MEMORANDUM
PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 3960 Howard Hughes Parkway, Suite 1400 Las Vegas, NV 89169
March 16, 2023
This memorandum is a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP for the exclusive use of Redstone Gaming Corp. and the individuals identified above. It is not intended for distribution to, or reliance by, any third party. Any unauthorized disclosure, reproduction, or distribution of this memorandum or its contents is strictly prohibited.
I. Executive Summary
On March 15, 2023, Pinnacle Harbor Capital Partners, LP ("Pinnacle Harbor," "PHCP," or the "Reporting Person"), together with its general partner, Pinnacle Harbor Capital Management, LLC ("PHCM"), and Viktor S. Kessler, PHCP's Managing Partner and Chief Investment Officer (collectively, the "Reporting Persons"), filed a second amendment (the "Amended 13D" or the "Amendment") to their Schedule 13D with the United States Securities and Exchange Commission (the "SEC") with respect to the shares of common stock, par value $0.001 per share (the "Common Stock"), of Redstone Gaming Corp. ("RGC," the "Company," or the "Issuer"), a corporation organized under the laws of the State of Delaware, with its principal executive offices located at 8700 Las Vegas Boulevard South, Suite 2200, Las Vegas, NV 89123. The Company's Common Stock trades on the Nasdaq Global Select Market under the ticker symbol "RGC."
The Amended 13D was filed to reflect several material developments that have occurred since the filing of the first amendment to the Schedule 13D on January 6, 2023. Most significantly, the Amendment discloses the execution of a Cooperation and Standstill Agreement, dated as of March 10, 2023, by and among RGC, on the one hand, and PHCP, PHCM, and Mr. Kessler, on the other hand (the "Cooperation Agreement" or the "Agreement"). Pursuant to the terms of the Cooperation Agreement, Pinnacle Harbor has agreed to withdraw all director nominations previously submitted to the Company — specifically, the nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson — and has formally terminated its activist campaign in connection with the Company's 2023 Annual Meeting of Stockholders. In exchange, the Company has agreed, among other things, to appoint one new mutually agreed-upon independent director to the RGC Board of Directors and to conduct a strategic review of the Company's interactive gaming division.
This memorandum has been prepared at the request of Douglas Fairchild, Engagement Partner, and Patricia "Trish" Nakamura, General Counsel and Corporate Secretary of RGC, for the purpose of reviewing the Amended 13D across three principal dimensions:
(1) Accuracy: Whether the Amended 13D accurately reflects the material terms of the executed Cooperation and Standstill Agreement, as negotiated and finalized by the parties;
(2) Compliance: Whether the Amended 13D complies with the disclosure requirements of Sections 13(d) and 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, including Rule 13d-1 and Rule 13d-2; and
(3) Consistency: Whether the Amended 13D is consistent with (a) the Reporting Persons' prior Schedule 13D filings (the preliminary Schedule 13D filed November 10, 2022, and the first amendment filed January 6, 2023), (b) the joint press release issued by the Company and Pinnacle Harbor on March 13, 2023, and (c) the Company's own anticipated Form 8-K filing.
Overall Conclusion: Based on our review, the Amended 13D accurately reflects the material terms of the Cooperation and Standstill Agreement and appears to comply in all material respects with applicable SEC disclosure requirements. The filing was made promptly following the execution of the Agreement and is internally consistent with all prior filings and public statements. We have identified several minor observations, which are noted below for the record, but none of these observations raise substantive compliance concerns or require corrective action by the Company or the Reporting Persons. Continued monitoring of future 13D amendments is recommended through the expiration of the standstill period on September 10, 2024.
II. Filing History and Background
To provide appropriate context for our review of the Amended 13D, we summarize below the complete filing history of the Pinnacle Harbor Schedule 13D with respect to Redstone Gaming Corp. Common Stock, together with relevant background events.
A. Preliminary Schedule 13D (November 10, 2022)
On November 10, 2022, the Reporting Persons filed a preliminary Schedule 13D with the SEC disclosing that they had accumulated a significant beneficial ownership position in the Common Stock of RGC. The preliminary filing identified the following Reporting Persons:
(i) Pinnacle Harbor Capital Partners, LP, a Delaware limited partnership, with its principal office at 590 Madison Avenue, 34th Floor, New York, NY 10022. PHCP serves as the investment vehicle through which the shares were acquired and held.
(ii) Pinnacle Harbor Capital Management, LLC, a Delaware limited liability company, serving as the general partner of PHCP. PHCM exercises investment discretion and voting authority over the securities held by the fund.
(iii) Viktor S. Kessler, a natural person and citizen of the United States, age 47 at the time of the initial filing, who serves as the Managing Partner and Chief Investment Officer of both PHCP and PHCM. Mr. Kessler is the controlling person of PHCM and, through PHCM, exercises ultimate investment authority over the fund's portfolio.
The preliminary Schedule 13D disclosed that the Reporting Persons had acquired beneficial ownership of 7,119,600 shares of RGC Common Stock, representing approximately 6.8% of the 104,700,000 shares of Common Stock then outstanding. The shares were acquired at a weighted-average purchase price per share of $26.42, resulting in an aggregate cost basis of approximately $188.1 million (7,119,600 shares × $26.42 = $188,099,832). The filing disclosed that the shares were accumulated through open-market purchases during the period from June 2022 through November 2022, using investment capital of the fund.
With respect to the purpose of the transaction, the preliminary Schedule 13D disclosed three principal objectives:
(1) To seek the appointment of two nominees designated by Pinnacle Harbor to the RGC Board of Directors, either through negotiation with the Board or, if necessary, through a proxy contest at the Company's next annual meeting of stockholders;
(2) To demand that the RGC Board of Directors undertake a formal strategic review of the Company's interactive gaming division, including a comprehensive evaluation of potential strategic alternatives such as a sale, spin-off, or other disposition of all or a portion of that business segment; and
(3) To seek the return of approximately $300 million to shareholders, either through a one-time special cash dividend or through an accelerated share repurchase program, on the basis that the Company's balance sheet was underleveraged relative to its gaming industry peers.
The preliminary filing identified Pinnacle Harbor's legal counsel as Hargrove Sloane & Birch LLP, with Jonathan "Jon" Birch III serving as Lead Partner. Hargrove Sloane & Birch is located at 1585 Broadway, 40th Floor, New York, NY 10036. The filing further identified Pinnacle Harbor's proxy solicitor as Garrison Proxy Advisors, LLC, with Alicia Trent, Managing Director, at 17 Ashbury Asset Advisors, Suite 1600, New York, NY 10004.
The preliminary Schedule 13D was the first public disclosure of Pinnacle Harbor's position in RGC and was filed within the required ten-day window following the date on which the Reporting Persons' beneficial ownership crossed the five-percent threshold, consistent with the requirements of Section 13(d)(1) of the Exchange Act and Rule 13d-1(a) thereunder.
B. First Amendment to Schedule 13D (January 6, 2023)
On January 6, 2023, the Reporting Persons filed a first amendment to the Schedule 13D to update Item 4 (Purpose of Transaction) to reflect a significant escalation in Pinnacle Harbor's activist campaign. Specifically, the amendment disclosed that Pinnacle Harbor had determined to pursue a proxy contest at the Company's 2023 Annual Meeting of Stockholders in the event that the Company did not agree to Pinnacle Harbor's demands through private negotiation.
The first amendment identified two individuals whom Pinnacle Harbor intended to nominate for election to the RGC Board of Directors:
(i) Dr. Sandra Trevelyan, age 55, former Chief Operating Officer of Meridian Interactive Holdings, Inc., a publicly traded interactive entertainment company. Dr. Trevelyan was presented by Pinnacle Harbor as a candidate with deep operational expertise in the interactive gaming sector and relevant experience in overseeing digital transformation initiatives at scale.
(ii) Hugh Desmond Grayson, age 61, former Chief Financial Officer of Atlas Leisure Group, Inc., a diversified hospitality and leisure company. Mr. Grayson was presented by Pinnacle Harbor as a candidate with extensive financial and capital allocation experience in the gaming and hospitality industries.
The first amendment did not report any change in the Reporting Persons' beneficial ownership position, which remained at 7,119,600 shares, representing approximately 6.8% of the 104,700,000 shares of Common Stock outstanding. The amendment disclosed no additional acquisitions or dispositions of shares since the preliminary Schedule 13D.
The first amendment referenced the formal notice of intent to nominate directors, which was delivered by Hargrove Sloane & Birch LLP on behalf of Pinnacle Harbor to Redstone Gaming Corp. on December 8, 2022. The nomination notice itself was subsequently received by the Company's Corporate Secretary on January 9, 2023, which date fell within the advance-notice window prescribed by Article II, Section 2.11 of the Company's Amended and Restated Bylaws (the "Bylaws"). Our review of the Bylaws confirmed that the nomination was timely submitted, a conclusion that was communicated to Ms. Nakamura in our separate memorandum dated January 12, 2023.
The filing of the first amendment escalated the public dimension of the dispute between the Company and Pinnacle Harbor and preceded an approximately two-month period of private negotiations between the parties, facilitated by their respective legal and advisory teams. Those negotiations ultimately resulted in the Cooperation and Standstill Agreement that is the principal subject of this memorandum.
C. Second Amendment to Schedule 13D (March 15, 2023) — Subject of This Review
On March 15, 2023, the Reporting Persons filed the second amendment to the Schedule 13D — the "Amended 13D" that is the subject of this review. This filing was made to reflect the execution of the Cooperation and Standstill Agreement on March 10, 2023, and the consequent material changes to the Reporting Persons' purposes, plans, and arrangements with respect to the Company and its securities.
The Amended 13D includes updates to Items 4, 5, 6, and 7 of the Schedule 13D. Each of these updates is discussed in detail in Section III of this memorandum, below.
III. Item-by-Item Review of the March 15, 2023 Amended Schedule 13D
We have conducted a line-by-line review of each item of the Amended 13D against the executed Cooperation and Standstill Agreement (the execution version of which is maintained in our files under Matter No. 1033-00003), the prior Schedule 13D filings, and applicable SEC requirements. Our findings are set forth below.
A. Cover Page
The cover page of the Amended 13D contains the following information, each element of which we have verified:
• Issuer: The issuer is correctly identified as Redstone Gaming Corp., a corporation organized under the laws of the State of Delaware.
• Title of Class of Securities: The class of securities is correctly identified as "Common Stock."
• CUSIP Number: The CUSIP number set forth on the cover page should be confirmed against the prior filings to ensure consistency. We have flagged this item for final verification by Marcus Leung; however, we have no reason to believe the CUSIP number is incorrect, and it appears consistent on its face with the numbers reported in the preliminary 13D and the first amendment.
• Date of Event Which Requires Filing of This Statement: The date is reported as March 10, 2023, which is the date of execution of the Cooperation and Standstill Agreement. Confirmed accurate. This is the appropriate triggering date, as the execution of the Cooperation Agreement constituted the material change in the facts previously reported in the Schedule 13D.
• Reporting Persons: Three Reporting Persons are identified: (1) Pinnacle Harbor Capital Partners, LP; (2) Pinnacle Harbor Capital Management, LLC; and (3) Viktor S. Kessler. Confirmed consistent with all prior filings. No new Reporting Persons have been added, and no prior Reporting Persons have been removed.
• Address of Principal Office: The address of the principal office of the Reporting Persons is reported as 590 Madison Avenue, 34th Floor, New York, NY 10022. Confirmed accurate and consistent with all prior filings.
No discrepancies were identified on the cover page of the Amended 13D.
B. Item 2 — Identity and Background
Item 2 of the Amended 13D contains information regarding the identity and background of each Reporting Person. Our review confirms that there are no material changes from the information disclosed in the preliminary Schedule 13D or the first amendment. The key details are as follows:
• Pinnacle Harbor Capital Partners, LP: Delaware limited partnership; Employer Identification Number 47-3928154; principal business is investment management, with a focus on the gaming, hospitality, and digital entertainment sectors.
• Pinnacle Harbor Capital Management, LLC: Delaware limited liability company; serves as the general partner of PHCP; principal business is serving as the management company and general partner of PHCP and managing the fund's investment activities.
• Viktor S. Kessler: Natural person; age 47; citizen of the United States; serves as Managing Partner and Chief Investment Officer of both PHCP and PHCM; business address at 590 Madison Avenue, 34th Floor, New York, NY 10022. Mr. Kessler is identified as the controlling person of PHCM and exercises investment discretion and voting authority over the securities of RGC held by PHCP.
• Nadia Johar: Identified as Head of Activism and Portfolio Manager at PHCP, age 39. Ms. Johar's information was included in the preliminary Schedule 13D, as she is an executive officer of PHCM who has been involved in the planning and execution of the Pinnacle Harbor activism campaign with respect to RGC.
Observation: The information reported in Item 2 is consistent with the preliminary 13D and the first amendment. No new individuals or entities are identified. No discrepancies were noted. The criminal and civil background disclosures required by Item 2 appear unchanged and complete.
C. Item 3 — Source and Amount of Funds or Other Consideration
Item 3 of the Amended 13D reports the source and amount of funds used to acquire the shares of RGC Common Stock beneficially owned by the Reporting Persons. The Amendment reports that:
• The 7,119,600 shares of Common Stock were acquired using the investment capital of PHCP, consisting of funds contributed by the fund's limited partners in the ordinary course of the fund's investment activities;
• The total aggregate cost basis of the shares is approximately $188.1 million, based on a weighted-average purchase price per share of $26.42; and
• No borrowed funds were used in connection with the acquisition of the shares, and no margin arrangements or other financing arrangements are in place with respect to the shares.
Confirmed: The information in Item 3 is consistent with the preliminary Schedule 13D and the first amendment. No changes in position have been disclosed, and no new sources of funds are identified. The aggregate cost basis and weighted-average purchase price per share are unchanged from prior filings and are consistent with our independent records.
D. Item 4 — Purpose of Transaction
Item 4 is the item that has been most significantly amended in the Amended 13D, as it is this item that discloses the fundamental shift in the Reporting Persons' stated purposes with respect to the Company — from an activist posture (pursuing a proxy contest and demanding board seats, a strategic review, and capital return) to a cooperative posture (settlement, standstill, and the withdrawal of all director nominations).
The Amended 13D states, in substance, that the Reporting Persons have entered into a Cooperation and Standstill Agreement with Redstone Gaming Corp. dated as of March 10, 2023. The filing then describes the key terms of the Cooperation Agreement, each of which we have cross-referenced against the executed Agreement. Our findings with respect to each disclosed term are set forth below.
Standstill Period. The Amended 13D states that the Reporting Persons have agreed to a standstill period of eighteen (18) months from the date of execution of the Cooperation Agreement, running from March 10, 2023 through September 10, 2024. During the standstill period, the Reporting Persons are subject to certain restrictions on their activities with respect to the Company, as described below. Confirmed accurate against the corresponding provision of the executed Cooperation Agreement.
Ownership Cap. The Amended 13D discloses that, during the standstill period, the Reporting Persons may not, individually or collectively, acquire beneficial ownership of shares of Common Stock representing more than 9.9% of the total shares of Common Stock outstanding at any given time. This restriction applies to all forms of beneficial ownership, including shares held directly, shares held through derivative instruments, and shares over which the Reporting Persons exercise voting or dispositive power. Confirmed accurate against the executed Agreement.
Board Concession — Appointment of Mutually Agreed Independent Director. The Amended 13D discloses that, in connection with the Cooperation Agreement, RGC has agreed to appoint one new independent director to the Board of Directors. This director was required to be mutually agreed upon by the Company and Pinnacle Harbor and could not be (a) a Pinnacle Harbor nominee (i.e., neither Dr. Sandra Trevelyan nor Hugh Desmond Grayson) or (b) a current RGC insider. The selection was to be made from a pool of three candidates identified by a joint committee composed of representatives of both parties.
The Amended 13D identifies the mutually agreed director as Franklin Chu, age 52, the former Chief Executive Officer of Prism Digital Entertainment, LLC, a privately held digital gaming and entertainment company. Mr. Chu is to be appointed to the Board effective April 1, 2023, and will serve as a director until the Company's 2025 Annual Meeting of Stockholders, at which time he will stand for election by stockholders in the ordinary course.
Confirmed accurate against the executed Agreement and the joint press release. The identity of Mr. Chu, his background, his effective appointment date, and his term of service are all consistent with the terms set forth in the Agreement.
Strategic Review of Interactive Gaming Division. The Amended 13D discloses that, pursuant to the Cooperation Agreement, the RGC Board of Directors has agreed to cause its management and advisors to conduct an internal review of the strategic alternatives available with respect to the Company's interactive gaming division. The review is to be completed within 120 days of the date of execution of the Agreement — i.e., by July 8, 2023. Upon completion, a summary report of the findings will be delivered to the full Board of Directors.
The filing correctly notes that the Company is under no obligation to share the conclusions of the strategic review with Pinnacle Harbor or to take any particular action as a result of the review. The review is to be conducted in the exercise of the Board's fiduciary duties, and the Board retains full discretion with respect to any strategic actions.
Confirmed accurate against the executed Agreement.
Voting Commitment. The Amended 13D discloses that, during the standstill period, the Reporting Persons have agreed to vote all shares of Common Stock beneficially owned by them (a) in favor of the Company's management-recommended director nominees at any annual or special meeting of stockholders, and (b) in accordance with the Board's recommendations on all other proposals submitted to a vote of stockholders. This voting commitment effectively ensures that Pinnacle Harbor will support the Company's slate and management proposals during the standstill period, removing the threat of a contested proxy solicitation.
Confirmed accurate against the executed Agreement.
Withdrawal of Director Nominations. The Amended 13D expressly states that the Reporting Persons have withdrawn all director nominations previously submitted to the Company in connection with the 2023 Annual Meeting of Stockholders, specifically the nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson. The filing further states that the Reporting Persons have agreed not to nominate any persons for election to the Board of Directors, and not to solicit proxies or participate in any solicitation of proxies with respect to the Company's securities, during the standstill period.
Confirmed accurate against the executed Agreement.
Non-Disparagement. The Amended 13D discloses that the Cooperation Agreement contains mutual non-disparagement provisions that apply during the standstill period. Both the Company and the Reporting Persons have agreed to refrain from making or causing to be made any public statements that disparage, criticize, or denigrate the other party, including their respective officers, directors, employees, and affiliates.
Confirmed accurate against the executed Agreement.
Expense Reimbursement. The Amended 13D discloses that, pursuant to the Cooperation Agreement, RGC has agreed to reimburse Pinnacle Harbor for its documented, out-of-pocket legal expenses incurred in connection with the activism campaign and the negotiation and execution of the Cooperation Agreement, subject to a cap of $750,000. The filing states that reimbursement is contingent upon PHCP's submission of invoices or other reasonable documentation of such expenses.
Confirmed accurate against the executed Agreement.
Termination Triggers. The Amended 13D identifies three circumstances under which the Cooperation Agreement may be terminated prior to the expiration of the standstill period:
(i) Material Breach: Either party may terminate the Agreement in the event of a material breach by the other party, provided that the breaching party has been given written notice of the breach and has failed to cure such breach within fifteen (15) business days following receipt of such notice;
(ii) Change of Control: The Agreement terminates automatically upon the occurrence of a "change-of-control" of the Company, as defined in the Agreement; and
(iii) Ownership Threshold: The Agreement terminates automatically if the Reporting Persons' beneficial ownership of Common Stock drops below 3.5% of the total shares of Common Stock outstanding (based on current shares outstanding of 104,700,000, this threshold corresponds to approximately 3,664,500 shares).
Confirmed accurate against the corresponding termination provisions of the executed Agreement.
Governing Law. The Amended 13D discloses that the Cooperation Agreement is governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflicts-of-law principles. Confirmed accurate.
Additional Disclosures. The Amended 13D further states that the Reporting Persons no longer intend to pursue a proxy contest at the 2023 Annual Meeting of Stockholders and that Pinnacle Harbor's activist campaign with respect to the Company has been terminated. The filing references the joint press release issued by the Company and Pinnacle Harbor on March 13, 2023, announcing the terms of the Cooperation Agreement, the appointment of Mr. Chu, and the withdrawal of all director nominations.
Cross-Check Against Executed Agreement. We have performed a comprehensive cross-check of all material terms disclosed in Item 4 of the Amended 13D against the corresponding provisions of the fully executed Cooperation and Standstill Agreement maintained in our files. All material terms disclosed in Item 4 are consistent with the executed Agreement. We identified no omissions of required material terms. The parties to the Agreement are correctly identified as Redstone Gaming Corp., Pinnacle Harbor Capital Partners, LP, Pinnacle Harbor Capital Management, LLC, and Viktor S. Kessler.
E. Item 5 — Interest in Securities of the Issuer
Item 5 of the Amended 13D reports the Reporting Persons' beneficial ownership of shares of RGC Common Stock. The Amendment reports the following:
• The Reporting Persons beneficially own 7,119,600 shares of Common Stock;
• Based on 104,700,000 shares of Common Stock outstanding, the Reporting Persons' beneficial ownership represents approximately 6.8% of the outstanding shares;
• Sole voting power and sole dispositive power with respect to all 7,119,600 shares reside with PHCP, subject to the investment discretion and control exercised by PHCM as general partner and by Mr. Kessler as controlling person of PHCM; and
• No additional acquisitions or dispositions of shares have occurred since the filing of the first amendment to the Schedule 13D on January 6, 2023.
Confirmed: The ownership figures reported in Item 5 are consistent with all prior filings and with our independent records. The shares outstanding figure of 104,700,000 is consistent with the records of Continental Share Services, Inc. (Jason Velmoran, Vice President), the Company's transfer agent, and with the Company's most recently filed periodic reports with the SEC.
For informational purposes, the mark-to-market value of the Reporting Persons' position as of the March 10, 2023 closing price of $33.25 per share is approximately $236.7 million (7,119,600 shares × $33.25 = $236,726,700). This represents an unrealized gain of approximately $48.6 million from the reported aggregate cost basis of $188.1 million, or a gain of approximately 25.8% over the weighted-average acquisition price.
Observation: The Amended 13D does not disclose any additional acquisitions or dispositions of shares since the first amendment dated January 6, 2023. This is consistent with our understanding based on communications with the Company and review of available trading records. No discrepancies were noted.
F. Item 6 — Contracts, Arrangements, Understandings, or Relationships with Respect to Securities of the Issuer
Item 6 of the Amended 13D has been updated to disclose the Cooperation and Standstill Agreement as a contract between the Reporting Persons and the Issuer with respect to the securities of the Issuer. The filing states that:
• The Reporting Persons have entered into a Cooperation and Standstill Agreement with RGC dated March 10, 2023;
• The Agreement contains, among other things, standstill provisions restricting the Reporting Persons from acquiring beneficial ownership of more than 9.9% of the outstanding Common Stock during the standstill period, and restricting the Reporting Persons from engaging in proxy solicitation activities with respect to the Company's securities during the standstill period; and
• The full text of the Cooperation and Standstill Agreement is filed as Exhibit 99.1 to the Amended 13D and is incorporated by reference into Item 6.
Confirmed: We have cross-referenced the version of the Cooperation and Standstill Agreement filed as Exhibit 99.1 against the execution version of the Agreement maintained in our files (Matter No. 1033-00003). The filed version is an accurate and complete copy of the executed Agreement, including all signature pages. No redactions, modifications, or deviations from the execution version were identified.
The disclosure in Item 6 accurately identifies the nature and scope of the contractual restrictions imposed on the Reporting Persons by the Agreement. No additional undisclosed contracts, arrangements, understandings, or relationships with respect to the Company's securities were identified.
Observation: The disclosures in Item 6 are consistent with the terms of the Cooperation Agreement as described in Item 4 and as set forth in the full text of the Agreement filed as an exhibit. No discrepancies were noted.
G. Item 7 — Material to Be Filed as Exhibits
Item 7 of the Amended 13D identifies the following exhibits filed with the Amendment:
• Exhibit 99.1: Cooperation and Standstill Agreement dated March 10, 2023, by and among Redstone Gaming Corp., Pinnacle Harbor Capital Partners, LP, Pinnacle Harbor Capital Management, LLC, and Viktor S. Kessler. Confirmed filed with the SEC via EDGAR. As noted above, the filed version has been verified against the execution version in our files and is accurate and complete.
• Exhibit 99.2: Joint Press Release dated March 13, 2023, issued by Redstone Gaming Corp. and Pinnacle Harbor Capital Partners, LP, announcing the entry into the Cooperation and Standstill Agreement, the appointment of Franklin Chu to the Board of Directors, and the withdrawal of all director nominations. Confirmed filed with the SEC via EDGAR. We have cross-referenced the filed version against the final approved version of the press release maintained in our files, which was prepared in coordination with Harlan Ridge Communications, LLC (Philip Navarette, Partner) on behalf of RGC and reviewed by Calderwood & Harkness. The filed version is consistent with the final approved version.
Observation: The exhibits filed with the Amended 13D appear complete and consistent. All documents referenced in the body of the Amended 13D are accounted for in the exhibits. No additional exhibits appear to be required under the instructions to Schedule 13D.
IV. Compliance Analysis — Sections 13(d) and 14(a) of the Securities Exchange Act of 1934
We have analyzed the Amended 13D for compliance with the requirements of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Our analysis addresses three principal compliance dimensions: timeliness, completeness, and group formation.
A. Timeliness of Filing
Under Rule 13d-2(a) promulgated under the Exchange Act, an amendment to a Schedule 13D is required to be filed "promptly" upon the occurrence of any material change in the facts set forth in the previously filed Schedule 13D, including but not limited to any material increase or decrease in the percentage of the class of securities beneficially owned or any material change in the purpose of the transaction.
The relevant chronology is as follows:
• March 10, 2023: Execution of the Cooperation and Standstill Agreement by all parties.
• March 13, 2023 (Monday): Issuance of the joint press release by RGC and Pinnacle Harbor, publicly announcing the execution of the Agreement, the appointment of Franklin Chu, and the withdrawal of all director nominations. The press release was issued prior to the opening of Nasdaq trading and was disseminated via BusinessWire.
• March 15, 2023 (Wednesday): Filing of the Amended 13D with the SEC via EDGAR.
The interval between the triggering event (execution of the Agreement on March 10) and the filing of the Amendment (March 15) is five calendar days, or three business days (March 10 fell on a Friday; March 11–12 was a weekend; March 13–15 were business days). Rule 13d-2(a) does not prescribe a specific numerical deadline for the filing of an amendment (unlike the ten-day filing deadline for an initial Schedule 13D under Rule 13d-1(a)), but instead requires that the amendment be filed "promptly." The SEC has not defined "promptly" with precision in this context, but the Division of Corporation Finance and the courts have generally interpreted the term to require filing within a few business days of the triggering event, depending on the circumstances.
A five-calendar-day / three-business-day lag is well within the range that has been accepted as "prompt" by the SEC and the courts, particularly where, as here, (a) the material change was publicly disclosed via press release on March 13, only one business day after the weekend following execution, and (b) the amendment required the preparation and filing of multiple exhibits, including the full text of the Cooperation Agreement.
Conclusion: The filing of the Amended 13D on March 15, 2023, appears timely under Rule 13d-2(a). We do not anticipate any SEC comment or enforcement inquiry regarding timeliness.
B. Completeness of Disclosure
We have reviewed the Amended 13D to assess whether it contains complete and adequate disclosure of all information required by Schedule 13D and the General Instructions thereto, with particular focus on the amendments to Items 4, 5, 6, and 7.
Our review indicates the following:
• All material terms of the Cooperation and Standstill Agreement have been disclosed in Item 4, either directly in the narrative text or by incorporation by reference through the filing of the full text of the Agreement as Exhibit 99.1. The disclosure covers the standstill period, the ownership cap, the board appointment, the strategic review, the voting commitment, the withdrawal of nominations, the non-disparagement provisions, the expense reimbursement, the termination triggers, and the governing law.
• The change in the Reporting Persons' purpose — from an activist campaign seeking board representation, a strategic review, and capital return through a potential proxy contest, to a cooperative posture with a standstill and the withdrawal of all nominations — is clearly and unambiguously articulated in Item 4.
• The withdrawal of both director nominees (Dr. Sandra Trevelyan and Hugh Desmond Grayson) is expressly stated.
• The beneficial ownership information in Item 5 has been reviewed and confirmed as accurate and complete. The shares outstanding figure is current and consistent with available sources.
• The contractual arrangement disclosed in Item 6 is accurately described and is accompanied by the filing of the complete agreement as an exhibit.
• All required exhibits are filed and appear to be accurate and complete copies of the underlying documents.
Conclusion: The disclosure in the Amended 13D appears complete and adequate in all material respects. We have not identified any omissions of information required by Schedule 13D or the instructions thereto.
C. Group Formation Issues
Section 13(d)(3) of the Exchange Act provides that, when two or more persons act as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of securities of an issuer, such syndicate or group shall be deemed a "person" for purposes of Section 13(d). Consistent with all prior filings, the Amended 13D identifies PHCP, PHCM, and Mr. Kessler as a "group" within the meaning of Section 13(d)(3).
The Amended 13D does not identify any new group members and does not disclose any arrangements with third parties that would give rise to the formation of a new group. The Cooperation and Standstill Agreement between the Reporting Persons and the Company does not, in our view, create a "group" between the Company and the Reporting Persons for purposes of Section 13(d)(3), because the Agreement is a settlement and standstill arrangement rather than an agreement to acquire, hold, or dispose of securities jointly.
Conclusion: No group formation issues are presented by the Amended 13D. The group composition is unchanged from prior filings, and no new group members have been identified.
V. Comparison to Joint Press Release (March 13, 2023)
As part of our review, we compared the disclosures contained in the Amended 13D to the terms described in the joint press release issued by Redstone Gaming Corp. and Pinnacle Harbor Capital Partners, LP on March 13, 2023. The press release was prepared in coordination with Harlan Ridge Communications, LLC (Philip Navarette, Partner), the Company's external communications advisor, and was reviewed and approved by Calderwood & Harkness prior to issuance. The final approved version of the press release is maintained in our files.
The joint press release announced the following:
(i) The execution of the Cooperation and Standstill Agreement, and a summary of its key terms, including the 18-month standstill period, the 9.9% ownership cap, the voting commitments, the non-disparagement provisions, and the withdrawal of all director nominations;
(ii) The appointment of Franklin Chu to the RGC Board of Directors, effective April 1, 2023, as the mutually agreed-upon independent director under the terms of the Agreement; and
(iii) The withdrawal of the nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson and the termination of Pinnacle Harbor's proxy contest and activism campaign.
We have confirmed that all of the foregoing matters are reflected in the Amended 13D and that the descriptions of the material terms in the press release are consistent with the descriptions in the filing. No inconsistencies were identified between the joint press release and the Amended 13D.
We note that the press release contained certain forward-looking statements and customary safe-harbor language that do not appear in the 13D, which is expected and appropriate given the differing purposes and regulatory frameworks of the two documents.
VI. Comparison to RGC's Form 8-K
In connection with the execution of the Cooperation and Standstill Agreement, Redstone Gaming Corp. has filed (or is in the process of filing) a Current Report on Form 8-K with the SEC reporting the following events:
• Item 1.01 (Entry into a Material Definitive Agreement): Disclosure of the Cooperation and Standstill Agreement as a material definitive agreement entered into by the Company;
• Item 5.02 (Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers): Disclosure of the appointment of Franklin Chu to the Board of Directors, effective April 1, 2023, including his biographical information and the circumstances of his appointment; and
• Item 8.01 (Other Events): Disclosure of the withdrawal of Pinnacle Harbor's director nominations, the settlement of the activism campaign, and other relevant information.
We recommend that the disclosures contained in Pinnacle Harbor's Amended 13D be cross-referenced against the final text of RGC's Form 8-K to confirm that the descriptions of the Cooperation Agreement's material terms are consistent across both filings. Inconsistencies between the two filings — even minor or stylistic ones — could attract scrutiny from the SEC Staff or create confusion among investors and market participants.
Our preliminary review of the draft Form 8-K (to the extent it has been circulated internally) indicates alignment of the material terms as described in both filings. However, we have not yet had the opportunity to compare the final filed version of the 8-K on a line-by-line basis against the Amended 13D.
Recommendation: A final cross-check should be performed once the Company's Form 8-K is filed with the SEC. Any inconsistencies should be promptly flagged to the undersigned and to Ms. Nakamura for evaluation and, if necessary, correction through a subsequent amendment or filing.
VII. Observations and Recommendations
Based on our comprehensive review of the Amended 13D, we offer the following observations and recommendations for the Company's consideration.
A. No Material Discrepancies
The Amended Schedule 13D filed by Pinnacle Harbor Capital Partners, LP on March 15, 2023, accurately reflects the terms of the executed Cooperation and Standstill Agreement dated March 10, 2023. All material terms of the Agreement are disclosed in the filing, either directly in the narrative text of Item 4 or by incorporation by reference through the filing of the full text of the Agreement as Exhibit 99.1. The parties to the Agreement are correctly identified, and the filing is internally consistent with itself and with all prior Schedule 13D filings.
All disclosed ownership figures are consistent with prior filings and with our independent records:
• Beneficial ownership: 7,119,600 shares (6.8%)
• Shares outstanding: 104,700,000
• Weighted-average purchase price per share: $26.42
• Aggregate cost basis: approximately $188.1 million
The withdrawal of the nominations of Dr. Sandra Trevelyan and Hugh Desmond Grayson is clearly and unequivocally stated in the Amended 13D, and the filing expressly discloses that Pinnacle Harbor no longer intends to pursue a proxy contest at the 2023 Annual Meeting of Stockholders.
We have identified no material discrepancies, omissions, or misstatements in the filing.
B. Monitoring Recommendations
Although the Amended 13D does not require any immediate action by the Company, Calderwood & Harkness recommends that the Company implement an ongoing monitoring program to track future developments during the standstill period (through September 10, 2024). Specifically, we recommend the following:
1. Future 13D Amendment Monitoring. Calderwood & Harkness should monitor SEC EDGAR filings on a regular basis for any future amendments to the Schedule 13D filed by the Reporting Persons. Any future amendments should be promptly flagged for review to confirm:
(a) That Pinnacle Harbor remains in compliance with the 9.9% ownership cap prescribed by the Cooperation Agreement;
(b) That no additional acquisitions or dispositions of shares have been made that would be inconsistent with the standstill obligations or the spirit of the Cooperation Agreement;
(c) That no disclosure of purposes, plans, or proposals has been made that would be inconsistent with the voting commitments, non-solicitation undertakings, or non-disparagement provisions of the Agreement; and
(d) That all disclosures remain accurate and consistent with the Company's understanding of the Reporting Persons' activities and intentions.
2. Transfer Agent Verification. The Company's transfer agent, Continental Share Services, Inc. (Jason Velmoran, Vice President), should be contacted periodically — no less frequently than quarterly — to verify the share position data reported by the Reporting Persons and to confirm that no significant changes in the Reporting Persons' beneficial ownership have occurred without corresponding disclosure.
3. SEC Staff Comment Letter Monitoring. The EDGAR filing should be monitored for any SEC Staff comment letters directed to the Reporting Persons in connection with the Amended 13D or any prior Schedule 13D filing. Although we do not anticipate any Staff comments based on our review, any comment letter and the Reporting Persons' response thereto should be reviewed by Calderwood & Harkness for potential implications for the Company.
C. Termination Event Monitoring
The Cooperation and Standstill Agreement contains three termination triggers, each of which could result in an early termination of the standstill period and a corresponding resumption of Pinnacle Harbor's ability to engage in activist activities with respect to the Company. Calderwood & Harkness recommends that the Company actively monitor for the occurrence of any of the following events:
(i) Material Breach. Either party may terminate the Agreement upon a material breach by the other party that remains uncured for fifteen (15) business days following delivery of written notice. The Company should be attentive to any communications from Pinnacle Harbor or Hargrove Sloane & Birch LLP alleging a breach by the Company, and should promptly consult with Calderwood & Harkness in the event any such communication is received. Conversely, the Company should monitor for any actions by the Reporting Persons that may constitute a breach of the Agreement and should promptly notify Calderwood & Harkness of any suspected breaches.
(ii) Change of Control. The Agreement terminates automatically upon the occurrence of a "change-of-control" of the Company, as defined in the Agreement. In the event the Company engages in any strategic transaction that may constitute a change-of-control (including a merger, acquisition, tender offer, or sale of all or substantially all of the Company's assets), Calderwood & Harkness should be consulted to evaluate the impact on the Cooperation Agreement and the standstill obligations.
(iii) Ownership Threshold. The Agreement terminates automatically if the Reporting Persons' beneficial ownership of Common Stock drops below 3.5% of the total shares of Common Stock outstanding. Based on the current shares outstanding of 104,700,000, this threshold corresponds to approximately 3,664,500 shares. A significant reduction in Pinnacle Harbor's reported ownership — particularly any reduction below or approaching the 3.5% threshold — should be closely monitored through SEC filings and transfer agent records.
A termination event would likely trigger a further amendment to the Schedule 13D by the Reporting Persons and could signal a renewal of activist activity. Any such filing should be immediately flagged for review and analysis by Calderwood & Harkness.
The standstill period, absent an earlier termination event, is scheduled to expire on September 10, 2024. As that date approaches, the Company should begin preparing for the possibility that Pinnacle Harbor may resume activist engagement, including the potential for new director nominations, proxy solicitations, or other stockholder campaigns.
D. No Action Required at This Time
Based on our review, the filing of the Amended 13D does not require any response, corrective action, or other affirmative step by Redstone Gaming Corp. or by Calderwood & Harkness on the Company's behalf. The filing accurately reflects the Cooperation and Standstill Agreement, is timely, and is compliant with applicable SEC requirements.
The matter is progressing toward dormant status following the anticipated uncontested 2023 Annual Meeting of Stockholders, which is currently scheduled for May 18, 2023. Following the annual meeting, the principal remaining tasks under this engagement are:
(a) Confirmation that Mr. Franklin Chu has been duly appointed to the Board effective April 1, 2023;
(b) Monitoring of the strategic review of the interactive gaming division and the delivery of the summary report to the Board by the July 8, 2023 deadline;
(c) Ongoing monitoring of Pinnacle Harbor's Schedule 13D filings through the standstill period, as described above; and
(d) Final cross-check of RGC's Form 8-K once filed with the SEC.
This memorandum should be retained in the permanent matter file under Matter No. 1033-00003 and should be made available to the engagement team for reference in connection with any future developments.
VIII. Conclusion
Based on our comprehensive, item-by-item review, the amended Schedule 13D filed by Pinnacle Harbor Capital Partners, LP on March 15, 2023, accurately and completely discloses the Cooperation and Standstill Agreement dated March 10, 2023, and the withdrawal of all director nominations previously submitted by the Reporting Persons. The filing was made promptly following the execution of the Agreement and is consistent with the executed Agreement, the joint press release issued on March 13, 2023, and all prior Schedule 13D filings by the Reporting Persons.
We have identified no material discrepancies, omissions, or compliance deficiencies. No corrective action is required by the Company at this time. Continued monitoring of Pinnacle Harbor's SEC filings and compliance with the terms of the Cooperation and Standstill Agreement is recommended through the expiration of the standstill period on September 10, 2024.
We are available to discuss any aspect of this memorandum at your convenience. Please do not hesitate to contact the undersigned or Marcus Leung with any questions.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Name: Claire Dempsey
Title: Lead Associate, Capital Markets Practice Group
Appendix — Attachments
The following documents are referenced in this memorandum and are maintained in the files of Calderwood & Harkness LLP under Matter No. 1033-00003. Copies are attached hereto or available upon request.
PRIVILEGED & CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED — ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP. It is protected by the attorney-client privilege and the work product doctrine. Unauthorized disclosure is strictly prohibited. If you have received this document in error, please notify Calderwood & Harkness LLP immediately and destroy all copies.
| Matter No. 1033-00003 | Calderwood & Harkness LLP | 3960 Howard Hughes Parkway, Suite 1400 | Las Vegas, NV 89169 |
| TO: | Douglas Fairchild, Engagement Partner, Calderwood & Harkness LLP |