1033-00005 · Client 1033 · Memos & Analysis

negotiation-issues-memo.docx DOCUMENT Funds

7 / 12 ← → ✕

Contract analysis Extract to table

MEMORANDUM

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

TO: Renata Vasquez, Partner

FROM: Nadia Petrov, Senior Associate; James Underwood, Associate

DATE: December 5, 2023

RE: Key Negotiation Issues — Executive Employment Agreement, Marcus J. Ellender, CFO Candidate, Redstone Gaming Corp.

Matter No.: 1033-00005

Engagement Ref.: 1033-00005

I. Introduction and Purpose

This memorandum analyzes the five principal negotiation issues raised in the first redline of the Executive Employment Agreement (the "Agreement") received from Victoria R. Saldana of Harlan & Mosley LLP ("Harlan & Mosley") on December 1, 2023, on behalf of Marcus J. Ellender ("Ellender" or the "Candidate"), the finalist candidate for the position of Chief Financial Officer of Redstone Gaming Corp. ("RGC" or the "Company"). Harlan & Mosley's redline was delivered in response to the initial draft of the Agreement, which our office prepared and transmitted to Harlan & Mosley on November 17, 2023, contemporaneously with the executed initial term sheet dated November 14, 2023.

The purpose of this memorandum is to provide a comprehensive legal analysis of each contested issue, evaluate the merits and risks of the Candidate's counterproposal positions, and set forth strategic recommendations to guide the RGC client team in the forthcoming round of negotiations. The client team for purposes of this engagement consists of Priya Narasimhan, General Counsel of RGC; Dean R. Fulbright, Chief Human Resources Officer of RGC; and the Compensation Committee of the RGC Board of Directors (the "Compensation Committee"), chaired by independent director Theodore S. Iglesias.

By way of background, Ellender is currently serving as Executive Vice President and Chief Accounting Officer at Grandview Resorts International, Inc. ("Grandview"), headquartered in Reno, Nevada, a position he has held since March 2019. His current total annual compensation at Grandview is approximately $1,250,000, comprising a base salary of $485,000, an annual cash bonus (most recently paid at approximately $340,000, or approximately 70% of base salary), and long-term incentive compensation in the form of time-vested restricted stock units and performance share units valued at approximately $425,000 annually at target. Ellender's departure from Grandview will result in forfeiture of unvested equity awards with an estimated aggregate value of approximately $680,000, which forms a significant component of his negotiating position and the rationale for the proposed signing bonus.

RGC's initial offer, as reflected in the first draft of the Agreement and approved by the Compensation Committee under Resolution CC-2023-014 adopted on November 3, 2023, reflects total annual compensation at target of approximately $1,902,833, structured as follows: base salary of $650,000; annual cash bonus at a target of 85% of base salary ($552,500); and an initial equity grant with an annualized value of approximately $700,333 (consisting of 35,000 time-vesting restricted stock units and 20,000 performance share units at target, based on the trailing 20-day volume-weighted average price of $38.20 per share as of November 1, 2023). This represents a premium of approximately 52% over the Candidate's current total compensation at Grandview, which we believe provides substantial room for negotiation on the contested terms without fundamentally altering the economics of the offer.

The Agreement is governed by the laws of the State of Nevada, without regard to conflict-of-laws principles. RGC is incorporated in Nevada and maintains its principal executive offices in Las Vegas, Nevada. The Candidate's proposed principal place of employment would be at RGC's corporate headquarters at 4200 Crimson Ridge Boulevard, Las Vegas, Nevada 89119.

This memorandum addresses each of the five contested issues in order of their strategic priority to RGC, provides a detailed analysis of the applicable legal framework and market practices, and concludes with an overall negotiation strategy and priority ranking. An appendix containing a summary comparison table is included at the end of this memorandum for ease of reference.

II. Summary of Candidate's Counterproposal Positions

Before turning to the detailed analysis, we provide below a summary overview of the five areas in which Harlan & Mosley's redline departs from the first draft of the Agreement. The redline was otherwise largely consistent with the initial draft, and we note that the Candidate has not challenged the proposed base salary ($650,000), the annual bonus target percentage (85% of base salary), the aggregate value of the initial equity grant, the three-year initial term of employment, the existing change-in-control provisions (including double-trigger CIC acceleration), or the at-will nature of the employment relationship during the initial term. The five areas of dispute are as follows:

Each of these issues is analyzed in detail in Sections III through VII below.

III. Issue 1: Restrictive Covenant Scope and Duration

A. Current Draft Position

The first draft of the Agreement contains a comprehensive set of post-employment restrictive covenants, which were drafted to afford RGC the broadest reasonable protections consistent with Nevada law. The specific provisions are as follows:

Non-Competition (Section 8(a)): Ellender would be prohibited for a period of eighteen (18) months following the termination of his employment, for any reason, from directly or indirectly engaging in, consulting for, or providing services to any person or entity that competes with RGC or any of its subsidiaries in the gaming, entertainment, hospitality, or interactive digital gaming industries. The geographic scope of the non-competition restriction extends to the entire United States and any jurisdiction in which RGC or its subsidiaries operate or have filed applications for gaming licenses as of the date of termination.

Non-Solicitation of Employees (Section 8(b)): For a period of twenty-four (24) months following termination, Ellender would be prohibited from soliciting, recruiting, or inducing any employee, independent contractor, or consultant of RGC or its subsidiaries to terminate their relationship with the Company or to accept employment or engagement with any competitor of RGC.

Non-Solicitation of Customers and Business Partners (Section 8(c)): For a period of eighteen (18) months following termination, Ellender would be prohibited from soliciting or diverting, or attempting to solicit or divert, any customer, vendor, supplier, or business partner of RGC or its subsidiaries for the purpose of providing products or services that are competitive with those offered by the Company.

Confidentiality (Section 8(d)): A perpetual obligation not to disclose, use, or exploit any confidential or proprietary information of RGC or its subsidiaries, subject to customary exceptions for legally compelled disclosure and information that becomes publicly available through no fault of the Executive.

Restrictive Covenant Consideration: The enforceability of the restrictive covenant obligations is supported by the severance benefits payable under Section 6 of the Agreement. In the event of a termination without Cause (as defined), Ellender would be entitled to severance payments equal to 1.5 times his then-current base salary (currently $975,000 at a $650,000 base), plus a pro-rata annual bonus for the year of termination based on actual performance, plus eighteen (18) months of continued COBRA health insurance premium reimbursement. The draft Agreement contemplates that execution and non-revocation of a general release of claims, as well as continued compliance with the restrictive covenant obligations, would be conditions precedent to the receipt of severance benefits.

B. Candidate's Counterproposal

Harlan & Mosley's redline proposes the following modifications to the non-competition provisions:

• Duration: Reduce the non-competition period from eighteen (18) months to twelve (12) months post-termination.

• Geographic Scope: Narrow the geographic scope from the United States and all jurisdictions in which RGC operates or has filed gaming license applications, to only the states of Nevada and New Jersey.

Notably, the Candidate has not proposed any changes to the employee non-solicitation period (24 months), the customer/business partner non-solicitation period (18 months), or the perpetual confidentiality obligation. The absence of a challenge to these provisions suggests that the Candidate's primary concern relates to the breadth of the non-competition restriction and its potential impact on his future career mobility, rather than to the restrictive covenant regime as a whole.

C. Nevada Law Analysis — Enforceability of Post-Employment Restrictive Covenants

The enforceability of the proposed non-competition provisions must be assessed under Nevada's statutory framework governing post-employment restrictive covenants, as well as applicable case law interpreting that framework.

NRS 613.195 — Statutory Framework. Nevada Revised Statutes Section 613.195, originally enacted in 2017 and subsequently amended, provides the primary statutory authority governing the enforceability of non-compete agreements in the employment context. The statute establishes the following key requirements:

First, a non-compete agreement is void and unenforceable unless it is supported by valuable consideration. NRS 613.195(1). For a new hire such as Ellender, the offer of employment itself, together with the compensation package and severance benefits, constitutes adequate consideration. However, it is advisable to ensure that the Agreement explicitly identifies the severance payments as independent and adequate consideration for the restrictive covenant obligations, particularly because the enforceability of the restrictions may need to survive a challenge brought after the employment relationship has ended and the at-will nature of the relationship could arguably undermine the consideration analysis.

Second, a non-compete agreement must be "reasonable" in that it is limited in scope and duration to what is reasonably necessary to protect the employer's legitimate business interests. NRS 613.195(1)(b). The statute does not define "reasonable" with specificity, leaving the determination to the courts based on the totality of the circumstances. Legitimate business interests recognized under Nevada law include the protection of trade secrets and confidential information, the preservation of customer and business relationships, and the protection of goodwill.

Third, a non-compete agreement must not impose undue hardship on the employee or be injurious to the public. NRS 613.195(1)(c) and (d). In the context of a highly compensated C-suite executive such as Ellender, courts are generally less receptive to claims of undue hardship, particularly where the executive has received substantial severance consideration in exchange for the restrictive covenant obligations.

NRS 613.195(2) — Blue-Pencil Authority. A critical feature of Nevada's statutory framework is the express authorization for courts to revise overbroad non-compete provisions to render them enforceable, rather than voiding them in their entirety. NRS 613.195(2) provides that if a court finds a non-compete agreement to be unreasonable in scope, duration, or geographic reach, the court "shall revise the covenant to the extent necessary and enforce the covenant as revised." This judicial blue-pencil authority significantly reduces the risk that an aggressively drafted non-compete provision will be invalidated altogether, and it supports a negotiating strategy in which RGC drafts the initial restrictions broadly with the understanding that a court, if called upon to adjudicate the issue, would narrow rather than void the provisions. This statutory provision materially favors the employer's bargaining position.

NRS 613.195(4) — Limitation on Customer Non-Solicitation. The statute also imposes an important limitation on the ability of employers to restrict former employees from providing services to former customers or clients of the employer if the former employee did not solicit the business. Specifically, NRS 613.195(4) provides that a non-compete agreement may not restrict a former employee from providing services to a former customer or client of the employer if the former employee did not initiate contact with or solicit the former customer or client. While this provision is more directly relevant to sales and client-facing roles, it bears mention in the context of the CFO position because Ellender may have direct relationships with certain institutional investors, banking counterparties, and gaming regulators that could fall within the scope of the customer non-solicitation restriction. To the extent that the non-competition provision, as drafted, could be construed to restrict Ellender from serving in a CFO role at a competitor that happens to share some of RGC's banking or investor relationships, this statutory limitation could narrow the effective scope of the restriction.

Case Law — Reasonableness of Duration. Nevada courts have consistently upheld non-compete periods of twelve to twenty-four months for senior executives, with the specific duration depending on the nature of the executive's role, the sensitivity of the information to which the executive had access, and the competitive dynamics of the industry. In Ashgrove Enterprises v. Jansma, the court upheld an eighteen-month non-compete for a senior vice president in the gaming industry, finding that the duration was reasonable in light of the executive's access to strategic planning information, customer data, and proprietary financial models. Similarly, in Camberwell Corporation v. Kazuo Okada (a case involving related restrictive covenant issues in the gaming context), the court recognized that the gaming industry's regulatory complexity and the long lead times associated with gaming license applications and capital development projects warranted longer restriction periods than might be appropriate in other industries.

For a CFO-level executive, the case for an eighteen-month non-compete is particularly strong. The CFO has access to the most sensitive categories of competitive information available within the organization, including multi-year capital expenditure plans, merger and acquisition pipeline data, proprietary financial forecasting models, debt and equity financing strategies, regulatory compliance strategies, and relationships with gaming regulators in multiple jurisdictions. This information retains competitive value for a substantial period following the executive's departure, and an eighteen-month restriction period is well within the range that Nevada courts have found reasonable for executives with comparable levels of access.

Case Law — Reasonableness of Geographic Scope. The geographic scope analysis presents a more nuanced question. RGC currently operates casino resort properties in Nevada (Las Vegas and Reno), New Jersey (Atlantic City), Mississippi (Biloxi), and Louisiana (Lake Charles), and holds interactive digital gaming licenses in Michigan, Pennsylvania, and West Virginia. Additionally, RGC has pending gaming license applications in Illinois and Indiana. The Company's media entertainment division, Redstone Media Partners, has operations in California and New York. Accordingly, RGC's actual competitive footprint extends well beyond Nevada and New Jersey.

The Candidate's proposal to limit the geographic scope to Nevada and New Jersey would leave RGC unprotected in at least five states (Mississippi, Louisiana, Michigan, Pennsylvania, and West Virginia) where it currently conducts gaming operations, and in two states (Illinois and Indiana) where it has pending license applications and active development plans. This is plainly insufficient to protect RGC's legitimate business interests.

However, the first draft's formulation — "the United States and any jurisdiction in which RGC or its subsidiaries operate or have filed gaming license applications" — could be challenged as overbroad to the extent it sweeps in jurisdictions where RGC has no actual competitive presence. While the blue-pencil provisions of NRS 613.195(2) mitigate the risk of total invalidation, a more precisely tailored geographic scope would strengthen enforceability and reduce litigation risk in the event the provision is challenged.

Consideration Adequacy. The linkage between the severance payments and the restrictive covenant obligations should be made explicit in the Agreement. While the offer of employment and the initial compensation package provide consideration for the restrictions at the outset of the employment relationship, the continued enforceability of the restrictions following termination is most reliably supported by tying the restrictive covenant obligations to the severance payments. We recommend including a provision stating that the severance payments described in Section 6 constitute adequate, independent, and sufficient consideration for the Executive's restrictive covenant obligations under Section 8, and that the parties acknowledge and agree that the value of the severance payments is commensurate with the scope and duration of the restrictions imposed.

D. Recommendation. Based on the foregoing analysis, we recommend the following positions for the next round of negotiations:

Duration — Maintain 18 months. The eighteen-month non-competition period is well within the range upheld by Nevada courts for senior executives in the gaming industry, and the CFO's exposure to long-cycle strategic information — including multi-year capital expenditure plans, the M&A pipeline, gaming license application strategies, and proprietary financial forecasting models — fully justifies the extended restriction period. The Candidate's access to this information would give a competitor a material advantage for well beyond twelve months following his departure. We recommend holding firm on the eighteen-month period and offering to concede to twelve months only as a last-resort concession if it becomes necessary to close the deal on other terms favorable to RGC.

Geographic Scope — Offer modest narrowing. We recommend proposing a revised geographic scope defined as "any state or jurisdiction in which RGC or its subsidiaries (i) operate gaming facilities, (ii) hold or have applied for gaming licenses, or (iii) conduct material business operations, in each case as of the date of termination of Executive's employment." This formulation ties the geographic restriction to RGC's actual competitive footprint as of the relevant date, rather than extending to the entirety of the United States, which strengthens enforceability under the Nevada reasonableness analysis while still covering all jurisdictions in which RGC has a legitimate competitive interest. Importantly, this formulation captures states beyond Nevada and New Jersey — including Mississippi, Louisiana, Michigan, Pennsylvania, West Virginia, and any jurisdictions where gaming license applications are pending — without overreaching into states where RGC has no meaningful presence.

Employee Non-Solicitation (24 months) and Customer Non-Solicitation (18 months) — Maintain. The Candidate has not challenged these provisions, and they should remain unchanged.

Confidentiality (perpetual) — Maintain. This is standard and unchallenged.

Consideration Provision — Add explicit language. As noted above, the Agreement should be revised to include express language confirming that the severance payments constitute adequate and independent consideration for the restrictive covenant obligations, to bolster enforceability in the event of a post-termination challenge.

IV. Issue 2: Equity Acceleration on Termination Without Cause

A. Current Draft Position

The first draft of the Agreement provides for the following treatment of equity awards upon a termination of employment by RGC without Cause (as defined):

Restricted Stock Units (RSUs). Ellender would receive an initial grant of 35,000 RSUs under the Redstone Gaming Corp. 2021 Omnibus Equity Incentive Plan (the "Equity Plan"), vesting in three equal annual installments of 11,667, 11,667, and 11,666 shares on each of the first three anniversaries of the grant date, subject to continued employment through each applicable vesting date. Upon a termination without Cause, the first draft provides for pro-rata acceleration of unvested RSUs based on the portion of the applicable vesting period that has elapsed as of the date of termination. For example, if Ellender were terminated without Cause on the date that is exactly eighteen months after the grant date (i.e., midway through the second vesting year), he would receive accelerated vesting of the second tranche on a pro-rata basis (50% of 11,667 shares = 5,833 shares), in addition to the first tranche that would have already vested on the first anniversary.

Performance Share Units (PSUs). Ellender would receive an initial grant of 20,000 PSUs at target under the Equity Plan, cliff-vesting at the end of a three-year performance period based on achievement of specified performance metrics (to be established by the Compensation Committee, expected to include relative total shareholder return and adjusted EBITDA growth). Upon a termination without Cause, the first draft provides for pro-rata acceleration at the target level, based on the portion of the three-year performance period that has elapsed as of the date of termination. Actual performance against the established metrics would not be taken into account for the accelerated portion, given that performance data for a partial period would be incomplete or unavailable.

At the current trailing 20-day VWAP of $38.20 per share, the aggregate value of the initial equity grant is approximately $2,101,000 (35,000 RSUs × $38.20 = $1,337,000; 20,000 PSUs × $38.20 = $764,000 at target).

B. Candidate's Counterproposal

Harlan & Mosley's redline proposes full acceleration of all unvested RSUs and all PSUs (at target, for PSUs) upon any termination of employment by RGC without Cause, regardless of how much of the applicable vesting or performance period has elapsed at the time of termination.

Under this proposal, Ellender could receive the full value of the initial equity grant — approximately $2,101,000 at current share prices — even if he were terminated shortly after his start date, before any meaningful portion of the vesting or performance period had elapsed. For illustration, if Ellender commenced employment on February 15, 2024, and were terminated without Cause on May 15, 2024 (i.e., after only three months of employment), full acceleration would result in the immediate vesting of all 35,000 RSUs and all 20,000 PSUs at target, with an aggregate value of approximately $2,101,000. Under the pro-rata approach in the first draft, the accelerated value in the same scenario would be approximately $175,083 (based on 3/36 of each grant), a difference of approximately $1,925,917.

C. Analysis. Several considerations weigh against accepting the Candidate's full acceleration proposal.

Proxy Advisory Firm Scrutiny. Full single-trigger acceleration of equity awards upon a non-change-in-control termination is disfavored by the major institutional proxy advisory firms, including Thackeray Health IT (ISS) and Tarrant Partners LLC. These firms routinely flag full acceleration provisions in their analyses of executive compensation programs and may recommend "against" votes on Say-on-Pay proposals where such provisions are present. Given RGC's public company status — the Company is traded on the Nasdaq Global Select Market under the ticker symbol RDGM, with a market capitalization of approximately $6.4 billion and approximately 14,200 employees — shareholder scrutiny of executive compensation practices is an important consideration. A negative ISS or Tarrant Partners LLC recommendation on RGC's Say-on-Pay proposal could have reputational consequences and may create friction with institutional shareholders who hold significant positions in RGC stock.

Market Practice. Data from Halcyon Meridian Advisors LLC ("Halcyon Meridian"), RGC's independent compensation consultant (engagement managed by Anita G. Prescott, Managing Director), is expected to confirm that full single-trigger acceleration for non-CIC terminations is uncommon among comparable public gaming companies. Based on our review of publicly filed employment agreements at peer companies, including Grandview Resorts International, Pinnacle Entertainment Group, Sunset Station Holdings, and Pemberton Industries, the prevailing market practice is pro-rata acceleration of time-vesting equity and either forfeiture or pro-rata acceleration at target for performance-based equity. We recommend that the client team request updated benchmarking data from Halcyon Meridian to confirm this analysis prior to the next negotiation session.

Perverse Incentive Structure. Full acceleration creates a misalignment between the Candidate's interests and RGC's retention objectives. If the Candidate knows that termination without Cause will trigger full vesting of his entire equity grant regardless of tenure, the retention incentive inherent in the vesting schedule is substantially diminished. In the extreme case, the Candidate could effectively receive the full economic benefit of a three-year equity grant after only a brief period of employment, which is antithetical to the purpose of equity-based compensation as a tool for aligning executive and shareholder interests over a multi-year horizon.

PSU Acceleration at Target. The proposal to accelerate PSUs at target without regard to actual performance against the established metrics is particularly problematic. Performance share units are specifically designed to align executive compensation with measurable corporate performance outcomes. Accelerating PSUs at target, irrespective of whether the Company is on track to achieve the applicable performance goals, undermines the fundamental purpose of performance-based equity compensation and could invite criticism from proxy advisory firms and institutional shareholders.

Candidate's Legitimate Concern. Notwithstanding the foregoing, the Candidate's concern about being "made whole" in the event of an early termination without Cause is commercially legitimate. Ellender would be leaving a secure and senior position at Grandview, where he has established relationships, an accumulated vesting equity position, and institutional knowledge, to accept a new role at RGC. If RGC were to terminate Ellender without Cause early in his tenure — for example, due to a change in corporate strategy, a board-level leadership transition, or a merger or acquisition — Ellender would forfeit the career capital and compensation security he relinquished by accepting the RGC position. The pro-rata acceleration mechanism in the first draft would provide relatively modest equity value in such a scenario, potentially leaving Ellender with inadequate compensation for the risk he assumed.

Accounting Treatment. We note that the specific equity acceleration provisions agreed upon may have implications for the accounting treatment of the awards under ASC 718 (Compensation — Stock Compensation). The inclusion of performance-contingent or service-contingent acceleration features could affect the measurement of grant-date fair value and the pattern of expense recognition. We recommend that the client team consult with Calloway Firth & Associates LLP ("Calloway Firth"), RGC's independent auditor (engagement partner Douglas H. Seibert), to evaluate the accounting implications of any modified acceleration provisions before finalizing the Agreement.

D. Recommendation. Maintain pro-rata acceleration as the default. For the reasons discussed above, we recommend that RGC maintain the pro-rata acceleration approach for both RSUs and PSUs as the general framework for non-CIC terminations without Cause.

Offer a first-year acceleration floor for RSUs. To address the Candidate's legitimate concern about early-tenure termination risk, we recommend offering a compromise under which, if a termination without Cause occurs within the first twelve (12) months of employment, the RSU acceleration will be no less than one full year of vesting — i.e., a minimum of one-third (1/3) of the total RSU grant (approximately 11,667 shares, valued at approximately $445,679 at the current VWAP). This "acceleration floor" provides meaningful downside protection for the Candidate during the period of greatest vulnerability (the first year of a new role) without granting full acceleration of the entire grant. After the first twelve months, the standard pro-rata mechanism would apply, ensuring that the Candidate's equity acceleration increases proportionally with tenure.

PSUs — Maintain pro-rata at target. For PSUs, we recommend maintaining the pro-rata acceleration at target level without modification. Resist any proposal for full acceleration or above-target acceleration absent actual performance data. The target level is already a generous assumption, given that actual payout could range from 0% to 200% of target depending on performance outcomes.

Distinguish CIC scenario. The existing double-trigger change-in-control provision in Section 7 of the Agreement already provides for full acceleration of all unvested RSUs and PSUs (at target or actual, whichever is greater) upon a qualifying termination of employment (termination without Cause or resignation for Good Reason) occurring within twenty-four (24) months following a Change in Control. This provision addresses the Candidate's concern about equity protection in the context of a corporate transaction and should be highlighted in discussions with Harlan & Mosley to demonstrate that RGC has already provided robust equity protection in the scenario where the Candidate's risk is greatest.

V. Issue 3: Signing Bonus Clawback Period

A. Current Draft Position

The first draft of the Agreement provides for a one-time signing bonus of $300,000, payable within thirty (30) days of the Candidate's start date, subject to the following clawback provision:

If Ellender voluntarily terminates his employment with RGC within thirty-six (36) months of his start date (other than a resignation for Good Reason, as defined), he would be required to repay a pro-rata portion of the signing bonus to RGC. The pro-rata repayment obligation is calculated as follows: $300,000 divided by 36 months equals $8,333.33 per month; each full calendar month of completed service reduces the repayment obligation by $8,333.33. For example, if Ellender voluntarily resigned after twelve months of employment, his repayment obligation would be $300,000 – (12 × $8,333.33) = $200,000.

The clawback is designed to provide RGC with a reasonable assurance that the Candidate will remain with the Company for a meaningful period in exchange for the substantial upfront cash payment, which is intended to partially compensate Ellender for long-term incentive value forfeited at Grandview.

B. Candidate's Counterproposal

Harlan & Mosley's redline proposes the complete elimination of the signing bonus clawback provision. The Candidate's position, as articulated in Ms. Saldana's cover letter accompanying the redline, is that the signing bonus constitutes compensation for value forfeited at Grandview — specifically, unvested equity awards and deferred compensation — and should therefore be treated as earned compensation not subject to repayment under any circumstances. The Candidate analogizes the signing bonus to a "make-whole" payment and argues that conditioning it on future service undermines its compensatory purpose.

C. Analysis. Market Practice. Signing bonuses with clawback provisions are standard practice in executive recruitment, particularly at the C-suite level and particularly when the bonus is designed to compensate for forfeited value at the departing employer. The clawback mechanism reflects the well-established principle that an employer providing a substantial upfront payment to attract a candidate is entitled to a reasonable assurance of continued service in exchange. Complete elimination of the clawback would expose RGC to the risk that the Candidate could accept the position, collect the $300,000 signing bonus, and depart shortly thereafter — whether to return to Grandview, accept a competing offer, or for any other reason — without any financial consequence.

Clawback Period Length. While the clawback mechanism itself is market-standard, the proposed thirty-six (36) month clawback period is at the longer end of the range typically seen in comparable executive employment arrangements in the gaming industry. Based on our review of publicly filed executive employment agreements at peer companies, the most common clawback periods for C-suite signing bonuses range from twelve (12) to twenty-four (24) months. A thirty-six month clawback extends the repayment obligation beyond the period during which the signing bonus serves its primary compensatory function (i.e., bridging the gap between forfeited Grandview compensation and the vesting of RGC equity awards, the first tranche of which will vest after twelve months).

Candidate's Forfeited Value. The Candidate's characterization of the signing bonus as a "make-whole" payment for forfeited Grandview compensation has some merit. Ellender's estimated forfeited equity value at Grandview is approximately $680,000, of which the $300,000 signing bonus covers less than half. When viewed in this light, the signing bonus is not a windfall but rather partial compensation for a quantifiable economic loss that the Candidate will incur as a direct consequence of accepting the RGC position. This framing lends some support to a shorter clawback period, though it does not justify complete elimination of the clawback.

Risk Mitigation. Reducing the clawback period to twenty-four (24) months aligns with the first two-thirds of the initial three-year term of the Agreement and corresponds to the period during which the Candidate would be accruing the greatest benefit from his new equity grants (two of the three RSU tranches would vest during this period). After twenty-four months of service, the Candidate's retention incentives from vesting equity and accumulated benefits would provide a natural economic disincentive to voluntary departure, reducing the incremental protective value of the clawback mechanism.

D. Recommendation. Compromise at 24 months. We recommend reducing the signing bonus clawback period from thirty-six (36) months to twenty-four (24) months. This concession aligns the clawback period with market norms for comparable gaming industry executives, demonstrates good-faith flexibility in the negotiation, and preserves a meaningful service commitment requirement during the period of greatest retention risk.

Maintain pro-rata repayment structure. Under the revised twenty-four month period, the pro-rata repayment calculation would be $300,000 ÷ 24 months = $12,500 per month. Each full calendar month of completed service would reduce the repayment obligation by $12,500.

Add Good Reason and Without Cause exception. We recommend adding a provision that the clawback obligation does not apply if the Candidate's departure is the result of a termination by RGC without Cause or a resignation by the Executive for Good Reason. In other words, the clawback would apply only to truly voluntary departures — situations where the Candidate elects to leave of his own volition in the absence of a Company-initiated termination or a qualifying Good Reason event. This carve-out is fair to the Candidate (who should not be penalized for a departure that is forced upon him or caused by the Company's breach), and it aligns with market practice at comparable companies.

Strategic Positioning. The twenty-four month compromise on the clawback issue is a relatively low-cost concession for RGC — it reduces the tail end of the repayment obligation without eliminating the core protective mechanism — and it positions RGC favorably to hold firmer on higher-priority issues such as the restrictive covenant scope and the equity acceleration provisions. We recommend framing this concession as a demonstration of RGC's reasonableness and willingness to find middle ground, which may create reciprocal goodwill from the Candidate's side on more contested terms.

VI. Issue 4: Good Reason Definition

A. Current Draft Position

Section 5(e) of the first draft of the Agreement defines "Good Reason" to include the following triggering events:

(i) A material reduction in the Executive's base salary, defined as a reduction of more than ten percent (10%) of the Executive's then-current base salary, unless such reduction is part of a Company-wide reduction in base salaries affecting all senior executives;

(ii) A material reduction in the Executive's target annual bonus opportunity (expressed as a percentage of base salary);

(iii) The relocation of the Executive's principal office to a location more than fifty (50) miles from the Company's current corporate headquarters in Las Vegas, Nevada; or

(iv) A material breach of this Agreement by the Company that remains uncured after thirty (30) days' written notice from the Executive specifying the nature of the breach in reasonable detail.

The definition includes a standard procedural framework: the Executive must provide written notice to the Company within thirty (30) days of the occurrence of the triggering event, specifying the nature of the Good Reason condition. The Company then has thirty (30) days from receipt of such notice to cure the condition. If the Company fails to cure the condition within the thirty-day cure period, the Executive must resign within sixty (60) days after the expiration of the cure period for the resignation to constitute a resignation for Good Reason. Failure to resign within this window constitutes a waiver of the Good Reason trigger.

B. Candidate's Counterproposal

Harlan & Mosley's redline proposes the addition of a fifth Good Reason trigger:

(v) Any material adverse change in Executive's reporting structure, including without limitation any requirement that Executive report to any person other than the Chief Executive Officer or the Board of Directors.

The Candidate's concern, as articulated in Ms. Saldana's cover letter, is directed at protecting against scenarios in which a new management layer is inserted between the CFO and the CEO — for example, the appointment of a Chief Operating Officer or President to whom the CFO would be required to report. The Candidate views such a change as a de facto demotion that would diminish the stature and authority of the CFO role, even if the change were not accompanied by any reduction in title, compensation, or formal responsibilities.

C. Analysis. Commercial Legitimacy. The Candidate's underlying concern is commercially legitimate and well-grounded in the realities of corporate organizational dynamics. A change in reporting structure — particularly one that interposes an additional management layer between the CFO and the CEO — can significantly alter the scope of the CFO's authority, influence, and access to strategic decision-making. In the gaming industry, where the CFO plays a critical role in regulatory relationships, capital allocation, and board-level financial reporting, a change in reporting structure could effectively marginalize the CFO role even without a formal demotion. The concern is particularly salient in light of the ongoing leadership transition at RGC: the Company's current CEO, Adrienne C. Whitfield, has been in the role since 2021, and the Board has not publicly addressed succession planning. A new CEO or organizational restructuring could precipitate exactly the type of reporting-structure change the Candidate seeks to protect against.

Breadth of Proposed Language. While the Candidate's concern is legitimate, the proposed language is excessively broad and could be triggered by routine organizational changes that do not constitute a meaningful diminution of the CFO's role or authority. The phrase "any material adverse change in Executive's reporting structure" is inherently subjective and could give rise to disputes about whether a particular organizational adjustment constitutes a "material adverse change." Examples of routine changes that could arguably trigger the provision include:

• The addition of a "dotted-line" reporting relationship between the CFO and a committee of the Board (e.g., the Audit Committee) for compliance or governance purposes;

• A temporary reporting arrangement during a CEO transition or leave of absence;

• Organizational restructuring following an acquisition in which the CFO's reporting lines are adjusted to reflect the combined entity's management structure; or

• The appointment of a Chief Administrative Officer or Chief Strategy Officer who assumes responsibility for certain functions previously overseen by the CFO, without changing the CFO's direct reporting relationship to the CEO.

The phrase "including without limitation any requirement that Executive report to any person other than the Chief Executive Officer or the Board of Directors" further expands the scope of the provision by establishing a near-absolute prohibition on any change in reporting lines. This formulation would be triggered even by a reporting-structure change that enhances the CFO's role (e.g., adding a direct reporting line to the Board for certain matters) or that reflects a reasonable corporate governance evolution.

Market Practice. Our review of publicly filed CFO employment agreements at comparable public gaming companies indicates that approximately 40–50% of such agreements include some form of reporting-structure protection as a Good Reason trigger. However, the majority of these provisions use narrower language specifically tied to the CFO's direct reporting relationship with the CEO, rather than the broader "any material adverse change in reporting structure" formulation proposed by the Candidate. A representative formulation from a peer company agreement reads: "a change in Executive's reporting structure such that Executive no longer reports directly to the Chief Executive Officer of the Company."

"Or the Board of Directors" Language. The Candidate's proposed inclusion of "or the Board of Directors" as an alternative reporting line raises a separate concern. While CFOs routinely interact with the Board of Directors and its committees (particularly the Audit Committee), the appropriate operational reporting line for a CFO is to the CEO, not directly to the Board. Including the Board as an alternative reporting line in the Good Reason definition could create ambiguity about the Candidate's expected reporting relationship and could complicate future organizational decisions. We recommend excluding this language.

D. Recommendation. Accept the concept but narrow the language. We recommend accepting the Candidate's proposal to include a reporting-structure trigger in the Good Reason definition, as this is a relatively low-cost concession that addresses a legitimate commercial concern and will likely generate goodwill in the broader negotiation. However, the language should be significantly narrowed to avoid the overbreadth issues identified above.

Proposed language: We recommend the following formulation for the fifth Good Reason trigger:

"(v) any change in Executive's reporting structure such that Executive no longer reports directly to the Chief Executive Officer of the Company."

This language protects against the core concern — the insertion of an intermediate management layer between the CFO and the CEO — without capturing routine organizational adjustments, temporary reporting arrangements, or governance-driven changes in board-level reporting relationships. It is clear, objective, and easy to administer, reducing the likelihood of disputes about whether a particular organizational change constitutes a Good Reason trigger.

Exclude "or the Board of Directors." As discussed above, the CFO should report to the CEO for operational purposes. Board reporting is appropriate for specific governance functions (Audit Committee interactions, board-level financial presentations), but these functions do not constitute the CFO's primary reporting relationship. Including the Board as an alternative reporting line would create ambiguity and is unnecessary to protect the Candidate's legitimate interests.

Maintain existing procedural framework. The thirty-day written notice, thirty-day cure period, and sixty-day resignation window should apply to the new reporting-structure trigger in the same manner as they apply to the existing Good Reason triggers. This ensures that RGC has an opportunity to address any inadvertent or temporary reporting-structure changes before the Candidate invokes Good Reason, and it prevents the trigger from being exercised in response to short-lived or correctable organizational adjustments.

VII. Issue 5: Guaranteed Minimum Bonus in Year One

A. Current Draft Position

Section 4(b) of the first draft of the Agreement provides for an annual cash bonus with the following parameters:

• Target: 85% of base salary ($552,500 at the current $650,000 base salary)

• Maximum: 170% of base salary ($1,105,000 at the current base salary)

• Determination: Entirely within the discretion of the Compensation Committee, based on achievement of corporate and individual performance metrics to be established by the Compensation Committee at the beginning of each fiscal year

• Payment Timing: Payable within 75 days following the end of the applicable fiscal year, subject to the Executive's continued employment through the payment date (with exceptions for qualifying terminations)

• No Guaranteed Floor: The first draft does not include any guaranteed minimum bonus or bonus floor; the Compensation Committee retains full discretion to award a bonus ranging from $0 to the maximum of 170% of base salary

B. Candidate's Counterproposal

Harlan & Mosley's redline proposes a guaranteed minimum bonus for the first year of employment (FY2024), set at 75% of the target bonus amount, or $414,375 ($552,500 × 75%), payable regardless of actual performance outcomes or Compensation Committee discretion. The Candidate's stated rationale is that he would be joining RGC mid-fiscal year — with a proposed start date of February 15, 2024 — and would have limited ability to influence the Company's full-year financial performance against metrics that were established by the Compensation Committee before his arrival. The Candidate argues that a guaranteed floor is necessary to protect against the risk that he would receive a reduced or zero bonus in his first year due to factors entirely outside his control.

C. Analysis. Candidate's Rationale. The Candidate's rationale has genuine commercial merit. A February 15 start date means that Ellender would join RGC approximately six weeks into the 2024 fiscal year (assuming a calendar fiscal year). The Company's annual performance metrics — including revenue targets, adjusted EBITDA goals, and other financial benchmarks against which the annual bonus is measured — would likely have been established by the Compensation Committee in late January or early February 2024, before Ellender had any opportunity to participate in the target-setting process or to implement financial strategies that could influence the Company's performance. Additionally, as a new executive, Ellender would face a period of onboarding and institutional learning during which his ability to make a material impact on corporate performance would be inherently limited. In these circumstances, the risk that the Candidate would receive a below-target or zero bonus in his first year — not due to poor individual performance, but due to corporate performance outcomes set in motion before his tenure — is a legitimate concern.

Pay-for-Performance Philosophy. Notwithstanding the legitimate basis for the Candidate's concern, a guaranteed minimum bonus is fundamentally inconsistent with the "pay for performance" compensation philosophy that RGC, as a publicly traded company, is expected to maintain. Proxy advisory firms and institutional shareholders closely scrutinize guaranteed compensation elements, viewing them as decoupled from performance and therefore contrary to shareholder interests. RGC's proxy statement (DEF 14A) for the 2023 annual meeting specifically highlighted the Company's commitment to a performance-based compensation philosophy, and a guaranteed bonus for a newly hired executive could undermine this narrative in the 2024 proxy filing.

SEC Disclosure and Say-on-Pay Risk. The guaranteed minimum bonus, if agreed to, would be disclosed in RGC's proxy statement as part of the Compensation Discussion & Analysis and the Summary Compensation Table. A guaranteed bonus of $414,375, representing a substantial portion of the Candidate's total cash compensation, could attract negative commentary from proxy advisory firms and could be cited by institutional shareholders as evidence of a departure from performance-based compensation principles. While the impact on the Say-on-Pay vote outcome is difficult to predict, the risk of negative attention is real and should be weighed against the benefits of the concession.

Internal Precedent. A guaranteed bonus for the incoming CFO could create a negative precedent for future executive compensation negotiations at RGC. Other senior executives — including the CEO, the General Counsel, the Chief Operating Officer, and the Chief Technology Officer — could point to the Ellender arrangement as justification for requesting similar guaranteed bonus provisions in their own employment agreements or renewal negotiations. The ripple effects of this precedent could be significant across the executive team.

Benchmarking Data. We recommend that the client team request updated benchmarking data from Halcyon Meridian Advisors LLC to determine whether comparable gaming company CFO hires received guaranteed bonuses in recent years. Anecdotally, our review of publicly filed arrangements suggests that some companies have addressed the mid-year start issue through a pro-rated guaranteed bonus (i.e., a guarantee that covers only the partial year of service rather than the full year), while others have used enhanced signing bonuses in lieu of any bonus guarantee. A minority of companies have provided full-year guaranteed bonuses, but this practice appears to be declining in frequency.

Alternative Structures. Several alternative structures could address the Candidate's legitimate concern without requiring a full-year guaranteed bonus:

(i) Pro-rated guarantee at target. Guarantee that the Candidate's Year One bonus will be no less than the target amount pro-rated for the period from the start date through the end of the fiscal year. Assuming a start date of February 15, 2024, and a fiscal year ending December 31, 2024, this would cover approximately 10.5 months, yielding a guaranteed floor of approximately $482,187.50 (85% × $650,000 × 10.5/12). This approach acknowledges the mid-year start while avoiding a guarantee that exceeds what the Candidate could have earned through a full year of service.

(ii) Discretionary bonus with good-faith commitment. Rather than a contractual guarantee, include a provision stating that the Compensation Committee will evaluate the Candidate's Year One bonus in good faith, taking into account his mid-year start date and limited ability to influence pre-existing performance targets. This approach preserves Committee discretion while providing a degree of informal assurance.

(iii) Enhanced signing bonus in lieu of guarantee. Increase the signing bonus from $300,000 to a higher amount — potentially $400,000 to $500,000 — to compensate for first-year bonus risk. This shifts the economics to a one-time, non-recurring payment rather than establishing a recurring precedent for guaranteed annual compensation. The additional $100,000 to $200,000 in signing bonus value would approximate the downside risk the Candidate faces if his Year One bonus comes in below target.

D. Recommendation. Reject the full-year guaranteed minimum bonus. For the reasons discussed above, a guaranteed minimum bonus of 75% of target ($414,375) for the full fiscal year is inconsistent with RGC's pay-for-performance philosophy, creates shareholder optics risk, and establishes a problematic internal precedent. We recommend declining this proposal.

Offer a compromise — pro-rated guarantee at target. We recommend offering the Candidate a pro-rated Year One bonus guaranteed at no less than the target level (85% of base salary) for the period from his start date through the end of the fiscal year. Assuming a February 15, 2024 start date and a December 31, 2024 fiscal year-end, this yields a guaranteed floor of approximately $482,187.50. This approach directly addresses the Candidate's mid-year start concern — he would be guaranteed to receive at least his target bonus for the period in which he is actually employed — without guaranteeing a floor for the full fiscal year or establishing a precedent for guaranteed annual bonuses in subsequent years.

Alternative compromise — enhanced signing bonus. If the pro-rated guarantee is unacceptable to the Candidate, we recommend offering an increase in the signing bonus from $300,000 to $400,000–$500,000 in lieu of any bonus guarantee. This structure has the advantage of being a one-time, non-recurring cost that would not appear in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table, and it would not establish a precedent for guaranteed annual compensation elements. The additional signing bonus amount would be subject to the same clawback provisions as the base signing bonus (as modified per our recommendation in Section V above).

Compensation Committee Approval. We note that any increase in the signing bonus beyond the $300,000 amount approved under Resolution CC-2023-014 would require additional Compensation Committee approval, potentially through an amendment to the Resolution or a supplemental authorization. The client team should plan accordingly and, if the enhanced signing bonus alternative is pursued, should seek Committee approval in advance of the next negotiation session to avoid delays.

VIII. Overall Negotiation Strategy and Priority Ranking

Based on the foregoing analysis, we recommend the following priority ranking of the five contested issues, from highest to lowest importance to RGC, together with an overall negotiation strategy:

Priority Ranking. 1. Restrictive Covenant Scope and Duration — HIGHEST PRIORITY.

The non-competition restrictions are critical to protecting RGC's competitive position in the gaming industry. The CFO role provides access to the Company's most sensitive strategic and financial information, including multi-year capital plans, the M&A pipeline, gaming license strategies, and proprietary financial models. Inadequate restrictive covenant protections could allow the Candidate to carry this information to a direct competitor, with potentially severe consequences for RGC's competitive position. We recommend holding firm on the eighteen-month non-competition period and offering only the modest geographic narrowing described in Section III.D above.

2. Equity Acceleration — HIGH PRIORITY.

Full single-trigger acceleration of all unvested equity upon a non-CIC termination without Cause creates significant financial exposure (up to approximately $2,101,000 in the worst case), establishes a problematic precedent for future equity grant negotiations, and invites negative scrutiny from proxy advisory firms and institutional shareholders. We recommend maintaining pro-rata acceleration as the default and offering the first-year acceleration floor compromise described in Section IV.D above.

3. Signing Bonus Clawback — MODERATE PRIORITY.

The clawback issue is important but represents a lower-stakes negotiation point compared to the restrictive covenant and equity acceleration issues. We recommend conceding to a twenty-four month clawback period, with the Good Reason/Without Cause exception, as a goodwill gesture that demonstrates RGC's willingness to compromise. This concession should be positioned strategically in the negotiation — offered early to establish a collaborative tone — with the expectation that it will create reciprocal flexibility from the Candidate on higher-priority issues.

4. Good Reason Definition — MODERATE PRIORITY.

Accepting the concept of a reporting-structure trigger in the Good Reason definition, with narrowed language, is a relatively low-cost concession that addresses a legitimate commercial concern. The proposed narrow formulation ("Executive no longer reports directly to the Chief Executive Officer") is unlikely to be triggered in practice absent a significant organizational restructuring, and it will be received positively by the Candidate as evidence of RGC's responsiveness to his concerns. We recommend offering this concession alongside the signing bonus clawback concession to demonstrate good faith across multiple issues simultaneously.

5. Guaranteed Minimum Bonus — MODERATE PRIORITY.

The guaranteed minimum bonus proposal should be rejected in its current form due to pay-for-performance philosophy concerns and shareholder optics risk. However, the Candidate's underlying concern about mid-year start timing is legitimate and should be addressed through one of the alternative structures described in Section VII.D above. The pro-rated guarantee at target is our preferred alternative; the enhanced signing bonus is a viable fallback.

Strategic Considerations. Several broader strategic considerations inform our recommendations:

Candidate Scarcity. Ellender is the finalist candidate identified by Kensington Brace Partners, the executive search firm engaged by RGC to conduct the CFO search. The search process has been underway since September 2023, and Ellender was selected from a field of approximately forty initial candidates following multiple rounds of interviews with the CEO, the General Counsel, the CHRO, and three members of the Board of Directors (including Compensation Committee Chair Theodore S. Iglesias and Audit Committee Chair Margaret Y. Castellano). Losing this candidate would restart the search process from a significantly depleted candidate pool, extend the Company's reliance on Sandra K. Ouellet as Interim CFO (a role she has held since September 18, 2023, following the departure of former CFO Raymond P. Dinh), and potentially delay critical financial reporting and strategic initiatives in Q1 2024.

Timing Pressures. RGC's Q4 2023 earnings release is tentatively scheduled for February 12, 2024, and the Company's 2023 Annual Report on Form 10-K is expected to be filed in late February or early March 2024. Having a permanent CFO in place — or at minimum, having announced the hire — before the earnings release would provide confidence to investors, analysts, and gaming regulators. This timing consideration favors reaching agreement with the Candidate expeditiously.

Balancing Firmness and Flexibility. The overall negotiation strategy should balance firmness on the highest-priority protective terms (restrictive covenants, equity acceleration) with sufficient flexibility on lower-priority terms (signing bonus clawback, Good Reason definition, bonus guarantee alternatives) to close the hire. By offering meaningful concessions on the lower-priority issues early in the next round of negotiations, RGC ca

MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Renata Vasquez, Partner
FROM: Nadia Petrov, Senior Associate; James Underwood, Associate
DATE: December 5, 2023
RE: Key Negotiation Issues — Executive Employment Agreement, Marcus J. Ellender, CFO Candidate, Redstone Gaming Corp.
Matter No.: 1033-00005
Engagement Ref.: 1033-00005
I. Introduction and Purpose
This memorandum analyzes the five principal negotiation issues raised in the first redline of the Executive Employment Agreement (the "Agreement") received from Victoria R. Saldana of Harlan & Mosley LLP ("Harlan & Mosley") on December 1, 2023, on behalf of Marcus J. Ellender ("Ellender" or the "Candidate"), the finalist candidate for the position of Chief Financial Officer of Redstone Gaming Corp. ("RGC" or the "Company"). Harlan & Mosley's redline was delivered in response to the initial draft of the Agreement, which our office prepared and transmitted to Harlan & Mosley on November 17, 2023, contemporaneously with the executed initial term sheet dated November 14, 2023.
The purpose of this memorandum is to provide a comprehensive legal analysis of each contested issue, evaluate the merits and risks of the Candidate's counterproposal positions, and set forth strategic recommendations to guide the RGC client team in the forthcoming round of negotiations. The client team for purposes of this engagement consists of Priya Narasimhan, General Counsel of RGC; Dean R. Fulbright, Chief Human Resources Officer of RGC; and the Compensation Committee of the RGC Board of Directors (the "Compensation Committee"), chaired by independent director Theodore S. Iglesias.
By way of background, Ellender is currently serving as Executive Vice President and Chief Accounting Officer at Grandview Resorts International, Inc. ("Grandview"), headquartered in Reno, Nevada, a position he has held since March 2019. His current total annual compensation at Grandview is approximately $1,250,000, comprising a base salary of $485,000, an annual cash bonus (most recently paid at approximately $340,000, or approximately 70% of base salary), and long-term incentive compensation in the form of time-vested restricted stock units and performance share units valued at approximately $425,000 annually at target. Ellender's departure from Grandview will result in forfeiture of unvested equity awards with an estimated aggregate value of approximately $680,000, which forms a significant component of his negotiating position and the rationale for the proposed signing bonus.
RGC's initial offer, as reflected in the first draft of the Agreement and approved by the Compensation Committee under Resolution CC-2023-014 adopted on November 3, 2023, reflects total annual compensation at target of approximately $1,902,833, structured as follows: base salary of $650,000; annual cash bonus at a target of 85% of base salary ($552,500); and an initial equity grant with an annualized value of approximately $700,333 (consisting of 35,000 time-vesting restricted stock units and 20,000 performance share units at target, based on the trailing 20-day volume-weighted average price of $38.20 per share as of November 1, 2023). This represents a premium of approximately 52% over the Candidate's current total compensation at Grandview, which we believe provides substantial room for negotiation on the contested terms without fundamentally altering the economics of the offer.
The Agreement is governed by the laws of the State of Nevada, without regard to conflict-of-laws principles. RGC is incorporated in Nevada and maintains its principal executive offices in Las Vegas, Nevada. The Candidate's proposed principal place of employment would be at RGC's corporate headquarters at 4200 Crimson Ridge Boulevard, Las Vegas, Nevada 89119.
This memorandum addresses each of the five contested issues in order of their strategic priority to RGC, provides a detailed analysis of the applicable legal framework and market practices, and concludes with an overall negotiation strategy and priority ranking. An appendix containing a summary comparison table is included at the end of this memorandum for ease of reference.
II. Summary of Candidate's Counterproposal Positions
Before turning to the detailed analysis, we provide below a summary overview of the five areas in which Harlan & Mosley's redline departs from the first draft of the Agreement. The redline was otherwise largely consistent with the initial draft, and we note that the Candidate has not challenged the proposed base salary ($650,000), the annual bonus target percentage (85% of base salary), the aggregate value of the initial equity grant, the three-year initial term of employment, the existing change-in-control provisions (including double-trigger CIC acceleration), or the at-will nature of the employment relationship during the initial term. The five areas of dispute are as follows:
Each of these issues is analyzed in detail in Sections III through VII below.
III. Issue 1: Restrictive Covenant Scope and Duration
A. Current Draft Position
The first draft of the Agreement contains a comprehensive set of post-employment restrictive covenants, which were drafted to afford RGC the broadest reasonable protections consistent with Nevada law. The specific provisions are as follows:
Non-Competition (Section 8(a)): Ellender would be prohibited for a period of eighteen (18) months following the termination of his employment, for any reason, from directly or indirectly engaging in, consulting for, or providing services to any person or entity that competes with RGC or any of its subsidiaries in the gaming, entertainment, hospitality, or interactive digital gaming industries. The geographic scope of the non-competition restriction extends to the entire United States and any jurisdiction in which RGC or its subsidiaries operate or have filed applications for gaming licenses as of the date of termination.
Non-Solicitation of Employees (Section 8(b)): For a period of twenty-four (24) months following termination, Ellender would be prohibited from soliciting, recruiting, or inducing any employee, independent contractor, or consultant of RGC or its subsidiaries to terminate their relationship with the Company or to accept employment or engagement with any competitor of RGC.
Non-Solicitation of Customers and Business Partners (Section 8(c)): For a period of eighteen (18) months following termination, Ellender would be prohibited from soliciting or diverting, or attempting to solicit or divert, any customer, vendor, supplier, or business partner of RGC or its subsidiaries for the purpose of providing products or services that are competitive with those offered by the Company.
Confidentiality (Section 8(d)): A perpetual obligation not to disclose, use, or exploit any confidential or proprietary information of RGC or its subsidiaries, subject to customary exceptions for legally compelled disclosure and information that becomes publicly available through no fault of the Executive.
Restrictive Covenant Consideration: The enforceability of the restrictive covenant obligations is supported by the severance benefits payable under Section 6 of the Agreement. In the event of a termination without Cause (as defined), Ellender would be entitled to severance payments equal to 1.5 times his then-current base salary (currently $975,000 at a $650,000 base), plus a pro-rata annual bonus for the year of termination based on actual performance, plus eighteen (18) months of continued COBRA health insurance premium reimbursement. The draft Agreement contemplates that execution and non-revocation of a general release of claims, as well as continued compliance with the restrictive covenant obligations, would be conditions precedent to the receipt of severance benefits.
B. Candidate's Counterproposal
Harlan & Mosley's redline proposes the following modifications to the non-competition provisions:
• Duration: Reduce the non-competition period from eighteen (18) months to twelve (12) months post-termination.
• Geographic Scope: Narrow the geographic scope from the United States and all jurisdictions in which RGC operates or has filed gaming license applications, to only the states of Nevada and New Jersey.
Notably, the Candidate has not proposed any changes to the employee non-solicitation period (24 months), the customer/business partner non-solicitation period (18 months), or the perpetual confidentiality obligation. The absence of a challenge to these provisions suggests that the Candidate's primary concern relates to the breadth of the non-competition restriction and its potential impact on his future career mobility, rather than to the restrictive covenant regime as a whole.
C. Nevada Law Analysis — Enforceability of Post-Employment Restrictive Covenants
The enforceability of the proposed non-competition provisions must be assessed under Nevada's statutory framework governing post-employment restrictive covenants, as well as applicable case law interpreting that framework.
NRS 613.195 — Statutory Framework. Nevada Revised Statutes Section 613.195, originally enacted in 2017 and subsequently amended, provides the primary statutory authority governing the enforceability of non-compete agreements in the employment context. The statute establishes the following key requirements:
First, a non-compete agreement is void and unenforceable unless it is supported by valuable consideration. NRS 613.195(1). For a new hire such as Ellender, the offer of employment itself, together with the compensation package and severance benefits, constitutes adequate consideration. However, it is advisable to ensure that the Agreement explicitly identifies the severance payments as independent and adequate consideration for the restrictive covenant obligations, particularly because the enforceability of the restrictions may need to survive a challenge brought after the employment relationship has ended and the at-will nature of the relationship could arguably undermine the consideration analysis.
Second, a non-compete agreement must be "reasonable" in that it is limited in scope and duration to what is reasonably necessary to protect the employer's legitimate business interests. NRS 613.195(1)(b). The statute does not define "reasonable" with specificity, leaving the determination to the courts based on the totality of the circumstances. Legitimate business interests recognized under Nevada law include the protection of trade secrets and confidential information, the preservation of customer and business relationships, and the protection of goodwill.
Third, a non-compete agreement must not impose undue hardship on the employee or be injurious to the public. NRS 613.195(1)(c) and (d). In the context of a highly compensated C-suite executive such as Ellender, courts are generally less receptive to claims of undue hardship, particularly where the executive has received substantial severance consideration in exchange for the restrictive covenant obligations.
NRS 613.195(2) — Blue-Pencil Authority. A critical feature of Nevada's statutory framework is the express authorization for courts to revise overbroad non-compete provisions to render them enforceable, rather than voiding them in their entirety. NRS 613.195(2) provides that if a court finds a non-compete agreement to be unreasonable in scope, duration, or geographic reach, the court "shall revise the covenant to the extent necessary and enforce the covenant as revised." This judicial blue-pencil authority significantly reduces the risk that an aggressively drafted non-compete provision will be invalidated altogether, and it supports a negotiating strategy in which RGC drafts the initial restrictions broadly with the understanding that a court, if called upon to adjudicate the issue, would narrow rather than void the provisions. This statutory provision materially favors the employer's bargaining position.
NRS 613.195(4) — Limitation on Customer Non-Solicitation. The statute also imposes an important limitation on the ability of employers to restrict former employees from providing services to former customers or clients of the employer if the former employee did not solicit the business. Specifically, NRS 613.195(4) provides that a non-compete agreement may not restrict a former employee from providing services to a former customer or client of the employer if the former employee did not initiate contact with or solicit the former customer or client. While this provision is more directly relevant to sales and client-facing roles, it bears mention in the context of the CFO position because Ellender may have direct relationships with certain institutional investors, banking counterparties, and gaming regulators that could fall within the scope of the customer non-solicitation restriction. To the extent that the non-competition provision, as drafted, could be construed to restrict Ellender from serving in a CFO role at a competitor that happens to share some of RGC's banking or investor relationships, this statutory limitation could narrow the effective scope of the restriction.
Case Law — Reasonableness of Duration. Nevada courts have consistently upheld non-compete periods of twelve to twenty-four months for senior executives, with the specific duration depending on the nature of the executive's role, the sensitivity of the information to which the executive had access, and the competitive dynamics of the industry. In Ashgrove Enterprises v. Jansma, the court upheld an eighteen-month non-compete for a senior vice president in the gaming industry, finding that the duration was reasonable in light of the executive's access to strategic planning information, customer data, and proprietary financial models. Similarly, in Camberwell Corporation v. Kazuo Okada (a case involving related restrictive covenant issues in the gaming context), the court recognized that the gaming industry's regulatory complexity and the long lead times associated with gaming license applications and capital development projects warranted longer restriction periods than might be appropriate in other industries.
For a CFO-level executive, the case for an eighteen-month non-compete is particularly strong. The CFO has access to the most sensitive categories of competitive information available within the organization, including multi-year capital expenditure plans, merger and acquisition pipeline data, proprietary financial forecasting models, debt and equity financing strategies, regulatory compliance strategies, and relationships with gaming regulators in multiple jurisdictions. This information retains competitive value for a substantial period following the executive's departure, and an eighteen-month restriction period is well within the range that Nevada courts have found reasonable for executives with comparable levels of access.
Case Law — Reasonableness of Geographic Scope. The geographic scope analysis presents a more nuanced question. RGC currently operates casino resort properties in Nevada (Las Vegas and Reno), New Jersey (Atlantic City), Mississippi (Biloxi), and Louisiana (Lake Charles), and holds interactive digital gaming licenses in Michigan, Pennsylvania, and West Virginia. Additionally, RGC has pending gaming license applications in Illinois and Indiana. The Company's media entertainment division, Redstone Media Partners, has operations in California and New York. Accordingly, RGC's actual competitive footprint extends well beyond Nevada and New Jersey.
The Candidate's proposal to limit the geographic scope to Nevada and New Jersey would leave RGC unprotected in at least five states (Mississippi, Louisiana, Michigan, Pennsylvania, and West Virginia) where it currently conducts gaming operations, and in two states (Illinois and Indiana) where it has pending license applications and active development plans. This is plainly insufficient to protect RGC's legitimate business interests.
However, the first draft's formulation — "the United States and any jurisdiction in which RGC or its subsidiaries operate or have filed gaming license applications" — could be challenged as overbroad to the extent it sweeps in jurisdictions where RGC has no actual competitive presence. While the blue-pencil provisions of NRS 613.195(2) mitigate the risk of total invalidation, a more precisely tailored geographic scope would strengthen enforceability and reduce litigation risk in the event the provision is challenged.
Consideration Adequacy. The linkage between the severance payments and the restrictive covenant obligations should be made explicit in the Agreement. While the offer of employment and the initial compensation package provide consideration for the restrictions at the outset of the employment relationship, the continued enforceability of the restrictions following termination is most reliably supported by tying the restrictive covenant obligations to the severance payments. We recommend including a provision stating that the severance payments described in Section 6 constitute adequate, independent, and sufficient consideration for the Executive's restrictive covenant obligations under Section 8, and that the parties acknowledge and agree that the value of the severance payments is commensurate with the scope and duration of the restrictions imposed.
D. Recommendation. Based on the foregoing analysis, we recommend the following positions for the next round of negotiations:
Duration — Maintain 18 months. The eighteen-month non-competition period is well within the range upheld by Nevada courts for senior executives in the gaming industry, and the CFO's exposure to long-cycle strategic information — including multi-year capital expenditure plans, the M&A pipeline, gaming license application strategies, and proprietary financial forecasting models — fully justifies the extended restriction period. The Candidate's access to this information would give a competitor a material advantage for well beyond twelve months following his departure. We recommend holding firm on the eighteen-month period and offering to concede to twelve months only as a last-resort concession if it becomes necessary to close the deal on other terms favorable to RGC.
Geographic Scope — Offer modest narrowing. We recommend proposing a revised geographic scope defined as "any state or jurisdiction in which RGC or its subsidiaries (i) operate gaming facilities, (ii) hold or have applied for gaming licenses, or (iii) conduct material business operations, in each case as of the date of termination of Executive's employment." This formulation ties the geographic restriction to RGC's actual competitive footprint as of the relevant date, rather than extending to the entirety of the United States, which strengthens enforceability under the Nevada reasonableness analysis while still covering all jurisdictions in which RGC has a legitimate competitive interest. Importantly, this formulation captures states beyond Nevada and New Jersey — including Mississippi, Louisiana, Michigan, Pennsylvania, West Virginia, and any jurisdictions where gaming license applications are pending — without overreaching into states where RGC has no meaningful presence.
Employee Non-Solicitation (24 months) and Customer Non-Solicitation (18 months) — Maintain. The Candidate has not challenged these provisions, and they should remain unchanged.
Confidentiality (perpetual) — Maintain. This is standard and unchallenged.
Consideration Provision — Add explicit language. As noted above, the Agreement should be revised to include express language confirming that the severance payments constitute adequate and independent consideration for the restrictive covenant obligations, to bolster enforceability in the event of a post-termination challenge.
IV. Issue 2: Equity Acceleration on Termination Without Cause
A. Current Draft Position
The first draft of the Agreement provides for the following treatment of equity awards upon a termination of employment by RGC without Cause (as defined):
Restricted Stock Units (RSUs). Ellender would receive an initial grant of 35,000 RSUs under the Redstone Gaming Corp. 2021 Omnibus Equity Incentive Plan (the "Equity Plan"), vesting in three equal annual installments of 11,667, 11,667, and 11,666 shares on each of the first three anniversaries of the grant date, subject to continued employment through each applicable vesting date. Upon a termination without Cause, the first draft provides for pro-rata acceleration of unvested RSUs based on the portion of the applicable vesting period that has elapsed as of the date of termination. For example, if Ellender were terminated without Cause on the date that is exactly eighteen months after the grant date (i.e., midway through the second vesting year), he would receive accelerated vesting of the second tranche on a pro-rata basis (50% of 11,667 shares = 5,833 shares), in addition to the first tranche that would have already vested on the first anniversary.
Performance Share Units (PSUs). Ellender would receive an initial grant of 20,000 PSUs at target under the Equity Plan, cliff-vesting at the end of a three-year performance period based on achievement of specified performance metrics (to be established by the Compensation Committee, expected to include relative total shareholder return and adjusted EBITDA growth). Upon a termination without Cause, the first draft provides for pro-rata acceleration at the target level, based on the portion of the three-year performance period that has elapsed as of the date of termination. Actual performance against the established metrics would not be taken into account for the accelerated portion, given that performance data for a partial period would be incomplete or unavailable.
At the current trailing 20-day VWAP of $38.20 per share, the aggregate value of the initial equity grant is approximately $2,101,000 (35,000 RSUs × $38.20 = $1,337,000; 20,000 PSUs × $38.20 = $764,000 at target).
B. Candidate's Counterproposal
Harlan & Mosley's redline proposes full acceleration of all unvested RSUs and all PSUs (at target, for PSUs) upon any termination of employment by RGC without Cause, regardless of how much of the applicable vesting or performance period has elapsed at the time of termination.
Under this proposal, Ellender could receive the full value of the initial equity grant — approximately $2,101,000 at current share prices — even if he were terminated shortly after his start date, before any meaningful portion of the vesting or performance period had elapsed. For illustration, if Ellender commenced employment on February 15, 2024, and were terminated without Cause on May 15, 2024 (i.e., after only three months of employment), full acceleration would result in the immediate vesting of all 35,000 RSUs and all 20,000 PSUs at target, with an aggregate value of approximately $2,101,000. Under the pro-rata approach in the first draft, the accelerated value in the same scenario would be approximately $175,083 (based on 3/36 of each grant), a difference of approximately $1,925,917.
C. Analysis. Several considerations weigh against accepting the Candidate's full acceleration proposal.
Proxy Advisory Firm Scrutiny. Full single-trigger acceleration of equity awards upon a non-change-in-control termination is disfavored by the major institutional proxy advisory firms, including Thackeray Health IT (ISS) and Tarrant Partners LLC. These firms routinely flag full acceleration provisions in their analyses of executive compensation programs and may recommend "against" votes on Say-on-Pay proposals where such provisions are present. Given RGC's public company status — the Company is traded on the Nasdaq Global Select Market under the ticker symbol RDGM, with a market capitalization of approximately $6.4 billion and approximately 14,200 employees — shareholder scrutiny of executive compensation practices is an important consideration. A negative ISS or Tarrant Partners LLC recommendation on RGC's Say-on-Pay proposal could have reputational consequences and may create friction with institutional shareholders who hold significant positions in RGC stock.
Market Practice. Data from Halcyon Meridian Advisors LLC ("Halcyon Meridian"), RGC's independent compensation consultant (engagement managed by Anita G. Prescott, Managing Director), is expected to confirm that full single-trigger acceleration for non-CIC terminations is uncommon among comparable public gaming companies. Based on our review of publicly filed employment agreements at peer companies, including Grandview Resorts International, Pinnacle Entertainment Group, Sunset Station Holdings, and Pemberton Industries, the prevailing market practice is pro-rata acceleration of time-vesting equity and either forfeiture or pro-rata acceleration at target for performance-based equity. We recommend that the client team request updated benchmarking data from Halcyon Meridian to confirm this analysis prior to the next negotiation session.
Perverse Incentive Structure. Full acceleration creates a misalignment between the Candidate's interests and RGC's retention objectives. If the Candidate knows that termination without Cause will trigger full vesting of his entire equity grant regardless of tenure, the retention incentive inherent in the vesting schedule is substantially diminished. In the extreme case, the Candidate could effectively receive the full economic benefit of a three-year equity grant after only a brief period of employment, which is antithetical to the purpose of equity-based compensation as a tool for aligning executive and shareholder interests over a multi-year horizon.
PSU Acceleration at Target. The proposal to accelerate PSUs at target without regard to actual performance against the established metrics is particularly problematic. Performance share units are specifically designed to align executive compensation with measurable corporate performance outcomes. Accelerating PSUs at target, irrespective of whether the Company is on track to achieve the applicable performance goals, undermines the fundamental purpose of performance-based equity compensation and could invite criticism from proxy advisory firms and institutional shareholders.
Candidate's Legitimate Concern. Notwithstanding the foregoing, the Candidate's concern about being "made whole" in the event of an early termination without Cause is commercially legitimate. Ellender would be leaving a secure and senior position at Grandview, where he has established relationships, an accumulated vesting equity position, and institutional knowledge, to accept a new role at RGC. If RGC were to terminate Ellender without Cause early in his tenure — for example, due to a change in corporate strategy, a board-level leadership transition, or a merger or acquisition — Ellender would forfeit the career capital and compensation security he relinquished by accepting the RGC position. The pro-rata acceleration mechanism in the first draft would provide relatively modest equity value in such a scenario, potentially leaving Ellender with inadequate compensation for the risk he assumed.
Accounting Treatment. We note that the specific equity acceleration provisions agreed upon may have implications for the accounting treatment of the awards under ASC 718 (Compensation — Stock Compensation). The inclusion of performance-contingent or service-contingent acceleration features could affect the measurement of grant-date fair value and the pattern of expense recognition. We recommend that the client team consult with Calloway Firth & Associates LLP ("Calloway Firth"), RGC's independent auditor (engagement partner Douglas H. Seibert), to evaluate the accounting implications of any modified acceleration provisions before finalizing the Agreement.
D. Recommendation. Maintain pro-rata acceleration as the default. For the reasons discussed above, we recommend that RGC maintain the pro-rata acceleration approach for both RSUs and PSUs as the general framework for non-CIC terminations without Cause.
Offer a first-year acceleration floor for RSUs. To address the Candidate's legitimate concern about early-tenure termination risk, we recommend offering a compromise under which, if a termination without Cause occurs within the first twelve (12) months of employment, the RSU acceleration will be no less than one full year of vesting — i.e., a minimum of one-third (1/3) of the total RSU grant (approximately 11,667 shares, valued at approximately $445,679 at the current VWAP). This "acceleration floor" provides meaningful downside protection for the Candidate during the period of greatest vulnerability (the first year of a new role) without granting full acceleration of the entire grant. After the first twelve months, the standard pro-rata mechanism would apply, ensuring that the Candidate's equity acceleration increases proportionally with tenure.
PSUs — Maintain pro-rata at target. For PSUs, we recommend maintaining the pro-rata acceleration at target level without modification. Resist any proposal for full acceleration or above-target acceleration absent actual performance data. The target level is already a generous assumption, given that actual payout could range from 0% to 200% of target depending on performance outcomes.
Distinguish CIC scenario. The existing double-trigger change-in-control provision in Section 7 of the Agreement already provides for full acceleration of all unvested RSUs and PSUs (at target or actual, whichever is greater) upon a qualifying termination of employment (termination without Cause or resignation for Good Reason) occurring within twenty-four (24) months following a Change in Control. This provision addresses the Candidate's concern about equity protection in the context of a corporate transaction and should be highlighted in discussions with Harlan & Mosley to demonstrate that RGC has already provided robust equity protection in the scenario where the Candidate's risk is greatest.
V. Issue 3: Signing Bonus Clawback Period
A. Current Draft Position
The first draft of the Agreement provides for a one-time signing bonus of $300,000, payable within thirty (30) days of the Candidate's start date, subject to the following clawback provision:
If Ellender voluntarily terminates his employment with RGC within thirty-six (36) months of his start date (other than a resignation for Good Reason, as defined), he would be required to repay a pro-rata portion of the signing bonus to RGC. The pro-rata repayment obligation is calculated as follows: $300,000 divided by 36 months equals $8,333.33 per month; each full calendar month of completed service reduces the repayment obligation by $8,333.33. For example, if Ellender voluntarily resigned after twelve months of employment, his repayment obligation would be $300,000 – (12 × $8,333.33) = $200,000.
The clawback is designed to provide RGC with a reasonable assurance that the Candidate will remain with the Company for a meaningful period in exchange for the substantial upfront cash payment, which is intended to partially compensate Ellender for long-term incentive value forfeited at Grandview.
B. Candidate's Counterproposal
Harlan & Mosley's redline proposes the complete elimination of the signing bonus clawback provision. The Candidate's position, as articulated in Ms. Saldana's cover letter accompanying the redline, is that the signing bonus constitutes compensation for value forfeited at Grandview — specifically, unvested equity awards and deferred compensation — and should therefore be treated as earned compensation not subject to repayment under any circumstances. The Candidate analogizes the signing bonus to a "make-whole" payment and argues that conditioning it on future service undermines its compensatory purpose.
C. Analysis. Market Practice. Signing bonuses with clawback provisions are standard practice in executive recruitment, particularly at the C-suite level and particularly when the bonus is designed to compensate for forfeited value at the departing employer. The clawback mechanism reflects the well-established principle that an employer providing a substantial upfront payment to attract a candidate is entitled to a reasonable assurance of continued service in exchange. Complete elimination of the clawback would expose RGC to the risk that the Candidate could accept the position, collect the $300,000 signing bonus, and depart shortly thereafter — whether to return to Grandview, accept a competing offer, or for any other reason — without any financial consequence.
Clawback Period Length. While the clawback mechanism itself is market-standard, the proposed thirty-six (36) month clawback period is at the longer end of the range typically seen in comparable executive employment arrangements in the gaming industry. Based on our review of publicly filed executive employment agreements at peer companies, the most common clawback periods for C-suite signing bonuses range from twelve (12) to twenty-four (24) months. A thirty-six month clawback extends the repayment obligation beyond the period during which the signing bonus serves its primary compensatory function (i.e., bridging the gap between forfeited Grandview compensation and the vesting of RGC equity awards, the first tranche of which will vest after twelve months).
Candidate's Forfeited Value. The Candidate's characterization of the signing bonus as a "make-whole" payment for forfeited Grandview compensation has some merit. Ellender's estimated forfeited equity value at Grandview is approximately $680,000, of which the $300,000 signing bonus covers less than half. When viewed in this light, the signing bonus is not a windfall but rather partial compensation for a quantifiable economic loss that the Candidate will incur as a direct consequence of accepting the RGC position. This framing lends some support to a shorter clawback period, though it does not justify complete elimination of the clawback.
Risk Mitigation. Reducing the clawback period to twenty-four (24) months aligns with the first two-thirds of the initial three-year term of the Agreement and corresponds to the period during which the Candidate would be accruing the greatest benefit from his new equity grants (two of the three RSU tranches would vest during this period). After twenty-four months of service, the Candidate's retention incentives from vesting equity and accumulated benefits would provide a natural economic disincentive to voluntary departure, reducing the incremental protective value of the clawback mechanism.
D. Recommendation. Compromise at 24 months. We recommend reducing the signing bonus clawback period from thirty-six (36) months to twenty-four (24) months. This concession aligns the clawback period with market norms for comparable gaming industry executives, demonstrates good-faith flexibility in the negotiation, and preserves a meaningful service commitment requirement during the period of greatest retention risk.
Maintain pro-rata repayment structure. Under the revised twenty-four month period, the pro-rata repayment calculation would be $300,000 ÷ 24 months = $12,500 per month. Each full calendar month of completed service would reduce the repayment obligation by $12,500.
Add Good Reason and Without Cause exception. We recommend adding a provision that the clawback obligation does not apply if the Candidate's departure is the result of a termination by RGC without Cause or a resignation by the Executive for Good Reason. In other words, the clawback would apply only to truly voluntary departures — situations where the Candidate elects to leave of his own volition in the absence of a Company-initiated termination or a qualifying Good Reason event. This carve-out is fair to the Candidate (who should not be penalized for a departure that is forced upon him or caused by the Company's breach), and it aligns with market practice at comparable companies.
Strategic Positioning. The twenty-four month compromise on the clawback issue is a relatively low-cost concession for RGC — it reduces the tail end of the repayment obligation without eliminating the core protective mechanism — and it positions RGC favorably to hold firmer on higher-priority issues such as the restrictive covenant scope and the equity acceleration provisions. We recommend framing this concession as a demonstration of RGC's reasonableness and willingness to find middle ground, which may create reciprocal goodwill from the Candidate's side on more contested terms.
VI. Issue 4: Good Reason Definition
A. Current Draft Position
Section 5(e) of the first draft of the Agreement defines "Good Reason" to include the following triggering events:
(i) A material reduction in the Executive's base salary, defined as a reduction of more than ten percent (10%) of the Executive's then-current base salary, unless such reduction is part of a Company-wide reduction in base salaries affecting all senior executives;
(ii) A material reduction in the Executive's target annual bonus opportunity (expressed as a percentage of base salary);
(iii) The relocation of the Executive's principal office to a location more than fifty (50) miles from the Company's current corporate headquarters in Las Vegas, Nevada; or
(iv) A material breach of this Agreement by the Company that remains uncured after thirty (30) days' written notice from the Executive specifying the nature of the breach in reasonable detail.
The definition includes a standard procedural framework: the Executive must provide written notice to the Company within thirty (30) days of the occurrence of the triggering event, specifying the nature of the Good Reason condition. The Company then has thirty (30) days from receipt of such notice to cure the condition. If the Company fails to cure the condition within the thirty-day cure period, the Executive must resign within sixty (60) days after the expiration of the cure period for the resignation to constitute a resignation for Good Reason. Failure to resign within this window constitutes a waiver of the Good Reason trigger.
B. Candidate's Counterproposal
Harlan & Mosley's redline proposes the addition of a fifth Good Reason trigger:
(v) Any material adverse change in Executive's reporting structure, including without limitation any requirement that Executive report to any person other than the Chief Executive Officer or the Board of Directors.
The Candidate's concern, as articulated in Ms. Saldana's cover letter, is directed at protecting against scenarios in which a new management layer is inserted between the CFO and the CEO — for example, the appointment of a Chief Operating Officer or President to whom the CFO would be required to report. The Candidate views such a change as a de facto demotion that would diminish the stature and authority of the CFO role, even if the change were not accompanied by any reduction in title, compensation, or formal responsibilities.
C. Analysis. Commercial Legitimacy. The Candidate's underlying concern is commercially legitimate and well-grounded in the realities of corporate organizational dynamics. A change in reporting structure — particularly one that interposes an additional management layer between the CFO and the CEO — can significantly alter the scope of the CFO's authority, influence, and access to strategic decision-making. In the gaming industry, where the CFO plays a critical role in regulatory relationships, capital allocation, and board-level financial reporting, a change in reporting structure could effectively marginalize the CFO role even without a formal demotion. The concern is particularly salient in light of the ongoing leadership transition at RGC: the Company's current CEO, Adrienne C. Whitfield, has been in the role since 2021, and the Board has not publicly addressed succession planning. A new CEO or organizational restructuring could precipitate exactly the type of reporting-structure change the Candidate seeks to protect against.
Breadth of Proposed Language. While the Candidate's concern is legitimate, the proposed language is excessively broad and could be triggered by routine organizational changes that do not constitute a meaningful diminution of the CFO's role or authority. The phrase "any material adverse change in Executive's reporting structure" is inherently subjective and could give rise to disputes about whether a particular organizational adjustment constitutes a "material adverse change." Examples of routine changes that could arguably trigger the provision include:
• The addition of a "dotted-line" reporting relationship between the CFO and a committee of the Board (e.g., the Audit Committee) for compliance or governance purposes;
• A temporary reporting arrangement during a CEO transition or leave of absence;
• Organizational restructuring following an acquisition in which the CFO's reporting lines are adjusted to reflect the combined entity's management structure; or
• The appointment of a Chief Administrative Officer or Chief Strategy Officer who assumes responsibility for certain functions previously overseen by the CFO, without changing the CFO's direct reporting relationship to the CEO.
The phrase "including without limitation any requirement that Executive report to any person other than the Chief Executive Officer or the Board of Directors" further expands the scope of the provision by establishing a near-absolute prohibition on any change in reporting lines. This formulation would be triggered even by a reporting-structure change that enhances the CFO's role (e.g., adding a direct reporting line to the Board for certain matters) or that reflects a reasonable corporate governance evolution.
Market Practice. Our review of publicly filed CFO employment agreements at comparable public gaming companies indicates that approximately 40–50% of such agreements include some form of reporting-structure protection as a Good Reason trigger. However, the majority of these provisions use narrower language specifically tied to the CFO's direct reporting relationship with the CEO, rather than the broader "any material adverse change in reporting structure" formulation proposed by the Candidate. A representative formulation from a peer company agreement reads: "a change in Executive's reporting structure such that Executive no longer reports directly to the Chief Executive Officer of the Company."
"Or the Board of Directors" Language. The Candidate's proposed inclusion of "or the Board of Directors" as an alternative reporting line raises a separate concern. While CFOs routinely interact with the Board of Directors and its committees (particularly the Audit Committee), the appropriate operational reporting line for a CFO is to the CEO, not directly to the Board. Including the Board as an alternative reporting line in the Good Reason definition could create ambiguity about the Candidate's expected reporting relationship and could complicate future organizational decisions. We recommend excluding this language.
D. Recommendation. Accept the concept but narrow the language. We recommend accepting the Candidate's proposal to include a reporting-structure trigger in the Good Reason definition, as this is a relatively low-cost concession that addresses a legitimate commercial concern and will likely generate goodwill in the broader negotiation. However, the language should be significantly narrowed to avoid the overbreadth issues identified above.
Proposed language: We recommend the following formulation for the fifth Good Reason trigger:
"(v) any change in Executive's reporting structure such that Executive no longer reports directly to the Chief Executive Officer of the Company."
This language protects against the core concern — the insertion of an intermediate management layer between the CFO and the CEO — without capturing routine organizational adjustments, temporary reporting arrangements, or governance-driven changes in board-level reporting relationships. It is clear, objective, and easy to administer, reducing the likelihood of disputes about whether a particular organizational change constitutes a Good Reason trigger.
Exclude "or the Board of Directors." As discussed above, the CFO should report to the CEO for operational purposes. Board reporting is appropriate for specific governance functions (Audit Committee interactions, board-level financial presentations), but these functions do not constitute the CFO's primary reporting relationship. Including the Board as an alternative reporting line would create ambiguity and is unnecessary to protect the Candidate's legitimate interests.
Maintain existing procedural framework. The thirty-day written notice, thirty-day cure period, and sixty-day resignation window should apply to the new reporting-structure trigger in the same manner as they apply to the existing Good Reason triggers. This ensures that RGC has an opportunity to address any inadvertent or temporary reporting-structure changes before the Candidate invokes Good Reason, and it prevents the trigger from being exercised in response to short-lived or correctable organizational adjustments.
VII. Issue 5: Guaranteed Minimum Bonus in Year One
A. Current Draft Position
Section 4(b) of the first draft of the Agreement provides for an annual cash bonus with the following parameters:
• Target: 85% of base salary ($552,500 at the current $650,000 base salary)
• Maximum: 170% of base salary ($1,105,000 at the current base salary)
• Determination: Entirely within the discretion of the Compensation Committee, based on achievement of corporate and individual performance metrics to be established by the Compensation Committee at the beginning of each fiscal year
• Payment Timing: Payable within 75 days following the end of the applicable fiscal year, subject to the Executive's continued employment through the payment date (with exceptions for qualifying terminations)
• No Guaranteed Floor: The first draft does not include any guaranteed minimum bonus or bonus floor; the Compensation Committee retains full discretion to award a bonus ranging from $0 to the maximum of 170% of base salary
B. Candidate's Counterproposal
Harlan & Mosley's redline proposes a guaranteed minimum bonus for the first year of employment (FY2024), set at 75% of the target bonus amount, or $414,375 ($552,500 × 75%), payable regardless of actual performance outcomes or Compensation Committee discretion. The Candidate's stated rationale is that he would be joining RGC mid-fiscal year — with a proposed start date of February 15, 2024 — and would have limited ability to influence the Company's full-year financial performance against metrics that were established by the Compensation Committee before his arrival. The Candidate argues that a guaranteed floor is necessary to protect against the risk that he would receive a reduced or zero bonus in his first year due to factors entirely outside his control.
C. Analysis. Candidate's Rationale. The Candidate's rationale has genuine commercial merit. A February 15 start date means that Ellender would join RGC approximately six weeks into the 2024 fiscal year (assuming a calendar fiscal year). The Company's annual performance metrics — including revenue targets, adjusted EBITDA goals, and other financial benchmarks against which the annual bonus is measured — would likely have been established by the Compensation Committee in late January or early February 2024, before Ellender had any opportunity to participate in the target-setting process or to implement financial strategies that could influence the Company's performance. Additionally, as a new executive, Ellender would face a period of onboarding and institutional learning during which his ability to make a material impact on corporate performance would be inherently limited. In these circumstances, the risk that the Candidate would receive a below-target or zero bonus in his first year — not due to poor individual performance, but due to corporate performance outcomes set in motion before his tenure — is a legitimate concern.
Pay-for-Performance Philosophy. Notwithstanding the legitimate basis for the Candidate's concern, a guaranteed minimum bonus is fundamentally inconsistent with the "pay for performance" compensation philosophy that RGC, as a publicly traded company, is expected to maintain. Proxy advisory firms and institutional shareholders closely scrutinize guaranteed compensation elements, viewing them as decoupled from performance and therefore contrary to shareholder interests. RGC's proxy statement (DEF 14A) for the 2023 annual meeting specifically highlighted the Company's commitment to a performance-based compensation philosophy, and a guaranteed bonus for a newly hired executive could undermine this narrative in the 2024 proxy filing.
SEC Disclosure and Say-on-Pay Risk. The guaranteed minimum bonus, if agreed to, would be disclosed in RGC's proxy statement as part of the Compensation Discussion & Analysis and the Summary Compensation Table. A guaranteed bonus of $414,375, representing a substantial portion of the Candidate's total cash compensation, could attract negative commentary from proxy advisory firms and could be cited by institutional shareholders as evidence of a departure from performance-based compensation principles. While the impact on the Say-on-Pay vote outcome is difficult to predict, the risk of negative attention is real and should be weighed against the benefits of the concession.
Internal Precedent. A guaranteed bonus for the incoming CFO could create a negative precedent for future executive compensation negotiations at RGC. Other senior executives — including the CEO, the General Counsel, the Chief Operating Officer, and the Chief Technology Officer — could point to the Ellender arrangement as justification for requesting similar guaranteed bonus provisions in their own employment agreements or renewal negotiations. The ripple effects of this precedent could be significant across the executive team.
Benchmarking Data. We recommend that the client team request updated benchmarking data from Halcyon Meridian Advisors LLC to determine whether comparable gaming company CFO hires received guaranteed bonuses in recent years. Anecdotally, our review of publicly filed arrangements suggests that some companies have addressed the mid-year start issue through a pro-rated guaranteed bonus (i.e., a guarantee that covers only the partial year of service rather than the full year), while others have used enhanced signing bonuses in lieu of any bonus guarantee. A minority of companies have provided full-year guaranteed bonuses, but this practice appears to be declining in frequency.
Alternative Structures. Several alternative structures could address the Candidate's legitimate concern without requiring a full-year guaranteed bonus:
(i) Pro-rated guarantee at target. Guarantee that the Candidate's Year One bonus will be no less than the target amount pro-rated for the period from the start date through the end of the fiscal year. Assuming a start date of February 15, 2024, and a fiscal year ending December 31, 2024, this would cover approximately 10.5 months, yielding a guaranteed floor of approximately $482,187.50 (85% × $650,000 × 10.5/12). This approach acknowledges the mid-year start while avoiding a guarantee that exceeds what the Candidate could have earned through a full year of service.
(ii) Discretionary bonus with good-faith commitment. Rather than a contractual guarantee, include a provision stating that the Compensation Committee will evaluate the Candidate's Year One bonus in good faith, taking into account his mid-year start date and limited ability to influence pre-existing performance targets. This approach preserves Committee discretion while providing a degree of informal assurance.
(iii) Enhanced signing bonus in lieu of guarantee. Increase the signing bonus from $300,000 to a higher amount — potentially $400,000 to $500,000 — to compensate for first-year bonus risk. This shifts the economics to a one-time, non-recurring payment rather than establishing a recurring precedent for guaranteed annual compensation. The additional $100,000 to $200,000 in signing bonus value would approximate the downside risk the Candidate faces if his Year One bonus comes in below target.
D. Recommendation. Reject the full-year guaranteed minimum bonus. For the reasons discussed above, a guaranteed minimum bonus of 75% of target ($414,375) for the full fiscal year is inconsistent with RGC's pay-for-performance philosophy, creates shareholder optics risk, and establishes a problematic internal precedent. We recommend declining this proposal.
Offer a compromise — pro-rated guarantee at target. We recommend offering the Candidate a pro-rated Year One bonus guaranteed at no less than the target level (85% of base salary) for the period from his start date through the end of the fiscal year. Assuming a February 15, 2024 start date and a December 31, 2024 fiscal year-end, this yields a guaranteed floor of approximately $482,187.50. This approach directly addresses the Candidate's mid-year start concern — he would be guaranteed to receive at least his target bonus for the period in which he is actually employed — without guaranteeing a floor for the full fiscal year or establishing a precedent for guaranteed annual bonuses in subsequent years.
Alternative compromise — enhanced signing bonus. If the pro-rated guarantee is unacceptable to the Candidate, we recommend offering an increase in the signing bonus from $300,000 to $400,000–$500,000 in lieu of any bonus guarantee. This structure has the advantage of being a one-time, non-recurring cost that would not appear in the "Non-Equity Incentive Plan Compensation" column of the Summary Compensation Table, and it would not establish a precedent for guaranteed annual compensation elements. The additional signing bonus amount would be subject to the same clawback provisions as the base signing bonus (as modified per our recommendation in Section V above).
Compensation Committee Approval. We note that any increase in the signing bonus beyond the $300,000 amount approved under Resolution CC-2023-014 would require additional Compensation Committee approval, potentially through an amendment to the Resolution or a supplemental authorization. The client team should plan accordingly and, if the enhanced signing bonus alternative is pursued, should seek Committee approval in advance of the next negotiation session to avoid delays.
VIII. Overall Negotiation Strategy and Priority Ranking
Based on the foregoing analysis, we recommend the following priority ranking of the five contested issues, from highest to lowest importance to RGC, together with an overall negotiation strategy:
Priority Ranking. 1. Restrictive Covenant Scope and Duration — HIGHEST PRIORITY.
The non-competition restrictions are critical to protecting RGC's competitive position in the gaming industry. The CFO role provides access to the Company's most sensitive strategic and financial information, including multi-year capital plans, the M&A pipeline, gaming license strategies, and proprietary financial models. Inadequate restrictive covenant protections could allow the Candidate to carry this information to a direct competitor, with potentially severe consequences for RGC's competitive position. We recommend holding firm on the eighteen-month non-competition period and offering only the modest geographic narrowing described in Section III.D above.
2. Equity Acceleration — HIGH PRIORITY.
Full single-trigger acceleration of all unvested equity upon a non-CIC termination without Cause creates significant financial exposure (up to approximately $2,101,000 in the worst case), establishes a problematic precedent for future equity grant negotiations, and invites negative scrutiny from proxy advisory firms and institutional shareholders. We recommend maintaining pro-rata acceleration as the default and offering the first-year acceleration floor compromise described in Section IV.D above.
3. Signing Bonus Clawback — MODERATE PRIORITY.
The clawback issue is important but represents a lower-stakes negotiation point compared to the restrictive covenant and equity acceleration issues. We recommend conceding to a twenty-four month clawback period, with the Good Reason/Without Cause exception, as a goodwill gesture that demonstrates RGC's willingness to compromise. This concession should be positioned strategically in the negotiation — offered early to establish a collaborative tone — with the expectation that it will create reciprocal flexibility from the Candidate on higher-priority issues.
4. Good Reason Definition — MODERATE PRIORITY.
Accepting the concept of a reporting-structure trigger in the Good Reason definition, with narrowed language, is a relatively low-cost concession that addresses a legitimate commercial concern. The proposed narrow formulation ("Executive no longer reports directly to the Chief Executive Officer") is unlikely to be triggered in practice absent a significant organizational restructuring, and it will be received positively by the Candidate as evidence of RGC's responsiveness to his concerns. We recommend offering this concession alongside the signing bonus clawback concession to demonstrate good faith across multiple issues simultaneously.
5. Guaranteed Minimum Bonus — MODERATE PRIORITY.
The guaranteed minimum bonus proposal should be rejected in its current form due to pay-for-performance philosophy concerns and shareholder optics risk. However, the Candidate's underlying concern about mid-year start timing is legitimate and should be addressed through one of the alternative structures described in Section VII.D above. The pro-rated guarantee at target is our preferred alternative; the enhanced signing bonus is a viable fallback.
Strategic Considerations. Several broader strategic considerations inform our recommendations:
Candidate Scarcity. Ellender is the finalist candidate identified by Kensington Brace Partners, the executive search firm engaged by RGC to conduct the CFO search. The search process has been underway since September 2023, and Ellender was selected from a field of approximately forty initial candidates following multiple rounds of interviews with the CEO, the General Counsel, the CHRO, and three members of the Board of Directors (including Compensation Committee Chair Theodore S. Iglesias and Audit Committee Chair Margaret Y. Castellano). Losing this candidate would restart the search process from a significantly depleted candidate pool, extend the Company's reliance on Sandra K. Ouellet as Interim CFO (a role she has held since September 18, 2023, following the departure of former CFO Raymond P. Dinh), and potentially delay critical financial reporting and strategic initiatives in Q1 2024.
Timing Pressures. RGC's Q4 2023 earnings release is tentatively scheduled for February 12, 2024, and the Company's 2023 Annual Report on Form 10-K is expected to be filed in late February or early March 2024. Having a permanent CFO in place — or at minimum, having announced the hire — before the earnings release would provide confidence to investors, analysts, and gaming regulators. This timing consideration favors reaching agreement with the Candidate expeditiously.
Balancing Firmness and Flexibility. The overall negotiation strategy should balance firmness on the highest-priority protective terms (restrictive covenants, equity acceleration) with sufficient flexibility on lower-priority terms (signing bonus clawback, Good Reason definition, bonus guarantee alternatives) to close the hire. By offering meaningful concessions on the lower-priority issues early in the next round of negotiations, RGC ca

MEMORANDUM

Record

Parties

Dates

Amounts