1033-00003 · Redstone Gaming Corp · Memos & Analyses

initial-situational-assessment-memo.docx DOCUMENT M&A / Corporate

19 / 35 ← → ✕

Contract analysis Extract to table

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Board of Directors, Redstone Gaming Corp.

FROM: Douglas Fairchild, Engagement Partner, and Claire Dempsey, Lead Associate, Calderwood & Harkness LLP

DATE: November 18, 2022

RE: Initial Situational Assessment — Activist Campaign by Pinnacle Harbor Capital Partners, LP

Matter No.: 1033-00003

CC: Patricia "Trish" Nakamura, General Counsel & Corporate Secretary, Redstone Gaming Corp.; Angela Fontaine, Billing Partner, Calderwood & Harkness LLP; Marcus Leung, Working Associate, Calderwood & Harkness LLP

I. Purpose and Executive Summary

Calderwood & Harkness LLP was engaged on November 15, 2022 to advise Redstone Gaming Corp. ("RGC" or the "Company"), a Delaware corporation headquartered at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, NV 89123, in connection with the defense against an activist board-seat campaign initiated by Pinnacle Harbor Capital Partners, LP ("Pinnacle Harbor" or "PHCP"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022. This memorandum provides the Board of Directors (the "Board") with an initial assessment of the situation, the principal strategic and legal considerations, and recommended immediate action steps. It is intended to serve as a foundational reference document for the Board's ongoing deliberations and for the work of the Special Committee formed in connection with this matter.

This memorandum is delivered following the RGC Board's emergency meeting on November 14, 2022, at which the Board received a briefing from General Counsel Patricia "Trish" Nakamura regarding Pinnacle Harbor's public filing and private communications, and at which the Board resolved to form a Special Committee consisting of three independent directors — Jim Delacroix (Chair), Carmen Vasquez, and Randall Morse — to oversee the Company's response to the activist campaign and to authorize the engagement of outside counsel and other advisors.

The key developments to date may be summarized as follows:

• Stake Accumulation. Between June 2022 and November 2022, Pinnacle Harbor accumulated a 6.8% beneficial ownership stake in RGC common stock, representing 7,119,600 shares, at a weighted-average purchase price of $26.42 per share, for a total cost basis of approximately $188.1 million.

• Private Demand Letter. On October 28, 2022, Pinnacle Harbor sent a private demand letter to Board Chair Diane K. Sheridan setting forth three principal demands: (1) the appointment of two Pinnacle Harbor-designated nominees to the RGC Board of Directors; (2) a formal strategic review of the Company's interactive gaming division, including evaluation of a potential sale, spin-off, or joint venture; and (3) the return of $300 million to shareholders through a special dividend or accelerated share repurchase program.

• Schedule 13D Filing. On November 10, 2022, Pinnacle Harbor filed a preliminary Schedule 13D with the U.S. Securities and Exchange Commission (the "SEC"), publicly disclosing its 6.8% stake and its activist intentions, thereby escalating the campaign into the public domain.

This memorandum addresses the following topics in detail: (i) an overview of Pinnacle Harbor and its key personnel; (ii) analysis of the stake accumulation and Schedule 13D filing; (iii) review and analysis of the October 28, 2022 demand letter; (iv) assessment of Pinnacle Harbor's activist track record and strategic approach; (v) an overview of Pinnacle Harbor's proposed Board nominees; (vi) RGC's current Board composition and governance structure; (vii) the key institutional shareholder landscape; (viii) the Company's advisory team and coordination structure; (ix) preliminary defensive strategy recommendations; (x) anticipated workstreams and deliverable timeline; and (xi) risk assessment.

Based on our initial review, we conclude that the Pinnacle Harbor campaign is credible and well-resourced. Pinnacle Harbor is a focused activist fund with meaningful sector expertise, experienced legal and proxy advisory support, and a demonstrated willingness to pursue contested elections where its demands are not addressed. Proactive defensive measures, thorough advisor coordination, and a carefully calibrated engagement strategy are warranted. We believe the Board is well-positioned to mount an effective defense, but the Board should act promptly and with discipline to preserve its strategic flexibility.

II. Overview of Pinnacle Harbor Capital Partners, LP

A. Entity Structure and Key Personnel

Pinnacle Harbor Capital Partners, LP is a Delaware limited partnership organized in 2014. Its general partner is Pinnacle Harbor Capital Management, LLC ("PHCM"), a Delaware limited liability company. The fund's principal office is located at 590 Madison Avenue, 34th Floor, New York, NY 10022. As of the date of this memorandum, Pinnacle Harbor manages approximately $4.2 billion in assets under management ("AUM").

Pinnacle Harbor's investment strategy is characterized as event-driven and activist equity, with a particular focus on mid-cap companies in the gaming, hospitality, and consumer-discretionary sectors. This relatively narrow sector specialization distinguishes Pinnacle Harbor from generalist activist funds and gives it considerable credibility with institutional investors who specialize in these industries. The fund's sector focus also means that Pinnacle Harbor's investment professionals possess deep operational and financial knowledge of the gaming industry, including familiarity with regulatory structures, licensing requirements, and competitive dynamics.

The key personnel at Pinnacle Harbor are as follows:

Managing Partner and Chief Investment Officer: Viktor S. Kessler, age 47. Kessler founded Pinnacle Harbor in 2014 and leads all investment decisions and activist campaigns. He is the controlling person of Pinnacle Harbor Capital Management, LLC, and is identified as a reporting person in the Schedule 13D filing. Kessler's background includes prior experience at several prominent hedge funds, and he is regarded within the investment community as a sophisticated operator with deep industry knowledge. He is personally involved in all significant engagement and negotiation activities undertaken by the fund.

Head of Activism and Portfolio Manager: Nadia Johar, age 39. Johar oversees the execution of Pinnacle Harbor's activist campaigns and is responsible for shareholder engagement strategy, proxy solicitation coordination, and campaign messaging. She has led several successful settlement negotiations on behalf of the fund and is understood to maintain relationships with a number of institutional investors and governance professionals in the gaming and hospitality sectors.

Pinnacle Harbor has retained the following outside advisors in connection with the RGC campaign:

Legal Counsel: Hargrove Sloane & Birch LLP, located at 1585 Broadway, 40th Floor, New York, NY 10036. The lead partner on the engagement is Jonathan "Jon" Birch III, age 53, who practices in the firm's Corporate and Shareholder Activism group. The working associate is Elise Marchetti, age 31. Hargrove Sloane & Birch is a well-regarded firm in the activist advisory space, and Birch III has a reputation among practitioners for an aggressive but commercially pragmatic litigation posture. The firm has represented a number of activist funds in contested elections and negotiated settlements, and its involvement signals that Pinnacle Harbor has access to experienced and capable legal representation.

Proxy Solicitor: Garrison Proxy Advisors, LLC, located at 17 Ashbury Asset Advisors, Suite 1600, New York, NY 10004. The firm's Managing Director, Alicia Trent, is leading the engagement. Garrison Proxy Advisors is experienced in contested proxy solicitations and has been involved in several high-profile activist campaigns in recent years. Their retention further indicates the seriousness of Pinnacle Harbor's preparations.

B. Pinnacle Harbor's Activist Track Record and Reputation

Since its founding in 2014, Pinnacle Harbor has pursued activist campaigns at a number of publicly traded companies, maintaining its focused approach on the gaming, hospitality, and consumer-discretionary sectors. Based on publicly available Schedule 13D filings and press reports, the fund has established a recognizable pattern of activist engagement. This pattern typically involves the following sequence:

1. Accumulation of a 5% to 8% stake in a target mid-cap company over a period of several months, often executed during periods of relative stock price weakness or perceived strategic dislocation.

2. Initiation of a private engagement with the target company's board and management, typically through a demand letter setting forth the fund's views on strategy, governance, and capital allocation.

3. Public escalation through the filing of a Schedule 13D and, in some cases, the issuance of public letters or press releases criticizing the target company's strategic direction.

4. Formal nomination of director candidates and, where necessary, commencement of a proxy solicitation campaign in connection with the target company's annual meeting of stockholders.

5. Resolution of the campaign through a negotiated cooperation or settlement agreement, typically involving the appointment of one or two Pinnacle Harbor-designated or mutually agreed-upon directors to the target company's board, coupled with operational or strategic concessions such as a strategic review of a business unit or enhanced capital return program.

This pattern is consistent with the approach Pinnacle Harbor has taken in the RGC campaign to date. Notably, while Pinnacle Harbor has demonstrated a willingness to pursue contested elections through to a shareholder vote, its historical pattern reflects a preference for negotiated resolutions where the fund achieves meaningful board representation and strategic influence without the cost and uncertainty of a contested proxy fight. This preference for settlement should be factored into the Board's strategic calculus, as it suggests that a negotiated outcome may be achievable if the Board is willing to engage constructively while maintaining its leverage.

Kessler is personally regarded as a credible and knowledgeable activist in the gaming and hospitality space. His public statements and investor letters demonstrate a sophisticated understanding of gaming industry economics, regulatory dynamics, and valuation methodologies. Johar, as head of activism, has led several successful settlement negotiations and is understood to maintain productive working relationships with institutional investors and governance professionals, which enhances Pinnacle Harbor's ability to build shareholder support for its campaigns.

C. Assessment of Pinnacle Harbor's Resources and Commitment

With approximately $4.2 billion in assets under management, Pinnacle Harbor is a substantial fund with the financial resources and organizational infrastructure necessary to sustain a contested proxy campaign over an extended period. The fund's total cost basis in RGC common stock is approximately $188.1 million, which represents roughly 4.5% of Pinnacle Harbor's total AUM. This position sizing is meaningful — reflecting significant conviction — but is not so large as to create existential risk for the fund if the campaign proves unsuccessful. In our experience, activist funds that commit between 3% and 7% of AUM to a single campaign position are typically well-committed to seeing the campaign through, as the position is large enough to justify the expenditure of resources on advisors, proxy solicitation, and public engagement, while remaining manageable within the fund's broader portfolio.

The engagement of Hargrove Sloane & Birch LLP as legal counsel and Garrison Proxy Advisors, LLC as proxy solicitor signals that Pinnacle Harbor has made the infrastructure investment necessary to proceed to a contested proxy election if its demands are not addressed to its satisfaction. These engagements represent a material commitment of financial and organizational resources and should be taken by the Board as a strong indication of serious intent.

In sum, the Board should proceed on the assumption that Pinnacle Harbor has the capability, the resources, and the intent to prosecute a contested proxy campaign at the Company's 2023 annual meeting of stockholders if a negotiated resolution is not reached.

III. Analysis of Pinnacle Harbor's Stake Accumulation

A. Share Acquisition Timeline and Economics

Pinnacle Harbor accumulated its position in RGC common stock over a period of approximately five months, from June 2022 through November 2022. The following table summarizes the key metrics of the stake accumulation:

During the accumulation period, RGC's stock price exhibited a generally upward trajectory. The stock opened at $24.18 per share on June 1, 2022, rose to approximately $27.55 per share by September 30, 2022, and reached $29.12 per share at the time of the Schedule 13D filing on November 10, 2022. The closing price on November 15, 2022 — the date of our engagement — was $30.00 per share.

At the November 15, 2022 closing price of $30.00 per share, the mark-to-market value of Pinnacle Harbor's position is approximately $213,588,000 (7,119,600 shares multiplied by $30.00 per share), representing an unrealized gain of approximately $25.5 million, or a 13.5% unrealized return on the total cost basis of approximately $188.1 million.

Several observations flow from this analysis:

First, the significant unrealized gain provides Pinnacle Harbor with a financial cushion that reinforces its conviction and reduces the fund's downside risk in the near term. An activist with a substantial paper profit is generally more willing to commit additional resources to a campaign, as the positive mark-to-market performance validates the fund's investment thesis and provides a buffer against adverse stock price movements.

Second, the unrealized gain also creates a potential motivation for a near-term exit if the stock continues to appreciate, particularly if the appreciation can be attributed to the activist campaign itself (a phenomenon sometimes referred to as the "activism premium"). If the Board is able to articulate a compelling standalone value-creation narrative and the stock price continues to rise, Pinnacle Harbor's incentive to pursue a costly and uncertain proxy fight may diminish.

Third, the five-month accumulation period suggests a deliberate and methodical approach to position-building, consistent with a fund that conducted extensive due diligence on the target company before commencing its accumulation. This is further evidence of a well-planned campaign rather than an opportunistic or speculative effort.

B. RGC Market Capitalization and Relative Position

As of November 15, 2022, based on the closing price of $30.00 per share and 104,700,000 shares of common stock outstanding, RGC's market capitalization was approximately $3.14 billion. The Company's common stock is listed on the Nasdaq Stock Market under the ticker symbol "RGC." For context, the following additional financial data points are relevant to the Board's assessment:

The interactive gaming division, which generated $412 million in revenue in fiscal year 2021 (approximately 14.4% of total Company revenue), is the specific business unit targeted by Pinnacle Harbor's strategic review demand. As discussed further below, Pinnacle Harbor's investment thesis appears to center on the proposition that the interactive gaming division is undervalued within the Company's existing corporate structure and that a sale, spin-off, or other strategic transaction involving the division could unlock significant shareholder value.

With respect to the shareholder landscape, Pinnacle Harbor's 6.8% stake makes it the third-largest disclosed holder of RGC common stock, behind Ridgeway Asset Management, LP (8.2%, or 8,585,400 shares) and Stillwater Capital Advisors, LLC (5.4%, or 5,653,800 shares). The relative positioning of these holders is significant to the proxy contest calculus and is discussed in greater detail in Section VIII below.

IV. Analysis of the Schedule 13D Filing (November 10, 2022)

A. Filing Summary

On November 10, 2022, Pinnacle Harbor filed a preliminary Schedule 13D with the SEC pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules promulgated thereunder. The filing was made with respect to the shares of common stock of Redstone Gaming Corp. (SEC CIK: 0001847625). The Schedule 13D discloses beneficial ownership of 7,119,600 shares of RGC common stock, representing approximately 6.8% of the outstanding shares, by the following reporting persons:

1. Pinnacle Harbor Capital Partners, LP — as the record and beneficial holder of the shares;

2. Pinnacle Harbor Capital Management, LLC — as the general partner of PHCP and, in that capacity, as a beneficial owner of the shares held by PHCP; and

3. Viktor S. Kessler — as the controlling person of Pinnacle Harbor Capital Management, LLC and, in that capacity, as a beneficial owner of the shares held by PHCP.

The decision to file a Schedule 13D rather than a Schedule 13G is itself significant. Schedule 13G is available to investors who hold shares passively and without an intent to change or influence the control of the issuer. By filing a Schedule 13D, Pinnacle Harbor has formally indicated its activist intent — that is, its intention to seek to change or influence the management, policies, or control of the Company. This filing choice is consistent with the demands articulated in the October 28, 2022 private letter and confirms that Pinnacle Harbor views this as an active engagement campaign rather than a passive investment.

B. Stated Purpose and Plans

Item 4 of the Schedule 13D sets forth the purpose of the transaction and the plans or proposals of the reporting persons. The filing states that Pinnacle Harbor acquired the shares "for investment purposes and with the intention of engaging the Board of Directors and management of the Issuer regarding corporate governance, strategic direction, and capital allocation." Specifically, the filing references the following objectives:

(a) Seeking representation on the Board of Directors of the Company;

(b) Pursuing a comprehensive strategic review of the Company's interactive gaming division, including an evaluation of strategic alternatives such as a potential sale, spin-off, or joint venture; and

(c) Exploring enhanced capital return to shareholders, including through a special dividend or accelerated share repurchase program.

The filing further states that Pinnacle Harbor reserves the right to acquire additional shares of common stock, dispose of shares, communicate with the Company's management and Board of Directors, communicate with other shareholders of the Company, take any other actions with respect to the Company's securities, and pursue any other actions consistent with the fund's investment objectives. This language is broadly worded and is standard in activist 13D filings, but its breadth should be noted because it preserves maximum flexibility for Pinnacle Harbor to escalate its campaign, acquire additional shares, or pursue alternative strategies (including, potentially, a solicitation of written consents or other extraordinary actions) without the need to amend the filing.

Notably, the filing does not disclose the specific identities of Pinnacle Harbor's proposed board nominees, nor does it set forth a definitive plan to conduct a proxy contest. This is consistent with standard activist practice at the early stages of a campaign, as the formal nomination of director candidates typically occurs later, within the advance-notice window specified by the target company's bylaws. The absence of specific nominee identification in the 13D does not diminish the seriousness of the campaign; rather, it reflects Pinnacle Harbor's intention to preserve tactical flexibility regarding the timing and manner of any formal nomination.

C. Preliminary Compliance Observations

Calderwood & Harkness is conducting a detailed compliance review of Pinnacle Harbor's Schedule 13D filing under Sections 13(d) and 14(a) of the Exchange Act and the rules promulgated thereunder. This detailed review will be delivered in a separate memorandum. However, our preliminary observations are as follows:

Filing Timeliness. Under Section 13(d)(1) of the Exchange Act and Rule 13d-1 thereunder, any person who acquires beneficial ownership of more than 5% of a class of equity securities registered under Section 12 of the Exchange Act is required to file a Schedule 13D within ten calendar days of crossing the 5% threshold. Based on the information disclosed in the filing, Pinnacle Harbor appears to have made its filing within the required ten-day window. We are conducting a detailed analysis of the acquisition dates and volumes disclosed in the filing to confirm compliance with this requirement. If a timeliness deficiency is identified, it could provide the Company with a basis for challenging the filing or seeking relief from the SEC, although such deficiencies are rarely dispositive in activist campaigns.

Group Formation Analysis. The Schedule 13D identifies PHCP, PHCM, and Kessler as members of the reporting group under Rule 13d-5 of the Exchange Act. No additional group members are disclosed. We are analyzing whether Nadia Johar (as Head of Activism and a key participant in the campaign) or either of the proposed board nominees (Dr. Sandra Trevelyan and Hugh Desmond Grayson) should be included as members of the reporting group. Under Rule 13d-5, a "group" is formed when two or more persons agree to act together for the purpose of acquiring, holding, voting, or disposing of equity securities of an issuer. If Johar or the nominees have entered into agreements or understandings with Pinnacle Harbor regarding the acquisition or voting of RGC shares, their inclusion in the reporting group may be required, and any failure to include them could constitute a material misstatement or omission in the filing. This analysis is ongoing and will be addressed in our forthcoming compliance memorandum.

We also note that any amendment to the Schedule 13D — whether to disclose additional share acquisitions, changes in plans or proposals, or the identification of board nominees — will be subject to our ongoing monitoring and review.

V. Analysis of the October 28, 2022 Private Demand Letter

A. Content Summary

On October 28, 2022, Pinnacle Harbor sent a private letter to Board Chair Diane K. Sheridan at the Company's principal office. The letter was received before the public filing of the Schedule 13D on November 10, 2022, and before any public disclosure of Pinnacle Harbor's stake or intentions. The letter bore the signature of Viktor S. Kessler, Managing Partner and Chief Investment Officer of Pinnacle Harbor Capital Partners, LP.

The letter outlined three principal demands, which correspond to the purposes and plans disclosed in the subsequent Schedule 13D filing:

1. Board Representation. Pinnacle Harbor demanded the appointment of two Pinnacle Harbor-designated nominees to the RGC Board of Directors. The letter did not identify the specific nominees by name but stated that Pinnacle Harbor intended to nominate individuals with "deep expertise in interactive gaming, digital entertainment, and financial strategy" who would "enhance the Board's ability to oversee the Company's transformation and value-creation opportunities." As discussed in Section VI below, we understand from subsequent communications that the proposed nominees are Dr. Sandra Trevelyan and Hugh Desmond Grayson.

2. Strategic Review of Interactive Gaming Division. Pinnacle Harbor demanded the formal engagement of independent financial advisors to evaluate strategic alternatives for the Company's interactive gaming segment. The letter specifically referenced the possibility of a sale, spin-off, or joint venture involving the interactive gaming division, and argued that the division was "significantly undervalued" within the Company's existing corporate structure. The letter cited what it characterized as a "substantial valuation discount" relative to publicly traded pure-play interactive gaming companies, although it did not provide a detailed valuation analysis.

3. Capital Return. Pinnacle Harbor demanded the return of $300 million to shareholders through either a special dividend or an accelerated share repurchase program. The letter characterized the Company's current capital allocation as "inadequately disciplined" and argued that the Company was "over-retaining" cash flow that could be more productively deployed through direct returns to shareholders. The letter stated that the proposed $300 million return could be funded through a combination of available cash and incremental borrowing capacity without materially impairing the Company's balance sheet or operational flexibility.

In addition to these three principal demands, the letter expressed broader dissatisfaction with several aspects of the Company's governance and strategy. Specifically, the letter asserted that: (i) the interactive gaming segment was undervalued due to a lack of dedicated management focus and insufficient capital investment; (ii) the Company's capital allocation discipline was inadequate, with excessive capital being retained for low-return reinvestment rather than being returned to shareholders; and (iii) the Board's current composition lacked sufficient expertise in digital and interactive entertainment, which Pinnacle Harbor characterized as the fastest-growing segment of the gaming industry and a critical driver of future value creation.

The letter concluded by stating that Pinnacle Harbor was prepared to take "all available steps" to ensure that its views were appropriately reflected at the Board level, including but not limited to the nomination of directors for election at the Company's 2023 annual meeting of stockholders and the solicitation of proxies in support of such nominees. The letter requested a meeting between Kessler and CEO Gerald R. Whitmore and Board Chair Sheridan within thirty (30) days of the date of the letter — that is, by approximately November 27, 2022.

B. Tone and Implications

The tone of the October 28 letter was assertive but professionally couched. The letter was not overtly hostile or confrontational; it did not personally criticize any individual director or officer, nor did it employ the type of inflammatory rhetoric that sometimes characterizes aggressive activist campaigns. Rather, the letter framed its demands as constructive proposals designed to enhance shareholder value, and it expressed a preference for "collaborative engagement" and a "productive dialogue" with the Board and management.

However, the substance of the letter leaves little room for ambiguity regarding Pinnacle Harbor's seriousness of purpose. The explicit reference to "all available steps," including director nominations and proxy solicitation, constitutes a clear threat of a contested election, and the thirty-day meeting request creates an implicit deadline for the Board's initial response. As of the date of this memorandum, approximately twenty days of the thirty-day period have elapsed, and the Board should plan to respond by approximately November 25, 2022 (as discussed in Section X below).

The sequencing of the private letter and the public 13D filing is also noteworthy. The private letter was sent on October 28, 2022, and the Schedule 13D was filed on November 10, 2022 — only thirteen (13) days after the private letter, and well before the expiration of the thirty-day private engagement period requested in the letter. This sequencing is a common element of the activist playbook: by sending a private letter first, the activist establishes a record of good-faith engagement attempt, which can be cited in subsequent public communications and proxy materials as evidence that the activist sought a constructive dialogue before escalating publicly. The fact that the public filing was made before the private engagement period elapsed suggests that Pinnacle Harbor intended from the outset to pursue a public campaign and used the private letter primarily to establish a favorable narrative record. The Board should anticipate that Pinnacle Harbor will reference the private letter in its public materials and characterize any delay or perceived non-responsiveness by the Board as evidence of entrenchment or unwillingness to engage.

VI. Pinnacle Harbor's Board Nominees

Although Pinnacle Harbor has not yet submitted a formal nomination notice under the Company's advance-notice bylaws, our understanding — based on the October 28 demand letter and subsequent informal communications — is that Pinnacle Harbor intends to nominate the following two individuals for election to the RGC Board of Directors at the Company's 2023 annual meeting:

A. Dr. Sandra Trevelyan

Dr. Sandra Trevelyan is 55 years of age. She previously served as Chief Operating Officer of Meridian Interactive Holdings, Inc., a Nevada corporation engaged in the development and operation of interactive and online gaming platforms. In that role, Dr. Trevelyan was responsible for overseeing the day-to-day operations of the company's interactive gaming platforms, including technology development, product management, and regulatory compliance. She currently operates as an independent gaming consultant, advising companies in the interactive gaming and digital entertainment sectors on strategy, technology, and regulatory matters.

Dr. Trevelyan's professional credentials appear specifically oriented toward supporting Pinnacle Harbor's argument that the current RGC Board lacks sufficient expertise in interactive gaming and digital entertainment. Her background as a former senior executive at an interactive gaming company would lend credibility to Pinnacle Harbor's narrative that the Board needs to add digital and interactive expertise in order to adequately oversee the Company's interactive gaming division and capitalize on growth opportunities in the sector.

We note that a full background investigation and independence analysis under the applicable Nasdaq Stock Market listing standards has not yet been completed with respect to Dr. Trevelyan. This analysis, along with an evaluation of gaming regulatory licensing requirements applicable to individuals serving on the boards of gaming companies, will be addressed in a forthcoming memorandum upon receipt of a formal nomination notice.

B. Hugh Desmond Grayson

Hugh Desmond Grayson is 61 years of age. He previously served as Chief Financial Officer of Atlas Leisure Group, Inc., a Delaware corporation operating in the hospitality and leisure sector. In that role, Mr. Grayson was responsible for the company's financial strategy, capital allocation, treasury functions, and investor relations. He currently serves as a director of two private hospitality companies, the identities of which have not yet been publicly disclosed.

Mr. Grayson's financial and operational background in the hospitality and leisure sector aligns with the capital allocation and strategic review themes of Pinnacle Harbor's campaign. His experience as a former CFO of a hospitality company positions him to contribute to discussions regarding capital structure, dividend policy, share repurchase programs, and strategic alternatives — all of which are central to Pinnacle Harbor's stated demands.

As with Dr. Trevelyan, a full background investigation, independence analysis under applicable Nasdaq listing standards, and gaming regulatory licensing review will be conducted with respect to Mr. Grayson and addressed in a forthcoming memorandum.

C. Preliminary Observations on Nominees

Several preliminary observations are warranted regarding Pinnacle Harbor's proposed nominees:

First, both nominees have sector-relevant backgrounds that strengthen Pinnacle Harbor's narrative with institutional shareholders and proxy advisory firms. Dr. Trevelyan's interactive gaming expertise directly supports the argument that the Board lacks digital/interactive competency, while Mr. Grayson's financial and strategic experience in the hospitality/leisure sector supports the argument that the Board would benefit from fresh perspectives on capital allocation and strategic alternatives. The selection of credentialed, industry-relevant nominees — as opposed to purely financial or governance-oriented nominees — is a hallmark of a sophisticated activist campaign and increases the likelihood that institutional shareholders and proxy advisory firms will view the nominees favorably.

Second, Pinnacle Harbor has not yet submitted a formal nomination notice under the advance-notice provisions of the Company's Amended and Restated Bylaws. Under Article II, Section 2.11 of the Bylaws (last amended September 12, 2021), stockholder nominations of persons for election to the Board of Directors must be made in compliance with specified procedural and informational requirements and must be received by the Corporate Secretary within the advance-notice window. Based on the anticipated May 11, 2023 anniversary of the Company's 2022 annual meeting of stockholders, the advance-notice window opens on December 12, 2022 (150 days before the anniversary date) and closes on January 11, 2023 (120 days before the anniversary date). Any nomination notice received outside this window, or that fails to comply with the substantive requirements of Section 2.11, may be subject to challenge. Calderwood & Harkness will prepare a detailed advance-notice compliance analysis framework in advance of the December 12, 2022 window opening, and will promptly review any nomination notice received from Pinnacle Harbor for compliance with the Bylaw requirements.

Third, as discussed in the risk assessment section below, any new Board nominees in the gaming industry would need to satisfy gaming regulatory licensing and suitability requirements in the jurisdictions in which RGC holds gaming licenses. This regulatory overlay adds complexity and potential delay to Pinnacle Harbor's plans, and the Board should consider whether gaming licensing requirements may be leveraged as part of its defensive strategy.

VII. RGC Board Composition and Governance Structure

A. Current Board Composition

The RGC Board of Directors currently consists of nine (9) directors, of whom seven (7) are independent under applicable Nasdaq listing standards and two (2) are members of Company management. The current directors and their committee assignments are as follows:

The Board maintains a strong majority of independent directors (seven of nine), and the positions of Board Chair and Chief Executive Officer are separated, with Board Chair Sheridan serving in an independent, non-executive capacity. These governance characteristics are generally viewed favorably by institutional investors and proxy advisory firms, and they provide a degree of insulation against governance-related criticisms by activists. However, Pinnacle Harbor's critique is not primarily governance-structural; rather, it focuses on the Board's perceived lack of specific sector expertise (interactive gaming) and its alleged failure to pursue value-maximizing strategic and capital allocation decisions.

B. Special Committee

On November 14, 2022, the Board adopted a resolution forming a Special Committee to oversee the Board's response to the Pinnacle Harbor activist campaign. The Special Committee is composed of three independent directors:

• Jim Delacroix, Chair — also serves on the Audit Committee

• Carmen Vasquez — also serves on the Governance Committee

• Randall Morse — also serves on the Compensation Committee

The Special Committee has been authorized to oversee all aspects of the Company's defensive response to the Pinnacle Harbor campaign, including the engagement of outside counsel, financial advisors, proxy solicitors, and investor relations advisors. The Special Committee is empowered to direct the Company's engagement strategy, authorize communications with Pinnacle Harbor and other shareholders, and make recommendations to the full Board regarding defensive measures, settlement terms, and other strategic decisions.

The formation of a Special Committee composed exclusively of independent directors is an important structural safeguard. It provides a mechanism for the Board to deliberate and act on the activist campaign through a committee that is insulated from the potential conflicts of interest that may arise for the management directors (CEO Whitmore and CFO Choi), whose positions and strategic decisions are implicitly under scrutiny in the campaign. The Special Committee structure also enhances the Board's credibility with institutional shareholders and, if necessary, with the Delaware courts in the event of litigation, by demonstrating that the Board's response is being overseen by disinterested and independent directors acting in good faith and on an informed basis.

C. Corporate Governance Documents

The Company's governance framework is established by the following foundational documents:

• Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State (file number 5734821);

• Amended and Restated Bylaws, last amended September 12, 2021.

Calderwood & Harkness is conducting a comprehensive review of these governance documents to identify all provisions relevant to the Company's defensive posture, including but not limited to: the advance-notice provisions for stockholder nominations and proposals (Article II, Section 2.11); the Board's authority to fill vacancies and newly created directorships; any supermajority voting requirements applicable to amendments of the certificate of incorporation or bylaws; the exclusive forum provision (if any) for intra-corporate disputes; and any other provisions that may affect the Company's ability to defend against a contested election or implement defensive measures.

A detailed bylaw and charter defensive review memorandum is targeted for delivery by December 5, 2022. This memorandum will include an analysis of potential bylaw amendments that could be adopted to strengthen the Company's defenses under Delaware law, consistent with the fiduciary duties of the Board.

VIII. Key Institutional Shareholder Landscape

A. Major Holders

The identity, investment philosophy, and likely posture of the Company's major institutional shareholders will be critical in any contested election. The following is a summary of the most significant disclosed holders, based on publicly available filings and information available to Calderwood & Harkness as of the date of this memorandum:

Ridgeway Asset Management, LP — 8.2% (8,585,400 shares). Ridgeway is a long-only value-oriented investment fund based in Boston, Massachusetts. The principal contact is Franklin Osei, Portfolio Manager. As the largest disclosed holder of RGC common stock, Ridgeway's support or opposition in any proxy contest will be critical. Ridgeway's investment philosophy — long-only, value-oriented — suggests that the fund is likely focused on long-term value creation and may be skeptical of activist demands that prioritize near-term capital returns over sustained investment in growth. However, if Pinnacle Harbor presents a compelling case that the Company's current strategy is destroying value or that the Board lacks the expertise to execute effectively, Ridgeway could be persuaded to support one or more of Pinnacle Harbor's demands. Early engagement with Ridgeway should be a priority.

Pinnacle Harbor Capital Partners, LP — 6.8% (7,119,600 shares). As the activist proponent, Pinnacle Harbor will vote its shares in support of its own nominees and proposals.

Stillwater Capital Advisors, LLC — 5.4% (5,653,800 shares). Stillwater is a growth-oriented investment fund based in Chicago, Illinois. The principal contact is Margaret "Meg" Liu, Head of Governance. Stillwater's governance-focused approach may make it receptive to some of Pinnacle Harbor's arguments, particularly regarding board composition and the need for interactive gaming expertise. Growth-oriented funds with active governance programs often evaluate activist proposals on a case-by-case basis and may be inclined to support demands for board refreshment or strategic review if the activist presents a credible case. Engagement with Stillwater should be approached with an awareness that this holder may be sympathetic to certain elements of Pinnacle Harbor's platform.

Canfield Municipal Employees' Retirement System — 2.1% (2,198,700 shares). Canfield MERS is a public pension fund based in Canfield, Ohio. The principal contact is David Proulx, Chief Investment Officer. As a public pension fund, Canfield MERS tends to follow the voting recommendations of the major proxy advisory firms (Centurion Governance Services and Hartley Shareholder Advisory Group). Accordingly, Canfield MERS's vote in any contested election will likely be determined by the recommendations of these advisory firms rather than by independent engagement with the Company or Pinnacle Harbor. This makes the Company's engagement with the proxy advisory firms an indirect but important factor in securing Canfield MERS's support.

B. Proxy Advisory Firms

Two proxy advisory firms are relevant to the RGC proxy contest analysis:

Centurion Governance Services, Inc. Centurion is one of the two leading proxy advisory firms whose voting recommendations are followed by a significant proportion of institutional shareholders, including public pension funds, index funds, and other passive investors. In the event that a contested election proceeds, Centurion's recommendation — whether to support the Company's slate, the activist's slate, or a combination — would significantly influence institutional voting. Centurion's policies generally favor contested situations where the activist presents a credible case for board refreshment or strategic change, but the firm evaluates each situation on its specific facts and considers the strength of the Company's response.

Hartley Shareholder Advisory Group, LLC. Hartley is the second leading proxy advisory firm, with a somewhat different but overlapping client base. Like Centurion, Hartley's recommendation would carry significant weight with institutional voters. Hartley's policies similarly favor activist proposals where the case for change is well-supported, but the firm also considers the potential disruption and risk associated with contested elections.

No recommendations from either advisory firm are pending at this time, as a proxy contest has not yet been formally initiated. However, the Company's engagement strategy should include proactive outreach to both Centurion and Hartley to ensure that the advisory firms understand the Company's strategic direction, governance practices, and response to Pinnacle Harbor's demands. Whitfield Morrow Partners and Harlan Ridge Communications will coordinate this outreach as part of the shareholder engagement strategy discussed in Section X below.

C. Voting Arithmetic Considerations

In a contested election at the 2023 annual meeting of stockholders, the fundamental question will be whether Pinnacle Harbor can assemble a coalition of shareholders sufficient to elect its nominees over the Company's management slate. Several arithmetic observations are relevant:

• Pinnacle Harbor's 6.8% stake alone is insufficient to prevail in a contested election. The fund will need to attract support from a meaningful coalition of other shareholders — including, potentially, one or more of the major institutional holders discussed above.

• The combined institutional ownership of Ridgeway (8.2%), Stillwater (5.4%), and Canfield MERS (2.1%) totals approximately 15.7% of outstanding shares. Together with Pinnacle Harbor's 6.8% stake, the top four disclosed holders collectively hold approximately 22.5% of outstanding shares.

• The remaining approximately 77.5% of outstanding shares are held by a diverse group of institutional and retail shareholders, many of whom will look to the proxy advisory firms for voting guidance. The Company's ability to communicate its value-creation narrative effectively to this broader shareholder base will be critical.

• Turnout and engagement levels at the annual meeting will also affect the outcome. In contested elections, voter turnout tends to be higher than in uncontested elections, as both sides actively solicit proxies. However, the incremental turnout may not be uniformly distributed; retail shareholders, who tend to have lower participation rates, may be more difficult for both sides to reach.

Marcus Leung is preparing a detailed shareholder ownership and voting power analysis, which will be provided to the Special Committee and the Board in spreadsheet format as soon as it is completed. This analysis will include a comprehensive breakdown of institutional and retail ownership, an estimate of shares likely to be voted in a contested election, and scenario modeling under various assumptions regarding shareholder support for each side.

IX. Advisory Team and Coordination

The Company has assembled a team of experienced advisors to support its response to the Pinnacle Harbor campaign. Effective coordination among these advisors will be essential to the success of the Company's defensive strategy. The advisory team and their respective roles are set forth below.

A. Calderwood & Harkness LLP — Outside Counsel

Calderwood & Harkness LLP was engaged as outside counsel on November 15, 2022. The engagement letter was executed on the same date and is on file with the Company's General Counsel.

The Calderwood & Harkness team is based primarily at the firm's Las Vegas office, located at 3960 Howard Hughes Parkway, Suite 1400, Las Vegas, NV 89169. Delaware corporate law matters will be supported by attorneys in the firm's Wilmington, Delaware office, located at 1200 Market Street, Suite 3100, Wilmington, DE 19801.

Calderwood & Harkness's scope of engagement includes: legal analysis and strategic advice regarding the activist campaign; review and analysis of Pinnacle Harbor's SEC filings, communications, and nominations; review of the Company's governance documents and defensive provisions; preparation of Board and Special Committee materials; drafting of correspondence and public communications; advice regarding proxy contest mechanics, Delaware fiduciary duty considerations, and gaming regulatory implications; and coordination with the Company's other advisors.

B. Calloway Pinnacle Trust Bank — Financial Advisor

Calloway Pinnacle Trust Bank has been engaged as the Company's financial advisor in connection with the activist defense. The lead contact is Thomas V. Ashford, Managing Director, Activism & Corporate Defense, based at the firm's office at 200 Park Avenue, 28th Floor, New York, NY 10166.

Calloway Wainwright's role includes: providing financial advisory support for the Company's defense strategy; preparing Board presentation materials analyzing the Company's strategic plan, capital allocation, and valuation; conducting shareholder analysis and modeling; and, if required, performing valuation work with respect to the interactive gaming division to support the Company's defense of its current strategy and to counter Pinnacle Harbor's undervaluation thesis. Calloway Wainwright's sector expertise in gaming and hospitality will be a significant asset in developing a credible and data-driven defense.

C. Whitfield Morrow Partners, LLC — Proxy Solicitor

Whitfield Morrow Partners, LLC has been engaged as the Company's proxy solicitor. The lead contact is Denise Cavanaugh, Senior Vice President, based at the firm's office at 501 Madison Avenue, 14th Floor, New York, NY 10022.

Whitfield Morrow's role includes: proxy solicitation services in the event of a contested election at the 2023 annual meeting; shareholder identification and sentiment analysis; development and execution of a shareholder outreach strategy; and coordination with the proxy advisory firms Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC. Whitfield Morrow will work closely with the Company's investor relations team and with Harlan Ridge Communications to ensure consistent and coordinated messaging to all shareholder audiences.

D. Harlan Ridge Communications, LLC — Investor Relations Advisor

Harlan Ridge Communications, LLC has been engaged as the Company's investor relations and communications advisor. The lead contact is Philip Navarette, Partner, based at the firm's office at 712 Fifth Avenue, Suite 900, New York, NY 10019.

Harlan Ridge's role includes: development and execution of the Company's investor communications strategy; messaging development for shareholder and media audiences; media relations and monitoring; and coordination of the Company's public-facing response to Pinnacle Harbor's campaign. Harlan Ridge will work in close coordination with Calderwood & Harkness to ensure that all public communications are consistent with the Company's legal strategy and comply with applicable SEC rules regarding proxy solicitations.

E. D&O Insurance Notice

On November 16, 2022, the Company submitted a notice of circumstances to its directors' and officers' liability insurance carriers in connection with the Pinnacle Harbor activist campaign. The notice was submitted through the Company's insurance broker, Glenmore Caulfield Insurance Brokers, Inc. (Sarah Voss, Senior Vice President), to the following carriers:

• Primary D&O Carrier: Northbridge Indemnity Company, Policy No. NBI-DOP-1025-00008, $15 million limit of liability, $500,000 retention.

• First Excess D&O Carrier: Creston National Insurance Co., Policy No. CNI-XS-2022-31004, $10 million excess of $15 million.

The timely submission of a notice of circumstances is an important step in preserving the Company's and its directors' and officers' rights under the D&O insurance program. The notice was submitted on an informational basis and does not constitute a claim at this time. Calderwood & Harkness will prepare a detailed coverage analysis, including a review of the relevant policy terms, conditions, and exclusions, and will provide this analysis in a separate memorandum.

X. Preliminary Defensive Strategy Recommendations

Based on our initial assessment, we recommend the following defensive strategy, organized into three phases: immediate actions (completed or underway), near-term actions (to be completed within the next 30 days), and medium-term strategic considerations.

A. Immediate Actions (Completed or Underway)

The following actions have been completed or are currently underway:

1. Engagement of Advisors. Calderwood & Harkness LLP (outside counsel), Calloway Pinnacle Trust Bank (financial advisor), Whitfield Morrow Partners, LLC (proxy solicitor), and Harlan Ridge Communications, LLC (investor relations advisor) have been engaged. All engagements were completed between November 14 and November 15, 2022. Each advisor has been briefed on the situation and has commenced initial work.

2. Special Committee Formation. The Special Committee of the Board, consisting of independent directors Jim Delacroix (Chair), Carmen Vasquez, and Randall Morse, was formed by Board resolution on November 14, 2022. The Special Committee has been authorized to oversee all aspects of the Company's response to the Pinnacle Harbor campaign.

3. D&O Notice of Circumstances. A notice of circumstances was submitted to Northbridge Indemnity Company and Creston National Insurance Co. on November 16, 2022, through the Company's insurance broker, Glenmore Caulfield Insurance Brokers, Inc.

4. Schedule 13D Review. An initial review of Pinnacle Harbor's Schedule 13D filing has been completed. A detailed compliance analysis, including group formation analysis and timeliness review, is in progress and will be delivered in a separate memorandum.

5. Bylaw and Charter Review. A comprehensive review of the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws is in progress. Completion of the initial review is targeted for November 22, 2022. A full defensive review memorandum, including identification of potential bylaw amendments, is targeted for delivery by December 5, 2022.

B. Near-Term Actions (Next 30 Days)

The following actions should be prioritized over the next 30 days:

1. Response to October 28 Demand Letter. We recommend that the Board authorize the preparation and delivery of a written response from Board Chair Diane K. Sheridan to Viktor S. Kessler, acknowledging receipt of the October 28 demand letter, expressing the Board's willingness to engage constructively with Pinnacle Harbor, and defending the Board's strategic direction and governance practices. The response should be carefully drafted to avoid concessions while projecting a tone of openness and good faith. The letter should not foreclose the possibility of future engagement or settlement discussions, but it should make clear that the Board has confidence in its current strategy and governance and will not accede to demands made under the implicit threat of a proxy contest. Calderwood & Harkness will prepare a draft of this letter for the Special Committee's review. We recommend targeting delivery by approximately November 25, 2022, which would fall within the 30-day meeting request period set forth in the demand letter.

2. Bylaw and Charter Defensive Review. Calderwood & Harkness will complete a comprehensive analysis of all defensive provisions in the Company's governing documents, including the advance-notice provisions (Article II, Section 2.11), the Board's authority to fill vacancies and newly created directorships, any supermajority voting requirements, the exclusive forum provision, and any other provisions relevant to the Company's defensive posture. This analysis will also identify potential bylaw amendments that could be adopted by the Board to strengthen the Company's defenses under Delaware law, taking into account applicable fiduciary duty standards and the perspectives of institutional shareholders and proxy advisory firms. The defensive review memorandum is targeted for delivery by December 5, 2022.

3. Advance-Notice Window Preparation. The advance-notice window under Article II, Section 2.11 of the Bylaws opens on December 12, 2022, and closes on January 11, 2023. Calderwood & Harkness will prepare a compliance analysis framework in advance of the window opening so that any nomination notice received from Pinnacle Harbor can be promptly evaluated for compliance with the substantive and procedural requirements of the Bylaws. This preparation will include a checklist of required disclosures, a template deficiency letter, and an analysis of the Board's options in the event that a nomination notice is deficient.

4. Stockholder Rights Plan ("Poison Pill") Analysis. Calderwood & Harkness will prepare an analysis of whether the Board should consider adopting a limited-duration stockholder rights plan as a defensive measure. This analysis will address the fiduciary duty implications under Delaware law (including the standards established by the Delaware Court of Chancery and the Delaware Supreme Court), the perspectives of the proxy advisory firms (both Centurion Governance Services and Hartley Shareholder Advisory Group have published policies on rights plans), the potential strategic risks and benefits of adoption, and the appropriate terms and duration of any plan. While a rights plan would not directly prevent a proxy contest, it could serve as a deterrent against rapid share accumulation by Pinnacle Harbor or the formation of undisclosed shareholder groups, and it could provide the Board with additional negotiating leverage. This analysis is targeted for presentation to the Special Committee and the Board by mid-to-late December 2022.

5. Shareholder Outreach Strategy. Calderwood & Harkness, in coordination with Whitfield Morrow Partners and Harlan Ridge Communications, will develop a comprehensive shareholder engagement strategy focused on the Company's key institutional holders, including Ridgeway Asset Management, Stillwater Capital Advisors, and Canfield Municipal Employees' Retirement System. This strategy will include a messaging framework, talking points, and a schedule of engagement calls and meetings. The goal of the outreach is to communicate the Company's strategic vision, defend its governance practices and capital allocation decisions, and build shareholder support in advance of any contested election. The shareholder outreach strategy will also include a plan for proactive engagement with the proxy advisory firms.

6. Nominee Due Diligence. Upon receipt of a formal nomination notice from Pinnacle Harbor, Calderwood & Harkness will coordinate with appropriate investigative resources to conduct a thorough background investigation of each proposed nominee, including Dr. Sandra Trevelyan and Hugh Desmond Grayson. The due diligence will include analysis of each nominee's independence under Nasdaq listing standards, evaluation of any relationships or arrangements with Pinnacle Harbor or its affiliates, assessment of gaming regulatory licensing requirements and suitability determinations in the jurisdictions in which RGC holds gaming licenses, and identification of any disqualifying factors or potential vulnerabilities.

C. Medium-Term Strategic Considerations

Beyond the immediate and near-term actions described above, the Board should begin to consider the following medium-term strategic issues:

1. Interactive Gaming Division Valuation and Strategic Positioning. A core element of Pinnacle Harbor's investment thesis is the assertion that the Company's interactive gaming division is "significantly undervalued" within the Company's existing corporate structure. To counter this argument, the Company will need to develop a robust and data-driven defense of its current strategy for the interactive gaming division. Calderwood & Harkness will coordinate with Calloway Wainwright to prepare materials demonstrating the embedded value of the interactive gaming division, its growth trajectory, and the strategic rationale for maintaining the division within the Company's integrated operating platform. This analysis should include comparable company and comparable transaction analyses, discounted cash flow and sum-of-the-parts valuations, and a narrative framework explaining why the current structure maximizes long-term shareholder value. The interactive gaming division generated $412 million in revenue in fiscal year 2021, representing approximately 14.4% of total Company revenue, and is expected to continue growing as the interactive gaming market expands. The Company's defense should emphasize the strategic synergies between the interactive gaming division and the Company's traditional land-based gaming operations, the competitive advantages of an integrated platform, and the risks and costs associated with a separation transaction.

2. Capital Allocation Defense. Pinnacle Harbor's demand for the return of $300 million to shareholders through a special dividend or accelerated share repurchase program directly challenges the Company's capital allocation policy. The Board should be prepared to defend its current approach, including its 1.8% dividend yield, its existing share repurchase programs, and its reinvestment in growth initiatives. Calloway Wainwright should prepare a Board-level analysis demonstrating the return on invested capital achieved by the Company's growth i

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Board of Directors, Redstone Gaming Corp.
FROM: Douglas Fairchild, Engagement Partner, and Claire Dempsey, Lead Associate, Calderwood & Harkness LLP
DATE: November 18, 2022
RE: Initial Situational Assessment — Activist Campaign by Pinnacle Harbor Capital Partners, LP
Matter No.: 1033-00003
CC: Patricia "Trish" Nakamura, General Counsel & Corporate Secretary, Redstone Gaming Corp.; Angela Fontaine, Billing Partner, Calderwood & Harkness LLP; Marcus Leung, Working Associate, Calderwood & Harkness LLP
I. Purpose and Executive Summary
Calderwood & Harkness LLP was engaged on November 15, 2022 to advise Redstone Gaming Corp. ("RGC" or the "Company"), a Delaware corporation headquartered at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, NV 89123, in connection with the defense against an activist board-seat campaign initiated by Pinnacle Harbor Capital Partners, LP ("Pinnacle Harbor" or "PHCP"), a Delaware limited partnership with its principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022. This memorandum provides the Board of Directors (the "Board") with an initial assessment of the situation, the principal strategic and legal considerations, and recommended immediate action steps. It is intended to serve as a foundational reference document for the Board's ongoing deliberations and for the work of the Special Committee formed in connection with this matter.
This memorandum is delivered following the RGC Board's emergency meeting on November 14, 2022, at which the Board received a briefing from General Counsel Patricia "Trish" Nakamura regarding Pinnacle Harbor's public filing and private communications, and at which the Board resolved to form a Special Committee consisting of three independent directors — Jim Delacroix (Chair), Carmen Vasquez, and Randall Morse — to oversee the Company's response to the activist campaign and to authorize the engagement of outside counsel and other advisors.
The key developments to date may be summarized as follows:
• Stake Accumulation. Between June 2022 and November 2022, Pinnacle Harbor accumulated a 6.8% beneficial ownership stake in RGC common stock, representing 7,119,600 shares, at a weighted-average purchase price of $26.42 per share, for a total cost basis of approximately $188.1 million.
• Private Demand Letter. On October 28, 2022, Pinnacle Harbor sent a private demand letter to Board Chair Diane K. Sheridan setting forth three principal demands: (1) the appointment of two Pinnacle Harbor-designated nominees to the RGC Board of Directors; (2) a formal strategic review of the Company's interactive gaming division, including evaluation of a potential sale, spin-off, or joint venture; and (3) the return of $300 million to shareholders through a special dividend or accelerated share repurchase program.
• Schedule 13D Filing. On November 10, 2022, Pinnacle Harbor filed a preliminary Schedule 13D with the U.S. Securities and Exchange Commission (the "SEC"), publicly disclosing its 6.8% stake and its activist intentions, thereby escalating the campaign into the public domain.
This memorandum addresses the following topics in detail: (i) an overview of Pinnacle Harbor and its key personnel; (ii) analysis of the stake accumulation and Schedule 13D filing; (iii) review and analysis of the October 28, 2022 demand letter; (iv) assessment of Pinnacle Harbor's activist track record and strategic approach; (v) an overview of Pinnacle Harbor's proposed Board nominees; (vi) RGC's current Board composition and governance structure; (vii) the key institutional shareholder landscape; (viii) the Company's advisory team and coordination structure; (ix) preliminary defensive strategy recommendations; (x) anticipated workstreams and deliverable timeline; and (xi) risk assessment.
Based on our initial review, we conclude that the Pinnacle Harbor campaign is credible and well-resourced. Pinnacle Harbor is a focused activist fund with meaningful sector expertise, experienced legal and proxy advisory support, and a demonstrated willingness to pursue contested elections where its demands are not addressed. Proactive defensive measures, thorough advisor coordination, and a carefully calibrated engagement strategy are warranted. We believe the Board is well-positioned to mount an effective defense, but the Board should act promptly and with discipline to preserve its strategic flexibility.
II. Overview of Pinnacle Harbor Capital Partners, LP
A. Entity Structure and Key Personnel
Pinnacle Harbor Capital Partners, LP is a Delaware limited partnership organized in 2014. Its general partner is Pinnacle Harbor Capital Management, LLC ("PHCM"), a Delaware limited liability company. The fund's principal office is located at 590 Madison Avenue, 34th Floor, New York, NY 10022. As of the date of this memorandum, Pinnacle Harbor manages approximately $4.2 billion in assets under management ("AUM").
Pinnacle Harbor's investment strategy is characterized as event-driven and activist equity, with a particular focus on mid-cap companies in the gaming, hospitality, and consumer-discretionary sectors. This relatively narrow sector specialization distinguishes Pinnacle Harbor from generalist activist funds and gives it considerable credibility with institutional investors who specialize in these industries. The fund's sector focus also means that Pinnacle Harbor's investment professionals possess deep operational and financial knowledge of the gaming industry, including familiarity with regulatory structures, licensing requirements, and competitive dynamics.
The key personnel at Pinnacle Harbor are as follows:
Managing Partner and Chief Investment Officer: Viktor S. Kessler, age 47. Kessler founded Pinnacle Harbor in 2014 and leads all investment decisions and activist campaigns. He is the controlling person of Pinnacle Harbor Capital Management, LLC, and is identified as a reporting person in the Schedule 13D filing. Kessler's background includes prior experience at several prominent hedge funds, and he is regarded within the investment community as a sophisticated operator with deep industry knowledge. He is personally involved in all significant engagement and negotiation activities undertaken by the fund.
Head of Activism and Portfolio Manager: Nadia Johar, age 39. Johar oversees the execution of Pinnacle Harbor's activist campaigns and is responsible for shareholder engagement strategy, proxy solicitation coordination, and campaign messaging. She has led several successful settlement negotiations on behalf of the fund and is understood to maintain relationships with a number of institutional investors and governance professionals in the gaming and hospitality sectors.
Pinnacle Harbor has retained the following outside advisors in connection with the RGC campaign:
Legal Counsel: Hargrove Sloane & Birch LLP, located at 1585 Broadway, 40th Floor, New York, NY 10036. The lead partner on the engagement is Jonathan "Jon" Birch III, age 53, who practices in the firm's Corporate and Shareholder Activism group. The working associate is Elise Marchetti, age 31. Hargrove Sloane & Birch is a well-regarded firm in the activist advisory space, and Birch III has a reputation among practitioners for an aggressive but commercially pragmatic litigation posture. The firm has represented a number of activist funds in contested elections and negotiated settlements, and its involvement signals that Pinnacle Harbor has access to experienced and capable legal representation.
Proxy Solicitor: Garrison Proxy Advisors, LLC, located at 17 Ashbury Asset Advisors, Suite 1600, New York, NY 10004. The firm's Managing Director, Alicia Trent, is leading the engagement. Garrison Proxy Advisors is experienced in contested proxy solicitations and has been involved in several high-profile activist campaigns in recent years. Their retention further indicates the seriousness of Pinnacle Harbor's preparations.
B. Pinnacle Harbor's Activist Track Record and Reputation
Since its founding in 2014, Pinnacle Harbor has pursued activist campaigns at a number of publicly traded companies, maintaining its focused approach on the gaming, hospitality, and consumer-discretionary sectors. Based on publicly available Schedule 13D filings and press reports, the fund has established a recognizable pattern of activist engagement. This pattern typically involves the following sequence:
1. Accumulation of a 5% to 8% stake in a target mid-cap company over a period of several months, often executed during periods of relative stock price weakness or perceived strategic dislocation.
2. Initiation of a private engagement with the target company's board and management, typically through a demand letter setting forth the fund's views on strategy, governance, and capital allocation.
3. Public escalation through the filing of a Schedule 13D and, in some cases, the issuance of public letters or press releases criticizing the target company's strategic direction.
4. Formal nomination of director candidates and, where necessary, commencement of a proxy solicitation campaign in connection with the target company's annual meeting of stockholders.
5. Resolution of the campaign through a negotiated cooperation or settlement agreement, typically involving the appointment of one or two Pinnacle Harbor-designated or mutually agreed-upon directors to the target company's board, coupled with operational or strategic concessions such as a strategic review of a business unit or enhanced capital return program.
This pattern is consistent with the approach Pinnacle Harbor has taken in the RGC campaign to date. Notably, while Pinnacle Harbor has demonstrated a willingness to pursue contested elections through to a shareholder vote, its historical pattern reflects a preference for negotiated resolutions where the fund achieves meaningful board representation and strategic influence without the cost and uncertainty of a contested proxy fight. This preference for settlement should be factored into the Board's strategic calculus, as it suggests that a negotiated outcome may be achievable if the Board is willing to engage constructively while maintaining its leverage.
Kessler is personally regarded as a credible and knowledgeable activist in the gaming and hospitality space. His public statements and investor letters demonstrate a sophisticated understanding of gaming industry economics, regulatory dynamics, and valuation methodologies. Johar, as head of activism, has led several successful settlement negotiations and is understood to maintain productive working relationships with institutional investors and governance professionals, which enhances Pinnacle Harbor's ability to build shareholder support for its campaigns.
C. Assessment of Pinnacle Harbor's Resources and Commitment
With approximately $4.2 billion in assets under management, Pinnacle Harbor is a substantial fund with the financial resources and organizational infrastructure necessary to sustain a contested proxy campaign over an extended period. The fund's total cost basis in RGC common stock is approximately $188.1 million, which represents roughly 4.5% of Pinnacle Harbor's total AUM. This position sizing is meaningful — reflecting significant conviction — but is not so large as to create existential risk for the fund if the campaign proves unsuccessful. In our experience, activist funds that commit between 3% and 7% of AUM to a single campaign position are typically well-committed to seeing the campaign through, as the position is large enough to justify the expenditure of resources on advisors, proxy solicitation, and public engagement, while remaining manageable within the fund's broader portfolio.
The engagement of Hargrove Sloane & Birch LLP as legal counsel and Garrison Proxy Advisors, LLC as proxy solicitor signals that Pinnacle Harbor has made the infrastructure investment necessary to proceed to a contested proxy election if its demands are not addressed to its satisfaction. These engagements represent a material commitment of financial and organizational resources and should be taken by the Board as a strong indication of serious intent.
In sum, the Board should proceed on the assumption that Pinnacle Harbor has the capability, the resources, and the intent to prosecute a contested proxy campaign at the Company's 2023 annual meeting of stockholders if a negotiated resolution is not reached.
III. Analysis of Pinnacle Harbor's Stake Accumulation
A. Share Acquisition Timeline and Economics
Pinnacle Harbor accumulated its position in RGC common stock over a period of approximately five months, from June 2022 through November 2022. The following table summarizes the key metrics of the stake accumulation:
During the accumulation period, RGC's stock price exhibited a generally upward trajectory. The stock opened at $24.18 per share on June 1, 2022, rose to approximately $27.55 per share by September 30, 2022, and reached $29.12 per share at the time of the Schedule 13D filing on November 10, 2022. The closing price on November 15, 2022 — the date of our engagement — was $30.00 per share.
At the November 15, 2022 closing price of $30.00 per share, the mark-to-market value of Pinnacle Harbor's position is approximately $213,588,000 (7,119,600 shares multiplied by $30.00 per share), representing an unrealized gain of approximately $25.5 million, or a 13.5% unrealized return on the total cost basis of approximately $188.1 million.
Several observations flow from this analysis:
First, the significant unrealized gain provides Pinnacle Harbor with a financial cushion that reinforces its conviction and reduces the fund's downside risk in the near term. An activist with a substantial paper profit is generally more willing to commit additional resources to a campaign, as the positive mark-to-market performance validates the fund's investment thesis and provides a buffer against adverse stock price movements.
Second, the unrealized gain also creates a potential motivation for a near-term exit if the stock continues to appreciate, particularly if the appreciation can be attributed to the activist campaign itself (a phenomenon sometimes referred to as the "activism premium"). If the Board is able to articulate a compelling standalone value-creation narrative and the stock price continues to rise, Pinnacle Harbor's incentive to pursue a costly and uncertain proxy fight may diminish.
Third, the five-month accumulation period suggests a deliberate and methodical approach to position-building, consistent with a fund that conducted extensive due diligence on the target company before commencing its accumulation. This is further evidence of a well-planned campaign rather than an opportunistic or speculative effort.
B. RGC Market Capitalization and Relative Position
As of November 15, 2022, based on the closing price of $30.00 per share and 104,700,000 shares of common stock outstanding, RGC's market capitalization was approximately $3.14 billion. The Company's common stock is listed on the Nasdaq Stock Market under the ticker symbol "RGC." For context, the following additional financial data points are relevant to the Board's assessment:
The interactive gaming division, which generated $412 million in revenue in fiscal year 2021 (approximately 14.4% of total Company revenue), is the specific business unit targeted by Pinnacle Harbor's strategic review demand. As discussed further below, Pinnacle Harbor's investment thesis appears to center on the proposition that the interactive gaming division is undervalued within the Company's existing corporate structure and that a sale, spin-off, or other strategic transaction involving the division could unlock significant shareholder value.
With respect to the shareholder landscape, Pinnacle Harbor's 6.8% stake makes it the third-largest disclosed holder of RGC common stock, behind Ridgeway Asset Management, LP (8.2%, or 8,585,400 shares) and Stillwater Capital Advisors, LLC (5.4%, or 5,653,800 shares). The relative positioning of these holders is significant to the proxy contest calculus and is discussed in greater detail in Section VIII below.
IV. Analysis of the Schedule 13D Filing (November 10, 2022)
A. Filing Summary
On November 10, 2022, Pinnacle Harbor filed a preliminary Schedule 13D with the SEC pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules promulgated thereunder. The filing was made with respect to the shares of common stock of Redstone Gaming Corp. (SEC CIK: 0001847625). The Schedule 13D discloses beneficial ownership of 7,119,600 shares of RGC common stock, representing approximately 6.8% of the outstanding shares, by the following reporting persons:
1. Pinnacle Harbor Capital Partners, LP — as the record and beneficial holder of the shares;
2. Pinnacle Harbor Capital Management, LLC — as the general partner of PHCP and, in that capacity, as a beneficial owner of the shares held by PHCP; and
3. Viktor S. Kessler — as the controlling person of Pinnacle Harbor Capital Management, LLC and, in that capacity, as a beneficial owner of the shares held by PHCP.
The decision to file a Schedule 13D rather than a Schedule 13G is itself significant. Schedule 13G is available to investors who hold shares passively and without an intent to change or influence the control of the issuer. By filing a Schedule 13D, Pinnacle Harbor has formally indicated its activist intent — that is, its intention to seek to change or influence the management, policies, or control of the Company. This filing choice is consistent with the demands articulated in the October 28, 2022 private letter and confirms that Pinnacle Harbor views this as an active engagement campaign rather than a passive investment.
B. Stated Purpose and Plans
Item 4 of the Schedule 13D sets forth the purpose of the transaction and the plans or proposals of the reporting persons. The filing states that Pinnacle Harbor acquired the shares "for investment purposes and with the intention of engaging the Board of Directors and management of the Issuer regarding corporate governance, strategic direction, and capital allocation." Specifically, the filing references the following objectives:
(a) Seeking representation on the Board of Directors of the Company;
(b) Pursuing a comprehensive strategic review of the Company's interactive gaming division, including an evaluation of strategic alternatives such as a potential sale, spin-off, or joint venture; and
(c) Exploring enhanced capital return to shareholders, including through a special dividend or accelerated share repurchase program.
The filing further states that Pinnacle Harbor reserves the right to acquire additional shares of common stock, dispose of shares, communicate with the Company's management and Board of Directors, communicate with other shareholders of the Company, take any other actions with respect to the Company's securities, and pursue any other actions consistent with the fund's investment objectives. This language is broadly worded and is standard in activist 13D filings, but its breadth should be noted because it preserves maximum flexibility for Pinnacle Harbor to escalate its campaign, acquire additional shares, or pursue alternative strategies (including, potentially, a solicitation of written consents or other extraordinary actions) without the need to amend the filing.
Notably, the filing does not disclose the specific identities of Pinnacle Harbor's proposed board nominees, nor does it set forth a definitive plan to conduct a proxy contest. This is consistent with standard activist practice at the early stages of a campaign, as the formal nomination of director candidates typically occurs later, within the advance-notice window specified by the target company's bylaws. The absence of specific nominee identification in the 13D does not diminish the seriousness of the campaign; rather, it reflects Pinnacle Harbor's intention to preserve tactical flexibility regarding the timing and manner of any formal nomination.
C. Preliminary Compliance Observations
Calderwood & Harkness is conducting a detailed compliance review of Pinnacle Harbor's Schedule 13D filing under Sections 13(d) and 14(a) of the Exchange Act and the rules promulgated thereunder. This detailed review will be delivered in a separate memorandum. However, our preliminary observations are as follows:
Filing Timeliness. Under Section 13(d)(1) of the Exchange Act and Rule 13d-1 thereunder, any person who acquires beneficial ownership of more than 5% of a class of equity securities registered under Section 12 of the Exchange Act is required to file a Schedule 13D within ten calendar days of crossing the 5% threshold. Based on the information disclosed in the filing, Pinnacle Harbor appears to have made its filing within the required ten-day window. We are conducting a detailed analysis of the acquisition dates and volumes disclosed in the filing to confirm compliance with this requirement. If a timeliness deficiency is identified, it could provide the Company with a basis for challenging the filing or seeking relief from the SEC, although such deficiencies are rarely dispositive in activist campaigns.
Group Formation Analysis. The Schedule 13D identifies PHCP, PHCM, and Kessler as members of the reporting group under Rule 13d-5 of the Exchange Act. No additional group members are disclosed. We are analyzing whether Nadia Johar (as Head of Activism and a key participant in the campaign) or either of the proposed board nominees (Dr. Sandra Trevelyan and Hugh Desmond Grayson) should be included as members of the reporting group. Under Rule 13d-5, a "group" is formed when two or more persons agree to act together for the purpose of acquiring, holding, voting, or disposing of equity securities of an issuer. If Johar or the nominees have entered into agreements or understandings with Pinnacle Harbor regarding the acquisition or voting of RGC shares, their inclusion in the reporting group may be required, and any failure to include them could constitute a material misstatement or omission in the filing. This analysis is ongoing and will be addressed in our forthcoming compliance memorandum.
We also note that any amendment to the Schedule 13D — whether to disclose additional share acquisitions, changes in plans or proposals, or the identification of board nominees — will be subject to our ongoing monitoring and review.
V. Analysis of the October 28, 2022 Private Demand Letter
A. Content Summary
On October 28, 2022, Pinnacle Harbor sent a private letter to Board Chair Diane K. Sheridan at the Company's principal office. The letter was received before the public filing of the Schedule 13D on November 10, 2022, and before any public disclosure of Pinnacle Harbor's stake or intentions. The letter bore the signature of Viktor S. Kessler, Managing Partner and Chief Investment Officer of Pinnacle Harbor Capital Partners, LP.
The letter outlined three principal demands, which correspond to the purposes and plans disclosed in the subsequent Schedule 13D filing:
1. Board Representation. Pinnacle Harbor demanded the appointment of two Pinnacle Harbor-designated nominees to the RGC Board of Directors. The letter did not identify the specific nominees by name but stated that Pinnacle Harbor intended to nominate individuals with "deep expertise in interactive gaming, digital entertainment, and financial strategy" who would "enhance the Board's ability to oversee the Company's transformation and value-creation opportunities." As discussed in Section VI below, we understand from subsequent communications that the proposed nominees are Dr. Sandra Trevelyan and Hugh Desmond Grayson.
2. Strategic Review of Interactive Gaming Division. Pinnacle Harbor demanded the formal engagement of independent financial advisors to evaluate strategic alternatives for the Company's interactive gaming segment. The letter specifically referenced the possibility of a sale, spin-off, or joint venture involving the interactive gaming division, and argued that the division was "significantly undervalued" within the Company's existing corporate structure. The letter cited what it characterized as a "substantial valuation discount" relative to publicly traded pure-play interactive gaming companies, although it did not provide a detailed valuation analysis.
3. Capital Return. Pinnacle Harbor demanded the return of $300 million to shareholders through either a special dividend or an accelerated share repurchase program. The letter characterized the Company's current capital allocation as "inadequately disciplined" and argued that the Company was "over-retaining" cash flow that could be more productively deployed through direct returns to shareholders. The letter stated that the proposed $300 million return could be funded through a combination of available cash and incremental borrowing capacity without materially impairing the Company's balance sheet or operational flexibility.
In addition to these three principal demands, the letter expressed broader dissatisfaction with several aspects of the Company's governance and strategy. Specifically, the letter asserted that: (i) the interactive gaming segment was undervalued due to a lack of dedicated management focus and insufficient capital investment; (ii) the Company's capital allocation discipline was inadequate, with excessive capital being retained for low-return reinvestment rather than being returned to shareholders; and (iii) the Board's current composition lacked sufficient expertise in digital and interactive entertainment, which Pinnacle Harbor characterized as the fastest-growing segment of the gaming industry and a critical driver of future value creation.
The letter concluded by stating that Pinnacle Harbor was prepared to take "all available steps" to ensure that its views were appropriately reflected at the Board level, including but not limited to the nomination of directors for election at the Company's 2023 annual meeting of stockholders and the solicitation of proxies in support of such nominees. The letter requested a meeting between Kessler and CEO Gerald R. Whitmore and Board Chair Sheridan within thirty (30) days of the date of the letter — that is, by approximately November 27, 2022.
B. Tone and Implications
The tone of the October 28 letter was assertive but professionally couched. The letter was not overtly hostile or confrontational; it did not personally criticize any individual director or officer, nor did it employ the type of inflammatory rhetoric that sometimes characterizes aggressive activist campaigns. Rather, the letter framed its demands as constructive proposals designed to enhance shareholder value, and it expressed a preference for "collaborative engagement" and a "productive dialogue" with the Board and management.
However, the substance of the letter leaves little room for ambiguity regarding Pinnacle Harbor's seriousness of purpose. The explicit reference to "all available steps," including director nominations and proxy solicitation, constitutes a clear threat of a contested election, and the thirty-day meeting request creates an implicit deadline for the Board's initial response. As of the date of this memorandum, approximately twenty days of the thirty-day period have elapsed, and the Board should plan to respond by approximately November 25, 2022 (as discussed in Section X below).
The sequencing of the private letter and the public 13D filing is also noteworthy. The private letter was sent on October 28, 2022, and the Schedule 13D was filed on November 10, 2022 — only thirteen (13) days after the private letter, and well before the expiration of the thirty-day private engagement period requested in the letter. This sequencing is a common element of the activist playbook: by sending a private letter first, the activist establishes a record of good-faith engagement attempt, which can be cited in subsequent public communications and proxy materials as evidence that the activist sought a constructive dialogue before escalating publicly. The fact that the public filing was made before the private engagement period elapsed suggests that Pinnacle Harbor intended from the outset to pursue a public campaign and used the private letter primarily to establish a favorable narrative record. The Board should anticipate that Pinnacle Harbor will reference the private letter in its public materials and characterize any delay or perceived non-responsiveness by the Board as evidence of entrenchment or unwillingness to engage.
VI. Pinnacle Harbor's Board Nominees
Although Pinnacle Harbor has not yet submitted a formal nomination notice under the Company's advance-notice bylaws, our understanding — based on the October 28 demand letter and subsequent informal communications — is that Pinnacle Harbor intends to nominate the following two individuals for election to the RGC Board of Directors at the Company's 2023 annual meeting:
A. Dr. Sandra Trevelyan
Dr. Sandra Trevelyan is 55 years of age. She previously served as Chief Operating Officer of Meridian Interactive Holdings, Inc., a Nevada corporation engaged in the development and operation of interactive and online gaming platforms. In that role, Dr. Trevelyan was responsible for overseeing the day-to-day operations of the company's interactive gaming platforms, including technology development, product management, and regulatory compliance. She currently operates as an independent gaming consultant, advising companies in the interactive gaming and digital entertainment sectors on strategy, technology, and regulatory matters.
Dr. Trevelyan's professional credentials appear specifically oriented toward supporting Pinnacle Harbor's argument that the current RGC Board lacks sufficient expertise in interactive gaming and digital entertainment. Her background as a former senior executive at an interactive gaming company would lend credibility to Pinnacle Harbor's narrative that the Board needs to add digital and interactive expertise in order to adequately oversee the Company's interactive gaming division and capitalize on growth opportunities in the sector.
We note that a full background investigation and independence analysis under the applicable Nasdaq Stock Market listing standards has not yet been completed with respect to Dr. Trevelyan. This analysis, along with an evaluation of gaming regulatory licensing requirements applicable to individuals serving on the boards of gaming companies, will be addressed in a forthcoming memorandum upon receipt of a formal nomination notice.
B. Hugh Desmond Grayson
Hugh Desmond Grayson is 61 years of age. He previously served as Chief Financial Officer of Atlas Leisure Group, Inc., a Delaware corporation operating in the hospitality and leisure sector. In that role, Mr. Grayson was responsible for the company's financial strategy, capital allocation, treasury functions, and investor relations. He currently serves as a director of two private hospitality companies, the identities of which have not yet been publicly disclosed.
Mr. Grayson's financial and operational background in the hospitality and leisure sector aligns with the capital allocation and strategic review themes of Pinnacle Harbor's campaign. His experience as a former CFO of a hospitality company positions him to contribute to discussions regarding capital structure, dividend policy, share repurchase programs, and strategic alternatives — all of which are central to Pinnacle Harbor's stated demands.
As with Dr. Trevelyan, a full background investigation, independence analysis under applicable Nasdaq listing standards, and gaming regulatory licensing review will be conducted with respect to Mr. Grayson and addressed in a forthcoming memorandum.
C. Preliminary Observations on Nominees
Several preliminary observations are warranted regarding Pinnacle Harbor's proposed nominees:
First, both nominees have sector-relevant backgrounds that strengthen Pinnacle Harbor's narrative with institutional shareholders and proxy advisory firms. Dr. Trevelyan's interactive gaming expertise directly supports the argument that the Board lacks digital/interactive competency, while Mr. Grayson's financial and strategic experience in the hospitality/leisure sector supports the argument that the Board would benefit from fresh perspectives on capital allocation and strategic alternatives. The selection of credentialed, industry-relevant nominees — as opposed to purely financial or governance-oriented nominees — is a hallmark of a sophisticated activist campaign and increases the likelihood that institutional shareholders and proxy advisory firms will view the nominees favorably.
Second, Pinnacle Harbor has not yet submitted a formal nomination notice under the advance-notice provisions of the Company's Amended and Restated Bylaws. Under Article II, Section 2.11 of the Bylaws (last amended September 12, 2021), stockholder nominations of persons for election to the Board of Directors must be made in compliance with specified procedural and informational requirements and must be received by the Corporate Secretary within the advance-notice window. Based on the anticipated May 11, 2023 anniversary of the Company's 2022 annual meeting of stockholders, the advance-notice window opens on December 12, 2022 (150 days before the anniversary date) and closes on January 11, 2023 (120 days before the anniversary date). Any nomination notice received outside this window, or that fails to comply with the substantive requirements of Section 2.11, may be subject to challenge. Calderwood & Harkness will prepare a detailed advance-notice compliance analysis framework in advance of the December 12, 2022 window opening, and will promptly review any nomination notice received from Pinnacle Harbor for compliance with the Bylaw requirements.
Third, as discussed in the risk assessment section below, any new Board nominees in the gaming industry would need to satisfy gaming regulatory licensing and suitability requirements in the jurisdictions in which RGC holds gaming licenses. This regulatory overlay adds complexity and potential delay to Pinnacle Harbor's plans, and the Board should consider whether gaming licensing requirements may be leveraged as part of its defensive strategy.
VII. RGC Board Composition and Governance Structure
A. Current Board Composition
The RGC Board of Directors currently consists of nine (9) directors, of whom seven (7) are independent under applicable Nasdaq listing standards and two (2) are members of Company management. The current directors and their committee assignments are as follows:
The Board maintains a strong majority of independent directors (seven of nine), and the positions of Board Chair and Chief Executive Officer are separated, with Board Chair Sheridan serving in an independent, non-executive capacity. These governance characteristics are generally viewed favorably by institutional investors and proxy advisory firms, and they provide a degree of insulation against governance-related criticisms by activists. However, Pinnacle Harbor's critique is not primarily governance-structural; rather, it focuses on the Board's perceived lack of specific sector expertise (interactive gaming) and its alleged failure to pursue value-maximizing strategic and capital allocation decisions.
B. Special Committee
On November 14, 2022, the Board adopted a resolution forming a Special Committee to oversee the Board's response to the Pinnacle Harbor activist campaign. The Special Committee is composed of three independent directors:
• Jim Delacroix, Chair — also serves on the Audit Committee
• Carmen Vasquez — also serves on the Governance Committee
• Randall Morse — also serves on the Compensation Committee
The Special Committee has been authorized to oversee all aspects of the Company's defensive response to the Pinnacle Harbor campaign, including the engagement of outside counsel, financial advisors, proxy solicitors, and investor relations advisors. The Special Committee is empowered to direct the Company's engagement strategy, authorize communications with Pinnacle Harbor and other shareholders, and make recommendations to the full Board regarding defensive measures, settlement terms, and other strategic decisions.
The formation of a Special Committee composed exclusively of independent directors is an important structural safeguard. It provides a mechanism for the Board to deliberate and act on the activist campaign through a committee that is insulated from the potential conflicts of interest that may arise for the management directors (CEO Whitmore and CFO Choi), whose positions and strategic decisions are implicitly under scrutiny in the campaign. The Special Committee structure also enhances the Board's credibility with institutional shareholders and, if necessary, with the Delaware courts in the event of litigation, by demonstrating that the Board's response is being overseen by disinterested and independent directors acting in good faith and on an informed basis.
C. Corporate Governance Documents
The Company's governance framework is established by the following foundational documents:
• Amended and Restated Certificate of Incorporation, filed with the Delaware Secretary of State (file number 5734821);
• Amended and Restated Bylaws, last amended September 12, 2021.
Calderwood & Harkness is conducting a comprehensive review of these governance documents to identify all provisions relevant to the Company's defensive posture, including but not limited to: the advance-notice provisions for stockholder nominations and proposals (Article II, Section 2.11); the Board's authority to fill vacancies and newly created directorships; any supermajority voting requirements applicable to amendments of the certificate of incorporation or bylaws; the exclusive forum provision (if any) for intra-corporate disputes; and any other provisions that may affect the Company's ability to defend against a contested election or implement defensive measures.
A detailed bylaw and charter defensive review memorandum is targeted for delivery by December 5, 2022. This memorandum will include an analysis of potential bylaw amendments that could be adopted to strengthen the Company's defenses under Delaware law, consistent with the fiduciary duties of the Board.
VIII. Key Institutional Shareholder Landscape
A. Major Holders
The identity, investment philosophy, and likely posture of the Company's major institutional shareholders will be critical in any contested election. The following is a summary of the most significant disclosed holders, based on publicly available filings and information available to Calderwood & Harkness as of the date of this memorandum:
Ridgeway Asset Management, LP — 8.2% (8,585,400 shares). Ridgeway is a long-only value-oriented investment fund based in Boston, Massachusetts. The principal contact is Franklin Osei, Portfolio Manager. As the largest disclosed holder of RGC common stock, Ridgeway's support or opposition in any proxy contest will be critical. Ridgeway's investment philosophy — long-only, value-oriented — suggests that the fund is likely focused on long-term value creation and may be skeptical of activist demands that prioritize near-term capital returns over sustained investment in growth. However, if Pinnacle Harbor presents a compelling case that the Company's current strategy is destroying value or that the Board lacks the expertise to execute effectively, Ridgeway could be persuaded to support one or more of Pinnacle Harbor's demands. Early engagement with Ridgeway should be a priority.
Pinnacle Harbor Capital Partners, LP — 6.8% (7,119,600 shares). As the activist proponent, Pinnacle Harbor will vote its shares in support of its own nominees and proposals.
Stillwater Capital Advisors, LLC — 5.4% (5,653,800 shares). Stillwater is a growth-oriented investment fund based in Chicago, Illinois. The principal contact is Margaret "Meg" Liu, Head of Governance. Stillwater's governance-focused approach may make it receptive to some of Pinnacle Harbor's arguments, particularly regarding board composition and the need for interactive gaming expertise. Growth-oriented funds with active governance programs often evaluate activist proposals on a case-by-case basis and may be inclined to support demands for board refreshment or strategic review if the activist presents a credible case. Engagement with Stillwater should be approached with an awareness that this holder may be sympathetic to certain elements of Pinnacle Harbor's platform.
Canfield Municipal Employees' Retirement System — 2.1% (2,198,700 shares). Canfield MERS is a public pension fund based in Canfield, Ohio. The principal contact is David Proulx, Chief Investment Officer. As a public pension fund, Canfield MERS tends to follow the voting recommendations of the major proxy advisory firms (Centurion Governance Services and Hartley Shareholder Advisory Group). Accordingly, Canfield MERS's vote in any contested election will likely be determined by the recommendations of these advisory firms rather than by independent engagement with the Company or Pinnacle Harbor. This makes the Company's engagement with the proxy advisory firms an indirect but important factor in securing Canfield MERS's support.
B. Proxy Advisory Firms
Two proxy advisory firms are relevant to the RGC proxy contest analysis:
Centurion Governance Services, Inc. Centurion is one of the two leading proxy advisory firms whose voting recommendations are followed by a significant proportion of institutional shareholders, including public pension funds, index funds, and other passive investors. In the event that a contested election proceeds, Centurion's recommendation — whether to support the Company's slate, the activist's slate, or a combination — would significantly influence institutional voting. Centurion's policies generally favor contested situations where the activist presents a credible case for board refreshment or strategic change, but the firm evaluates each situation on its specific facts and considers the strength of the Company's response.
Hartley Shareholder Advisory Group, LLC. Hartley is the second leading proxy advisory firm, with a somewhat different but overlapping client base. Like Centurion, Hartley's recommendation would carry significant weight with institutional voters. Hartley's policies similarly favor activist proposals where the case for change is well-supported, but the firm also considers the potential disruption and risk associated with contested elections.
No recommendations from either advisory firm are pending at this time, as a proxy contest has not yet been formally initiated. However, the Company's engagement strategy should include proactive outreach to both Centurion and Hartley to ensure that the advisory firms understand the Company's strategic direction, governance practices, and response to Pinnacle Harbor's demands. Whitfield Morrow Partners and Harlan Ridge Communications will coordinate this outreach as part of the shareholder engagement strategy discussed in Section X below.
C. Voting Arithmetic Considerations
In a contested election at the 2023 annual meeting of stockholders, the fundamental question will be whether Pinnacle Harbor can assemble a coalition of shareholders sufficient to elect its nominees over the Company's management slate. Several arithmetic observations are relevant:
• Pinnacle Harbor's 6.8% stake alone is insufficient to prevail in a contested election. The fund will need to attract support from a meaningful coalition of other shareholders — including, potentially, one or more of the major institutional holders discussed above.
• The combined institutional ownership of Ridgeway (8.2%), Stillwater (5.4%), and Canfield MERS (2.1%) totals approximately 15.7% of outstanding shares. Together with Pinnacle Harbor's 6.8% stake, the top four disclosed holders collectively hold approximately 22.5% of outstanding shares.
• The remaining approximately 77.5% of outstanding shares are held by a diverse group of institutional and retail shareholders, many of whom will look to the proxy advisory firms for voting guidance. The Company's ability to communicate its value-creation narrative effectively to this broader shareholder base will be critical.
• Turnout and engagement levels at the annual meeting will also affect the outcome. In contested elections, voter turnout tends to be higher than in uncontested elections, as both sides actively solicit proxies. However, the incremental turnout may not be uniformly distributed; retail shareholders, who tend to have lower participation rates, may be more difficult for both sides to reach.
Marcus Leung is preparing a detailed shareholder ownership and voting power analysis, which will be provided to the Special Committee and the Board in spreadsheet format as soon as it is completed. This analysis will include a comprehensive breakdown of institutional and retail ownership, an estimate of shares likely to be voted in a contested election, and scenario modeling under various assumptions regarding shareholder support for each side.
IX. Advisory Team and Coordination
The Company has assembled a team of experienced advisors to support its response to the Pinnacle Harbor campaign. Effective coordination among these advisors will be essential to the success of the Company's defensive strategy. The advisory team and their respective roles are set forth below.
A. Calderwood & Harkness LLP — Outside Counsel
Calderwood & Harkness LLP was engaged as outside counsel on November 15, 2022. The engagement letter was executed on the same date and is on file with the Company's General Counsel.
The Calderwood & Harkness team is based primarily at the firm's Las Vegas office, located at 3960 Howard Hughes Parkway, Suite 1400, Las Vegas, NV 89169. Delaware corporate law matters will be supported by attorneys in the firm's Wilmington, Delaware office, located at 1200 Market Street, Suite 3100, Wilmington, DE 19801.
Calderwood & Harkness's scope of engagement includes: legal analysis and strategic advice regarding the activist campaign; review and analysis of Pinnacle Harbor's SEC filings, communications, and nominations; review of the Company's governance documents and defensive provisions; preparation of Board and Special Committee materials; drafting of correspondence and public communications; advice regarding proxy contest mechanics, Delaware fiduciary duty considerations, and gaming regulatory implications; and coordination with the Company's other advisors.
B. Calloway Pinnacle Trust Bank — Financial Advisor
Calloway Pinnacle Trust Bank has been engaged as the Company's financial advisor in connection with the activist defense. The lead contact is Thomas V. Ashford, Managing Director, Activism & Corporate Defense, based at the firm's office at 200 Park Avenue, 28th Floor, New York, NY 10166.
Calloway Wainwright's role includes: providing financial advisory support for the Company's defense strategy; preparing Board presentation materials analyzing the Company's strategic plan, capital allocation, and valuation; conducting shareholder analysis and modeling; and, if required, performing valuation work with respect to the interactive gaming division to support the Company's defense of its current strategy and to counter Pinnacle Harbor's undervaluation thesis. Calloway Wainwright's sector expertise in gaming and hospitality will be a significant asset in developing a credible and data-driven defense.
C. Whitfield Morrow Partners, LLC — Proxy Solicitor
Whitfield Morrow Partners, LLC has been engaged as the Company's proxy solicitor. The lead contact is Denise Cavanaugh, Senior Vice President, based at the firm's office at 501 Madison Avenue, 14th Floor, New York, NY 10022.
Whitfield Morrow's role includes: proxy solicitation services in the event of a contested election at the 2023 annual meeting; shareholder identification and sentiment analysis; development and execution of a shareholder outreach strategy; and coordination with the proxy advisory firms Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC. Whitfield Morrow will work closely with the Company's investor relations team and with Harlan Ridge Communications to ensure consistent and coordinated messaging to all shareholder audiences.
D. Harlan Ridge Communications, LLC — Investor Relations Advisor
Harlan Ridge Communications, LLC has been engaged as the Company's investor relations and communications advisor. The lead contact is Philip Navarette, Partner, based at the firm's office at 712 Fifth Avenue, Suite 900, New York, NY 10019.
Harlan Ridge's role includes: development and execution of the Company's investor communications strategy; messaging development for shareholder and media audiences; media relations and monitoring; and coordination of the Company's public-facing response to Pinnacle Harbor's campaign. Harlan Ridge will work in close coordination with Calderwood & Harkness to ensure that all public communications are consistent with the Company's legal strategy and comply with applicable SEC rules regarding proxy solicitations.
E. D&O Insurance Notice
On November 16, 2022, the Company submitted a notice of circumstances to its directors' and officers' liability insurance carriers in connection with the Pinnacle Harbor activist campaign. The notice was submitted through the Company's insurance broker, Glenmore Caulfield Insurance Brokers, Inc. (Sarah Voss, Senior Vice President), to the following carriers:
• Primary D&O Carrier: Northbridge Indemnity Company, Policy No. NBI-DOP-1025-00008, $15 million limit of liability, $500,000 retention.
• First Excess D&O Carrier: Creston National Insurance Co., Policy No. CNI-XS-2022-31004, $10 million excess of $15 million.
The timely submission of a notice of circumstances is an important step in preserving the Company's and its directors' and officers' rights under the D&O insurance program. The notice was submitted on an informational basis and does not constitute a claim at this time. Calderwood & Harkness will prepare a detailed coverage analysis, including a review of the relevant policy terms, conditions, and exclusions, and will provide this analysis in a separate memorandum.
X. Preliminary Defensive Strategy Recommendations
Based on our initial assessment, we recommend the following defensive strategy, organized into three phases: immediate actions (completed or underway), near-term actions (to be completed within the next 30 days), and medium-term strategic considerations.
A. Immediate Actions (Completed or Underway)
The following actions have been completed or are currently underway:
1. Engagement of Advisors. Calderwood & Harkness LLP (outside counsel), Calloway Pinnacle Trust Bank (financial advisor), Whitfield Morrow Partners, LLC (proxy solicitor), and Harlan Ridge Communications, LLC (investor relations advisor) have been engaged. All engagements were completed between November 14 and November 15, 2022. Each advisor has been briefed on the situation and has commenced initial work.
2. Special Committee Formation. The Special Committee of the Board, consisting of independent directors Jim Delacroix (Chair), Carmen Vasquez, and Randall Morse, was formed by Board resolution on November 14, 2022. The Special Committee has been authorized to oversee all aspects of the Company's response to the Pinnacle Harbor campaign.
3. D&O Notice of Circumstances. A notice of circumstances was submitted to Northbridge Indemnity Company and Creston National Insurance Co. on November 16, 2022, through the Company's insurance broker, Glenmore Caulfield Insurance Brokers, Inc.
4. Schedule 13D Review. An initial review of Pinnacle Harbor's Schedule 13D filing has been completed. A detailed compliance analysis, including group formation analysis and timeliness review, is in progress and will be delivered in a separate memorandum.
5. Bylaw and Charter Review. A comprehensive review of the Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws is in progress. Completion of the initial review is targeted for November 22, 2022. A full defensive review memorandum, including identification of potential bylaw amendments, is targeted for delivery by December 5, 2022.
B. Near-Term Actions (Next 30 Days)
The following actions should be prioritized over the next 30 days:
1. Response to October 28 Demand Letter. We recommend that the Board authorize the preparation and delivery of a written response from Board Chair Diane K. Sheridan to Viktor S. Kessler, acknowledging receipt of the October 28 demand letter, expressing the Board's willingness to engage constructively with Pinnacle Harbor, and defending the Board's strategic direction and governance practices. The response should be carefully drafted to avoid concessions while projecting a tone of openness and good faith. The letter should not foreclose the possibility of future engagement or settlement discussions, but it should make clear that the Board has confidence in its current strategy and governance and will not accede to demands made under the implicit threat of a proxy contest. Calderwood & Harkness will prepare a draft of this letter for the Special Committee's review. We recommend targeting delivery by approximately November 25, 2022, which would fall within the 30-day meeting request period set forth in the demand letter.
2. Bylaw and Charter Defensive Review. Calderwood & Harkness will complete a comprehensive analysis of all defensive provisions in the Company's governing documents, including the advance-notice provisions (Article II, Section 2.11), the Board's authority to fill vacancies and newly created directorships, any supermajority voting requirements, the exclusive forum provision, and any other provisions relevant to the Company's defensive posture. This analysis will also identify potential bylaw amendments that could be adopted by the Board to strengthen the Company's defenses under Delaware law, taking into account applicable fiduciary duty standards and the perspectives of institutional shareholders and proxy advisory firms. The defensive review memorandum is targeted for delivery by December 5, 2022.
3. Advance-Notice Window Preparation. The advance-notice window under Article II, Section 2.11 of the Bylaws opens on December 12, 2022, and closes on January 11, 2023. Calderwood & Harkness will prepare a compliance analysis framework in advance of the window opening so that any nomination notice received from Pinnacle Harbor can be promptly evaluated for compliance with the substantive and procedural requirements of the Bylaws. This preparation will include a checklist of required disclosures, a template deficiency letter, and an analysis of the Board's options in the event that a nomination notice is deficient.
4. Stockholder Rights Plan ("Poison Pill") Analysis. Calderwood & Harkness will prepare an analysis of whether the Board should consider adopting a limited-duration stockholder rights plan as a defensive measure. This analysis will address the fiduciary duty implications under Delaware law (including the standards established by the Delaware Court of Chancery and the Delaware Supreme Court), the perspectives of the proxy advisory firms (both Centurion Governance Services and Hartley Shareholder Advisory Group have published policies on rights plans), the potential strategic risks and benefits of adoption, and the appropriate terms and duration of any plan. While a rights plan would not directly prevent a proxy contest, it could serve as a deterrent against rapid share accumulation by Pinnacle Harbor or the formation of undisclosed shareholder groups, and it could provide the Board with additional negotiating leverage. This analysis is targeted for presentation to the Special Committee and the Board by mid-to-late December 2022.
5. Shareholder Outreach Strategy. Calderwood & Harkness, in coordination with Whitfield Morrow Partners and Harlan Ridge Communications, will develop a comprehensive shareholder engagement strategy focused on the Company's key institutional holders, including Ridgeway Asset Management, Stillwater Capital Advisors, and Canfield Municipal Employees' Retirement System. This strategy will include a messaging framework, talking points, and a schedule of engagement calls and meetings. The goal of the outreach is to communicate the Company's strategic vision, defend its governance practices and capital allocation decisions, and build shareholder support in advance of any contested election. The shareholder outreach strategy will also include a plan for proactive engagement with the proxy advisory firms.
6. Nominee Due Diligence. Upon receipt of a formal nomination notice from Pinnacle Harbor, Calderwood & Harkness will coordinate with appropriate investigative resources to conduct a thorough background investigation of each proposed nominee, including Dr. Sandra Trevelyan and Hugh Desmond Grayson. The due diligence will include analysis of each nominee's independence under Nasdaq listing standards, evaluation of any relationships or arrangements with Pinnacle Harbor or its affiliates, assessment of gaming regulatory licensing requirements and suitability determinations in the jurisdictions in which RGC holds gaming licenses, and identification of any disqualifying factors or potential vulnerabilities.
C. Medium-Term Strategic Considerations
Beyond the immediate and near-term actions described above, the Board should begin to consider the following medium-term strategic issues:
1. Interactive Gaming Division Valuation and Strategic Positioning. A core element of Pinnacle Harbor's investment thesis is the assertion that the Company's interactive gaming division is "significantly undervalued" within the Company's existing corporate structure. To counter this argument, the Company will need to develop a robust and data-driven defense of its current strategy for the interactive gaming division. Calderwood & Harkness will coordinate with Calloway Wainwright to prepare materials demonstrating the embedded value of the interactive gaming division, its growth trajectory, and the strategic rationale for maintaining the division within the Company's integrated operating platform. This analysis should include comparable company and comparable transaction analyses, discounted cash flow and sum-of-the-parts valuations, and a narrative framework explaining why the current structure maximizes long-term shareholder value. The interactive gaming division generated $412 million in revenue in fiscal year 2021, representing approximately 14.4% of total Company revenue, and is expected to continue growing as the interactive gaming market expands. The Company's defense should emphasize the strategic synergies between the interactive gaming division and the Company's traditional land-based gaming operations, the competitive advantages of an integrated platform, and the risks and costs associated with a separation transaction.
2. Capital Allocation Defense. Pinnacle Harbor's demand for the return of $300 million to shareholders through a special dividend or accelerated share repurchase program directly challenges the Company's capital allocation policy. The Board should be prepared to defend its current approach, including its 1.8% dividend yield, its existing share repurchase programs, and its reinvestment in growth initiatives. Calloway Wainwright should prepare a Board-level analysis demonstrating the return on invested capital achieved by the Company's growth i

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM

Record

Parties

Dates

Amounts