule 144A. The use of a written questionnaire and representation letter is customary market practice and provides an important contemporaneous record of the issuer's reasonable belief as to the purchaser's accredited investor status.

C. No General Solicitation

Rule 506(b) prohibits the use of any form of general solicitation or general advertising in connection with the offering. Rule 502(c) provides that neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to: (i) any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

The offering of the Warrants to Fund IV was not made through any form of general solicitation or general advertising. Pinnacle Bridge was identified by Ashford Peak Advisory Group, LLC, a registered broker-dealer with its principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022, through Ashford Peak's existing network of institutional credit investors. Jonathan Kuo, Managing Director at Ashford Peak, introduced RGC to Pinnacle Bridge on October 24, 2022, following Ashford Peak's engagement by RGC on October 14, 2022. The introduction was made through private, confidential channels, and Mr. Kuo had a pre-existing substantive relationship with Pinnacle Bridge and its principals.

All subsequent communications regarding the Mezzanine Financing and the warrant issuance have been conducted in the context of private, bilateral negotiations between RGC and Pinnacle Bridge/Fund IV and their respective legal counsel (C&H and WHC) and financial advisors. No offering materials, term sheets, or other documents relating to the Mezzanine Financing or the warrant issuance have been disseminated to the public, posted on any website or electronic platform accessible to the general public, or distributed to any persons other than Fund IV and its authorized representatives, the placement agent (Ashford Peak), and the parties' respective legal counsel and advisors.

Ashford Peak's role as a registered broker-dealer placement agent is fully consistent with the private placement framework and does not constitute general solicitation. The SEC has long recognized that the involvement of a registered broker-dealer in identifying potential investors for a private placement is permissible under Rule 506(b), provided that the broker-dealer's solicitation activities are limited to contacting persons with whom it has a pre-existing substantive relationship or who are otherwise identified through non-public means. See SEC Release No. 33-8828 (Aug. 3, 2007) (discussing pre-existing substantive relationships in the context of Rule 506). Ashford Peak's compensation of 1.50% of committed capital (i.e., $525,000, payable at closing) is a customary placement agent fee for a transaction of this type and size.

D. Information Requirements (Rule 502(b))

Rule 502(b) of Regulation D prescribes the information that an issuer must furnish to purchasers in a Regulation D offering. However, the specific disclosure requirements of Rule 502(b)(2) — which would otherwise require the delivery of financial statements and a disclosure document containing information comparable to that contained in a registration statement on Forms S-1, S-11, or S-18, depending on the size of the offering — apply only to sales to non-accredited investors. Rule 502(b)(1) expressly provides that the information requirements of Rule 502(b)(2) do not apply to sales exclusively to accredited investors.

Because Fund IV is an accredited investor within the meaning of Rule 501(a), the specific disclosure requirements of Rule 502(b)(2) do not apply to the warrant issuance. Nonetheless, the issuer must afford each purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which the issuer possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information already provided. See Rule 502(b)(2)(v).

RGC has fully complied with the spirit and purpose of the information requirements. RGC has provided and will continue to provide Fund IV with access to all material financial and operational information regarding RGC, including:

• RGC's public SEC filings, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (reporting LTM Revenue of $387,600,000 and LTM EBITDA of $58,100,000), its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, and its Current Reports on Form 8-K filed during the relevant period;

• RGC's Q2 FY2023 earnings release, including management commentary and supplemental financial data;

• Private financial materials provided to Fund IV in connection with the diligence process, including management projections, capital expenditure budgets for Project Catalyst, operating data for existing gaming properties, and details regarding the tribal gaming management contracts in Arizona and New Mexico;

• Copies of the material agreements and instruments governing RGC's existing indebtedness, including the Senior Credit Facility and related security documents; and

• Draft transaction documents circulated in connection with the Mezzanine Financing, including the Note Purchase Agreement and the Warrant Agreement.

Fund IV has had, and will continue to have, the opportunity to ask questions and receive answers from RGC's management team and advisors regarding the terms and conditions of the Mezzanine Financing and all material aspects of RGC's business, operations, and financial condition.

E. Limitation on Resale (Rule 502(d))

Rule 502(d) of Regulation D provides that securities acquired in a Regulation D offering are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act. As restricted securities, the Warrants and the Warrant Shares may not be resold absent registration under the Securities Act or the availability of an exemption from registration.

Rule 502(d) further requires that the issuer exercise reasonable care to ensure that the purchasers of the securities are not "underwriters" within the meaning of Section 2(a)(11) of the Securities Act — that is, that the purchasers are acquiring the securities for their own account for investment purposes and not with a view to, or for sale in connection with, any distribution thereof. Rule 502(d) specifies that reasonable care may be demonstrated by the following actions:

(i) Making reasonable inquiry to determine if the purchaser is acquiring the securities for the purchaser's own account or on behalf of other persons;

(ii) Providing written disclosure to each purchaser prior to sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or an exemption from registration is available; and

(iii) Placing a legend on the certificate or other document evidencing the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale.

In light of the foregoing requirements, we recommend the inclusion of the following provisions in the Warrant Agreement and the related transaction documents:

(a) Investment intent representation from Fund IV. The Warrant Agreement should include a representation from Fund IV that it is acquiring the Warrants (and, upon exercise, the Warrant Shares) for its own account, for investment purposes only, and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act.

(b) Restrictive legend on warrant certificates and underlying share certificates. The Warrants and any share certificates representing the Warrant Shares should bear a restrictive legend of the type described in Section VI.A below, clearly stating that the securities have not been registered under the Securities Act and may not be offered, sold, or otherwise transferred except pursuant to an effective registration statement or an available exemption from registration.

(c) Stop-transfer instructions to RGC's transfer agent. RGC should provide written instructions to its transfer agent (currently believed to be Adriatic Health IT) directing the transfer agent to refuse to register any transfer of the Warrants or the Warrant Shares in the absence of either an effective registration statement or an opinion of counsel (reasonably acceptable to RGC) that the proposed transfer may be effected without registration.

The Warrants and the Warrant Shares will not be freely tradeable by Fund IV until either (a) a registration statement covering the resale of such securities is declared effective by the SEC, or (b) an exemption from registration (such as Rule 144, subject to the applicable holding period and other conditions, or Rule 144A, subject to QIB purchaser requirements) is available for the proposed resale. The holding period under Rule 144 for restricted securities of a reporting company is six months from the date of acquisition, subject to compliance with the current public information, volume limitation, and manner of sale requirements set forth in Rule 144.

F. Form D Filing Obligations (Rule 503)

Rule 503 of Regulation D requires an issuer that sells securities in reliance on Rule 504 or Rule 506 to file a notice of sale on Form D with the SEC. Form D must be filed electronically via the SEC's EDGAR system no later than 15 calendar days after the first sale of securities in the offering.

For purposes of this analysis, the "first sale" of securities will occur upon the issuance of the Warrants to Fund IV at the closing of the Mezzanine Financing. RGC must therefore file Form D with the SEC within 15 calendar days after the closing date. While the failure to timely file Form D does not result in the automatic loss of the Regulation D exemption — see Rule 507 (providing that the SEC may issue an order denying the availability of Regulation D to an issuer that has been enjoined for failure to file Form D) — timely filing is strongly recommended as a matter of best practice and to avoid any potential adverse consequences.

Form D requires disclosure of, among other things, the identity of the issuer, the exemption claimed (Rule 506(b)), the type of securities offered, the aggregate offering amount, the number and type of purchasers, the use of proceeds, and certain information regarding the issuer's executive officers and directors.

In addition to the federal Form D filing, RGC should evaluate state notice filing requirements in any state in which the offeree or purchaser is located. As noted above, securities sold under Rule 506 are "covered securities" under Section 18(b)(4)(D) of the Securities Act, and states may not impose substantive registration or qualification requirements on such offerings. However, states are permitted under Section 18(c)(1) of the Securities Act to require the filing of a notice and the payment of filing fees as a condition to the availability of the preemption.

The following state notice filings should be reviewed and submitted, as applicable:

• New York. Fund IV's principal office is located at 280 Park Avenue, 22nd Floor, New York, NY 10017. The New York Attorney General's office requires the filing of a Form D notice and a state-specific notice filing within 15 days of the first sale, along with a filing fee determined by the aggregate offering amount.

• Nevada. RGC is a Nevada corporation with its principal executive offices located at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103. The Nevada Secretary of State's Securities Division may require a notice filing and fee in connection with offerings by Nevada-domiciled issuers.

Additional state notice filing requirements should be reviewed for any other jurisdiction in which Fund IV or its limited partners are located, to the extent such information is available.

V. Integration Analysis

A. Integration Doctrine Overview

Under the SEC's integration doctrine, multiple offerings that are part of a single plan of financing may be "integrated" — that is, treated as a single offering for purposes of determining compliance with the registration requirements of the Securities Act and the conditions of any claimed exemption. If two or more offerings are integrated, and the combined offering does not satisfy the requirements of a single exemption, the availability of the exemption may be undermined. For example, if a private placement under Rule 506(b) were integrated with a concurrent or subsequent public offering involving general solicitation, the combined offering could be deemed to have involved general solicitation, thereby disqualifying the private placement from the Rule 506(b) safe harbor.

The integration doctrine has historically been analyzed under a five-factor test articulated by the SEC in SEC Release No. 33-4552 (Nov. 6, 1962), which considered: (i) whether the offerings are part of a single plan of financing; (ii) whether the offerings involve the issuance of the same class of securities; (iii) whether the offerings are made at or about the same time; (iv) whether the same type of consideration is received; and (v) whether the offerings are made for the same general purpose.

However, in November 2020, the SEC adopted comprehensive amendments to the integration framework as part of a broader harmonization of the securities offering exemptions. See SEC Release No. 33-10884 (Nov. 2, 2020). The revised framework, which became effective on March 15, 2021, replaced the former five-factor test with a principles-based approach set forth in new Rule 152 under the Securities Act. Rule 152 provides a general principle of integration, as well as four specific safe harbors, as described below.

B. Rule 152 Safe Harbors

Rule 152(a) sets forth the general principle that "offers and sales will not be integrated if, based on the particular facts and circumstances, the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering." Rule 152(a) further provides specific guidance for analyzing integration where one of the offerings involves general solicitation.

In addition to the general principle, Rule 152(b) provides four non-exclusive safe harbors from integration:

Rule 152(b)(1) — 30-day safe harbor for offerings without general solicitation. Any offering made more than 30 calendar days before the commencement of another offering, or more than 30 calendar days after the termination or completion of another offering, will not be integrated with the other offering, provided that, for an exempt offering under Rule 506(b) (which prohibits general solicitation), the issuer has a reasonable belief, based on the facts and circumstances, that it has not engaged in general solicitation.

Rule 152(b)(2) — Subsequent registered offering safe harbor. An offering for which a registration statement has been filed will not be integrated with a completed or terminated offering for which an exemption from registration was available, if the exemption relied upon for the exempt offering prohibits general solicitation (as is the case with Rule 506(b)) and the issuer has not engaged in general solicitation in connection with the exempt offering.

Rule 152(b)(3) — Offering under Rule 506(c) or registered offering following a general solicitation exempt offering. This safe harbor applies to situations where the prior exempt offering permitted general solicitation (e.g., Rule 506(c)), which is not applicable to the present analysis.

Rule 152(b)(4) — Concurrent exempt offerings. Offers and sales made in reliance on an exemption that does not prohibit general solicitation will not be integrated with another concurrent exempt offering, provided certain conditions are met.

For purposes of this analysis, the relevant safe harbors are Rule 152(b)(1) and Rule 152(b)(2), as discussed below.

C. Application to RGC's Warrant Issuance

The primary integration risk arises in the event that RGC, following the closing of the Mezzanine Financing, determines to pursue a registered public offering of equity securities. For example, if RGC's common stock price experiences a significant rally following the deployment of proceeds for Project Catalyst or the expansion of its tribal gaming management contracts, RGC may consider a follow-on public equity offering or a registered convertible notes offering to raise additional capital for general corporate purposes or to refinance all or a portion of the Mezzanine Financing. In such a scenario, there is a theoretical risk that the SEC or a court could attempt to integrate the private warrant issuance with the subsequent public offering, particularly if the two transactions are viewed as part of a single plan of financing.

However, several factors mitigate the integration risk in this case:

Distinct purposes. The Mezzanine Financing (including the warrant issuance) and any potential future equity offering serve fundamentally different purposes. The Mezzanine Financing is being structured to fund two specific capital deployment initiatives — Project Catalyst (approximately $22,000,000) and the expansion of tribal gaming management contracts in Arizona and New Mexico (approximately $13,000,000). A follow-on equity offering, by contrast, would likely be a primary capital raise for general corporate purposes, balance sheet strengthening, or refinancing of the Mezzanine Financing itself. The distinct purposes of the two offerings weigh strongly against integration.

Rule 152(b)(1) — 30-day safe harbor. If at least 30 calendar days elapse between the completion (closing) of the warrant issuance and the commencement of any subsequent offering, and no general solicitation was used in connection with the Regulation D offering, Rule 152(b)(1) provides a clear safe harbor against integration. Given the private, non-solicited nature of the warrant issuance and the fact that RGC has not engaged in any general solicitation in connection therewith, this safe harbor should be readily available, provided the 30-day temporal separation is observed.

Rule 152(b)(2) — Subsequent registered offering. To the extent RGC subsequently files a registration statement for a public equity offering, Rule 152(b)(2) provides an independent safe harbor, so long as the Rule 506(b) offering has been completed or terminated prior to the filing of the registration statement, and no general solicitation was used in the Rule 506(b) offering.

No public contemplation of a follow-on offering. The matter is currently in active negotiation, with the term sheet executed December 2, 2022 and the 90-day exclusivity period expiring March 15, 2023. RGC has not publicly contemplated, announced, or taken any steps toward a follow-on equity offering. The absence of any public indication of a future equity offering further supports the conclusion that the warrant issuance and any potential future offering are not part of a single plan of financing.

Recommendation. To ensure the availability of the Rule 152(b)(1) safe harbor, if RGC closes the Mezzanine Financing and issues the Warrants to Fund IV, RGC should refrain from commencing any registered equity offering (including the filing of a registration statement, the public announcement of an offering, or the commencement of a marketing or roadshow process) for a minimum of 30 calendar days after the closing date of the Mezzanine Financing. During this period, RGC should also refrain from making any public statements or disclosures that could be characterized as conditioning the market for a subsequent equity offering. The engagement team should coordinate with RGC's in-house counsel and investor relations department to implement this recommendation.

If RGC ultimately determines not to close the Mezzanine Financing (and the matter is placed on dormant status), no integration concern would arise because the Warrants would never have been issued, and no sale of securities would have occurred.

VI. Transfer Restrictions and Legends

A. Warrant Certificate Legend

As discussed in Section IV.E above, Rule 502(d) of Regulation D requires that the issuer exercise reasonable care to ensure that purchasers are not underwriters, including by placing a restrictive legend on certificates or other documents evidencing the securities. Accordingly, we recommend that the following legend (or substantially similar language) be placed on each warrant certificate issued to Fund IV:

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS."

This legend is customary for restricted securities issued in Regulation D offerings and is consistent with the legends required by the investment letter and subscription agreement in comparable mezzanine transactions. The specific legend language should be included in the Warrant Agreement and should be referenced in the accredited investor questionnaire and investor representation letter to be obtained from Fund IV prior to closing.

B. Share Certificate Legend

A substantially similar restrictive legend should be placed on any shares of common stock issued upon exercise of the Warrants (i.e., the Warrant Shares), until such time as the Warrant Shares are either (a) registered for resale under an effective registration statement filed by RGC pursuant to the registration rights provisions of the Warrant Agreement, or (b) eligible for resale under Rule 144 without restriction (including without volume limitations and without the requirement to file a Form 144). The Warrant Agreement should provide that RGC will cause the restrictive legend to be removed from the share certificates (or, if the shares are held in book-entry form, cause the applicable notation to be removed from the electronic record) promptly upon (i) the effectiveness of a registration statement covering the resale of the Warrant Shares or (ii) the delivery to RGC of a legal opinion (from counsel reasonably acceptable to RGC) confirming the availability of an exemption from registration for the proposed transfer without the need for a restrictive legend.

C. Stop-Transfer Instructions

RGC should instruct its transfer agent (currently believed to be Adriatic Health IT) to place stop-transfer restrictions on the Warrants and any Warrant Shares issued upon exercise thereof. The stop-transfer instructions should direct the transfer agent to refuse to register any transfer of the Warrants or the Warrant Shares unless (i) such transfer is made pursuant to an effective registration statement under the Securities Act, (ii) the proposed transferee delivers an opinion of counsel reasonably acceptable to RGC that the proposed transfer may be effected without registration under the Securities Act, or (iii) RGC otherwise consents to the transfer in writing. The stop-transfer instructions should be issued in writing to the transfer agent at or prior to the closing of the Mezzanine Financing and should remain in effect until the conditions for removal of the restrictive legend described in Section VI.B above have been satisfied.

VII. Registration Rights Considerations

The draft Warrant Agreement is expected to include customary registration rights provisions granting Fund IV the right to demand that RGC file a registration statement with the SEC covering the resale of the common stock issuable upon exercise of the Warrants. The inclusion of registration rights is a standard feature of equity kicker arrangements in mezzanine financings and serves to provide the investor with a clear path to liquidity for the securities received as part of the investment.

Typical registration rights provisions in transactions of this type include the following:

(a) Demand registration rights. Fund IV would be entitled to demand, on one or two occasions (subject to customary frequency and timing limitations), that RGC file a registration statement on an appropriate form (typically Form S-1 or, if available, Form S-3) covering the resale of the Warrant Shares. The demand registration right is typically subject to customary minimum thresholds (e.g., a minimum number of registrable shares or a minimum aggregate offering amount), blackout and deferral rights in favor of RGC (e.g., if RGC is in possession of material non-public information or is engaged in a transaction that would be materially adversely affected by a registration), and other customary conditions.

(b) Piggyback registration rights. If RGC files a registration statement for its own account or for the account of other security holders (other than certain excluded registration statements, such as registration statements on Form S-4 or Form S-8), Fund IV would have the right to include the Warrant Shares in such registration statement, subject to customary underwriter cutback provisions and other conditions.

(c) S-3 shelf registration rights. If RGC is eligible to use Form S-3 at the applicable time, Fund IV may request that RGC file a shelf registration statement on Form S-3 covering the resale of the Warrant Shares on a continuous or delayed basis pursuant to Rule 415 under the Securities Act. The use of a shelf registration statement is generally the most cost-effective and efficient method of providing Fund IV with resale liquidity, as it allows Fund IV to sell the Warrant Shares from time to time without the need for a separate registration statement for each sale.

(d) Customary ancillary provisions. The registration rights provisions are expected to include customary provisions addressing, among other things, expense allocation (with RGC typically bearing all registration expenses, other than underwriting discounts and commissions attributable to the selling shareholder), indemnification and contribution (providing for mutual indemnification between RGC and Fund IV in connection with any registration), lock-up periods (restricting Fund IV's ability to sell for a specified period following a public offering by RGC), and suspension and blackout periods (permitting RGC to suspend Fund IV's right to sell under a registration statement for limited periods in specified circumstances).

Impact on Exemption Availability. Importantly, the inclusion of registration rights in the Warrant Agreement does not impair the availability of the Section 4(a)(2) or Rule 506(b) exemption for the initial issuance of the Warrants. The SEC and the courts have consistently held that the grant of registration rights to an investor in a private placement is not inconsistent with the investor's investment intent representation, as registration rights are a contractual commitment by the issuer to register the securities at a future date rather than an indication that the investor is acquiring the securities with a view to immediate distribution. See, e.g., SEC Release No. 33-6188 (Feb. 1, 1980) (noting that registration rights do not negate investment intent).

Coordination with Senior Credit Facility and Intercreditor Agreement. The scope and terms of the registration rights should, however, be reviewed for consistency with any restrictions contained in the Senior Credit Facility, the Intercreditor Agreement, and any other agreements to which RGC is a party. Certain senior credit agreements contain restrictions on the issuance of additional equity or equity-linked securities, including restrictions on the filing of registration statements that could facilitate dilutive equity issuances. To the extent the Senior Credit Facility or the Intercreditor Agreement contains any such restrictions, the registration rights provisions in the Warrant Agreement should be drafted to carve out or subordinate to such restrictions, or RGC should obtain a waiver or consent from Cornerstone National Bank, N.A. prior to closing. The engagement team should coordinate with Marcus Leung and RGC's in-house counsel to review the relevant provisions of the Senior Credit Facility and the Intercreditor Agreement (currently being negotiated) and to ensure that the registration rights provisions are consistent with RGC's existing contractual obligations.

VIII. Role of the Placement Agent

Ashford Peak Advisory Group, LLC ("Ashford Peak") is a Delaware limited liability company and a registered broker-dealer with the Financial Industry Regulatory Authority ("FINRA") and the SEC, with its principal office located at 590 Madison Avenue, 34th Floor, New York, NY 10022. Ashford Peak was engaged by RGC as of October 14, 2022, pursuant to a Placement Agent Agreement, to act as exclusive placement agent in connection with the Mezzanine Financing. The lead principal at Ashford Peak for this engagement is Jonathan Kuo, Managing Director.

Under the terms of the Placement Agent Agreement, Ashford Peak is entitled to a placement agent fee equal to 1.50% of the aggregate committed capital under the Mezzanine Financing — i.e., $525,000 — payable in cash at the closing of the Mezzanine Financing. The fee is contingent on the successful closing of the transaction and is not payable in the event the Mezzanine Financing does not close. Ashford Peak's compensation is a customary placement agent fee for a mezzanine financing of this size and complexity.

The involvement of a registered broker-dealer as placement agent in a Rule 506(b) offering is permissible and does not constitute general solicitation, provided that the broker-dealer's activities are limited to contacting persons with whom the broker-dealer has a pre-existing substantive relationship or who are otherwise identified through non-public means. The SEC has defined a "pre-existing substantive relationship" as a relationship between the broker-dealer and the potential investor that was established prior to the commencement of the offering and that involves sufficient knowledge of the investor to evaluate the investor's sophistication and financial circumstances. See SEC Release No. 33-8828 (Aug. 3, 2007); see also SEC No-Action Letter, E.F. Marvelo & Co. (Dec. 3, 1985).

Ashford Peak's identification of Pinnacle Bridge on October 24, 2022 — ten days after its engagement by RGC — is consistent with this framework. Mr. Kuo has confirmed that he has a pre-existing substantive relationship with Pinnacle Bridge and its principals, having worked with Pinnacle Bridge on multiple prior transactions in the gaming and hospitality sectors. The introduction of RGC to Pinnacle Bridge was made through private, confidential channels, and no general solicitation or general advertising was employed.

Bad Actor Verification Under Rule 506(d). Rule 506(d)(1) of Regulation D disqualifies an issuer from relying on the Rule 506 exemption if any "covered person" — including the issuer, its directors, executive officers, general partners, managing members, and, importantly, any compensated solicitor of purchasers (such as a placement agent) — is subject to a "disqualifying event" enumerated in Rule 506(d)(1)(i) through (viii). Disqualifying events include, among other things, certain criminal convictions, court injunctions and restraining orders, SEC disciplinary orders, SEC cease-and-desist orders, and FINRA disciplinary actions.

We recommend that, prior to the closing of the Mezzanine Financing, C&H conduct or commission a bad actor verification with respect to all covered persons, including:

• Ashford Peak Advisory Group, LLC (as a compensated solicitor);

• Jonathan Kuo, Managing Director of Ashford Peak (as a natural person who is a compensated solicitor);

• Fund IV (as a purchaser whose covered persons may include its general partner and directors or officers thereof);

• Pinnacle Bridge Capital Management, LLC (as the general partner of Fund IV);

• Victor Hargrove, Managing Partner of Pinnacle Bridge Capital Management, LLC; and

• Danielle Okonkwo, Head of Credit Investments of Pinnacle Bridge Capital Management, LLC.

The bad actor verification should include a review of publicly available information (including FINRA BrokerCheck, the SEC's EDGAR database, and relevant court records), as well as the submission of questionnaires to each covered person requesting representations as to the absence of any disqualifying events. Based on our preliminary review, we are not aware of any disqualifying events applicable to any of the covered persons; however, a formal verification process should be completed and documented prior to closing.

IX. Gaming Regulatory Intersection

This memorandum focuses on the federal securities law analysis applicable to the issuance of the Warrants. However, because RGC operates in the heavily regulated gaming industry, it is appropriate to briefly cross-reference the gaming regulatory analysis set forth in the separate Nevada Gaming Regulatory Analysis Memorandum prepared by C&H and delivered to the engagement team on December 12, 2022 (the "Gaming Memo").

As discussed in the Gaming Memo, the issuance of the Warrants to Fund IV, representing 3.00% of RGC's fully diluted common equity, does not currently trigger the suitability investigation and licensing requirements of the Nevada Gaming Control Board ("NGCB"), which generally attach at the 5% beneficial ownership threshold under Nevada Revised Statutes Chapter 463 and the regulations of the Nevada Gaming Commission. However, as noted in the Gaming Memo, the interaction of PIK interest accrual with the conversion ratio (and any anti-dilution adjustments to the Warrant exercise price or the number of Warrant Shares) should be monitored on an ongoing basis to ensure that Fund IV's equity ownership does not inadvertently exceed the 5% threshold, which would trigger th

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT
From: Sophie Tremblay, Associate, Calderwood & Harkness LLP
To: Claudia Merritt, Partner, Banking & Finance; Marcus Leung, Lead Associate, Banking & Finance
Date: January 25, 2023
Re: Redstone Gaming Corp. — Securities Law Analysis: Private Placement Exemption for Warrant Issuance in Connection with Proposed $35,000,000 Mezzanine Financing
Matter No.: 1033-00001
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I. Executive Summary
This memorandum analyzes the availability of the exemption from registration under Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), for the proposed issuance by Redstone Gaming Corp. ("RGC"), a Nevada corporation publicly traded on the Nasdaq Capital Market (ticker: RDGM), of warrants (the "Warrants") to purchase 1,650,000 shares of RGC common stock, par value $0.001 per share (the "Warrant Shares"), to Pinnacle Bridge Mezzanine Opportunities Fund IV, LP ("Fund IV"), a Delaware limited partnership, in connection with the proposed $35,000,000 mezzanine financing (the "Mezzanine Financing"). The Warrants are being issued as an equity kicker component of the Mezzanine Financing and represent warrant coverage of approximately 3.00% of RGC's fully diluted common equity, calculated on the basis of approximately 55,000,000 shares of common stock outstanding on a fully diluted basis as of the date hereof. The Warrants carry a strike price of $9.24 per share, representing 110% of the 30-day volume-weighted average price ("VWAP") of $8.40 per share as of the commitment date.
Based on the analysis set forth below, it is our conclusion that the issuance of the Warrants and the Warrant Shares issuable upon exercise thereof qualifies for exemption from the registration requirements of Section 5 of the Securities Act pursuant to Section 4(a)(2) of the Securities Act and the safe harbor provided by Rule 506(b) of Regulation D promulgated thereunder ("Regulation D"), subject to the satisfaction of customary conditions and the implementation of the recommended actions described in Section X of this memorandum.
The key factors supporting this conclusion include: (i) the offering involves a single institutional purchaser (Fund IV) that qualifies as an "accredited investor" within the meaning of Rule 501(a) of Regulation D; (ii) no general solicitation or general advertising has been employed in connection with the offering; (iii) Fund IV has been provided with, and has access to, all material information regarding RGC, including its public SEC filings and private financial information furnished in connection with the diligence process; and (iv) appropriate transfer restrictions and legends will be imposed on the Warrants and the Warrant Shares. We address each of these factors, as well as the integration doctrine, transfer restrictions, registration rights considerations, the role of the placement agent, and the intersection with gaming regulatory requirements, in the sections that follow.
This memorandum has been prepared at the request of the engagement team for internal use in connection with the Mezzanine Financing and is subject to the attorney-client privilege and the attorney work product doctrine.
II. Background and Transaction Overview
A. The Proposed Mezzanine Financing
RGC is a Nevada corporation engaged in the ownership and operation of gaming and entertainment facilities in Nevada, Arizona, and New Mexico. RGC's common stock is listed on the Nasdaq Capital Market under the ticker symbol "RDGM." As of September 30, 2022, RGC reported last-twelve-month ("LTM") revenue of approximately $387,600,000 and LTM EBITDA (as adjusted) of approximately $58,100,000, according to RGC's Annual Report on Form 10-K for the fiscal year ended June 30, 2022, and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
RGC is currently exploring a $35,000,000 mezzanine term note (the "Notes") with Pinnacle Bridge Capital Partners, LP ("Pinnacle Bridge" or "PBCP"), a leading institutional credit and mezzanine investment platform headquartered in New York, New York. The Notes would be structured as senior subordinated notes due 2028 and would bear interest at a rate of 10.50% per annum payable in cash, plus 3.00% per annum payable in kind ("PIK"), for an all-in yield of 13.50% per annum. The Notes would have a five-year maturity from the date of issuance, with customary prepayment provisions, financial covenants, and affirmative and negative covenants currently being negotiated.
The Notes would be subordinated to all existing and permitted senior indebtedness of RGC, including, without limitation, all obligations arising under or in connection with the $200,000,000 Senior Secured Revolving Credit Facility, dated as of March 15, 2019 (as amended and restated), among RGC, as borrower, the lenders party thereto, and Cornerstone National Bank, N.A., as administrative agent (the "Senior Credit Facility"). As of September 30, 2022, approximately $142,000,000 was drawn under the Senior Credit Facility. The subordination arrangements between the Notes and the Senior Credit Facility are expected to be governed by a separate Intercreditor Agreement among RGC, Fund IV, and Cornerstone National Bank, N.A., as administrative agent under the Senior Credit Facility.
The proceeds of the Mezzanine Financing would be used by RGC for two principal purposes: (i) approximately $22,000,000 for the development and deployment of RGC's next-generation digital wagering platform, internally designated "Project Catalyst," which is expected to enable RGC to offer real-time sports betting and interactive gaming products across its existing Nevada properties and, pending regulatory approval, through its tribal gaming management contracts; and (ii) approximately $13,000,000 for the expansion of RGC's tribal gaming management contracts in Arizona and New Mexico, including the negotiation of new management contracts with the Pueblo of Acoma and the Tohono O'odham Nation, as well as the renovation and expansion of existing managed facilities.
The Mezzanine Financing is governed by a Mezzanine Note Purchase Agreement (the "Note Purchase Agreement"), which is currently being negotiated between Calderwood & Harkness LLP ("C&H"), as counsel to RGC, and Wainwright Hess & Caldwell LLP ("WHC"), as counsel to Pinnacle Bridge and Fund IV. The lead partner at WHC on this engagement is Margaret Forsythe, with Ryan Castellano serving as the lead associate. A term sheet for the Mezzanine Financing was executed by RGC and Pinnacle Bridge on December 2, 2022, and includes a 90-day exclusivity period expiring on March 15, 2023, during which RGC has agreed not to solicit or accept competing mezzanine or subordinated debt proposals.
B. The Warrant Issuance
As part of the equity kicker component of the Mezzanine Financing, RGC would issue to Fund IV the Warrants to purchase 1,650,000 shares of RGC common stock. The Warrants represent warrant coverage of approximately 3.00% of RGC's fully diluted common equity, based on approximately 55,000,000 shares of common stock outstanding on a fully diluted basis (including shares issuable under existing equity incentive plans, outstanding options, and other convertible securities, but excluding the Warrants themselves). The warrant coverage percentage was negotiated between RGC and Pinnacle Bridge as part of the overall economic terms of the Mezzanine Financing and is reflected in the executed term sheet.
The Warrants carry a strike price of $9.24 per share, which represents 110% of the 30-day VWAP of RGC common stock of approximately $8.40 per share as of the commitment date referenced in the term sheet. The Warrants are expected to have a term of seven years from the date of issuance, with customary anti-dilution protections (including weighted-average adjustments for stock splits, stock dividends, and below-market issuances), cashless exercise provisions, and limited transfer restrictions. The specific terms of the Warrants are set forth in a separate Warrant Agreement (the "Warrant Agreement"), the first draft of which was circulated by C&H to WHC on January 27, 2023 — two days after the date of this memorandum. It is noted that the Warrant Agreement draft was being finalized contemporaneously with the preparation of this analysis, and the final terms of the Warrant Agreement may affect certain of the conclusions and recommendations set forth herein. Any material changes to the terms of the Warrant Agreement as a result of ongoing negotiations with WHC should be reviewed for their impact on the exemption analysis.
The issuance of the Warrants is expected to occur simultaneously with the closing of the Mezzanine Financing, at which time the Warrants will be delivered to Fund IV (or its designated nominee) against delivery of the mezzanine loan proceeds to RGC. No separate consideration is being paid by Fund IV for the Warrants; the Warrants are an integral part of the overall economics of the Mezzanine Financing, and the parties have agreed that the Warrants are being issued in consideration of Fund IV's commitment to fund the full $35,000,000 of mezzanine notes.
C. The Securities at Issue
For purposes of this analysis, it is important to identify the securities that are the subject of the proposed exemption:
The Warrants. The Warrants themselves constitute "securities" within the meaning of Section 2(a)(1) of the Securities Act. Section 2(a)(1) defines the term "security" to include, among other things, any "warrant" or "right to subscribe to or purchase" any security. Accordingly, the issuance of the Warrants by RGC to Fund IV constitutes a sale of securities within the meaning of Section 2(a)(3) of the Securities Act and is subject to the registration requirements of Section 5, absent an available exemption.
The Warrant Shares. The shares of RGC common stock issuable upon exercise of the Warrants — the Warrant Shares — are also securities within the meaning of Section 2(a)(1) and will require either registration or an available exemption at the time of exercise. The exercise of the Warrants by Fund IV will constitute a separate sale of securities for purposes of Section 5. It is therefore necessary to ensure that either (a) a registration statement covering the Warrant Shares is in effect at the time of exercise, or (b) an exemption from registration (such as the Section 4(a)(2) exemption or an exemption under Regulation D) is available at the time of exercise. As discussed further in Section VII below, the draft Warrant Agreement is expected to include registration rights provisions that may facilitate the registration of the Warrant Shares prior to exercise.
RGC is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). RGC's common stock is registered under Section 12(g) of the Exchange Act, and RGC is subject to the ongoing periodic reporting requirements of Sections 13(a) and 15(d) of the Exchange Act, including the filing of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. RGC's status as a reporting company is relevant both to the information requirements under Regulation D and to the availability of Form S-3 for any subsequent registration of the Warrant Shares.
III. Section 4(a)(2) Statutory Exemption
A. Statutory Framework
Section 4(a)(2) of the Securities Act provides an exemption from the registration requirements of Section 5 for "transactions by an issuer not involving any public offering." This exemption, commonly referred to as the "private placement" exemption, is one of the most widely used exemptions from registration and has been the subject of extensive judicial interpretation and SEC guidance.
The seminal judicial interpretation of the Section 4(a)(2) exemption is the U.S. Supreme Court's decision in SEC v. Ralston Purina Co., 346 U.S. 119 (1953). In Ralston Purina, the Court held that the applicability of the Section 4(a)(2) exemption depends on whether the particular class of persons affected needs the protection of the Securities Act's registration provisions. The Court emphasized that the exemption was intended to apply to transactions "where there is no practical need for [the registration requirement's] application or where the public benefits are too remote." Id. at 125.
Drawing on Ralston Purina and its progeny, courts and the SEC have identified the following key factors relevant to determining whether an offering constitutes a "public offering" for purposes of Section 4(a)(2):
(i) The number and sophistication of offerees. The fewer and more sophisticated the offerees, the more likely the transaction qualifies as a private placement. While there is no bright-line numerical limit, the focus is on whether the offerees are capable of evaluating the merits and risks of the investment and of fending for themselves.
(ii) The manner of offering. If the offering is made through direct, personal communications with identified offerees, rather than through general solicitation or general advertising, it is more likely to qualify as a private placement.
(iii) The relationship of the offerees to the issuer. Offerees who have a pre-existing relationship with the issuer, or who have been identified through channels that ensure their sophistication and access to information, are more likely to be the type of persons who do not need the protections of registration.
(iv) The availability of information. The offerees must have access to the type of information that would be contained in a registration statement — or, alternatively, must be in a position to obtain such information by virtue of their relationship with the issuer or other circumstances.
(v) The need for the protections afforded by registration. This overarching inquiry looks to whether, considering all of the circumstances, the offerees are the type of persons who need the protections that registration is designed to provide.
The burden of establishing the availability of the Section 4(a)(2) exemption rests on the party claiming the exemption — in this case, RGC as the issuer. See Ralston Purina, 346 U.S. at 126; see also SEC Release No. 33-4552 (Nov. 6, 1962) (noting that the issuer bears the burden of proving the availability of the exemption). It is therefore important that RGC maintain contemporaneous records documenting the private nature of the offering and the sophistication and access to information of the offeree.
B. Application to the Warrant Issuance
Applying the Ralston Purina factors to the proposed warrant issuance, we conclude that the issuance of the Warrants to Fund IV satisfies the requirements of the Section 4(a)(2) exemption for transactions not involving a public offering:
Number of offerees. The proposed transaction involves only one offeree — Fund IV, acting through its general partner, Pinnacle Bridge Capital Management, LLC. Pinnacle Bridge Capital Management, LLC is the sole general partner of Fund IV and is authorized to make all investment decisions on behalf of the fund. The investment decision with respect to the Mezzanine Financing and the associated Warrants is being made by Victor Hargrove, Managing Partner, and Danielle Okonkwo, Head of Credit Investments, at Pinnacle Bridge Capital Management, LLC. No other persons or entities have been solicited or offered the opportunity to participate in the warrant issuance. This single-offeree structure is the paradigmatic case for a Section 4(a)(2) exemption.
Furthermore, RGC did not engage in any general solicitation or general advertising in connection with the offering. RGC was introduced to Pinnacle Bridge through Ashford Peak Advisory Group, LLC ("Ashford Peak"), a registered broker-dealer engaged by RGC on October 14, 2022, to serve as placement agent in connection with the Mezzanine Financing. Ashford Peak identified Pinnacle Bridge through its existing network of institutional credit investors. The introduction was made through a private, targeted outreach to a limited number of sophisticated institutional investors with demonstrated interest and expertise in the gaming and hospitality sectors. All communications regarding the Mezzanine Financing and the warrant issuance have been conducted on a confidential, non-public basis.
Sophistication. Fund IV is a sophisticated institutional investor by any measure. Pinnacle Bridge Capital Partners, LP manages approximately $3.8 billion in assets under management across multiple credit and mezzanine investment strategies, with a particular focus on the gaming, hospitality, and consumer sectors. Fund IV itself is a dedicated mezzanine fund with significant experience in evaluating and investing in complex junior capital structures, including subordinated debt instruments with equity kickers such as warrants and conversion features. The fund's general partner and its investment professionals — including Mr. Hargrove and Ms. Okonkwo — possess extensive experience in the analysis of gaming industry businesses, capital structures, and regulatory frameworks. Fund IV is well beyond the sophistication threshold contemplated by Ralston Purina and its progeny, and is fully capable of evaluating the merits and risks of the proposed investment without the protections afforded by registration.
Access to information. Fund IV has access to all material information regarding RGC. As a Nasdaq-listed company, RGC is subject to the ongoing periodic reporting requirements of the Exchange Act, and its public filings — including its Annual Report on Form 10-K for the fiscal year ended June 30, 2022, its Quarterly Reports on Form 10-Q, and its Current Reports on Form 8-K — are publicly available on the SEC's EDGAR system. In addition, in connection with the Mezzanine Financing, RGC has provided Fund IV with extensive non-public financial and operational information, including management projections, capital expenditure budgets relating to Project Catalyst, details regarding the tribal gaming management contracts in Arizona and New Mexico, and other proprietary materials provided under the terms of a mutual Non-Disclosure Agreement dated October 20, 2022. Fund IV has also had the opportunity to conduct its own independent diligence, including meetings with RGC's management team and advisors. The level of information access provided to Fund IV is substantially equivalent to — and in many respects exceeds — the information that would be contained in a registration statement.
Manner of offering. As noted above, the offering was conducted through direct, arm's-length negotiations between RGC and Pinnacle Bridge, facilitated by Ashford Peak as placement agent. There was no general solicitation or general advertising within the meaning of Regulation D. All communications regarding the warrant issuance have been made in the context of private, bilateral discussions between the parties and their respective legal counsel and advisors. The offering materials were not disseminated to the public or to any persons other than Pinnacle Bridge and its authorized representatives.
Conclusion. Based on the foregoing analysis, the warrant issuance to Fund IV satisfies the requirements of the Section 4(a)(2) exemption for transactions not involving a public offering. The single-offeree structure, the unquestionable sophistication of Fund IV, the comprehensive access to information, and the private, non-solicited nature of the offering all strongly support the conclusion that the transaction does not involve a "public offering" within the meaning of the Securities Act.
IV. Regulation D — Rule 506(b) Safe Harbor
A. Overview of Rule 506(b)
While we believe the warrant issuance independently qualifies for the Section 4(a)(2) exemption as analyzed in Section III above, we recommend that RGC also structure the transaction to comply with the safe harbor provided by Rule 506(b) of Regulation D. Rule 506(b) provides a non-exclusive safe harbor under Section 4(a)(2), meaning that compliance with Rule 506(b) is deemed to satisfy the requirements of Section 4(a)(2), without prejudice to the availability of the statutory exemption on its own terms.
The principal advantages of relying on the Rule 506(b) safe harbor, in addition to the statutory exemption, include:
(i) Regulatory certainty. Rule 506(b) provides a clear, well-defined set of conditions, the satisfaction of which eliminates the need to satisfy the less precisely delineated standards of the statutory exemption on a facts-and-circumstances basis.
(ii) Federal preemption of state blue sky laws. Securities sold in a transaction that complies with Rule 506 are "covered securities" under Section 18(b)(4)(D) of the Securities Act, meaning that state securities regulators may not impose substantive registration or qualification requirements on the offering. States may require only notice filings and the payment of filing fees. This preemption significantly reduces the compliance burden associated with multi-state offerings.
(iii) Unlimited fundraising. Unlike certain other Regulation D exemptions (e.g., Rules 504 and 505, the latter of which was repealed effective May 22, 2017), Rule 506 does not impose a dollar limit on the aggregate offering amount.
Under Rule 506(b), an issuer may sell securities to an unlimited number of "accredited investors" (as defined in Rule 501(a) of Regulation D) and up to 35 non-accredited purchasers who, individually or through their purchaser representative, possess "such knowledge and experience in financial and business matters that [they are] capable of evaluating the merits and risks of the prospective investment." Rule 502(b)(2)(ii). The issuer may not, however, use any form of general solicitation or general advertising in connection with the offering, which distinguishes Rule 506(b) from the more recently adopted Rule 506(c), which permits general solicitation provided that all purchasers are verified accredited investors.
B. Accredited Investor Status of Fund IV
A threshold requirement for reliance on Rule 506(b) is that the purchaser qualify as an "accredited investor" within the meaning of Rule 501(a) of Regulation D. We have evaluated the accredited investor status of Fund IV under the following provisions of Rule 501(a):
Rule 501(a)(3) — Entity with total assets exceeding $5,000,000. Rule 501(a)(3) defines an accredited investor to include any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, partnership, or limited liability company, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000. Fund IV is a Delaware limited partnership that was formed in 2019 and has been in continuous operation as an investment vehicle since that date. Fund IV is not being formed for the specific purpose of acquiring the Warrants. As a fund within the Pinnacle Bridge platform, which manages approximately $3.8 billion in assets under management across its various investment vehicles, Fund IV's total assets substantially exceed the $5,000,000 threshold. We have reviewed Fund IV's most recently available audited financial statements (for the fiscal year ended December 31, 2021), which reflect total assets in excess of $750,000,000. Accordingly, Fund IV independently satisfies the accredited investor test under Rule 501(a)(3).
Rule 501(a)(7) — Entity in which all equity owners are accredited investors. Rule 501(a)(7) provides an alternative basis for accredited investor status: any entity in which all of the equity owners are accredited investors. While we have not independently verified the accredited investor status of each limited partner of Fund IV, the entity-level tests under Rule 501(a)(3) are independently satisfied, as described above, and reliance on Rule 501(a)(7) is not necessary for purposes of this analysis. Nevertheless, as a matter of best practice, we recommend that the accredited investor questionnaire requested from Fund IV include a representation from Fund IV's general partner as to the accredited investor status of its equity owners.
Qualified Institutional Buyer (QIB) status. While the status of Fund IV as a "qualified institutional buyer" (or "QIB") within the meaning of Rule 144A under the Securities Act is not a requirement for reliance on Regulation D, it is worth noting that Fund IV's assets under management strongly support the conclusion that Fund IV also qualifies as a QIB. Under Rule 144A(a)(1)(i), an entity qualifies as a QIB if it owns and invests on a discretionary basis at least $100,000,000 in securities of issuers that are not affiliated with the entity. Given Pinnacle Bridge's $3.8 billion in assets under management, this threshold is readily satisfied. Fund IV's QIB status may become relevant if RGC or Fund IV subsequently considers a resale of the Warrants or Warrant Shares in a transaction pursuant to Rule 144A.
Recommendation. Notwithstanding our analysis above, we recommend that C&H obtain, prior to the closing of the Mezzanine Financing, a written accredited investor questionnaire and investor representation letter from Fund IV (executed by an authorized officer of Pinnacle Bridge Capital Management, LLC, in its capacity as general partner of Fund IV), confirming Fund IV's accredited investor status under Rule 501(a)(3) (and, if applicable, Rule 501(a)(7)) and, if desired, its QIB status under Rule 144A. The use of a written questionnaire and representation letter is customary market practice and provides an important contemporaneous record of the issuer's reasonable belief as to the purchaser's accredited investor status.
C. No General Solicitation
Rule 506(b) prohibits the use of any form of general solicitation or general advertising in connection with the offering. Rule 502(c) provides that neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to: (i) any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
The offering of the Warrants to Fund IV was not made through any form of general solicitation or general advertising. Pinnacle Bridge was identified by Ashford Peak Advisory Group, LLC, a registered broker-dealer with its principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022, through Ashford Peak's existing network of institutional credit investors. Jonathan Kuo, Managing Director at Ashford Peak, introduced RGC to Pinnacle Bridge on October 24, 2022, following Ashford Peak's engagement by RGC on October 14, 2022. The introduction was made through private, confidential channels, and Mr. Kuo had a pre-existing substantive relationship with Pinnacle Bridge and its principals.
All subsequent communications regarding the Mezzanine Financing and the warrant issuance have been conducted in the context of private, bilateral negotiations between RGC and Pinnacle Bridge/Fund IV and their respective legal counsel (C&H and WHC) and financial advisors. No offering materials, term sheets, or other documents relating to the Mezzanine Financing or the warrant issuance have been disseminated to the public, posted on any website or electronic platform accessible to the general public, or distributed to any persons other than Fund IV and its authorized representatives, the placement agent (Ashford Peak), and the parties' respective legal counsel and advisors.
Ashford Peak's role as a registered broker-dealer placement agent is fully consistent with the private placement framework and does not constitute general solicitation. The SEC has long recognized that the involvement of a registered broker-dealer in identifying potential investors for a private placement is permissible under Rule 506(b), provided that the broker-dealer's solicitation activities are limited to contacting persons with whom it has a pre-existing substantive relationship or who are otherwise identified through non-public means. See SEC Release No. 33-8828 (Aug. 3, 2007) (discussing pre-existing substantive relationships in the context of Rule 506). Ashford Peak's compensation of 1.50% of committed capital (i.e., $525,000, payable at closing) is a customary placement agent fee for a transaction of this type and size.
D. Information Requirements (Rule 502(b))
Rule 502(b) of Regulation D prescribes the information that an issuer must furnish to purchasers in a Regulation D offering. However, the specific disclosure requirements of Rule 502(b)(2) — which would otherwise require the delivery of financial statements and a disclosure document containing information comparable to that contained in a registration statement on Forms S-1, S-11, or S-18, depending on the size of the offering — apply only to sales to non-accredited investors. Rule 502(b)(1) expressly provides that the information requirements of Rule 502(b)(2) do not apply to sales exclusively to accredited investors.
Because Fund IV is an accredited investor within the meaning of Rule 501(a), the specific disclosure requirements of Rule 502(b)(2) do not apply to the warrant issuance. Nonetheless, the issuer must afford each purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which the issuer possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information already provided. See Rule 502(b)(2)(v).
RGC has fully complied with the spirit and purpose of the information requirements. RGC has provided and will continue to provide Fund IV with access to all material financial and operational information regarding RGC, including:
•  RGC's public SEC filings, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (reporting LTM Revenue of $387,600,000 and LTM EBITDA of $58,100,000), its Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, and its Current Reports on Form 8-K filed during the relevant period;
•  RGC's Q2 FY2023 earnings release, including management commentary and supplemental financial data;
•  Private financial materials provided to Fund IV in connection with the diligence process, including management projections, capital expenditure budgets for Project Catalyst, operating data for existing gaming properties, and details regarding the tribal gaming management contracts in Arizona and New Mexico;
•  Copies of the material agreements and instruments governing RGC's existing indebtedness, including the Senior Credit Facility and related security documents; and
•  Draft transaction documents circulated in connection with the Mezzanine Financing, including the Note Purchase Agreement and the Warrant Agreement.
Fund IV has had, and will continue to have, the opportunity to ask questions and receive answers from RGC's management team and advisors regarding the terms and conditions of the Mezzanine Financing and all material aspects of RGC's business, operations, and financial condition.
E. Limitation on Resale (Rule 502(d))
Rule 502(d) of Regulation D provides that securities acquired in a Regulation D offering are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act. As restricted securities, the Warrants and the Warrant Shares may not be resold absent registration under the Securities Act or the availability of an exemption from registration.
Rule 502(d) further requires that the issuer exercise reasonable care to ensure that the purchasers of the securities are not "underwriters" within the meaning of Section 2(a)(11) of the Securities Act — that is, that the purchasers are acquiring the securities for their own account for investment purposes and not with a view to, or for sale in connection with, any distribution thereof. Rule 502(d) specifies that reasonable care may be demonstrated by the following actions:
(i) Making reasonable inquiry to determine if the purchaser is acquiring the securities for the purchaser's own account or on behalf of other persons;
(ii) Providing written disclosure to each purchaser prior to sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or an exemption from registration is available; and
(iii) Placing a legend on the certificate or other document evidencing the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale.
In light of the foregoing requirements, we recommend the inclusion of the following provisions in the Warrant Agreement and the related transaction documents:
(a) Investment intent representation from Fund IV. The Warrant Agreement should include a representation from Fund IV that it is acquiring the Warrants (and, upon exercise, the Warrant Shares) for its own account, for investment purposes only, and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act.
(b) Restrictive legend on warrant certificates and underlying share certificates. The Warrants and any share certificates representing the Warrant Shares should bear a restrictive legend of the type described in Section VI.A below, clearly stating that the securities have not been registered under the Securities Act and may not be offered, sold, or otherwise transferred except pursuant to an effective registration statement or an available exemption from registration.
(c) Stop-transfer instructions to RGC's transfer agent. RGC should provide written instructions to its transfer agent (currently believed to be Adriatic Health IT) directing the transfer agent to refuse to register any transfer of the Warrants or the Warrant Shares in the absence of either an effective registration statement or an opinion of counsel (reasonably acceptable to RGC) that the proposed transfer may be effected without registration.
The Warrants and the Warrant Shares will not be freely tradeable by Fund IV until either (a) a registration statement covering the resale of such securities is declared effective by the SEC, or (b) an exemption from registration (such as Rule 144, subject to the applicable holding period and other conditions, or Rule 144A, subject to QIB purchaser requirements) is available for the proposed resale. The holding period under Rule 144 for restricted securities of a reporting company is six months from the date of acquisition, subject to compliance with the current public information, volume limitation, and manner of sale requirements set forth in Rule 144.
F. Form D Filing Obligations (Rule 503)
Rule 503 of Regulation D requires an issuer that sells securities in reliance on Rule 504 or Rule 506 to file a notice of sale on Form D with the SEC. Form D must be filed electronically via the SEC's EDGAR system no later than 15 calendar days after the first sale of securities in the offering.
For purposes of this analysis, the "first sale" of securities will occur upon the issuance of the Warrants to Fund IV at the closing of the Mezzanine Financing. RGC must therefore file Form D with the SEC within 15 calendar days after the closing date. While the failure to timely file Form D does not result in the automatic loss of the Regulation D exemption — see Rule 507 (providing that the SEC may issue an order denying the availability of Regulation D to an issuer that has been enjoined for failure to file Form D) — timely filing is strongly recommended as a matter of best practice and to avoid any potential adverse consequences.
Form D requires disclosure of, among other things, the identity of the issuer, the exemption claimed (Rule 506(b)), the type of securities offered, the aggregate offering amount, the number and type of purchasers, the use of proceeds, and certain information regarding the issuer's executive officers and directors.
In addition to the federal Form D filing, RGC should evaluate state notice filing requirements in any state in which the offeree or purchaser is located. As noted above, securities sold under Rule 506 are "covered securities" under Section 18(b)(4)(D) of the Securities Act, and states may not impose substantive registration or qualification requirements on such offerings. However, states are permitted under Section 18(c)(1) of the Securities Act to require the filing of a notice and the payment of filing fees as a condition to the availability of the preemption.
The following state notice filings should be reviewed and submitted, as applicable:
•  New York. Fund IV's principal office is located at 280 Park Avenue, 22nd Floor, New York, NY 10017. The New York Attorney General's office requires the filing of a Form D notice and a state-specific notice filing within 15 days of the first sale, along with a filing fee determined by the aggregate offering amount.
•  Nevada. RGC is a Nevada corporation with its principal executive offices located at 4250 South Decatur Boulevard, Suite 1100, Las Vegas, NV 89103. The Nevada Secretary of State's Securities Division may require a notice filing and fee in connection with offerings by Nevada-domiciled issuers.
Additional state notice filing requirements should be reviewed for any other jurisdiction in which Fund IV or its limited partners are located, to the extent such information is available.
V. Integration Analysis
A. Integration Doctrine Overview
Under the SEC's integration doctrine, multiple offerings that are part of a single plan of financing may be "integrated" — that is, treated as a single offering for purposes of determining compliance with the registration requirements of the Securities Act and the conditions of any claimed exemption. If two or more offerings are integrated, and the combined offering does not satisfy the requirements of a single exemption, the availability of the exemption may be undermined. For example, if a private placement under Rule 506(b) were integrated with a concurrent or subsequent public offering involving general solicitation, the combined offering could be deemed to have involved general solicitation, thereby disqualifying the private placement from the Rule 506(b) safe harbor.
The integration doctrine has historically been analyzed under a five-factor test articulated by the SEC in SEC Release No. 33-4552 (Nov. 6, 1962), which considered: (i) whether the offerings are part of a single plan of financing; (ii) whether the offerings involve the issuance of the same class of securities; (iii) whether the offerings are made at or about the same time; (iv) whether the same type of consideration is received; and (v) whether the offerings are made for the same general purpose.
However, in November 2020, the SEC adopted comprehensive amendments to the integration framework as part of a broader harmonization of the securities offering exemptions. See SEC Release No. 33-10884 (Nov. 2, 2020). The revised framework, which became effective on March 15, 2021, replaced the former five-factor test with a principles-based approach set forth in new Rule 152 under the Securities Act. Rule 152 provides a general principle of integration, as well as four specific safe harbors, as described below.
B. Rule 152 Safe Harbors
Rule 152(a) sets forth the general principle that "offers and sales will not be integrated if, based on the particular facts and circumstances, the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering." Rule 152(a) further provides specific guidance for analyzing integration where one of the offerings involves general solicitation.
In addition to the general principle, Rule 152(b) provides four non-exclusive safe harbors from integration:
Rule 152(b)(1) — 30-day safe harbor for offerings without general solicitation. Any offering made more than 30 calendar days before the commencement of another offering, or more than 30 calendar days after the termination or completion of another offering, will not be integrated with the other offering, provided that, for an exempt offering under Rule 506(b) (which prohibits general solicitation), the issuer has a reasonable belief, based on the facts and circumstances, that it has not engaged in general solicitation.
Rule 152(b)(2) — Subsequent registered offering safe harbor. An offering for which a registration statement has been filed will not be integrated with a completed or terminated offering for which an exemption from registration was available, if the exemption relied upon for the exempt offering prohibits general solicitation (as is the case with Rule 506(b)) and the issuer has not engaged in general solicitation in connection with the exempt offering.
Rule 152(b)(3) — Offering under Rule 506(c) or registered offering following a general solicitation exempt offering. This safe harbor applies to situations where the prior exempt offering permitted general solicitation (e.g., Rule 506(c)), which is not applicable to the present analysis.
Rule 152(b)(4) — Concurrent exempt offerings. Offers and sales made in reliance on an exemption that does not prohibit general solicitation will not be integrated with another concurrent exempt offering, provided certain conditions are met.
For purposes of this analysis, the relevant safe harbors are Rule 152(b)(1) and Rule 152(b)(2), as discussed below.
C. Application to RGC's Warrant Issuance
The primary integration risk arises in the event that RGC, following the closing of the Mezzanine Financing, determines to pursue a registered public offering of equity securities. For example, if RGC's common stock price experiences a significant rally following the deployment of proceeds for Project Catalyst or the expansion of its tribal gaming management contracts, RGC may consider a follow-on public equity offering or a registered convertible notes offering to raise additional capital for general corporate purposes or to refinance all or a portion of the Mezzanine Financing. In such a scenario, there is a theoretical risk that the SEC or a court could attempt to integrate the private warrant issuance with the subsequent public offering, particularly if the two transactions are viewed as part of a single plan of financing.
However, several factors mitigate the integration risk in this case:
Distinct purposes. The Mezzanine Financing (including the warrant issuance) and any potential future equity offering serve fundamentally different purposes. The Mezzanine Financing is being structured to fund two specific capital deployment initiatives — Project Catalyst (approximately $22,000,000) and the expansion of tribal gaming management contracts in Arizona and New Mexico (approximately $13,000,000). A follow-on equity offering, by contrast, would likely be a primary capital raise for general corporate purposes, balance sheet strengthening, or refinancing of the Mezzanine Financing itself. The distinct purposes of the two offerings weigh strongly against integration.
Rule 152(b)(1) — 30-day safe harbor. If at least 30 calendar days elapse between the completion (closing) of the warrant issuance and the commencement of any subsequent offering, and no general solicitation was used in connection with the Regulation D offering, Rule 152(b)(1) provides a clear safe harbor against integration. Given the private, non-solicited nature of the warrant issuance and the fact that RGC has not engaged in any general solicitation in connection therewith, this safe harbor should be readily available, provided the 30-day temporal separation is observed.
Rule 152(b)(2) — Subsequent registered offering. To the extent RGC subsequently files a registration statement for a public equity offering, Rule 152(b)(2) provides an independent safe harbor, so long as the Rule 506(b) offering has been completed or terminated prior to the filing of the registration statement, and no general solicitation was used in the Rule 506(b) offering.
No public contemplation of a follow-on offering. The matter is currently in active negotiation, with the term sheet executed December 2, 2022 and the 90-day exclusivity period expiring March 15, 2023. RGC has not publicly contemplated, announced, or taken any steps toward a follow-on equity offering. The absence of any public indication of a future equity offering further supports the conclusion that the warrant issuance and any potential future offering are not part of a single plan of financing.
Recommendation. To ensure the availability of the Rule 152(b)(1) safe harbor, if RGC closes the Mezzanine Financing and issues the Warrants to Fund IV, RGC should refrain from commencing any registered equity offering (including the filing of a registration statement, the public announcement of an offering, or the commencement of a marketing or roadshow process) for a minimum of 30 calendar days after the closing date of the Mezzanine Financing. During this period, RGC should also refrain from making any public statements or disclosures that could be characterized as conditioning the market for a subsequent equity offering. The engagement team should coordinate with RGC's in-house counsel and investor relations department to implement this recommendation.
If RGC ultimately determines not to close the Mezzanine Financing (and the matter is placed on dormant status), no integration concern would arise because the Warrants would never have been issued, and no sale of securities would have occurred.
VI. Transfer Restrictions and Legends
A. Warrant Certificate Legend
As discussed in Section IV.E above, Rule 502(d) of Regulation D requires that the issuer exercise reasonable care to ensure that purchasers are not underwriters, including by placing a restrictive legend on certificates or other documents evidencing the securities. Accordingly, we recommend that the following legend (or substantially similar language) be placed on each warrant certificate issued to Fund IV:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED EXCEPT (I) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (II) IN A TRANSACTION EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS."
This legend is customary for restricted securities issued in Regulation D offerings and is consistent with the legends required by the investment letter and subscription agreement in comparable mezzanine transactions. The specific legend language should be included in the Warrant Agreement and should be referenced in the accredited investor questionnaire and investor representation letter to be obtained from Fund IV prior to closing.
B. Share Certificate Legend
A substantially similar restrictive legend should be placed on any shares of common stock issued upon exercise of the Warrants (i.e., the Warrant Shares), until such time as the Warrant Shares are either (a) registered for resale under an effective registration statement filed by RGC pursuant to the registration rights provisions of the Warrant Agreement, or (b) eligible for resale under Rule 144 without restriction (including without volume limitations and without the requirement to file a Form 144). The Warrant Agreement should provide that RGC will cause the restrictive legend to be removed from the share certificates (or, if the shares are held in book-entry form, cause the applicable notation to be removed from the electronic record) promptly upon (i) the effectiveness of a registration statement covering the resale of the Warrant Shares or (ii) the delivery to RGC of a legal opinion (from counsel reasonably acceptable to RGC) confirming the availability of an exemption from registration for the proposed transfer without the need for a restrictive legend.
C. Stop-Transfer Instructions
RGC should instruct its transfer agent (currently believed to be Adriatic Health IT) to place stop-transfer restrictions on the Warrants and any Warrant Shares issued upon exercise thereof. The stop-transfer instructions should direct the transfer agent to refuse to register any transfer of the Warrants or the Warrant Shares unless (i) such transfer is made pursuant to an effective registration statement under the Securities Act, (ii) the proposed transferee delivers an opinion of counsel reasonably acceptable to RGC that the proposed transfer may be effected without registration under the Securities Act, or (iii) RGC otherwise consents to the transfer in writing. The stop-transfer instructions should be issued in writing to the transfer agent at or prior to the closing of the Mezzanine Financing and should remain in effect until the conditions for removal of the restrictive legend described in Section VI.B above have been satisfied.
VII. Registration Rights Considerations
The draft Warrant Agreement is expected to include customary registration rights provisions granting Fund IV the right to demand that RGC file a registration statement with the SEC covering the resale of the common stock issuable upon exercise of the Warrants. The inclusion of registration rights is a standard feature of equity kicker arrangements in mezzanine financings and serves to provide the investor with a clear path to liquidity for the securities received as part of the investment.
Typical registration rights provisions in transactions of this type include the following:
(a) Demand registration rights. Fund IV would be entitled to demand, on one or two occasions (subject to customary frequency and timing limitations), that RGC file a registration statement on an appropriate form (typically Form S-1 or, if available, Form S-3) covering the resale of the Warrant Shares. The demand registration right is typically subject to customary minimum thresholds (e.g., a minimum number of registrable shares or a minimum aggregate offering amount), blackout and deferral rights in favor of RGC (e.g., if RGC is in possession of material non-public information or is engaged in a transaction that would be materially adversely affected by a registration), and other customary conditions.
(b) Piggyback registration rights. If RGC files a registration statement for its own account or for the account of other security holders (other than certain excluded registration statements, such as registration statements on Form S-4 or Form S-8), Fund IV would have the right to include the Warrant Shares in such registration statement, subject to customary underwriter cutback provisions and other conditions.
(c) S-3 shelf registration rights. If RGC is eligible to use Form S-3 at the applicable time, Fund IV may request that RGC file a shelf registration statement on Form S-3 covering the resale of the Warrant Shares on a continuous or delayed basis pursuant to Rule 415 under the Securities Act. The use of a shelf registration statement is generally the most cost-effective and efficient method of providing Fund IV with resale liquidity, as it allows Fund IV to sell the Warrant Shares from time to time without the need for a separate registration statement for each sale.
(d) Customary ancillary provisions. The registration rights provisions are expected to include customary provisions addressing, among other things, expense allocation (with RGC typically bearing all registration expenses, other than underwriting discounts and commissions attributable to the selling shareholder), indemnification and contribution (providing for mutual indemnification between RGC and Fund IV in connection with any registration), lock-up periods (restricting Fund IV's ability to sell for a specified period following a public offering by RGC), and suspension and blackout periods (permitting RGC to suspend Fund IV's right to sell under a registration statement for limited periods in specified circumstances).
Impact on Exemption Availability. Importantly, the inclusion of registration rights in the Warrant Agreement does not impair the availability of the Section 4(a)(2) or Rule 506(b) exemption for the initial issuance of the Warrants. The SEC and the courts have consistently held that the grant of registration rights to an investor in a private placement is not inconsistent with the investor's investment intent representation, as registration rights are a contractual commitment by the issuer to register the securities at a future date rather than an indication that the investor is acquiring the securities with a view to immediate distribution. See, e.g., SEC Release No. 33-6188 (Feb. 1, 1980) (noting that registration rights do not negate investment intent).
Coordination with Senior Credit Facility and Intercreditor Agreement. The scope and terms of the registration rights should, however, be reviewed for consistency with any restrictions contained in the Senior Credit Facility, the Intercreditor Agreement, and any other agreements to which RGC is a party. Certain senior credit agreements contain restrictions on the issuance of additional equity or equity-linked securities, including restrictions on the filing of registration statements that could facilitate dilutive equity issuances. To the extent the Senior Credit Facility or the Intercreditor Agreement contains any such restrictions, the registration rights provisions in the Warrant Agreement should be drafted to carve out or subordinate to such restrictions, or RGC should obtain a waiver or consent from Cornerstone National Bank, N.A. prior to closing. The engagement team should coordinate with Marcus Leung and RGC's in-house counsel to review the relevant provisions of the Senior Credit Facility and the Intercreditor Agreement (currently being negotiated) and to ensure that the registration rights provisions are consistent with RGC's existing contractual obligations.
VIII. Role of the Placement Agent
Ashford Peak Advisory Group, LLC ("Ashford Peak") is a Delaware limited liability company and a registered broker-dealer with the Financial Industry Regulatory Authority ("FINRA") and the SEC, with its principal office located at 590 Madison Avenue, 34th Floor, New York, NY 10022. Ashford Peak was engaged by RGC as of October 14, 2022, pursuant to a Placement Agent Agreement, to act as exclusive placement agent in connection with the Mezzanine Financing. The lead principal at Ashford Peak for this engagement is Jonathan Kuo, Managing Director.
Under the terms of the Placement Agent Agreement, Ashford Peak is entitled to a placement agent fee equal to 1.50% of the aggregate committed capital under the Mezzanine Financing — i.e., $525,000 — payable in cash at the closing of the Mezzanine Financing. The fee is contingent on the successful closing of the transaction and is not payable in the event the Mezzanine Financing does not close. Ashford Peak's compensation is a customary placement agent fee for a mezzanine financing of this size and complexity.
The involvement of a registered broker-dealer as placement agent in a Rule 506(b) offering is permissible and does not constitute general solicitation, provided that the broker-dealer's activities are limited to contacting persons with whom the broker-dealer has a pre-existing substantive relationship or who are otherwise identified through non-public means. The SEC has defined a "pre-existing substantive relationship" as a relationship between the broker-dealer and the potential investor that was established prior to the commencement of the offering and that involves sufficient knowledge of the investor to evaluate the investor's sophistication and financial circumstances. See SEC Release No. 33-8828 (Aug. 3, 2007); see also SEC No-Action Letter, E.F. Marvelo & Co. (Dec. 3, 1985).
Ashford Peak's identification of Pinnacle Bridge on October 24, 2022 — ten days after its engagement by RGC — is consistent with this framework. Mr. Kuo has confirmed that he has a pre-existing substantive relationship with Pinnacle Bridge and its principals, having worked with Pinnacle Bridge on multiple prior transactions in the gaming and hospitality sectors. The introduction of RGC to Pinnacle Bridge was made through private, confidential channels, and no general solicitation or general advertising was employed.
Bad Actor Verification Under Rule 506(d). Rule 506(d)(1) of Regulation D disqualifies an issuer from relying on the Rule 506 exemption if any "covered person" — including the issuer, its directors, executive officers, general partners, managing members, and, importantly, any compensated solicitor of purchasers (such as a placement agent) — is subject to a "disqualifying event" enumerated in Rule 506(d)(1)(i) through (viii). Disqualifying events include, among other things, certain criminal convictions, court injunctions and restraining orders, SEC disciplinary orders, SEC cease-and-desist orders, and FINRA disciplinary actions.
We recommend that, prior to the closing of the Mezzanine Financing, C&H conduct or commission a bad actor verification with respect to all covered persons, including:
•  Ashford Peak Advisory Group, LLC (as a compensated solicitor);
•  Jonathan Kuo, Managing Director of Ashford Peak (as a natural person who is a compensated solicitor);
•  Fund IV (as a purchaser whose covered persons may include its general partner and directors or officers thereof);
•  Pinnacle Bridge Capital Management, LLC (as the general partner of Fund IV);
•  Victor Hargrove, Managing Partner of Pinnacle Bridge Capital Management, LLC; and
•  Danielle Okonkwo, Head of Credit Investments of Pinnacle Bridge Capital Management, LLC.
The bad actor verification should include a review of publicly available information (including FINRA BrokerCheck, the SEC's EDGAR database, and relevant court records), as well as the submission of questionnaires to each covered person requesting representations as to the absence of any disqualifying events. Based on our preliminary review, we are not aware of any disqualifying events applicable to any of the covered persons; however, a formal verification process should be completed and documented prior to closing.
IX. Gaming Regulatory Intersection
This memorandum focuses on the federal securities law analysis applicable to the issuance of the Warrants. However, because RGC operates in the heavily regulated gaming industry, it is appropriate to briefly cross-reference the gaming regulatory analysis set forth in the separate Nevada Gaming Regulatory Analysis Memorandum prepared by C&H and delivered to the engagement team on December 12, 2022 (the "Gaming Memo").
As discussed in the Gaming Memo, the issuance of the Warrants to Fund IV, representing 3.00% of RGC's fully diluted common equity, does not currently trigger the suitability investigation and licensing requirements of the Nevada Gaming Control Board ("NGCB"), which generally attach at the 5% beneficial ownership threshold under Nevada Revised Statutes Chapter 463 and the regulations of the Nevada Gaming Commission. However, as noted in the Gaming Memo, the interaction of PIK interest accrual with the conversion ratio (and any anti-dilution adjustments to the Warrant exercise price or the number of Warrant Shares) should be monitored on an ongoing basis to ensure that Fund IV's equity ownership does not inadvertently exceed the 5% threshold, which would trigger th

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