1033-00001 · Calderwood & Harkness LLP · Correspondence

dormancy-suspension-letter.docx DOCUMENT M&A / Corporate

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CONFIDENTIAL

CALDERWOOD & HARKNESS LLP Attorneys at Law

300 South Fourth Street, Suite 2800 Las Vegas, NV 89101

Telephone: (702) 555-8200 Facsimile: (702) 555-8201

Email: cmerritt@calderwoodharkness.com

March 17, 2023

Via Email and U.S. Mail

Thomas Kierkegaard, Esq. General Counsel Redstone Gaming Corp. 4250 South Decatur Boulevard, Suite 1100 Las Vegas, NV 89103

Re: Matter Suspension and Dormancy Notification — Proposed $35,000,000 Mezzanine Financing C&H Matter No. 1033-00001 Redstone Gaming Corp. (Nasdaq: RDGM)

Dear Thomas:

1. Purpose and Background

The purpose of this letter is to formally confirm that the above-referenced matter — the proposed $35,000,000 mezzanine financing by Redstone Gaming Corp. ("RGC" or the "Company") — has been placed on dormant status effective as of the date of this letter, March 17, 2023 (the "Dormancy Date"). This letter sets forth the current procedural and substantive status of the engagement, summarizes the fees incurred to date, and outlines certain continuing obligations and considerations of which the Company should remain aware.

As background, Calderwood & Harkness LLP ("C&H" or the "Firm") was engaged by RGC pursuant to an engagement letter dated October 31, 2022 (the "Engagement Letter"), to advise the Company in its capacity as borrower in connection with a proposed $35,000,000 mezzanine financing (the "Proposed Financing" or the "Transaction") to be provided by Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (the "Lender"), which is an investment vehicle managed by Pinnacle Bridge Capital Partners, LP ("Pinnacle Bridge").

The proceeds of the Proposed Financing were intended to be deployed for two principal corporate purposes. First, approximately $22,000,000 was earmarked to fund the development and implementation of the Company's digital wagering platform upgrade, internally designated as "Project Catalyst," which encompasses the migration of legacy on-premises gaming infrastructure to a cloud-based, multi-jurisdictional digital wagering architecture. Second, approximately $13,000,000 was intended to finance the expansion of the Company's tribal gaming management contracts in the states of Arizona and New Mexico, including the acquisition of additional management rights and the deployment of capital to support expanded gaming floor operations at partner tribal facilities.

The proposed mezzanine instrument consisted of 13.50% Senior Subordinated Notes due 2028 (the "Notes"), structured with a blended coupon comprising 10.50% cash interest payable quarterly and 3.00% payment-in-kind ("PIK") interest accruing and capitalizing on each quarterly payment date. In addition, the Proposed Financing contemplated the issuance by RGC of warrants (the "Warrants") to purchase 1,650,000 shares of RGC common stock at a strike price of $9.24 per share, representing 3.00% warrant coverage on a fully diluted basis. The Warrants were to have a five-year exercise period from the date of issuance, with customary anti-dilution protections, cashless exercise provisions, and piggyback registration rights.

2. Board Authorization to Suspend

We have been advised, and hereby confirm our understanding, that the Board of Directors of RGC (the "Board"), at a duly convened meeting held on March 13, 2023, authorized Priya Sandoval, the Company's Chief Financial Officer, to suspend the mezzanine financing negotiations with Pinnacle Bridge Capital Partners, LP and to direct outside counsel and other advisors to place the matter on dormant status pending further instruction from the Board.

We understand that the Board's decision followed CFO Sandoval's recommendation, initially presented at the March 3, 2023 management meeting, to pause the mezzanine financing process in light of several developments that had materially altered the cost-benefit calculus of the Proposed Financing since the engagement opening. Chief among these developments was the significant and sustained appreciation in the market price of RGC's common stock over the period of the engagement. At the time of the engagement opening on October 31, 2022, RGC common stock was trading at approximately $8.40 per share. As of the close of trading on March 10, 2023 — the last trading day prior to the Board meeting — RGC common stock closed at $14.75 per share, representing an appreciation of approximately 75.6% over the engagement period.

This stock price appreciation had a correspondingly significant effect on the Company's market capitalization, which increased from approximately $462,000,000 at the time of the engagement opening (based on approximately 55,000,000 shares of common stock outstanding) to approximately $811,250,000 as of the March 10, 2023 close (based on the same share count). More critically, the appreciation materially increased the implied economic cost of the Warrant component of the Proposed Financing. At the elevated stock price of $14.75 per share, the 1,650,000 Warrants — with a strike price of $9.24 per share — carried an implied intrinsic dilution value of approximately $9,091,500 (calculated as 1,650,000 shares multiplied by the $5.51 spread between the March 10 closing price and the Warrant strike price). This figure does not account for time value, which would further increase the economic cost of the Warrant component.

The Board concluded that the all-in cost of the mezzanine structure — comprising the 13.50% blended coupon (with PIK compounding) plus the substantial warrant dilution at current stock price levels — was uneconomical relative to potential alternative capital-raising options that the Company's improved market position now afforded. These alternatives, which the Board directed management and its financial advisors to explore, include a follow-on equity offering, a convertible note issuance on more favorable terms (potentially with a higher conversion premium and a lower coupon), or a refinancing and upsizing of the Company's existing senior secured credit facility with Cornerstone National Bank, N.A. The Board did not foreclose the possibility of revisiting the mezzanine structure at a later date should market conditions or corporate circumstances warrant.

3. Expiration of Exclusivity Period

The executed term sheet between RGC and Pinnacle Bridge Capital Partners, LP, dated December 2, 2022 (the "Term Sheet"), included a 90-day exclusivity period during which RGC agreed not to solicit, negotiate, or enter into any alternative debt or mezzanine financing arrangement with any third party (the "Exclusivity Period"). The 90-day Exclusivity Period, computed from the execution date of the Term Sheet, expired on March 2, 2023. Upon further review, we note that the Exclusivity Period as defined in Section 9 of the Term Sheet ran for 90 calendar days from December 2, 2022, expiring on March 2, 2023; however, the Term Sheet also provided for automatic extension through March 15, 2023, unless either party delivered a written termination notice at least five business days prior to such date. Neither RGC nor Pinnacle Bridge delivered such a termination notice, and accordingly the Exclusivity Period ran through and expired on March 15, 2023, two days prior to the Dormancy Date.

We confirm that neither RGC nor Pinnacle Bridge Capital Partners, LP requested a further extension of the Exclusivity Period beyond March 15, 2023. As a result, RGC is no longer subject to any exclusivity restriction with respect to the solicitation, negotiation, or consummation of alternative financing arrangements.

As you are aware, the Term Sheet was non-binding in all respects except for the exclusivity provisions (Section 9), the confidentiality provisions (Section 10), and the expense reimbursement provisions (Section 11). The expiration of the Exclusivity Period and the suspension of negotiations impose no continuing obligation on RGC with respect to the proposed mezzanine financing transaction itself, subject to the surviving provisions identified above. The confidentiality and expense reimbursement obligations are discussed further in Sections 6 and 9 of this letter, respectively.

4. Status of Transaction Documents

We confirm that all draft transaction documents prepared in connection with the Proposed Financing remain in unexecuted form. No document was finalized, executed, or delivered by any party. The principal documents that were prepared or were in the process of preparation during the course of the engagement are as follows:

(a) Mezzanine Note Purchase Agreement. A comprehensive note purchase agreement governing the terms and conditions of the issuance and sale of the Notes by RGC to the Lender. The most recent version is the second revised draft, dated February 17, 2023, which incorporated comments received from Wainwright Hess & Caldwell LLP on behalf of Pinnacle Bridge and reflected a partial resolution of open points regarding financial covenant levels, reporting obligations, and change-of-control provisions. Several material issues remained unresolved at the time of suspension, including the definition of "Permitted Indebtedness," the scope of the negative pledge covenant, and the cure rights applicable to financial covenant defaults.

(b) Warrant Agreement. An agreement setting forth the terms and conditions of the Warrants, including exercise mechanics, anti-dilution adjustments, transfer restrictions, and registration rights. The first draft of the Warrant Agreement was circulated on January 27, 2023. Lender's counsel had not yet provided substantive comments on this draft as of the Dormancy Date, although informal feedback indicated that Pinnacle Bridge intended to propose weighted-average anti-dilution protection (as opposed to the broad-based weighted-average formulation included in the initial draft) and to request expanded piggyback and demand registration rights.

(c) Intercreditor and Subordination Agreement. A three-party agreement among Cornerstone National Bank, N.A. (as senior lender), Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (as subordinated lender), and RGC, establishing the relative priority of liens and payment rights among the secured parties. The initial draft was circulated on December 19, 2022. Preliminary comments were received from Cornerstone National Bank, N.A. on February 10, 2023, reflecting the bank's standard intercreditor requirements and certain additional provisions specific to the gaming industry, including standstill provisions triggered by gaming regulatory proceedings. The Cornerstone comments had not been incorporated into a revised draft as of the Dormancy Date.

(d) Pledge and Security Agreement. A collateral document providing for the grant of a second-priority security interest in substantially all assets of RGC and its domestic subsidiaries in favor of the Lender, subject to the intercreditor arrangements. The draft was dated February 17, 2023, and was prepared concurrently with the second revised draft of the Note Purchase Agreement. The security interest structure was subject to certain carve-outs for gaming licenses and associated regulatory approvals, as required under applicable Nevada, Arizona, and New Mexico gaming laws.

We further confirm the following with respect to ancillary documents and regulatory matters:

(i) No corporate authorizations — including board resolutions approving the Transaction, officer's certificates, secretary's certificates, or incumbency certificates — were finalized or executed in connection with the Proposed Financing.

(ii) No consents were formally obtained from Cornerstone National Bank, N.A. under Section 7.03(b) of the Second Amended and Restated Credit Agreement, dated as of March 15, 2021, by and among RGC, its subsidiary guarantors, Cornerstone National Bank, N.A., as administrative agent, and the lenders party thereto (as amended, the "Credit Agreement"). While preliminary discussions were held with Cornerstone's workout and consent group regarding the scope of the required consent, no formal consent request was submitted, and no consent fee was paid.

(iii) No gaming regulatory filings were submitted to the Nevada Gaming Control Board, the Arizona Department of Gaming, or the New Mexico Gaming Control Board in connection with the Proposed Financing. Depending on the final structure of the Transaction and the identity of the investors, such filings may have been required under applicable gaming laws, particularly with respect to the potential exercise of the Warrants by the Lender and the acquisition of a significant ownership interest in RGC. This issue was analyzed in detail in the Nevada Gaming Regulatory Analysis Memo dated December 12, 2022, a copy of which is maintained in the engagement files.

(iv) No Form D was filed with the Securities and Exchange Commission in connection with the proposed issuance of the Warrants or the underlying shares of common stock. The availability and requirements of the Regulation D exemption under the Securities Act of 1933, as amended, were analyzed in the Securities Law / Regulation D Private Placement Memo dated January 25, 2023.

(v) No closing occurred, no funds were disbursed, and no notes, warrants, or other securities were issued in connection with the Proposed Financing.

5. Notification to Counterparties and Counsel

At RGC's direction, C&H has notified the following parties of the suspension of the mezzanine financing process and the placement of this matter on dormant status:

(a) Pinnacle Bridge Capital Partners, LP — Notification was delivered via email on March 16, 2023 to Victor Hargrove, Managing Partner, and Danielle Okonkwo, Head of Credit Investments, at their respective offices at 280 Park Avenue, 22nd Floor, New York, NY 10017. Our notification letter expressed the Company's appreciation for Pinnacle Bridge's engagement in the process and indicated that the suspension was driven by changed market conditions and the Board's reassessment of the Company's capital structure alternatives. Mr. Hargrove acknowledged receipt via email on March 16, 2023, and indicated that Pinnacle Bridge would review its position with respect to the expense reimbursement provisions of the Term Sheet and revert in due course.

(b) Wainwright Hess & Caldwell LLP — Notification was delivered via email on March 16, 2023 to Margaret "Meg" Forsythe, partner and lead engagement attorney for the Lender, at the firm's offices at 1345 Avenue of the Americas, 30th Floor, New York, NY 10105. Ms. Forsythe acknowledged receipt and indicated that Wainwright Hess & Caldwell would be submitting a final fee statement to Pinnacle Bridge in connection with the expense reimbursement provisions.

We note that C&H has not separately notified Ashford Peak Advisory Group, LLC (the placement agent retained by RGC in connection with the Proposed Financing) of the suspension. We understand that Ashford Peak was engaged by RGC directly pursuant to a separate placement agent agreement, and the status of that engagement and any associated fee or tail obligations are matters between RGC and Ashford Peak. We advise that RGC may wish to communicate directly with Jonathan Kuo, Managing Director at Ashford Peak Advisory Group, LLC, regarding the current status of the placement agent engagement, the applicability of any tail provision, and any fee obligations that may arise in connection with the suspension or any future financing by RGC.

We further note that no notification has been sent to Dralvecen Title & Escrow Co. (which had been identified as the proposed collateral agent for the Transaction) or to Harmon & Grayling CPAs, LLP (the Company's independent auditor). Neither Dralvecen nor Harmon & Grayling had been formally engaged in connection with the proposed closing deliverables for the Proposed Financing, and accordingly, no formal suspension notice was deemed necessary. RGC should determine, in its sole discretion, whether any courtesy notification to these parties is appropriate under the circumstances, particularly in view of any preliminary communications or informal understandings that may have been conveyed during the engagement period.

6. Summary of Fees Incurred

Total estimated C&H professional fees incurred from the engagement opening on October 31, 2022, through the Dormancy Date of March 17, 2023, are approximately $287,400. The following table sets forth the fee breakdown by timekeeper:

The subtotal of $287,580.00 has been rounded to approximately $287,400 on the interim invoice previously rendered for the period ending February 28, 2023. A final invoice covering all unbilled professional time and disbursements (including document reproduction, travel, electronic research, and courier charges) through the Dormancy Date will be rendered in due course in accordance with the fee and billing provisions of the Engagement Letter. We anticipate that the final invoice will be transmitted within approximately 30 days of the Dormancy Date.

With respect to third-party costs associated with the Proposed Financing, we note the following:

(a) Placement Agent Fee — Ashford Peak Advisory Group, LLC. The placement agent fee payable to Ashford Peak Advisory Group, LLC was $525,000, calculated as 1.50% of committed capital of $35,000,000. This fee was contingent upon the closing of the Proposed Financing and, as no closing occurred, was not incurred and is not currently payable. RGC should, however, review the placement agent agreement with Ashford Peak to confirm whether any fee accrues in connection with the suspension or upon a future financing with Pinnacle Bridge or any party introduced by Ashford Peak during the engagement period (i.e., a "tail" provision).

(b) Lender's Counsel Fees — Wainwright Hess & Caldwell LLP. The Term Sheet provided for a lender's counsel fee cap of $175,000, to be borne by RGC at closing. Because no closing occurred, the fee cap was not formally triggered. However, Wainwright Hess & Caldwell has incurred estimated professional fees of approximately $94,000 in connection with its review and negotiation of the draft transaction documents. These fees may be subject to the expense reimbursement provisions set forth in Section 11 of the Term Sheet, which provides that RGC shall reimburse Pinnacle Bridge for reasonable out-of-pocket expenses, including legal fees, incurred in connection with the Transaction, whether or not the Transaction closes. We strongly advise RGC to review these provisions carefully and consult with us or other counsel regarding RGC's obligations with respect to the reimbursement of lender's counsel fees.

(c) Cornerstone National Bank Consent Processing Fee. The Credit Agreement provides for a consent processing fee of $50,000 payable to Cornerstone National Bank, N.A. in connection with any consent required under Section 7.03(b) thereof. Because no formal consent request was submitted and no consent was obtained, this fee was not incurred.

7. Document Preservation Obligations

C&H will retain all engagement files, work product, correspondence, draft transaction documents, internal memoranda, research materials, and related materials pertaining to this matter in accordance with the Firm's document retention policies and applicable professional responsibility obligations under the Nevada Rules of Professional Conduct. Unless otherwise instructed by RGC or required by law, these materials will be preserved for a minimum retention period consistent with the Firm's standard policies, which currently provide for retention of closed or dormant matter files for a period of not less than seven (7) years following the date of matter closure or dormancy.

For reference, the following key internal memoranda were prepared during the course of the engagement and are included among the preserved materials:

(a) Nevada Gaming Regulatory Analysis Memo (dated December 12, 2022) — analyzing the regulatory implications of the Proposed Financing under Nevada Revised Statutes Chapter 463 and applicable regulations of the Nevada Gaming Commission and the Nevada Gaming Control Board, including the potential suitability and licensing requirements applicable to Pinnacle Bridge upon exercise of the Warrants.

(b) Senior Credit Facility Covenant Compliance Analysis (dated December 15, 2022) — analyzing the covenant compliance implications of the Proposed Financing under the Credit Agreement, including the incurrence-based debt covenants, the lien covenants, and the restricted payment covenants, and identifying potential consent requirements.

(c) Securities Law / Regulation D Private Placement Memo (dated January 25, 2023) — analyzing the availability of exemptions from registration under the Securities Act of 1933, as amended, for the issuance of the Notes and the Warrants, with particular attention to the requirements of Rule 506(b) and Rule 506(c) of Regulation D and the integration doctrine.

(d) Cost-of-Capital Comparison Memo (dated March 6, 2023) — prepared at the request of CFO Sandoval, providing a comparative analysis of the all-in cost of the mezzanine structure (inclusive of cash interest, PIK interest, Warrant dilution, and transaction costs) against indicative terms for a follow-on equity offering, a convertible note issuance, and an expansion of the senior credit facility, based on then-current market conditions.

(e) Proposed Closing Checklist (circulated January 20, 2023) — a comprehensive checklist of closing conditions, deliverables, and post-closing requirements for the Proposed Financing, identifying responsible parties and target dates.

All of the foregoing materials, together with all other engagement files and work product, will be preserved and will remain available for retrieval should the matter be reactivated in accordance with Section 8 below. We strongly advise RGC to maintain its own complete copies of all transaction documents, correspondence, board materials, management presentations, and other records relating to the Proposed Financing in the Company's own files.

8. Reactivation

The matter may be reactivated at any time upon written instruction from an authorized representative of RGC to C&H. Upon reactivation, the engagement team would undertake a comprehensive assessment of the then-current status of the Transaction, including the following:

(a) The status and currency of the draft transaction documents, including whether revisions are required to reflect changed legal, regulatory, or market developments since the Dormancy Date;

(b) The prevailing market conditions for mezzanine and subordinated debt financings in the gaming sector, including current pricing benchmarks, structural terms, and investor appetite;

(c) The regulatory landscape in Nevada, Arizona, and New Mexico, including any changes to gaming laws, regulations, or licensing requirements that may affect the structuring or consummation of the Transaction;

(d) The willingness of Pinnacle Bridge Capital Partners, LP (or any successor or alternative counterparty) to proceed with the Transaction or an alternative structure; and

(e) The status of the Credit Agreement and the Company's compliance with the financial and other covenants thereunder, including any amendments or waivers that may have been obtained in the interim.

Please note that the professional fee rates applicable to any reactivated engagement may be subject to adjustment in accordance with the Firm's standard rate schedule then in effect. Depending on the elapsed time between the Dormancy Date and the date of reactivation, and the scope of any revisions to the engagement, a reactivated matter may require an updated engagement letter or an amendment to the existing Engagement Letter. We will address these administrative matters promptly upon receipt of any reactivation instructions.

Additionally, the existing draft documentation may require substantial updating to reflect changed circumstances, revised market terms, developments in applicable law (including tax law, securities law, and gaming regulatory requirements), changes to the Company's corporate and capital structure, and any modifications to the terms of the Credit Agreement or other material agreements of the Company.

9. Continuing Obligations and Reminders

Notwithstanding the placement of this matter on dormant status, we wish to draw your attention to the following continuing obligations and considerations:

(a) Senior Secured Revolving Credit Facility. The existing $200,000,000 Senior Secured Revolving Credit Facility with Cornerstone National Bank, N.A. (the "Revolver"), established pursuant to the Credit Agreement, remains in full force and effect. The Revolver has a scheduled maturity date of March 15, 2026. As of September 30, 2022 (the most recent date for which information was available in the engagement files), the outstanding drawn balance under the Revolver was approximately $142,000,000, with approximately $58,000,000 of undrawn availability (subject to borrowing base and covenant compliance). The dormancy of the mezzanine financing process does not affect RGC's obligations under the Credit Agreement, and the Company should continue to comply with all covenants, reporting requirements, and other obligations thereunder.

(b) Gaming Licenses. RGC continues to hold active gaming licenses from the Nevada Gaming Control Board (License No. NGC-2019-00847), the Arizona Department of Gaming, and the New Mexico Gaming Control Board. The dormancy of the Proposed Financing should have no impact on the status, validity, or renewal of such licenses. However, RGC should be mindful that certain future capital structure changes — including the issuance of equity securities to new investors or the incurrence of material indebtedness — may trigger notification or approval requirements under applicable gaming laws and regulations.

(c) Trademark Application. The RedBet proprietary wagering software USPTO trademark application (filed August 2022) remains pending and is being prosecuted independently by the Company and/or its intellectual property counsel. The dormancy of this financing engagement does not affect the status of or the timeline for that application, and RGC should continue to monitor and prosecute such application in the ordinary course, including responding to any office actions issued by the United States Patent and Trademark Office within the applicable deadlines.

(d) Confidentiality Obligations. The confidentiality provisions set forth in Section 10 of the Term Sheet, as well as any separate non-disclosure agreements executed between RGC and Pinnacle Bridge Capital Partners, LP (or its affiliates), survive the expiration of the Exclusivity Period and the suspension of negotiations. These obligations restrict the disclosure of confidential information exchanged during the course of the Transaction, and RGC should ensure that all directors, officers, employees, and advisors who received such information continue to comply with the applicable confidentiality restrictions. We note that the surviving confidentiality period under the Term Sheet extends for a period of two (2) years from the date of the Term Sheet (i.e., through December 2, 2024), unless a longer period is specified in any separate non-disclosure agreement.

10. Closing

We appreciate the opportunity to have represented Redstone Gaming Corp. in connection with the Proposed Financing, and we are grateful for the confidence that you and your colleagues have placed in Calderwood & Harkness LLP throughout this engagement. While we understand and support the Board's decision to suspend the Transaction under the present circumstances, we are pleased that the significant work product developed during this engagement positions the Company well to act swiftly should it elect to pursue mezzanine financing or an alternative capital-raising transaction in the future.

C&H remains available to assist RGC with any questions regarding the dormant matter, the continuing obligations described herein, or any other legal needs the Company may have. Please do not hesitate to contact us at your convenience. For your reference, direct contact information for the engagement team is provided below:

Claudia Merritt, Partner, Banking & Finance Telephone: (702) 555-8214

Email: cmerritt@calderwoodharkness.com

Marcus Leung, Associate, Banking & Finance Telephone: (702) 555-8237

Email: mleung@calderwoodharkness.com

We look forward to continuing to serve Redstone Gaming Corp.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Claudia Merritt Partner, Banking & Finance

cc: (via email)

Priya Sandoval, Chief Financial Officer, Redstone Gaming Corp. Angela Fong, Treasurer, Redstone Gaming Corp. Ian Blackwood, Partner, Calderwood & Harkness LLP Marcus Leung, Associate, Calderwood & Harkness LLP Sophie Tremblay, Associate, Calderwood & Harkness LLP

Enclosure: Summary Time and Fee Statement (Matter No. 1033-00001)

Timekeeper	Role	Hours	Rate ($/hr)	Total ($)
Claudia Merritt	Responsible Partner	62.0	$1,250	$77,500.00
Ian Blackwood	Billing Partner	18.0	$1,175	$21,150.00
Marcus Leung	Lead Associate	134.0	$875	$117,250.00
Sophie Tremblay	Working Associate	112.0	$640	$71,680.00
Subtotal	326.0	$287,580.00

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP Attorneys at Law
300 South Fourth Street, Suite 2800 Las Vegas, NV 89101
Telephone: (702) 555-8200 Facsimile: (702) 555-8201
Email: cmerritt@calderwoodharkness.com
March 17, 2023
Via Email and U.S. Mail
Thomas Kierkegaard, Esq. General Counsel Redstone Gaming Corp. 4250 South Decatur Boulevard, Suite 1100 Las Vegas, NV 89103
Re: Matter Suspension and Dormancy Notification — Proposed $35,000,000 Mezzanine Financing C&H Matter No. 1033-00001 Redstone Gaming Corp. (Nasdaq: RDGM)
Dear Thomas:
1. Purpose and Background
The purpose of this letter is to formally confirm that the above-referenced matter — the proposed $35,000,000 mezzanine financing by Redstone Gaming Corp. ("RGC" or the "Company") — has been placed on dormant status effective as of the date of this letter, March 17, 2023 (the "Dormancy Date"). This letter sets forth the current procedural and substantive status of the engagement, summarizes the fees incurred to date, and outlines certain continuing obligations and considerations of which the Company should remain aware.
As background, Calderwood & Harkness LLP ("C&H" or the "Firm") was engaged by RGC pursuant to an engagement letter dated October 31, 2022 (the "Engagement Letter"), to advise the Company in its capacity as borrower in connection with a proposed $35,000,000 mezzanine financing (the "Proposed Financing" or the "Transaction") to be provided by Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (the "Lender"), which is an investment vehicle managed by Pinnacle Bridge Capital Partners, LP ("Pinnacle Bridge").
The proceeds of the Proposed Financing were intended to be deployed for two principal corporate purposes. First, approximately $22,000,000 was earmarked to fund the development and implementation of the Company's digital wagering platform upgrade, internally designated as "Project Catalyst," which encompasses the migration of legacy on-premises gaming infrastructure to a cloud-based, multi-jurisdictional digital wagering architecture. Second, approximately $13,000,000 was intended to finance the expansion of the Company's tribal gaming management contracts in the states of Arizona and New Mexico, including the acquisition of additional management rights and the deployment of capital to support expanded gaming floor operations at partner tribal facilities.
The proposed mezzanine instrument consisted of 13.50% Senior Subordinated Notes due 2028 (the "Notes"), structured with a blended coupon comprising 10.50% cash interest payable quarterly and 3.00% payment-in-kind ("PIK") interest accruing and capitalizing on each quarterly payment date. In addition, the Proposed Financing contemplated the issuance by RGC of warrants (the "Warrants") to purchase 1,650,000 shares of RGC common stock at a strike price of $9.24 per share, representing 3.00% warrant coverage on a fully diluted basis. The Warrants were to have a five-year exercise period from the date of issuance, with customary anti-dilution protections, cashless exercise provisions, and piggyback registration rights.
2. Board Authorization to Suspend
We have been advised, and hereby confirm our understanding, that the Board of Directors of RGC (the "Board"), at a duly convened meeting held on March 13, 2023, authorized Priya Sandoval, the Company's Chief Financial Officer, to suspend the mezzanine financing negotiations with Pinnacle Bridge Capital Partners, LP and to direct outside counsel and other advisors to place the matter on dormant status pending further instruction from the Board.
We understand that the Board's decision followed CFO Sandoval's recommendation, initially presented at the March 3, 2023 management meeting, to pause the mezzanine financing process in light of several developments that had materially altered the cost-benefit calculus of the Proposed Financing since the engagement opening. Chief among these developments was the significant and sustained appreciation in the market price of RGC's common stock over the period of the engagement. At the time of the engagement opening on October 31, 2022, RGC common stock was trading at approximately $8.40 per share. As of the close of trading on March 10, 2023 — the last trading day prior to the Board meeting — RGC common stock closed at $14.75 per share, representing an appreciation of approximately 75.6% over the engagement period.
This stock price appreciation had a correspondingly significant effect on the Company's market capitalization, which increased from approximately $462,000,000 at the time of the engagement opening (based on approximately 55,000,000 shares of common stock outstanding) to approximately $811,250,000 as of the March 10, 2023 close (based on the same share count). More critically, the appreciation materially increased the implied economic cost of the Warrant component of the Proposed Financing. At the elevated stock price of $14.75 per share, the 1,650,000 Warrants — with a strike price of $9.24 per share — carried an implied intrinsic dilution value of approximately $9,091,500 (calculated as 1,650,000 shares multiplied by the $5.51 spread between the March 10 closing price and the Warrant strike price). This figure does not account for time value, which would further increase the economic cost of the Warrant component.
The Board concluded that the all-in cost of the mezzanine structure — comprising the 13.50% blended coupon (with PIK compounding) plus the substantial warrant dilution at current stock price levels — was uneconomical relative to potential alternative capital-raising options that the Company's improved market position now afforded. These alternatives, which the Board directed management and its financial advisors to explore, include a follow-on equity offering, a convertible note issuance on more favorable terms (potentially with a higher conversion premium and a lower coupon), or a refinancing and upsizing of the Company's existing senior secured credit facility with Cornerstone National Bank, N.A. The Board did not foreclose the possibility of revisiting the mezzanine structure at a later date should market conditions or corporate circumstances warrant.
3. Expiration of Exclusivity Period
The executed term sheet between RGC and Pinnacle Bridge Capital Partners, LP, dated December 2, 2022 (the "Term Sheet"), included a 90-day exclusivity period during which RGC agreed not to solicit, negotiate, or enter into any alternative debt or mezzanine financing arrangement with any third party (the "Exclusivity Period"). The 90-day Exclusivity Period, computed from the execution date of the Term Sheet, expired on March 2, 2023. Upon further review, we note that the Exclusivity Period as defined in Section 9 of the Term Sheet ran for 90 calendar days from December 2, 2022, expiring on March 2, 2023; however, the Term Sheet also provided for automatic extension through March 15, 2023, unless either party delivered a written termination notice at least five business days prior to such date. Neither RGC nor Pinnacle Bridge delivered such a termination notice, and accordingly the Exclusivity Period ran through and expired on March 15, 2023, two days prior to the Dormancy Date.
We confirm that neither RGC nor Pinnacle Bridge Capital Partners, LP requested a further extension of the Exclusivity Period beyond March 15, 2023. As a result, RGC is no longer subject to any exclusivity restriction with respect to the solicitation, negotiation, or consummation of alternative financing arrangements.
As you are aware, the Term Sheet was non-binding in all respects except for the exclusivity provisions (Section 9), the confidentiality provisions (Section 10), and the expense reimbursement provisions (Section 11). The expiration of the Exclusivity Period and the suspension of negotiations impose no continuing obligation on RGC with respect to the proposed mezzanine financing transaction itself, subject to the surviving provisions identified above. The confidentiality and expense reimbursement obligations are discussed further in Sections 6 and 9 of this letter, respectively.
4. Status of Transaction Documents
We confirm that all draft transaction documents prepared in connection with the Proposed Financing remain in unexecuted form. No document was finalized, executed, or delivered by any party. The principal documents that were prepared or were in the process of preparation during the course of the engagement are as follows:
(a) Mezzanine Note Purchase Agreement. A comprehensive note purchase agreement governing the terms and conditions of the issuance and sale of the Notes by RGC to the Lender. The most recent version is the second revised draft, dated February 17, 2023, which incorporated comments received from Wainwright Hess & Caldwell LLP on behalf of Pinnacle Bridge and reflected a partial resolution of open points regarding financial covenant levels, reporting obligations, and change-of-control provisions. Several material issues remained unresolved at the time of suspension, including the definition of "Permitted Indebtedness," the scope of the negative pledge covenant, and the cure rights applicable to financial covenant defaults.
(b) Warrant Agreement. An agreement setting forth the terms and conditions of the Warrants, including exercise mechanics, anti-dilution adjustments, transfer restrictions, and registration rights. The first draft of the Warrant Agreement was circulated on January 27, 2023. Lender's counsel had not yet provided substantive comments on this draft as of the Dormancy Date, although informal feedback indicated that Pinnacle Bridge intended to propose weighted-average anti-dilution protection (as opposed to the broad-based weighted-average formulation included in the initial draft) and to request expanded piggyback and demand registration rights.
(c) Intercreditor and Subordination Agreement. A three-party agreement among Cornerstone National Bank, N.A. (as senior lender), Pinnacle Bridge Mezzanine Opportunities Fund IV, LP (as subordinated lender), and RGC, establishing the relative priority of liens and payment rights among the secured parties. The initial draft was circulated on December 19, 2022. Preliminary comments were received from Cornerstone National Bank, N.A. on February 10, 2023, reflecting the bank's standard intercreditor requirements and certain additional provisions specific to the gaming industry, including standstill provisions triggered by gaming regulatory proceedings. The Cornerstone comments had not been incorporated into a revised draft as of the Dormancy Date.
(d) Pledge and Security Agreement. A collateral document providing for the grant of a second-priority security interest in substantially all assets of RGC and its domestic subsidiaries in favor of the Lender, subject to the intercreditor arrangements. The draft was dated February 17, 2023, and was prepared concurrently with the second revised draft of the Note Purchase Agreement. The security interest structure was subject to certain carve-outs for gaming licenses and associated regulatory approvals, as required under applicable Nevada, Arizona, and New Mexico gaming laws.
We further confirm the following with respect to ancillary documents and regulatory matters:
(i) No corporate authorizations — including board resolutions approving the Transaction, officer's certificates, secretary's certificates, or incumbency certificates — were finalized or executed in connection with the Proposed Financing.
(ii) No consents were formally obtained from Cornerstone National Bank, N.A. under Section 7.03(b) of the Second Amended and Restated Credit Agreement, dated as of March 15, 2021, by and among RGC, its subsidiary guarantors, Cornerstone National Bank, N.A., as administrative agent, and the lenders party thereto (as amended, the "Credit Agreement"). While preliminary discussions were held with Cornerstone's workout and consent group regarding the scope of the required consent, no formal consent request was submitted, and no consent fee was paid.
(iii) No gaming regulatory filings were submitted to the Nevada Gaming Control Board, the Arizona Department of Gaming, or the New Mexico Gaming Control Board in connection with the Proposed Financing. Depending on the final structure of the Transaction and the identity of the investors, such filings may have been required under applicable gaming laws, particularly with respect to the potential exercise of the Warrants by the Lender and the acquisition of a significant ownership interest in RGC. This issue was analyzed in detail in the Nevada Gaming Regulatory Analysis Memo dated December 12, 2022, a copy of which is maintained in the engagement files.
(iv) No Form D was filed with the Securities and Exchange Commission in connection with the proposed issuance of the Warrants or the underlying shares of common stock. The availability and requirements of the Regulation D exemption under the Securities Act of 1933, as amended, were analyzed in the Securities Law / Regulation D Private Placement Memo dated January 25, 2023.
(v) No closing occurred, no funds were disbursed, and no notes, warrants, or other securities were issued in connection with the Proposed Financing.
5. Notification to Counterparties and Counsel
At RGC's direction, C&H has notified the following parties of the suspension of the mezzanine financing process and the placement of this matter on dormant status:
(a) Pinnacle Bridge Capital Partners, LP — Notification was delivered via email on March 16, 2023 to Victor Hargrove, Managing Partner, and Danielle Okonkwo, Head of Credit Investments, at their respective offices at 280 Park Avenue, 22nd Floor, New York, NY 10017. Our notification letter expressed the Company's appreciation for Pinnacle Bridge's engagement in the process and indicated that the suspension was driven by changed market conditions and the Board's reassessment of the Company's capital structure alternatives. Mr. Hargrove acknowledged receipt via email on March 16, 2023, and indicated that Pinnacle Bridge would review its position with respect to the expense reimbursement provisions of the Term Sheet and revert in due course.
(b) Wainwright Hess & Caldwell LLP — Notification was delivered via email on March 16, 2023 to Margaret "Meg" Forsythe, partner and lead engagement attorney for the Lender, at the firm's offices at 1345 Avenue of the Americas, 30th Floor, New York, NY 10105. Ms. Forsythe acknowledged receipt and indicated that Wainwright Hess & Caldwell would be submitting a final fee statement to Pinnacle Bridge in connection with the expense reimbursement provisions.
We note that C&H has not separately notified Ashford Peak Advisory Group, LLC (the placement agent retained by RGC in connection with the Proposed Financing) of the suspension. We understand that Ashford Peak was engaged by RGC directly pursuant to a separate placement agent agreement, and the status of that engagement and any associated fee or tail obligations are matters between RGC and Ashford Peak. We advise that RGC may wish to communicate directly with Jonathan Kuo, Managing Director at Ashford Peak Advisory Group, LLC, regarding the current status of the placement agent engagement, the applicability of any tail provision, and any fee obligations that may arise in connection with the suspension or any future financing by RGC.
We further note that no notification has been sent to Dralvecen Title & Escrow Co. (which had been identified as the proposed collateral agent for the Transaction) or to Harmon & Grayling CPAs, LLP (the Company's independent auditor). Neither Dralvecen nor Harmon & Grayling had been formally engaged in connection with the proposed closing deliverables for the Proposed Financing, and accordingly, no formal suspension notice was deemed necessary. RGC should determine, in its sole discretion, whether any courtesy notification to these parties is appropriate under the circumstances, particularly in view of any preliminary communications or informal understandings that may have been conveyed during the engagement period.
6. Summary of Fees Incurred
Total estimated C&H professional fees incurred from the engagement opening on October 31, 2022, through the Dormancy Date of March 17, 2023, are approximately $287,400. The following table sets forth the fee breakdown by timekeeper:
The subtotal of $287,580.00 has been rounded to approximately $287,400 on the interim invoice previously rendered for the period ending February 28, 2023. A final invoice covering all unbilled professional time and disbursements (including document reproduction, travel, electronic research, and courier charges) through the Dormancy Date will be rendered in due course in accordance with the fee and billing provisions of the Engagement Letter. We anticipate that the final invoice will be transmitted within approximately 30 days of the Dormancy Date.
With respect to third-party costs associated with the Proposed Financing, we note the following:
(a) Placement Agent Fee — Ashford Peak Advisory Group, LLC. The placement agent fee payable to Ashford Peak Advisory Group, LLC was $525,000, calculated as 1.50% of committed capital of $35,000,000. This fee was contingent upon the closing of the Proposed Financing and, as no closing occurred, was not incurred and is not currently payable. RGC should, however, review the placement agent agreement with Ashford Peak to confirm whether any fee accrues in connection with the suspension or upon a future financing with Pinnacle Bridge or any party introduced by Ashford Peak during the engagement period (i.e., a "tail" provision).
(b) Lender's Counsel Fees — Wainwright Hess & Caldwell LLP. The Term Sheet provided for a lender's counsel fee cap of $175,000, to be borne by RGC at closing. Because no closing occurred, the fee cap was not formally triggered. However, Wainwright Hess & Caldwell has incurred estimated professional fees of approximately $94,000 in connection with its review and negotiation of the draft transaction documents. These fees may be subject to the expense reimbursement provisions set forth in Section 11 of the Term Sheet, which provides that RGC shall reimburse Pinnacle Bridge for reasonable out-of-pocket expenses, including legal fees, incurred in connection with the Transaction, whether or not the Transaction closes. We strongly advise RGC to review these provisions carefully and consult with us or other counsel regarding RGC's obligations with respect to the reimbursement of lender's counsel fees.
(c) Cornerstone National Bank Consent Processing Fee. The Credit Agreement provides for a consent processing fee of $50,000 payable to Cornerstone National Bank, N.A. in connection with any consent required under Section 7.03(b) thereof. Because no formal consent request was submitted and no consent was obtained, this fee was not incurred.
7. Document Preservation Obligations
C&H will retain all engagement files, work product, correspondence, draft transaction documents, internal memoranda, research materials, and related materials pertaining to this matter in accordance with the Firm's document retention policies and applicable professional responsibility obligations under the Nevada Rules of Professional Conduct. Unless otherwise instructed by RGC or required by law, these materials will be preserved for a minimum retention period consistent with the Firm's standard policies, which currently provide for retention of closed or dormant matter files for a period of not less than seven (7) years following the date of matter closure or dormancy.
For reference, the following key internal memoranda were prepared during the course of the engagement and are included among the preserved materials:
(a) Nevada Gaming Regulatory Analysis Memo (dated December 12, 2022) — analyzing the regulatory implications of the Proposed Financing under Nevada Revised Statutes Chapter 463 and applicable regulations of the Nevada Gaming Commission and the Nevada Gaming Control Board, including the potential suitability and licensing requirements applicable to Pinnacle Bridge upon exercise of the Warrants.
(b) Senior Credit Facility Covenant Compliance Analysis (dated December 15, 2022) — analyzing the covenant compliance implications of the Proposed Financing under the Credit Agreement, including the incurrence-based debt covenants, the lien covenants, and the restricted payment covenants, and identifying potential consent requirements.
(c) Securities Law / Regulation D Private Placement Memo (dated January 25, 2023) — analyzing the availability of exemptions from registration under the Securities Act of 1933, as amended, for the issuance of the Notes and the Warrants, with particular attention to the requirements of Rule 506(b) and Rule 506(c) of Regulation D and the integration doctrine.
(d) Cost-of-Capital Comparison Memo (dated March 6, 2023) — prepared at the request of CFO Sandoval, providing a comparative analysis of the all-in cost of the mezzanine structure (inclusive of cash interest, PIK interest, Warrant dilution, and transaction costs) against indicative terms for a follow-on equity offering, a convertible note issuance, and an expansion of the senior credit facility, based on then-current market conditions.
(e) Proposed Closing Checklist (circulated January 20, 2023) — a comprehensive checklist of closing conditions, deliverables, and post-closing requirements for the Proposed Financing, identifying responsible parties and target dates.
All of the foregoing materials, together with all other engagement files and work product, will be preserved and will remain available for retrieval should the matter be reactivated in accordance with Section 8 below. We strongly advise RGC to maintain its own complete copies of all transaction documents, correspondence, board materials, management presentations, and other records relating to the Proposed Financing in the Company's own files.
8. Reactivation
The matter may be reactivated at any time upon written instruction from an authorized representative of RGC to C&H. Upon reactivation, the engagement team would undertake a comprehensive assessment of the then-current status of the Transaction, including the following:
(a) The status and currency of the draft transaction documents, including whether revisions are required to reflect changed legal, regulatory, or market developments since the Dormancy Date;
(b) The prevailing market conditions for mezzanine and subordinated debt financings in the gaming sector, including current pricing benchmarks, structural terms, and investor appetite;
(c) The regulatory landscape in Nevada, Arizona, and New Mexico, including any changes to gaming laws, regulations, or licensing requirements that may affect the structuring or consummation of the Transaction;
(d) The willingness of Pinnacle Bridge Capital Partners, LP (or any successor or alternative counterparty) to proceed with the Transaction or an alternative structure; and
(e) The status of the Credit Agreement and the Company's compliance with the financial and other covenants thereunder, including any amendments or waivers that may have been obtained in the interim.
Please note that the professional fee rates applicable to any reactivated engagement may be subject to adjustment in accordance with the Firm's standard rate schedule then in effect. Depending on the elapsed time between the Dormancy Date and the date of reactivation, and the scope of any revisions to the engagement, a reactivated matter may require an updated engagement letter or an amendment to the existing Engagement Letter. We will address these administrative matters promptly upon receipt of any reactivation instructions.
Additionally, the existing draft documentation may require substantial updating to reflect changed circumstances, revised market terms, developments in applicable law (including tax law, securities law, and gaming regulatory requirements), changes to the Company's corporate and capital structure, and any modifications to the terms of the Credit Agreement or other material agreements of the Company.
9. Continuing Obligations and Reminders
Notwithstanding the placement of this matter on dormant status, we wish to draw your attention to the following continuing obligations and considerations:
(a) Senior Secured Revolving Credit Facility. The existing $200,000,000 Senior Secured Revolving Credit Facility with Cornerstone National Bank, N.A. (the "Revolver"), established pursuant to the Credit Agreement, remains in full force and effect. The Revolver has a scheduled maturity date of March 15, 2026. As of September 30, 2022 (the most recent date for which information was available in the engagement files), the outstanding drawn balance under the Revolver was approximately $142,000,000, with approximately $58,000,000 of undrawn availability (subject to borrowing base and covenant compliance). The dormancy of the mezzanine financing process does not affect RGC's obligations under the Credit Agreement, and the Company should continue to comply with all covenants, reporting requirements, and other obligations thereunder.
(b) Gaming Licenses. RGC continues to hold active gaming licenses from the Nevada Gaming Control Board (License No. NGC-2019-00847), the Arizona Department of Gaming, and the New Mexico Gaming Control Board. The dormancy of the Proposed Financing should have no impact on the status, validity, or renewal of such licenses. However, RGC should be mindful that certain future capital structure changes — including the issuance of equity securities to new investors or the incurrence of material indebtedness — may trigger notification or approval requirements under applicable gaming laws and regulations.
(c) Trademark Application. The RedBet proprietary wagering software USPTO trademark application (filed August 2022) remains pending and is being prosecuted independently by the Company and/or its intellectual property counsel. The dormancy of this financing engagement does not affect the status of or the timeline for that application, and RGC should continue to monitor and prosecute such application in the ordinary course, including responding to any office actions issued by the United States Patent and Trademark Office within the applicable deadlines.
(d) Confidentiality Obligations. The confidentiality provisions set forth in Section 10 of the Term Sheet, as well as any separate non-disclosure agreements executed between RGC and Pinnacle Bridge Capital Partners, LP (or its affiliates), survive the expiration of the Exclusivity Period and the suspension of negotiations. These obligations restrict the disclosure of confidential information exchanged during the course of the Transaction, and RGC should ensure that all directors, officers, employees, and advisors who received such information continue to comply with the applicable confidentiality restrictions. We note that the surviving confidentiality period under the Term Sheet extends for a period of two (2) years from the date of the Term Sheet (i.e., through December 2, 2024), unless a longer period is specified in any separate non-disclosure agreement.
10. Closing
We appreciate the opportunity to have represented Redstone Gaming Corp. in connection with the Proposed Financing, and we are grateful for the confidence that you and your colleagues have placed in Calderwood & Harkness LLP throughout this engagement. While we understand and support the Board's decision to suspend the Transaction under the present circumstances, we are pleased that the significant work product developed during this engagement positions the Company well to act swiftly should it elect to pursue mezzanine financing or an alternative capital-raising transaction in the future.
C&H remains available to assist RGC with any questions regarding the dormant matter, the continuing obligations described herein, or any other legal needs the Company may have. Please do not hesitate to contact us at your convenience. For your reference, direct contact information for the engagement team is provided below:
Claudia Merritt, Partner, Banking & Finance Telephone: (702) 555-8214
Email: cmerritt@calderwoodharkness.com
Marcus Leung, Associate, Banking & Finance Telephone: (702) 555-8237
Email: mleung@calderwoodharkness.com
We look forward to continuing to serve Redstone Gaming Corp.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Claudia Merritt Partner, Banking & Finance
cc: (via email)
Priya Sandoval, Chief Financial Officer, Redstone Gaming Corp. Angela Fong, Treasurer, Redstone Gaming Corp. Ian Blackwood, Partner, Calderwood & Harkness LLP Marcus Leung, Associate, Calderwood & Harkness LLP Sophie Tremblay, Associate, Calderwood & Harkness LLP
Enclosure: Summary Time and Fee Statement (Matter No. 1033-00001)
Timekeeper | Role | Hours | Rate ($/hr) | Total ($)
Claudia Merritt | Responsible Partner | 62.0 | $1,250 | $77,500.00
Ian Blackwood | Billing Partner | 18.0 | $1,175 | $21,150.00
Marcus Leung | Lead Associate | 134.0 | $875 | $117,250.00
Sophie Tremblay | Working Associate | 112.0 | $640 | $71,680.00
Subtotal | 326.0 | $287,580.00

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CALDERWOOD & HARKNESS LLP

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