CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: File — Matter No. 1033-00005
FROM: Nadia Petrov, Lead Associate, Labor & Employment
REVIEWED BY: Renata Vasquez, Responsible Partner, Labor & Employment
DATE: January 22, 2024
RE: Matter Closing Memorandum — Redstone Gaming Corp. CFO Employment Negotiation — Marcus J. Ellender
MATTER NUMBER: 1033-00005
ENGAGEMENT LETTER REF.: 1033-00005
MATTER STATUS: Closed — Terminated
OFFICE: Calderwood & Harkness LLP, Las Vegas Office, 3900 Howard Hughes Parkway, Suite 800, Las Vegas, NV 89169
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is prepared solely for internal firm use in connection with the closing of the above-referenced matter. Distribution outside the firm is not authorized without the express written consent of the Responsible Partner.
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I. Purpose
This memorandum memorializes the closing of Matter No. 1033-00005 following the formal decline by Chief Financial Officer candidate Marcus J. Ellender of the executive employment offer extended by Redstone Gaming Corp. ("RGC" or the "Client"). Mr. Ellender's formal decline was communicated on January 19, 2024, through his counsel, Victoria R. Saldana of Harlan & Mosley LLP. As a consequence, the negotiation was terminated without execution of an employment agreement, and the matter has been closed.
The engagement was opened on November 8, 2023, upon execution of the engagement letter between Calderwood & Harkness LLP ("C&H" or the "Firm") and RGC, and the matter was closed on January 22, 2024, yielding an active matter duration of approximately seventy-five days.
The purpose of this memorandum is to create a comprehensive and permanent record of the matter history, including the background of the engagement, the work performed by the engagement team, a detailed chronological summary of the negotiation, the status of all key negotiation points at the time of termination, a summary of fees and expenses incurred and billed, a complete document inventory, and recommendations concerning document retention, client communication, confidentiality obligations, and considerations for any future engagement. This memorandum is intended to serve as the definitive closing record for the matter file and should be consulted as the primary reference should RGC re-engage the Firm for a related matter.
II. Client Information
A. Entity Details
The client in this matter is Redstone Gaming Corp., a corporation organized and existing under the laws of the State of Delaware. RGC's shares of common stock are publicly traded on the Nasdaq Stock Market under the ticker symbol RDGM. The company's principal executive offices are located at 4100 Sandstone Ridge Boulevard, Las Vegas, Nevada 89119. RGC's registered agent in the State of Nevada is Western Statutory Services, Inc., located at 701 S. Carson Street, Suite 200, Carson City, Nevada 89701. The company's federal Employer Identification Number is 88-3204617.
B. Business Overview
RGC operates in the casino gaming, resort operations, interactive digital gaming, and media entertainment industries. The company owns and operates a portfolio of casino resort properties and maintains a growing presence in the regulated online and interactive gaming space. Based on publicly available information and data provided by the Client during the engagement, RGC's estimated fiscal year 2023 revenue was approximately $2.87 billion. As of November 2023, RGC's approximate market capitalization was $6.4 billion. The company employs approximately 14,200 individuals across its various properties and corporate functions.
C. Primary Client Contacts
The Firm's primary day-to-day contacts at RGC for the purposes of this engagement were as follows:
Priya Narasimhan — General Counsel, Redstone Gaming Corp. Ms. Narasimhan served as the principal legal contact and authorized representative of the Client throughout the engagement. All material communications, draft agreements, and strategic recommendations were directed to or through Ms. Narasimhan.
Dean R. Fulbright — Chief Human Resources Officer, Redstone Gaming Corp. Mr. Fulbright was actively involved in the compensation structuring discussions and served as the Client's primary business contact for human resources and talent acquisition matters related to the CFO search.
D. Other Key RGC Personnel
In addition to the primary contacts identified above, the following individuals at RGC had involvement or relevance to the engagement:
Gavin T. Ashford — Chief Executive Officer. Mr. Ashford was the principal executive officer of RGC and the individual to whom the incoming CFO would report directly. Mr. Ashford participated in the final candidate interview process and was consulted on the enhanced compensation package.
Lorraine F. Whitmore — Chair of the Board of Directors. Ms. Whitmore was informed of the progress of the negotiation at the board level and authorized the Compensation Committee to proceed with the enhanced offer framework.
Theodore S. Iglesias — Chair of the Compensation Committee of the Board of Directors. Mr. Iglesias chaired the Compensation Committee sessions at which the initial and enhanced compensation frameworks were authorized and was the signatory on Compensation Committee Resolutions No. CC-2023-014 and CC-2024-002.
Sandra K. Ouellet — Interim Chief Financial Officer and Vice President of Finance. Ms. Ouellet was appointed to the interim CFO role effective September 18, 2023, following the departure of Richard Halvorsen. Ms. Ouellet has continued to serve in the interim capacity throughout the CFO search process and, as of the date of this memorandum, remains in that role.
III. Engagement Team
The following attorneys at Calderwood & Harkness LLP comprised the engagement team for this matter:
Renata Vasquez — Responsible Partner, Labor & Employment Practice Group, Las Vegas office. Ms. Vasquez served as the responsible partner with supervisory authority over all work product, strategic advice, and client communications. Ms. Vasquez personally managed the relationship with opposing counsel and participated in all substantive communications with the Client regarding negotiation strategy.
Bernard Crawford — Billing Partner, Labor & Employment Practice Group, Las Vegas office. Mr. Crawford served as the billing partner for the engagement and was responsible for oversight of billing, timekeeping, and fee-related matters. Mr. Crawford also contributed to the review of certain compensation structuring provisions in the draft agreement.
Nadia Petrov — Lead Associate, Labor & Employment Practice Group, Las Vegas office. Ms. Petrov served as the lead associate on the matter and was responsible for the preparation of all drafts of the Executive Employment Agreement, the initial term sheet, internal strategy memoranda, and this matter closing memorandum. Ms. Petrov conducted the Nevada restrictive covenant case law analysis and coordinated with opposing counsel on the exchange of redlines and related materials.
James Underwood — Working Associate, Labor & Employment Practice Group, Los Angeles office (555 South Grand Avenue, Suite 4200, Los Angeles, California 90071). Mr. Underwood supported the engagement by assisting with drafting of the Executive Employment Agreement, conducting legal research on Section 280G cutback provisions and equity compensation structuring, and assisting with preparation of internal memoranda.
IV. Scope of Engagement
A. General Scope
Calderwood & Harkness LLP was retained to advise Redstone Gaming Corp. on the negotiation, structuring, and drafting of an executive employment agreement for the position of Executive Vice President & Chief Financial Officer. The scope of the engagement, as set forth in the engagement letter dated November 8, 2023 (Ref. 1033-00005), encompassed the following:
(a) Preparation of an initial term sheet summarizing the key economic and governance terms of the proposed employment arrangement;
(b) Drafting of a comprehensive Executive Employment Agreement incorporating the terms authorized by RGC's Compensation Committee;
(c) Negotiation of the Executive Employment Agreement with the candidate's counsel, Harlan & Mosley LLP;
(d) Coordination with RGC's outside compensation consultant, Halcyon Meridian Advisors LLC, on compensation benchmarking data and structuring;
(e) Analysis and advice on the enforceability of post-employment restrictive covenants under the laws of the State of Nevada; and
(f) Such other advisory services reasonably related to the foregoing as the Client might request during the engagement.
The governing law of the proposed Executive Employment Agreement was the State of Nevada. All provisions of the agreement were drafted and negotiated under Nevada law, with particular attention to Nevada's treatment of post-employment non-competition agreements and the applicable enforceability standards.
B. CFO Candidate
The CFO candidate with whom RGC sought to negotiate the employment agreement was Marcus Jonathan Ellender, age 47 at the time of the engagement. Mr. Ellender was then serving as Executive Vice President & Chief Accounting Officer at Grandview Resorts International, Inc., a privately held gaming and hospitality company headquartered at 1500 East 2nd Street, Suite 600, Reno, Nevada 89502. Mr. Ellender's existing compensation at Grandview consisted of a base salary of $485,000 per year, with total annual compensation of approximately $1,250,000 per year, inclusive of bonus and equity-based incentive compensation.
Mr. Ellender holds an active Nevada Certified Public Accountant license (License No. CPA-NV-041882). He earned a Bachelor of Science degree in Accounting from the University of Nevada, Reno, and a Master of Business Administration degree from the Wharton School at the University of Pennsylvania. At the time of the engagement, Mr. Ellender resided at 2288 Bristlecone Pines Drive, Reno, Nevada 89511, and would have been required to relocate to the Las Vegas metropolitan area in connection with assuming the CFO role at RGC.
V. Opposing Counsel and Third Parties
A. Candidate's Counsel
Mr. Ellender was represented in the employment negotiation by Harlan & Mosley LLP, located at 200 West Liberty Street, Suite 1400, Reno, Nevada 89501. The lead attorney representing Mr. Ellender was Victoria R. Saldana, a partner in the firm's Executive Compensation & Employment practice. Ms. Saldana was supported by Christopher F. Ngata, an associate at Harlan & Mosley. All substantive communications with Mr. Ellender's counsel were conducted between Ms. Vasquez and Ms. Petrov on behalf of C&H and Ms. Saldana and Mr. Ngata on behalf of Harlan & Mosley. Ms. Saldana was an experienced and professional counterpart, and communications throughout the negotiation were conducted in a cooperative and professional manner.
B. Executive Search Firm
Kensington Brace Partners, located at 375 Park Avenue, Suite 2800, New York, New York 10152, served as the executive search firm retained by RGC. Kensington Brace was engaged by RGC on September 25, 2023, to conduct the CFO search following the departure of Richard Halvorsen. Kensington Brace identified Mr. Ellender as a finalist candidate on October 20, 2023. While C&H did not have a direct engagement with Kensington Brace, the search firm's identification of the candidate and facilitation of initial conversations with Mr. Ellender provided the foundation for the negotiation that followed.
C. Compensation Consultant
Halcyon Meridian Advisors LLC, located at 400 South 4th Street, Suite 1200, Las Vegas, Nevada 89101, served as the outside compensation consultant to RGC's Compensation Committee. The lead consultant was Anita G. Prescott, Managing Director. Halcyon Meridian provided benchmarking data, peer group compensation analysis, and structuring advice to the Compensation Committee in connection with both the initial and enhanced offer frameworks. C&H coordinated with Halcyon Meridian through the Client (via Ms. Narasimhan and Mr. Fulbright) and reviewed the benchmarking materials provided by Halcyon Meridian for purposes of structuring the compensation provisions of the draft Executive Employment Agreement.
D. Independent Auditor
Calloway Firth & Associates LLP, located at 1900 Avenue of the Stars, Suite 2700, Los Angeles, California 90067, serves as RGC's external independent auditor. The engagement partner is Douglas H. Seibert. While Calloway Firth did not have direct involvement in the employment negotiation, the Firm consulted with the Client regarding certain aspects of the equity compensation provisions to ensure consistency with RGC's equity incentive plan and applicable accounting treatment. No direct communications with Calloway Firth occurred in connection with this matter.
E. D&O Insurance Carrier
Pinnacle Investors Indemnity Group carried RGC's directors' and officers' liability insurance policy at all relevant times. Under the proposed Executive Employment Agreement, Mr. Ellender would have been covered as an officer of RGC under the existing D&O policy. The agreement included provisions requiring RGC to maintain D&O coverage for Mr. Ellender during his employment and for a reasonable tail period following separation.
F. Competing Employer
During the course of negotiations, it was disclosed that Mr. Ellender had received a competing employment offer from Pinnacle Crest Entertainment, Inc. ("Pinnacle Crest" or "PCEI"), a Delaware corporation whose shares are publicly traded on the New York Stock Exchange under the ticker symbol PCEI. Pinnacle Crest is headquartered at 7700 Paradise Road, Suite 300, Las Vegas, Nevada 89123, and its Chief Executive Officer is Franklin D. Moreau. The outside counsel handling employment matters for Pinnacle Crest is Blakely Chambers & Wright LLP, located at 10250 Constellation Boulevard, Suite 3100, Los Angeles, California 90067. Mr. Ellender ultimately accepted the CFO position at Pinnacle Crest, as discussed in greater detail below.
VI. Background and Matter History
A. CFO Vacancy and Executive Search
The circumstances giving rise to this engagement began with the departure of Richard Halvorsen from the position of Chief Financial Officer of Redstone Gaming Corp. Mr. Halvorsen's departure was effective September 15, 2023. The specific circumstances of Mr. Halvorsen's departure were not within the scope of this engagement and were not the subject of substantive inquiry by the engagement team, although it was understood from the Client that the departure was a voluntary resignation.
Following Mr. Halvorsen's departure, RGC appointed Sandra K. Ouellet, the company's Vice President of Finance, to the role of Interim Chief Financial Officer, effective September 18, 2023. Ms. Ouellet assumed responsibility for the day-to-day financial operations of the company and reporting to the CEO and Board while the company conducted a search for a permanent CFO.
On September 25, 2023, RGC engaged Kensington Brace Partners, a nationally recognized executive search firm specializing in C-suite placements in the gaming, hospitality, and entertainment sectors, to conduct the CFO search. Kensington Brace conducted a comprehensive search process over the subsequent weeks, which included the identification and evaluation of multiple candidates. On October 20, 2023, Kensington Brace identified Marcus J. Ellender as the finalist candidate for the position. Mr. Ellender's credentials — including his CPA licensure, his MBA from Wharton, his extensive experience in the gaming and hospitality industry, and his tenure as Executive Vice President & Chief Accounting Officer at Grandview Resorts International — made him a particularly strong candidate for the role.
B. Board and Compensation Committee Authorization
Following the identification of Mr. Ellender as the finalist candidate, the Compensation Committee of RGC's Board of Directors, chaired by Theodore S. Iglesias, convened to consider and authorize the initial offer framework. On November 3, 2023, the Compensation Committee verbally approved the initial compensation and employment terms proposed for the CFO position. This authorization was subsequently memorialized in Compensation Committee Resolution No. CC-2023-014. The resolution authorized RGC management, in consultation with outside counsel, to proceed with extending and negotiating an employment offer to Mr. Ellender based on the approved framework, subject to customary legal review and finalization of definitive documentation.
C. Engagement of Calderwood & Harkness LLP
On November 8, 2023, RGC formally engaged Calderwood & Harkness LLP to serve as outside counsel for the negotiation, structuring, and drafting of the executive employment agreement. The engagement letter, referenced as 1033-00005, was addressed to Priya Narasimhan, General Counsel of Redstone Gaming Corp., and was countersigned by Ms. Narasimhan on behalf of RGC.
The engagement letter established the following fee structure, based on standard hourly rates for the assigned engagement team:
• Renata Vasquez (Responsible Partner): $1,150 per hour
• Bernard Crawford (Billing Partner): $1,100 per hour
• Nadia Petrov (Senior Associate): $785 per hour
• James Underwood (Associate): $625 per hour
The estimated fee budget for the engagement was communicated to the Client as $75,000 to $100,000, with the understanding that actual fees would depend on the complexity and duration of the negotiation process. No alternative fee arrangement, success fee, or cap was established; the engagement proceeded on a standard hourly billing basis.
VII. Chronological Summary of Negotiations
The following is a detailed chronological account of the negotiation from the opening of the engagement through the candidate's formal decline.
A. Initial Term Sheet (November 17, 2023)
Following the execution of the engagement letter and an initial strategy call with Ms. Narasimhan and Mr. Fulbright, the engagement team prepared an initial term sheet summarizing the key economic and governance terms of the proposed employment arrangement. The term sheet was delivered to Mr. Ellender through his counsel, Victoria R. Saldana of Harlan & Mosley LLP, on November 17, 2023.
The key terms set forth in the initial term sheet were as follows:
Title: Executive Vice President & Chief Financial Officer
Employment Term: Three-year initial term commencing February 15, 2024 (the proposed start date), with automatic one-year renewal periods thereafter unless either party provided timely notice of non-renewal.
Base Salary: $650,000 per year, subject to annual review by the Compensation Committee but not subject to reduction below the initial level.
Annual Cash Bonus: Target annual bonus of 85% of base salary ($552,500 at target), with a maximum bonus payout of 170% of base salary ($1,105,000), based on achievement of performance metrics established by the Compensation Committee.
Signing Bonus: $300,000, payable within thirty days of the commencement date, subject to a pro-rata repayment obligation if Mr. Ellender voluntarily terminated his employment within thirty-six months of the commencement date.
Restricted Stock Units (RSUs): An initial grant of 35,000 shares of RDGM common stock, vesting ratably over three years (one-third per year on each anniversary of the grant date), subject to continued employment through each vesting date.
Performance Stock Units (PSUs): An initial target grant of 20,000 shares, subject to cliff-vesting at the end of the three-year performance period based on achievement of performance metrics to be established by the Compensation Committee. Actual payout could range from 0% to 200% of target depending on performance.
Grant Date Fair Value Estimate: Based on an assumed share price of $38.20 per share (approximate closing price of RDGM as of the date of the term sheet), the estimated grant date fair value of the initial equity grants was: RSUs at $38.20/share = $1,337,000; PSUs at target = $764,000; total initial equity grant value = $2,101,000; annualized over the three-year vesting period = approximately $700,333 per year.
Total Annual Compensation at Target: $650,000 (base salary) + $552,500 (target bonus) + $700,333 (annualized equity) = $1,902,833 per year.
Relocation Allowance: Up to $150,000, to cover reasonable documented relocation expenses incurred in connection with Mr. Ellender's relocation from Reno, Nevada, to the Las Vegas metropolitan area.
Restrictive Covenants: The proposed agreement included the following post-employment restrictive covenant provisions:
(i) Non-Competition: Eighteen (18) months following separation of employment;
(ii) Employee Non-Solicitation: Twenty-four (24) months following separation of employment;
(iii) Customer/Business Partner Non-Solicitation: Eighteen (18) months following separation of employment;
(iv) Confidentiality: Perpetual obligation not to disclose confidential information and trade secrets of RGC; and
(v) Geographic Scope: The United States and any jurisdiction in which RGC operates or has filed gaming license applications.
Severance (Non-CIC): In the event of a termination without cause or a resignation for good reason, in either case outside of the change-in-control context, Mr. Ellender would be entitled to: (a) a lump-sum cash severance payment equal to 1.5 times base salary; (b) a pro-rata annual bonus for the year of termination based on actual performance; and (c) eighteen months of continued COBRA health insurance coverage at the company's expense.
Change-in-Control Severance: The severance provisions were structured on a double-trigger basis. In the event of a qualifying termination (termination without cause or resignation for good reason) occurring within twenty-four months following a change in control of RGC, Mr. Ellender would be entitled to a lump-sum cash severance payment equal to 2.0 times the sum of base salary and target annual bonus.
Section 280G Treatment: The agreement would include a best-net cutback provision (as opposed to a Section 280G gross-up), meaning that if any payments to Mr. Ellender in connection with a change in control would be subject to excise tax under Section 4999 of the Internal Revenue Code, the payments would be reduced to the safe harbor amount under Section 280G if the reduction would result in a greater after-tax benefit to Mr. Ellender.
D&O Coverage: Mr. Ellender would be entitled to coverage under RGC's existing directors' and officers' liability insurance policy maintained with Pinnacle Investors Indemnity Group, on terms no less favorable than those provided to other senior executive officers of the company.
Governing Law: State of Nevada.
B. First Draft Executive Employment Agreement (November 17, 2023)
Contemporaneously with the delivery of the initial term sheet, the engagement team prepared and delivered a comprehensive first draft of the Executive Employment Agreement. The first draft was prepared primarily by Ms. Petrov and Mr. Underwood and was reviewed and approved by Ms. Vasquez prior to delivery. The first draft incorporated all of the terms set forth in the initial term sheet into a long-form agreement consisting of approximately thirty-five pages, organized into articles covering definitions, employment and duties, compensation and benefits, equity compensation, termination, severance, restrictive covenants, confidentiality, dispute resolution, and general provisions. The first draft and term sheet were transmitted simultaneously to Harlan & Mosley on November 17, 2023.
C. Harlan & Mosley First Redline (December 1, 2023)
On December 1, 2023, Victoria R. Saldana of Harlan & Mosley delivered the first redline and counterproposal to the Executive Employment Agreement on behalf of Mr. Ellender. The redline reflected approximately fourteen days of review and included both substantive revisions and a number of clarifying and conforming edits. The principal areas of disagreement identified in the first redline, which became the core negotiation points throughout the engagement, were as follows:
1. Reduction of Non-Competition Period. Harlan & Mosley proposed reducing the post-employment non-competition period from eighteen months to twelve months. Ms. Saldana's position was that an eighteen-month non-compete was overly broad and commercially unreasonable for a CFO-level role, particularly in light of the relatively concentrated nature of the gaming industry in Nevada.
2. Narrowing of Restrictive Covenant Geographic Scope. The candidate's counterproposal sought to narrow the geographic scope of the restrictive covenants from the United States (and any jurisdiction in which RGC operates or has filed gaming license applications) to Nevada and New Jersey only. Ms. Saldana contended that this narrower scope adequately protected RGC's legitimate business interests while permitting Mr. Ellender reasonable latitude to pursue future career opportunities.
3. Full Acceleration of Equity Awards. The first redline proposed full acceleration of all unvested RSUs and PSUs upon termination without cause or resignation for good reason, regardless of whether the termination occurred in a change-in-control context. This was in contrast to the pro-rata acceleration provision included in the first draft, which would have vested only a proportionate share of outstanding equity based on the time elapsed within the applicable vesting period.
4. Elimination of Signing Bonus Clawback. Harlan & Mosley proposed the complete elimination of the signing bonus repayment obligation. Ms. Saldana's position was that the clawback provision was unnecessary given the candidate's significant career risk in leaving a stable position at Grandview and relocating to Las Vegas.
5. Broader Good Reason Definition. The candidate sought expansion of the definition of "Good Reason" to include, among other things, any material adverse change in the executive's reporting structure (e.g., the insertion of an intermediate reporting layer between the CFO and the CEO, or the appointment of a co-CFO). The first draft's Good Reason definition was limited to more traditional triggers such as a material reduction in base salary, a material diminution in duties and responsibilities, and a required relocation beyond a specified radius.
6. Guaranteed Minimum Annual Bonus in Year One. Harlan & Mosley proposed a guaranteed minimum annual bonus of 75% of the target bonus for the first year of employment (i.e., a floor of approximately $414,375 based on the initial 85% target), regardless of actual company or individual performance. The rationale advanced was that Mr. Ellender would be joining mid-cycle and would have limited ability to influence performance outcomes in the initial year.
D. Internal Strategy Memorandum (December 5, 2023)
Following receipt of the Harlan & Mosley first redline, Ms. Petrov and Mr. Underwood prepared an internal strategy memorandum addressed to Ms. Vasquez, analyzing each of the five principal negotiation issues identified in the counterproposal. The memorandum, dated December 5, 2023, included the following:
(a) A detailed analysis of Nevada case law on the enforceability of post-employment non-competition agreements, including a discussion of the applicable reasonableness standard under Nevada Revised Statutes § 613.195 and relevant case authority addressing the permissible duration and geographic scope of non-competes in the gaming industry;
(b) An evaluation of market practices for CFO-level restrictive covenants among RGC's peer group companies, drawing on data from the Halcyon Meridian Advisors benchmarking report;
(c) An assessment of the equity acceleration issue, including an analysis of market prevalence of full versus pro-rata acceleration provisions in publicly traded gaming companies;
(d) A recommendation regarding the signing bonus clawback, including a proposed compromise position of reducing the clawback period from thirty-six months to twenty-four months while maintaining the pro-rata repayment structure; and
(e) An analysis of the Good Reason definition, including recommended language that would moderately expand the definition without adopting the full breadth of Harlan & Mosley's proposal.
The internal strategy memorandum and its recommendations were discussed in a conference call with Priya Narasimhan and Dean Fulbright of RGC on December 6, 2023. Following that discussion, the Client authorized C&H to proceed with the preparation of a revised draft reflecting certain compromise positions while maintaining the firm's core positions on the restrictive covenant duration, geographic scope, and equity acceleration.
E. Second Draft Executive Employment Agreement (December 15, 2023)
On December 15, 2023, the engagement team delivered the second draft of the Executive Employment Agreement to Harlan & Mosley, reflecting the following revised positions:
• Signing Bonus Clawback: The pro-rata repayment period was reduced from thirty-six months to twenty-four months, representing a meaningful concession from RGC's initial position while preserving the fundamental clawback structure.
• Good Reason Definition: The definition of Good Reason was modestly expanded to include a material adverse change in reporting structure only if the CFO were required to report to an officer other than the CEO (as opposed to any "material adverse change in reporting structure" as proposed by the candidate). The revised language was intended to address the candidate's legitimate concern regarding organizational changes while providing RGC with reasonable operational flexibility.
• Restrictive Covenant Duration: The eighteen-month non-competition period was maintained. This position was supported by the Nevada case law analysis in the internal strategy memorandum, which indicated that Nevada courts have upheld non-competition periods of eighteen months and, in certain cases, up to twenty-four months for senior executives in the gaming industry, provided the other terms of the restrictive covenant are reasonable.
• Restrictive Covenant Geographic Scope: The United States-wide geographic scope was maintained. The engagement team's analysis supported the position that, given RGC's nationwide operations and gaming license applications in multiple states, a U.S.-wide scope was reasonable and enforceable.
• Equity Acceleration: The pro-rata acceleration provision was maintained, with no movement toward the full acceleration requested by the candidate.
• Base Salary and Other Economic Terms: All other economic terms, including the base salary of $650,000, the annual bonus target of 85% of base salary, the RSU and PSU grant sizes, and the severance and CIC provisions, remained unchanged from the initial term sheet.
The second draft represented a measured response to the candidate's counterproposal, conceding on secondary issues (the signing bonus clawback period and the Good Reason definition) while holding firm on the core positions that the Client deemed most important (restrictive covenant terms and equity acceleration).
F. Harlan & Mosley Second Redline (January 3, 2024)
Following the holiday period, Victoria R. Saldana delivered the second Harlan & Mosley redline to C&H on January 3, 2024. The second redline reflected some movement on minor drafting points but continued to press on the four principal areas of disagreement that had been present throughout the negotiation:
(a) Harlan & Mosley continued to seek a reduction of the non-competition period from eighteen months to twelve months;
(b) The candidate maintained his position seeking a narrower geographic scope limited to Nevada and New Jersey;
(c) Full acceleration of all unvested equity upon termination without cause or resignation for good reason remained a priority for the candidate; and
(d) The request for a guaranteed minimum annual bonus of 75% of target in year one was restated.
The second redline also included certain refinements to the severance calculation methodology and the definition of "Cause" that were comparatively minor and likely could have been resolved without significant additional negotiation.
G. Competing Offer Disclosure (January 10, 2024)
On January 10, 2024, the negotiation dynamics shifted materially. On that date, Victoria R. Saldana sent an email to Renata Vasquez, with a copy to Priya Narasimhan, informing that Mr. Ellender had received a competing offer of employment from Pinnacle Crest Entertainment, Inc. for the position of Executive Vice President & Chief Financial Officer. Ms. Saldana reported that the Pinnacle Crest offer reflected total annual compensation of approximately $3,800,000, which represented a significant premium over the RGC offer as then structured (approximately $1,902,833 in total annual compensation at target under the initial term sheet, or approximately $1.9 million at the terms then in negotiation).
Ms. Saldana stated in the email that Mr. Ellender remained interested in the RGC opportunity and would prefer to join RGC, but that he respectfully requested that RGC reconsider its compensation package, particularly with respect to base salary, equity grants, and restrictive covenant terms, within a reasonable timeframe. The email did not provide a specific deadline but conveyed a clear sense of urgency.
The email was promptly forwarded by Ms. Vasquez to the full engagement team and discussed with Ms. Narasimhan by telephone on the same day. Ms. Narasimhan indicated that RGC took the competing offer seriously and wished to explore the possibility of an enhanced package that would be competitive with the Pinnacle Crest offer while remaining within the bounds of what the Compensation Committee was willing to authorize.
H. Compensation Committee Authorization of Enhanced Package (January 12, 2024)
On January 11, 2024, Ms. Vasquez and Ms. Petrov prepared a memorandum for submission through Ms. Narasimhan to the Compensation Committee analyzing the competing offer and recommending enhanced terms. The memorandum reviewed the Pinnacle Crest compensation level (as reported), the existing RGC offer, market benchmarking data from Halcyon Meridian Advisors, and the strategic importance of the CFO hire to RGC's near-term and long-term business objectives. The memorandum recommended specific enhanced terms that would bring the total annual compensation closer to the Pinnacle Crest level while remaining consistent with RGC's compensation philosophy and peer group benchmarks.
On January 12, 2024, the Compensation Committee convened a special session and authorized the enhanced compensation package as recommended. The authorization was memorialized in Compensation Committee Resolution No. CC-2024-002, signed by Committee Chair Theodore S. Iglesias.
I. Enhanced Offer / Third Draft Executive Employment Agreement (January 15, 2024)
On January 15, 2024, the engagement team transmitted a revised enhanced Executive Employment Agreement and an updated term sheet to Harlan & Mosley, reflecting the enhanced compensation terms authorized by the Compensation Committee. The key terms of the enhanced offer were as follows:
Base Salary: Increased to $725,000 per year, representing an increase of $75,000 over the initial offer of $650,000.
Annual Cash Bonus: Target increased to 100% of base salary ($725,000 at target), with a maximum bonus payout of 200% of base salary ($1,450,000). This represented an increase from the initial target of 85% of base salary.
Signing Bonus: Increased to $500,000, representing an increase of $200,000 over the initial offer of $300,000. The twenty-four-month pro-rata clawback provision was maintained, resulting in a monthly repayment decrement of $20,833.33 per month.
Restricted Stock Units (RSUs): Increased to 45,000 shares of RDGM common stock, vesting ratably over three years at 15,000 shares per year. At the assumed grant price of $38.20 per share, the estimated grant date fair value was $1,719,000.
Performance Stock Units (PSUs): Increased to 30,000 target shares, with a payout range of 0 to 60,000 shares (0% to 200% of target). At the assumed grant price of $38.20 per share, the estimated grant date fair value at target was $1,146,000.
Total Initial Equity Grant Value: $1,719,000 (RSUs) + $1,146,000 (PSUs at target) = $2,865,000; annualized over the three-year vesting period = approximately $955,000 per year.
Total Annual Compensation at Target: $725,000 (base salary) + $725,000 (target bonus) + $955,000 (annualized equity) = $2,405,000 per year.
Year-One Total Compensation (Including Signing Bonus): $2,405,000 + $500,000 = $2,905,000.
Delta from Initial to Enhanced Offer: The enhanced offer represented an increase of approximately $502,167 in total annual compensation at target over the initial offer, or an increase of approximately 26.4%.
Change-in-Control Severance: Based on the enhanced terms, CIC severance (upon a qualifying double-trigger termination) would equal ($725,000 base salary + $725,000 target bonus) × 2 = $2,900,000.
Non-CIC Severance: $725,000 × 1.5 = $1,087,500, plus pro-rata annual bonus, plus eighteen months of continued COBRA coverage.
Relocation Allowance: Up to $150,000, unchanged from the initial offer.
Restrictive Covenant Terms: Maintained at the same levels as in the second draft: eighteen-month non-competition, twenty-four-month employee non-solicitation, eighteen-month customer/business partner non-solicitation, and perpetual confidentiality, with U.S.-wide geographic scope.
Section 280G Treatment: Best-net cutback provision maintained; no gross-up.
D&O Coverage: Maintained under RGC's existing Pinnacle Investors Indemnity Group policy.
Proposed Start Date: February 15, 2024.
It is worth noting that, while the enhanced offer significantly improved the economic terms, RGC maintained its positions on the restrictive covenant provisions (duration, geographic scope) and the equity acceleration structure (pro-rata rather than full acceleration). The enhanced offer was intended to address the economic gap between the RGC and Pinnacle Crest offers while preserving the corporate governance and protective provisions that RGC's management and Compensation Committee viewed as essential.
J. Candidate's Formal Decline (January 19, 2024)
On January 19, 2024, Victoria R. Saldana sent an email to Renata Vasquez, with a copy to Priya Narasimhan, formally confirming that Marcus J. Ellender had declined the RGC offer. The email stated that Mr. Ellender had accepted the position of Executive Vice President & Chief Financial Officer at Pinnacle Crest Entertainment, Inc. Ms. Saldana expressed gratitude for the professionalism of the negotiation process and requested that all draft agreements be treated as confidential and withdrawn from further consideration.
The engagement team relayed the news to Ms. Narasimhan, who confirmed receipt and expressed RGC's disappointment with the outcome. Ms. Narasimhan indicated that RGC would continue its CFO search and would be in touch if the Firm's services were needed for a subsequent engagement.
K. Matter Closure (January 22, 2024)
Following the candidate's formal decline and confirmation from the Client that no further work was required in connection with this matter, the matter status was changed to closed — terminated as of January 22, 2024. This memorandum constitutes the final work product for the engagement.
VIII. Key Unresolved Negotiation Points at Termination
At the time Mr. Ellender withdrew from negotiations, the following substantive issues remained unresolved between the parties. These issues are documented here both for the completeness of the matter record and because they may be informative in the event RGC re-engages the Firm for a subsequent CFO or executive employment negotiation.
1. Restrictive Covenant Duration. RGC maintained its position of an eighteen-month post-employment non-competition period throughout the negotiation, supported by the Nevada case law analysis prepared by the engagement team. The candidate, through Harlan & Mosley, continued to seek a reduction to twelve months. The parties did not reach any intermediate compromise on this point. The eighteen-month duration was a firm position of the Client, endorsed by both General Counsel Narasimhan and CEO Ashford.
2. Equity Acceleration on Termination Without Cause. RGC offered pro-rata acceleration of unvested RSUs and PSUs upon termination without cause or resignation for good reason (outside of the CIC context). The candidate sought full acceleration of all unvested equity upon any such qualifying termination. This represented a significant economic difference, particularly in the early years of the employment term, and was a point on which neither side demonstrated willingness to move materially. The engagement team's internal analysis indicated that pro-rata acceleration was consistent with the majority practice among RGC's peer group companies, and the Compensation Committee was firm in maintaining this position.
3. Guaranteed Minimum Annual Bonus. The candidate sought a guaranteed minimum annual bonus of 75% of the target bonus amount for the first year of employment. Under the enhanced offer, this would have equated to a guaranteed floor of $543,750 (75% of $725,000 target bonus). RGC's position was that the annual bonus remained subject to the discretion of the Compensation Committee based on actual performance, and that a guaranteed floor would be inconsistent with the company's pay-for-performance compensation philosophy. The parties did not reach agreement on any intermediate compromise, such as a lower guaranteed floor or a partial guarantee.
4. Good Reason Definition. The candidate sought the inclusion of any "material adverse change in reporting structure" as a Good Reason trigger. RGC, in the second draft, agreed to a modest expansion of the definition to cover a change in the executive's direct reporting line from the CEO to a different officer, but the parties had not reached final agreement on the specific operative language. The precise scope of what would constitute a "material adverse change" remained in dispute, and the parties had exchanged competing drafts of the relevant provision without reaching consensus.
5. Restrictive Covenant Geographic Scope. RGC maintained its position that the geographic scope of the non-competition and non-solicitation covenants should extend to the United States and any jurisdiction in which RGC operates or has filed gaming license applications. The candidate's position, as articulated by Harlan & Mosley, was that the geographic scope should be limited to Nevada and New Jersey only, on the grounds that these were the primary jurisdictions in which RGC conducted gaming operations and that a broader scope was unnecessarily restrictive. The engagement team's analysis of Nevada law supported the enforceability of the broader geographic scope given RGC's multi-state operations, but this point remained unresolved at the time of the candidate's withdrawal.
IX. Billing Summary
A. Fee Structure
All work performed in connection with this matter was billed on a standard hourly basis in accordance with the engagement letter dated November 8, 2023 (Ref. 1033-00005). The applicable hourly rates for the engagement team were as follows:
The estimated fee budget communicated to the Client at the outset of the engagement was $75,000 to $100,000.
B. Hours by Timekeeper
The following table summarizes the total hours billed and fees incurred by each timekeeper over the life of the matter:
The actual total fees billed to the Client were $68,450.00, reflecting a slight variance of $7.50 due to partial-hour rounding adjustments applied during the invoicing process. The blended effective hourly rate across all timekeepers for the matter was approximately $843 per hour.
C. Expenses
Disbursements incurred in connection with the matter were limited to the following:
• Westmark Data Systems legal research charges: $247.60
• Courier and delivery services: $64.80
• Total expenses: $312.40
D. Total Amount Billed
The total amount billed for the matter was $68,762.40, which came in under the estimated fee budget range of $75,000 to $100,000. The matter was concluded efficiently, and no write-offs or fee reductions were applied. The final invoice was transmitted to the Client prior to the date of this memorandum, and as of the date of this memorandum, no balance remains outstanding.
X. Document Inventory
The following is a complete inventory of all documents created or received during the course of the engagement. All documents listed below are to be retained in the Firm's document management system ("DMS") under Matter No. 1033-00005, in accordance with the Firm's document retention policies and the recommendations set forth in Section XI below.
1. Engagement Letter — Calderwood & Harkness LLP to Redstone Gaming Corp., dated November 8, 2023 (Ref. 1033-00005). Executed by Priya Narasimhan on behalf of RGC.
2. Executive Employment Term Sheet — Initial Offer, dated November 17, 2023. Prepared by N. Petrov and J. Underwood; reviewed and approved by R. Vasquez. Transmitted to Harlan & Mosley LLP on November 17, 2023.
3. Executive Employment Agreement — First Draft, dated November 17, 2023. Prepared by N. Petrov and J. Underwood; reviewed and approved by R. Vasquez. Transmitted to Harlan & Mosley LLP contemporaneously with the initial term sheet.
4. Harlan & Mosley First Redline of Executive Employment Agreement, received December 1, 2023. Prepared by Victoria R. Saldana and Christopher F. Ngata of Harlan & Mosley LLP on behalf of Marcus J. Ellender.
5. Internal Memorandum re Key Negotiation Issues, dated December 5, 2023. Prepared by N. Petrov and J. Underwood; addressed to R. Vasquez. Contains Nevada restrictive covenant case law analysis and strategic recommendations.
6. Executive Employment Agreement — Second Draft, dated December 15, 2023. Prepared by N. Petrov and J. Underwood; reviewed and approved by R. Vasquez. Transmitted to Harlan & Mosley LLP on December 15, 2023.