PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
MEMORANDUM
January 18, 2023
Date: January 18, 2023
To: Special Committee of the Board of Directors of Redstone Gaming Corp.
James "Jim" Delacroix (Chair) Carmen Vasquez Randall Morse
From: Douglas Fairchild, Engagement Partner Claire Dempsey, Lead Associate
Re: Proxy Contest Readiness and Defense Strategy — Pinnacle Harbor Capital Partners, LP Activist Campaign
Matter No.: 1033-00003
This memorandum is a privileged and confidential attorney-client communication and constitutes attorney work product prepared in anticipation of litigation and/or contested proxy solicitation. This document should not be disclosed to any person outside the Special Committee, the Company's Board of Directors, and authorized advisors without the prior written consent of Calderwood & Harkness LLP. Disclosure to third parties may waive applicable privileges.
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I. Executive Summary
This memorandum provides the Special Committee of the Board of Directors of Redstone Gaming Corp. ("RGC" or the "Company") with a comprehensive assessment of the Company's readiness to defend against a potential contested proxy solicitation by Pinnacle Harbor Capital Partners, LP ("Pinnacle Harbor" or the "Activist") at the Company's 2023 Annual Meeting of Stockholders (the "2023 Annual Meeting"). This memorandum is intended to serve as the Special Committee's primary strategic reference document as it evaluates the Company's defensive posture and considers the range of available responses to Pinnacle Harbor's activist campaign.
As of the date of this memorandum, Pinnacle Harbor holds 7,119,600 shares of RGC common stock, representing approximately 6.8% of the Company's 104,700,000 shares outstanding. Pinnacle Harbor has nominated two director candidates — Dr. Sandra Trevelyan and Hugh Desmond Grayson — for election to the Board at the 2023 Annual Meeting. The nomination notice was received by the Company on January 9, 2023, two days before the close of the advance-notice window on January 11, 2023, and was timely submitted within the advance-notice period of December 12, 2022 through January 11, 2023, as prescribed by Article II, Section 2.11 of the Company's Amended & Restated Bylaws. Pinnacle Harbor filed an amended Schedule 13D with the Securities and Exchange Commission (the "SEC") on January 6, 2023, explicitly referencing its intention to conduct a proxy contest if its demands are not met through private negotiation.
Pinnacle Harbor's stated demands are threefold:
1. Board Representation. Appointment of its two director nominees — Dr. Sandra Trevelyan (age 55, former Chief Operating Officer of Meridian Interactive Holdings, Inc.) and Hugh Desmond Grayson (age 61, former Chief Financial Officer of Atlas Leisure Group, Inc.) — to the Board of Directors.
2. Strategic Review of Interactive Gaming Division. A formal strategic review of the Company's interactive gaming segment, including evaluation of a potential sale, spin-off, or other separation transaction. The interactive gaming division generated revenue of $412 million in fiscal year 2021, representing approximately 14.4% of the Company's total revenue of $2.87 billion.
3. Capital Return. Return of $300 million to shareholders through a special dividend, an accelerated share repurchase program, or a combination thereof.
This memorandum outlines and analyzes the following elements of the Company's defense strategy:
(a) The timeline and procedural milestones leading to the 2023 Annual Meeting;
(b) The engagement and coordination of the Company's advisory team;
(c) An analysis of the Company's shareholder base and the voting landscape;
(d) A shareholder outreach and engagement plan;
(e) A messaging framework for defending the Company's position in both private and public communications;
(f) A strategy for engaging the leading proxy advisory firms — Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC;
(g) An operational readiness checklist spanning legal, financial, proxy solicitation, and communications workstreams;
(h) A risk assessment evaluating the key factors that may influence the outcome of a contested election; and
(i) Specific recommendations for immediate, medium-term, and pre-meeting actions.
This memorandum builds upon, and should be read in conjunction with, the following prior deliverables from Calderwood & Harkness:
• Initial Situational Assessment Memorandum (delivered November 18, 2022), which provided an overview of Pinnacle Harbor's Schedule 13D filing, its investment thesis, and a preliminary assessment of RGC's defensive posture.
• Bylaw and Charter Defensive Review Memorandum (delivered December 5, 2022), which analyzed the Company's Amended & Restated Certificate of Incorporation and Amended & Restated Bylaws, including advance-notice provisions, director qualification requirements, and other structural defenses.
• Advance-Notice Compliance Analysis (delivered December 14, 2022), which confirmed that Pinnacle Harbor's formal notice of intent to nominate directors, received December 8, 2022 via counsel, was procedurally proper, and identified the timeline for submission of the nomination notice itself.
• Poison Pill Analysis (delivered December 19, 2022), which evaluated the advisability of adopting a limited-duration stockholder rights plan. The Board, upon advice of this firm and Calloway Pinnacle Trust Bank, declined adoption at that time.
• Nominee Qualification and Deficiency Review (delivered January 13, 2023), which analyzed the qualifications, backgrounds, and potential regulatory and governance concerns associated with Pinnacle Harbor's two director nominees.
The balance of this memorandum sets forth our detailed analysis and recommendations.
II. Background and Current Status of the Campaign
A. Summary of Pinnacle Harbor's Accumulation and Disclosure
Pinnacle Harbor Capital Partners, LP is a Delaware limited partnership. Its general partner is Pinnacle Harbor Capital Management, LLC, a Delaware limited liability company. Pinnacle Harbor is an event-driven and activist-oriented hedge fund founded in 2014, with assets under management of approximately $4.2 billion as of its most recent investor communications. The fund focuses primarily on mid-cap companies in the gaming, hospitality, and consumer-discretionary sectors, and has a track record of activist engagements in these industries, including campaigns at two publicly traded gaming companies in 2019 and 2021 (both of which resulted in negotiated settlements granting board representation).
The fund's Managing Partner and Chief Investment Officer is Viktor S. Kessler (age 47). Its Head of Activism and Portfolio Manager overseeing the RGC position is Nadia Johar (age 39). Both individuals are based at the fund's principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022.
Pinnacle Harbor is represented in connection with this campaign by Hargrove Sloane & Birch LLP, a prominent activist-side law firm based in New York. The lead partner on the engagement is Jonathan "Jon" Birch III, with associate Elise Marchetti. The firm's address is 1585 Broadway, 40th Floor, New York, NY 10036. In our interactions with Hargrove Sloane & Birch to date, Mr. Birch has been professional but assertive, consistent with the firm's reputation in contested solicitations.
Pinnacle Harbor has retained Garrison Proxy Advisors, LLC as its proxy solicitor. The managing director leading the engagement is Alicia Trent. Garrison's offices are located at 17 Ashbury Asset Advisors, Suite 1600, New York, NY 10004. Garrison is a well-regarded proxy solicitation firm with significant experience in contested elections.
According to the Schedule 13D and amendments thereto filed by Pinnacle Harbor with the SEC, and based on our analysis of Item 5 disclosures, Pinnacle Harbor accumulated its position in RGC common stock between June 2022 and November 2022. As of the most recent amended Schedule 13D filing on January 6, 2023, Pinnacle Harbor holds 7,119,600 shares of RGC common stock, representing approximately 6.8% of the 104,700,000 shares outstanding.
The key financial parameters of Pinnacle Harbor's position are as follows:
The significant unrealized gain in Pinnacle Harbor's position is a factor the Special Committee should consider in evaluating the Activist's incentives and time horizon. While a substantial paper profit may provide Pinnacle Harbor with flexibility in pursuing its campaign, it also suggests that a further increase in RGC's share price — driven by management's execution of the Company's strategic plan — could motivate the Activist to monetize its position rather than bear the costs and risks of a full contested election.
B. Chronology of Key Campaign Events
The following chronology summarizes the key events in Pinnacle Harbor's activist campaign from its initial private approach through the date of this memorandum. A more detailed campaign timeline is set forth in Appendix A.
October 28, 2022. Pinnacle Harbor sent a private letter to Board Chair Diane K. Sheridan, signed by Viktor S. Kessler, demanding two board seats and a formal strategic review of the interactive gaming division. The letter was delivered to the Company's principal executive offices in Las Vegas, Nevada, by overnight courier and addressed to Ms. Sheridan with a copy to General Counsel Patricia "Trish" Nakamura. The letter struck a conciliatory tone but made clear that Pinnacle Harbor intended to pursue its demands through a proxy contest if the Board did not engage constructively within a reasonable timeframe.
November 10, 2022. Pinnacle Harbor filed a preliminary Schedule 13D with the SEC, disclosing its 6.8% stake in RGC common stock and its activist intent. The filing attracted immediate market and media attention. RGC's stock price closed at $29.12 on the day of the filing, up from $28.47 the previous trading day, reflecting market speculation regarding the potential for activist-driven value creation.
November 14, 2022. The RGC Board of Directors held an emergency telephonic meeting. At that meeting, the Board resolved to form the Special Committee, consisting of independent directors James "Jim" Delacroix (Chair), Carmen Vasquez, and Randall Morse, to oversee the Company's response to Pinnacle Harbor's campaign. The Board further resolved to engage Calderwood & Harkness LLP as outside counsel to the Special Committee and to the Board in connection with the activist defense, and to engage additional advisors as recommended by the Special Committee.
November 15, 2022. Calderwood & Harkness's engagement was formally opened. The engagement letter, executed by Douglas Fairchild on behalf of the firm and countersigned by James Delacroix on behalf of the Special Committee, was delivered on this date. RGC's stock price closed at $30.00.
November 18, 2022. Calderwood & Harkness delivered the Initial Situational Assessment Memorandum to the Special Committee, providing an overview of Pinnacle Harbor's position, its likely campaign strategy, the Company's governance and structural defenses, and preliminary recommendations for the engagement of additional advisors.
Approximately November 25, 2022. A response letter from Board Chair Diane K. Sheridan to Viktor S. Kessler was drafted by Calderwood & Harkness, reviewed by the Special Committee, and dispatched. The letter acknowledged receipt of Pinnacle Harbor's October 28, 2022 letter, expressed the Board's willingness to engage in constructive dialogue, and noted that the Board would consider Pinnacle Harbor's views as part of its ongoing evaluation of the Company's strategy and governance. The letter was deliberately measured in tone and did not make any commitments regarding board composition or strategic alternatives.
November 30, 2022. Pinnacle Harbor published a public open letter to the Board of Directors and shareholders of RGC, signed by Viktor S. Kessler and Nadia Johar. The letter reiterated Pinnacle Harbor's demand for the appointment of Dr. Sandra Trevelyan and Hugh Desmond Grayson to the Board, described the interactive gaming division as "undervalued and strategically mismanaged," and threatened to nominate directors for election at the 2023 Annual Meeting if the Board did not agree to Pinnacle Harbor's demands. The letter was posted to Pinnacle Harbor's website and distributed via press release. RGC's stock price closed at $31.74, reflecting continued upward momentum in the wake of activist attention.
December 5, 2022. Calderwood & Harkness delivered the Bylaw and Charter Defensive Review Memorandum, analyzing the Company's existing structural defenses and identifying potential bylaw amendments that could strengthen the Company's position.
December 8, 2022. Hargrove Sloane & Birch LLP, on behalf of Pinnacle Harbor, delivered a formal notice of intent to nominate directors at the 2023 Annual Meeting pursuant to Article II, Section 2.11 of the Company's Amended & Restated Bylaws. This notice was a preliminary notice and did not constitute the full nomination notice required under the bylaws; it served to put the Company on notice that Pinnacle Harbor intended to submit a formal nomination within the advance-notice window.
December 12, 2022. The advance-notice window opened, marking the first day on which nomination notices could be timely submitted for director elections at the 2023 Annual Meeting. The window was calculated as 150 days before the anniversary of the prior annual meeting (May 11, 2022), yielding an opening date of December 12, 2022, and a closing date of January 11, 2023 (120 days before the anniversary), consistent with Article II, Section 2.11 of the bylaws.
December 14, 2022. Calderwood & Harkness delivered the Advance-Notice Compliance Analysis, confirming the applicable dates and noting that Pinnacle Harbor's December 8, 2022 preliminary notice did not itself constitute a complete nomination notice but was procedurally relevant as an expression of intent. The analysis outlined the information requirements for a complete nomination notice under the bylaws.
December 19, 2022. Calderwood & Harkness presented the Poison Pill Analysis to the Board. The analysis evaluated the potential adoption of a limited-duration stockholder rights plan (commonly referred to as a "poison pill") with a trigger threshold of 10% or 15%. After extensive discussion and consideration of the advice of Calderwood & Harkness and Calloway Wainwright, the Board declined to adopt a rights plan at that time, concluding that the potential negative signaling to the market and to proxy advisory firms outweighed the defensive benefits, particularly given that Pinnacle Harbor's stake (6.8%) was well below any proposed trigger threshold and no evidence suggested imminent accumulation beyond that level.
January 6, 2023. Pinnacle Harbor filed an amended Schedule 13D with the SEC, updating its disclosure to reference explicitly its intention to conduct a proxy contest at the 2023 Annual Meeting if its demands were not satisfied through negotiation. The amended filing did not disclose any additional share purchases beyond the 7,119,600 shares previously reported. RGC's stock price closed at $32.90 on the date of the filing.
January 9, 2023. The Company received Pinnacle Harbor's formal nomination notice via Hargrove Sloane & Birch LLP, delivered by overnight courier to the Company's registered office and principal executive offices. The notice nominated Dr. Sandra Trevelyan and Hugh Desmond Grayson for election as directors at the 2023 Annual Meeting and included the information required by Article II, Section 2.11 of the bylaws. The nomination was timely, received two days before the January 11, 2023 deadline.
January 11, 2023. The advance-notice window closed. No additional nomination notices were received by the Company from any other stockholder.
January 13, 2023. Calderwood & Harkness delivered the Nominee Qualification and Deficiency Review, which analyzed the backgrounds, qualifications, potential conflicts of interest, and regulatory licensing implications associated with Dr. Trevelyan and Mr. Grayson. The review identified certain areas of potential concern, including questions regarding gaming regulatory licensing in Nevada and other jurisdictions, which are discussed further in Section X below.
January 18, 2023 (this memorandum). This Proxy Contest Readiness and Defense Strategy Memorandum is delivered to the Special Committee.
C. Pinnacle Harbor's Stated Demands
As set forth in its public letter dated November 30, 2022, its amended Schedule 13D filed January 6, 2023, and its nomination notice delivered January 9, 2023, Pinnacle Harbor's stated demands are as follows:
Demand 1: Two Board Seats. Pinnacle Harbor has nominated Dr. Sandra Trevelyan and Hugh Desmond Grayson for election to the RGC Board of Directors at the 2023 Annual Meeting. Dr. Trevelyan (age 55) served as Chief Operating Officer of Meridian Interactive Holdings, Inc., a publicly traded interactive gaming company, from 2015 to 2020. Mr. Grayson (age 61) served as Chief Financial Officer of Atlas Leisure Group, Inc., a diversified hospitality and leisure company, from 2012 to 2019. Both nominees have relevant industry experience, though as discussed in Section VII.B.1 below, their backgrounds do not offer meaningfully differentiated expertise beyond that of the Company's existing Board members.
Demand 2: Strategic Review of Interactive Gaming Division. Pinnacle Harbor has demanded that the Board undertake a formal strategic review of the Company's interactive gaming segment, including evaluation of a potential sale, spin-off, or other separation transaction. In its public letter, Pinnacle Harbor characterized the interactive gaming division as "a hidden gem obscured by the Company's legacy brick-and-mortar operations," and asserted that a separation could unlock $600–800 million in standalone value. The interactive gaming division generated revenue of approximately $412 million in fiscal year 2021, representing approximately 14.4% of the Company's total revenue of $2.87 billion.
Demand 3: $300 Million Capital Return. Pinnacle Harbor has demanded that the Company return $300 million to shareholders through a special dividend, an accelerated share repurchase program, or a combination of such methods. Pinnacle Harbor argues that the Company's balance sheet and cash flow generation support a significant incremental return of capital and that management's capital allocation has been insufficiently aggressive.
D. Current Board Composition
The Board of Directors of Redstone Gaming Corp. currently consists of nine directors, of whom seven are independent under the listing standards of The Nasdaq Stock Market and the rules of the SEC, and two are members of management (Chief Executive Officer Gerald R. Whitmore and Chief Financial Officer Raymond Choi). The following table summarizes the current composition:
All directors serve one-year terms and stand for election at each annual meeting. The Company does not have a classified or staggered board. A fuller board composition matrix, including director tenure, age, primary areas of expertise, and diversity characteristics, is set forth in Appendix D.
III. Timeline and Procedural Milestones to the 2023 Annual Meeting
A. Key Dates and Deadlines
The following timeline sets forth the anticipated key dates and deadlines relevant to the contested proxy solicitation. We note that certain dates, particularly the record date and meeting date, have not yet been fixed by the Board as of the date of this memorandum, and the dates set forth below are estimates based on RGC's historical practice and applicable legal requirements.
The Board has historically held its annual meeting on or within one week of the anniversary date of the prior year's meeting. While the meeting date has not been formally set as of this memorandum, we anticipate the 2023 Annual Meeting will be held on or about May 11, 2023. The meeting date should be set by the Board in consultation with the Special Committee and the advisory team, taking into account the strategic considerations discussed herein, including the timing of proxy advisory firm recommendations, the progression of shareholder outreach, and the Company's readiness to file its definitive proxy statement.
Under Section 213 of the Delaware General Corporation Law (the "DGCL"), the record date for determining stockholders entitled to notice of and to vote at the annual meeting must be set by the Board and may be not more than 60 days nor less than 10 days before the date of the meeting. The record date is a critical strategic variable, as it determines which stockholders are entitled to vote and, by extension, the composition of the voting universe. The timing of the record date can affect the ability of the Activist (or its allies) to acquire additional shares that would carry voting rights at the meeting. Calderwood & Harkness recommends that the Board set the record date approximately 45–50 days before the meeting date, consistent with recent practice, to allow adequate time for proxy solicitation while limiting the window for additional activist share accumulation.
A critical procedural development since our prior memoranda is the SEC's universal proxy card rule, which became effective for all shareholder meetings held after August 31, 2022. Under SEC Rule 14a-19, both the Company and any dissident stockholder conducting a contested solicitation are required to use a universal proxy card that lists all bona fide nominees for director — both the Company's nominees and the Activist's nominees — on a single proxy card. This represents a significant change from prior practice, under which each side could distribute its own proxy card listing only its own nominees, and has several important implications:
• Stockholder Choice. Stockholders will be able to "mix and match" nominees from both slates on a single universal proxy card, rather than being required to choose between two separate cards. This increases the risk that one or both of Pinnacle Harbor's nominees could receive votes from stockholders who otherwise would have voted the full management slate, as stockholders may feel more comfortable selecting individual dissident nominees without voting the entire dissident slate.
• Compliance Obligations. Under Rule 14a-19(a), Pinnacle Harbor must provide RGC with notice of its intent to solicit proxies in support of director nominees other than the Company's nominees no later than 60 calendar days before the anniversary of the previous year's annual meeting date. Pinnacle Harbor satisfied this notice requirement through its December 8, 2022 filing. The Company must include Pinnacle Harbor's nominees on its universal proxy card, and Pinnacle Harbor must include the Company's nominees on its universal proxy card. Both sides must comply with the filing and formatting requirements of the rule.
• Strategic Implications. The universal proxy card environment makes "vote no" or "just say no" defensive strategies more difficult, as stockholders can selectively vote for individual nominees from either slate. This underscores the importance of the Company's shareholder outreach and messaging efforts — stockholders must be affirmatively persuaded to vote for each of the Company's director nominees individually, rather than simply voting the management card by default.
B. RGC's Definitive Proxy Statement Preparation
The preparation of RGC's definitive proxy statement is a critical workstream that must be closely coordinated among Calderwood & Harkness, the Company's General Counsel Patricia "Trish" Nakamura, Chief Financial Officer Raymond Choi, and the Company's independent auditor, Kettering Marsh & Associates LLP (audit engagement partner: Robert Ogawa). The definitive proxy statement will serve as the Company's primary vehicle for communicating its position to stockholders, presenting its director nominees, and articulating the Board's strategic vision.
Key elements of the proxy statement preparation process include:
Content Drafting. Calderwood & Harkness will work with General Counsel Nakamura and CFO Choi to draft the proxy statement, incorporating the Company's director nominations, executive compensation disclosures (including the Compensation Discussion and Analysis, or "CD&A"), auditor ratification, and any other matters to be presented to stockholders. In a contested election, the proxy statement will also include disclosure regarding the Activist's nominees, the reasons for the Board's recommendation that stockholders vote for the Company's nominees, and any relevant background regarding the activist campaign.
Financial Data Review. Kettering Marsh & Associates LLP (Robert Ogawa, lead audit partner) will review the financial data incorporated into the proxy statement, including the audited financial statements for fiscal year 2022, which are expected to be finalized in late February or early March 2023. Timely completion of the audit is essential to the proxy statement timeline.
SEC Filing and Review. The Company will file its definitive proxy statement with the SEC on Schedule 14A. In a contested election, the Company should anticipate the possibility that the SEC's Division of Corporation Finance may issue comments on the proxy statement, particularly regarding the disclosure of the activist campaign and the Board's response. Calderwood & Harkness will coordinate with the SEC staff as needed. We recommend allowing a minimum of 10 business days for potential SEC review and comment, though in many contested solicitations the staff does not issue comments on the definitive proxy statement if the preliminary proxy has been cleared.
Universal Proxy Card. As discussed above, the Company must prepare a universal proxy card listing all bona fide nominees — both the Company's nominees and Pinnacle Harbor's nominees — in compliance with SEC Rule 14a-19. The universal proxy card must be formatted in accordance with the rule's requirements, including the use of a distinct color of proxy card (to distinguish it from the Activist's universal proxy card), clear instructions to stockholders, and the identification of each nominee as a "Board nominee" or a "stockholder nominee."
C. Contested Election Mechanics Under Delaware Law and RGC Bylaws
The Company is incorporated in Delaware, and the election of directors at the 2023 Annual Meeting will be governed by the DGCL and the Company's Amended & Restated Certificate of Incorporation and Amended & Restated Bylaws.
Voting Standard. Under the Company's Amended & Restated Bylaws, directors are elected by a plurality of the votes cast at any meeting of stockholders at which a quorum is present. In a contested election — that is, an election at which the number of nominees exceeds the number of seats to be filled — the plurality voting standard means that the nominees receiving the most votes will be elected, regardless of whether any nominee receives a majority of the votes cast. This standard is generally favorable to the Company in a contested election, as it avoids the possibility that a nominee could fail to receive a majority and thereby create a board vacancy. However, as noted above, the universal proxy card environment allows stockholders to mix and match nominees, which can complicate vote projections under a plurality standard.
Advance-Notice Provisions. Article II, Section 2.11 of the Company's Amended & Restated Bylaws sets forth the procedural requirements for stockholder nominations of director candidates. As confirmed in our December 14, 2022 Advance-Notice Compliance Analysis, Pinnacle Harbor's nomination notice was timely submitted within the applicable window. The relevant bylaw provisions are extracted in full in Appendix F.
Inspector of Elections. The Company's transfer agent, Continental Share Services, Inc. (Jason Velmoran, Vice President), serves as the inspector of elections for stockholder meetings. The inspector of elections is responsible for tabulating votes, determining the validity of proxies, and certifying the results of the election. In a contested election, the role of the inspector of elections is especially important, as both sides may challenge the validity of specific proxies. Calderwood & Harkness will coordinate with Continental Share Services to ensure that the inspector of elections is prepared for the complexities of a contested election, including the treatment of revoked proxies, split votes on universal proxy cards, and potential challenges.
Quorum. Under the Company's Amended & Restated Bylaws, a quorum at any meeting of stockholders consists of the holders of a majority of the shares of common stock issued and outstanding and entitled to vote, present in person or represented by proxy. Given the Company's 104,700,000 shares outstanding, a quorum requires the presence or representation of at least 52,350,001 shares. In a contested election, both sides have an incentive to maximize stockholder participation, and quorum is generally not a concern.
IV. Advisor Engagement and Coordination
The Company has assembled a comprehensive team of outside advisors to manage the defense of the proxy contest. This section summarizes each advisor's role, contact information, and current engagement status. Effective coordination among these advisors is essential to the success of the defense strategy.
A. Outside Counsel — Calderwood & Harkness LLP
Calderwood & Harkness LLP serves as outside counsel to the Special Committee and the Board of Directors in connection with the activist defense. The engagement was opened on November 15, 2022, pursuant to an engagement letter executed on that date.
Engagement Partner: Douglas Fairchild (Real Estate Practice Group)
Billing Partner: Angela Fontaine (Real Estate Practice Group)
Lead Associate: Claire Dempsey (Capital Markets Practice Group)
Working Associate: Marcus Leung (Banking & Finance Practice Group)
Offices:
• 3960 Howard Hughes Parkway, Suite 1400, Las Vegas, NV 89169 (primary)
• 1200 Market Street, Suite 3100, Wilmington, DE 19801 (Delaware litigation matters)
Calderwood & Harkness's role encompasses overall legal strategy for the activist defense, SEC compliance review of all proxy materials and public communications, analysis of bylaw and charter provisions, review and drafting of the definitive proxy statement, negotiation with Pinnacle Harbor's counsel (Hargrove Sloane & Birch LLP), and advisory services to the Board and Special Committee on fiduciary duty considerations and governance matters. In the event that litigation arises — whether initiated by Pinnacle Harbor (e.g., a challenge to the advance-notice provisions) or by the Company — Calderwood & Harkness's Wilmington office will be available to provide Delaware litigation support.
Hourly rates for Calderwood & Harkness professionals on this matter are as follows: Partners, $1,450 per hour; Senior Associates, $1,050 per hour; Associates, $850 per hour. The matter number is 1033-00003.
B. Financial Advisor — Calloway Pinnacle Trust Bank
Calloway Pinnacle Trust Bank serves as financial advisor to the Company in connection with the activist defense.
Lead Banker: Thomas V. Ashford, Managing Director, Activism & Corporate Defense
Office: 200 Park Avenue, 28th Floor, New York, NY 10166
Calloway Wainwright's role encompasses financial analysis of Pinnacle Harbor's demands, including a valuation of the interactive gaming division (to assess Pinnacle Harbor's assertion that a sale or spin-off would unlock $600–800 million in value), an analysis of the feasibility and capital structure implications of the proposed $300 million capital return, and the preparation of a Board presentation articulating the Company's standalone strategic plan and financial outlook. Calloway Wainwright will also support the Company's shareholder engagement efforts by providing financial data and analysis for use in investor presentations and proxy materials.
A key coordination point is Calloway Wainwright's preparation of a comprehensive financial overview comparing the Company's standalone plan against Pinnacle Harbor's proposed strategic alternatives. This analysis will be critical to the Board's deliberations and to the Company's messaging in proxy materials and shareholder communications. In particular, Calloway Wainwright will advise on the merits and risks of the $300 million capital return demand in light of the Company's current net debt of $1.62 billion, its capital expenditure requirements, and its liquidity position.
C. Proxy Solicitor — Whitfield Morrow Partners, LLC
Whitfield Morrow Partners, LLC serves as the Company's proxy solicitor for the contested election.
Lead Contact: Denise Cavanaugh, Senior Vice President
Office: 501 Madison Avenue, 14th Floor, New York, NY 10022
Whitfield Morrow Partners was retained in November 2022 and has been actively monitoring shareholder positions and sentiment since engagement. The firm's role encompasses proxy solicitation campaign management, vote tracking, shareholder identification and analysis, contested solicitation logistics, and coordination with the Company's transfer agent, Continental Share Services, Inc. Whitfield Morrow Partners brings substantial experience in contested proxy solicitations in the gaming and hospitality sectors and will be responsible for the operational execution of the Company's solicitation campaign.
Deliverables expected from Whitfield Morrow Partners include:
• A detailed shareholder ownership analysis, identifying all significant holders, their voting histories, governance preferences, and likely voting behavior in the contested election;
• Voting projections under various turnout and voting scenarios, including base case, upside, and downside scenarios;
• A comprehensive solicitation timeline, coordinated with the Company's proxy statement filing, mailing, and meeting dates;
• A broker-dealer and custodian coordination plan, to ensure that proxy materials are timely distributed to beneficial owners holding shares through intermediaries; and
• Scripts and training materials for proxy solicitation callers who will conduct telephone outreach to institutional and retail stockholders.
D. Investor Relations Advisor — Harlan Ridge Communications, LLC
Harlan Ridge Communications, LLC serves as the Company's investor relations and communications advisor for the activist defense.
Lead Contact: Philip Navarette, Partner
Office: 712 Fifth Avenue, Suite 900, New York, NY 10019
Harlan Ridge was retained in November 2022 and has been actively developing the Company's messaging framework and shareholder talking points. The firm's role encompasses media strategy, public messaging, press release preparation, investor communication coordination, and the preparation of shareholder presentation materials. Harlan Ridge will work in close coordination with Whitfield Morrow Partners on an integrated shareholder outreach program, ensuring consistency of messaging across all channels.
Harlan Ridge's deliverables include draft press releases for various scenarios (including the Company's initial public response to Pinnacle Harbor's nomination, the announcement of the annual meeting date and record date, and responsive statements addressing Pinnacle Harbor's public communications), a comprehensive investor presentation deck, and a detailed question-and-answer document and talking points for use by Company directors and officers in shareholder meetings and media interactions.
E. Transfer Agent — Continental Share Services, Inc.
Continental Share Services, Inc. serves as the Company's transfer agent and registrar.
Contact: Jason Velmoran, Vice President
Office: 1 Ashbury Asset Advisors, 30th Floor, New York, NY 10004
Continental Share Services' role in the contested election includes the provision of shareholder records, including NOBO (non-objecting beneficial owner) and OBO (objecting beneficial owner) lists, the administration of vote tabulation, and the performance of inspector of elections services at the 2023 Annual Meeting. Whitfield Morrow Partners will coordinate directly with Continental Share Services on the procurement of shareholder lists and the logistics of proxy distribution and vote tabulation.
F. D&O Insurance
The Company maintains directors' and officers' liability insurance coverage, which provides defense costs and indemnification coverage for directors and officers in connection with claims arising from their service, including claims that may arise in the context of an activist campaign or contested proxy solicitation.
A notice of circumstances was submitted on November 16, 2022, through the Company's insurance broker, Glenmore Caulfield Insurance Brokers, Inc. (Sarah Voss, Senior Vice President), to the Company's D&O insurers. The notice was provided promptly following the formation of the Special Committee and the engagement of outside counsel, consistent with the notice requirements of the applicable policies.
The Company's D&O insurance program consists of the following layers:
The D&O insurance program was renewed effective January 1, 2023, and coverage has been confirmed for defense costs associated with the activist campaign, including the costs of outside counsel, financial advisors, proxy solicitors, and communications advisors, to the extent such costs constitute "Defense Costs" as defined in the applicable policies. Calderwood & Harkness is monitoring the accrual of defense costs against the policy limits and the self-insured retention and will advise the Special Committee if costs approach the limits of coverage or if any coverage issues arise.
V. Shareholder Base Analysis and Voting Landscape
A. Share Capital Overview
Redstone Gaming Corp. has a single class of common stock outstanding, with no dual-class structure and no supervoting or non-voting shares. Each share of common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. As of the most recent records from Continental Share Services, Inc., the Company has 104,700,000 shares of common stock issued and outstanding.
At the closing price of $30.00 per share on November 15, 2022 (the date on which Calderwood & Harkness's engagement was formally opened), the Company's market capitalization was approximately $3.14 billion. At the closing price of $32.90 per share on January 6, 2023 (the date of Pinnacle Harbor's amended Schedule 13D filing), the Company's market capitalization was approximately $3.45 billion. The Company's common stock is listed on The Nasdaq Stock Market under the ticker symbol "RGC."
B. Significant Shareholders
Based on SEC filings (Schedules 13D and 13G), NOBO list data, and information provided by Whitfield Morrow Partners, the following table identifies the Company's significant shareholders as of the most recently available data:
The engagement priority assignments reflect our assessment of each holder's potential influence on the outcome of the election, the likelihood that the holder's vote may be "in play," and the expected responsiveness of the holder to outreach efforts. We discuss each significant holder in greater detail below.
Ridgeway Asset Management, LP (8.2%, 8,585,400 shares). Ridgeway is the Company's largest non-activist institutional shareholder. It is a long-only value-oriented fund based in Boston, Massachusetts, managed by Franklin Osei. Ridgeway has held its position in RGC for approximately three years and has historically been supportive of incumbent management. In prior annual meetings, Ridgeway has voted in favor of management's director nominees and say-on-pay proposals. Based on preliminary conversations between Whitfield Morrow Partners and Ridgeway, we believe Ridgeway is likely to continue supporting the management slate, provided that the Board demonstrates a credible strategic plan and responsiveness to governance concerns. Ridgeway's support is critical — its 8.2% stake represents the single largest block of votes likely to be cast in favor of management and can serve as an anchor for the management vote. Engagement with Ridgeway is assigned HIGH priority.
Stillwater Capital Advisors, LLC (5.4%, 5,653,800 shares). Stillwater is a growth-oriented institutional investor based in Chicago, Illinois. Its Head of Governance, Margaret "Meg" Liu, is known to be governance-focused and has historically been receptive to arguments in favor of board refreshment and enhanced shareholder rights. While Stillwater has voted with management in prior RGC elections, Ms. Liu has expressed concerns in prior engagements (including during the 2022 proxy season) about the pace of board refreshment and the composition of the Company's governance committee. Stillwater is the most significant "swing vote" among the Company's institutional holders and may be receptive to certain of Pinnacle Harbor's arguments regarding the strategic review. Engagement with Stillwater is assigned HIGH priority. Our outreach to Stillwater must be carefully calibrated to acknowledge its governance concerns while demonstrating the Board's commitment to ongoing refreshment and the risks of ceding board seats to an activist with a short-term investment horizon.
Canfield Municipal Employees' Retirement System (2.1%, 2,198,700 shares). Canfield MERS is a public pension fund based in Canfield, Ohio. Its Chief Investment Officer, David Proulx, oversees a diversified portfolio and typically relies on proxy advisory firm recommendations (Centurion Governance Services and Hartley Shareholder Advisory Group) in making voting decisions. While Canfield MERS has voted with management in prior elections, its voting behavior in a contested election is likely to be influenced significantly by the proxy advisory firms' recommendations. Engagement with Canfield MERS is assigned MEDIUM priority, reflecting both the importance of its 2.1% stake and the likelihood that its vote will ultimately be driven by advisory firm recommendations rather than direct engagement.
Remaining Shareholders (~77.5%, ~81,142,500 shares). The balance of the Company's outstanding shares is held by a diverse group of retail investors, index funds, and smaller institutional holders that do not individually exceed 2% of shares outstanding. Retail investor turnout in RGC's prior annual meetings has averaged approximately 25–30%, and retail voters have historically been heavily supportive of management. However, retail turnout can vary significantly in contested elections, and the presence of universal proxy cards may affect retail voting behavior. Index funds (which hold an estimated 15–20% of shares outstanding) are increasingly guided by their own governance policies and proxy advisory firm recommendations, and engagement with the governance teams of the largest index fund families should be incorporated into the Company's outreach plan. Whitfield Morrow Partners is preparing a detailed breakdown of the "other holders" category to identify sub-2% institutional holders that may merit direct engagement.
C. Voting Projection Scenarios
Whitfield Morrow Partners, in coordination with Calderwood & Harkness, has developed preliminary voting projection models under three scenarios. These scenarios are designed to illustrate the range of potential outcomes in the contested election and to identify the key variables that will determine the result.
Scenario 1: High Institutional Turnout with Management Support. In this scenario, institutional turnout is high (approximately 85% of institutional shares voted), and the major institutional holders — Ridgeway, Stillwater, and Canfield MERS — all vote the management slate. Pinnacle Harbor's 7,119,600 shares are the only significant block voting for the activist nominees. Under this scenario, management's nominees are elected with a comfortable margin. This scenario assumes favorable proxy advisory firm recommendations and effective shareholder outreach.
Scenario 2: Moderate Turnout with Split Institutional Vote. In this scenario, institutional turnout is moderate (approximately 70% of institutional shares voted), and the institutional vote is split: Ridgeway votes management (8,585,400 shares), Stillwater splits its vote (voting one management nominee and one activist nominee, or voting the full activist slate), and Canfield MERS follows a proxy advisory firm recommendation that favors one activist nominee. This scenario represents the most competitive outcome and illustrates the critical importance of Stillwater's vote and the proxy advisory firms' recommendations. Under this scenario, one of Pinnacle Harbor's nominees could potentially be elected, depending on the behavior of smaller institutional holders and retail voters.
Scenario 3: Low Turnout with Activist-Favorable Conditions. In this scenario, overall turnout is low (approximately 55–60% of shares voted), one or both proxy advisory firms recommend in favor of the activist nominees, and Stillwater votes the activist slate. Ridgeway votes management, but the lower overall turnout and unfavorable advisory firm recommendations create an environment in which both of Pinnacle Harbor's nominees could potentially be elected. This is the worst-case scenario for management and underscores the importance of maximizing turnout and securing favorable advisory firm recommendations.
In all three scenarios, the following constants apply: Pinnacle Harbor's 7,119,600 shares vote for the activist slate; Ridgeway's 8,585,400 shares vote the management slate. The key variables are: (i) Stillwater's voting decision; (ii) Canfield MERS's voting decision; (iii) proxy advisory firm recommendations; (iv) the aggregate voting behavior of retail and smaller institutional holders; and (v) overall turnout.
We note that in prior uncontested elections, RGC has experienced overall stockholder participation rates of approximately 65–70%, including broker non-votes. In a contested election, overall participation is likely to increase modestly, as both sides will be actively soliciting proxies. However, broker non-votes — which arise when brokers holding shares in street name do not receive voting instructions from beneficial owners and cannot vote uninstructed shares on non-routine matters, including the election of directors — will remain a factor. Under NYSE and Nasdaq rules, the election of directors is a non-routine matter, and brokers may not vote uninstructed shares.
D. Proxy Advisory Firms
The two leading proxy advisory firms — Centurion Governance Services, Inc. and Hartley Shareholder Advisory Group, LLC — play a significant role in influencing the voting decisions of many institutional investors, particularly index funds and pension funds. The recommendations of these firms will be a critical factor in the outcome of the contested election.
Centurion Governance Services, Inc. Centurion is the dominant proxy advisory firm, and its recommendations are followed by a substantial number of institutional investors. Centurion's recommendation regarding the RGC contested election is expected to be published approximately three to four weeks before the annual meeting, based on historical timing patterns. Centurion's analytical methodology in contested elections emphasizes several factors, including: (i) the quality of the activist's case for board change; (ii) the track record and qualifications of the activist's nominees relative to the incumbent directors; (iii) the company's responsiveness to shareholder concerns; (iv) total shareholder return performance relative to peers; and (v) the company's governance profile, including board independence, refreshment, diversity, and compensation practices. Centurion historically has a demonstrated willingness to recommend in favor of activist nominees in cases where the activist presents a credible case for board refreshment and the company's governance or performance has been lacking. This represents a significant vulnerability for RGC, and our engagement strategy must be designed to address Centurion's anticipated concerns proactively.
Hartley Shareholder Advisory Group, LLC. Hartley is the second-largest proxy advisory firm and, while its recommendations carry somewhat less weight than Centurion's, they are nonetheless followed by a meaningful segment of the institutional investor base. Hartley's methodology tends to place greater emphasis on total shareholder return and capital allocation efficiency than on governance form, and its analysis is generally regarded as more quantitatively rigorous. Hartley's recommendation timeline is similar to Centurion's.
The Company's proxy advisory firm engagement strategy is discussed in detail in Section VIII below.
VI. Shareholder Outreach and Engagement Plan
A. Objectives
The Company's shareholder outreach and engagement program is designed to achieve three primary objectives:
1. Secure Institutional Support for the Management Slate. The overriding goal of the outreach program is to secure the proxy votes of the Company's key institutional stockholders in favor of management's director nominees at the 2023 Annual Meeting. This requires direct, substantive engagement with the investment professionals and governance officers at each significant institutional holder.
2. Demonstrate Board Responsiveness. The outreach program must convey to stockholders that the Board is genuinely responsive to shareholder concerns regarding governance, capital allocation, and strategic direction — without capitulating to the specific demands of an activist with a short-term investment horizon. Demonstrating responsiveness is critical to securing favorable proxy advisory firm recommendations and to persuading governance-focused holders such as Stillwater Capital Advisors.
3. Counter Pinnacle Harbor's Narrative. The outreach program must effectively counter Pinnacle Harbor's public narrative that the interactive gaming division is undervalued and mismanaged, that the Board is insufficiently responsive to shareholder concerns, and that a $300 million capital return is warranted. The Company's engagement with stockholders must be grounded in rigorous financial analysis and a compelling articulation of the Company's strategic plan and growth trajectory.
B. Outreach Priorities and Timeline
The shareholder outreach program is organized in three phases, coordinated among Whitfield Morrow Partners (proxy solicitation), Harlan Ridge Communications (investor relations and communications), and Calderwood & Harkness (legal compliance review and strategic guidance).
Phase 1: January 18 – February 15, 2023 — Initial Engagement with Key Institutional Holders.
During Phase 1, the Company will conduct direct outreach to its top institutional stockholders, with a focus on the three holders whose voting decisions are most likely to determine the outcome of the contested election:
• Ridgeway Asset Management, LP (8.2%). Outreach to Franklin Osei, Portfolio Manager. Objective: Confirm Ridgeway's continued support for the management slate; provide Ridgeway with a comprehensive briefing on the Company's strategic plan and the Board's rationale for opposing Pinnacle Harbor's demands; solicit Ridgeway's feedback on governance concerns and strategic priorities. Ridgeway's historical support for management makes this engagement more confirmatory than persuasive, but it is essential to maintain the relationship and ensure that Ridgeway does not waver under activist pressure.
• Stillwater Capital Advisors, LLC (5.4%). Outreach to Margaret "Meg" Liu, Head of Governance. Objective: Understand Stillwater's current assessment of RGC's governance, strategic direction, and capital allocation; address any concerns Stillwater may have regarding board refreshment or the interactive gaming division; present the Board's proactive governance enhancement efforts and the risks of activist-driven board disruption. This is the highest-stakes engagement in the outreach program, given Stillwater's governance orientation and its potential receptivity to activist arguments.
• Canfield Municipal Employees' Retirement System (2.1%). Outreach to David Proulx, Chief Investment Officer. Objective: Provide Canfield MERS with a comprehensive briefing on the Company's position; understand Canfield MERS's governance framework and the extent to which its vote is influenced by proxy advisory firm recommendations; present the Board's case in a manner designed to influence Canfield MERS's internal deliberations even if its ultimate vote follows the advisory firm recommendation.
Phase 1 meetings will be conducted in person or by videoconference, as appropriate, and will be led by Board Chair Diane K. Sheridan and/or Special Committee Chair James Delacroix, accompanied by Philip Navarette from Harlan Ridge Communications. All outreach communications and meeting materials will be reviewed by Calderwood & Harkness for compliance with Regulation FD (which prohibits selective disclosure of material non-public information) and applicable SEC proxy solicitation rules.
Phase 2: February 15 – March 31, 2023 — Broadened Outreach.
During Phase 2, the Company will broaden its outreach to include all institutional holders with positions of 1% or greater (approximately 1,047,000 shares or more), as well as the governance teams of the largest index fund families. Phase 2 will also include follow-up conversations with the Phase 1 holders to address any outstanding questions, provide updated financial data (including preliminary FY 2022 results when available), and reinforce the Board's messaging. Whitfield Morrow Partners will manage the scheduling and logistics of Phase 2 outreach and will maintain a database tracking all engagement activities and outcomes.
Phase 3: April – May 2023 — Pre-Meeting Intensive Solicitation.
During Phase 3, the Company will conduct intensive pre-meeting solicitation, including final outreach to all significant holders, targeted calls to stockholders that have not yet voted, and coordination with the vote tracking system maintained by Whitfield Morrow Partners. This phase will also include responsive communications addressing any developments that arise from the proxy advisory firms' recommendations, Pinnacle Harbor's public communications, or market events.
C. Key Messaging for Institutional Shareholders
The Company's outreach to institutional stockholders will be built around the following key messages, developed in coordination with Harlan Ridge Communications and Calloway Pinnacle Trust Bank:
RGC's Strategic Plan and Growth Trajectory. The Company generated total revenue of $2.87 billion in fiscal year 2021 and is projected to generate approximately $3.05 billion in fiscal year 2022, representing year-over-year growth of approximately 6.3%. Management is executing a credible, disciplined growth strategy that is delivering results for shareholders.
Interactive Gaming Division as Growth Engine. The interactive gaming division, which generated $412 million in revenue in fiscal year 2021, is a strategic growth engine that is the beneficiary of significant ongoing investment. The division is positioned to capture secular growth in the interactive and online gaming markets, and a premature sale or spin-off — driven by activist pressure rather than by a rigorous strategic evaluation — would risk destroying long-term value. The Board will articulate its own vision for the division's strategic path, supported by analysis from Calloway Wainwright.
Capital Allocation Discipline. The Company currently pays a dividend yielding approximately 1.8%, reflecting a prudent and balanced approach to capital allocation. The Company has $1.62 billion in net debt, and a $300 million special return of capital, as demanded by Pinnacle Harbor, would significantly increase the Company's leverage, reduce financial flexibility, and potentially impair the Company's ability to invest in growth opportunities, maintain its gaming regulatory compliance, and service its existing debt obligations. Management will present a comprehensive capital allocation framework as part of the proxy materials.
Board Quality and Independence. Seven of the Board's nine directors are independent under Nasdaq listing standards and SEC rules. The Board has robust governance practices, including a fully independent Governance & Nominating Committee (chaired by Diane K. Sheridan), a majority voting policy for uncontested elections (with a plurality standard applicable in contested elections), and recently amended bylaws (September 12, 2021) reflecting governance best practices.
Stock Price Performance. RGC's stock price has appreciated from $24.18 on June 1, 2022 (prior to Pinnacle Harbor's initial share accumulation) to $32.90 as of January 6, 2023 — an increase of approximately 36% over a seven-month period. This performance suggests that the market is already recognizing the value being created by management's strategy and that the Company does not require activist-driven disruption to deliver shareholder value.
D. Coordination Among Advisors
Effective coordination among the Company's advisors is essential to the success of the defense strategy. Calderwood & Harkness has established the following coordination framework:
• Weekly Coordination Calls. Calderwood & Harkness will convene weekly coordination calls (or more frequent calls as circumstances warrant) among the advisory team, including Calloway Pinnacle Trust Bank (Thomas Ashford), Whitfield Morrow Partners (Denise Cavanaugh), and Harlan Ridge Communications (Philip Navarette). These calls will cover developments in the activist campaign, shareholder outreach progress, advisory firm engagement status, proxy statement preparation, and any other matters requiring inter-advisor coordination.
• Shareholder Database. Whitfield Morrow Partners will maintain a centralized database of all significant stockholders, tracking ownership positions, engagement activities, feedback received, and assessed voting intentions. This database will be updated continuously and shared with the advisory team on a weekly basis.
• Communications Materials. Harlan Ridge Communications will prepare all shareholder-facing communications materials, including talking points, FAQ documents, shareholder presentation decks, and press releases. All materials will be reviewed by Calderwood & Harkness for compliance with Regulation FD and SEC proxy solicitation rules prior to distribution or use.
• Legal Compliance Review. Calderwood & Harkness will review all shareholder communications, including letters, presentations, scripts, and press releases, for compliance with applicable SEC rules, including Regulation FD (selective disclosure), Rule 14a-9 (prohibition of false or misleading proxy solicitation materials), and Rule 14a-12 (solicitations prior to furnishing a proxy statement). Any materials constituting proxy solicitation under the SEC's rules will be filed with the SEC in a timely manner, as required.
VII. Proxy Contest Defense Messaging Framework
A. Core Narrative for RGC
The Company's defense messaging is built on four core themes, which should be consistently reinforced across all communications channels — shareholder meetings, press releases, proxy materials, advisory firm presentations, and media interactions:
1. Experienced, Independent, and Aligned Board. The RGC Board of Directors is composed of nine directors, seven of whom are independent, with deep experience in the gaming, hospitality, technology, and finance industries. The Board is actively engaged in overseeing the Company's strategy, monitoring manage